Tony Smith (Casey, Liberal Party, Deputy Chairman , Coalition Policy Development Committee) Share this | Link to this | Hansard source

On behalf of the opposition, I rise to speak on the Tax Laws Amendment (2011 Measures No. 4) Bill 2011. It is a bill, like most tax law amendment bills—you would appreciate from your time in the House, Mr Deputy Speaker—that the coalition will not be opposing. I will take just a short period of time in the House to run through each of the four schedules that comprise this tax law amendment bill. This bill was introduced last week by the Assistant Treasurer. In his tabling speech, which I had the pleasure of hearing because I was in the House at the time, he outlined the government's approach to the four schedules. In the case of most of those they were budget announcements and therefore this legislation to update the relevant tax laws, and in some cases other laws, flows from that.

Firstly, schedule 1, as the minister outlined, reduces the quarterly income tax instalments for the 2011-12 income year for those taxpayers whose instalments are adjusted for the previous year's gross domestic product growth. Essentially the amendments reduce that GDP adjustment factor for 2011-12 from the set adjustment level of eight per cent down to four per cent. The effect of this measure, as the explanatory memorandum outlines, is obviously to reduce what would otherwise be the automatic amounts of the adjustment factor. In terms of revenue over the course of the forward estimates, the explanatory memorandum shows us on page 3 that, whilst there is a cost in this 2011-12 year, it is made up for in the 2012-13 year. So essentially this is a timing issue of benefit in a cash flow sense to those businesses, mostly small businesses, in the affected area.

The second schedule relates to the low-income tax rebate and its relationship with income-splitting arrangements. Essentially what this schedule does, and again it was announced on budget night, on 10 May, is remove the ability of minors—children under the age of 18—to use the low-income tax offset to offset tax due on their unearned income. This includes, of course, dividends, rent, royalties and all the other examples outlined in the explanatory memorandum and in the minister's tabling speech. This will apply as was outlined in the budget statements and on the budget press release from the night, and we are told that the financial impact will be $240 million in 2011-12 and $250 million in 2012-13 and 2013-14.

Schedule 3 relates to total and permanent disability policies. These amendments in schedule 3 essentially do two things. They firstly enable regulations to be made to prescribe a certain percentage of premiums for certain TPD insurance policies that can be claimed as deductions. As the explanatory memorandum tells us in clause 4, the amendments will also extend the current transitional relief for the deductibility of TPD insurance premiums to funds that self-insure their liability.

The final schedule relates to the definition of reportable employer superannuation contributions. Essentially what this does is to change the definition of reportable employer superannuation contributions in order to not include involuntary contributions for the purposes of assessing taxable income for the eligibility of government assistance. As all honourable members would know, particularly my colleague the member for Indi, salary-sacrificing arrangements are counted for the purposes of income in terms of qualifying for these benefits. That is obviously the case with superannuation. But what this legislation ensures is that, in circumstances where that contribution above and beyond those reportable limits is involuntary—that is, it is part of an agreement and it is something where by definition the employee does not have any control or choice—these involuntary contributions are not counted for the denial of assistance in that way. This was not part of the budget. I think it was announced by the former Minister for Financial Services and Superannuation back in June last year, almost a year ago. As I said at the outset, the opposition will not be opposing this legislation. I commend the bill to the House.

Gai Brodtmann (Canberra, Australian Labor Party) Share this | Link to this | Hansard source

( It gives me great pleasure tonight to speak in favour of the Tax Laws Amendment (2011 Measures No. 4) Bill 2011. This bill covers a number of areas which are important for streamlining the tax system, supporting small business, strengthening the economy and restoring the budget to surplus in 2012-13. To begin with, this bill implements the government's budget measures to strengthen the integrity of the low-income tax offset by removing the ability of minors to use the low-income tax offset. This is important because there is evidence to suggest that 200,000 distributions from trusts have increased in line with the low-income tax offset, taking advantage of an opportunity to minimise tax by allocating income to children. The low-income tax offset—or LITO, as some people refer to it—was never intended for this purpose. It was intended to assist low-income earners and not to be a tax minimisation vehicle. This measure will merely protect the integrity and fairness of the system by discouraging families from splitting their income as a means of avoiding tax. Further, the measure has no effect on the low-income tax offset for work income. Nor does it have any impact on the 660,000 small business trusts that operate in Australia. Small business trusts are a legitimate business tool and we are undertaking a significant review to look at simplifying their operation.

This bill also contains measures to assist super funds to transition to a new, better super system. Once again, these provisions are an example of how this government listens to the concerns of the Australian people and the Australian business community. We acted in response to the concerns raised about the potential difficulties that super funds will face in complying with the law once the current transitional relief expires.

This bill streamlines the process for claiming tax deductions for the cost of total and permanent disability insurance provided through superannuation. As it currently stands, if a super fund wants to claim the deductibility for total and permanent disability, it must gain medical certification that an individual is incapable of being gainfully employed. Where broader insurance cover is provided, a super fund is required to obtain an actuary's certificate to determine the portion of the premium that can be claimed as a deduction. This bill allows a super fund to claim a deduction for a percentage of the premium of a TPD insurance policy specified in regulations. This will mean that super funds will no longer need to engage an actuary to determine the deduction.

I would like to discuss this TPD issue a little bit further. I know just from reading about superannuation funds, particularly industry superannuation funds, that there are a number of people who sign up to these funds and yet do not sign up to the TPD element of them. The last time I checked, it usually works out to be about a dollar a week. It gives a lot of people protection and insurance in the event of total or permanent disability. I would like to use this opportunity to encourage people who are in industry super funds to take up that opportunity of TPD because it is highly competitive. I know it is something that industry super funds have been mounting a campaign on for a number of years. I encourage people, and I encourage the members here tonight to encourage the people in their electorates, to take advantage of the TPD in whatever superannuation fund they have chosen to use or that their organisation has chosen for them to use.

Schedule 4 of this bill alters the definition of a reportable employer superannuation contribution to exclude certain employer contributions made for the benefit of the employee which are mandated by some requirement beyond the control of that employee. As it stands, additional super payments beyond the mandated nine per cent are considered part of income when determining a person's eligibility for government financial assistance. This is because such payments have the potential to be taken as cash or some other accessible benefit, not just super. This amendment follows concerns that some contributions mandated by law or industry agreement were being considered by the ATO as reportable employer super contributions. As these payments cannot be controlled by the employee or taken out as cash or another benefit, the government believe that these types of contributions should be considered part of income. So we have moved to amend that through this bill.

