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

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 notes the Government’s repeated failure to provide appropriate technical information and costings to support proposed changes to tax law”.

I understand that the member for Batman will be more than happy to second the motion.

Dick Adams (Lyons, Australian Labor Party) Share this | Link to this | Hansard source

Is the motion seconded?

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

It is my pleasure to second the motion standing in the name of the member for Hunter and to reserve my right to speak at a later time in the debate.

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

I thank the House, and I thank the member for Batman for his enthusiastic support for the amendment. The Tax Laws Amendment (2006 Measures No. 4) Bill 2006 is, as usual, a complex tax bill. It contains four schedules, each of which the opposition will be supporting. But, as the second reading amendment makes clear, the opposition is disappointed that this bill seems to be a continuation of a disjointed approach to tax reform. In particular, it is a bill that does not seem to be underpinned by the argument and sort of data that we as an opposition require to make considered decisions about the appropriateness of a bill. That is the reason for the second reading amendment, an amendment which will give members an opportunity to make a free-ranging contribution to the debate.

Schedule 1 of the bill deals with capital gains tax rollover in the case of marriage breakdown. Current law provides for the capital gains tax rollover from the sale of property caused by a court order or court approved maintenance agreement occurring as a result of marriage breakdown. But there exists a problem with capital gains tax treatment in the case of a binding agreement—for example, one not approved by a court but still consistent with current family law. The classic case is where a prenuptial agreement exists.

This could mean that one party to the broken marriage would be able to rent the former family home in a manner that would change the apportionment between the capital gains tax free component of the former family home and the assessable component in the event of a sale. One party could therefore potentially use the current law to influence the capital gains tax treatment of the former family home to the possible detriment of the other party. This schedule is designed to ensure that both parties’ situations are taken into account when calculating how much of the property is capital gains tax free. The law also clarifies the fact that marriage breakdown settlements do not give rise to capital gains tax liabilities. This schedule is a necessary policy change. On that basis, it enjoys the support of the opposition.

Schedule 2 deals with the consolidation rules. The consolidation regime applies when two associated companies elect to be treated as a single entity for tax purposes. Companies can sometimes split or demerge. However, to protect against tax avoidance, current law provides that major transfers of assets just prior to the demerger are ignored. This was to ensure that the demerger was not used to manipulate the cost-setting rules that value assets of the group and reduce tax. In this case, the demerger would be unwound and the previous position would apply for tax purposes. However, if the demerged entity, or parts of it, then remerge, they would be captured by these integrity provisions and the whole transaction would be unwound for tax purposes. However, the remerger is not tax avoidance and should not be part of the integrity measures. This change modifies the integrity rules to ensure that the remerger is not caught by this provision.

The change appears to be a reasonable correction of a problem but serves to highlight the confusing nightmare that the consolidation provisions entail. This is at least the 12th time that they have been refined since the introduction of the consolidation rules. These perpetual amendments to the consolidation regime themselves need to be consolidated. I repeat a position that I have put to the House before: it would be better for a major consolidation bill to be considered by the parliament. The process of considering amendment after amendment to this complex body of tax law does not reduce complexity. Indeed, it increases compliance costs and is against the broad thrust of seeking to reduce the size and complexity of the tax act. If the Treasurer is serious about reducing the complexity of the act, he would do well to consider my proposal.

Schedule 3 of the bill deals with the simplified imputation system for New Zealand companies. Many New Zealand companies operating in Australia elect to be part of the Australian imputation system. But there are problems in allowing the imputation credits to flow to Australian companies as some dividends are non-portfolio dividends—that is, they constitute less than 10 per cent of a shareholding—or are otherwise exempt. Harmonisation of the two imputations systems is desirable and these provisions permit the franking credit to apply to non-portfolio dividends. On this basis, this measure also enjoys the support of the opposition.

However, I want to note for the House that the original measures to allow cross-Tasman imputation recognition had a cost in excess of $50 million per year. This bill corrects an unforeseen event and therefore gives effect to the original costing. This is why Treasury has not booked a cost to this measure: as it has of course already been booked. Still, the measure as written has a cost, even if one already included in a previous explanatory memorandum to a previous bill. It should have been given in the EM to this current bill. If I am wrong in that assumption, I invite the Assistant Treasurer to correct me when he provides a summary of this debate.

I now turn to schedule 4, which deals with non-resident capital gains tax. This is a complex and controversial measure with two major impacts and a total cost of some $250 million over the course of the forward estimates. The first measure involves a significant tax concession to foreign residents—mostly companies—operating in Australia by restricting the capital gains tax base to real property, which means land and income from land. Capital gains on non-resident shares are therefore now to be excluded. This, I accept, is consistent with the OECD-model tax treatment. The government argues that this approach is sought by other jurisdictions in treaty negotiations. However, the schedule also contains a major compliance measure which is likely to be targeted at the mining and minerals exploration sector. A little bit later, I want to say something about that.

The basic principle of international taxation is that the host country taxes income that relates to operations in the host country, irrespective of where the company headquarters are located. So income from Australian operations is to be taxed here. But there is a major problem with so-called interposed companies. If a foreign company has a subsidiary with operations here, it pays capital gains tax. But if the assets are held by an intermediate company then the capacity of the Australian tax office to levy the tax is suspect even if in reality the operations are Australian based. Non-portfolio dividends—that is, those constituting less than 10 per cent control—are tax exempt. Companies have the capacity to divide assets to put less than 10 per cent in a resident subsidiary, even though, say, 60 per cent may relate to its Australian operations. This is a means of evading Australian tax.

The new law states that, for non-portfolio holdings where the assets are effectively 50 per cent in Australia, our capital gains tax regime will apply. This means that the Australian Taxation Office can look through the international corporate veil and come up with a notional figure for whether or not the company is in effect really only a non-portfolio shareholder—for example, a foreign small holder of BHP shares—or in reality a major player.

The schedule has been considered by a Senate committee. The opposition requested that that inquiry be undertaken. Treasury officials have indicated that two government amendments will be made to the bill. I assume those amendments will be moved in the in-detail section of this debate. While this in itself is justification for Labor’s reference of the bill to the committee, it also reveals a dangerous trend in tax legislation in this parliament. Time and again, imperfect bills are put to both this House and the Senate. I have to ask the question: how many times has the parliament been forced to consider amendments to consolidation measures? How many times have we been forced to consider amendments to the international tax regime—for example, the international tax participation exemption bill 2004? The debacle of the Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Bill 2005 is still unresolved. Labor’s amendments were rejected in the morning, but the bill was made subject to review by that afternoon. The result of the review is now eight months overdue.

The legislative error rate is becoming appallingly high in taxation matters. I know this is a concern not only to the opposition but also to business and industry peak bodies. I have a table of some of the errors that the opposition has had to highlight from time to time in this place. I will seek the opportunity to table that document later in my remarks. This will give the parliamentary secretary some time to consider that request.

