Julie Owens (Parramatta, Australian Labor Party, Shadow Assistant Minister for Citizenship and Multicultural Australia) Share this | Hansard source

If there were any bill that we have considered in the last few months in this House that goes to the confidence of this government, the bill before us would be it. This is a bill that attempts to fix a problem with the government's key centrepiece policy, which is its big business tax cut. This policy has been around since it was announced in 2016 and then legislated in 2017. It has problems that tax agents and business have been warning the government of since 2016. Today, in 2018, seven months into the financial year, we have come into this House to deal with an amendment to fix a problem in this financial year. After businesses have made their decisions and judgements and after accountants have made plans based on the law as it is, seven months into the financial year, we're making an adjustment to something that was well known and could have been foreseen way back in 2016.

Let's look at what this is all about today. Passive investment companies, sometimes called bucket companies, earn their income through passive investments. Through inadvertently neglecting to address those kinds of companies in their original legislation, the government have allowed those companies to benefit from the business tax cut. That was never the intention. This little piece of legislation today, the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017, attempts to address that. It is very dry reading. It contains great new acronyms, like BREPI, the base rate entity passive income. The story of how this inadvertent error in their drafting has been hanging around since 2016 without action is really quite instructive, because it tells you a great deal about the government's sloppy work up-front and their inability to listen to people, to listen to experts. The criticism has been absolutely consistent since 2016. The incompetence here is really quite extraordinary.

We heard the previous speaker talk about how wonderful this will be. As I said before, this is the only policy that this government has. By the government's own figures—never mind the member for Fairfax claiming we made the figures up—this one-point plan will provide a one per cent increase in 20 years time. That's a $2 a day increase in wages in 20 years time. That's it. That's the benefit. So there is $65 billion for that benefit, on the government's figures—not my figures, not some commentator's figures, but their figures. So the policy itself isn't actually competent.

Before I move on, I point out that the vast majority of businesses that invest in Australia come from countries with lower business tax rates than ours, so they're investing in Australia because they wish to invest in Australia. If tax rates themselves were the answer then it would be impossible to have a situation where the vast majority of investors in Australia come from regimes with lower business tax rates, not higher.

But let's talk about exactly how this happened, because this is really quite interesting. I'm actually going to go through the time line, because that's the key to pointing out exactly how incompetent this is. I'm not going to go right back to the beginning. I'm going to go back to 1 August last year, seven months ago, when TheAustralianFinancial Review reported:

Tax time has been plunged into chaos by uncertainty over which companies are eligible for the lower tax rate of 27.5 per cent but the nation's biggest accounting bodies are split over what should be done.

Chartered Accountants Australia and New Zealand is demanding the Turnbull government end the uncertainty with a legislative fix when Parliament returns next week.

"Because Australia's tax system is based on self-assessment, it is up to taxpayers and their advisers to lodge tax returns based on what they think they should be paying," Chartered Accountants' tax leader Michael Croker said.

"But without clarity we will see differing tax calculations for taxpayers in similar circumstances, impacting their tax, franked dividends and accounts."

That was 1 August last year. That wasn't the beginning of it; it was actually much earlier than that.

The tax cuts plan was announced way back in 2016. Shortly after it was announced on 27 September 2016, Chartered Accountants Australia and New Zealand raised concerns with the Senate Economics Legislation Committee about uncertainty as to whether passive investment companies were eligible for the government's then proposed tax cut. That was September. It was passed just before the budget in May, so that's eight months before the bill actually hit this House for its final debate. Chartered Accountants Australia and New Zealand were already raising concerns about whether passive investment companies and bucket companies, as they're affectionately known, would be eligible for the proposed tax cut. It is really clear that the government never intended that passive investment companies would receive the tax cut; it was designed for operating businesses that were working out there.

On 15 March 2017, the ATO issued a draft ruling on an unrelated matter, containing a footnote with what amounts to a definition of 'carrying on a business'. That kind of sat there, and the accountants out there in the field, the accounting peak bodies, realised that that might have an impact and started contacting the government and making comments. The enterprise tax bill was ultimately passed on 9 May 2017, but without this issue of eligibility being addressed either legislatively or through public guidance from the ATO.

On 4 July 2017, the Financial Review wrote an article that passive investment companies, including bucket companies associated with family trusts, would become eligible due to the ATO's apparent view of the definition of 'carrying on a business'. By 17 July, it was already in the media. It had been raised nearly 10 months earlier by the peak bodies, and now 10 months later it had hit The Australian Financial Review. It was well and truly out there. Then Minister O'Dwyer issued a press release stating:

Reports today that the Australian Taxation Office … has broadened the interpretation of company tax cuts are premature.

That was July 2017. The Australian reported:

The Turnbull government has been forced into urgent action to close a … loophole that could have opened a tax windfall for wealthy families … saying it may have no choice but to introduce new legislation.