Finally, observant members will have noted that I have left schedule 1 until last. That is because I want to spend some more time talking about the importance of small business and also the fact that this bill has a significant impact on small business in a very positive way.

Before I do that, I just want to go back to the super issue. Again, it is of great concern to me. Every week I meet a number of women who are doing it tough in retirement. It is essentially because they have not put enough money away for their retirement. They have taken time out for their babies and have been in and out of the workforce. So I am very keen for women to be aware of their superannuation, to actually sit down and look at their super statements and get an understanding of what they have in there, how much they need for the future and how much they need to contribute between now and whatever age they choose to nominate for their retirement. Then they can plan around that. They can plan to take time off for a baby. They can plan to do part-time work. They can work out when they want to retire and that they may need to do part-time work in the lead-up to retirement. I encourage all Australians, but particularly women, to take control of their super. Understand it, first off, but also take control of your super so that you are aware of what you need for when you retire so that you can work back from there and have complete control of your finances right throughout your working life.

As part of that exercise, I am going to be running a series of 'how to read your superannuation statement' seminars later in the year. I have colleagues who are very well versed in that. They have worked for a number of super funds. It will be a free seminar. It will not be telling people where to invest or which super plan they should be using. It is going to sit them down and get them to work through the super statement that they have now and decipher it—explain to them in plain English what it means and what it is saying to them about how much they will have when they retire and how much they may need when they retire if they want a particular lifestyle and, most importantly, how much they will need to contribute till that time. I have seen a number of women who are doing it tough in retirement because they just do not have the money and they did not have the money set aside to get them through.

Schedule 1 will also reduce PAYG instalments for the 2011-12 income year for taxpayers who pay quarterly instalments on the basis of the GDP adjusted notional tax method. This will have the benefit of freeing up some $700 million in cash flow for 2.7 million small businesses. It is a significant figure which, as a former small business owner myself, I can attest is most welcome.

Small business is the backbone of the economy, constituting up to 96 per cent of all businesses in Australia. This measure builds upon other measures announced in the budget such as the $7.1 million to continue the small business support line, instant write-off for assets costing less than $5,000 from 2012-13, a $5,000 immediate deduction for motor vehicles and improvements to Enterprise Connect centres and businesses. These measures build on the previous actions taken by this government to help small business in areas such as reducing the tax obligation of small business companies to 29 per cent in 2012-13—earlier than other companies. In addition, the small business support line is helping small business owners access information and referral services, and the program that is associated with that line is helping small business owners to go online and engage in the digital economy. There is also the award-winning website business.com.au which is connecting small business to information about start-up, taxation, licensing and legislation, as well as significant transactions such as ABNLook up, taxation compliance and licence applications.

I recently held a small forum—another free seminar—for people who are interested in setting up small businesses, who have got that little bright idea that they have been kicking around for a while and want to turn it into a business but do not know how. The seminar not only took them through the steps they need to take to set up a business but also made them think about a whole range of things that people often do not think about when setting up a business, particularly the fact that they need to spend money to make money. You need to put some cash upfront to get the business going, particularly for your public liability insurance and professional indemnity insurance, which can be very significant when you are first starting out in a business. I know that when I first started my small business my insurance bill was probably worth about four months of income. It was a significant chunk and when you have just got going and you have not got cash flow because you have worked for three months and you are still waiting for the bills to be paid it means that you eat a lot of mince.

It is a challenge but it is very exciting to have your own business once you get going. There are lots of risks and there are lots of moments when you think, 'Why have I done this?' But, generally, the personal and professional rewards are great and it was great to be with these people who were thinking of setting up a small business and sharing with them my experience and the experiences of others in what to do, what not to do and, in a way, pointing them in the right direction.

As I have outlined, there are many services and support systems available to support small business throughout Australia at the federal level, the state level and at the local level. For small business there is an embarrassment of riches in the services and support systems they can access. Again, I encourage anyone who has got a small business, wants to expand the size of their small business or is just thinking about a small business to take advantage of these fabulous support systems that the government has provided in a range of areas.

I also commend the government for the tax reductions they are giving to small business, particularly to ease up cash flow. Cash flow is a significant issue, particularly when you are just starting, and if you want to make an investment it really does help out with the day-to-day running of the business. I am sure that will be most welcome.

This bill is very important for a strong Australian economy, it is very important for a strong small business sector, it is very important for streamlining the tax system and it is very important to bring the budget back into the black by 2012-13. I commend it to the House.

Paul Fletcher (Bradfield, Liberal Party) Share this | Link to this | Hansard source

I rise to make some brief comments on one aspect of the Tax Laws Amendment (2011 Measures No. 4) Bill 2011. This bill deals with amendments to the low income taxpayer rebate and the treatment of income paid through a trust to minors. As has been made clear, we on this side of the House will be supporting this bill, but I do note the manner in which this particular measure was dealt with in the lead-up to the budget and highlight some of the unfortunate consequences of the way that this matter has been managed. I recollect listening to Adam Spencer on ABC local radio interviewing a tax expert one morning shortly before the budget was brought down. There was a lengthy discussion about whether trusts as a vehicle were to be prohibited, and that was a consequence of the media management engaged in by this government on this measure. We were told that there was going to be a major crackdown, and this of course caused understandable anxiety on the part of many people and businesses who use trusts for a range of important and legitimate business reasons. Operating a business through a trust can provide considerable flexibility and it can be of great importance in preserving assets, including for preserving assets to be passed to the next generation. For example, trusts are widely used in primary industry for precisely that reason.