With respect to this schedule, Labor senators did make some additional remarks—as did Senator Murray, I should note. I would like in turn to endorse the broad sentiment of Senator Murray’s remarks in his additional comments as that is something he often so generously does for me in the other place. This schedule involves a major reduction in the capital gains tax base for nonresidents. In evaluating this measure, there is, of course, an initial consideration of cost. The explanatory memorandum posits a cost of around $65 million per annum. This in itself is significant, but Labor senators noted that this cost could be expected to increase substantially as a result of either proposed government amendments or prospective mergers, especially the hostile takeover bid of which Coles is currently the subject. Such costs have to be weighed judiciously against the suggested economic benefits of increasing the attractiveness of Australia as a source of international capital.

It is regrettable that this judgement was not assisted by adequate argument or modelling from the government or Treasury in the committee hearing. Decisions of this nature by the parliament require the highest levels of analysis this country can afford. In this case, the government has not put its argument with sufficient economic rigour. This may be the fault of the political process or perhaps of the officials. Whatever is the case, it must be corrected and opposition senators call upon the government to devote more resources to making its argument before these bills are put to the parliament. The opposition cannot be expected to properly consider these bills if it is not provided with justification to support the bills.

Why doesn’t the government make this analysis available to the parliament? Is this just another extension of the arrogance of a government that has been in power for 10 years and controls both houses of parliament? If that is the case, I suggest that the government needs to have another look at its approach and be more cooperative in consulting with the opposition, the Senate and, indeed, the House on these tax measures.

Schedule 4 of the bill seeks to align Australian international tax arrangements with the model OECD treatment in relation to taxation of capital gains for nonresidents. The opposition supports the policy intent in principle, but it is concerned that the reduction in the capital gains tax base for nonresidents is very significant. An additional major concern of the opposition relates to whether this bill will actually disadvantage resident capital gains tax taxpayers compared to non-resident capital gains tax taxpayers.

With this in mind, the opposition forwarded to the Senate Standing Committee on Economics a number of questions for officials well in advance of the hearing. These questions were primarily associated with whether these measures would lead to a disadvantage for Australian firms relative to foreign firms and also whether any takeover—for example, of Coles—would lead to significant cost blowouts. Opposition senators were not granted answers to these questions at the hearing. This is not acceptable to us. We see this as a significant breach of the process. Moreover, I have been informed that the questions were dealt with in a dismissive fashion at the hearing. This is deeply disturbing. Further, officials had to be pressed to take questions on notice. Just to add salt to the wound, there was a failure to answer these questions in time for consideration of the Senate report. The questions were eventually answered, but not in time for consideration in the final report.

I now call for an explanation for this unacceptable conduct. This conduct is unacceptable to all opposition parties in the Senate. We do, I think, need to remind the House that it is important that the resources of government are properly used to properly inform opposition parties. That is the best way of ensuring the most efficient legislative outcomes in this place, regardless of whether the government feels it has total control and capacity to move these bills through the parliament notwithstanding the views of opposition parties.

I have noted the joint submission of the Minerals Council of Australia, the Australian Petroleum Production and Exploration Association and the Corporate Tax Association, and, indeed, the comments of the Institute of Chartered Accountants in Australia at the hearing. The joint submission argued that taxable CGT gains or losses on Australian real property need to be more precisely focused by specifying that only a proportion of the gain on the sale of interests in a resident or non-resident entity that is land-rich should be subject to CGT equal to the Australian land-rich proportion. This amendment is worthy of further consideration and the opposition is concerned that it was not properly considered within the context of the Senate report. Again, the reason was that the information the opposition sought was not provided on that occasion. I now seek leave to present the table I made reference to, which highlights the major legislative errors we have had to deal with in this House over the course of the last two years.

Leave granted.

I do not propose to speak at length on this bill, but I need to report to the House that Labor had considered moving amendments to this bill which went to the James Hardie issue. It is well known in this place and indeed outside this parliament that the compensation due to victims of James Hardie is not yet set in concrete. There is no assurance yet that the compensation fund will carry forward and therefore there is no guarantee that victims and their families will get the compensation that they are due and entitled to, because of a dispute between the government and the tax office. The dispute was not about the tax deductible status of James Hardie payments into the fund—that was, of course, dealt with in this place by way of amendments to the black hole expenditure provisions—but about the tax treatment of both the income from James Hardie into the fund and, of course, any earnings the fund makes along the way before the final disbursement of all those funds.

Labor has been very disappointed at the Treasurer’s insistence that the fund not be given better tax treatment, notwithstanding the fact that the company has already been given favourable tax treatment. We foreshadowed our determination to further that case by moving amendments to this bill that would have extended, if you like, charitable status to the fund, which would have given the fund the tax status it requires to be sustainable and therefore deliver adequate compensation to victims and their families.

The opposition has now decided not to move those amendments. It has decided not to move those amendments for all the right reasons. My advice is that hopefully the tax office and James Hardie are inching very close to a resolution of the stand-off, and that would be very good news for us all, in particular for the victims and their families. The opposition has no desire to unnecessarily make a political case of this. We will hold our fire on any such amendments to the tax law and will collectively hope and pray that the agreement between the tax office and James Hardie can be reached to ensure that those compensation payments are forthcoming. Of course, if the negotiations fall over, then the opposition will be back in here very quickly at the first opportunity and will move the amendments that are required to provide appropriate tax status for the fund to ensure that those people receive the money that is due to them. So, in the spirit of cooperation, I will not move those amendments this evening.

I trust that the tax office will now use all the resources available to it and interpret the tax laws in an appropriate fashion to ensure that it does all it can to reach an adequate agreement with the James Hardie company or the managers of the fund. Again, if, for whatever reason—whether it is the fault of the tax office or any party to the discussions—that final agreement is not able to be reached, we will be back in here very quickly seeking to move the amendments that are required to ensure, in law, that the fund receives the tax treatment that is necessary to make it sustainable.

The opposition like to think that the pressure we put on throughout the course of this campaign is causing the tax office to inch closer to an agreement within the confines of the law with which it is operating, but we acknowledge and recognise that it can only operate with the laws that the parliament has made available to it and that it must do so fiercely independently of the government or any other political pressures. I wish the tax office well in those endeavours. If it is not able to do the job under current law, the opposition will be back in here changing the law to provide it with the opportunity to do so.

Dick Adams (Lyons, Australian Labor Party) Share this | Link to this | Hansard source

The original question was that the 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 question now is that the words proposed to be omitted stand part of the question.

Alan Cadman (Mitchell, Liberal Party) Share this | Link to this | Hansard source

This is an omnibus bill. There are four measures in it—some of them are quite complex, some of them are not significant, but, taken as a whole, they are nevertheless important measures. Most notable is the one relating to the distribution of liability for capital gains tax on marriage breakdown. I do not think that the measures will cost a lot, but they seem to be a lot more sensible than the current arrangement. With respect to the current arrangement, the CCH Australian tax master guide 2006 notes:

A compulsory same-asset roll-over happens if a CGT—

that is, capital gains tax—

event involves an individual (the transferor) disposing of an asset to, or creating an asset in, his/her spouse or former spouse (the transferee) because of: (a) a court order under the Family Law Act 1975 or a corresponding foreign law; (b) a court-approved maintenance agreement or a similar agreement under a foreign law; or (c) a court order under the State Territory or for a law relating to an de facto marriage breakdowns ...

