Wayne Swan (Lilley, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

The Tax Laws Amendment (2006 Measures No. 1) Bill 2006 deals with a number of measures and appears in the context of the Treasurer’s comparative tax inquiry announced on the weekend and subsequently repudiated by the Prime Minister in his remarks when he said that we do not need substantial tax reform. I do not believe that Australians need a Clayton’s inquiry to tell them this country urgently needs tax reform. The elements of that reform, I think, are relatively simple. They are needed to put some incentive in the tax system and to make it simpler, fairer and more competitive.

It seems the Treasurer needs to have an inquiry to tell him what everyone else knows. He set up a task force of Treasury officials headed by Dick Warburton and Peter Hendy, but what is their remit? It is not to offer suggestions for reform, but simply to rank Australia’s tax system against other tax systems. As I pointed out this week, he could have downloaded the relevant tables for free from the OECD website.

The Treasurer complained on the weekend that the tax debate does not take into account overseas state or city taxes when comparing them with Australian taxes. Tables 1.1 and 1.2 of the OECD tax database tell us ‘Central, subcentral and combined personal income tax rates’—that is, just the city and state-level taxes that the Treasurer was talking about. He has also complained that international comparisons do not take account of European social security contributions. Table 1.3 of the OECD tax database reports ‘All-in average personal income tax rates’—that is, income tax, plus employee social security contributions.

Even if we took the Treasurer seriously and thought there was not enough international benchmarking of Australia’s tax system, he would be ignoring the tax policy documents from Peter Hendy’s own organisation, the Australian Chamber of Commerce and Industry. ACCI’s taxation reform blueprint has pages of international comparisons of Australia’s tax system dealing with R&D tax, corporate tax, CGT and personal tax against international benchmarks. ACCI, among many others, has already done the work, and I could cite many other pieces of work. On top of that, we have a closed, private inquiry which leaves ordinary taxpayers unrepresented. So this is a tax inquiry which disenfranchises average taxpayers. It is an inquiry into a tax system that is in serious need of reform but an inquiry which is not allowed to make any recommendations about that reform.

This is all very puzzling. I think it is really only explained in terms of the Treasurer’s even more bizarre behaviour that we saw over the weekend—his foray into social policy, his claim that he had been deeply scarred by the introduction of the GST and his ‘Look at me!’ performance at the Press Club yesterday where he claimed that, after 10 years in office, suddenly he might decide to change some of the settings to make them more friendly to women. He runs a tax system that absolutely punishes second-income earners in households that face some of the highest tax grabs anywhere in the Western world. This has been very well documented by the OECD, but if you look at the terms of reference for the Warburton inquiry you will see that there does not appear to be any real mention of intersections between the tax system and the transfer payments system, which is where most women are suffering horribly in the tax system.

We know that when the Treasurer appeared at the Australian conference last year, he said that he did not consider effective marginal tax rates were a problem at all. I think he repeated that lewd line yesterday at the Press Club. Marginal tax rates are a big problem when second-income earners want to work more hours and suddenly find they are going to lose 60c in every additional dollar they earn after the withdrawal of transfer payments. They know all about how unfair this tax system is and why it urgently needs reform. It urgently needs reform because it is an impediment to participation and a huge handbrake on productivity in this economy.

This matter does not even appear to get a mention in the terms of reference for the inquiry. Why did we get the inquiry? It has enabled the Treasurer to cartwheel across the political stage in the space of a weekend—to go from being anti reform to some position which might be almost pro reform to get himself out of the jam that he got himself into in the second half of last year on tax.

I certainly hope we do see some substantial reform, because there are many people out there in the Australian economy who deserve that reform, and the economy needs it if we are going to get the improvements in productivity that are required to make us a much more competitive nation and to deal with some of the structural problems that the Treasurer is in denial over. Those structural problems were demonstrated yesterday in the national accounts, where our very poor export performance was there for everybody to see. Unless we improve that export performance, our foreign debt is going to continue to escalate and net foreign liabilities will continue to go through the roof. There is a very strong argument for tax reform as part of a wider suite of measures required to lift productivity and competitiveness, because sooner or later those levels of debt—our appalling trade performance—will catch up with this country.

It is crucial that governments regularly assess the competitiveness of their tax arrangements and make policy judgments accordingly. The design of our tax system has the potential to influence both capital and labour markets. With highly mobile capital and increasingly mobile labour, countries with uncompetitive tax regimes will suffer. A top-notch tax system is crucial to our success in the global economy.

By international standards, Australia’s personal tax system is too complex and marginal rates are too high. While other countries have been getting on with the task of simplifying their income tax systems, we have been adding to the complexity of ours. According to the OECD personal income tax database, the comparative complexity of Australia’s tax system has been increasing relative to other countries—another achievement of Treasurer Costello in the last 10 years! Five years ago nine other OECD countries had more complex marginal tax rate structures, but in the latest tables only four can claim to be more complex. That is on the public record already. I suppose this will be presented as a revelation in the findings of the inquiry.

Our race towards claiming the title of the world’s most complex tax system is borne out by the Treasurer’s slashing of the tax act from 3,500 pages, when he was elected, to 9,500 pages! That is not a bad record in 10 years, Treasurer—3,500 pages to 9,500 pages! No wonder we had this cartwheel—this 180-degree turn—over the weekend, with Dick Warburton and Peter Hendy as the spokes. This Treasurer has a dreadful record. The nature of that record was being exposed by his constant refusal to admit that there were any problems in the system. That is why we had the inquiry appointed last Sunday.

The OECD also reveals the high marginal tax rates faced by personal taxpayers in Australia and the trend overseas to embrace lower marginal rates. In 2004 Australia had the ninth-highest top statutory marginal tax rate compared to the 10th-highest five years ago. Last year our top statutory marginal tax rate, at 48.5 per cent, was considerably higher than the average of 44 per cent and the median of 42.8 per cent, both of which are down around three per cent compared to five years ago. That is on the record.

Furthermore, as I was saying earlier, the marginal tax rates faced by many of those on lower incomes are even higher—much higher—once the withdrawal of our complex array of transfer payments and tax offsets is taken into account. That is a huge brake on participation in the workforce. Precisely at a time when labour shortages are emerging in key areas we have an intersection between our tax system and our transfer payments system that stops a lot of women from working longer, even though they want to. This matter is barely even mentioned in the terms of reference of the inquiry. A single-income family on average earnings has an effective marginal rate of 51.5 per cent, the second highest in the OECD. That is up from 35.5 per cent 1996, when we had the 15th-highest rate. That is on the record. Presumably it will be published in the report. The same family type on the minimum wage currently has an effective marginal rate of 104.5 per cent. That is a shocking thing to do if you are interested in moving people from welfare to work and increasing participation.

Easing the burden on low-  and middle-income earners, many of whom pay the highest effective marginal tax rates, must be our first priority when we are talking about reform. High EMTRs are important because they reduce incentives to participate in the labour market, increase skills and save. That was the motivation behind Labor’s response in the 2004 budget—a response that produced twice the reform that this lazy Treasurer produced in his budget.

Labor is convinced of the need for a simpler system. A powerful case is emerging for a personal income tax system with fewer and lower marginal rates and a streamlined system of tax offsets and personal income tax deductions. Adopting a tax system with fewer and lower marginal rates does not mean that we abandon the important principle of a progressive tax system. On the contrary, we are a strong believer in a progressive tax system. A progressive system is important because it recognises that those on higher incomes have an increased capacity to contribute more tax because their non-discretionary spending takes up a smaller proportion of their income. I believe we can design a flatter marginal tax rate structure with as few as three marginal rates. It can be designed in a very progressive way.