What we have here is a government which is grasping for revenue as a consequence of the fact that it has been spending without restraint now for some four years, and it is finding every possible way it can to fill the increasingly large gaps which have opened up. I note with interest that the explanatory memorandum says:

In recent years the low income tax offset has increased significantly as a means of providing targeted tax relief to low-income earners. The low income tax offset has been available to all taxpayers with incomes below its cut-out threshold, including minors. An increasing amount of distributions from discretionary trusts have subsequently taken advantage of this concession …

I simply make the point that this is an issue which could have been foreseen at the time the low-income tax offset was increased and if it were such a problem it could have been dealt with then. The consequence we have now is that a significant number of Australians will have arranged their affairs in reliance upon the law as it stood until the night of the budget and, in doing that, they were acting perfectly legally. In this government's desperate grab for revenue, what they have obviously done is ask the Treasury, 'What ideas have you got to find other ways in which we can claw in some money, because we are facing yet another yawning deficit in the coming year, 2011-12, of $23 billion to add to this year's yawning deficit of $49 billion and the previous year's yawning deficit of more than $50 billion and the previous year's yawning deficit of over $20 billion.' Cumulative deficits have reached over $150 billion since Wayne Swan has had his hands on this country's financial steering wheel.

It is clear that as a result of the urgent and desperate desire to find additional revenue to deal with the fact that this government has been spending without restraint, this government has thrown caution to the wind and has driven expenditure up from approximately $250 billion in 2006-07 to $349 billion this year—an increase of almost $100 billion in four years. It is clear that as a consequence of this unrestrained and profligate spending what we have is a government that is desperately on the lookout for revenue anywhere it can scrounge it. So this measure has been included in the budget, and a significant number of Australians who had arranged their affairs in reliance upon the law as it previously stood are now going to be inconvenienced and are now going to have to make changes. They also suffered considerable anxiety in the period leading up to the budget because of the way this matter was managed. There were deliberate attempts by this government to give the impression through the media that it was going to produce a tough budget and then it was going to be a fiscally responsible budget. As we have seen, the budget failed those tests. We were told that this was the budget which would return Australia to surplus. What we know is that the 2011-12 budget does no such thing. It produces yet another deficit following the dismal run, the increasing run, of deficit after deficit after deficit—and we do not in fact get a surplus until 2012-13. It is going to be a mere sliver of a surplus, at $3.5 billion, making almost no impression on the cumulative deficits of $150 billion and more which by that point will have been racked up.

It is an unfortunate consequence of this government's chaotic and incompetent financial management that amongst measures they have needed to introduce is this measure, introduced with no notice and at considerable inconvenience to many Australians who had arranged their affairs in reliance on the law as it previously stood. It is therefore a matter for regret that this particular aspect of budgetary and taxation management has been handled in the way that it has.

Stephen Jones (Throsby, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (2011 Measures No. 4) Bill 2011, a bill which amends various taxation laws to implement a range of improvements to the Australian tax laws. The measures set out in the bill before the House today are all sensible measures to continue to improve and maintain the integrity of Australia's taxation laws and to help in the difficult and challenging task of meeting our government's commitment to return the budget to surplus in 2012-13.

The first of these measures, set out in schedule 1, will reduce PAYG instalments, and I will explain that if I may. Under the pay-as-you-go instalment system taxpayers earning business or investment income pay instalments during the year towards their final tax liability for that income year. This helps taxpayers meet their income tax liabilities and it is important for the effective and timely collection of tax liabilities. Taxpayers may pay their quarterly PAYG instalments on the basis of either the GDP adjusted notional tax or on the basis of instalment income. For the most part, small businesses, individuals, trusts and small superannuation funds pay their instalments quarterly using the GDP adjustment method. The first of the measures set out in schedule 1 will reduce the PAYG instalment for the 2011-12 income year for taxpayers who pay quarterly instalments on the basis of the GDP adjusted notional tax method, by setting the GDP adjustment for the 2011-12 income year at four per cent. Setting the GDP adjustment at four per cent will provide taxpayers with a smoother transition from the two per cent GDP adjustment factor that has applied for the previous two income years as the economy recovered from the global financial crisis. Without the measures in this bill, the GDP adjustment factor would be eight per cent. In other words, this provides tax relief for small businesses. It is a practical measure which will assist small businesses throughout the year by providing what we estimate to be something in the order of $700 million in cash flow benefits.

The second of the measures in this bill deals with low-income tax offsets, which will reduce the incentive for families to split income with their children. The purpose of the low-income tax rebate was to provide tax relief for low-income earners, not to be used as a vehicle for tax minimisation. The measure in this bill removes the ability of children under 18 years of age to use the low-income tax offset to offset tax on unearned income such as dividends, interest, rent, royalties and other income from property. The level of tax for low-income earners has already been reduced by the Gillard government through the doubling of the low-income tax offset from $750 to $1,500, and a benefit has been delivered to taxpayers earning up to $67,500. But, as I said before, this offset was never meant to act as a tax minimisation vehicle. This is an important part of our plan to ensure that we return the budget to surplus and that tax offsets and rebates are used for the purpose for which they were designed.

The third measure goes to disability superannuation benefits. It is in essence a measure of simplification. Schedule 3 of the bill contains amendments to streamline the process for claiming tax deductions for the cost of total and permanent disability insurance which is provided through superannuation funds. The amendments in this bill will give funds the option of using a simple method for apportioning TPD insurance premiums with reference to a schedule of percentages in the regulations, without having to incur the cost of an actuary, which is the case at present.

The fourth measure is an amendment to the reportable employer superannuation contributions, otherwise known as RESC. The purpose of RESC is to assist in the accurate reportage of income, especially as that relates to an employee's entitlement to receive government benefits or to make certain government payments. The measures in this bill will introduce amendments to ensure that additional employer contributions imposed by an industrial agreement, or the rules of a superannuation fund, will not be reportable employer superannuation contributions defined by the law. The definition of RESC is designed to reflect the fact that these additional contributions could be taken as income, and this definition prevents higher income earners from salary sacrificing a large proportion of their income into superannuation and, by doing so, reducing their income to become eligible for government financial assistance or to avoid payment of other requisite payments. The amendments in this bill clarify that contributions will not be considered RESC where they are mandated by an industrial agreement or the rules of a superannuation fund. That is to say, the purpose is to ensure that RESC is only applied to the non-compulsory contributions of a superannuation contributor.

The fifth issue I wish to address goes to some of the matters raised in the previous contribution, by the member for Bradfield. As I said in opening, the measures in the bill do two jobs of work. First, they are sensible measures to adjust and tweak the administration of our taxation system so that it is efficient and effective for both the administrators and the taxpayers, so that the taxation laws do the work they are intended to do. At the same time, they ensure that we are able to find savings to find the income to ensure that the budget returns to surplus in 2012-13 as promised.