The complexity of what courts may order is often in conflict with tax law. These changes will allow the marriage breakdown rollover provisions to apply to situations where the transfer of assets is the result of an out-of-court settlement rather than court orders. The out-of-court settlements contemplated in this measure are arbitral awards and certain written or financial binding agreements. Parliament may note that the measure will make no changes to availability of the rollover relief. Only couples under the Australian Marriage Act or de facto relationships will benefit from this expansion.

Schedule 2 deals with consolidation measures. Under schedule 3, there will be a simplified imputation system relating to New Zealand resident companies. The final schedule relates to capital gains tax and foreign residents. I have to say I find the final measure somewhat perplexing. The comment made on that in the Bills Digest is:

Foreign investors holding shares in Australian companies and interests in certain trusts will gain significant benefits from this measure because these interests are excluded from CGT for foreign residents under the proposed regime. It has been noted that the measure is likely to be successful, providing a good stimulus for merger and acquisitions.

I do not know whether that is an economic goal, a political goal or a tax goal, but the Bills Digest comment lists some of the likely results as being:

• Increased activity by non-residents in Australian unlisted companies and unit trusts, and in interests of 10% or more in Australian listed companies, where the underlying assets do not comprise predominantly Australian real property
• [that] Australia will become a more desirable holding company location
• [that] non-residents will be more likely to structure the carrying on of a business in Australia via an Australian subsidiary entity rather than an Australian branch, and
• An increase in Australian investment by non-residents.

Well, we will see whether or not those things happen.

Speaking on this tax bill, I particularly want to draw the attention of the House tonight to the very good documentation that has been provided by the Australian Chamber of Commerce and Industry in their 2005 publication The Policies of the Australian Chamber of Commerce and Industry, setting out their policies for commerce and industry for the coming 10 years. In the section on taxation, it says that the Australian Chamber of Commerce and Industry is ‘calling for fundamental reform of Australia’s taxation system’ consistent with a number of objectives. I intend to list the objectives for the House, because I think they are significant. The tax system should be equitable; it should contain economic efficiency; it should be adequate to cover the needs of the nation; it should be simple; and it should be transparent so that taxpayers can understand how and when they are paying taxes. It should limit the costs of compliance—they should be minimised; and it should limit evasion and avoidance. They also say there needs to be consistency in the policy, and flexibility in the system so it can respond to economy and social developments, such as demographic changes. The objective under ‘public perception’ is that ‘there should be the widest possible public support for the tax system’. Now, that may seem an impossible objective in the Australian environment, because not too many Aussies are all that rapt about a tax system of any sort, but I think the goal is admirable—a comparatively painless, transparent, open and fair system. Australians realise there need to be provisions for those in need and for Australia’s defence.

The Australian Chamber of Commerce and Industry also says in that publication that, over the past 10 years—in its opinion—there has been a marked improvement in equity, sustainability and efficiency but that there is still a lot more room available for further improvement. In the opinion of the members of the Chamber of Commerce and Industry, comprising employers from a vast array of industries, small and large, right across the nation—and we must not forget that employers are the people who seek to ensure that Australia pays its way in that world—further reform needs to be made for the following reasons:

• improving the efficiency and international competitiveness of the Australian economy;
• continuing Australia’s strong growth and productivity results;
• ensuring Australia can meet long term challenges, particularly demographic changes—

with an ageing population—

• promoting innovation, risk taking …
• encouraging investment in … capital … education and training—

in all fields—

• encouraging skilled migration and the retention of skilled people …
• reducing tax avoidance and evasion.

Given all those nice-sounding words and the proposals and objectives that have been set out—and I think few would disagree with them, no matter what their background—it is interesting to see what the ACCI members say they think are the main problems: first of all, tax compliance costs; next, personal income tax levels; the mess of state government taxation systems and the need to reform those; the limitation placed on Australia by capital gains tax and the discouragement to investment that that imposes; and retirement incomes tax issues. Those are the five areas that members of the Australian Chamber of Commerce and Industry regard as being of most significance to the future of Australia, and I think they are right. I would have to say that, from the experience that I have had in my electorate and from general observations, these are the areas where, with a bit of effort, we can continue to make a fair difference and a fair change.

The chamber members go further and make a number of recommendations in their policies publication as to how we might achieve these. They cover areas such as improving the process for complying with the tax requirements; instead of a complex, protracted system, there should be something that is simpler and fairer. They go into details about the changes they would like to see made in personal income tax. They also comment strongly about the changes that need to made to reform states’ taxation systems, going into detail of bank account debits tax and stamp duties—stamp duties on leases, mortgages, bonds, debentures, marketable securities, non-residential conveyances, credit arrangements, instalment purchase arrangements, rental arrangements, cheques, bills of exchange and promissory notes. Everything under the sun has some type of stamp duty on it in the states of Australia, and that needs to be fixed; there need to be changes.

In New South Wales and Victoria each board of five commissioners levies their calculations on insurance and then the GST goes on that. Then the board of five commissioners’ charges goes over the top of the GST. This is a case of double taxation here, there and everywhere, right throughout the system. The beneficiaries of the GST, as the House rightly knows, are the states of Australia. So great work is necessary in my opinion to reform state taxation. It is really holding Australia back.

As for the capital gains tax, this government has made substantial changes to the capital gains tax and retention of capital and they have been very useful changes. The Australian Chamber of Commerce and Industry says that the changes need to go further. Few would argue with that, but I would point out that this government has made very substantial changes in those areas.

I would like to return to the No. 1 priority that the members of this business organisation have set out: the tax compliance issues and improving the process of accounting for and paying tax. Some of the recommendations are pretty sensible. They suggest that the Inspector-General of Taxation should undertake a survey of the time and money that business actually spends in complying with the tax act. That is a very good place to start, because time wasted on taxation is nonproductive time. It might be productive for the commissioner; it is certainly not productive for Australian business, Australian families and Australian employees. They recommend that the inspector-general, in conjunction with the Australian tax office, should introduce a range of initiatives to assist businesses to identify, understand and implement new and existing taxation requirements so that where changes are made they do not become a hassle.

The trouble that was gone through with the introduction of the goods and services tax to make it better and easier for business was quite amazing. To go out into the business community with members of the Australian tax office and talk to the community about how it was going to work and explaining it to them was a great way to go. It was a terrific time of good relationship between the tax office and Australian businesses. That process ought to be repeated. It would be more successful than the process that is happening at the moment when new measures are introduced. The proposal is that the tax administration impact statement, which the inspector-general should include with all of his assessments, would estimate the compliance costs based on detailed proposals for implementation and administration. The statement would be attached to each new tax proposal. There should be a regular review of those estimates. These are sensible things that could and should be done.

