Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Link to this | Hansard source

It is appropriate that we are discussing a tax bill just the day after the Treasurer announced his tax inquiry to be headed by Mr Hendy and Mr Warburton. The Treasurer says this is an essential benchmarking study to determine how we should go forward on tax reform in this country. I do not believe such a study is necessary. Labor will welcome any findings which come forward from the inquiry which assist us in our policy development processes, but what needs to be done on tax reform in this country is clear. We believe the Treasurer knows what has to be done; it is only about having the political will, both internally and externally, to implement that reform. We have to have greater simplification, we have to restore incentive to our tax system, we have to reduce the compliance cost burden and we have to improve our international competitiveness. Like most people in this place, I would like to see much of this funded through a broadening of the tax base and some tidying up of some looseness in a range of arrangements, including the great blow-out in work related tax deductions—and the list goes on and on.

If we are going to have this international benchmarking study of Australia’s taxation regime, I appeal to Mr Hendy and Mr Warburton to ensure that it reaches out to and includes the impact of our taxation arrangements on lower income Australians and its interaction with the social security and family tax benefit systems. Just as importantly, the study should benchmark Australian small businesses and the burden they face in both the payment of taxation and the costs of collecting GST receipts and remitting them to the government. This is an important test. Small business faces significant tax and compliance burdens. It is time for us to assess how small business in Australia is faring in that regard in comparison to small business in other nation states. I appeal to the Treasurer and to Mr Hendy and Mr Warburton to have a look at the extended issues I have proposed this evening.

I turn to the schedules of the Tax Laws Amendment (2005 Measures No. 6) Bill 2005. Schedule 1 of the bill recognises the losses from merging companies based on the proportion of a company’s market value. When companies merge, the issue of carrying forward a loss is vital. If the new company is worth less than half a per cent of the total group value, then the losses cannot be recouped. This provision allows for losses of less than half a per cent by permitting another decimal point to be added to the calculation process, with a floor level of 0.1 per cent. This will provide for losses to be recouped when the joining entity represents less than 0.49 per cent of the total market value of the group. This is the 12th amendment to the consolidation rules in just two years. The government has, in my view, created a degree of uncertainty by failing to deal with the consolidation measures in a single comprehensive bill, but Labor supports the proposal.

Schedule 2 is vital to the survival of the registered clubs industry. It retrospectively restores the tax-free status of clubs and other not-for-profit groups, which was taken away by a recent court decision. Up until the Federal Court decision, known as the Coleambally case, the proportion of a club’s income—poker machine receipts, bar takings and dining room takings—which related to members was considered to be tax free. But the decision in the Coleambally case ruled that this should apply only where the members’ funds are distributed to members when the entity is being wound up and where the articles of association, or the charter of the club, indicate that to be the case.

This bill clarifies that, since the decision on 1 July 2000, the tax-free status is not determined by the restriction on winding-up. This bill must be supported by the government because the future viability of the club sector requires it, and Labor will be supporting the change. Clubs are more than just a place for family gatherings. They play a vital role in the community by providing people with a place to meet and by providing significant charitable contributions to a number of worthwhile organisations. On that basis, Labor is more than happy to support the correction of the implications coming out of this unfortunate decision by the Federal Court.

The third schedule ensures that the new activity test for the child-care benefit does not restrict eligibility for the new child-care tax offset. The government has made changes to the activity test requiring a work test or study/training test of 15 hours a week. Labor pointed out at the time that this would restrict eligibility for the new child-care tax offset, which the government has now accepted. On that basis we will be supporting this schedule of the bill.

The bill also amends the medical expenses offset so that purely cosmetic and dental expenses are ineligible medical expenses and cannot be claimed under the MEO. Therefore, expenses which are cosmetic in nature and do not attract a Medicare benefit are considered ‘ineligible medical expenses’ and are excluded from the medical expenses offset. Labor supports the clarification.

Schedule 5 of the bill proposes that new organisations be added to the lists of deductible gift recipients and also extends the time for which deductions are allowed for gifts to a fund that has time-limited DGR status. Organisations to benefit from this amendment include the CEW Bean Foundation, which wants to build a memorial and develop an honour roll in tribute to war correspondents killed in conflicts since 1885, the Australian Red Cross and the Salvation Army, which set up the Hurricane Katrina appeal to help in the disaster relief effort in the aftermath of Katrina, which has left southern areas of the United States devastated, as members would know. This amendment will also see the Xanana Vocational Education Trust added to the deductible gifts register. The trust develops vocational education and training in East Timor by subsidising education and awarding scholarships to young people. On the basis of all that I have just outlined as to those extensions, Labor is more than happy to be supporting the proposed changes.

At this stage I would like to move the second reading amendment standing in my name, which I hope has been distributed. It relates to the very important current issue before the House: our concern about the tax deductibility of so-called facilitation payments and how those are related to the controversy that has taken place over the AWB kickbacks scandal. Those payments, as we now know, were used to fund the various activities of the former Iraqi leader, Saddam Hussein, and are now potentially funding the activities of those insurgents operating in that country. I move:

That all words after “That” be omitted with a view to substituting the following words:“whilst not declining to give the bill a second reading, the House: calls on the Government to align the definitions of facilitation payments under the Criminal Code and the Income Tax Assessment Act 1997 and to refer this matter to the Standing Committee on Economics, Finance and Public Administration for urgent inquiry”.

This second reading amendment, which we will be forcing to a vote, so giving the government an opportunity to support it, seeks to encourage the government to give a reference to the Standing Committee on Economics, Finance and Public Administration and to look at more generally the idea of aligning the Criminal Code with the Income Tax Assessment Act as it relates to facilitation payments. We have this extraordinary situation in Australia right now where under our Criminal Code we have a definition of what constitutes a facilitation payment but under our tax act we have no such definition, so I am proposing that the House and the government align these two pieces of legislation. This is not a radical move by any stretch of the imagination. I think it is a sensible move and one which should be supported by every member of this House and members of the other place. I have considered moving this as a detailed amendment giving effect to this change, but I do not want it to become a political hot potato in this place. I want to give the government an opportunity to embrace the idea of making the change and to bring us in line with the OECD’s view that the Australian government has failed to do all that is possible to reduce the proliferation of these facilitation payments and of course their tax deductibility.

If you were looking at this in an ethical sense, Mr Deputy Speaker, you would not be allowing tax deductibility for facilitation payments. What is a facilitation payment? A facilitation payment is a payment to what could be and probably is a corrupt official in another nation state to do something that he would not ordinarily do in a particular space of time if a payment were not made. There is probably a case to be made that such payments should not be tax deductible, because what we are doing is perpetuating a corrupt regime or those processes in other nation states. But Labor understands that we are not living in utopia, that these methods are required in some nation states and that Australian companies looking to invest and grow their business, for the benefit of their shareholders, in some nation states do find it necessary to make these facilitation payments from time to time. So Labor is not suggesting that facilitation payments be ruled out as tax deductions. We are saying that we must rein these in, as recommended by the OECD, to ensure that they are not being used any more than is necessary for us to operate in those nation states.

Surely no-one would suggest for a moment that a $300 million kickback payment in the wheat scandal is a facilitation payment. We have had admissions in the Cole inquiry that that $300 million payment was claimed as a tax deduction. We do not know at this stage how it was claimed as a tax deduction. It is likely that it was claimed as a transport expense—I accept that is a possibility—but it is just as likely to have been claimed as a facilitation payment; we do not really yet know. But what we do know that there is a disparity between the Crimes Act and the tax act. The tax act makes no attempt to give a definition of a facilitation payment. On that basis, as a legislative body or as a wider, broader community, we cannot have any confidence that, if AWB had sought to claim it as a facilitation payment, that claim would not have been successful. I am not suggesting that the Criminal Code is perfect. It talks about measuring the size of the facilitation payment and deeming it to be minor. That is not totally acceptable, but you would have to say that defining it as minor is a lot better than not defining it at all. So I think the opposition is being responsible in not moving a detailed amendment, thereby giving the government an opportunity to embrace what Labor is putting forward and to accept a very reasonable proposition.