Our taxation laws are the foundation of our system of financial management, enabling successive governments to fund the services and infrastructure that we all collectively rely on each and every day. It is a simple fact that there will always be competing priorities for spending measures and that making the hard decisions about those priorities is what characterises a government, a Prime Minister and a Treasurer. It is no accident that this budget has been described as a Labor budget that aligns with the core Labor values, because it is a budget which prioritises jobs and prioritises getting people who are at risk of long-term employment back into employment or re-engaging with the education system, by record investment in skills and assistance to the long-term unemployed to ensure that, as we move through mining boom mark 2, we do not leave people behind.

The second area of priority which defines this as a Labor budget is the record investment of $2.2 billion in mental health. In complete contrast to those opposite, we do not believe that we should be investing in the mental health system by robbing Peter to pay Paul—that is, we do not believe that we should run down the primary health system to enable us to make record investments in the mental health system. I am like every member and senator in this parliament; we all have our wish lists of local projects for which we seek funding. In my own electorate of Throsby, I know that the National Broadband Network, for example, will make an enormous difference to the lives of those who currently have to commute to Sydney for their employment and will create a great incentive for local business and new businesses to invest in the region. That is why I cannot understand the intransigence of those opposite—including the member for Gilmore, in whose electorate a trial site for the NBN exists—and how they constantly carp about and criticise the NBN project.

Like the member for Cunningham, I would dearly like to see Commonwealth funding for the Maldon-Dumbarton rail link, and we will continue to lobby for this project as a long-term goal for the Illawarra region. However, we on this side of the House understand that there are pressing national priorities and that we have to move away from the Santa Claus notion of federal budgets, which is that unless there is a present for everybody under the tree it is not a good budget or not a budget in the national interest. While we do not restrain ourselves from representing the interests of our electorates, we on this side of the House understand that it is the national interest which must come first. Prioritising jobs and mental health is in the national interest. Ensuring that we bring the budget back to surplus is in the national interest, as we deal with the record investment that is coming our way in mining and other industries in the outyears of the forward estimates.

I am proud to be a member of a government that has done so much over a short period of time, through measures such as those contained in this legislation, to attempt to rein in government spending, make savings where that is possible and ensure that we bring the budget back to surplus while investing in Labor priorities. That is in stark contrast to those opposite. We saw a typical contribution from the member for Bradfield earlier, where he stood up and criticised the measures in this bill as somehow a conspiratorial tax grab, or some backdoor way to attack family trusts or trusts. We on this side of the House understand that trusts have a legitimate purpose in business, but they should not be used for illegitimate reasons and they should not be used merely as a means for tax minimisation. Indeed, if there is a controversy in Australian politics in the area of the regulation and the use of trusts, it is on the other side of the House, not on this side of the House. We understand that there are some aggressive advocates for taking the axe to the use of family trusts in corporate arrangements—

Mr Perrett interjecting—

including, as my colleague reminds me, the member for North Sydney. So, if the member for Bradfield is looking for a conspiracy, he should look inside his own party room and not at those on this side of the House.

But it was interesting, from the party that lectures us day in and day out about the need to do more to bring the budget back into surplus, that when you listened to the appropriation speeches of those opposite there was not one contribution on how we could bring the budget back into surplus. I will have more to say about this in future speeches. There were millions and millions of dollars in proposed new spending from those opposite in their appropriation speeches. The member for Hasluck made an Olympic effort in his proposals for new spending, and it will be interesting to see whether he gets up some of these proposals in his own party room. We are told they have $50 billion in spending. Well, the member for Hasluck has put a big dint in that $50 billion, I can tell you, and he is not alone. The member for Paterson, the member for McMillan, the member for Murray and many others have stood up here day after day and proposed new spending measures at the same time as opposing our saving measures. If there is to be a debate about spending and probity in this House, we should not be taking lectures from those opposite. In fact, they need to look closer to home.

The member for Bradfield was wont to talk to us about the need to rein in taxation. I remind the member for Bradfield, as I remind all of those opposite, that the coalition government was the highest taxing government in this nation's history. I will finish on this point. Under the Howard government, the tax to GDP ratio never dropped much below 25 per cent of GDP, whereas it runs at 22 per cent of GDP under this government. I commend the legislation to the House.

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak in support of the Tax Laws Amendment (2011 Measures No. 4) Bill 2011 and commend the previous speaker, the member for Throsby, for his contribution and for some of the things he pointed out. I would also like to commend the Deputy Prime Minister and Treasurer for his great budget—a great Labor budget; a good, steady pair of hands. It is great to see that he is able to steer us back to a budget surplus in only about 13 months, I think it is. It is great to see. This bill implements a number of budget measures to reform the tax system. It supports small businesses and generates significant savings for the budget bottom line.

The Labor government has provided a steady hand on the nation's finances over four budget cycles. And, despite the toughest global economic conditions we have experienced for 75 years, we have ensured that Australia's fiscal position remains strong. The reality is that we are the envy of the OECD. The federal Labor government steered the Australian economy through the worst global recession in nearly 100 years. In preparing for this speech, I went back to look through a couple of newspaper articles and presentations I had made. It is so easy to forget just how bad things were—the worst in 75 years. If we look back at the early eighties and early nineties, we see that those recessions still had positive growth. I know they were tough times, but we still had positive growth, whereas in 2009 that was not the case. Obviously governments have no miracle cure for all the nation's financial woes, especially those that begin overseas, but we were able to pull the levers that we control to keep our economy strong. The bank deposit guarantee and the stimulus measures introduced by this government kept us out of recession and, more importantly, kept hundreds and thousands of Australians in jobs, as good Labor governments do. Thankfully, we avoided that dole queue schadenfreude that we so often see from those opposite. These measures helped keep 700,000 people in jobs.

The BER investments saw new and improved facilities at our schools. I know the member for Robertson, who is in the chamber, is a big advocate of education. Those investments will ensure better learning opportunities for our kids long into the future. As any education provider would know, this is a once-in-a-lifetime opportunity to provide for our children and also to set us up for an economic future—the high road of economic future rather than the low road of low wages. I see Australia as a service economy providing great service to South-East Asia and the rest of the world.