It is not my intention to go right through the whole policy booklet of the Australian Chamber of Commerce and Industry but, Madam Deputy Speaker Bishop, I will leave this last thought with you. I know that this is an area that you understand very well and are very familiar with. We need to make a start on these issues. The government has done a lot on the goals set out by the chamber as far as retirement—where there are substantial changes in the budget—and superannuation go, and the government has made substantial changes to personal income tax. But there are still lingering issues that need to be dealt with and we need to tackle them as soon as possible. We cannot go on as we have been by letting things drift and hoping that the increasing complexity will somehow or other sort itself out and choke itself to death. That has happened recently when we wrote many pages out of the tax act. That is a start only and we need to go further.

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

I rise to support the second reading amendment moved by the member for Hunter, Mr Fitzgibbon. Generally, Labor is supportive of the provisions of the Tax Laws Amendment (2006 Measures No. 4) Bill 2006. We support the provisions of schedules 1, 2 and 3 of the bill, but I have to say that I do have concerns, which I will raise, with respect to schedule 4. That is something that I will return to later, but I would like to make some comments now about the other schedules.

Schedule 1 deals with the capital gains tax rollovers in the event of the sale of a property caused by a court order resulting from the breakdown of a marriage. This schedule is a necessary policy change that reflects the financial elements of marriage breakdown. The tax amendment in schedule 1 has been introduced so that the situation for both parties is taken into account when calculating how much of the property is capital gains tax free when a marriage is dissolved. The amendment clarifies the fact that marriage breakdown settlements do not give rise to capital gains tax liabilities.

Schedule 2 is aimed at addressing the possibility that a remerger of demerged companies does not trigger anti-avoidance provisions. The consolidation regime applies when two associated companies elect to be treated as a single entity for tax purposes. Companies can sometimes split or demerge. However, to protect against tax avoidance current law provides that major transfers of assets just prior to the demerger are ignored. This was to ensure that the demerger was not used to manipulate the cost-setting rules that value assets of the group and reduce tax. In this case the demerger would be unwound and the previous position apply for tax purposes. However, if the demerged entity, or parts of it, then remerge they would be captured by this integrity provision and the whole transaction would be unwound for tax purposes. However, the remerger is not tax avoidance and should not be part of the integrity measures.

The changes before the House modify the integrity rules to ensure that the remerger cannot be caught by this provision. While very few taxpayers are covered by these provisions, it is interesting to note that this is the 12th time that these measures have had to be redefined since their initial introduction. The government have tinkered with these laws over and over again and, hopefully, they have got them right this time so that the confusion in this process may be lessened or removed.

Tinkering has become the hallmark of this government when it comes to tax. It has tinkered with many tax laws over its decade in office. For a government that prides itself on reducing the levels of government intervention in the economy, it vigorously defends its position as the highest taxing government in Australia’s history. It is a government that has always talked about tax reform but has, quite frankly, all but managed to do nothing about it, particularly when it comes to introducing new measures. It sets about reforming taxes and does it by introducing new ones.

This government has set about reforming the Australian tax system and lowering the burden on Australian families by increasing the number of taxes and the amount of taxes that are collected. A cursory examination of its record on tax bears this out: this government have introduced and increased, as I understand it, 187 new taxes and charges over the 10 years it has been in office. From these 187 new taxes or charges, it has raised an extra $18.6 billion.

Before the members opposite try to tell us that this is GST revenue, the $18.6 billion figure that I quoted does not include the GST. As I am sure members opposite would be aware, the GST costs taxpayers about $40 billion a year, not $18.6 billion over the 10 years. This is a staggering result. When you do the maths, you work out that the Treasurer’s 10-year tax grab has raised almost $930 for every man, woman and child in this country. What is worse is: who is paying the tax?

The tax system presided over by this government is slugging low- and middle-income earners. Effective marginal tax rates have crippled household budgets of Australian families. While it is bad enough that they have to deal with the broken interest rates promise of this government, the effective marginal tax rates faced by single-income families on the average wage has increased to more than 50c in the dollar under this government. It has risen to a level where many families on the average wage are paying a higher effective marginal tax rate than a single person earning in the vicinity of $150,000 per year.

It is patently obvious that this government is the best friend that high-income earners have ever had and the worst enemy of middle Australia. There is no doubt that the time has come for a reform of Australia’s personal tax system. When you have a result where those who are on vastly lower incomes are facing higher effective marginal tax rates than higher income earners, you know there is something patently wrong with the tax system. The government’s approach of tinkering at the margins to satisfy various groups of voters—in marginal seats, presumably—coupled with the extension of welfare to middle- and high-income earners is starting to cause the problem that most people expected would emerge at some point in time. Low- and middle-income earners have missed out and will continue to miss out on tax relief under this government.

The government has set up new welfare payments and other rebates and refunds but it avoids giving real tax relief to middle-income earners. For its entire decade in office, this government has treated tax and social security payments as two separate things, either choosing to ignore or failing to realise the fact that they often come together, particularly when they meet in the average Australian household. They come together with many low- and middle-income earners and with devastating effect, causing high effective marginal tax rates. They come together to produce the worst possible incentive for increasing workforce participation.

Many of my constituents tell me that they wonder why they continue to work when they are often worse off financially by the end of the week. Even if you rely on grandparents, once you take out childcare costs, uniforms, transport costs and other necessities of the workplace, many families are right when they tell me that at the end of the week they are worse off than if they were not in work at all. It is a staggering position to have developed, particularly when it impacts on low- to middle-income earners; I do not think that it would be all that novel a position to them. I dare say, many members if they chose to go out and about in their electorates would probably find that it is a common theme amongst low- to middle-income earners across the country. Therefore it is about time that this mess was cleaned up. For far too long the situation has been allowed to persist to the detriment of low- and middle-income families in this country.

Under this government, if you are at the bottom of the income scale, you face the highest effective marginal tax rates and the lowest real chance of taking advantage of the loopholes that have been allowed to develop. When faced with such a system, it is little wonder that there are problems with workforce participation. How can anyone seriously expect low-income families to try and get themselves up the ladder when they are faced with oppressive effective marginal tax rates and a system in which they will, quite frankly, keep little additional income as a result of their earnings? The time has come for a serious look at personal income tax. It is about time this government got serious, as opposed to tinkering at the edges, and undertook some targeted reform within the tax system, particularly in terms of the system of transfer payments. Of itself, reform of the transfer payments system will not achieve the same reduction in disincentives and potential for increased participation in the workforce that reforms in the tax would, but it would nevertheless assist.

I now turn to the provisions of schedule 4 of the bill, which relate to non-resident capital gains tax. This schedule represents a major reduction in the capital gains tax base for non-residents and is expected to cost, I think, in the order of $65 million per year. Schedule 4 is both controversial and expensive. It is noted that the cost of these proposals needs to be considered in light of Australia’s relative attractiveness as a source of international capital. The measures involve a significant tax concession for foreign residents operating in Australia, mostly companies, by restricting the capital gains tax base to real property—that is, land and income derived from land. Capital gains on non-resident shares are therefore, as I understand it, now to be excluded. It is noted that the government has argued that this treatment is consistent with other OECD nations and certainly compliant with the OECD tax model treatment. The government has also argued that this approach is sought by other jurisdictions in tax treaty negotiations.

