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

The Tax Laws Amendment (2006 Measures No. 6) Bill 2006 is a non-controversial bill that extends deductible gift recipient status to certain organisations that are not currently eligible under the normal application procedures of the Australian Taxation Office. This allows donations of over $2 to those organisations to be tax deductible. I will list them for the benefit of the House: the Don Chipp Foundation Ltd, from 27 June 2006; the Lingiari Policy Centre, from 26 July 2006; Nonprofit Australia Ltd, from 29 June 2006 until 28 June 2009; Playgroup SA Inc., from 6 August 2006; Point Nepean Community Trust, from 27 June 2006 until 10 June 2009; St Mary’s Cathedral Restoration Appeal Inc., from 27 April 2006 until 26 April 2007; and the Ranfurly Library Service Inc., from 3 May 2006.

Some other organisations have also had their DGR status extended: the Bowral Vietnam Memorial Walk Trust Inc., until 15 August 2006; the Dunn and Lewis Youth Development Foundation Ltd, until 31 December 2006; the St Paul’s Cathedral Restoration Fund, until 22 April 2008; and the Yachad Accelerated Learning Project Ltd, until 30 June 2008. There is a cost to revenue of almost $10 million over the period of the forward estimates, and Labor supports the measures proposed.

The bill also corrects a number of errors in the legislation. Labor accepts that inevitably there will be some errors in legislation over time and the need to correct typographical errors through amendments. However, a number of errors corrected in this bill are much more than typographical—in particular, the removal of redundant material, the correction of technical drafting errors, missing consequential amendments, and the correction of some definitions.

I identify for the House that this bill is another admission by the minister that the error rate in legislative drafting has been very high in the last few years. This adds to compliance costs for business and makes the tax system less effective and efficient. Again I call on the minister to deal with this issue—after all, we have now had a Federal Court judge, the Inspector-General of Taxation and even the minister himself indicate that there are problems in the drafting and interpretation of tax laws. The problem has become endemic in recent years and is reaching crisis proportions, which is why we have so much public debate on the issue at the moment.

For the benefit of the House, I will quickly run through some examples: in February, we had a tax law amendment bill on retirement villages which had errors corrected after the bill was introduced; in February, there was another tax law amendment bill on the GST non-reviewable contracts, for which the minister had to accept Labor’s amendment; again in February, we had TLAB7, when the government amended its own bill in the House to change time frames for provisions relating to non-commercial loans; in May 2005, for TLAB1, the government had to rewrite schedules on the GST as it applies to foreign tour operators; in June 2005, for TLAB2, the government had to withdraw provisions on the GST margin scheme; in June 2005, in TLAB3, there was a major mistake on an international tax bill which had to be corrected in schedule 2; since 2000, we have had at least 12 changes to the consolidation bills; and in December 2005 there was a debacle over the loss recoupment measures. Labor’s amendment was rejected in the morning, and by the afternoon the government was announcing that the policy would be reviewed. In June 2006, tax law amendment bill No. 3 had errors in item 4 of schedule 7, which related to the superannuation funds reporting to the ATO; and, again in June 2006, Tax Law Amendment (2006 Measures No. 3) Bill had problems in the drafting of the legislation. That bill clarified that the repeal of the six-year amendment period for general anti-avoidance amendments only applied to assessments for the 2004-05 income year and later income years, as originally intended. In December 2006, for TLAB4, there was a need for a market cost base to be adjusted for the bills to apply prospectively; and, again in December 2006, for TLAB6, there were numerous technical corrections.

That is a long and disappointing list that must be of great concern to those who have to deal with the interpretation and implementation of Australia’s taxation laws on behalf of the people they represent. As I said earlier, this adds significantly to business costs and compliance costs, particularly for small business, which simply does not have the resources to deal with such uncertainty in the area of taxation law.