Advocates of flat taxes do not seem to understand that this factor is the reason that we have a progressive system in the first place. You will see all the arguments come out in this debate from those who really want to redistribute the tax burden further down to low- and middle-income earners. I want to make it very clear that Labor is absolutely committed to a progressive tax system, unlike certain sections of those opposite.

Simplified personal income tax systems, with fewer and lower marginal rates, are common overseas and ought to be considered in the Australian context if they are affordable and fair. Such systems typically operate with a generous personal tax-free allowance that could be considerably more generous than our existing general tax-free threshold. It would potentially remove the need for many low-income earners to pay any tax and massively improve the rewards to move into the labour market. Overseas, the personal tax-free allowance is typically withdrawn at higher incomes with the trade-off of lower marginal tax rates.

At the very least, the experience of reform overseas shows it is possible to adopt a simpler and flatter tax structure that can reduce the tax burden for everyone, reduce the highest effective marginal tax rates and remain progressive. The extent to which marginal tax rates could be reduced depends on a range of factors including the desired distributional outcomes and the ability to finance the overall tax reductions. And there is a strong case for paying special attention to single and couple taxpayers without children who are on average wages or less. The OECD makes it clear that such taxpayers have faced an increased tax burden under the Howard government, transfer payments included or not.

From an international perspective—as the Treasurer should know—comparisons of Australia’s tax system to what is going on elsewhere are well documented. But there are a few facts that ought to be put on the record here today. Wage earners on around average earnings or less are losing a greater share of their gross earnings in tax today than in 1996. Typical Australian families face the second highest effective marginal tax rates in the OECD. OECD studies have shown that Australia has a heavy reliance on income taxes which are used in part to churn money back to households as transfer payments.

If the Treasurer asked ordinary taxpayers, the Treasurer would find what we already know, and that is that the Australian tax system needs reform. It needs reform up and down the scale, but particularly to reward the hard work of middle-income earners. It needs reform to encourage participation, particularly for those who should be in the workforce but who face the sting of losing too much of their social security payments. It needs reform to be fairer and simpler. The thousands of pages of the tax acts have simply grown out of control and need serious pruning.

That brings me to a number of the measures in the bill before the House. This bill introduces a range of measures to assist temporary residents. Specifically, it creates an exemption from Australian income tax on income derived from outside Australia for individuals who are considered to be temporary residents for tax purposes. As I have said before, we need to make sure that the tax treatment of highly skilled foreign executives is not disadvantaging the international competitiveness of Australia’s businesses in the hunt for top global talent.

Considering the dire skills shortage that is constraining Australia’s economic growth and putting pressure on prices and wages, there is a lot to be said for measures that allow Australia’s businesses to meet their demand for skilled employees. There is a lot more to be said for this government and the private sector getting stuck into investing in our own people first and foremost. They should not be using the immigration system as a substitute for training Australians here at home. But the fact is that there are some significant skills shortages. They are a consequence of the Howard government’s chronic underinvestment in Australia’s education and training system.

The bill also allows certain business expenditures to be tax deductible. One of the effects of the bill is to make James Hardie’s compensation expenses tax deductible. This is something that the Treasurer said he would never do. I am pleased to stand here and say that he has done it. The only problem is that we have not heard the Treasurer say it. But he did do it, and, even though he will not say it publicly, I will give him the credit for doing it. I will not give him the credit for being so mum about it. This is a necessary part of the arrangement to make sure that James Hardie bears the burden for the long-term consequences of its shameful practices that have ruined so many people’s lives.

If this arrangement had not gone through—and for a while it looked like it would not, because the Treasurer was going to block it—Australian taxpayers would have had to have borne the burden of health care, disability support payments and pensions for the default of James Hardie, so I am pleased this bill is before the House. It is beneficial not only for those directly involved but for the nation as a whole.

The bill also includes measures to deter the promotion of schemes to avoid or evade tax. These measures are welcome, though I note that the problem of promoting tax avoidance has been around for a long time and has done a lot of damage to the integrity of the tax system, and it has taken the government years to do anything about it. There is also a minor amendment to the tax treatment of prepaid phone vouchers.

I now want to turn to Labor’s proposals and Labor’s amendment. The amendment we are moving to this bill addresses concerns about taxpayers subsidising the payment of kickbacks in developing countries under the guise of legitimate business expenses deductible under tax law. These so-called facilitation payments are not illegal under criminal law—if they are minor, if they do not involve paying for decisions about how contracts are awarded and if careful records are kept. But the standard for tax law is different. Under the tax law, a facilitation payment can be deducted even if it is not minor and there are no records kept.

The OECD reported on 4 January that the gap between the tax law and the criminal law ‘may provide scope for abuse’. That is why Labor is moving an amendment that will bring our laws relating to facilitation payments into line with OECD standards. We will try to make sure that only minor payments can be claimed as tax deductions and that such payments are recorded. I commend Labor’s amendment to the House.

Don Randall (Canning, Liberal Party) Share this | Link to this | Hansard source

I am very pleased to speak on the Tax Laws Amendment (2006 Measures No. 1) Bill 2006. At the beginning, I would like to say that it is a historic day in this parliament. Today, being 2 March, is the 10-year anniversary of the Howard government. I am very pleased to stand here on this historic day to have a few words to say on this bill. I am pleased to be here because I did not serve the whole 10 years, as some people will know. I had a rest for three years and came back to represent another seat. I am very proud to represent the Howard government in my electorate of Canning. I am very proud also to be a member of such a successful government, led by arguably the best Prime Minister this country has ever seen.

That is why I find it almost amusing to see the member for Lilley having such a bellyache about the Treasurer having done such a terrible job. We have had eight surpluses, we have had incredible growth, we have low home loan mortgage rates and we have low inflation. All the fundamentals are right. The Australian economy is a model economy by world standards. And the member for Lilley has a diatribe bagging the Treasurer. As the Prime Minister has said, he is probably the best Treasurer that this country has ever seen. So we have the best Prime Minister and the best Treasurer, and long may they reign in their current positions. I am very proud to serve under them, and I hope it is for a long time.

Addressing the matters before us today, I would like to talk about the foreign income exemption for temporary residents. That is an excellent move, and this bill tidies up a number of issues. Providing this exemption sends a signal to quality executives that they will not be disadvantaged by bringing their excellent skills and abilities to Australia. In fact, in broad terms, the new rules will provide temporary residents with a tax exemption for most foreign sourced income, capital gains and interest withholding tax obligations associated with foreign liabilities. This is a significant departure from Australia’s current approach to taxation, and I endorse it. Obviously in some respects it addresses the brain drain, and that is a very good measure.

Another issue this bill covers is business related costs. The measure introduces a systematic treatment for businesses’ black hole expenditures, and it provides a new five-year write-off for business capital expenditures not taken into account and not denied deduction elsewhere in the income tax law. Capital expenditure incurred in relation to past, present and prospective businesses will be deductible to the extent that the business is, was or is proposed to be carried out for a taxable purpose. The final element is in relation to the GST on vouchers and prepaid phone products. The measure will ensure that prepaid phone products are treated as eligible vouchers for GST purposes and ensure that the GST is paid on the face value of the voucher when it is used.

Those are some of the measures in Tax Laws Amendment (2006 Measures No. 1) Bill 2006, but the main reason I rise today to speak to the bill concerns the measures to deter the promotion of tax exploitation schemes. This issue has been very much on my radar. It is an issue that I am very conscious of, and I have spoken many times about it in this House. These measures are well overdue. In fact, what has really happened in this debate is that the cart has been put before the horse. The Taxation Office, led largely by Mr Michael Carmody, persecuted the people involved in these schemes—those who were taken in by the schemes—but let the promoters off scot-free. So we had in many cases people who had entered into schemes—quite legitimately, they believed—offered by their accountants and by very sound advisers, and the people who promoted these schemes took the money and lived happily ever after. Then the poor people bound up in the scheme were persecuted for years by the Australian tax office.