The government's investments in critical infrastructure will boost productivity not just at ports and railways; they will ensure Australians spend less time in traffic and more time with their families. I will not go into the NBN; I will leave that for later. Obviously the NBN is also a piece of critical infrastructure. I would particularly like to mention the $300 million in the budget for improvements to the Kessels Road and Mains Road intersection in my electorate. That intersection had been a weeping sore for years and years under the Howard government. I was elected on a plan to solve that problem and the early works are already underway. In fact, I saw some of the traffic lights were already complete when I went through there last week. The tender process for the main parcel of works is now in its final stages. I join thousands of motorists on the southside who will breathe a collective sigh of relief when this congestion-busting project gets underway in earnest. It will cut greenhouse gases from cars that sit idling at the intersection and get commuters home to their families earlier as well as to school and work earlier.

The budget also delivered a historic investment in better mental health services. Obviously this was well overdue—and I acknowledge that—and it was very well received in my electorate. It is remarkable that these funding initiatives were delivered on the back of a horrific summer of natural disasters. In my electorate, more than 5,200 properties had water over their floorboards, so I know how horrible the situation was and how it is continuing for many people.

Thanks to the Treasurer, Wayne Swan, we have a very responsible budget that is still on track to return to surplus in 2012-13. Meanwhile, wasn't the Leader of the Opposition's budget response an experience? My diary said it was going to be a budget reply speech, but I note he steadfastly refused to outline an alternative budget. I am not sure whether the Great Sandy Desert is in the member for Lingiari's electorate—who I note is in the chamber—but in that desert you will find the golden fur marsupial mole. That animal has more vision than the Leader of the Opposition when it comes to outlining an alternative budget! After their $11 billion savings black hole debacle during the election, I can understand why he would want to avoid economics. But the reality is that a budget reply speech, as its title suggests—and there is no mystery—involves a reply to the budget. It is not a diatribe about the fact that he did not quite manage to win the last election. He has to move on from that bitterness and get with the program. The reality is that the Gillard government are here. We have a plan and we are here to stay for as many as 900 days—as I suggested earlier to the member for Indi. She needs to get over calling for an election, because we are here to stay.

I understand from the Deputy Speaker why he would not want to go there again. The Leader of the Opposition does not get the economy and maybe that is why he made that call. But we also had the member for North Sydney responding to the budget at the Press Club and that amazing spectacle where he wrote a letter to the Financial Review. It is like being a teacher—you hear lots of excuses from people as to why they have not done their homework. But this time it was actually: 'The dogs did my homework. It was not me; it was actually someone else that did it.' Unbelievable. Instead of offering a credible economic alternative, those opposite have retreated into an economic vortex. I guess that is why the member for Wentworth is so keen to get his old job back and has been seen heading in that direction.

In stark contrast, the Gillard government have a proud record of delivering practical measures to support small business. This legislation will provide around $700 million in cash flow benefits to small business. This bill reduces the PAYG instalments for the next financial year for taxpayers who pay quarterly instalments on the basis of the GDP-adjusted notional tax method by setting the GDP adjustment at four per cent. During the global financial crisis, the government reduced the GDP adjustment factor to two per cent. This rate has applied for the past two years. Without this bill, the GDP adjustment factor would return to eight per cent. Obviously that would be too much of a shock for the many Australians who are still doing it tough—people are still not opening their wallets, though they are consolidating their debt.

We recognise that many parts of the economy are still in recovery and small business deserve a smooth transition back to an eight per cent GDP adjustment factor. It will ensure that small business have extra cash throughout the year when they need it most. This bill also allows taxpayers who expect their income to grow by more than four per cent to vary their quarterly tax instalments. This will enable small business to avoid a significant tax liability for the 2011-12 financial year when the final figures come in.

This bill also introduces measures to stop taxpayers using family trusts to avoid paying their fair share of tax. In recent years, increasingly, discretionary trusts have been directing income from adults to minors to minimise tax. I understand that this has been perfectly legal—in fact, I know people who have them. But all fair-minded Australians need to ascertain the reasoning behind this past practice and why it should not continue. When we do that, we will see that it is a historical anomaly.

The government has increased the low-income tax offset from $750 to $1,500, delivering tax relief to taxpayers earning up to $67,500. However, while this was intended to benefit low-income earners, it has been exploited by trusts. The tax office is aware that at least 200,000 distributions from trusts have increased in line with the increase in the low-income tax offset. This bill amends the eligibility for the low-income tax offset to ensure it cannot be used to minimise tax. It ensures children under the age of 18 with unearned income, such as dividends, interest, rent and royalties, will not be eligible for the low-income tax offset. These rules concerning trusts hark back to a time when only one parent worked and mothers—usually—were in full-time care of their children. Australia has modernised significantly since those days and this amendment reflects that change. Importantly, this amendment does not apply to children who work. They will still get access to the full low-income tax offset for work income. This measure will discourage families from splitting income with their children to avoid paying tax, thus making the whole system fairer. Also, it will have no impact on small business trusts operating in Australia. I understand there are more than 650,000 trusts of apparently 12 different types and all serve a purpose. It is expected that this measure will save the government at least $740 million over three years.

This bill also helps streamline the process for claiming tax deductions for the cost of total and permanent disability insurance provided through superannuation. The amendments allow the percentage of certain total and permanent disability insurance premiums that is deductible to superannuation funds to be specified in regulation. This will simplify the process and reduce the costs for super funds—good things to do. Super funds are one of the great legacies of the Hawke-Keating government.

Finally this bill amends the definition of reportable superannuation contributions to clarify that contributions that are mandated by an industrial agreement are excluded. Because these contributions are beyond the control of employees, they should not be considered income. This bill makes that clear.

This bill introduces significant savings which are good for the budget bottom line and are important reforms that make our tax system fairer. I thank the Deputy Prime Minister for introducing this bill and in doing so I commend it to the House.

Andrew Leigh (Fraser, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak to the House about the Tax Laws Amendment (2011 Measures No. 4) Bill 2011 and I want to focus in particular on the measures in the legislation around the low-income tax offset. I want to speak this evening about the important role that measures such as the low-income tax offset play in improving participation in Australia. Boosting employment rates is a core Labor value. It lies at the heart of why many of us on this side of the House came into politics and making sure that we do all we can to remove barriers to workforce participation is an absolutely critical public policy objective.

