Deborah O'Neill (Robertson, Australian Labor Party) Share this | Link to this | Hansard source

On behalf of the Parliamentary Joint Committee on Corporations and Financial Services I present the committee's report, incorporating a dissenting report, entitled Regulatory framework for tax (financial) advice services, previously Tax Laws Amendment (2013 Measures No. 2) Bill 2013 Schedules 3 and 4, together with the evidence received by the committee, and I ask leave of the House to make a short statement in connection with the report.

In accordance with standing order 39(f) the report was made a parliamentary paper.

by leave—This inquiry was based on schedules 3 and 4 to the first reading version of the Tax Laws Amendment (2013 Measures No. 2) Bill 2013. These schedules proposed amendments to the Tax Agent Services Act 2009 and the Income Tax Assessment Act 1997 that would bring financial advisers who provide tax advice into the tax agent regulatory regime overseen by the Tax Practitioners Board.

The proposed amendments that the committee has been tasked with reviewing will be an important regulatory change. It is clear that bringing financial advisers who provide tax advice into the existing regulatory regime will strengthen the overall regulatory environment that applies to tax advisory services. The changes would mean that all tax advice that is provided for a fee or other reward would be consistently regulated, regardless of whether it is provided by a tax agent, a BAS agent or a financial adviser. This is important because consumers of these services simply expect to go to the service providers within that sector and find a standard that is consistent, regardless of who it is they interact with.

The enactment of these measures will complete a process that has been many years in the making. It will end the need for the financial advisers' carve-out from the Tax Agent Services Act which has been in place since 2010 and reviewed on an annual basis. The most important outcome of the changes, however, is the further protection for consumers they will provide. If the proposed measures in this report, and in the bill, are enacted, financial advisers who provide tax advice will need to meet a new standard of relevant qualifications and experience. Accordingly, consumers of tax advice can be confident that the standard of advice they receive is of a similar professional standard to that provided by registered tax agents.

It needs to be recognised that these measures have not suddenly been announced and thrust onto the industry, despite what may be said in the explanation of the dissenting report. It is clear that there has been ongoing consultation with the industry since the measures were first proposed in 2010. For those who would like to find the detail, we have very clearly set out the dates when that period of interaction occurred in our report in a quite full and very clear tabled manner.

Importantly, the measures include a generous three-year transitional arrangement, with the full regime not commencing until 1 July 2016. The transitional arrangements mean that, for an 18-month period from 1 July 2013, financial advisers could effectively continue to provide services in the same manner as they do today. I do want to stress that the length of the transition period is three years, so any sense of creating alarm about a sudden change here is misrepresenting the reality of what this legislation seeks to do.

It is also important to be aware that industry participants are genuinely supportive of the overall policy intent. The Financial Services Council, which certainly did have some reservations, stated in its submission that the FSC is supportive of the amendment of the Tax Agent Services Act to create a specific and appropriate type of tax adviser which is congruent with the tax advice a financial adviser gives in the context of financial planning. The FSC is supportive of the regime on the basis that increased advice-provider competency is a public good. It will enhance the quality and value an advice provider delivers to their client.

The Financial Planning Association of Australia also noted the benefits that the regulatory changes will have. At the committee's public hearing, the FPA's chief executive officer stated that:

The FPA understands and supports consumer protection objectives of the tax agent services regime, which include firstly that providers of tax advice are appropriately and adequately trained; secondly, that proper complaints handling and redress is available to consumers; thirdly, that enforceable ethical and professional conduct requirements are imposed on providers; and, finally, a strong regulatory oversight in relation to the Australian tax law system.

While the industry accepts the policy intent, the committee acknowledges that the industry had some concerns about the detail. After taking evidence from key industry organisations and Treasury at a public hearing, the committee has made some recommendations in its report that are intended to minimise any burden on industry participants during the three-year transition period that lies ahead. These recommendations, and the evidence provided by Treasury and the Australian Securities and Investments Commission, should help allay concerns about any of the measures in the bill.

The committee has recommended that the measures be reintroduced into the parliament and passed. The committee would also like to highlight the urgency that is required in this regard. If the current regulatory exemption from the Tax Agent Services Act that exists for financial advisers expires on 30 June—this month—without a suitable replacement being enacted, a significant burden will be imposed on the industry. As the chief executive officer of the Financial Services Council, Mr John Brogden, told the committee:

The worst outcome of all would be if the legislation did not proceed in any form, because that would leave the financial advice industry in a perilous situation where an enormous number of advisers simply would be in breach and be unable to comply. That is not an acceptable environment for Australians and their financial advice.

The committee shares Mr Brogden's view that such a result would be unacceptable. The enactment of these measures prior to 1 July 2013 not only would prevent this clearly undesirable outcome but also would commence a three-year transition to a better regulatory environment, one that is absolutely and clearly focused on consumer protection and ensuring the provision of quality taxation advice.