To me, it has been one of the most galling episodes of maladministration of the Australian tax office we have ever seen because it had such a retrospective nature. Before the ROSA reforms, people were being pursued for more than six years by the Australian Taxation Commissioner. Of course, not only did that cause heartache but it caused businesses to go bankrupt, the break-up of families and, in many cases, suicides and untimely deaths of people who just could not take any more. Finally this issue is being addressed. I note that this legislation should have been in the House a long time ago, because it was originally proposed by Minister Coonan, then Assistant Treasurer, in 2003. Here we are in 2006, and it is finally getting up. Well done: we have finally got these effective measures in the House. They will deter the promotion of tax avoidance and tax evasion schemes and protect the integrity of the product ruling system administered by the ATO.

The ATO has had a sad history of rulings. You only have to look at the Petroulias affair and what a disgraceful performance that was. There was Mr Petroulias, the white-haired boy of Mr Michael Carmody, who handed out private rulings like confetti—and now he is in court with the Australian Taxation Office, largely because he fell out with his mate Michael Carmody. We know this case is continuing, so I will not say any more. But many of the people who entered into these schemes did so because they believed promoters when they told them they had a private binding ruling that applied to the scheme they were promoting. As we have since found out, it did not apply to that scheme at all; it only applied to the individual or the individual case and it was not able to be extrapolated to other schemes or programs. These poor people—mums and dads, small business people—invested heavily in these schemes, thinking they were quite legitimately offsetting their tax.

At the outset I will say that there is a complete misunderstanding in this country that, if you try to minimise tax, you are doing something wrong. It is your obligation under the law in this country to legally minimise your tax. It is ridiculous to be paying far more tax than you need to. Anyone with half a brain would try to keep as much of the money that they earn as they can rather than give it to the Australian tax office.

Tony Windsor (New England, Independent) Share this | Link to this | Hansard source

That’s a criticism of the government!

Don Randall (Canning, Liberal Party) Share this | Link to this | Hansard source

I am happy to criticise the government if it is wrong and, in this case, the government is, as I have said, acting—albeit slowly. But one of the great defences is: ‘The Australian Taxation Office is an independent statutory authority. We cannot attack it; we have got to let them administer themselves.’ I am sorry, but I think that is wrong. In the case of the Australian Taxation Office, maybe more of the decisions, particularly legislative changes, should come back to this parliament before the Australian Taxation Office decides that they are going to make changes. We have seen this so many times. When some of the changes were made, having decided that a scheme had become far too unwieldy and had to be retrospectively dealt with, how did Mr Michael Carmody deal with it? He would put out a press release or put it in a speech. That was supposed to be the signal to everybody out in the community that the Taxation Office had made a ruling—a press release or a speech to some luncheon group. Get off it!

We have to try and give people some real direction in their business affairs in this country rather than the slapdash method that Michael Carmody offered. I notice that he is no longer there. He is off trying to fix up the Australian Customs Service, which is in a mess too. Goodness knows where the containers will end up! You can see that I have a very dispassionate view of Mr Michael Carmody, because he basically screwed the Australian Taxation Office and the people whom he was presiding over.

Let us get to some of the elements of this measure to deter promoters. I want to give one example before I continue to demonstrate how innocent some of these people were who got involved in these mass marketed schemes. A couple, who were on a very low income, came into my office. The gentleman was a gardener at the local school and his wife was a cleaner. They borrowed $12,000 to take half a unit of Budplan and half a unit of lemongrass—I think that is what it was called—and, as a result, their liability through penalties and interest was $40,000. They had borrowed the $12,000 to go into these two stupid schemes and they had a liability of $40,000, which of course they could not pay. They were about to lose their house until I was able to make representation to the minister for a compassionate waiver. How many other couples are there in the country like this couple who need compassionate consideration? They were sucked into a scheme which was quite ridiculous and which they could not afford.

Just for the sake of informing the House in this debate, I will outline the definition of a promoter:

(1)

An entity is a promoter of a tax exploitation scheme if:

(a)

the entity markets the scheme or otherwise encourages the growth of the scheme or interest in it; and

(b)

the entity or an associate of the entity receives (directly or indirectly) consideration in respect of that marketing or encouragement; and

(c)

having regard to all relevant matters, it is reasonable to conclude that the entity has had a substantial role in respect of that marketing or encouragement.

(2)

However, an entity is not a promoter of a tax exploitation scheme merely because the entity provides advice about the scheme.

(3)

An employee is not to be taken to have had a substantial role in respect of that marketing or encouragement merely because the employee distributes information or material prepared by another entity.

That is the long-winded definition of what a promoter is. The definition of a tax exploitation scheme is:

... if … it is reasonable to conclude that an entity that … entered into or carried out the scheme did so with the sole or dominant purpose of … getting a scheme benefit from the scheme ...

Those definitions are now on the record. Let us look at what the bill does to deter the promoters of these exploitation schemes. There will be civil fines up to a maximum of $550,000 or twice the fees a promoter earns from the scheme. How is the $550,000 arrived at? It is 5,000 penalty units, and a penalty unit is $110 per unit. So that is the maximum penalty for promoters of these schemes.

Lawyers and accountants have had a little trouble with this legislation. They were very concerned that their professional advice may see them caught up in the penalties and sanctions under these amendments. They obviously lobbied pretty hard because they ended up getting their way. In some respects, I have a bit of a problem with that, because they are paid for their advice. It was deemed that unless they were seen as promoters—other than their giving advice—they would be exempt from this legislation. As I said, I am not totally comfortable with that decision. However, I will move on.

Tony Windsor (New England, Independent) Share this | Link to this | Hansard source

I was enjoying that.

Don Randall (Canning, Liberal Party) Share this | Link to this | Hansard source

You were enjoying the silence, were you? There is another group of people who gets caught up in these schemes. A most recent case involves the exploitation of employee benefits arrangements. Yesterday, in an article on news.com.au, Katharine Murphy and Elizabeth Colman wrote:

The Inspector-General of Taxation has urged the tax office to offer a more generous settlement to people caught in a bitter dispute over minimisation schemes.

The intervention by David Vos yesterday followed confirmation the ATO will offer 400 taxpayers caught in the schemes—known as employee benefit trusts—a new settlement deal, waiving their fringe benefit tax debts.

Mr Vos negotiated this agreement. A little piece at the bottom of that article says:

The ATO’s handling of the dispute came under attack, with several Coalition backbenchers, led by West Australian Liberal MP Don Randall, criticising former tax commissioner Michael Carmody’s handling of the issue.

It is good to see that someone has realised that a few of us have been pursuing this issue for some time. This would not have been achieved, as I have said to the House previously, unless the former Assistant Treasurer, Mal Brough, had decided that he would take a hand and that people who were having trouble settling with the Australian Taxation Office would be offered settlements. It was taking so long to get any communication from the Australian Taxation Office that these debts blew out. For example, I was visited by some people from the electorate of the member for Swan who had a $40,000 primary tax bill. They own a tank company in Canning Vale and they had a bill of over $1 million because of penalties, interest, primary tax, fringe benefits et cetera. They just could not pay the $1 million. Obviously, they were trading whilst insolvent, and the grief that this was causing these two businesspeople was just unbelievable.

I congratulate the minister, because he brought in the Australian Taxation Office, sat the businesspeople down with their advisers and had a look at the bill they faced. They ended up having only one taxing point and not three, the penalties coming down from 50 per cent to five per cent and the interest coming down from, I think, 13 per cent to 4.7 per cent. That is quite reasonable. Their bill came down from about $1 million to about $100,000, which they could pay, particularly when they were given some consideration and time to pay. That was a really good outcome, and that is what should have happened.