The LITO is a mechanism that changes the tax-free threshold for the largest number of people. In 2007-08 the Henry review estimated that 6.8 million taxpayers had had their tax-free threshold changed as a result of the LITO. The full amount of the LITO, at the time that the Henry review was brought down, was available to individuals with a taxable income up to $30,000, beyond which it was reduced at 4c in the dollar. The LITO, which was put in place in 1993-94 at a maximum amount of $150, has been steadily increased under this government. In 2006-07 the LITO was $600 and then in the next financial year it was $750 and in 2008-09 we boosted it to $1,200. In 2009-10 it went to $1,350 and in 2010-11 it is $1,500.

The LITO is very much a measure that recognises that work provides dignity to Australian households. Work is important in terms of the income it brings. If you look at what drives inequality across countries, you see that with places like the US it is distribution of wages. There are many working poor in the US labour market. That is less true of countries like Australia. In Australia the divide between rich and poor really is mostly driven by the number of adults in a household at work. So, if we want to close the gap between rich and poor and if we want to reduce inequality in Australia, unemployment is really where it is at. But it is not just about the distribution of income. It is also about the intergenerational effects. The Prime Minister has spoken articulately about the value for children of growing up in a household where an alarm goes off in the morning and a parent goes off to work. She has spoken about the simple fact that a child who grows up in a household where no parent works is substantially less likely to hold a job when he or she enters the labour market. It is possible that some of this intergenerational impact is derived from the example of seeing a parent going off to work.

Over recent years a lot of other developed countries have put in place negative income taxes, also known as earned income tax credits. That is certainly a policy that I have a keen interest in. It is something that I did a lot of research on back in my PhD days. The closest thing that Australia has to that is the low-income tax offset, and it does reflect very much a recognition in Australian social policy that we have to reduce effective marginal tax rates, that when we have welfare phase-outs sitting on top of marginal tax rates that creates a substantial disincentive to work. Professor Bob Gregory of the ANU did some of the most important work on this, recognising that in Australia the highest effective marginal rates of tax were not paid by millionaires but, in fact, by those moving from welfare into work, who faced benefit withdrawal layered on top of an income tax system. LITO is a response to that. It recognises that we do need to put in place measures that encourage work, both for the income benefits and for the dignity that it brings.

One measure that is part of this legislation before us today ensures that the LITO does not become a tax minimisation vehicle. By increasing the LITO, the government has effectively doubled the amount of non-work income that can be allocated to children tax free. There is some evidence that around 200,000 distributions from trusts have increased in line with the increased LITO—essentially households taking advantage of the opportunity to minimise tax by allocating income to children.

Let me take the House through a couple of examples. In 2006-07, the effective tax-free threshold was $1,333 for non-work income for minors. When you look at the graph you see a sharp spike in the distribution from trusts in the range of $1,001 to $1,333. In the following tax year, 2007-08, the effective tax-free threshold rose to $1,667 for non-work income for minors and, lo and behold, the distribution shifts accordingly and suddenly you see a spike in the range of $1,501 to $1,667. In 2008-09, the effective tax-free threshold rose to $2,667 for non-work income for minors and, yes, you guessed it, the distribution of income from trusts again moves, suggesting that the trusts were taking advantage of this change to minimise tax.

LITO was always meant to benefit low-income earners. It was never intended to be a tax minimisation vehicle. We are putting these changes in place so that children cannot take advantage of the LITO for non-work income but will still have access to the full LITO for work income. The measure has no impact on the 660,000 small business trusts operating around Australia; it just discourages families from splitting income with their children to avoid paying tax. It is important that we do this to protect the fairness and the integrity of the Australian tax system. It is an important budgetary savings measure, saving around $740 million over three years.

I conclude by focusing on the big picture. We are speaking in this House about the importance of jobs. The member for Bradfield has also focused on the issue of public sector debt and so it is important to recognise what would have happened if those opposite had occupied the Treasury bench over recent years. In their book Shitstorm, Lenore Taylor and David Uren talk about the influence of US economists on the Australian political debate in early 2009. They say:

On the right, Stanford economics professor John Taylor argued there should have been more permanent tax relief. Turnbull was now firmly in the Taylor school, calling direct payments, like those he had supported in October, ineffective 'cash splashes'. Taylor argued that the temporary measures do little to stimulate demand because if people know a payment is a one-off they are more likely to save it and less likely to spend it, whereas across-the-board permanent tax cuts would encourage more spending because people knew they could count on the extra cash. His slogan was that the government policy should follow the three Ps—permanent, persuasive and predictable. It was an argument Turnbull embraced.

If those opposite had been in power, the effect of putting in place permanent tax cuts in the 2008 to 2009 period would have been that we would not have been able to get the budget back into surplus. We would have locked in substantial tax cuts rather than the timely, targeted and temporary fiscal stimulus which the Labor government put into place. That timely, targeted and temporary fiscal stimulus saved around 200,000 jobs. They may sound like statistics to those of us here, but each of those is a life that is not blighted by the impact of unemployment. Each of those is a career that is not scarred by spending time out of the labour market. Many of those are mums and dads whose households never felt the effect of unemployment.

It is that human effect of unemployment that is so easily discounted sometimes by those opposite. I graduated from high school in 1990—not a good year to leave school because of the impact of the early 1990s recession. There is good research on the impact of recessions on workers' careers. You can still see that scarring effect a decade on. By putting in place timely, targeted and temporary fiscal stimulus, the Labor government ensured that those jobs were saved, that the impact of unemployment did not blight so many careers. Because we did this in such a way that the fiscal stimulus could be withdrawn, we ensured that we were able to bring the budget back into surplus.

Australian public sector debt is extraordinarily low by OECD standards. Many developed countries now have debt levels well over half their annual GDP, some of them well over the total value of their annual GDP. By contrast, Australian public sector debt is well below one-tenth of our annual GDP. By contrast, the typical household carries debt loads that are often many times their household annual incomes. Looked at from that perspective, Australian public sector debt is low and manageable. The government will bring the budget back into surplus in 2012-13 as expected, and in a way that would not have been possible had the prescriptions that the member for Wentworth was pushing in early 2009 been realised.

