Darren Cheeseman (Corangamite, Australian Labor Party) Share this | Link to this | Hansard source

By coordinating our international policies to complement changes in our domestic policies, we solve common problems and hindrances to trade and investment opportunities. Given the importance of trade to our economic prosperity, it is critical that our bilateral agreements are updated with our partner states to meet the challenges of changing domestic policies. This is essential to our trade policy approach. We have to ensure that Australia is productive enough and competitive enough to take advantage of our market access gains.

I would like to bring to this debate some important information that was raised with the release of an independent report into Australia’s export policies and programs. The Mortimer review, as it is colloquially known, was conducted by David Mortimer AO and Dr John Edwards. The International Tax Agreements Amendment Bill (No. 2) 2008 reflects the sentiments in section 4.6 of the Mortimer review:

The review received a number of comments from stakeholders on Australia’s current system for taxation of overseas income. Many argued that the system has failed to keep pace with the changing nature of our trade and the internationalisation of business and that its complexity often leads to inadvertent evasion of tax.

The Mortimer review recommended that there be a concerted effort to strengthen coordination and delivery of trade policies and services. This bill is indicative of Labor’s commitment to provide a strong voice for business in developing trade and investment priorities and programs and to secure growth in Australian trade group bilateral agreements.

We have signalled a broadening of our export base, with a strong focus on services and investment. This commitment to refocus Australia’s trade policy is paramount, laying the foundations for our future prosperity. It is imperative that Australia secures trading opportunities, due to the failure of the previous federal government. Under the previous government, despite the resources boom, net exports made a positive contribution to economic growth in just two out of the 11 years they were in office. That is right: two out of the last 11 years in office. This has led to the increase in our net foreign liabilities. It is in Australia’s best interests that bilateral economic and trade relations with South Africa continue to grow.

The majority of the deterioration of Australia’s trade balance under the previous government was in the last five years, when they had the benefit of a major resources boom and very favourable terms of trade. I think the previous government really missed an opportunity to further develop Australia’s trade opportunities.

We have an opportunity now to make sure that protocols are in place to reduce barriers to bilateral trade and investment and to lower withholding tax rates on interest and royalties for Australian business and investment. This government will not miss these opportunities. We must take these steps to redress the failings of the previous government. We must take steps to redress the 72 consecutive trade deficits that we inherited from the previous government.

This is trade reform which is very important for our continued growth as a community. We, as a nation, are competitive enough and productive enough, I believe, to take advantage of the opportunities that this bill presents. An increase in exports will be necessary to stabilise net foreign liabilities and to avoid a potentially painful readjustment process in the future. The challenge is not only to take advantage of the opportunities but also to help secure economic growth in a sustainable way for our overseas and bilateral partners. It is vital that we secure our international business culture in this country to improve our performance. It is vital that we take the lead in the trade liberalisation agenda with our international trading partners. Our region can become a very substantial economic powerhouse within the global economy. Fundamentally, it also means that we have to diversify our trade base to harness much more of the huge potential that this nation has, to provide, in the long run, benefits to consumers and to build stronger relationships with our trading partners.

It is imperative that we get the frameworks right, boost economic growth and set the nation up for sustainable prosperity beyond the resources boom. This is a new era of economic reform. In just 12 months we have already made a huge down payment on our commitments to improve Australia’s trade performance. We have a strong resources and agriculture base. These are the things we share strongly with South Africa. But a strong resources and agricultural base will not solely support us in the long term, and the failures of the previous government in providing long-term structural trade policy must be reversed. We are taking those opportunities. The challenge for us here is to take up those opportunities and really deliver for our nation. Let us secure a strong economic growth for our future. This bill does that, and I commend it to the House.

Richard Marles (Corio, Australian Labor Party) Share this | Link to this | Hansard source

It is my great pleasure to be here speaking today and following on from the member for Corangamite. Since the member for Corangamite and I were elected to this place, this is the first time that we have spoken consecutively in the House of Representatives, which leads to the conclusion that five o’clock today really is Geelong hour in the House of Representatives—as, of course, we very much know that five o’clock will be Geelong hour at the MCG this coming Saturday! We take this as a portent for what is to come in the next 72 hours.

