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

It was remiss of me earlier when I spoke not to congratulate you, Mr Deputy Speaker, on your long overdue election to the office of Deputy Speaker. The Tax Laws Amendment (Clean Building Managed Investment Trust) Bill 2012 will not be opposed by the opposition. Members in this House would recall that this year's budget announced an increase to the managed investment trust final withholding tax rate on payments to residents in countries with which Australia has entered into an exchange of information agreement. The withholding tax rate was doubled, from 7.5 per cent to 15 per cent. The coalition quite rightly opposed that in the Tax Laws Amendment (Managed Investment Trust Withholding Tax) Bill 2012. As the shadow treasurer articulated at the time, we opposed it because it was an increase in taxation. It had the potential to discourage investment in long-term infrastructure. It had the potential to decrease future foreign investment in Australia, increase Australia's sovereign risk profile and put Australia out of step with tax rates in the Asia-Pacific region, undermining our objective of becoming a financial services hub in the region.

I will take some of the time of the House to recount the history of this matter. It is a history that is well known to the Assistant Treasurer sitting opposite. Back in 2008, with great fanfare, the incoming Labor government, the Rudd government as it then was, announced it was reducing the relevant tax rate to 7½ per cent. It was announced in Labor's first budget and, back then, the Assistant Treasurer—not the Assistant Treasurer sitting at the table now but the Assistant Treasurer at the time, the member for Prospect and now Minister for Immigration and Citizenship—lauded this important reduction to 7½ per cent and pointed out that the reduction to 7½ per cent was designed to send a signal to the international community. It was designed to send a signal from the Labor government.

The sudden decision to double the 7½ per cent in this year's budget also sends an undeniable signal, which is that, when it comes to matters of taxation, this government cannot be trusted. When it comes to matters of certainty, the business community has every reason to hold the belief that the only guarantee from this government is that guarantees cannot be kept.

It was not just those on this side of the House who pointed that out at the time of those debates in late June this year.

The respected financial commentator Jennifer Hewett summed it up very well in the Financial Review at the time, when she made the point that the debate through the course of that last week in June showed:

Labor has developed an unenviable reputation for its willingness to change tax rates and structures for investments.

This completely undercuts faith in the permanence of reforms that do occur …

The legislation through this parliament of that tax increase took some time and had various permutations. We are back here today dealing with what is perhaps the last of those. At the time, the government decided to reward the Greens for their support for increasing the 7½ per cent rate to 15 per cent by announcing that they would come forward with a lower withholding tax rate, of 10 per cent, that would apply to payments to nonresidents by managed investment trusts that hold newly constructed, energy-efficient commercial buildings. That is what the substance of this tax law amendment bill is about.

I will run through the key elements briefly. They include a withholding tax rate, as I just said, of 10 per cent, to cover certain trust payments to a resident in a tax information exchange country. To be taxed at the final 10 per cent withholding rate, the managed investment trust's payments can comprise only income and capital gains from clean buildings and assets incidental to clean buildings. A clean building must be constructed after 30 June 2012, be a commercial building—that is, an office building, hotel or shopping centre—and hold a five-star Green Star rating as certified by the Green Building Council of Australia or a 5.5 star energy rating as accredited by the National Australian Built Environment Rating System. Even if a building meets the relevant green standards, it will be ineligible if construction began earlier than 1 July 2012. This will be the case even if significant works had not commenced by that date.

There are some commercial obstacles presented by the bill that might prevent this concession being widely utilised. They relate to making sure that the trust satisfies the conditions to be a clean building MIT and will require careful structuring of the trust. A clean building MIT is restricted to holding taxable Australian property assets. Income from assets reasonably incidental to clean buildings—billboards and signage, telecommunication infrastructure attached to a building, and car parking facilities—will not affect the trust being a clean building MIT so long as the incidental assets are of some substance. Income from past incidental assets will not prevent the trust being an MIT, provided that income is not greater than five per cent of the trust income from clean buildings. Refurbished buildings, even where the works would lead to satisfying the standards, are ineligible. Holding other types of buildings from which it receives income will prevent the trust being a clean building MIT. The 15 per cent rate will therefore apply to payments to these nonresidents. The criteria to qualify as a clean building could lead to the precaution of quarantining these types of buildings into discrete trusts, which of course would add to costs and inefficiencies.