I asked the Assistant Treasurer and Minister for Revenue, Mr Dutton, during question time today whether he would support this measure. Obviously, he did not understand the question. It was a pretty simple question: will you support the alignment of the two acts or not? Minister Dutton responded by saying there is no need to make any legislative change and then went on to suggest I was suggesting asking the Commissioner of Taxation to intervene in some way. We know that is not appropriate. We know the tax commissioner acts independently—and so he should. We are suggesting changing the law so that in future—forget AWB for a moment, as important as that is—large payments, potentially corrupt payments, are not made under the guise of what are known as facilitation payments.

Ian Causley (Page, Deputy-Speaker) Share this | Link to this | Hansard source

I know that you are debating the second reading amendment, but I understand that members have not seen the amendment. Would you read it into the Hansard so that members know what you are debating?

Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Link to this | Hansard source

I am happy to do that, Mr Deputy Speaker, and I apologise to the clerks for the confusion. The amendment reads as follows:

... “whilst not declining to give the bill a second reading, the House: calls on the Government to align the definitions of facilitation payments under the Criminal Code and the Income Tax Act 1997 and to refer this matter to Standing Committee on Economics, Finances and Public Administration for urgent inquiry”.

The tail end of that motion underscores Labor’s reasonable and responsible approach to this issue. As concerned as we are about AWB, I do not want to necessarily make this an AWB issue. The Cole commission will deal with that, and we will find out in good time on what basis AWB made the deduction. Of course it made the deduction. But it would be even more extraordinary if it had made the payments off the books and the directors had failed in their fiduciary duty to claim what they were obviously claiming was a legitimate expense. That would be even more extraordinary. We know that it was claimed. There has been an admission now to the inquiry that a claim was made, but we do not yet know what form the writing off of the expense took. We are very hopeful that the Cole commission will unearth the details of just how that took place.

We can deal with that as we come to it. It has to be said that it appears that everyone in the world knew that this had been happening over the last five or more years. You would have thought that someone in the government would have been alert to the fact that there was a possibility not only that it was happening but also that a deduction was being claimed, which meant that the Australian taxpayer was subsidising these kickbacks to Saddam’s regime to the tune of about $90 million. These are pretty extraordinary circumstances. But, again, let us separate AWB out for the moment. Let us instead use question time to tease out these issues with the government. Let the Cole commission delve further into the tax arrangements and let us see what comes from that.

This amendment is about looking forward, not backward. On that basis I do not think the government can claim that this is a stunt on the part of the opposition or a means of further embarrassing the government, because it is not. This is not about AWB. This is about making sure that in future the facilitation payments provision of the tax act is not preserved. I do not understand for a moment why the government would not support that, particularly given that the OECD has expressed real concern about our failure to live up to our international agreement and wind back the extent to which these facilitation payments are claimed.

I invite the government to support Labor’s second reading amendment. We will be sending it to a division to test the government’s will on this issue. If they are not prepared to support the second reading amendment I will have no choice but to go back to the original intention—the one I was tempted to use when first considering this amendment—of a second, in-detail amendment putting forward exactly what we propose in the alignment of the two acts and to give the government, on reflection, another opportunity to support that proposal.

Bruce Scott (Maranoa, National Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Peter Garrett (Kingsford Smith, Australian Labor Party, Shadow Parliamentary Secretary for Reconciliation and the Arts) Share this | Link to this | Hansard source

I second the amendment.

Peter Slipper (Fisher, Liberal Party) Share this | Link to this | Hansard source

This is an omnibus bill that covers a range of taxation changes. I suppose that, given the difficulty of getting matters before the parliament, it is quite natural that the government from time to time would seek to make a number of relatively minor changes together in the one omnibus bill. The second reading amendment moved by the honourable member, the shadow minister, opposite is obviously a bit of a stunt. He certainly raises an interesting point that is worthy of consideration. But if he were serious about having the government consider this he should have not done it in a such a grandstanding manner. It would have been better for him to privately contact the Minister for Revenue and Assistant Treasurer to point out the problem as he sees it rather than come in here and try to hijack the debate on this very important Tax Laws Amendment (2005 Measures No. 6) Bill 2005.

The Tax Laws Amendment (2005 Measures No. 6) Bill 2005 has a number of purposes that are designed to modify and update the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997. When one looks at the bill and the explanatory memorandum it is obvious that a number of different areas are being covered. In fact, there are five chapters, including consolidation, available action for lost utilisation purposes, extension of the mutuality principle, child-care tax offset, medical expenses offset and exclusion of solely cosmetic procedures, and there is a chapter on deductible gift recipients.

With respect to child care, the bill enables changes that allow those who are eligible for the child-care tax rebate to continue to receive the rebate if, at some time during the week, they work, train or study. It is admirable that many of those mothers who stay at home to care for their young children have made, or are planning to make, the extra effort to go to work, train or study once their youngest children are of school age. It is important that children are given the opportunity to spend as much quality time as possible with their parents as they grow up.

While child-care centres are important institutions that provide a vital service in Australia, no-one can deny the value of personal contact between a young child and his or her parents. The bill maintains the work, training and study requirements for eligibility for the child-care tax offset at the level they were at before the introduction last year of the Welfare to Work legislation. This legislation will not affect eligibility for the child-care tax offset.

I mentioned before that there were some changes with respect to the medical expenses offset and cosmetic surgery. The bill also will make some very important reform changes with respect to not-for-profit organisations. The bill ensures that not-for-profit organisations will not be hit with income tax bills as a result of a decision in the Federal Court in September 2004. On 27 May last year—that is, 2005—the High Court of Australia rejected a request by Coleambally Irrigation Mutual Cooperative Ltd to appeal a decision that the principle of mutuality cannot apply where the members of an organisation are prevented from obtaining the value of the assets on its winding up. The Federal Court decision would have potentially affected some 300,000 Australian organisations. That is clearly not a particularly desirable situation. This bill, though, ensures that membership subscriptions and receipts received from members of the organisations are not subject to tax, and it will give legislative backing to the tax office practice that applied to distribution clauses prior to the judicial decisions.

The various parts of this bill, quite understandably, come into effect at different times. This reflects when announcements were made and also when the government considers it appropriate that individual changes included in the Tax Laws Amendment (2005 Measures No. 6) Bill 2005 ought to apply. The second reading amendment is a matter which has been raised by the honourable member for Hunter. I believe he has done so in a way that is designed to play politics, instead of with a view to bringing about what the member for Hunter no doubt considers ought to be a change in the definitions. I commend the Tax Laws Amendment (2005 Measures No. 6) Bill 2005 to the House.

Craig Emerson (Rankin, Australian Labor Party) Share this | Link to this | Hansard source

Labor supports the Tax Laws Amendment (2005 Measures No. 6) Bill 2005 but does so while moving a second reading amendment relating to the disgraceful actions of the Australian Wheat Board in paying kickbacks to Saddam Hussein and the willing conscription of an unwitting Australian public to subsidise those payments to the tune of 30 per cent, which works out at around $90 million. I am sure the Australian people would have been both astonished and appalled if they had known that through the tax system they had been called upon without their knowledge to subsidise those payments to Saddam Hussein’s regime at the very time that the Howard government had taken Australia to war against Iraq. More of those sorts of details are coming out every day. The last thing that the Australian people would have expected is that without their knowledge they too were participants in this sordid exercise. It is par for the course for the Howard government to behave in such a way.

My colleague the member for Hunter has wisely moved a second reading amendment to ensure that such facilitation payments are not tax deductible in the future, in accordance with OECD recommendations that have been rejected by the Howard government. The Howard government, in rejecting those recommendations, is condoning the paying of facilitation payments to foreign governments, officials and non-officials. This cannot be in the Australian national interest; yet that is what the government is doing. It cannot be condoned; it cannot be supported.

That is why the member for Hunter has put forward this second reading amendment. We hope that upon reflection the government will see the wisdom of that second reading amendment and that it will in the final analysis be shamed—although it is very difficult to shame this government—into agreeing that it is beyond the pale for the Australian public to have subsidised payments to Saddam Hussein and his regime for the conduct of military operations and possibly for the funding of suicide bombers in the Middle East.

I want to speak very briefly about a number of the provisions of the bill and I want to expand on a couple of the others. The first schedule will mean that losses will be carried forward in a merger where the merging entity is very small compared with the market value of the group as a whole. This is a sensible measure. As you know, Mr Deputy Speaker, Labor supports sensible measures and we are supporting this one.