That was July last year, at the beginning of the tax year, of which we're now in the seventh month. At the beginning of the tax year, there was already media coverage by some of the more respected newspapers in this field, and peak bodies had been talking about it for eight months. It was the beginning of the tax year in which this law applied.

Senior BDO tax partner Tony Sloan replied in July in an article in The Australian that the government has a problem here:

The ATO does not take dictation from politicians. There is a mountain of tax cases that support the ATO's interpretation of the measures that ushered in the tax cuts.

There was quite a debate going on out there about this. The article goes on to say:

Since 2015, the federal government has reduced the company tax rate for smaller companies … Mr Sloan says the legislation that introduced the tax cuts was "too broad" to exclude passive family investment companies.

So people who interpreted the tax law for clients out there in the field were saying it as well. Peak bodies had been saying it for eight months. The media was reporting on it. The ATO had made a ruling. The financial year had just begun. And, now, seven months later, finally, the government is acting by introducing this bill. Mr Sloan went on to say:

The ATO is actually acting in good faith here, and applying the law as it is currently drafted.

If the law doesn't work, the government will have to fix it. That could mean having to change the tax measures as they stand through changes to the tax cut legislation. The government can try to bend the tax office on this, but they can't snap them in half.

Then, on 1 August, the Financial Review put out the article that I read earlier.

It was also mentioned in this House in September 2017. The shadow Treasurer, Chris Bowen, said in this House in September 2017:

I mentioned, before, the matter of competence, which is something that leaves the Labor Party plenty to talk about … In relation specifically to corporate tax and the legislation before the House, we have seen very considerable confusion over recent weeks about the government's approach: which businesses are eligible; the contrasts between active trading businesses; companies holding passive investments. You would have thought that, on the centrepiece of economic policy which was announced in last year's budget, the government could've got the detail right. But here we have, in this case, the minister for revenue playing desperate catch-up, saying: 'Oh, no, you've misunderstood the law. That's not what we mean.' Well, there are plenty of experts out there who will point out that the legislation, in their reading of it, has a different impact from the one that the minister for revenue and the government would assert it has. So it goes to the heart of the competence of the government—let alone their wrong priorities—that they have not been able to get that policy detail right.

That was September last year—at least a year after the tax cuts were announced and at least a year after the peak bodies started saying that it would be a problem.

On 18 September, the government finally released draft legislation for Treasury consultation. The submissions to the Treasury website haven't been published, but some of the submitters sent them to the opposition. The Tax Institute, for example, noted that the broader issues of defining 'carries on a business' applies only to tax rate matters and not in other applications of law. So what we've got now are experts in tax law pointing out that we have different definitions. We have 'carries on a business' generally and, for this particular aspect of tax law, there's another one.

And, again, I would say that we are seven months into a financial year and we're discussing a piece of legislation that fixes a problem which was known eight months before the start of this financial year. For all the talk on the other side about certainty and how you have to give business certainty—come on! It is ridiculous that we're dealing with this. It is 20 or 21 months since this problem was identified and we're now talking about saying to businesses that have organised their tax affairs, made plans based on the law as it is and talked to their accountants that the last seven months and the decisions they have made are now going to be completely rewritten. We support the rewriting of it, by the way. We support the closing of this loophole. But I just point out to the other side of this House how frequently they talk about certainty and their understanding of the importance of making sure that business has a known playing field in which to operate. They talk about that. They know that. They don't deliver it. When it comes to delivering in this House, all of those rules and all of that understanding of the need for business to know what the rules are go out the window. It's not because they choose to throw them out the window; it's because they don't work hard enough and they're just not competent when it comes to consulting with business.

And this morning there was another one. This morning, the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017 was tabled. So now we have another amendment to this amendment. Now, it turns out, the definition of 'interest' for the purpose of passive income needs a special definition for this section of tax law. So now we have a special definition of 'business activity' and a special definition of 'interest', because they didn't get this right in the first place. Again, I know from sitting in committees and talking to the members opposite that they know how important it is to reduce the number of definitions—not to have more tax law definitions so that every time you turn around you have to think, 'Does that definition mean this or that?' depending on which bit of law you're reading. This is quite absurd. We're also seeing in the submissions that the experts out there don't think it's over yet. They think that, at some point fairly soon, the Commissioner of Taxation will have to issue further advice on the definitions of rent and royalties.

What we're talking about here is not some tiny little bit of policy or legislation; we're talking about the only piece of policy that the government has designed to make this economy grow—by one per cent over 20 years. That's it. This is the centrepiece. This is the thing they talk about over and over again. This is all they have, and they couldn't get it right. Seven months into a financial year, 20 months after the problem was first raised, we're walking in here and discussing an amendment which will affect what businesses have done over the last seven months, the structures they've set up and the decisions they've made. This is incompetence. We don't need anything more than this little piece of amendment that we have here in front of us—the two, rather—to make a judgement on the competence of this government, and it's very, very poor.

Debate adjourned.

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