That said, there is certainly potential for the cost of this charge to grow significantly through time and there is concern that should also be expressed about some of the problems that may arise as a result of these changes. It is recognised that the basic principle of international taxation is that the host country taxes income that relates to operation in the host country, irrespective of where the company’s headquarters are located. Accordingly, income from operations conducted in Australia is taxed here. If a foreign company has a subsidiary with operations here, it pays capital gains tax. However, if the assets are held by an intermediary company then the claim by Australia to obtain the tax is, quite frankly, suspect—even if in reality the operator’s real operations are in fact conducted in Australia.

The Senate economics committee examined the provisions of this bill and its findings were handed down on 5 October. It would come as no surprise to anyone that the government senators arrived at the following conclusion:

The committee considers that the bill adequately addresses anomalies in Australia’s international taxation system as it relates to the treatment of capital gains tax and non-residents. The committee is convinced that the amendments to the taxation system will reap important benefits to the Australian economy and to the people of Australia.

Naturally, following such a glowing report, the committee recommended that the Senate pass the bill. One element that concerns me is the fact that the Labor senators in their additional remarks indicated that they had not received the analysis that they considered necessary to examine this bill thoroughly. As the Labor senators noted:

Decisions of this nature by the Parliament require the highest levels of analysis this country can afford. In this case, the Government has not put its argument with sufficient economic rigour.

The Labor senators went on to note:

Treasury officials have indicated that two amendments will be made to the Bill.

This is a disturbing trend—amendments upon amendments. That is what we have seen from this government on many occasions and this is just another example of that. Imperfect legislation presented for consideration and passage through this parliament is becoming the hallmark of the Howard government.

The government is getting sloppy when it comes to a number of tax bills. It gets the ones right that it introduces that either raise or introduce a new tax or charge, but it seems to struggle with the amendments to existing laws. I do not know if this is a result of a government that is trying to tread a fine line and not impact on any of its friends or, if that is not the case, that it is simply a lack of information being provided to senators or members on that side of the House who are considering the bill. However, the work and the analysis that should underlie any proposal coming to this parliament are not being done appropriately and accurately to justify the proper consideration of the matters at hand.

It is for this reason that the member for Hunter has moved his second reading amendment. It is in the interests of making sure that the right information and the right analysis is available to decision makers. While this might not be a bill that is foremost in the public mind and which the public would consider to be of particular significance, this bill will affect many people. It is yet another example of a government which is arrogant in its approach and sloppy when it comes to public policy and presenting detail in legislation for consideration by this parliament. It controls both the House of Representatives and the Senate now, and it exercises unprecedented arrogance, particularly in the way its members operate in considering matters which will impact across wide sections of the community.

The tax system, the level of taxation and the relative contribution of individual taxpayers will always be a source of debate, and there will be differing opinions. While there are taxpayers, there will be a debate about the level of tax and, quite frankly, this parliament should not shy away from it. However, this is a debate that must be based on good information and good analysis. Good information and good analysis does not seem to have been available when this bill was considered by the Senate and are certainly not contained in the bill or the supporting material that has been presented to this House. I hope that this is an aberration, but I have to say, as I made the point earlier— (Time expired)

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

It is another parliamentary sitting week and we have another tax laws amendment bill, the Tax Laws Amendment (2006 Measures No. 4) Bill 2006. Madam Deputy Speaker Bishop, I know that in your capacity as a member of one of the parliamentary committees you get frustrated at the complexity of the income tax system and its administration. While I do not share every view with you on that matter, I do share a concern about the ever-increasing complexity of the income tax system, as witnessed by yet another amendment bill and, further, an amendment to the amendment bill which is now before us. This further amendment bill, incidentally, adds to the total cost of the proposed changes to the capital gains tax regime a further $55 million over four years, a very substantial amount of money, about which we cannot have a proper debate because this amendment to the amendment bill is a very recent development.

As to the original amendment bill, I want to concentrate my comments on schedule 4, which relates to the treatment of capital gains tax for nonresidents. The proposal before the parliament is to restrict the capital gains tax base to real property, which means land and income from land, and to exempt from capital gains tax nonresidents’ shares. This will poke a very substantial hole in the income tax base—more than $250 million. If we add the exercise of the amendment to the amendment bill, we have well over $300 million in revenue losses. The Senate has had the opportunity to have a very brief look at these proposals, and the Labor senators continue to express their concerns about the rationale behind them and the lack of any genuine economic modelling to give a better understanding of the full implications of these measures. That is also a concern of mine.

It is worth recalling why we have a capital gains tax in the first place. There was no capital gains tax prior to 19 September 1985. The Hawke government, having been re-elected after the 1984 election, had undertaken to hold a tax summit. The purpose of that summit was to seek to build a consensus around a number of controversial issues, one of which was repairing the income tax base by the introduction of a capital gains tax, a fringe benefits tax and a number of other smaller measures. The other was the issue of a broadly based consumption tax, which was hotly debated at the time and rejected. The repairing of the income tax base was accepted by the government after listening to the arguments of all and sundry. The reason that the government considered it important to implement a capital gains tax was that there was a rampant practice of converting income into capital gains and thereby avoiding income tax. That allowed those with the capacity to make that conversion to avoid tax, whereas ordinary wage and salary earners who did not have such opportunities could not avail themselves of that capacity to minimise their tax.

As a consequence, Australia had a very unfair tax system. Not only was it unfair but it was very distorting of economic behaviour because so much investment was going into activities that enabled the conversion of income into capital gains, thereby minimising tax. So capital gains tax was introduced, effective from 19 September 1985, and along with it a fringe benefits tax with a similar rationale—that is, that particularly better-off people were converting their income into fringe benefits, whether it was private school fees, golf course subscriptions or expensive motor vehicles. All manner of fringe benefits were being taken. The declared income was greatly reduced and therefore income tax was also greatly reduced. So that second great hole in the income tax space was plugged through the fringe benefits tax.

The main purpose of doing that was to fund cuts in income tax rates. The great irony is that the coalition parades itself as the party of individual liberty, freedom, incentive and reward for effort, but in fact the incoming Labor government inherited a top personal income tax rate of 60c in the dollar. I thought that was a very high rate—and, Madam Deputy Speaker Bishop, I suspect that in your private moments you might agree with that—until I looked more closely at the history of the Fraser government and found that 60c was not the highest personal income tax rate through the period of the Fraser government. Indeed, it was more than 62 per cent. Admittedly, the income level at which that high rate cut in was many multiples of the income level at which the pre-existing top rate—until the most recent changes were made—had cut in, but it was a very high rate. The proceeds from the capital gains tax and the fringe benefits tax and the greater integrity of the income tax system were used to cut that rate and also the second highest rate.

Why do I dwell on that? The answer is that genuine tax reform must always involve repairing the income tax base in order to fund reductions in high effective tax rates. What this government has done is to use the proceeds of two large windfalls, from its point of view—namely, a productivity bonus and a resources boom—not to cut income tax rates but to lift the thresholds at which those rates come in. The cute trick with that is that it then allows bracket creep to recommence its insidious work so that before too long people at a particular level of income are confronted again with moving to a higher threshold and therefore to a higher income tax bracket, paying a higher income tax rate.