The second schedule is a good one. It ensures that clubs which have enjoyed tax-free status continue to enjoy that following recent court decisions. It clarifies the law in relation to clubs. Clubs play a vital role in our community. Generally, they are not-for-profit organisations, and on that basis they should not be expected to pay tax. Greenbank RSL is a large club in my own electorate which provides a focal point where the community can come together to enjoy a whole range of entertaining activities. On top of that, Greenbank RSL performs a very socially valuable function in supporting local charities and sporting teams. Any move in this parliament that supports Greenbank RSL is a move that I warmly welcome, and this is one of those.

I take the opportunity to pay tribute to the executive of Greenbank RSL and Mr John Limbrick, who does such a fantastic job. In addition, I pay tribute to the executive of the Greenbank RSL subbranch. A lot of hardworking veterans provide great service to the community and great service to other veterans and their families. It is a great opportunity and honour for me in the Australian parliament to be able to pay tribute to them during this debate.

Schedule 3 relates to the child tax offset work test. That sounds pretty much like techo talk to me. It really is the child-care rebate that was announced by the Howard government in the 2004 election and that has been introduced into this parliament. It ensures that the new activity test for the child-care benefit does not restrict eligibility for the new child-care tax offset. I want to speak about the child-care rebate. It is a measure that, on the whole, is not a fair piece of tax policy for this country. Let me explain what I mean. In the year 2000 the Howard government introduced the child-care benefit. It did radically overhaul the child-care services in Australia.

We know that the member for Lindsay has been very critical of the child-care system in this country, and I share in that criticism, but at least the child-care rebate was progressive in its intent, its design and its effect. Basically it provided a benefit, the child-care benefit, which was bigger for lower income earners and smaller—in fact, phasing out—for higher income earners. Overall, that was pretty sensible policy. Indeed, the OECD has pointed out that Australia’s child-care subsidies are very low in relation to the OECD average and to leading countries, such as Denmark. The OECD has said that, if child-care subsidies were larger, we could expect a bigger workforce participation from mothers who are considering returning to work after having a baby and also from those mothers who perhaps have to make decisions about how much work they do. Importantly, the OECD found that the responsiveness of lower income families to subsidies was greater. This is commonsense, but plenty of modelling and testing has been done to verify that assertion.

The wise policy response would be to provide the greatest benefits to lower income earners, and that is what the child-care benefit does. However, there is a good case for increasing the size of the child-care benefit for lower income earners. Did the Howard government do that in the 2004 election campaign? No, because it wanted to give benefits to higher income earners. It would have done its polling of so-called doctors’ wives who were considering voting Labor in seats such as Kingsford Smith and Wentworth in Sydney. They were considering voting Labor on other grounds: Australia’s folly in attacking Iraq and the ‘children overboard’ scandal. They were pretty disillusioned with the Howard government, which obviously did its polling and said: ‘How do we get them back? We’ll give them a child-care rebate.’ So it specifically targeted higher income earners. The way it works is that it provides a rebate of 30 per cent of the out-of-pocket expenses paid on child care after taking account of the child-care benefit. Given that the child-care benefit provides the greatest benefit for lower income earners, the child-care rebate by definition must provide the greatest benefit for higher income earners. So here we are yet again with the Howard government providing benefits for some of the higher income earners of Australia to secure its re-election—not on the basis of good policy, not on the basis of equity, but just on a straight calculation that this is a group—the so-called doctors’ wives—that it needed to get onside to win the election. So we have a botched child-care rebate, now called the child tax offset.

We know that the member for Sydney has been telling everyone, quite correctly, that the whole system is flawed and that payments can be delayed for up to two years. It is a complete dog’s breakfast, but at least this piece of legislation clarifies something that Labor has called upon the government to clarify. That gives me the opportunity to expand on the government’s program of providing great benefits for the wealthiest people in Australia. For example, family tax benefit part B is a payment to stay-at-home mothers that is income tested only on the income of the mother. So the mother can be in a millionaire family—an absolutely fabulously wealthy family—and receive government welfare payments. The Prime Minister designed family tax benefit part B because it is his view that mothers, and particularly very wealthy mothers, should stay home. And, if they agree to stay home, he will give them somewhere in the vicinity of $3,000 a year from the Australian taxpayer. This is welfare for the wealthy.

Of course Labor does not object to providing family payments for lower and middle income earners; indeed, Labor introduced the system of family payments for lower and middle income earners. Professor Ann Harding of NATSEM found, unsurprisingly, that overall the system of government payments and the tax system is progressive. It should be. If you are going to collect $100 billion in income tax and soon pay out $100 billion in social security and welfare payments, which is what it will be in the next couple of years, you would want to be assured that overall it is progressive. What the government does not say is that that is the system that it inherited from the previous Labor government: a needs based or means tested system of income support payments. But, since the election of the Howard government, it has extended welfare payments right through middle Australia and on to the very wealthy. For example, it is giving welfare payments to many families in suburbs like Bellevue Hill, Double Bay, Killara, Vaucluse, Northbridge, Mosman and The Spit in Sydney and Kooyong, Kew, Toorak and Camberwell in Melbourne.

Gary Hardgrave (Moreton, Liberal Party, Minister Assisting the Prime Minister) Share this | Link to this | Hansard source

In Woodridge, Kingston, Kuraby, Underwood.

Craig Emerson (Rankin, Australian Labor Party) Share this | Link to this | Hansard source

Of course here we have the minister at the table defending payments of welfare to some of Australia’s wealthiest families—

Gary Hardgrave (Moreton, Liberal Party, Minister Assisting the Prime Minister) Share this | Link to this | Hansard source

To people in Woodridge, Kingston, Underwood and Marsden. You know, your electorate, when you visit it occasionally?

Craig Emerson (Rankin, Australian Labor Party) Share this | Link to this | Hansard source

such is the Liberal philosophy. I do recall the Liberal Party saying in the past that it stands for self-reliance. In fact, it has created a big, fat nanny state. It has done that by extending welfare right through middle Australia to the wealthiest people in this country. We might just see some stories on the Channel 7 news tonight about the government having done that. I imagine it will be a very revealing story to see the people from Vaucluse and Double Bay—these sorts of suburbs—receiving welfare payments from this government.

Just yesterday the Treasurer announced a review to compare Australia’s tax system with other countries’. I do not know how many other countries make welfare payments to their wealthiest citizens. Tax reform must begin with restraining extravagant, unnecessary spending. It is very difficult to justify giving such big benefits to the highest income earners in this country. In fact, documents that I obtained under freedom of information legislation show that the Department of the Prime Minister and Cabinet estimates the savings from limiting such family payments to families earning less than $125,000 a year. It is a very substantial limit. If families earning more than $125,000 a year did not receive welfare payments, the savings would be in the order of $100 million. A $100 million saving is quite a large amount of money. So, in speaking about tax reform, perhaps the Treasurer could have a talk to the Prime Minister about why the Prime Minister insists on paying $100 million in welfare payments to families who earn more than $125,000 a year—advice provided by his own department.

The member for Moreton, who is sitting at the table, said that the people of Woodridge, Kingston and Underwood received such payments—and so they should under a needs based, means tested system. But I can inform the member for Moreton that the people of Woodridge, Kingston and Underwood are not millionaires.

Gary Hardgrave (Moreton, Liberal Party, Minister Assisting the Prime Minister) Share this | Link to this | Hansard source

What about Kuraby? What about Browns Plains?

Craig Emerson (Rankin, Australian Labor Party) Share this | Link to this | Hansard source

Obviously the member for Moreton does not travel into Logan City. He is wondering whether people in Browns Plains are millionaires. I can set his mind at ease. Member for Moreton: there are no millionaires in Browns Plains, but there are hardworking Australians. There are people who are receiving family payments and there are people who are on forms of welfare—and many of them would like to move from welfare to work. When the Treasurer is examining and benchmarking Australia’s tax system against those of other countries, he could have a look at the massive disincentives in the Australian tax and welfare systems for people moving from welfare to work.