This is one of my great concerns. I say to the people—if there is anyone out there listening to this debate—that the Public Accounts Committee of this parliament is holding an inquiry, led by its chairman Tony Smith, into the administration of the Australian Taxation Office. I encourage all people in Australia who have ever had a problem with the Australian Taxation Office and its administration to make a submission to that inquiry. If they do not make a submission, everybody will think everything is fine. As a result, they will end up being treated much the same by the current Commissioner of Taxation, Mr D’Ascenzo, for whom I do not have a great deal of respect because he is just a clone of Michael Carmody—but that is another issue.

Government Member:

Oh!

Don Randall (Canning, Liberal Party) Share this | Link to this | Hansard source

It is true. He has never worked anywhere else. He has only ever worked in the Australian Taxation Office. That has been his only job, all his life. Believe it or not, one of the other natives in the woodpile is Mr Fitzpatrick, who is now their senior counsel. I met with him and a group of other people in this House and he said about a court case that was adverse to the Australian Taxation Office: ‘We’re going to ignore it, because we don’t like the ruling.’ We said, ‘What are the people going to do who end up being exposed to you as a result of your ignoring this ruling?’ He said, ‘They can take us to court.’ That was his attitude, Fitzpatrick—‘Take us to court.’ How can poor little Mr and Mrs business man and woman out there in voter land take on the Australian Taxation Office in court for years and years? Of course they cannot. That is the arrogant and disgraceful behaviour of the Australian Taxation Office, led by the people whom I have mentioned. That is why people have to make a submission to Tony Smith’s inquiry through the Public Accounts Committee of this parliament and let the committee know if they have been subject to any of that.

Mr D’Ascenzo has put out a booklet called, Making it Easier to Comply. Page 30 mentions the ‘Review of Aspects of Income Tax Self Assessment’—in other words, the ROSA review. What Mr D’Ascenzo is saying here is that from now on, as a result of legislation in this place late last year, the tax office cannot go back more than two years. If the tax office has not dealt with your taxation issues within two years, the issues stand. After that period, a taxpayer’s income tax assessment will generally not be amended unless—and here is the worry, and why we are going to have a close look at this legislation—they have been involved in tax avoidance or have deliberately sought to evade their tax responsibilities. This is within the purview of the taxation commissioner. So he still has a subjective ability to review income tax assessments past two years. That is an issue we need to have a look at.

This legislation is timely. It should have happened a long time ago. The promoters of these schemes should not have been allowed to drag people into schemes, grab their money and run off into the business world and see those people persecuted. (Time expired) 

Tony Windsor (New England, Independent) Share this | Link to this | Hansard source

I was interested to hear the wide-ranging speech by the member for Canning. I would like to make a few comments on tax reform and tax policy generally but, firstly, I extend my congratulations to the Treasurer on his 10 years of service to the nation. Obviously there have been occasions when we have disagreed with him, but I think the Australian people, in general at least, would suggest that he has been able to keep a reasonably firm rudder on the economy over his 10 years. The next 10 years will be different. A number of tax reform issues are coming forward. It has been one of the positives of the last six months that many members have raised those issues. The Parliamentary Secretary to the Minister for the Environment and Heritage, who is at the table, Mr Hunt, is one of these people, and there are others as well.

Before I get into the general tax reform area and the changes that I believe need to be looked at, let me say that the concentration on tax policy that has been a feature of the last few weeks should not forget about the priorities of the electorate. In my electorate—and I think most surveys that have been carried out in other electorates show this—there is a feeling, irrespective of the custodians in some cases being, obviously, the states, that the spending on the health budget needs to be increased both at a state and Commonwealth level. I would argue that in any reform that takes place the key focus should be on health and education spending. It would be counterproductive to give back $2 or $3 a week to the electorate at large through tax reform if people were not able to engage a doctor or find a bed in a hospital or send their children to university. A balancing act needs to occur. We do not want to lose sight of what our taxes are raised to do. There is a legitimate debate about how we raise that money, who we raise it from, and how it is spent.

I would like to mention a few things about policy changes. Whilst the parliamentary secretary is at the table, I will proceed to an issue that is of major concern in the north of New South Wales. I know he has recently spent some time looking at the Cubbie issue; I will not debate that matter today. I wish him well in his determinations with regard to that issue. In the Namoi Valley, he would probably be aware of the issue of Commonwealth government taxation policy and the way it is impacting on the compensation that is due to the ground water entitlement holders for the loss of ground water entitlement. The irrigators in that area, I stress, are ground water irrigators, so the water they are using cannot be just left to the market, because it is not fluid in that sense; it is ground water. It is not to be confused with water held in storage or in the river systems.        

But the ground water users in that area—and there are something like 700 of them—agreed, through the National Water Initiative process, to embark upon a three-way compensation arrangement: $50 million to be contributed by the Commonwealth government, $50 million by the state government and $50 million, partly in kind, by the entitlement holders. This was to establish a process so that the entitlements could be adjusted down to a sustainable level, and I do not think anybody would argue about that. In a sense, current water entitlement holders were embarking on this process of adjustment for the long-term good of the ground water resource and the obvious benefits that will have for future generations.

The Prime Minister and the then Premier, Bob Carr, announced this program with great glee and saw it as one of the initiatives of the National Water Initiative. What they did not happen to say on that day—and the irrigators have only recently found out about it—is that the contributions being made by the irrigators, the state and the Commonwealth are going to be assessed as income for taxation purposes. So, even though the Commonwealth is giving a third of the money—and the entitlement holders are very appreciative of that—in some cases, depending on the individual’s taxation system, some of that money will be totally returned by way of income tax assessment. The problem there is that they are actually losing a capital asset that should not be assessed as income, and there is a difficulty here. I have raised this issue with the Prime Minister on a couple of occasions, and I thank him, for he has written back as well as having answered questions in question time. The problem is that, in discussions with the taxation commissioner, the Prime Minister is saying that, based on long-term arrangements, this compensation would be considered as, in a sense, a subsidy for or a bounty to those people and, as such, be assessed as income. That rankles the entitlement holders because they were not told that this would be assessed as income when they entered into the arrangement as a one-third shareholder. However, the Prime Minister had that determination from the taxation commissioner.

The difficulty here—and this is why I am pleased that the Parliamentary Secretary to the Prime Minister is here today—is that we should not keep going back decades and, in a sense, applying old tax law to new resource management policy. The government deserves to be congratulated for putting in place the National Water Initiative. There are a lot of jagged edges, and it will take time to be bedded down, but the general principles are good. The general principles of looking at water across state boundaries and working with users of water and with the environment towards sustainable goals are good objectives. The parliamentary secretary is attempting to do that, I hope, with the debate about what is happening on the New South Wales-Queensland border with Cubbie Station. The Premier of New South Wales, the Prime Minister and others took great credit in putting in place the ground water program, one of the first initiatives of the National Water Initiative. In effect, the users of the water, the state and the Commonwealth, under the so-called leadership of the Commonwealth through the National Water Initiative were able to come to an agreement where these people could be assisted, and the environment generally, and the resource made more sustainable. But, at the first jump we saw a determination by the Australian Taxation Office that this is to be assessed as income, because, in the Prime Minister’s words, that is the way it has been done; it was done by the Labor Party, and it has been done by the coalition.