Then the government say, ‘We will provide income tax cuts,’ again, not by way of cutting the rates but by lifting the thresholds and making heroes of themselves in the community. That is not the way to go. The way to go is to repair the base to cut the rates. But the government have not done that. They have enjoyed a windfall estimated by the ANZ Bank to be more than $260 billion—not $260 million but $260 thousand million.

John Murphy (Lowe, Australian Labor Party, Parliamentary Secretary to the Leader of the Opposition) Share this | Link to this | Hansard source

Billion?

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

It is $260 billion, Member for Lowe—a lot of moolah. Instead of using at least part of that windfall to buy genuine tax reform, it has spent a lot of it on the buying of increases in income tax thresholds while leaving the rates substantially unaltered.

What has happened under this government? The 17c rate has been cut to 15c, the 42c rate has been cut to 40c and the 47c rate has been cut to 45c. For $263 billion you would think that the government could have done better than that. But it is not, in truth, a government of liberty, freedom and reward for effort. It is a government that is unambiguously the highest taxing government in Australia’s history. It seeks, through manipulating the books, to avoid that very unwanted tag, but it cannot get away with it. I will explain just briefly a couple of the bookkeeping entries that have allowed the government to pretend in the budget statements that it is not the highest taxing government in Australia’s history, whereas in fact it is.

We all remember the introduction of the GST in 2000. The GST replaced the wholesale sales tax. We well remember the Treasurer talking about this tax system that resembled the tax systems of Botswana and Swaziland—the old wholesale sales tax. The Treasurer booked to account the abolition of the wholesale sales tax, giving the appearance of a very substantial reduction in tax as a share of gross domestic product, but did not add to the accounts the much bigger tax that took its place: the orphan tax, the GST. The wholesale sales tax was collecting of the order of $14 billion and was replaced with a tax that then collected $24 billion and is now collecting $39 billion.

The abolition of the old tax was regarded as a tax reduction but the much bigger new tax that was introduced did not exist in the books. Why? Because the Treasurer decreed that it was not his tax at all. It was the orphan tax. He said it was the states’ tax. He asserted: ‘We don’t collect the GST. It’s the states’ tax.’ I was here in the parliament, as were the member for Lowe and the member for Moreton, and we debated the legislation day in and day out. In fact, I brought the legislation into the parliament—a very substantial document indeed. Now I understand from the Treasurer that this is a tax that did not pass through this parliament; it is not a Commonwealth tax. Who believes it is? The Auditor-General has ruled that it is a Commonwealth tax. The Australian Statistician has ruled that it is a Commonwealth tax. Every Australian who is not a member of this parliament knows that it is a Commonwealth tax, but the Treasurer and his party maintain the pretence that it is not. So, No. 1, that was the big bookkeeping trick that allowed him to claim that taxes went down as a share of GDP, whereas in fact they went up.

The second trick is that that tax, the GST, was used in part to fund the abolition of untied grants to the states. Again, $18 billion of untied grants to the states were abolished in the year 2000 and the Treasurer then said, in relation to those untied grants to the states, ‘Here’s a big savings on my outlays.’ So he is booking a big saving on his outlays, to pretend that this is not a big spending government, but not admitting in his accounts that the GST exists at all. If you do either of those things—add back in the payments that were abolished or count the GST—you get a very big taxing, big spending government, and that is the truth. The truth is that this government, by any honest measure, is the highest taxing government in Australia’s history.

We come to the situation where the government has squandered a wonderful opportunity. The windfall in revenue that has come the government’s way is a product of the economic reform program embarked upon by the Hawke and Keating Labor governments. That economic reform program produced a decade of record-breaking productivity growth.

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

Mr Hardgrave interjecting

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

The member for Moreton chuckles at this very notion. If, in fact, it were a result of the good work and the economic reforms of the coalition government, I ask the member for Moreton and all those who are listening to this broadcast tonight: why did productivity growth stop in 2004 and slip into reverse gear, and why has it failed to recover? If I remember correctly, the productivity surge began under the previous Labor government and, as a result of Labor’s reforms, carried through to 2004. But the lack of any investment or economic reform program on the part of this government has meant that productivity growth slipped into reverse gear in 2004 and has failed to recover. Talk about opportunities squandered. This government has squandered a great opportunity to continue the productivity surge that lasted a decade as a result of the economic reform program of the previous Labor government.

The government then had a wonderful second chance, and it is called the resources boom. The great second chance has meant that the Treasury coffers are overflowing. Every year, Treasury has underestimated the extent of the windfall, but it is $263 billion, with a series of large surpluses forecast right out to 2010. What is the government using this windfall for? Where is the investment program? The answer is: regional rorts programs. The government is using this money to invest in its future—that is, its electoral success—while squandering any opportunity to invest in Australia’s future. This period will go down in history as an era of unprecedented squandered opportunity.

And here we are debating tonight the creation of another hole in the capital gains tax system, because the money is there—because $300 million to the Treasury is small change. What could we do with $300 million? We could invest in education. We could have invested many tens of billions of that $263 billion. We could have invested in the greatest investment of all—in the talents of our young people. But instead, the government has been miserable in terms of its attitude to investing in education. The previous education minister spent two years arguing about voluntary student unionism. The previous education minister refused to come to an agreement with the states on training, and he abolished the Australian National Training Authority. And we wonder why there is a skills shortage. He was not interested in dealing with the skills shortage; all he wanted to do was to prove his credentials with the Prime Minister, live down the fact that he used to be a member of the Australian Labor Party and show that he was a true-blue Liberal, and he did nothing on education. What a squandered opportunity.

Now we have a new education minister—who also seems more interested in picking fights than in sitting down with the states and working out an agenda for reform and extra investment in education. I will give the Prime Minister credit for the fact that he has agreed to put education on the agenda for the Council of Australian Governments. Let the premiers and the Prime Minister sit down and work out what they could do with some of the tens and hundreds of billions of dollars that are gushing into the Treasury coffers—and do it in a cooperative manner instead of picking fights with the states and catching young people in the crossfire.

We could be doing so much more  in this country, but instead we are poking holes in the income tax base all the time. Why? For favoured constituencies. Why? Because we cannot get enough very highly paid foreign company executives. What is wrong with our company executives? Why do we have to keep giving tax breaks to foreign company executives? Why is that the priority? Why are young people not the priority? Why are young Australians not the priority in this country? Because we have to suck up to foreign company executives who are getting a pretty good deal anyway. And if the company fails they get an even bigger deal. Madam Deputy Speaker, you might guess that I have some real questions about the value of this measure.

Bob Katter (Kennedy, Independent) Share this | Link to this | Hansard source

In speaking this evening on the Tax Laws Amendment (2006 Measures No. 4) Bill 2006, I give notice that, all going well, I will be moving an amendment to remove the sections of the bill that allow a person from overseas to not have levied upon him the capital gains tax. I find it a most extraordinary measure. Thank heavens I am not still on the government benches! To think that I would have to vote that an Australian gets taxed the capital gains tax but a foreigner does not. I believe in discriminating on behalf of Australians; I do not believe in discriminating against them. It is one of the most extraordinary propositions. She is a little ripper! I will not be giving too many speeches without dropping this little clanger in.