On behalf of the committee, I would like to thank the organisations that lodged submissions and the witnesses who gave evidence at the committee's public hearing, particularly given the short period of time in which the inquiry was conducted. I stress once again the general agreement across the profession about the need for this legislation to go forward and for care in the transition period to be attended to, if necessary through amendments and certainly through consultation and ongoing discussion with relevant agencies and regulatory authorities. I commend the report to the House.

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

by leave—I am pleased to rise to make some brief comments in relation to the report of the Parliamentary Joint Committee on Corporations and Financial Services into the provisions which were previously to be schedules 3 and 4 of the Tax Laws Amendment (2013 Measures No. 2) Bill.

This is yet another episode of a disorganised government in a desperate scramble to get legislation through before a deadline which it has known has existed for three years. Indeed, this is also another inglorious episode where the government's standards of consultation with industry have been highly deficient. The only reason that this inquiry into this bill was held was that the coalition pointed out some of the serious flaws in the schedules to the bill as they were going through the House of Representatives a couple of weeks ago. The government reluctantly agreed to excise the schedules and allow time for a committee inquiry by the corporations and financial services committee.

Coalition members of the committee have only had our concerns increased through the consultation that we have done through the committee process. It is our view that the burden of proof, which the government would need to discharge if it were to demonstrate that it is prudent to rush ahead with the provisions in their current form, should be adopted. That burden of proof has not been discharged. We are in the unfortunate position where there are now less than two weeks to go before the changes proposed by the government, which would move financial advisers into the Tax Agent Services Act regime, and yet there remain some very serious questions about the provisions of the legislation.

I will briefly highlight some of the most serious of those concerns. The first is that there has been insufficient consideration by and consultation with industry. Although it is now more than three years since the Tax Agent Services Act took effect, for much of that period there has been very little consultation occurring. A time line provided by the Financial Planning Association showed that no material consultation occurred in either 2011 or 2012. Draft legislation was exposed for the first time for consultation in February 2013, but it was only when the schedules were tabled in the bill before parliament on 29 May 2013 that industry participants were able to see key provisions, including a definition setting out the scope of the advice which would be the subject of the regulatory regime that would take effect by reason of the passing of this legislation.

It is uncontested by witnesses with different perspectives that there remains considerable work to be done before the details of this legislation are nailed down. For example, Mr Drum of CPA Australia said to the committee last week:

Some of the matters raised here quite rightly identify that every issue has not been—

The chair intervened at that point to offer the words 'perfectly resolved'—

Mr Drum responded:

Correct. There are still a lot of unanswered questions.

In the coalition's view, if there are a lot of unanswered questions that raises very serious issues about proceeding with the bill in its present form.

We were equally concerned that there does not appear to have been an adequate cost-benefit analysis conducted of these measures. One group of stakeholders, the Financial Services Council, informed the committee that they were not aware of any Treasury cost-benefit analysis being conducted, and they had not been asked to contribute to such analysis. Treasury officials, when appearing before the committee, were asked whether there had been a cost-benefit analysis. Oddly, they indicated that there had been and that we could find it on the Department of Finance and Deregulation website. It also became clear in the exchange with witnesses from the Treasury that the kinds of cost components which the Treasury had thought appropriate to include in the cost-benefit analysis excluded a number of cost categories that industry members were very concerned about. That is perhaps not surprising if the cost-benefit analysis was conducted without consultation with industry participants.

Another reason my coalition colleagues and I are very concerned about the provisions of this legislation—and we have made our concerns clear in our minority report, our dissenting report—is that this bill, if it were to pass into law in its proposed form, would impose extra cost burdens on the financial sector at a time when very substantial additional costs have already been imposed on this sector thanks to the torrent of regulations which the present government has introduced, much of it done in a chaotic, disorganised and last-minute fashion. Regrettably, this is all too consistent with this government and this minister, who I am confident did not, when he was at school at Melbourne's exclusive Xavier College, rejoice under the nickname of 'Details Shorten'. I very much doubt that that was his nickname.

Another concern to coalition members is that no evidence was persuasively presented that there would be any particular adverse consequences if this legislation were not to proceed in its present form. Witnesses who were arguing that legislation should proceed—and there were one or two of them—were given the opportunity to explain the dangers which they believed were present if the legislation did not go ahead with effect from 1 July 2013 in its present form. Their explanations, I have to report to the House, were unpersuasive.

Concerns were also raised about the breadth of the present definition in the bill. Industry participants, pleasingly, informed the committee that they had worked together to come up with another definition, and that has been agreed upon by the Financial Services Council, the Tax Institute and a range of other participants. That is a very impressive piece of work by the industry. Coalition members and senators on the committee certainly encourage the government and the Treasury to consult carefully with industry on the amended definition which so many stakeholders have come together to prepare.

In conclusion, the view of coalition members and senators of the corporations and financial services committee is that it does not make sense to allow passage of these schedules into law at this time. A much better course of action, and the course of action which we recommend, is that the current exemption which financial planners and advisers enjoy from the Tax Agent Services Act—an exemption which has been in place for three years—should be extended by a further 12 months so that the work can be done of properly analysing these provisions, taking account of the recommended changes to the definition and getting the job done right rather than rushing it at the very last minute.