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

My question is to the Prime Minister, who is looking for the answer, I presume.

John Howard (Bennelong, Liberal Party, Prime Minister) Share this | Link to this | Hansard source

I certainly did not have notice of it.

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

I am very kind. My question relates to the taxation of payments to groundwater users under the Achieving Sustainable Groundwater Entitlements Program and the integrity of the government’s future role in water management. Prime Minister, you would recall saying in your answer to my question in this place on 6 September 2006:

The New South Wales government thus far have represented to us that they want the payment treated as income because, apparently, they are fearful of a precedent being established whereby such payments are seen as truly they are, and that is as compensation for the withdrawal of a previously conferred water right.

Prime Minister, freedom of information documents obtained from the New South Wales government relating to this matter clearly indicate that the New South Wales government, through Ministers Knowles and McDonald, were indeed pleading the case of groundwater users in New South Wales not to be taxed under the income tax arrangements for payments received via the joint program.

Given that the intergovernmental agreement is under the hand of the Australian Government Solicitor and given that the Prime Minister was a co-announcer of the program on 9 June 2005, has the Prime Minister misled the parliament by claiming it was the New South Wales government that wanted the payments to be treated as income, or will he now produce the documents that will support his answer on 6 September and again on 30 October last year? I simply say to the honourable Prime Minister—

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

Order! The member will resume his seat. I think he has asked a lengthy question. I call the Prime Minister to answer his question.

Anthony Albanese (Grayndler, Australian Labor Party, Manager of Opposition Business in the House) Share this | Link to this | Hansard source

Mr Speaker, I rise on a point of order. The normal process if it is a long question would be to ask the member to wind up or conclude. Can he be allowed to conclude his question.

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

The Manager of Opposition Business will resume his seat. I think the member for New England has made his question clear. I call the Prime Minister to answer it.

John Howard (Bennelong, Liberal Party, Prime Minister) Share this | Link to this | Hansard source

I will come to the question of the alleged misrepresentation in the latter part of this answer, but let me for the information of the House and those who are very interested in this issue just remind them that I initiated discussion between the Australian Taxation Office and the New South Wales government following representation from the member for Gwydir, amongst others, and some irrigators in New South Wales about the treatment of these payments. I am told that those discussions are now concluded and that the Taxation Office will shortly be providing advice to the New South Wales Department of Natural Resources on their request for a class tax ruling. The details of this advice are a matter between the applicant for the ruling—in this case, the New South Wales Department of Natural Resources—and the Australian Taxation Office. The ATO’s practice is not to provide a copy of their advice or a draft class ruling to anyone other than the applicant. The government is awaiting advice from the New South Wales government on their most recent discussions with the tax office relating to the class ruling. If irrigators have any remaining concerns with the tax treatment of water licences, the government is always willing to listen to their concerns, as it has done to date.

The representations arose out of the fact that the payments had been structured and made in an environment where they were not intended to provide compensation for any perceived loss to farmers. In those circumstances they fell to be taxed as income. I am happy to provide to the member a letter that was written by Mr Ian McDonald on 28 August last year in relation to taxation arrangements for payments to landholders under the New South Wales government’s Native Vegetation Assistance Package. It reflected the approach and the philosophy of the New South Wales government in relation to these matters. It says, inter alia:

This package does not intend to provide compensation for any perceived loss for farmers.

It also goes on to say, crucially, on page 2 of the letter:

I am advised that it is likely that the Australian government—

and they really meant there the tax office—

will treat such payments as income.

And, of course, they would, because they have not been designed to look as though there is compensation, despite the fact that the payments are clearly being made as a result of the loss in the value of their capital assets. It is quite clear from this that the approach of the New South Wales government was to have these things not treated as compensation, because their argument at the time was that they did not want to open up the possibility of compensation for the withdrawal of water rights.

I think the member for New England will understand that this is very pertinent to the government’s water package for national water security. This is really where the $3 billion component comes in. You have a situation where, if we are ever going to settle this water thing, we will have to take back entitlements, and people will be entitled to some compensation. Whatever may be the strict legality of every situation, they will be entitled to compensation. I think this is pretty good evidence that the New South Wales government did not want to be liable for compensation. That is one of the reasons why we have put $3 billion on the table.

So let me say to the member for New England—and I also might say it to the member for Gwydir, who of course has been very active on this issue for a couple of years—that we have initiated discussions. I do not know what was in the tax office ruling, but I do live in hope that common sense will obtain and that what were clearly intended to be payments for capital losses will not be treated as income but will in fact be treated as what they were—payments for capital losses—and therefore the capital gains provisions of the taxation act ought to apply. I think, when he reads this letter and when other matters are discussed, he will see that, so far from us pushing back the pleas from Mr McDonald, we are in fact the people who have initiated a sensible discussion of this issue and we are the people who have provided, through our $3 billion component of the water package, a lasting solution to the overallocation problem, which is fundamental to fixing the future water security of the Murray-Darling Basin.