The suggestion I would make to the parliamentary secretary and to the Prime Minister is that we are entering an era of new resource management policy. If this cannot be avoided by way of current tax law, we need to adjust the tax law to take these new initiatives into this century. With something like the compensation arrangement for the loss of an entitlement, the recognition—even though I have some argument with this—of the property right issue in the National Water Initiative and some of the COAG arrangements and the national action plan agreements et cetera that have been put in place, our tax law does not reflect on that favourably. The precedent that is going to be set here if this is allowed to take place will have an impact on any entitlements, particularly in the farming community, where it may be in relation to the reduction in land clearing for the greater good of the community, where a compensation arrangement is put in place, or it may be for further reductions in property rights for water entitlement holders in other valleys, in ground water systems or in storage systems. In Cubbie Station, for instance, there may well be undertakings that governments can put in place to achieve a more sustainable outcome.

This first hurdle has to be overcome. There are a number of ways that that can happen, but I make the plea today that, if we get this wrong at the start, it not only is bad policy but sends a dreadful signal to the current users of an entitlement that was issued by government in a legitimate sense, and investment took place based on those entitlement arrangements. It will send a dreadful message to anybody who has an entitlement and is involved with the National Water Initiative or other resource management initiatives. I would encourage the parliamentary secretary to take those comments on board.

There is another issue with regard to water tax. I was amazed yesterday as I listened to the answer to a dorothy dixer from the member for Barker to the Minister for Agriculture, Fisheries and Forestry. The minister was berating Premier Beattie in Queensland for putting on a $100 bore tax and a proposal for some sort of windmill tax. I agree that that is quite ridiculous, but the Commonwealth government is imposing a tax not only on its own contribution but on the state contribution and the irrigator contribution through the National Water Initiative. I do not think the minister for agriculture can hold his head up high in relation to that general issue.

Another issue I raised yesterday similar to this was about the Australian Rail Track Corporation. One of the good programs the government has put in place—and I congratulate it—is the cap and pipe program, which takes pressure off the Great Artesian Basin. These artesian bores were spewing water out willy-nilly 24 hours a day into bore drains, and those bore drains would go some hundreds of kilometres, in some cases, and locate water to the appropriate properties. The government, in conjunction with the states—I think it is 20 per cent from each of them and 60 per cent from the landholders—has embarked on a cap and pipe program where it caps the bores and runs polythene pipe to these various properties. There are massive savings in water—it is a great initiative—but bear in mind the landholders are paying 60 per cent of it for the greater good of the resource; and there are those issues again.

I received some messages from people in the Burren Junction area. I will use it as an example; I am sure it is happening in other areas where the cap and pipe program is in place. The railway line through Burren Junction has had bore drains running underneath it for decades. Under the cap and pipe program, part of the process is that it will bore under the railway line and put a polythene pipe in. The Australian Rail Track Corporation, which is fully owned by the Commonwealth government, is charging $1,000 for that to occur under its land. Worse than that, it is charging a fee of $200 per annum to allow that pipe to be there, even though the bore drain has been there, in some cases, for 80 or 90 years—nearly as long as the railway line.

I again say to the Parliamentary Secretary to the Prime Minister: when we are talking about tax and the signals it is sending, particularly in the resource sustainability areas, we have to get serious about using some of these opportunities to raise revenue. We promote a program, and that is good—both of those programs are good—but there is this little sting in the tail that claws back money or makes people pay for something that they have not had to pay for in the past.

There are a number of other issues. Superannuation is an issue that everybody understands. It is a position that has been bastardised over the years by a range of governments in terms of the take at the start, the take in the middle and the take at the end. I know—and I congratulate the Treasurer on this—that positive moves have been made in relation to that, but if we are serious about the future of our aged we must address that issue.

I noticed with some interest the other day that Paul Keating was saying that two of the things he regretted in instituting the superannuation arrangements were some of the clawbacks that were put in place and the rate of nine per cent, which in his view was too low. The first objective must be that we remove all taxation from superannuation, because it would send a positive signal about saving for retirement rather than the one that exists now, which at best is a mixed message and at worst is a negative one.

The fuel taxation arrangements are another area that, if we are serious about tax reform, we need to look at. We are raising $14 billion from fuel taxation; we are spending about $2 billion back on roads. We should not be doing that. Any fuel tax that is charged should go back on roads. If it is not required for roads, it should not be charged at all. Obviously people will say, ‘You’ve got to get money from somewhere, and fuel taxation arrangements have been a source of income for government.’ If we are serious—and some people would consider this political dynamite—then we really do need to have a close look at the rate of GST. We also need to look at how a consumer tax—and I am not in favour of it being applied to food—can raise some of the revenue that is being raised through the disjointed fuel tax and superannuation arrangements that are currently there. If the Treasurer is looking at genuine tax reform, he really must have a look at the goods and services tax area.

Zonal taxation is an issue that is raised from time to time, particularly in relation to regional areas, trying to overcome some of the bottom line factors about locating business in country areas and the economies of size of some businesses being located in city environments. If we are serious about changing the demographics and encouraging regional growth, zonal taxation is one of those things that, if plugged into some of the renewable energy areas, could help drive developments in many country areas.

In conclusion, I reiterate the point I made at the start of my speech. Personally, I believe we really do need to do something at the lower end of the tax scale to have a direct incentive that encourages people to work rather than concentrating on the top end like we have in recent years. Irrespective of how the reform is done and how the cards are juggled, the first area that has to be written on the top of the balance sheet is health. Irrespective of who gets the money and how it goes through the states or whether those arrangements are rearranged, you have to make sure that particularly health and education, those key issues, are adequately funded.

In the other areas, I think we have to start sending positive messages about saving for our future and addressing the various issues with regard to fuel. Australia prides itself on being competitive overseas but at home we have shackled ourselves with virtually a 50 per cent goods and services tax on the use of our major energy sources: petrol and diesel. I encourage the Treasurer, the parliamentary secretary and the Prime Minister to take those few comments on board and to also do something about the taxation anomaly in respect of water entitlement holders.

Michael Johnson (Ryan, Liberal Party) Share this | Link to this | Hansard source

It is a pleasure to speak in the parliament today on this historic day in Australian politics, which marks the 10-year anniversary of the election of the Howard government in March 1996. I think the people of Australia will be well pleased with their investment in March 1996. This government has embarked on enormous reforms, and it has taken on initiatives to improve the lives of the people of Australia.

I congratulate the Prime Minister and the government. I commend the Treasurer and the Minister for Foreign Affairs for the achievement of 10 years in their respective roles. They have really been the cornerstone of this government’s success. As the Prime Minister said last night, we do have to thank the people first. We thank the people of Australia who placed their faith in us. Politics is all about making a difference. Politics is about changing people’s lives for the better to give their families and their communities the opportunities to flourish and to prosper.

Alan Griffin (Bruce, Australian Labor Party, Shadow Minister for Veterans' Affairs) Share this | Link to this | Hansard source

Mr Deputy Speaker, I rise on a point of order. The member has been banging on with an advert for the government for the last minute and a half. He has not addressed anything to do with the bill. I ask you to draw him back to order.

Kim Wilkie (Swan, Australian Labor Party) Share this | Link to this | Hansard source

The member has only just started his contribution. I am sure he will move quickly to the bill.

Michael Johnson (Ryan, Liberal Party) Share this | Link to this | Hansard source

This is a day of goodwill amongst all of us, as it should be. I am terribly disappointed that the shadow minister would raise quite a spurious, trivial and vexatious point of order. That is just a perfect example of why the federal Labor Party sits in opposition.

I am pleased to speak on the Tax Laws Amendment (2006 Measures No. 1) Bill 2006. Before coming to that, I want to take the opportunity in the parliament as the federal member for Ryan to thank the people of Ryan who placed their faith in me. I have had the great privilege of sharing in two of the four successive election wins of the Howard government. In 2001, I won the seat of Ryan by defeating a sitting Labor member, which I continually remind my colleagues of on this side of the parliament.