The bill before the House deals with the tax treatment of income earned by individuals while serving overseas, and good examples are our Defence Force personnel and people working on aid projects. I want to turn to one other example of how this area of tax law is applied and has been applied. I want to refer specifically to the case of Mr Trevor Flugge and his association with the Australian Wheat Board. Some time ago I asserted in this House that Mr Flugge had paid no income tax on the money he earned while serving overseas for the Australian Wheat Board, which was in the order of a million dollars, as we understood it. Sources are now confirming that that was indeed the case, and Mr Flugge has passed up every opportunity to deny that it was the case that he had paid no income tax on that million or so dollars that he earned overseas.

This all happened despite objections about a conflict of interest from US wheat farmers, based on Mr Flugge’s former role as chairman of the AWB. Upon his appointment, Mr Flugge was told that he would be exempt from Australian tax as Iraq had an income tax system and he would not need to be taxed twice.

Mrs Bronwyn Bishop (Mackellar, Liberal Party) Share this | Link to this | Hansard source

I would remind the member that, whilst we do have a wide-ranging debate, it is necessary to come back to the subject of the bill.

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

I appreciate your intervention, Madam Deputy Speaker, but this does go directly to the matters contained within this bill. What is more concerning is that the tax-free status that Mr Flugge enjoyed was gained by a change to the tax laws in 2005. In January last year, the Howard government moved to introduce special legislation to negate that liability and to restore the tax exemption for certain Australian workers in Iraq, including Mr Flugge. That legislation delivered a windfall of several hundred thousand dollars to Mr Flugge.

Labor supported the legislation last January in good faith, but we now know, or at least suspect, that the legislation was passed partly to accommodate Mr Flugge. In today’s Sydney Morning Herald a spokesman for the Assistant Treasurer, Mr Dutton, said he could not say if anyone had lobbied for the changes to the law. I am very pleased Mr Dutton has been able to join us in the House because that will give him an immediate opportunity to respond. Labor questions the role Mr Flugge played in securing this tailor-made tax exemption for himself, and I now invite the minister to confirm that this change to section 23AG was not done at the behest of Mr Flugge, Mr Long or anyone else at the Australian Wheat Board.

I want to close by reaffirming my request to the minister to address those issues and then by going back very quickly to this debacle we have had in the drafting of tax legislation over the last few years, not just under Minister Dutton but also, and even more markedly, under Minister Brough. We became fond of calling them ‘Brough-ups’ on this side. I have not quite been able to determine a colourful phrase to better describe them under Minister Dutton. He must by now, surely in his own mind, agree with me that the errors in tax legislation identified after they have been introduced into this place have been extraordinary and unacceptable. I am sure they are not only unacceptable to me and the opposition but also to the army of tax experts, accountants, that have to deal with the interpretation and the application of the legislation and of course to their clients, small business operators amongst them.

I had an article in the Australian recently on the issue of compliance for small business in which I also canvassed various things the government could be considering for the small business sector in the area of taxation. They ranged fairly widely—all the way from maybe extending and tidying up the application of the entrepreneurs tax offset through to a special corporate rate for small firms and another model for delivering a lower rate for unincorporated firms on the money they receive for the sale of goods and services.

I note that I have had no response at all from the government side on these proposals, neither from Minister Dutton nor from the minister for small business. It makes me wonder where the government’s mind is. It says it wants to do something about compliance for small business yet it is consistently putting flawed tax laws into this place. The fact is, while the government likes to talk lots and lots about reducing compliance for small business—indeed, prior to the 1996 election it promised to reduce red tape for small business by 50 per cent—it has done nothing.

In any case, while we will all continue to strive towards lower compliance costs, towards less red tape, for small business it will always be there. That is the unfortunate reality of the way government legislation impacts upon business, in particular small business, which does not have the resources to absorb it as well as larger firms do. The reality is it will always be there and the government should be looking on the other side of the equation at how it can compensate small business for the disproportionate way in which red tape and compliance falls upon it. The best way it can compensate small business for that is of course through the tax system—looking at models to deliver a lower taxation regime for the risk and effort of small business persons and as a means of encouraging entrepreneurship in this country.