I rise to speak in support of the International Tax Agreements Amendment Bill (No. 2) 2008, which will incorporate into law the 2008 protocol agreement between South Africa and Australia relating to taxation and amend the International Tax Agreements Act 1953. The protocol that was signed earlier this year enhances and updates the existing Australia-South Africa tax treaty, which was first signed in 1999. This new protocol will assist in promoting trade between our two nations. It will also assist in providing communication and better cooperation between the tax agencies in South Africa and in Australia. It will also encourage greater investment by each country in the other. It will do this specifically by lowering the withholding tax rates on interest and royalties which are related to trade. This bill comes before the House of Representatives having first gone to the Joint Standing Committee on Treaties, which recommended that the bill be passed through the parliament and that the protocol become law in Australia.

Australia and South Africa share much within their history. Both countries had European settlement occur in the context of the British Commonwealth. The Boer War was in essence the first major conflict that Australians fought in as Australians. After that war many Australians stayed in South Africa, and in 1904 the South African census recognised over 5,000 Australian settlers. In this country we saw the first wave of South African immigration to Australia around the 1850s, when approximately 1,500 South Africans came to Australia in pursuit of gold—and approximately half of those South Africans ended up living in my home state of Victoria. Today it is estimated that there are 115,000 South Africans who reside in Australia and, correspondingly, that there are 7½ thousand Australians who reside in South Africa.

Australia and South Africa established diplomatic relations with each other back in 1947. Of course, those relations soured following the Sharpeville massacre in 1960 and subsequently during the apartheid era. It is to this country’s great credit that, throughout that time, Australia strongly opposed the apartheid government in South Africa. Prime Minister Malcolm Fraser spoke out vigorously against apartheid, particularly at the 1977 Commonwealth Heads of Government Meeting in Scotland, where he argued that the Commonwealth should become institutionally opposed to apartheid. Bilateral relations between our two countries have been enhanced since 1994, with the first post-apartheid all-party elections and the introduction of very strong democratic institutions into South Africa. It is of interest that, since 1994, Australia has provided $120 million worth of development assistance for this, in a sense, emerging democracy.

Australia and South Africa have also worked very closely together on defence issues since 1994, despite our contrasting geography, being in different longitudes of the world. The chief of staff operations for the South African National Defence Force visited Australia in August 1996 and, since then, there have been numerous visits back and forth between our two defence forces. We all remember the Australian Defence Force in 2001 praising the South African National Defence Force for its help in apprehending an illegal fishing vessel which had fled Australian waters.

At a parliamentary level there has also been a lot of discourse and connection between our two countries. There have been significant parliamentary delegations and ministerial visits since 1994. The first was undertaken by the current member for Fraser, the then Minister for Trade, Bob McMullan, back in March 1995. Under the Howard government, there were nine official visits by ministers and parliamentary secretaries, including the Prime Minister, John Howard, in 1999. There have also been four parliamentary delegations since 1997. The current Speaker of the House, the member for Scullin, represented Australia at the 118th Assembly of the Inter-Parliamentary Union in Cape Town in April this year. South Africa is the only African member of the Cairns Group.

But the legacy of apartheid has not been easy for South Africa to shake. South Africa still confronts many difficult domestic issues as a result of apartheid. There are large income disparities and there is high unemployment in South Africa, and there is, as in Australia, a skills shortage. The skills shortage in South Africa is caused, in part, by the brain drain which occurred during the apartheid era. I mentioned earlier the differing numbers of South Africans in Australia and Australians in South Africa. The very large number of South Africans in Australia is an example of that brain drain.

There are also regional issues which make South Africa’s domestic circumstances all the more difficult, particularly as it borders Zimbabwe and experiences the current Zimbabwean crisis, which has seen a significant influx of refugees into South Africa. That and other issues, such as the rate of HIV-AIDS infection in Africa, have made for very difficult circumstances for the South African government and governmental resources.

I say all of that because, despite all of those challenges and difficulties, post 1994 South Africa has prospered and become the political and economic powerhouse of Africa. South Africa currently is ranked 28th in the world in terms of GDP. World Bank statistics measure South Africa’s GDP at US$227 billion. South Africa is by far Australia’s largest trading partner on the African continent. Overall, the two-way trade between South Africa and Australia equates to $3.88 billion annually. South Africa currently accounts for about 1½ per cent of the Australian export market, or $2.5 billion. That figure represents what has been a year-by-year growth in trade with South Africa of about 10½ per cent. Right now, South Africa is our 16th largest merchandise export market overall. Australia supplies 1.8 per cent of South African imports and, correspondingly, we are the 16th largest importer into the South African market. The major Australian export items into the South African market include medical equipment, including veterinary equipment, which accounts for $814 million; coal, which accounts for $173 million; meat, which accounts for $57 million; and civil engineering equipment, which accounts for $47 million. In addition to that, Australia also exports $347 million worth of services to South Africa, the vast bulk of which is really made up of inbound tourism to South Africa.