The Prime Minister gives welfare payments to millionaire couples while expecting poor single mothers to go out and work for as little as $3 an hour, after taking into account taxes paid, benefits lost, the cost of travel to and from work, and other work costs. That does not even take into account the child-care costs. If they are taken into account, under the government’s so-called welfare reform, a single mother is expected to go out and work for as little as $2 an hour. That is a scandal, that is a disgrace and that is unfair while the wealthiest women in this country—the wealthiest families in this country—are receiving payments of around $3,000 so long as they agree to stay home. Such is this government’s definition and understanding of fairness. The government knows that it is unfair. It thinks single mothers will not vote for it but wealthy doctors’ wives will, so it gives the welfare payments to high-income earners and to single mothers it says: ‘Here’s a kick up the bum for you. You go out and work for $2 or $3 an hour.’ It is a disgrace.

When the Treasurer does his international benchmarking, he can look at the punitive disincentives for people on welfare to move from welfare to work. He can look at the disincentives for people in middle Australia who earn between $70,000 and $125,000 a year and who are on a 42c marginal rate. They jump from 30c to 42c. That is a big jump in an income tax rate, yet there are a million Australian taxpayers in that 42c bracket. If the government, through its insidious bracket creep over the next three years, does not drop that rate or change the threshold, another 400,000 will join those taxpayers and, by 2008, 1.4 million Australians will be confronted with the 42c marginal rate of income tax. They will be in that tax bracket. I urge the Treasurer to have a good hard look at the 42c rate when he is going through his tax reform proposals and look at what people who are in those income ranges pay overseas and whether they are in fact facing a 42c rate.

Reducing the 47c rate over time is affordable. It would be affordable within the sorts of budget surpluses that are being projected—up to $15 billion by private sector forecasters for the year 2006-07. Two Fridays ago, I asked the Governor of the Reserve Bank: ‘Is tax reform affordable?’ I did that because ringing in my ears was the Treasurer saying, ‘It may not be possible to provide tax reform and substantial tax relief, because to do so might stimulate the economy too much and trigger a Reserve Bank decision to increase interest rates.’ The Governor of the Reserve Bank said: ‘Tax reform is affordable.’ That pulled the rug from under the Treasurer. He is running out of excuses as to why he is so opposed to tax reform. He has now embarked on a process, when all of the evidence is there through OECD comparisons. Everyone, apart from the Treasurer, knows what the problems are with our tax system. It is time for genuine reform. It is time to remove those incentive-crushing barriers and to give people genuine reward for effort in this country.

Kay Hull (Riverina, National Party) Share this | Link to this | Hansard source

It is with great joy that I rise to speak in support of the Tax Laws Amendment (2005 Measures No. 6) Bill 2005. I want to focus on one area in particular. I have not been so relieved to see a piece of legislation in a long time. I think the last time was when we moved to restore the tax treatment for irrigators such as Murrumbidgee Irrigation in my electorate. I was very proud and pleased when we were able to resolve in this House those taxation issues that were the unintended consequences of privatisation.

Today I rise to speak about the same area, because this bill is incredibly important for the one particular group that I was so concerned about, and that is Coleambally Irrigation in my electorate. Much of the bill is centred on Coleambally Irrigation. We have heard the case of how the taxation treatment may have impacted on the not-for-profit organisations, but there was one company only that was responsible for running the court cases. One company only bore the incredible costs of court cases, and that was Coleambally Irrigation Mutual Cooperative Ltd.

Let me give the House a bit of background: in January 2000 Coleambally Irrigation was established and registered as a non-trading cooperative under the Co-operatives Act 1992 (NSW). The purpose of Coleambally Irrigation is to construct, own and maintain all new irrigation infrastructure assets in the Coleambally district for the benefit of their community. It is financed by a sinking fund levy made up of contributions by irrigator members.

In 2000 Coleambally Irrigation applied to the Australian Taxation Office for a private binding ruling in order to have their sinking fund contributions recognised as non-assessable income. In February 2002, the application was rejected by the ATO on the basis that the mutuality principle did not apply to Coleambally Irrigation for a number of reasons. This is a major issue for Coleambally Irrigation, but it went on to include many more people.

Coleambally is the fourth largest irrigation region in Australia. It is twice as big as the Ord River. There are 503 farms owned by 400 separate farming enterprises in the region. Coleambally Irrigation provides community owned infrastructure that the state government is no longer willing to fund but is essential to the viability of our Coleambally community and to the region that it serves. The irrigation activity underpins the whole community and the community is involved at all levels.

The implications of the court decision for Coleambally Irrigation and the Coleambally community were substantial in terms of their annual financial liability but, not only that, this tax ruling had implications for non-profit mutuals generally over a long period. This created a significant hurdle for thousands of clubs and not-for-profit organisations. We had a large number—well over 100,000—of these not-for-profit organisations and mutual organisations around Australia in a wide range of sectors that had similar non-profit winding up clauses and that did not have an exemption under section 23 of the income tax act. These clubs included registered clubs; leagues clubs aligned with National Rugby League teams; RSL and workers clubs; a range of cooperatives, agricultural and non-agricultural; rural financial counselling services; motoring associations; business associations; environmental groups; some child-care centres; the housing cooperatives; some community libraries and other local services; and many incorporated associations, non-trading cooperatives and companies which were limited by guarantee.

Then came the lobbying. I was absolutely determined to restore the balance of not-for-profit and mutuals. I could not understand the case against Coleambally because it fitted the mutuality principle in every way, shape and form. However, here was Coleambally Irrigation being subject to court case after court case at their cost and basically leading to the demolishment of Coleambally as a community, but having implications right across Australia for every not-for-profit organisation simply because they have a winding up rule.

As I said, this bill is incredibly important to not-for-profit organisations. I am focusing on the amendment to ensure that certain not-for-profit organisations are not subject to tax on their mutual receipts as a result of the Coleambally Federal Court decision handed down on 7 September 2004. We lobbied hard and have had discussions with the minister since 2000 basically. A major amount of money has been spent by Coleambally Irrigation to prove what I thought was a no brainer. Thankfully, when this case was presented to the minister, and in particular the former minister Mal Brough, he could see the common sense of the determination and argument that we were putting forward. This situation was the result of major court decisions that effectively reversed the tax office’s longstanding practice of allowing not-for-profit community organisations to rely on the mutuality principle to exclude certain receipts from assessable income even though members were precluded from receiving any surplus funds on their winding up.

This amendment will provide legislative backing for the tax office practice. Had the government not made this change, the mutual receipts of 200,000 to 300,000 not-for-profit bodies—including clubs, motoring organisations, associations and a whole host of friendly societies—would potentially become liable for income tax. And not only that, it would be retrospective. So this was a major issue to deal with. It took up an enormous amount of time and effort both in my office and certainly in Coleambally Irrigation’s office.

Under the mutuality principle, a long established principle in tax law, membership subscriptions and receipts from other mutual dealings with members are not usually included in taxable income. The number of not-for-profit entities that benefit from the mutuality principle is enormous—it is across the board. The amendments that we have ensure that not-for-profit entities are not subject to income tax on their ordinary income from their members solely because they are prohibited from distributing surplus funds to members.

When I was having this discussion, it seemed as though Coleambally were in an absolutely invidious no-win situation. The New South Wales government insisted that they have this winding up rule, yet the ATO were penalising them for having that rule. It did not matter which way they went—they could not establish their mutuality without this winding up rule because the New South Wales government insisted that it be in there, and then they found themselves penalised for having the rule. So they were in a catch-22, an absolute no-win situation. So I am very thrilled to have these amendments.

On Monday, 30 May 2005, when the former Minister for Revenue and Assistant Treasurer, Mal Brough, announced that the mutuality principle would be restored, there was jubilation right across my electorate of Riverina and beyond, simply because this was justice being done. This was where you finally saw what it was like in a democratic process to be able to come in as a backbencher, to present a cogent case and argument and to convince the minister that these continual court cases were not assisting anybody. They were draining Coleambally of funds and, ultimately, this really needed a political fix rather than a legal fix. When Mal Brough came out and announced that the mutuality principle would be restored and that the government would amend the income tax law to ensure that certain not-for-profit organisations were not subject to tax on income as a result of the High Court decision on Coleambally, I was, as I said, thrilled to pieces, and so were Coleambally Irrigation. It was an action that restored, as the bill before the House will restore, the longstanding benefits of this mutuality principle.