It is interesting, though, to look at what the member for Wentworth would have done in light of some correspondence to the letters page of the Australian Financial Review this week. The member for North Sydney decided that it was important to write in and correct Australian Financial Review readers. He said:

This article claims my budget address at the National Press Club was light on detail, yet fails to mention it was a collaborative effort with the Coalition economic team, including Tony Abbott, Andrew Robb and other senior policymakers.

That recognises that there is very little of policy substance on the other side of the House. The member for North Sydney then went on to compare his own performance as shadow Treasurer with that of the member for Wentworth. Neither performance, though, stands up against what Labor has delivered since coming to office. As in the climate change debate, we listened to mainstream economics. We recognise that Keynesian economics tells you what to do when a global financial crisis beckons. It tells you to act quickly. Australia's fiscal stimulus was quick out of the blocks, faster than virtually any other developed country, with our household payments being delivered before Christmas 2008. We also used the opportunity to invest in much-needed infrastructure, in roads projects and in school infrastructure to improve educational outcomes in Australia.

But we also put in place stimulus that could be wound back because, as the Treasurer said, if you are Keynesians in the downturn you also have to be Keynesians in the upswing. You have to recognise that, just as government has a role to play in stimulating the economy and ensuring those 200,000 jobs are kept, it also has a role in ensuring that, as private sector demand expands, we step back, particularly in those areas where we are competing with the private sector. We continue with productivity-raising investments, such as the National Broadband Network and investment in trades training centres, better universities and better skills. But, where we are competing with the private sector, we step back.

Those opposite are in utter disarray. They are a Dad's Army team when it comes to economics. In today's Age Michelle Grattan states:

It is believed Mr Abbott recognises that Mr Turnbull would be the stronger shadow Treasurer but the post would give him a greater platform to advance his leadership ambitions.

So, the Leader of the Opposition does not intend to have a reshuffle. The member for North Sydney believes he outperforms the member for Wentworth; the member for Wentworth believes he outperforms the member for North Sydney. The Leader of the Opposition does not know which side to take, and Australians are left wondering whether there is anyone competent on the other side of the House—anyone who wants to focus on the big, long-term challenges facing the Australian economy.

I commend the bill to the House.

Mike Symon (Deakin, Australian Labor Party) Share this | Link to this | Hansard source

It is always a pleasure to follow the member for Fraser, although his memories of the 1990s recession are probably a bit different from mine. I left school a few years before he did and, up until the 1990s, I had been in full-time work. But due to the downturn I spent quite a bit of time looking for work. Those sorts of things obviously do play a part in your life, and they stay with you. Anyone who has been through that sort of downturn should never forget the effect, because it is real and so many people are affected in different ways.

Tonight I am here to speak on Tax Laws Amendment (2011 Measures No. 4) Bill 2011, and in particular I will direct my comments to the first two schedules of the bill. Schedule 1 sees the implementation of the government's budget measure that will provide cash flow benefits to small businesses, individual investors and other eligible taxpayers. Under the pay-as-you-go instalment system, taxpayers earning business or investment income pay instalments during the year towards their final tax liability for that income year. This helps taxpayers meet their income tax liabilities and is important for the effective and timely collection of that tax.

At the advent of the global financial crisis, the federal Labor government implemented a number of measures to protect our economy and assist taxpayers. One of these measures was the introduction of a two per cent gross domestic product adjustment factor to pay-as-you-go instalments, and it has applied for the last two income years. The 2011-12 income year was to see the GDP adjustment to PAYG, using the formula of the Taxation Administration Act of 1953, go to eight per cent. The common-sense measure in this bill to smoothly transition to four per cent instead of two per cent—that is, from two to four per cent instead of up to eight per cent—is welcome as our economy recovers from the global financial crisis. It provides a transitionary measure to help the many local small businesses not only in my electorate of Deakin but right across Australia.

It is always great to be able to talk about a local business in this place. Michael and Linda are the hardworking owners at Mishou's cafe in Mitcham and they know the challenges of owning a small business. They work particularly hard, making coffees and lunches not only for the passing trade but also for the many offices and workers in Mitcham, which is where my electorate office is based. Certainly my staff are some of their best customers. It is good to support local businesses such as Mishou's. Measures like this will make a real difference to business people like them, and their bottom line is important.

Even though things are not all that bad in Australia compared to the rest of the world, not everything is back to the way it was. Local businesses will tell you that only two or three years ago their trade was so much higher and, although they have got some of that business back, it has not all returned. For them, a smooth adjustment is necessary. Cash flow benefits from measures such as this are important now but overall, of course, there will be no net cost to the Commonwealth because over the forward estimates these measures will cancel each other out. What is put forward one year is uplifted later on.

The amendments contained in this bill do not reduce the income tax liability of the businesses and taxpayers affected by the measure but merely change the timing of those tax payments. They will also provide eligible taxpayers with a smoother transition from the two per cent GDP adjustment factor that applied for the previous two income years to the proposed four per cent as the economy recovers from the global financial crisis. There will be a reduction in tax collections of $700 million for the 2011-12 income year, which will be offset by a reduction in tax credits of $700 million in the 2012-13 income year

It is also important to mention that a small number of taxpayers whose 2011-12 income year commenced before 1 April 2011 have already started paying their instalments for 2011-12 based on a two per cent adjustment factor. They will continue to pay quarterly instalments for the 2011-12 income year on that basis. I am sure that most people would agree that it would be potentially disruptive and confusing if this small group had to change to the four per cent rate part way through the year. I will also speak about the second schedule of the bill, which refers to the low-income tax offset. In recent years the low-income tax offset has increased significantly as a means of providing targeted tax relief to low-income earners, helping those who need it most. The low-income tax offset has doubled from $750 to $1,500. These measures deliver a benefit to taxpayers earning up to $67,500. The low-income tax offset has been available to all taxpayers with incomes below the cut-off threshold, including minors. The support of successive Labor governments for the low-income tax offset has provided an essential means to help working Australians who earn less than the average wage.

This bill will implement the government's budget measure to remove the ability of minors to use the low-income tax offset to offset tax due on their unearned income, such as dividends, interest, rent, royalties and other income from property. It is important to note that the measure applies to unearned income rather than earned income. For children under the age of 18, the low-income tax offset will still be available to reduce tax payable on income earned from work, whether that be a paper round, part-time work in a shop, an apprenticeship or similar.