The concession is probably going to prove quite difficult to assess. Certainly that is the view of industry bodies and advisory firms expert in this area. The explanatory memorandum is being overly conservative in stating that the cost to revenue of the measure will be small and unquantifiable over the forward estimates. Nevertheless, as I said at the outset, the coalition is not opposing this bill. It does represent a tax cut over and above the tax hike introduced by this government some months ago, albeit to a very discrete area. As I said, it cuts the rate of withholding tax to 10 per cent from 15 per cent for these clean building managed investment trusts. Its purpose is to repay the Australian Greens for their vote to double the tax from 7.5 per cent to 15 per cent, but, as I said, on behalf of the coalition, it is a tax cut and we will not be opposing it.

Adam Bandt (Melbourne, Australian Greens) Share this | Link to this | Hansard source

I am pleased to rise on behalf of the Greens to support the Tax Laws Amendment (Clean Building Managed Investment Trust) Bill 2012. This bill is a win for the environment, it is a win for progressive business and it is an example of this parliament working properly. When the initial proposal from the government regarding withholding tax came before this parliament, the Greens had some concerns, as did a significant number of players in the business community and the progressive business community. They were concerned that the proposal might disproportionately impact on investment in clean buildings, in green buildings, in sustainable buildings. In particular, they were concerned that overseas pension funds that had higher standards of investment and that wanted to invest in places where they knew they would be getting a good return for their members and would also be helping to tackle global warming and make cities more sustainable might be disproportionately impacted. Indeed, according to the advice we had received and to what a number of people, including the Property Council of Australia said, it was these kinds of funds that were disproportionately higher players in investing in these kinds of sustainable buildings.

Equally of concern to the Greens is securing this country's revenue base. It is becoming crystal clear that there have been large numbers of promises and aspirations about what government should spend its money on, many of them incredibly worthwhile and areas that the Greens have been at the forefront of championing, from investment in schools to getting health into dental care to giving a $50-a-week increase to those who are on Newstart or youth allowance and are doing it toughest. What is becoming increasingly clear is that the money is running out. The government often boasts that they are keeping revenue as a proportion of GDP much lower than it was under former Prime Minister John Howard. To me, that is not a boast; it is a problem, because it means that we now, for example, find ourselves having in the order of $24 billion a year less revenue than we otherwise might have. That is part of the reason we see proposals like Gonski school reform being pushed out past 2020, other proposals unable to be funded in a timely manner and services increasingly at risk, such that we might not have enough money to fund the kinds of services Australians rightfully expect in an advanced, First World economy.

So we have the question of how we begin to secure the revenue base. The principle behind the government's bill was one that we, the Greens, supported. Because this is a parliament in which the diversity of the views in the community is represented, we were able to negotiate a sensible outcome. We will be in a position where we can not only help secure the Commonwealth's revenue base but also continue to drive investment in clean buildings and in sustainable buildings. I, as someone who represents an inner-city electorate, and the Greens are acutely conscious of the fact that a substantial amount of greenhouse gas pollution comes from cities, and that includes our built environment. We need to be doing everything we can to ensure that investors do make the choice to invest in buildings that will reduce energy usage, reduce pollution and reduce the costs to the tenants who live in them.

After discussions with the government, we are very pleased that the government agreed that a way of meeting both objectives would be to provide essentially a concessional rate for managed investment trusts in new energy-efficient buildings. I note that the coalition says that this is somehow some kind of payback, but that is not so. It is a genuine response to genuine concerns expressed by many in the business community, and I welcome the fact that the coalition will not oppose it. I commend the bill to the House.

Greg Hunt (Flinders, Liberal Party, Shadow Minister for Climate Action, Environment and Heritage) Share this | Link to this | Hansard source

Oh, dear! Oh, dear! This Tax Laws Amendment (Clean Building Managed Investment Trust) Bill 2012 is a shabby outcome. It is a partial concession from a government which has broken two promises. In 2008, as the member for Casey said, the government made a major point about the fact that it was sending a signal to the world that by reducing the withholding tax rate to 7½ per cent Australia was an investment destination. And now this bill comes against the background that it is doubling the withholding tax rate and, of course, it sends two messages to the world: firstly, that we are not to be trusted as a country under this ALP government and, secondly, that your investment, which was wanted in Australia, is not going to be so profitable. Therefore, desperately needed funds in the Australian building and construction sector, in particular, will be deterred from arriving in Australia.

In short, the broader context is that the government has led us to a situation where investment in Australia's building and construction sector and Australia's office sector is now less desirable than it was and its own logic of a reduction in the withholding tax rate is sending a reversed signal. That increase, that doubling, in the withholding tax rate is not only a broken promise and therefore a sovereign risk issue; it is also a very powerful signal about investment and whether or not Australia is a desirable destination.