The announcement honoured the government’s commitment made during the 2004 election, when Coleambally Irrigation were in what I believed to be a dire situation. It addressed the concerns that Coly were raising about the impact of the judicial decision arising from litigation. Even the former Minister for Revenue and Assistant Treasurer recognised this in his press release. He said:

It addresses the concerns raised about the impact of judicial decisions arising from litigation between Coleambally Irrigation Mutual Co-operative Ltd and the Commissioner of Taxation …

I was very pleased that the former minister had recognised this situation. When the High Court decided not to grant Coleambally Irrigation Mutual Cooperative leave to appeal the decision that the principle of mutuality cannot apply where the members of an organisation are prevented from obtaining the value of the assets on its winding up, the process did not just go on and on and then allow so many people to be impacted upon.

What we have here are amendments that have no adverse effect on taxpayers. We are simply reinstating the previously accepted treatment that applied prior to the Coleambally court decision that income received by not-for-profit entities, such as the membership subscriptions, is to be treated as mutual receipts and not as assessable income. Again, I feel suitably relieved and quite thrilled for Coleambally Irrigation. I know that each of the board members and each of the members of Coleambally Irrigation, including their CEO, is sitting here waiting for this bill to move through the House at a rate of knots. I feel only when the bill is passed by this House and approved by the Senate will they breathe a sigh of relief and recognise that they will be able to move forward as an organisation. Another very strong point I have here is that this bill is retrospective from 1 July 2000 to ensure that the taxation status of those organisations that I listed is not adversely affected by that Federal Court decision.

In conclusion, the decision by the Minister for Revenue and Assistant Treasurer is a major victory. Over a number of years I have gone through this issue with a few assistant treasurers, and I am pretty proud that we have finally seen the light and have put in a political fix, as was required from the very beginning, to restore the intention of the mutuality principle. Again, I would like to thank the former Assistant Treasurer, Mal Brough, for his assistance with this. I would like to thank Phil Lindsay in the former Assistant Treasurer’s office for being so diligent and so patient with me over a long period of time and all of the staff members that have been involved with me since 2000 on these issues. They have committed an enormous amount of time and energy on my behalf, for and on behalf of Coleambally Irrigation.

This is a good result. This is democracy and justice for a fantastic organisation that sets about building communities and making them strong. It is with great pleasure that I stand in the House today not only to support this bill but to urge everybody to progress the bill rapidly through the House and through the Senate in order that the appropriate work can be done to restore the original intent, thereby giving Coleambally Irrigation surety and security for their future. They are one of the best irrigators in the nation. I have just had the new Parliamentary Secretary to the Prime Minister, who is responsible for water, the member for Wentworth, Malcolm Turnbull—

Martin Ferguson (Batman, Australian Labor Party, Shadow Minister for Primary Industries, Resources, Forestry and Tourism) Share this | Link to this | Hansard source

Gumboots Turnbull!

Kay Hull (Riverina, National Party) Share this | Link to this | Hansard source

Exactly—out in Coleambally. And just before then, the former parliamentary secretary, the Hon. Gary Nairn, came out to Coleambally. Each were suitably impressed with the proactive, positive and innovative way that Coleambally is dealing with water, with its super computer system. It has taken a little bit of ironing out, but it is certainly leading Australia with a very simple system of delivery of water by adopting the most efficient and effective measures to reduce wastage. I congratulate Coleambally on all it has achieved in that area, but particularly on its resolve to sort this out in order that it could continue to deliver to its members the benefits of being a mutual cooperative. I commend the bill to the House.

Chris Hayes (Werriwa, Australian Labor Party) Share this | Link to this | Hansard source

I support the second reading amendment moved by the opposition. The Tax Laws Amendment (2005 Measures No. 6) Bill 2005 before us reflects, in my opinion, some habitual problems experienced by this government, particularly with respect to delays, mismanagement, recognising problems caused by clumsy drafting and failing to meet and recognise international obligations. This bill is the government’s attempt to clean up a few things. It is a bill that is necessary, because the government over the last 10 years in office has been getting tired and lazy. It is particularly timely that today we are debating a bill about the cleaning up aspects of the Australian tax system, certainly hot on the heels of the Treasurer’s announcement yesterday that he has decided it is time to internationally benchmark the Australian taxation system.

After 10 years of looking after the Australian tax system, the Treasurer has now decided it is time to have a look at what the rest of the world is doing. What I find most interesting about this review are the two people the Treasurer has chosen who will put together and examine the international position. I am particularly interested in what Mr Peter Hendy, Chief Executive Officer of the ACCI, will bring to this matter. Mr Hendy, quite frankly, is not known for being absolutely independent. In fact, I recall him making comments at the time the WorkChoices legislation was being debated in the Senate that there should be absolutely no amendments made to that piece of legislation.

I will be particularly interested to see the product of the review as it seems to me that, once again, the government has come up with relatively short-sighted terms of reference, coupled with an absolute lack of representation from groups such as small business, who have probably become the largest group of tax collectors, thanks to this government, and groups consisting of ordinary taxpayers. Those people are just not represented in this review. So it will be interesting to see what Mr Hendy and others come up with as they focus on prioritising our tax system to meet the competing needs of various groups. It remains to be seen, but that is not what this bill is about.

Probably the most single important aspect of this bill is the section that deals with the restoration of mutuality or the principles of mutuality. The restoration of this principle is significant to the ongoing financial viability of clubs and other organisations. People fulfil very responsible community positions which are so important to communities in our respective electorates. This bill clarifies, for instance, the tax-free status of clubs that has technically been claimed illegally since the Federal Court decision on the Coleambally case. Taxation, as we all know, is based on income received from external sources. This has been a longstanding and long established principle, certainly in common law. But for 120 years, under the principle of mutuality, revenue derived from members was exempt from corporate income tax, while revenue from nonmembers was fully taxable under the corporate tax system. When it came to clubs, members’ income was not classed as external and, accordingly, under the principle was tax exempt. However, this principle has now been deemed to apply only when members’ funds are distributed upon the winding up of the entity. In most cases, it is not provided for in the articles of association of clubs; therefore, for some time clubs have been illegally claiming tax-free status.

Actually reversing the tax-free status when it comes to members’ income places most, if not all, clubs in a rather precarious financial position. The value of the mutuality principle is difficult to quantify precisely but there is no doubt that, given the concerns raised by the clubs’ industry about the Coleambally case, it is significant enough to place a number of clubs in financial distress should the principle not be restored. It is for this reason that I support these provisions of the bill so that clubs in my electorate are not placed in financial jeopardy.

There are a number of fantastic clubs and community assets operating in my electorate, including the Liverpool Catholic Club, the Ingleburn RSL Club, the Ingleburn Bowling and Recreation Club and the Western Suburbs Leagues Club. Just outside my electorate but just as significant as community organisations are the Campbelltown Catholic club and the Campbelltown RSL club—and the Mounties Club; let’s not forget them.

All these fine organisations make a significant contribution to the community and are certainly very strong supporters of events and activities. You only need to visit a local club in my electorate to get a good understanding of the character of the area and the diverse nature of the people who live there. While these clubs provide excellent facilities and play an important role as a social outlet for local residents, they also give back to the communities they belong to. That is why the retrospective aspects of the changes contained in this bill are so important.

The significance of one club in my electorate was brought home to me when I was discussing the tax issue recently with one of the club’s chief executive officers. The Western Suburbs Leagues Club in Leumeah has a long history of involvement in the community in the south-west of Sydney. In one form or another it has been involved in just about every community event that I can remember. It was certainly the focal point of our community last year when the Wests Tigers, as everyone will remember, took out the National Rugby League premiership. While it is often a focal point for social activity, it is also contributes directly back into the local community. Last year Wests contributed $1.1 million to local sporting groups in my area. Some of this was as a requirement of New South Wales legislation that provides for a proportion of poker machine revenue to be donated back to the local community, but the contribution that Wests made was $800,000 more than the statutory requirement. When it comes to community sport, $800,000 certainly goes a heck of a long way and is deeply appreciated by those groups in my electorate that receive it.

However, as a result of the Federal Court decision that this bill seeks to correct, Wests has incurred a tax liability of half a million dollars. Next year, their liability is estimated to be $1.5 million. So the club faces a $2 million tax liability unless this bill is implemented. Naturally, a tax liability of that magnitude would prompt a review of all the local involvement by a club the size of Wests, and that would have an absolutely deleterious effect on local sporting and community organisations. That would hardly be a great outcome for anyone involved. I am pleased to see that, as a result of this bill, levels of support by clubs like Wests and others in my electorate can continue—of course, subject to the other financial constraints placed on clubs. The passage of this bill will mean that Wests will continue to support the various groups within the area.