The silence coming from the government on this issue is absolutely deafening. So, again, when the minister gets to his feet he might be able to share his views on the proposals I put forward just now or the proposals I put forward in the Australian newspaper recently. He has had plenty of time to read them between now and then, and I cannot believe that the government would not have looked at those proposals and attempted at least to develop a response to them.

I invite him to respond to those ideas—very good ideas, I think—for small business but also, and even more particularly, on this occasion to respond to the suggestion I have made that the changes to 23AG were made after the event in the case of Mr Flugge and at the behest of Mr Flugge to ensure that the $1 million he earned while overseas was not partly subsidised by the Australian taxpayer.

Wilson Tuckey (O'Connor, Liberal Party) Share this | Link to this | Hansard source

I welcome the member for Hunter to his continued attendance at the dispatch box and hope that he will continue to bring a modicum of common sense to this place. The Tax Laws Amendment (2006 Measures No. 6) Bill 2006 before us today, as has been described by the member for Hunter, is a piece of amending legislation to address certain outstanding matters and inaccuracies within the tax act and primarily, from a political perspective, addresses the increasing or the extending of entitlement for deductible gift recipients. This is a policy, I would say a bipartisan policy, of government to allow charities as we know them to achieve a status of being a deductible gift recipient, meaning those persons who donate to them in amounts in excess of $2 can claim a tax deduction upon their own tax responsibilities.

I note that just these small measures are identified as having a negative effect on revenue of about $9.59 million, $9.6 million—quite a lot of money. I am sure each and every one of these particular groups that have had their status established or otherwise extended in this bill are managed by people of good intent and will result in community benefit and public good.

It has been an issue for me nevertheless to concern myself with this process. I mean, considering the rather limited number of projects involved, would we have been better giving them $9.6 million instead of having this convoluted process? I have not got the answer to that, but I have often raised that question. I have concerned myself over the years with the scrutiny of some of these organisations. It is notable here that a number of these organisations had a limited period in which they qualified as a deductible gift recipient, and four have had that entitlement period extended.

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

You’d have to give them about $30 million, Wilson: more than the cost of granting a tax deduction.

Wilson Tuckey (O'Connor, Liberal Party) Share this | Link to this | Hansard source

Yes, one might wonder just how much of the other money is actually available. Anyway, from a taxing perspective one might wonder about this convoluted process. I think you might find that on some smaller tax returns they are listed as deductible gifts wherever they might have appeared.

But the reality is that four of these groups have had their entitlement periods extended. For instance, the period for the Bowral Vietnam Memorial Walk Trust Inc was extended from August 2005 to August 2006, which of course is already past. The Dunn and Lewis Youth Development Foundation has had its period for eligibility extended from November 2005 to January 2007, and so on. I am encouraged that there is, by that process—in other words, granting the entitlement for a limited period—an opportunity for review and an opportunity to ensure that the taxpayers’ contribution in this matter is being spent in an appropriate way and that taxpayers are getting value for money from this process.

Then one looks at the wider situation of the application of income tax or income tax exemption to certain so-called charitable operations. I have never been able to understand why the manufacturer of the most popular breakfast cereal in Australia for decades pays no tax because it is owned by a church group. I can understand that churches in the normal practice of delivering assistance and encouragement to people should not be taxed, but when they operate the biggest corporate entity in breakfast cereals in Australia I wonder whether that is truly a churchly activity. I would have thought that, even on the basis of competition, there is a huge advantage extended to someone who can be in the marketplace and not have to attach or deduct from their profitability company taxation.

I am not sure that that is a widely held view. I have heard that every penny made goes to good causes, and there are many other examples of that nature. I do not want to be too specific about the one I have mentioned.

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

Trevor Flugge was a good cause, wasn’t he?