This bill is important because it is in the context of Australia’s economic prosperity and good governance on this side of the parliament. I notice in the gallery some young Australians—some students from a school somewhere in this country, I do not know where—wearing yellow T-shirts. I welcome them to their national parliament. It is fantastic that they have the opportunity to come and visit their parliament. This is a chamber of democracy, and democracy has been very much in operation over the last four years, when the people placed their faith in the Howard government. Why have people placed their faith in the Howard government? It is because they have confidence that the Prime Minister and his team have the capacity to govern in the people’s interests.

Alan Griffin (Bruce, Australian Labor Party, Shadow Minister for Veterans' Affairs) Share this | Link to this | Hansard source

Mr Deputy Speaker, I rise on a point of order. Once again, it is about relevance to the bill at hand. The member for Ryan has mentioned the name of the bill once but, for 3½ minutes now, all he has done other than that is to do a paid political broadcast.

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

The member for Ryan—

Michael Johnson (Ryan, Liberal Party) Share this | Link to this | Hansard source

Mr Johnson interjecting

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

Member for Ryan, I will rule on the point of order and then I will call you. The member for Ryan has only just started his contribution—as you said, he has had three minutes. I am sure he will refer to the bill very shortly and make some relevant statements. The member for Ryan has the call.

Michael Johnson (Ryan, Liberal Party) Share this | Link to this | Hansard source

This bill is about taxation. This bill is about economic management. Of course I am entitled to talk about the government’s record, because that is why the people of Australia voted for us. For the life of me I cannot understand why the shadow minister would contest my right to speak on the bill and to draw into that my comments about economic governance and credibility. If people are listening to this debate today, the two interventions that I have had from the shadow minister would quite clearly demonstrate to them the lack of focus by the opposition on matters of economics.

The bottom line is that the people of Australia vote for a government to ensure that that government takes into account their interests, including taxation. I will come to the relevance of this bill in a minute. Part of my presentation here in the parliament is to talk about the qualities that have made this government very successful, because those qualities are reflected in policy. They are reflected in legislation.

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

Hear, hear!

Michael Johnson (Ryan, Liberal Party) Share this | Link to this | Hansard source

I am delighted to have the warm support of my colleague the member for Riverina, because she very strongly shares my view of economic credibility: it is economic credibility which the people of Australia consider most important when it comes to matters of who they will support at a federal election.

In 1996, we came to office to fix up the mess that the Keating government had left behind. I want to remind the parliament and the people of Australia of a quote from a current Labor backbencher in May 1991, who was the Parliamentary Secretary to the Treasurer at the time. I thank the Treasurer for reminding us of this very important comment. This is what Bob McMullan said to the Canberra Times in May 1991:

I know that it is unfashionable to have anything positive to say about the Australian economy at present. However last week I had the opportunity to represent Australia at meetings of the International Monetary Fund…three things struck me during the course of these meetings. First, we should never forget our relatively favourable situation. As I have said before in these articles when compared to the problems of Mali, Peru or Bangladesh all Australians should rejoice in our good fortune – however much we are determined to improve our own position.

My goodness! In 1991 a member of the executive was talking about Australia in the context of Mali, Peru or Bangladesh! Had we got to such an awful position in 1991 that we had to be compared to these three countries?

I took the liberty of finding a report from the US government on Bangladesh. I thought I might talk about this for a moment. The CIA World Factbook makes the following remarks on Bangladesh:

Bangladesh is one of the poorest nations in the world. The economy is based on the output of a narrow range of agricultural products, such as jute, which is the main cash crop and major source of export earnings. Bangladesh is hampered by a relative lack of natural resources, population growth of more than 2% a year, large-scale unemployment and a limited infrastructure; furthermore, it is highly vulnerable to natural disasters ... Alleviation of poverty remains the cornerstone of the government’s development strategy.

There you go: ‘Alleviation of poverty remains a cornerstone of the government’s development strategy.’ By comparison, this government is talking about things like the Future Fund, putting away billions of dollars to fund superannuation liabilities, compared to a country that is just trying to address poverty issues. What a profound commentary on the Labor government under Paul Keating, which the people of Australia threw out comprehensively in 1996.

It is very important that the people of Australia get reminded of these sorts of things. I know that perhaps sometimes we might seem to be a little bit repetitive on this side of the parliament, talking about what happened under the Keating government. But it is very important that the people of Australia, and certainly the people of Ryan, are reminded from time to time what capacities the Keating government had to take us into great mess. That was only a signpost as to what a future Labor government would do. We do not want to let our fellow Australians forget about Labor’s final budget. Let me see: in 1995-96 it was in deficit to the tune of two per cent of the country’s GDP.

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

Order! The member for Ryan will resume his seat. I have granted the member for Ryan substantial leeway in his discussions on this matter, but he is not referring to the contents of the bill. I draw him back to the bill, which is regarding tax laws amendments, and ask him to speak to the bill.

Michael Johnson (Ryan, Liberal Party) Share this | Link to this | Hansard source

With all due respect, this is a bill about taxation, this is a bill about economics broadly, and the context of this bill is the economy.

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

You’re talking about 1995!

Michael Johnson (Ryan, Liberal Party) Share this | Link to this | Hansard source

Are the Labor Party suggesting that taxation is irrelevant to economics? What have we come to that a member of parliament cannot talk about the record of the Labor government? They are presenting themselves as the alternative government of this country.

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

Order! The member for Ryan will resume his seat. The member for Ryan is coming very close to reflecting on the chair, in which case he will be dealt with and removed from this chamber. I have called on the member for Ryan to refer to the bill and I will call him back to refer to the bill.

Michael Johnson (Ryan, Liberal Party) Share this | Link to this | Hansard source

This bill is about taxation. Schedule 1 applies  to temporary residents exempting their foreign investment income from Australian taxation. The exemption is confined to foreign sources of income only and does not apply to Australian sources of income, ensuring that the measure does not disadvantage Australian employees compared with temporary residents. This amendment will allow business greater opportunity to attract internationally mobile skilled labour to Australia by reducing the costs to Australian business of bringing skilled persons to work in Australia.

This issue of bringing skilled workers to Australia is highly relevant at this time because of the very low unemployment rates we have in this country—five per cent, almost 30-year lows. It is a challenge for Australian businesses and employers to try and get highly skilled labour into this country. As a government we must do all we can to encourage into this country skilled migrants who will value add, who will contribute to the furthering of this nation’s prosperity. That is why that amendment is particularly important. Currently, the extra tax costs of hiring mobile skilled labour are often passed onto the employers, which of course means that they pass them onto the customers and onto their clients, so this is highly relevant in that context. It also has the advantage of making it easier for Australian businesses to relocate key staff to Australia.

Schedule 2 gives effect to the systemic treatment for business black hole expenditures, as announced in the 2005-06 budget. It provides a new five-year write-off for business capital expenditures not taken into account and not denied a deduction elsewhere in the income tax law. Capital expenditure incurred in relation to a past, present or prospective business will be deductible to the extent that the business was or is proposed to be carried on for a taxable purpose.

Schedule 3 will deter the promotion of tax avoidance and tax evasion schemes and protect the integrity of the product rulings system administered by the Australian Taxation Office by introducing a civil penalty regime. As a government and as a parliament all of us should be doing everything we can to encourage tax receipts to be fully paid. We do not condone Australians avoiding tax or trying to evade tax. That is not part of the compact between all of us as Australians. So it is not only important as a measure of running the country but it has an ethical or moral dimension to it that those who are required to pay their taxes do so legitimately and entirely.

