Angus Taylor (Hume, Liberal Party) Share this | Hansard source

I rise to speak in support of the Tax Laws Amendment (New Tax System for Managed Investment Trusts) Bill 2015 and associated bills. As we have heard, these bills introduce a new tax system for managed investment trusts following the important recommendations that were made by the Board of Taxation in its report on the review of the tax arrangements applying to MITs, as they are known. The important point here is that the new rules will modernise the tax rules applying to eligible managed investment trusts, increasing certainty for those trusts and investors, and reducing complexity.

There are many things government can do from time to time that encourage more activity, more investment and more job creation, and that is good for everybody. The reality of tax is that tax inherently discourages activity. If you tax income, it discourages people from generating income. If you tax savings, it discourages people from saving. If you tax payroll, it discourages people from employing. So whatever you tax you discourage. That is the reality of taxation. We know that a certain amount of taxation is a necessary evil. It is a necessary evil because it will always be bad to discourage activity and it is necessary because we have to fund our schools, hospitals, roads, national security and so on. But we should do everything we can with our tax system to discourage activity as little as possible.

The tax debate that has been ensuing in recent weeks and months has been all about how we formulate a tax system that discourages activity as little as possible and gets the right activity happening. Where we do have a tax we need to discourage activity as little as we possibly can. Of course, the debate has largely been about what the Prime Minister calls the tax-mix switch. He says, 'It might be better to discourage consumption than to discourage income or company activity.' Another way of thinking about that in taxation terms is that it might be better to have a slightly higher GST and a lower company tax rate and lower income tax rates. That is a very important debate and it has been going on now for some time, and I am sure we have not seen the end of the tax-mix debate because there are a whole series of tax-mix switches we can make to encourage activity as much as we possibly can in this country.

In any tax system there are some things you can do that do not involve a trade-off. There are some things you can do that just make the tax system work better without any real cost at all. As a government we should be constantly looking for those opportunities. The good news is that, if you do get your tax system working well and you take out the inhibitors, the red tape and the unnecessary taxation, you can encourage people to participate more in the workforce and businesses can make investment and grow their businesses more than they otherwise might have.

So this legislation is one very important way in which government can reduce complexity, reduce red tape, increase efficiency, make us more internationally competitive and, most importantly, make our financial services sector more internationally competitive and better positioned to take on the extraordinary opportunities that we are seeing in Asia. The ANZ Bank has told us on a number of occasions that the opportunities for Australian financial services providers in Asia are unprecedented. We are going to see a switch in capital from the Chinese and other Asian countries circulating their money through the United States, through bonds, back into other opportunities. We are going to see that change where they will create their own capital markets, their own managed funds industry, their own bond markets and their own equity markets. And we are perfectly positioned to chase those.

To do that, we must have the most competitive financial services sector possible. That is exactly what we are trying to achieve with this legislation. As of 30 June we had $2.6 trillion in funds under management in Australia, which is almost double Australia's GDP and the capitalisation of the Australian stock exchange. Even with all the gyrations we have had, it is significantly larger. That is a huge industry. It not only does us a great service as investors—all of us—in that industry but also provides a great entree into rapidly growing opportunities to our north.

Indeed, it is one of the largest pools of managed funds in the world and contributes jobs to the broader financial and insurance services industry, employing over 400,000 people in Australia, many of whom are in my electorate. Increasingly, we are seeing people involved in trading and financial services living in regional centres and in the bush, trading online. This is a sector that permeates every part of Australia, including regional and rural Australia. And they all use managed investment trusts. This is a ubiquitous vehicle for investment because it is a convenient vehicle. But what we are here, today, to debate how we can make it even more efficient and more convenient.

The real problem we are trying to solve, here, is: the current taxation arrangements applying to trusts are extremely complex and extremely uncertain. That is unacceptable, for all the reasons I have laid out. Back in November 2013, soon after we came to government we announced that we would progress a new tax system for managed investment trusts, MITs—being one of the former government's 92 announced but unlegislated taxation measures. That government was clogged up. Its arteries were clogged—I suppose, when you had a Prime Minister like Kevin Rudd, you announced a hell of a lot and did not deliver much of it. This is a perfect example of that.