Wilson Tuckey (O'Connor, Liberal Party) Share this | Link to this | Hansard source

Yes, I know. Anyhow, we should not get too far into that. I am talking about the AWB later today. The member for Hunter is well aware of my views on the scams that have operated within that system for the last five or six years, many of which were identified by Mr Cole. A large number were not because it was not in his brief, and those are all ones that have caused substantial financial damage to my constituents, many of whom are prepared to return to the chopping block at the next opportunity, and complain bitterly about the government maybe trying to protect its interest.

Coming back to this tax bill, it is interesting that there are many aspects of tax deductibility for welfare or charitable organisations that I believe should be under constant review in this place. I do not know if it would be the public accounts committee, but one of those standing committees of the parliament, attended of course by members from both sides of the House, was not looking at the practicality and the value to the Australian taxpayer of some of the aspects of tax deductibility.

Granted: I know that at one stage the government had a look at people who might better be described as lobbyists but, because their lobbying activities were involved, say, with the environment, they were considered some sort of charitable organisation. It is not unusual for them to pay their chief executive a very large salary, and of course with the advent of the fringe benefits tax we had to change the law—it might have been the previous government. These people were taking their entire salary as a fringe benefit, because the organisation by whom they were employed did not pay tax. The argument of FBT deductions is that the employee relies upon the employer to pay all their bills—in other words a salary sacrifice—and then turns around and the employer is obliged to pay tax on those benefits. Of course, the trade-off as we all know is that company tax is a flat rate; if the employer is a company there is a tax benefit that accrues from that activity. But if the agency that participated in this arrangement with fringe benefits tax was not taxed then the employee became virtually tax free. State governments were pulling the same trick, and as a result of that there was no opportunity to recover the tax as the legislation intended.

So there are a range of issues about charitable and other similar organisations and groups that achieve this deductible gift recipient status. In my mind, while I support its basic existence, there should be a constant review of those who receive it, and I endorse the fact that the government has seen fit to have a restricted period under which the entitlements of a number of the institutions listed exists. So that is the first thing to do there.

The member for Hunter in his closing remarks said a few things about tax on small business. After a long career in small business, I have to say that income tax as such was seldom a serious problem. When you are struggling in small business and utilising the deductions available, income tax is seldom a huge burden. It is the taxes you pay even when you are going broke that hurt small business—payroll tax, a variety of stamp duties, land taxes and rates and taxes that take no account whatsoever of the income of the business. They are purely and simply arbitrary and they become a cost to business. Some of those are in fact tax deductible at the Commonwealth level, and I guess that is some advantage. I invite the member for Hunter to look, in pursuing quite creditably the issue of how small business is taxed, at the taxes they pay even if they are going broke. Those taxes make life very hard for small business, and it is something that we might all want to turn our attention to one day, notwithstanding that very few of those taxes apply from the Commonwealth regime.

GST was a great invention because that, at least, removed the burden small business so frequently had hidden in the purchase price of the goods—sales tax. Many of those goods included the very equipment that they used to run their business. We even had the most outrageous situation whereby you could buy a refrigerator for domestic purposes at a relatively low rate of sales tax but if you bought one for the conduct of your business the tax was frequently about 30 per cent on the same item. One wonders how we could have had for so many years a tax system that applied in that fashion.

The other issues that have already been mentioned relate to a variety of corrections within the bill. That is appropriate. It is easy to say that the draftees will get everything right or that as we get layers of tax law we do not have some unnecessary duplication. The bill deals with a lot of those matters. It is interesting that this House must correct where the asterisks are. I think it quite appropriate, by the way, that we are correcting some duplication where the Prime Minister has to appoint senior officers in the tax office and if he is unavailable to do so he delegates that responsibility to the Treasurer. Whosoever is in government does it anyway. It has not been a job that the Prime Minister typically takes upon himself. In other words, it has been the responsibility of the person designated as Treasurer in the government of the day and this bill recognises that fact and repeals subsection 6B(11) of the Taxation Administration Act 1953. The Prime Minister will no longer need to delegate the power to the Treasurer to make such acting appointments. It is eminently sensible and good policy. There are a number of things of that nature in the bill, and I am sure everybody agrees with those.