You can see that I am a one-eyed Wests supporter, but, since I was at the annual general meeting yesterday, I would like to mention that the efforts of Mike Semchyshyn were recognised and life membership was awarded to him by the club. Originally, Mike worked on the Snowy Mountains Scheme at Jindabyne. He went to Campbelltown in 1971, where he became involved with the local Rugby League club, which at the time was known as the Kangaroos Football Club and subsequently became Wests Campbelltown. Over a long period he has served the club in many capacities and has always had the club’s interests at heart. He has been on the board for all but approximately two years since 1971. Mike has also been instrumental in expanding Wests’ assistance to local sporting organisations. When he took on the role of sports secretary, 12 associated bodies came under the banner of Wests in my electorate. This has now grown to 39, which shows the extent of growth in local clubs and the important role played by a major club such as Wests.

This is yet another reason why the amendment to support the clubs industry needs to be supported. Earlier I referred to this legislation being the result of lazy and clumsy drafting by the government which, in my opinion, has come to characterise various aspects of the Howard government of late. In driving through its ideological agenda last year there was some very clumsy drafting, and it seems the prevailing view is almost to get it through and sort the mess out of later. We saw it with the WorkChoices legislation, to which more than 300 amendments had to be made to tidy it up before it was passed into law.

In my view the WorkChoices legislation should never have been introduced—but, then again, my views are pretty well documented in that regard. That legislation, like the bill before us, was put forward with incomplete drafting and, as a consequence, contained serious flaws which had to be amended, not to satisfy my position or that of Labor but simply to satisfy the government itself. That is only one example. It seems that now the government has worked out that Labor got it right when it pointed out problems with the new activity test. It has worked out that Labor correctly identified that there were problems between the interaction of the activity test for the child-care benefit and the child-care tax offset.

Under changes to the activity test, eligibility for child-care benefit is now based on a test of 15 hours per week of work, study or training. When the new test was introduced Labor pointed out that the change would restrict eligibility for the child-care tax offsets. While I am pleased to see that this bill corrects the problem, it is a problem that, quite frankly, should have been avoided in the first place.

The bill before us also includes changes to the Medicare safety net. I cannot in good conscience stand in this place and comment on more changes to the Medicare safety net without pointing out the fact that under this government one million Australians miss out under the extended Medicare safety net despite all the ironclad guarantees that we were given leading up to the last election. Access to high quality health services is absolutely essential to modern life.

My electorate of Werriwa is one of the fastest growing areas in Western Sydney, and its residents are struggling to access GP services in a number of the new and expanding suburbs. Under these changes, cosmetic, medical and dental services are being removed from the safety net. I agree that paying for purely cosmetic procedures is not necessarily the most effective use of taxpayers’ money, but it is not the first set of reductions in the types of services paid for under this government’s changes to the health system either. Although it has not received a great deal of publicity through the media, one of the biggest problems with our health system people are facing today is as a direct result of the changes to the PBS that were introduced in October last year. Under those changes the safety net threshold increased and a new 20-day rule was introduced which excluded the resupply of medications within a 20-day period from the calculation of the safety net entitlement.

The purpose of the bill before us today is not to change these arrangements further—and I am sure that sick people and their families are breathing a collective sigh of relief about that—but they do point to a gradual erosion by this government of the coverage under Medicare. While the Minister for Health and Ageing is more than willing to get his rubber stamp out and approve more increases in private health insurance premiums, as we saw on Friday, he remains absolutely unwilling to tackle the fundamental problems of our health system. He is unwilling to consider the value for money aspects of private health insurance and he is certainly unwilling to take on the $3 billion a year Australian taxpayer subsidy of the private health insurance industry.

I read that, in an effort to smooth the path for Friday’s further premium increases, a number of health funds are going to offer cheap consumer goods as a benefit of membership. One such fund that I looked at last week offered the consumer benefit to its members of a kid’s Barbie suitcase, amongst other things. I do not know about you, Mr Deputy Speaker, but this tells me one thing: that the private health insurance industry has absolutely no desire in the short or medium term to address the problems of value for money. I do not know if the demand among people with private health insurance is for Barbie suitcases for their kids, but I would have thought that consumers would have preferred getting more value for their dollar than cheap, gimmicky, consumer items.

The government has to act, and it has to act now, so that value for money in this industry can be restored. It seems to me that the Minister for Health and Ageing has two rubber stamps when it comes to our health care system: one is to give the go-ahead to price increases for the private sector and the other is to deny public benefits to those who most need it. This government has failed to deliver the most affordable and attractive health scheme that it promised during the course of the last election. It has delivered a massive subsidy to the private health insurance industry, it has delivered increases in the cost of health care to the taxpayer, but it has not delivered for health consumers.

It is about time this government set about focusing on the health system and health consumers. Despite the fact that for the rest of this week we will hear from members opposite singing the praises of a decade of the Howard government, some should stop and consider why we are debating a bill like this today. This bill is the manifestation of the arrogance of this government. It is a bill that has only been introduced to clean up a mess that the government has created and to overcome problems that it has created for itself by not acting earlier on things like mutuality, industry compliance with tax rules—(Time expired)

Kelvin Thomson (Wills, Australian Labor Party, Shadow Minister for Public Accountability and Human Services) Share this | Link to this | Hansard source

I rise in support of the Tax Laws Amendment (2005 Measures No. 6) Bill 2005 and, in particular, in support of the amendment put forward by the member for Hunter to deny tax deductibility for facilitation payments. The amendment of the member for Hunter calls on the government to align the definitions of facilitation payments under the Criminal Code and the Income Tax Act 1997 and to refer this matter to the Standing Committee on Economics, Finance and Public Administration for urgent inquiry.

The reason we are moving this way is in order to close the loophole that currently allows deductions for fuzzy payments used to facilitate deals. Currently, facilitation payments are loosely defined and exempt from the normal bribery provisions of the Income Tax Assessment Act. In the light of the burden currently being shouldered by Australian wheat farmers due to the many payments made by AWB to Saddam Hussein to facilitate trade, it is a pity this loophole was not closed some years ago. Had it been closed, the AWB would not have been able to describe up to $300 million as ‘facilitation payments’ and thus be entitled to multimillion dollar rebates courtesy of the Australian taxpayer.

Just as the government has received many international warnings about kickbacks made to Saddam Hussein, so has the government received international warnings about this particular loophole in our tax law. As recently as January 2006, the OECD Report on the application of the convention on combating bribery of foreign public officials in international business transactions found that Australia’s defence of facilitation payments was also identified for further monitoring because of concerns such as the practical effectiveness of the record-keeping requirement. Indeed, I feel it is likely that Commissioner Cole would agree that the practical effectiveness of AWB’s record keeping in relation to their facilitation payments leaves much to be desired. It seems to me that Commissioner Cole may well not have had a job if this proposed amendment had been in place several years ago.

Labor’s proposed amendment would prohibit AWB style deductions. I think that many Australians were astonished to learn a week and a half ago, back on February 16, just as this parliament was rising, of evidence before the Cole inquiry into $300 million in illicit payments to Saddam Hussein’s government by AWB revealing that AWB had claimed these kickbacks as a tax deduction. We learned a week and a half ago that the Australian Taxation Office is now investigating that revelation, but this was after AWB’s chief financial officer, Paul Ingleby, revealed to the commission that the company had claimed the Iraq kickbacks as a tax write-off. Under questioning by the Cole commission’s senior counsel, John Agius, he agreed that the payment of trucking fees, the kickbacks demanded by Saddam’s regime, was treated by AWB as an expense and therefore as a tax deduction. I think Commissioner Cole certainly needs to force AWB to throw open their books so that we can understand exactly what has gone on here, but ordinary Australians who pay their taxes and do not seek tax deductions for anything of this character would be astonished and appalled to discover what has gone on.