Promoters will now be at risk of civil penalties imposed by the Federal Court in situations where their clients are already at risk of penalties under the tax laws for participation in tax avoidance schemes. The Commissioner of Taxation will be able to seek injunctions and enter into undertakings with promoters to stop the promotion of unlawful schemes. I know that the Commissioner of Taxation has taken a bit of a bashing from members of parliament from time to time. He does hold an independent office. I think it is important that whoever holds that position is mindful of the enormous powers that he has as well as being mindful that with the positions of Australians, whether they are in business or pay-as-you-earn employees, the corresponding degrees of influence are quite stark. It is important for him—or her, in the future—that he is mindful of his position and the enormous responsibility he has to this country. I am sure that all the commissioners of taxation are people of integrity and are aware of their significant office in this country.

As the local member, from time to time Ryan residents come to me to talk about taxation difficulties and problems they are having with the ATO. It is important not only that we represent them as members of parliament but that we from time to time remind the commissioner not to be too remote from everyday Australians. It is quite easy for highly paid, highly important officers of the government or of the Commonwealth to sometimes forget everyday Australians throughout this country when it comes to taxation issues. This amendment bill gives him important provisions to stop the promotion of unlawful schemes. According to the explanatory memorandum:

Schedule 4 to this Bill amends ... A New Tax System (Goods and Services Tax) Act 1999 (GST Act) to ensure that certain prepaid phone products are treated as ‘eligible vouchers’ for the purposes of the GST Act.

Also, it will ensure that GST is paid on the face value of a voucher when it is used. The amendment does not alter any definitions under the act but simply confirms the policy intent that the GST will be applied to these products when they are used and not when they are sold. As the amendment confirms the industry’s existing practice as treating phone cards as eligible vouchers, it applies retrospectively from 1 July 2000. This amendment is primarily designed to provide consistency between industry best practice and the legislation.

These are important schedules. These are important points that need to be drawn out in the parliament, and I draw them out for the benefit of my constituents. In the context of broader taxation related matters, the government introduced with great courage and great integrity the taxation reform packages, which included the GST, and the people of Australia endorsed that policy initiative by re-electing the government in 1998 and 2001.

I think it is a strong reflection of what politics is all about and what policy is all about. It is to make a difference. The GST has made an enormous difference to this country’s governance. We all know that the state governments receive entirely every dollar of GST revenue. Not a single dollar comes to the Commonwealth at all and not one single dollar comes into federal consolidated revenue. In Queensland, my home state, the GST amounts to some $7.7 billion in revenue for the state Labor government of Peter Beattie. Again, in the parliament, I encourage him to spend that money on vital projects in health, infrastructure and roads. In my electorate Moggill Road is important.

We know that the GST goes to the states. In question time not too long ago the Treasurer again reminded us of the recently appointed Premier of Western Australia saying that the GST, as a measure of the sweeping taxation reform initiatives of the Howard government, was all about the national interest. I think it is important for us to remind ourselves, as well as our constituents and the wider Australian community, of how important taxation reform is to this country. It does make a difference.

As I have said, politics is all about making a difference. Politics is about improving the lives of our fellow Australians. We are highly honoured to be members of this parliament. Since Federation there have been only 1,000 men and women of Australia who have had the great privilege of coming into this parliament. I, as the fourth member for the federal division of Ryan, every day remind myself of the great privilege that I have in being a member of this parliament. On this historic day, I rededicate myself to serving my constituents—as I am sure all members of this House do to serving their respective electorates—and I know that the Howard government also recommits itself to governing in the interests of our country.

We are here for that purpose. Service in political life is a noble profession. It is a highly important one. It affects businesspeople in the country, it affects mums and dads, it affects schoolchildren and it affects funding for schools, funding for hospitals and funding for roads. It affects every facet of life and it is important that we keep our eye on the ball, which is why the government has had the faith of the Australian people on four successive occasions. This coalition will continue to work together very strongly and very positively in the interests of our fellow Australians. I commend this important bill to the parliament. It continues the hard work of the government and it continues the ideas of the government in the service of the Australian people.

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 (2006 Measures No. 1) Bill 2006 and in support of the amendment foreshadowed by the member for Hunter. The purpose of this amendment is to align the definition of ‘facilitation payments’ in the Criminal Code Act 1995 and the tax act 1997 in order to specify that payments made to facilitate or secure the performance of routine actions of foreign governments are to be of a minor value. By aligning these definitions in these acts, this foreshadowed amendment closes a loophole that currently allows scope to make facilitation payments of any amount, as long as you can argue that it is minor in nature.

By strict comparison with the value of Australia’s $5 billion wheat trade, I suppose you could say that in one view the $300 million kickbacks paid to Saddam Hussein over a number of years are minor. However, if this loophole did not exist, Australian law would have provided yet another legal impediment and yet another flying red flag to alert the likes of Mr Flugge and, indeed, the Minister for Foreign Affairs and the Minister for Trade that hundreds of millions of dollars were being provided via Australia to a regime known to support terrorism.

We are 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 do not. It is not that they are corrupting us; it is that we have been corrupting them. It is time to stop it, and that is why I strongly support the member for Hunter’s foreshadowed amendment. I think we have to say that there will be no more trying to get around the United Nations sanctions, no more ignoring the international standards and no more looking the Canadians and the Americans in the face and telling them barefaced lies.

We can start right here by aligning Australian tax laws with our Criminal Code so that payments of millions of dollars to dictators cannot slip through an Australian loophole. If this loophole had not existed, perhaps the Howard government would not have posted Mr Flugge to Baghdad, paid him $1 million from the foreign aid budget and provided him with a slush fund with millions of extra Australian taxpayer dollars. If it were not for this government’s track record, it would be beyond comprehension that any government in Australia would ever have overseen such shameful deeds and now be rolling out such a shameless rosy-cheeked cover-up as the Minister for Foreign Affairs has been doing.

The member who spoke before me, the member for Ryan, wanted to note that this is the 10th anniversary of the Howard government. The foreshadowed amendment would not be so urgently needed if the government were not so out of touch with community standards and world developments. This amendment is closing a loophole that would never have been exploited under the watch of reliable ministers. It is picking up the slack of an arrogant government. Ten years on from the 1996 federal election, Australia is coasting with ‘it wasn’t me’ ministers at the helm—people who claim, ‘We weren’t there; we knew nothing; this is all a great surprise to us.’

On the back of the last Labor government’s economic reforms and a booming world economy, Australia is rolling along; but, in the absence of moral governance and prudent national investment, our future is less secure than it was in 1996. Our medium- to long-term economic security and international standing have been largely squandered and in 2006, after all the work of the past decade, our future is less secure than it really ought to be. Needless risks have been taken by the Howard government to enable needless indulgence for which we may well end up paying a price, and the visionless coasting of the last 10 years has left us unprepared to handle what will surely be a changing and uncertain world.

The tax loophole that I have been speaking of has come to light as a result of the AWB inquiry. My colleague the member for Hunter has foreshadowed that, during the consideration in detail stage of the bill, he intends to move a technical amendment which will seek to align the Criminal Code in this country with the Income Tax Assessment Act. At the moment the Criminal Code in this country succinctly defines a facilitation payment—

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

I remind the member for Wills that he cannot debate an amendment which does not exist. At this stage we do not have an amendment, so he cannot debate it.

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

Thank you, Mr Deputy Speaker. I am referring to the remarks that have been made in debate already by the member for Hunter. The member for Hunter told the parliament—and I wish to reiterate and support his remarks:

... the Criminal Code in this country succinctly defines a facilitation payment by requiring that it be of minimal value whereas, unfortunately, the tax act makes no attempt to do so. Theoretically speaking, any ‘facilitation payment’ that successfully runs the gauntlet of the Crimes Act will almost certainly pass through the net of the tax act because there is no definition in that act.

The AWB case was a serious event involving some $300 million.

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

I remind the member for Wills that I was in the chair when the member for Hunter spoke in this debate. He did not move any amendments, he certainly did not go into any detail and we cannot debate an amendment that has not been seen.