There is not much more I can say. There is an extensive list of deductible gift recipients—thousands that the government recognises. I trust the Assistant Treasurer, who is sitting at the table, will find the time to get his department to review their performance, and while he is looking at that I trust he will ensure that if those so-called charitable organisations out there doing public good are running businesses of significance they will be treated as businesses and not charities. That is fair to other competitors as much as it is fair to the taxpayer. With those few remarks I announce that I am more than happy to support this legislation.

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

I thank all those members who have taken part in the debate on the Tax Laws Amendment (2006 Measures No. 6) Bill 2006. In particular I thank the previous speaker, who provided a valuable contribution to this debate. Before I sum up I would like to respond to one point that the opposition spokesman made. He made reference to an article he had published in the Australian, and he claimed that the government had not responded. Just for the record, I had prepared a response and had sent it to the Australian. Regrettably, they were unable to print it. I opened the article I put to them with a quote which said, ‘We have never pretended to be a small business party.’ That was a quote from the then opposition leader, Mr Beazley. Perhaps there was some foresight by the Australianthey realised at that stage that the Shadow Assistant Treasurer was running around trying to cut the throat of the then opposition leader, Mr Beazley. Now he has been successful and he will form part, I understand, of the new dream team as it goes forward. I hope he does; I wish him every continued success.

I started the article with that quote and then went on to talk about a number of ways in which the Howard government have been the best friend small business has ever had. I talked about the way in which, for argument’s sake, we helped slash interest rates from the 20 per cent high that they were under Labor. Small business knows that Labor is not the party of small business. Small business has every understanding that Labor stands for high spending, high taxation, a stagnant economy and unemployment. This government stand for everything opposite and we have delivered over the last 10 years.

Specifically, the amendments to the list in relation to deductible gift recipients show the government’s commitment to assist worthy organisations that meet the criteria to become listed organisations under the Income Tax Assessment Act 1997 in order to attract greater public support for their activities. The organisations that are listed as DGRs in this bill are: the Don Chipp Foundation Ltd from 27 June 2006; Lingiara Policy Centre from 26 July 2006; Non Profit Australia Ltd from 29 June 2006 until 28 June 2009; Playgroup SA Inc. from 6 August 2006; the Point Nepean Community Trust from 27 June 2006 until 10 June 2009; St Mary’s Cathedral Restoration Appeal Inc. from 27 April 2006 until 26 April 2007; and the Ranfurly Library Service Inc. from 3 May 2006.

In addition, this bill extends the DGR listing of the Bowral Vietnam Memorial Walk Trust Inc. until 15 August 2006, the Dun Lewis Youth Development Foundation Ltd until 31 December 2006, the St Paul’s Cathedral Restoration Fund until 22 April 2008 and the Yachad Accelerated Learning Project Ltd until 30 June 2008.

The bill formalises arrangements for the Treasurer to appoint acting commissioners of taxation during periods of absence from office. The bill also makes a number of other technical corrections, amendments and general improvements to the taxation laws. While not implementing new policy, these amendments are part of the government’s ongoing commitment to improving the quality of the taxation laws.

This bill demonstrates the government’s ongoing commitment to supporting community organisations that make a tangible difference in the lives of lower income people—people less fortunate than us. It underscores also the benefits that the Australian small business community has from re-electing a Howard government, because we are a government that have continued our support of small business. It will continue to be at the core of our support as we believe that it underpins the Australian economy. It is a segment within the Australian community and economy that will continue to drive growth into the future and will continue to employ young Australians. It is very much worthy of our support. We guarantee our continued support of that sector.

I again thank those who have participated in this debate, and I commend the bill to the House.

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

Mr Deputy Speaker Wilkie, I invite the minister to table his unpublished small business editorial piece.

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

Mr Deputy Speaker, this is an article that is coming his way soon, so wait and see.

Question agreed to.

Bill read a second time.