I will be carrying it around with me, because people do not believe you when you say that they voted for this. They simply do not believe you. I carry this big briefcase with me to show them. When I do show them, they shake their head and say, ‘Can this actually be happening?’ This section of the bill says that if you are an Australian you pay capital gains tax but if you are a foreigner and you do exactly the same thing you do not have to pay any capital gains tax. The only explanation given to us is that the OECD told us to do it. I think the prosecutors in Nuremberg would love that one: the OECD told us to do it. In actual fact, today is a very sad day for Australia.

There were seven major mining companies. I have been heavily involved in the mining industry all of my life. I was working in the Flora Dora copper mine and floating my own company at the tender age of 26—of which I am very proud. We brought the mine into production, which is a very great achievement. I have watched great institutions be purchased and created by great Australians. Essington Lewis was a very great Australian. He was a man who saw the bigger picture for not only his company and his employees but also his nation, and he built the ‘Big Australian’. Sir Robert Menzies—the king of this place for nearly two decades—unashamedly did an awful lot of things to ensure that the Big Australian stayed the Big Australian. He would turn in his grave if he saw what was happening here today. I am writing a history book, and this section of our history in Australia is entitled ‘The rise of the Lilliputians’. The previous section of the book is entitled ‘Walking with giants’. The people who created BHP, and the people who created the Australian motor car, Larry Hartnett and Ben Chifley, were truly great men. However you measure men, these were truly great men.

Let me be very specific: if you own, as we Australians did, the seven great mining companies that dominate the Australian economy, there is only one thing that we now have that we can sell overseas. Our agriculture in this country is collapsing, and there is not a person in here who does not know that now. Manufacturing is gone. There is not any manufacturing in this country. The motor car industry is all that is left, and it is rapidly closing down. In fact, every time I go to Melbourne, I always read the newspapers and I collect the cuttings of which new companies have closed down in the motor vehicle supply industry. And let me say that, whilst Chifley may have instituted the Holden motor car, there was no doubt that the Menzies-McEwen government continued on as the strongest of supporters. In fact, they always acted as if they had been the architects of the whole initiative.

But let me switch back to the mining companies. The seven great mining companies that dominated the Australian economy some 12 years ago were all Australian owned—every single one of them. Metal prices moved up 350 per cent. Zinc, copper, silver and lead moved up, on average, 350 per cent. So when a mining company—I will not specifically mention them because there are a lot of good Australians associated with these companies—is making $1.5 thousand million a year and it has a certain cost structure of about $1.2 thousand million a year and the metal prices increase by 350 per cent, this nation should be receiving an extra $2,000 million a year. But of course this nation is not, because the cost structure has stayed the same and that extra $2,000 million of profit has gone overseas. That has taken place with each of these companies, whether it be BHP, MIM, Normandy or whatever.

When I was floating my own company, the people who knew informed me—young as I was—that: ‘You only need to hold about 30 per cent of the shares to in fact control the company. You would be a pretty weak sort of bloke if you couldn’t control a company with 30 per cent ownership.’ We saw investors in that great institution, Qantas—and I am glad to say that my grandfather was one of the very early investors—lose all their money. They refloated and put all their money in again, and they lost it again. The third time, they gave it to the government. Grandad never resented having lost a lot of money because he was really doing it for his country. Great people like Sir Hudson Fysh did not make a lot of money, but they were doing it for their country. The Fysh family still live out there. They are not wealthy people, but I think they are very proud of what they did for their country in creating that great institution, which I believe—from the magazines I read—is now controlled by British Airways. The profits and the company serve the interests of a foreign corporation.

I am informed that Optus is owned by SingTel of Singapore. And I find this quite extraordinary: ADI, which makes firearms—what little defence capability we have—is owned by the French. I hope they stay on side with us. Their government might say that they should not be producing any rifles or bullets here. When I was handed an SLR rifle and told that I was on 24-hour call-up to go and fight the Indonesians in Borneo—in what was delightfully called ‘confrontasi’; it was not too confrontasi for us who were going there—we had to go without any weapons to deliver a body blow at a tank. We had the Carl-Gustaf recoilless rifle. The Swedes, of course, did not like us going into Vietnam so they said that we were not allowed to use that weapon.

If you think I am off the track, I will repeat to you that ADI is foreign owned. The incentive for coming in and buying up this country is being increased dramatically by the actions of this government tonight. That is bad enough in terms of money, when you have a country that is dying with a $60,000 million a year current account deficit. That is bad enough in itself, without handing over the manufacturing defence capability of your country. And, if I am a French owned company, it is an awful lot better to supply all of the parts from France rather than produce them in Australia. Before the war we were producing an aircraft called the Wirraway. We thought it would be pretty easy to change from producing Wirraways to producing Beauforts, but we did not produce any Beauforts—until the last year, when it was all over. We could not convert over.

It is absolutely essential for this government to have some sort of technological and manufacturing base. We should not be increasing the incentive for foreigners to come here and take over. The reason that they want to come here and take over is that they want to make money. They produce these items overseas. If, for example, they buy SPC—as the foreigners have—then they do not produce or process here in Australia anymore. They utilise the retail arm. Golden Circle is high on the hit parade. The incentive for these takeovers has been increased dramatically by the actions of this government with discriminatory legislation which flagrantly, openly and patently discriminates against Australians. We pay the capital gains tax; they do not.

I want to come back to the mining companies. I mentioned just one company, which produces about $1.5 thousand million worth of ore. The average price of the ore bodies has gone up by 350 per cent, as I said previously. That means that it is now making $5,000 million. The cost structure remains at $1.2 thousand million, so all the extra $3,000 million, or whatever it is, is now going overseas. We do not want foreigners to own our country. It is not my vision for my country for my children to work as wage slaves to foreign landlords and, because of the deregulation of the labour market, increasingly work for less and less. The less money that goes into the pockets of the employees and the workers, the bigger the profits are that will move out of this country and overseas.

To me these things are very elementary. I do not think there is anything very complicated about this. With one company we might not be worried about the current account deficit. We lost $3,000 million as a nation as a result of that one company. But there were seven companies, and that one was one of the smallest of the seven. Seven times $3,000 million is $21,000 million that this country has lost because it stood aside and let its strategic mining companies be taken over by foreigners without any effort at all to keep those companies in Australian hands. They have even tried to speed up the process. We have held that out on account of the Senate, but for how much longer I do not know.

Coles has been the subject of a takeover bid. There is incentive to take over Coles. I am not one for conspiracy theories, but it seems to me more than strange that the Coles bid comes in the same month that we decide to abolish the capital gains tax. One would have to be very naive not to view this with some small degree of suspicion. But if Coles is taken over we in the rural industries of Australia have paid the terrible price for the free market policies of not only this government but of the previous government. When they deregulated the wool industry, we lost half the price of our wool. Half of that industry has vanished—gone completely. It will never come back. I know what I am talking about here: I represent a wool area, albeit a small one. It will never come back.