In recent years, increasingly, distributions from discretionary trusts have taken advantage of low-income tax offset concessions to direct an ever-larger amount of income from adults to minors as a means of minimising tax. There has been a significant spike in the movement of money from discretionary trusts around the exact point where the effective tax-free threshold for minors has applied in each recent tax year. This spike has moved broadly in accordance with increases in the effective tax-free threshold for minors, and I think the figures speak for themselves.

In 2006-07, when the effective tax-free threshold for non-work income for minors was $1,333, there were nearly 200,000 distributions very close to that level. In 2007-08 the effective tax-free threshold relating to non-work income for minors rose to $1,667. That is very close to where this number of 200,000 distributions landed that year. In 2008-09 the effective tax-free threshold for non-work income for minors rose to $2,667, and guess what? This group of nearly 200,000 distributions from trusts to minors neatly landed very close to that new level of $2,667.

Of course these distributions were merely maximising the tax benefit of the low-income tax offset for unearned income, and it is obvious that many people have taken the full advantage of that provision. However, the advantage has gone to those families that have had the financial resources to set up a trust, and it would be fair to say that many wage earners are either unaware of or cannot afford to follow that course of action.

I do not believe that the low-income tax offset was set up to be an opportunity for the well-off to minimise tax. Providing incentives for families that can afford it to split income with their children has created the effect of this use of the low-income tax offset. The low-income tax offset should be seen as what it really is: a helping hand from government for those workers in our society who for whatever reason are on lower incomes and need some assistance. This may be because they have a low-paying job or work part time or casually, or because they have not even been employed for a full year. There can be many reasons people's incomes are not as high as they had expected. Or maybe they never had the opportunity. As I said, the low-income tax offset provides benefit for those on lower incomes.

The effect of this amendment is to discourage families from splitting income with their children to avoid higher tax rates, effectively using their children to avoid paying tax. This is a common-sense amendment to the act and returns the intent of the low-income tax offset to that of helping those who need it most. It does not change the treatment of earned income through work by minors, such as by apprentices or those who have left school to enter the workforce. It also protects the unearned income of minors who are orphans or disabled.

As the government promised, the budget is set to return to surplus by 2012-13. It is savings such as these that the government has worked hard to find. This measure provides a budget savings amount of $740 million over the three years to 2014-15. This amendment does not set out to disadvantage but sets out to create more fairness in our tax system. It removes the opportunity for taking advantage of loopholes that the public constantly call on their representatives to take away. On that note, I commend the bill to the House.

David Bradbury (Lindsay, Australian Labor Party, Parliamentary Secretary to the Treasurer) Share this | Link to this | Hansard source

I take this opportunity to thank all those members who contributed to this debate on the Tax Laws Amendment (2011 Measures No. 4) Bill 2011. Schedule 1 of the bill reduces quarterly income tax instalments for the 2011-12 income year for those taxpayers whose instalments are adjusted for previous years' gross domestic product growth. This is called the GDP adjustment method of working out instalment amounts. The great majority of taxpayers who are required to pay quarterly instalments use this method, including most small businesses plus individual investors and small superannuation funds.

The amendments reduce the GDP adjustment factor for the 2011-12 income year from the default, which would be eight per cent, to four per cent. This delivers small businesses and the other taxpayers using the GDP adjustment method a $700 million cash flow benefit in the 2011-12 income year. This will provide eligible taxpayers with a smoother transition from the two per cent GDP adjustment factor that the government had applied for the 2009-10 and 2010-11 income years as the economy recovered from the global financial crisis.

This measure is part of the government's package of measures to improve the cash flow of small businesses and simplify their tax affairs. Those measures include the instant asset write-off for any asset costing less than $5,000, an immediate deduction of up to $5,000 for motor vehicles and a reduction in the small business company tax rate to 29 per cent. Schedule 2 reduces the incentive for families to split income with their children, therefore protecting the integrity and improving the fairness of the income tax system. These amendments will remove the ability of children under 18 years of age to use the low-income tax offset to offset tax due on their unearned income, such as dividends, interest, rent and royalties.

Since coming to office the government has increased the value of the low-income tax offset to provide tax relief to low-income workers. Increases in the low-income tax offset have, however, increased the amount of income that can be allocated to children tax free. These increases have been accompanied by increased distributions of income to children, especially from discretionary trusts. The low-income tax offset was never meant to act as a tax minimisation vehicle. Importantly, children will still be able to use the low-income tax offset to reduce tax payable on their income from work. This measure is one of those announced in the budget that will contribute to returning the budget to surplus by 2012-13.

Schedule 3 amends the tax laws to allow the percentage of certain total and permanent disability insurance premiums that is deductible for superannuation funds to be specified in the regulations. This will streamline the process for claiming tax deductions for the cost of TPD insurance provided through superannuation. The regulations containing the prescribed percentages will be developed following consultation with industry. The cost of TPD insurance provided through superannuation is deductible to the extent the policies provide cover, which is consistent with the definition of disability superannuation benefit in the Income Tax Assessment Act 1997. Superannuation funds are required to obtain an actuary's certificate to determine the deductible portion of the premium if broader insurance cover is provided. The amendments in the schedule will reduce costs to superannuation funds in complying with the law by avoiding the need to engage an actuary to determine the deductible portion of premiums in many cases.

The government introduced transitional provisions in 2010 which were designed to allow time for the industry practice of deducting the full cost of broader disability insurance policies to be brought into alignment with the operation of the law. During the transitional period, which covers the income years 2004-05 through to 2010-11, superannuation funds can deduct the cost of broader types of disability insurance cover. These amendments extend this transitional relief to funds that self-insure their liability to provide disability benefits.

Schedule 4 amends the definition of reportable employer superannuation contributions, or RESC. Additional contributions to super that are mandated by an industrial agreement or the rules of a super fund will no longer be considered income when determining a person's eligibility for government financial assistance. It was never the government's intention that such contributions be reportable employer superannuation contributions, so the amendment will be retrospective to July 2009 when the definition of reportable employer superannuation contributions first came into force. The bill deserves the support of the parliament, and I commend the bill to the House.

Question agreed to.

Bill read a second time.