This bill also comes against another broken promise. It is a very clear, unequivocal broken promise. The government went to the last election—and it had it on its books for some time—with the pledge of a $1 billion clean building green tax break fund. That is gone. That went in this year's May budget. The $1 billion green buildings tax break fund is gone, evaporated, eviscerated. It has disappeared. That was an express, clear and absolute promise. The Green Building Council, ASBEC—whose chair, a former state ALP minister Tom Roper was savagely critical of the government not just for the policy breach but also for the breach of faith with a pre-election promise—and the Property Council are all groups that relied upon the government in good faith and have been disappointed.

Against that background, instead of seeing an increase in the tax rate from 7½ to 15 per cent for qualifying clean buildings, this bill only sees an effective increase from 7½ to 10 per cent. Notionally, the government is saying this is a tax deduction from 15 to 10 per cent. In theory that it right, but only because it just doubled the withholding tax from 7½ to 15 per cent a few months ago. So it doubled the tax and then reduced some of it. It is still higher than it was five months ago. In summary: (a) there is confusion; (b) there was a breach of faith; and (c) the tax rate is still going to be higher than it was five months ago. The grand selling point is that it is not going to be as high as it might have been. It is not a government that is serious about foreign investment, it is not a government that is serious about supporting clean buildings and it is not a government that is serious about its promises.

This is slightly better than would otherwise have been the case, but it is no substitute for the government's own broken promise, and I would ask the minister in his summing up to address the broken promise. We will not oppose the government's reduction in the level of effective tax paid on clean buildings but we will certainly point out that the net tax paid and payable is going up as a consequence of a series of decisions over the last few months.

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

Firstly I would like to thank those members who have contributed to this debate. The Tax Laws Amendment (Clean Building Managed Investment Trust) Bill 2012 provides for a final withholding tax rate of 10 per cent on fund payments from eligible clean-building managed investment trusts made to foreign residents in countries with effective information-exchange agreements. I understand that some members would prefer the 10 per cent withholding tax rate to be more widely available than this legislation provides. I note that broadening the scope of this concession would have fiscal costs. I also note that fund payments from managed investment trusts that are not eligible for this measure can be subject to a still concessional 15 per cent final withholding tax rate. This rate is half the 30 per cent non-final withholding rate from when we came to office, and half the 30 per cent that applies to company tax.

For these amendments to apply the managed investment trust must invest in new energy-efficient office, hotel and retail buildings that commenced construction on or after 1 July 2012. A proposed amendment to the bill, tabled today, will ensure that any works preparing the site for construction, and works undertaken below the lowest level of the proposed building, do not represent the commencement of construction for the purposes of the measure. This will make it clear that, in determining if the bill qualifies as having been commenced on or after 1 July 2012, the time of the commencement of the construction of the building is only determined by the time the works on the lowest level of the building, including any basement level, commenced.

This is consistent with the recommendation from the Parliamentary Joint Committee on Corporations and Financial Services, and can I acknowledge Madam Deputy Speaker O'Neill your role as the chair of that committee. I thank you for your work and for the work of your committee in preparing your very constructive report, which was reported on yesterday and recommended that the bill be passed, with this additional clarification.

I will address some of the comments made in the context of this debate by making the point that the 7.5 per cent rate that existed in relation to managed investment trusts prior to the budget measure that lifted the rate to 15 per cent was very low. If you compare it to the rates in comparable countries, competitor countries, then the government took the view that it was appropriate to ensure that we secure an adequate and a fair return on investments that do occur in this country. I also draw the attention of members in the House to the remarks contained throughout the Henry review that particularly make the point that location-specific rents are one area that government policy should be directed towards addressing in a way that will secure an appropriate return for the Australian people. That is what the budget measures did.

I also acknowledge the very cooperative way in which some other parties have engaged in discussions around this particular measure. We heard from the member for Melbourne, and from others in the other place, of the importance of ensuring that we continue to provide an adequate incentive for international capital to be invested in clean buildings in this country. The way in which that incentive will be built into our tax system is by providing a concessional 10 per cent rate in relation to distributions from managed investment trusts whose funds are directed towards investment in these clean building activities.

We believe that we have secured an appropriate and balanced outcome, one that makes sure that we continue to have very competitive rates in relation to our managed investment trust withholding rates. And notwithstanding that we also believe that we have struck the balance to ensure that the Australian people have secured and will secure an adequate return on investment and economic activity that occurs in this country, and it is important that we do secure the benefit of that for the Australian people. I commend the bill to the House.

Question agreed to.

Bill read a second time.