Since December 2013 we have undertaken extensive consultation to ensure that the new rules will operate as we intend and make sure that our funds managers are more internationally competitive than they would have been. We listened to a great deal of feedback and took the view that it was better to take that time and ensure that we get the rules right rather than rush implementation. We have done that. As we will hear in a moment, it is very clear from those stakeholders that they agree this is a package that will have a very positive impact on their competitiveness.

The bills modernise the tax rules for MITs and will undress that longstanding uncertainty and complexity in the tax rules. We expect the compliance costs for MITs will fall by $30 million a year. That compliance will also be simpler. Anyone who has been in business knows that when you make things simpler you make fewer errors, and that takes up less of your time. Your biggest asset in any business is the time of your senior people. If you are wasting it on errors, bureaucracy and red tape every business is distracted and loses the sharp focus on the strategy they, ultimately, need to succeed.

The new rules recognise the commercial needs of the industry by closely aligning the commercial and tax consequences of the activities of an MIT. All of us in business know that there is nothing worse than having to have management accounts and taxation accounts that are separate and different and trying to serve different masters. There is a whole lot of complexity that we prefer not to have. What we are proposing, here, will allow managed funds to work more flexibly through their tax structures. As we heard from the previous speaker, they will prior apply from 1 July 2016, although there is an opt-in for applying the rules 12 months earlier. That is a voluntary component of the legislation.

The new tax system will apply where the members of the trust have clearly defined interests, in relation to income and capital of the trust, and the trustee of the MIT makes the choice to apply the new rules. This requirement ensures that the new rules can operate transparently and with integrity. It is expected that some MITs will opt in for the earlier option. Many will need to update their systems, though, before they are ready to make an election. That is an investment they need to make. They have said it is an investment worthwhile for what they are getting in return from this legislation. The trusts that are not eligible or choose not to apply the new tax system will continue to apply the general trust tax rules. As I said, there is a voluntary component to this. The new tax system is estimated to have a cost to revenue of $125 million over the forward estimates.

From my experience, anything that reduces bureaucracy, anything that makes the tax system simpler and easier to use, is a very big bonus to businesses. Typically, we underestimate how valuable it is for senior people in any business to be able to spend more of their time on their business and less of their time on red tape and bureaucracy. That is something that cannot usually be quantified but, in 25 years of advising businesses and working in businesses myself, I think that is the great intangible that every government should be focusing on helping with. There is so much we can do. If government is difficult to work with, we waste business people's time. That is why I think this is so valuable.

We have heard some comments on this legislation from a number of stakeholders. The AFR, based on interviews with stakeholders, has said that the government's proposed changes have met with cheers from the investment community as they welcome the boost in certainty and tax treatment. I really think a set of bills that gets cheers from stakeholders has something going for it.

Andrew Clements, a partner at legal firm King & Wood Mallesons, said of the new treatments:

It may be one of the single greatest tax reforms in the industry since the introduction of capital gains tax.

That is pretty substantial praise. He goes on to say:

It will provide much greater flexibility in terms of the distribution of income and the allocation of tax liabilities to unit holders.

…   …   …

It will allow much more flexibility to create new product opportunities.

So, not only are we getting more efficiency, simplicity and streamlining, we are actually getting a platform here for more innovation, and in financial services we know innovation is the lifeblood of a successful industry. The Financial Services Council on 3 December said:

The new regime will provide certainty and clarity for eligible Managed Investment Trusts and their investors in relation to many longstanding technical taxation issues.

That is high praise as well. The Property Council of Australia said late last year:

These reforms meet all the objectives industry put forward by increasing certainty and flexibility while also streamlining compliance to reduce unnecessary costs.

This is a resounding endorsement from the business community. I thoroughly commend these bills to the House.

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