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

Mr Deputy Speaker, I am speaking the very words that the member for Hunter spoke. If you were in the chair when he was speaking and did not pull him up when he was speaking, I am surprised that you now believe what I am saying is out of order.

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

If the member for Wills wishes to reflect on the chair, I will deal with him.

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

Mr Deputy Speaker, I am simply repeating the remarks of the member for Hunter. If the remarks of the member for Hunter were in order, then surely my remarks are also in order.

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

I have just said to the member for Wills that the member for Hunter did not go that far. He did indicate that he was going to move an amendment, but he has not moved an amendment. We have not seen the amendment, so it cannot be debated.

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

Certainly, Mr Deputy Speaker, but I am making exactly the same remarks that the member for Hunter made to the House and I am happy to show them—

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

I will listen very closely.

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

Thank you, Mr Deputy Speaker. The member for Hunter suggested that the government should support his foreshadowed amendment. He said that, if the government only wanted to support their own ideas, he invited them to come back later with their own amendment and the opposition would be very happy to support it. I support his remarks. He further went on to say:

... I have to remind the House that Australia is a signatory to the OECD antibribery convention of 1997, which calls on bribes to be made illegal and therefore not tax deductible. The convention raises significant criticisms of so-called facilitation payments. The words used in the convention are that such payments are ‘a corrosive phenomena’. Such payments are effectively small bribes used to smooth the wheels of government.

It needs to be made clear that AWB type payments of high value cannot be deductions; they are already illegal under the Crimes Act, and we want to make sure that the tax act is aligned with those provisions.

There are four schedules to this bill. The first of those schedules relates to tax changes for nonresidents. It is designed to remove some harsh penalties and to permit some additional concessions for nonresidents working in Australia in relation to their foreign sourced income. While the principal targets of the proposed changes are foreign sourced executives, some high-skilled professionals have also been impacted on by the current tough provisions. The current law has two prime effects: imposing a tax on certain unrealised capital gains for temporary residents leaving Australia and giving a tax-free status to foreign sourced income for temporary residents for four years.

The current provisions work as follows. When a resident for taxation purposes becomes a non-resident—for tax purposes, usually after 12 months—a capital gains tax event is triggered and what are referred to as the deemed disposal rules apply. Unrealised gains on assets without a connection to Australia are deemed to be realised and capital gains tax applies. An exception applies for short-term residents—that is to say, people who have been here for less than five of the last 10 years; the tax can be deferred until realisation, with subsequent gains being assessable. Under the United Kingdom and United States double-tax treaties, such gains subsequent to a residency change are not assessable.

Secondly, back in 2002, the government introduced an exemption to temporary residents from Australian tax on foreign sourced income, including interest withholding and capital gains, for four years. The relevant schedule was removed from the bill in the Senate and the amended bill passed the House. The rationale for the government’s proposal was that the high marginal tax rate in Australia meant that Australian tax on foreign sourced income was higher than the tax the expatriate would pay overseas on the same income. This could inhibit attempts to attract key personnel from offshore.

The current bill has three effects. Firstly, it removes the deemed disposal rules for temporary residents for assets without a connection to Australia, excluding employment income in Australia, without that five- to 10-year rule which I referred to earlier. Secondly, foreign sourced income for temporary residents is excluded for income tax indefinitely, for more than the current four years. And, thirdly, temporary residents do not pay tax on interest income received overseas.

The current measures go beyond the 2005-06 budget commitments by abolishing all time limits and extending the withholding tax exemption to income from all foreign liabilities for temporary residents. It does not reduce the compliance costs but it does extend the concessions in some cases.

There are economic benefits associated with reducing impediments to skilled foreign employees taking up positions in Australia. We hope that this will, in some measure, boost labour productivity in important sectors. However, I express my regret—as I have done previously and as some of my colleagues have done on other occasions—that this government has not made the kind of investment in skills training that we would want to see which would ensure that the need for skilled migrants is minimised. We should be doing better by way of training our own. Regrettably, this government has failed in that important national task and has dramatically ramped up skilled migration in order to meet its own shortcomings.

The second schedule refers to ‘black hole expenditures’, which were targeted for relief in the Ralph Review of Business Taxation. They were to be dealt with under the now abandoned tax value method. Black hole expenditures are those which were basically considered legitimate but fell outside current rules for deductibility. The current bill really only extends deductibility for expenses associated with setting up a now defunct or changed entity. This is not a measure about loss carry forward provisions but about deductibility of expenses for an entity which is not now existent. The expenses do not meet the loss carry forward provisions. Some tests still need to be met in order to claim the deductions.

Labor has asked the government for advice as to whether the payments by James Hardie to the compensation fund for asbestos victims are covered by this provision. The tax commissioner has rejected the deduction under current law. This is because the compensation fund is not the same legal entity as the James Hardie corporation as it currently exists. We think this schedule should be supported because it clarifies a significant uncertainty in tax law.

The third schedule goes to empowering the Commissioner of Taxation to impose penalties on promoters of tax minimisation schemes. Currently, the commissioner cannot do this but can only hit the victims of such schemes after the event. This has resulted in something of a debacle in relation to mass marketed tax schemes and employee benefit arrangements, where thousands of taxpayers have become victims of exploitation from aggressive tax minimisation strategies, with penalties attached.

This schedule now empowers the tax commissioner to seek fines of significant value from the actual marketers of the schemes and to get an injunction from the Federal Court to stop the schemes being promoted. This gives no relief to previous victims and it ought to be noted that some 60,000 taxpayers remain adversely affected. I think there is also a fair case for arguing that this scheme comes a number of years too late.

It seems that an accountant who advises a client on one of these schemes will not be affected unless they positively devise or market the scheme. So it is possible that some unscrupulous tax advisers will escape the net by couching the language of their advice in a manner that is not technically a marketing of the scheme. This ambiguity is a problem for the government. Expanding the definition of tax promotion would no doubt be difficult, legislatively, to achieve.

The major problem with the current measure is the uncertainty it creates. Advisers who advocate legitimate tax reduction arrangements will now be forced to seek a tax ruling in order to ensure that they are not covered by the arrangements and slip from being an adviser to a promoter. This would significantly increase tax office costs. The current estimate of an extra $7 million per year in costs may prove conservative. I think we ought to be looking for a guarantee from the government that funding would be available to the tax office to ensure that any ruling can be dealt with expeditiously. The bottom line, I guess, is that this measure is a step back from the draft of the bill. We are supporting it.

The fourth schedule concerns the GST on prepaid phones. Prepaid phone deals, usually to do with mobiles, often promise myriad conditional benefits—such as free SMS discounts or cash-back deals. This has led to some uncertainty as to how to levy GST on these products, which are essentially vouchers to use a certain number of calls at varying rates at varying times. The easy way to deal with this is to simply specify that the stated value of the voucher is the GST taxable supply. The bill makes this necessary clarification, which increases GST revenue by $10 million per year.

I want to reiterate, as I indicated at the start, Labor’s intention to move an amendment. That amendment is to align the definition of facilitation payments in the Criminal Code and the tax act so that we can take action about the potential tax deductibility of facilitation payments.

I think that people right around Australia were outraged to learn that some of the kickbacks—the bribes—being paid by AWB were potentially tax deductible and that we have loopholes in our legislation that might enable that tax deductibility to be provided. We on this side of the House think that is absolutely scandalous. We want to make sure that there is no possibility of this happening in future by aligning the definition of ‘facilitation payments’ in the Criminal Code Act with that of the tax act.

David Hawker (Speaker) Share this | Link to this | Hansard source

Order! It being 2 pm, the debate is interrupted in accordance with standing order 97. The debate may be resumed at a later hour and the member will have leave to continue speaking when the debate is resumed.