In 1989, when that brilliant man Mr Keating deregulated the Australian economy and the wool industry, one-tenth of this nation’s entire export earnings came from wool. The one thing that you would not muck around with was wool. There will be all sorts of explanations, such as that we lost some customers, the price was going down and the wool pile was building up, but that occurred about every three or four years. When we were deregulated, we lost half of our income; half the industry has gone. To quote the commentator Alan Jones: ‘You deregulated the industry and now you have lost half of the greatest industry this nation has ever had.’

They then proceeded to deregulate eggs, and farmers lost nearly 40 per cent of their income over the next six or seven year. They deregulated the sugar industry on the home market, and farmers lost 50 per cent of their income over the next three years. They deregulated the dairy industry, and farmers lost 30 per cent of their income over the next five years. Since the cost to the consumer for each of these commodities went up, the people in the middle—who were substantially Woolworths and Coles—made an extra $2,000 million just on sugar, eggs and dairy deregulation. In my third year as a member of parliament, which was 27 or 28 years ago, I decided that every time legislation came forward I would look at who profits and who loses. With food deregulation, we know that the losers have been the consumers and the farmers, producers and processors and that the people in the middle have gained hugely.

If we apply that test to Coles, I do not think that there are many commentators in Australia who are not saying that it will remain a target and will be taken over. On the best of authority, I have been told that it is only a matter of time before Wal-Mart take over Woolworths here in Australia. The two companies have a very close relationship now. All of those massive profits were purchased over the broken backs of Australia’s farmers. And let me be very specific: I represented 240 dairymen when I came into this place and now I represent 80. And every one of those people who left that industry suffered enormous pain, the destruction of their entire lives. In the sugar industry, we have a suicide every month as a result of deregulation and the free trade policies of this government and the last government.

And have they learnt anything? No. Like the Bourbons, they have learnt nothing and forgotten nothing. We are looking down the gun barrel of a huge increase in incentive for Wal-Mart and the other vultures and vipers that are circling around Coles at the present moment to come in, because the potential profits have gone through the roof. And they have been put through the roof by this government.

In writing a history book, I read a lot of history books. Do you know what? They pass a judgement upon you. You look at a man like McEwen, and you think: ‘This bloke is bigger than Ben Hur. What this bloke did for this country you could never measure. He was a man who had immense compassion, immense intellectual capacity and immense determination to see this country succeed.’ Those giants have very much been replaced by pygmies. It is the rise of the Lilliputians.

Those history books are going to say that when you took government in this country, Mr Keating, you had a very competitive economy. You had manufacturers who could compete on the world market; you had agriculturalists who could compete on the world market; you had viable industries in this country. Mr Keating, when you left, half of them had been destroyed by your policies. Did the incoming government learn anything? They were very quick to attack Mr Keating. We had the debt truck running around Australia. We heard daily from the Liberal Party and the National Party about the great debt that the Labor Party had rolled up. We do not hear very much about the debt truck these days because the current government has more than doubled that debt.

I have been a businessman in this country all of my life, and my daddy, my grandaddy and my great-grandaddy were businessmen before me. We have always been businesspeople. It is very simple: if you cannot trade—if you cannot sell anything—then you cannot buy anything and you will go broke. We salute those giants, we condemn the Lilliputians and we will be dividing in this House on the issue of that clause. (Time expired)

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

I would like to thank all the members who have taken part in this debate on the Tax Laws Amendment (2006 Measures No. 4) Bill 2006. I thank the member for Kennedy for his passion and his contribution to this bill as well.

Schedule 1 to this bill makes amendments to ensure marriage breakdown settlements do not give rise to capital gains tax liabilities. It expands existing CGT rollover relief on marriage breakdown to assets transferred under a binding financial arrangement or an arbitral award entered into under the Family Law Act 1975.

Schedule 2 of this bill corrects an unintended consequence of a consolidation integrity measure. The measure in this bill ensures that the integrity measure does not inappropriately prevent companies from accessing the rollover in certain circumstances. It would be appropriate for the integrity measure to apply to a company that has demerged and subsequently becomes part of a consolidated group for consolidation tax cost-setting purposes. In these circumstances, the assets are transferred to facilitate the demerger rather than to artificially increase the tax cost of assets for consolidation purposes.

Schedule 3 to the bill amends the simplified imputation system to ensure that Australian companies receive franking credits attached to non-assessable, non-exempt distributions from New Zealand companies. Schedule 4 to this bill implements reforms to Australia’s international taxation arrangements as part of an ongoing process to ensure that Australia has an internationally competitive tax system. The reforms align Australia’s domestic law with the approach adopted in Australia’s tax treaties and with international norms.

The government is moving two amendments to this bill as circulated. The first of these resets the cost base of indirect Australian real property interest not previously taxable for foreign residents to the market value of such interest on 10 May 2005—the date that the Treasurer announced the measure. This will ensure that unrealised accumulated capital gains or capital losses from interest in land-rich foreign interposed entities not previously within Australia’s tax regime will not be subject to CGT. The second of the amendments corrects an unintended narrowing of the availability of demerger relief for resident taxpayers. It also ensures the rollover relief for demergers interacts appropriately with the CGT and foreign residents measure in this bill. Without this amendment, the rollover relief to defer CGT consequences under a demerger may be denied for Australian residents unless a company is majority Australian owned or the company is land rich.

Before I conclude, I want to address a couple of issues that were raised by members opposite. Firstly, issues were raised by the member for Hunter and the member for Werriwa regarding parliamentary amendments and legislative amendments. The member for Hunter complained about the number of parliamentary amendments to tax bills in recent times. What he failed to mention in his reference to this matter was that the fact that we are moving a number of amendments shows that the government are focused on working with stakeholders in relation to taxation issues. We are willing and able to act in relation to measures that are brought forward by particular stakeholders. We are engaged in consultation with stakeholders in various taxation related issues in a way that we have not been in the past. We intend to continue that process. As a direct result of that process, it necessarily means that we will have amendments to move from time to time.

The member for Hunter spoke about ‘the government’s repeated failure to provide technical information and costings to support proposed changes to tax law’, and I respond as follows. Prior to the bill being introduced into this place, my office, together with the Department of the Treasury, provided a briefing to the member for Hunter’s staff to assist the member to be across the technical detail in the bill. I would also note that the Department of the Treasury took questions on notice as part of the Senate committee hearings. Responses to the questions have now been provided and are attached. It took us some time to formulate the answers to the questions given the technical nature of the questions. The Senate committee granted an extension of time for these answers to be provided. I note that these answers were provided before the Senate committee released its report. The measures in this bill clearly make improvements to Australia’s taxation laws. For this reason and the reasons outlined above, I commend the bill to the House.

Harry Jenkins (Scullin, Australian Labor Party) 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 question now is that the words proposed to be omitted stand part of the question.

Question agreed to.

Original question agreed to.

Bill read a second time.