In terms of investment, the ABS puts Australian investment in South Africa at $893 million, but really that represents only the tip of the iceberg because in fact a lot of companies do not report their investment figures to the ABS on account of commercial confidentiality. To give you a sense of how large the actual figures are: the Department of Foreign Affairs and Trade has estimated that Australian mining companies have approximately $15 billion invested in South Africa. Some companies—for example, Aquarius Platinum and BHP Billiton—are involved in platinum mining. GRD Minproc is involved in providing engineering services to the mining sector. International Ferro Metals is involved in both chrome mining and the ferrochrome process for amalgamating iron and chrome into ferrochrome. Mineral Commodities is a company which is involved in both nickel and chrome mining in South Africa. Palabora Mining, Rio Tinto and Riversdale are all involved in copper mining in South Africa. Tawana Resources is involved in diamond mining in South Africa.

Other Australian organisations that are involved in South Africa include Monash University, which has a campus in South Africa, and Macquarie Africa, which invests in infrastructure projects in that country. To that end, a very significant company based in my electorate of Corio in Geelong is the Costa Group. The former chair of the Costa Group, of course, is Frank Costa—and, to return to the earlier theme, he is the current President of the Geelong Football Club, so my best wishes at this moment absolutely go to Frank and the team. I know that he is sitting very nervously in the lead-up to Saturday. The Costa Group is a very significant Australian company, and it currently provides logistics for a major supermarket chain in South Africa called Pick n Pay. Costas in turn employ 850,000 South Africans locally in South Africa. So there is a very large Australian company based in my electorate that has very significant interests in South Africa.

Australia is South Africa’s 12th largest export market. It represents two per cent of South Africa’s exports and it accounts for $1.35 billion in trade. The principal merchandise items that are being exported out of South Africa into this country are passenger motor vehicles, which account for $663 million worth of exports; motor vehicle parts, which represent $47 million worth of exports; pig iron, which represents $45 million; and transport vehicles, which represent $39 million of exports out of South Africa into this country. Australia also imports $303 million worth of service items from South Africa, and again that is principally made up of South African tourists coming into this country. In terms of investment, at the end of 2007 South Africa had $1.2 billion invested in this country. That gives you a sense of the economic ties which exist between our two countries—they are very significant indeed. This only highlights the importance of this bill before the House today.

The protocol which is the basis of this bill was signed by Australia’s High Commissioner to South Africa, His Excellency Mr Philip Green, and the Acting Minister of Finance in South Africa, the Hon. Ms Geraldine Fraser-Moleketi, in South Africa on 31 March of this year. The bill amends the existing taxation agreement, which, as I said earlier, first came into being in 1999. The new protocol was prompted by the need for Australia to meet the most favoured nation obligation which exists in the 1999 taxation agreement. What that in effect meant was that there was an undertaking given by Australia to South Africa that it would have the most favourable terms possible in our international relations. Australia and the UK signed a tax treaty in 2003 which enhanced the relationship between us and the UK and which bettered the existing position between Australia and South Africa. The most favoured nation obligation clause obliged both countries to renegotiate the tax agreement, which then led to the protocol which was signed this year.

The principal measures contained in the protocol, and which are therefore contained in the bill before us today, are amendments which govern withholding tax rates levied on dividend flows between Australia and South Africa. These provide for a five per cent withholding tax rate for non-portfolio intercorporate dividends, which is a very long term that basically means that companies which have a more than 10 per cent interest in a company in either country have their withholding tax rate applied to the dividends which derive from that child company, if you like, at five per cent. In terms of portfolio holdings in the normal course of holding shares in a company, the withholding tax rate will be 15 per cent for dividends derived from those share portfolios. These changes and those rates conform with existing OECD norms and they also reflect the situation which exists in South African domestic law.