As recently as today, a senior AWB manager has admitted to having organised a string of illicit payments from the wheat exporter to Saddam Hussein’s government up to seven years ago. The former chartering manager, Michael Watson, became the fourth whistleblower at the Cole inquiry. His lawyers submitted a last-minute statement about his involvement in the $300 million kickbacks which AWB had paid to Iraq. Mr Watson said he had organised money to be paid to the Iraqi dictator’s regime between June 1999 and December 2000 despite knowing such payments breached United Nations sanctions which were in place against Iraq at the time. He also said his immediate bosses at AWB knew about and ordered the payments being made. Mr Watson told the commission today that he was in charge of paying the trucking fees to Alia. He said:

Once I was advised of the amount of the ‘trucking fee’, as chartering manager, I organised for the payment of the trucking fee to be made through third parties such as shipowners or Ronly to the nominee of the Iraq Grain Board.

I understood that by the payment of ‘trucking fees’ to Alia that the AWB was making a payment to the IGB or to the Iraqi government. Alia did provide a protective agency service at Uum Qasr port, but AWB was invoiced separately for that.

Mr Watson also said:

I also understood that the payment of the trucking fee could not be made directly or openly to Iraq because of the UN sanctions.

At all times I believed that the payment of trucking fees was made with the knowledge and consent of AWB senior management.

Here we have the outrageous situation that Mr Watson knew that these things were in breach of the UN sanctions, he knew that AWB senior management knew about and consented to these arrangements; yet AWB has apparently claimed these payments as tax deductions.

Today the Cole commission also heard from Mr Trevor Flugge, the former National Party candidate who chaired the AWB from 1999 and 2002. After the fall of Saddam Hussein’s government, the Howard government sent Mr Flugge to Baghdad and paid him, we heard today, $978,000 from our aid budget for eight months work because he was such a great communicator. Now he tells the Cole commission he is pretty much deaf—a virtually ineffective left ear and a right ear which was somewhat impaired. We sent this deaf, gun-toting cowboy to clean up Iraq. Good grief! Of course, Mr Flugge’s hardness of hearing came in relation to the subject of Iraq or trucking fees being raised at a 1999 dinner where AWB executives were present and Mr Flugge’s endeavours to take issue with AWB whistleblowers who claimed the fees paid to the Jordanian trucking company, Alia, were a means of paying kickbacks. The whistleblowers have said that Mr Flugge had approved the use of the London based trader Ronly Holdings, where his daughter worked as a junior administrator, as a middleman to pay the bribes. Given this, I find it absolutely unbelievable that the government should have paid Mr Flugge $978,000 from our aid budget for an eight-month consultancy job in Iraq.

Another example came earlier with the General Manager for International Sales and Marketing of AWB, Michael Long, telling the Cole commission he was happy to use sham wheat sales contracts to circumvent United Nations sanctions because it was the wish of Saddam’s government. This is outrageous behaviour, yet there are people around who are prepared to defend it. For example, last Tuesday, 21 February, the Herald Sun published a letter from former Victorian Liberal MP Richard de Fegely about the Wheat Board scandal which made a claim that was absolutely about the issue of facilitation payments. It said:

… it is well nigh impossible to do business—

throughout Asia and the Middle East—

without some greasing of palms and it is very clear that the AWB would not have won its very significant contracts had some compromise not been made in that extremely competitive environment.

This sleazy defence that corruption is simply a way of life in the Middle East and this talk of compromise cannot be allowed to pass unchallenged. Firstly, it is illegal to bribe foreign officials; it is an express breach of Australian law. Secondly, the AWB kickbacks were an express breach of UN sanctions. The whole idea of the oil for food program was to stop money going into Saddam’s pocket. AWB did more than any other company in the world to circumvent the UN sanctions. Thirdly, we expressly denied we were doing it. We lied to anyone who asked. We lied to the Canadians, to the UN and to the US senators. We looked them in the eye and said, ‘We are not paying any kickbacks to Iraq.’ The Canadians had asked whether we were paying kickbacks, because their government refused to let their wheat board pay any. So much for the idea that everybody was doing it. Mr de Fegely also made a disgraceful attempt at shooting the messenger when he blamed the Iraqi decision to stop buying our wheat on ‘strident attacks on the Howard government’. He could do much worse than listen to his Liberal colleague in this place the member for O’Connor, who said:

And who can blame the Iraqis, given AWB money was flowing into Hussein’s coffers while he was putting down the Shiites, who are the ones in power now.

You’d think they might just bear a grudge.

Indeed! If they are not bribes, they can stand the light of day, they can withstand public disclosure and public discussion; yet all along we have come across this culture of cover-up and denial. Mr Watson, whom I referred to earlier, was not the only one engaged in cover-up. The Cole commission has heard evidence from Mr Tim Snowball—perhaps aptly named in view of the way this scandal is going—that, before a meeting he attended with Mr McConville and Mr Trevor Flugge, AWB’s former head of the Middle East desk, Mark Emons, sent a fax to Yousif Abdel Rahman at the Iraqi Grain Board on 15 March 2000 asking for information to remain confidential. Mr Emons wrote:

We are very concerned to learn from the UN that the Canadian government has taken action within the UN to discover the manner of AWB payments. We ask your assistance … that no information of a confidential nature is released.

Mr Snowball admitted that he was aware, even before the Austrade meeting, that the Canadian government had stopped a wheat shipment from the Canadian Wheat Board because of trucking fees. As I said earlier, so much for the idea of everyone doing it. In fact, we have been in a situation of cover-up all along. As recently as Saturday, the Weekend Australian reported:

AWB has erased a potentially embarrassing section of its code of conduct policy that provided guidelines for employees paying so-called facilitation payments.

When you see what happened here you will see why we believe it is time to get rid of the tax deductibility of these facilitation payments and why we have moved in this direction. The Weekend Australian reported that it had obtained a 2004 version of AWB’s policy, which outlined instructions for AWB representatives dealing with agency, facilitation and related payments. It reported:

The section was deleted in the updated AWB Corporate Ethics and Code of Conduct Policy available on the company website this week—the only substantial change made to the 17-page policy statement in two years. However, the missing section was reinserted later in the week following questioning by the Weekend Australian.

An AWB spokesman said the deletion of the section—a series of questions and answers for employees faced with facilitation payments—was an accident and that the full document was now publicly available. “I still can’t find out how it happened or why it happened,” he said.

We think it is time that facilitation payments ceased to enjoy tax deductibility. It is time the Howard government recognised that as soon as you support facilitation payments you are entering into the culture of bribery and kickbacks which has done this nation’s trading reputation so much damage in recent times. We have had numerous warnings given to the government about what was going on at the Wheat Board. You can go back to December 1999, when the Canadian Permanent Mission to the UN asked about these issues because they understood that the Australian Wheat Board had entered into this kind of arrangement. In January 2000 we had the UN raising concerns with the Australian Permanent Mission to the UN in New York. According to the Volcker report, Felicity Johnston spoke to the Australian Permanent Mission on the issue of irregular payments to the Iraqi regime and asked the Australians to ask AWB whether it had agreed to any financial arrangements with the Iraqi regime outside the UN escrow account. We had a warning in March 2000 when the UN was still asking questions of Austrade’s representative in Washington and requesting further information about AWB’s contracts with Iraq. AWB discussed this with Bronte Moules, the counsellor at the Australian Permanent Mission to the UN in New York. She reported it back to DFAT in Canberra by cable.

We had a fourth warning in October 2000 when the Chairman of AWB, Trevor Flugge, wrote to the Minister for Trade, Mark Vaile, regarding AWB’s recent visit to Baghdad. AWB then had discussions with DFAT about its proposal to engage Jordanian trucking companies and wrote to DFAT in October 2000 seeking the department’s approval for this arrangement. In May 2002 we had yet another warning when the US General Accounting Office presented its report on weapons of mass destruction. That report set out in detail Saddam Hussein’s misuse of the oil for food program, including the imposition of a 10 per cent levy on commodity contracts. There was a further warning in August 2002 when the Minister for Agriculture, Fisheries and Forestry was warned by a prominent Victorian grain merchant, Ray Brooks, that AWB was paying bribes to Saddam Hussein’s regime. He was warned at one of the Mallee machinery field days in north-western Victoria. Mr Brooks was told by the agriculture minister to stop peddling stories like that around. He was told: ‘The Wheat Board is run by farmers of great integrity and honesty, they wouldn’t do that sort of thing.’ It is a shame that the agriculture minister failed to carry out that which the community is entitled to expect of him as agriculture minister and to take these sorts of warnings seriously.