The new protocol also contains a number of other measures which are significant. It will provide for much greater sharing of information between the tax agencies in South Africa and Australia. It will provide for much greater cooperation, particularly between the two tax agencies, in cross-border tax collection. It will provide for much greater consistency in the arrangement that we have in relation to tax with other countries around the world. The new tax agreement with South Africa will be much more in line with the various arrangements that we have with other countries around the world. Importantly, the protocol will provide for the insertion of a non-discrimination article. This will have the effect of preventing any discriminatory tax practices which exist in either South Africa or Australia. The protocol, which leads to the bill, will also give rise to an expanded list of taxes which the agreement applies to.

The passage of the bill through the parliament in the spring session would allow for the enforcement of the new protocol by the end of this year. That is particularly important given that South Africa has already completed all its domestic requirements for enacting the protocol in its jurisdiction and in a sense is now waiting for us to do the same.

In conclusion, Australia and South Africa, as I stated, have shared a very long and fruitful history. It is important that we build upon that, and that is what this bill will seek to do. This bill will absolutely assist in enhancing the already significant two-way trade between South Africa and Australia. In doing so, it will facilitate much greater investment opportunities for Australian companies in South Africa and for South African companies in Australia. It will also decrease the taxation barriers which exist between the two countries. That is very important in the context of the Rudd government’s commitment to ensuring that Australian exporting companies have every means available to them to export their products into a global market—in this case, the South African market.

Chris Bowen (Prospect, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

in reply—I thank all members who have contributed to this debate—not least the member for Corio, although I am sure his opening remarks do not have the unanimous support of the House. I know the Parliamentary Secretary to the Prime Minister has expressed a strong pro-Hawthorn view at the dispatch box, and there will be various views around the House. Of course, those of us who are disenfranchised because the Sydney Swans are out of the action may sit on the sidelines. But I am sure the member for Greenway will join me in supporting the new Western Sydney team when it comes into operation.

I thank the members for Casey, Cowan, Blair, Lindsay, Corangamite and Corio. As honourable members have outlined to the House, the International Tax Agreements Amendment Bill (No. 2) 2008 gives force of law to a new tax protocol with South Africa. The new protocol, which was signed in Pretoria on 31 March 2008, modernises and enhances the bilateral tax treaty arrangements from 1999. This bill will amend the text of the existing South African tax treaty in the International Tax Agreements Act 1953. Australia’s and South Africa’s bilateral economic and trade relations continue to grow, as the member for Corio indicated. South Africa is Australia’s largest and most dynamic market in Africa, and South African investment dominates investment from the African continent into Australia.

Tax treaties facilitate trade and investment by minimising tax barriers between treaty partner countries by relieving double taxation, preventing tax discrimination and providing certainty with respect to tax treatment of cross-border income flows, thereby reducing compliance costs on taxpayers. Accordingly, the new protocol updates the taxation arrangements between Australia and South Africa to enhance Australia’s relationship with South Africa by reducing barriers to bilateral trade and investment by lowering withholding tax rates on interest and royalties.

The South African tax protocol delivers on Australia’s most favoured nation obligation in the existing tax treaty to provide for rules to prevent tax discrimination. Tax discrimination under other countries’ tax systems can be a significant barrier to outbound Australian investment. The protocol inserts a non-discrimination article which prevents discriminatory tax practices between the countries. The protocol was also prompted by proposed changes to South Africa’s domestic taxation law of corporate profits. The protocol amends the withholding tax rates applying to dividends, providing a five per cent rate for all non-portfolio intercorporate dividends and a 15 per cent rate for all other dividends. These changes align with the OECD norms and address South Africa’s changes to its domestic law system of taxing corporate profits. Australian non-portfolio investment in South Africa will generally benefit from a reduced total South African tax on corporate profits as a result of these changes.

In responding to the needs of both Australian and South African business and in ensuring protection of Australia’s revenue base, the new protocol also includes a number of key changes. It updates capital gains tax treatment so that it aligns more closely with the OECD to assist trade and investment flows between countries. It modernises the exchange of information provisions to conform with OECD standards, allowing the tax administrations of both countries to share tax information. It also introduces integrity measures which provide for cross-border collection of tax debts.

The new protocol will enter into force once both countries have advised that they have completed their domestic requirements, which, in the case of Australia, includes the enactment of this bill. This treaty has been considered by the Joint Standing Committee on Treaties, which has recommended that binding treaty action be taken. I commend the bill to the House.

Question agreed to.

Bill read a second time.