There was a further warning in June 2003 when an Australian representative on the CPA, Michael Long, received a memorandum of instruction from the CPA which asked ministry advisers to identify any contracts which had:

... a kickback or surcharge of (often) 10 per cent.

Mr Long forwarded this memorandum of instruction to the Department of Foreign Affairs and Trade. They forwarded it to the AWB in June 2003. There was a further warning in June 2003 when US Wheat Associates wrote to the US Secretary of State, Colin Powell, expressing concern that some of the money paid under AWB contracts may have gone into accounts of Saddam Hussein’s family. Again we had the trade minister reject these allegations from the US out of hand. He described them as ‘ludicrous’ and ‘insulting’.

I will run out of time to list all the other warnings, but they happened in August 2003, September 2003, October 2003 and September 2004. All these warnings were ignored. It is disgraceful that the government ignored warnings from the United Nations, warnings from Canada and warnings from wheat farmers in Victoria. It has taken until now, with the loss of this wheat contract potentially worth up to $800 million to Australian wheat farmers, for the Prime Minister to finally get involved in this issue.

This is a shameful situation. We get told that the Middle East and Asia are such corrupt places that we have to do this in order to do business there. No, we don’t. It is not that they are corrupting us; it is that we are corrupting them. It is time to stop. No more getting around the United Nations sanctions, no ignoring the OECD and no looking the Canadians and Americans in the face and telling them barefaced lies. And here is a good place to start. We should start by getting rid of tax deductibility for facilitation payments and getting Australia’s trading reputation back on the course that it needs to be on.

Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Link to this | Hansard source

I would like to start by firstly thanking all those members who have taken part in the debate on the Tax Laws Amendment (2005 Measures No. 6) Bill 2005. The first measure in this bill modifies the consolidation loss rules. Industry has expressed concerns to government that, where a joining entity with a relatively small market value joins a much larger consolidated group, the current rounding rules in the consolidation regime could cause the joining entity’s available fraction to be nil. The available fraction is used to regulate the rate that a consolidated group can use for losses of a joining entity. This meant for consolidating groups an available fraction of nil, effectively cancelling the losses of that joining entity. This amendment allows consolidated groups to round the available fraction for a bundle of losses to the first non-zero digit if rounding to three decimal places would result in an available fraction of nil. This is a positive initiative for industry in that it ensures the method for calculating the rate at which the head company of a consolidated group can recoup a joining entity’s losses operates as intended.

On 30 May 2005 in a press release by the previous Minister for Revenue, it was announced that the government would amend income tax law to ensure certain not-for-profit organisations would not be subject to tax on mutual receipts as a result of the Coleambally Federal Court decision. The court’s decision potentially affected between 200,000 and 300,000 not-for-profit entities, including clubs, professional organisations and some friendly societies. The second measure in this bill gives effect to the government’s commitment. By way of background, under the mutuality principle, membership subscriptions and receipts from other mutual dealings with members are not liable for income tax. The court’s decision held that the principle of mutuality could not apply where an organisation is prevented from distributing to members. The government’s amendment today restores the longstanding benefits of the mutuality principle that applied prior to the court’s decision.

The third measure in the bill ensures that the changes made to the child-care benefit work/training/study test announced as part of the government’s Welfare to Work package will not result in taxpayers who work part time losing their eligibility for the child-care tax rebate. To be eligible for the rebate, families must receive the child-care benefit for approved care and meet the child-care benefit work/training/study test. The Welfare to Work package introduces a requirement that a taxpayer must work, train or study for at least 15 hours a week or for 30 hours over two weeks to meet the child-care benefit work/training/study test. Taxpayers will not need to satisfy the new hourly requirements to achieve the child-care tax rebate. Taxpayers will continue to be eligible for the rebate if they receive the child-care benefit for approved care and work, train or study at some time in the week.

The fourth measure in this bill amends the definition of ‘eligible medical expenses’ to exclude solely cosmetic procedures from the medical expenses offset. Specifically, solely cosmetic procedures are excluded from the medical expenses offset under two broad categories—that is, general medical expenses and general dental expenses. The government considers that the medical expenses offset should cater to those taxpayers with significant medical expenses arising out of legitimate medical need. Taxpayers claiming the medical expenses offset in respect of procedures for legitimate medical need—for example, reconstructive surgery or laser vision corrective surgery—will not be affected by this measure. The final measure in the bill amends the list of deductible gift recipients in the Income Tax Assessment 1997. Deductible gift recipient status will assist the listed organisations to attract public support for their activities.

In closing I want to address some of the issues raised in the House earlier tonight by the member for Hunter in relation to his amendment to the motion that the bill be read a second time. I want to address what has, really, become a political stunt for those opposite. I want to put it into perspective and recall some of the detail from Senate estimates hearings at which Senator Sherry was undertaking questioning of Mr Monaghan, from the Serious Compliance Section within the Australian Taxation Office, and Mr D’Ascenzo, the Commissioner of Taxation. This goes to the core of how true the motivation of the Labor Party purports to be but in fact is not. Senator Sherry asked:

... from the ATO’s perspective do the slightly different definitions contained in the Criminal Code and the Income Tax Assessment Act present any practical problems?

Mr Monaghan—We do not believe so. Our view is that the policy intent is reflected in the wording. In terms of our legislation, it is about a tax deduction and whether or not that is allowable. The Crimes Act is about a criminal matter. You might expect there to be more precision in that wording. So we do not believe there is any particular issue in that.

It is important as part of this debate to expose what the Labor Party is about in moving this amendment and to say that a bribe to a foreign official is not a deduction under our taxation laws. Equally, a bribe to a local official is not deductible.

Opposition Members:

Opposition members interjecting—

Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Link to this | Hansard source

It is not appropriate for me to comment on the commercial activities of the AWB or its taxation treatment. If those opposite really want the government to be interfering in what is quite rightly the independence of the taxation commissioner, then they should make that very clear. In reality that is what they are drawing into this debate. It is quite inappropriate and it is quite improper, and we reject it out of hand.

Can I assure the House tonight that any suggestion that the AWB has received or will receive favourable treatment from the tax office is clearly wrong. The tax office has in place a number of rigorous systems to ensure that taxpayers are treated equally under the law. The commissioner administers the law in our self-assessment tax system on the basis of risk management. Risks to the tax system are continually assessed by the ATO and published by the commissioner annually in his compliance program. Taxpayers are selected for audit or compliance action based on those processes.

I note the claims that the tax office has not done enough in this area, and some of those opposite would criticise the ATO for that. But I do not think anyone should ever accuse the tax office of a lack of commitment to collecting the right amount of tax. It is quite unfair that, as part of this debate, the Labor Party should try to run a political stunt in what is a very serious issue before the House tonight.

The government is committed to this bill. The government is very serious in trying to provide certainty to taxpayers in relation to tax laws, and it does not support the stunts put forward by the Labor Party. If we need any greater recognition of the Labor Party being all over the place on this issue we can turn to the comments by the final speaker in this debate, the member for Wills, who went to the point in relation to facilitation payments. He suggested, and the Hansard will show this—the Hansard should also record the smiling face of the member for Hunter, because he knows what I am going to say; he knows what the member for Wills said in this place only a few moments ago, in complete contradiction to the shadow minister—that the ALP should abolish facilitation payments.

That is in stark contrast to the words uttered by the member for Hunter earlier today. In this debate the Labor Party are divided on this issue. If anybody needs recognition of the fact that this is a political stunt, that the Labor Party have not got their act together and that they are each running in different directions, all they need to do is view in Hansard the comments of the member for Hunter, the member responsible in the Labor Party for this matter, and the comments made by the member for Wills. They really do expose that this is a political stunt. It is shameful for the Labor Party to be embarking on this course in such a serious matter. As part of that, I commend the bill to the House.

Harry Quick (Franklin, Independent) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Hunter has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The immediate question is that the words proposed to be omitted stand part of the question.

Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Link to this | Hansard source

I raise a point of order, Mr Deputy Speaker. I understood that there was an arrangement—

Ian Causley (Page, Deputy-Speaker) Share this | Link to this | Hansard source

No. I ask the question again that the words proposed to be omitted stand part of the question. There being more than one voice calling for a division, in accordance with standing order 133 the division is deferred until 8 pm.

Debate adjourned.