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

This is a debate on two pieces of government legislation—the Tax and Superannuation Laws Amendment (2014 Measures No. 4) Bill 2014 and the Tax and Superannuation Laws Amendment (2014 Measures No. 5) Bill 2014. I will deal with No. 5 first. There are some schedules here which the Labor Party support and some schedules which we will oppose in the other place. I will outline our approach on each of the schedules.

Firstly, this bill seeks to abolish the mature age tax offset, which the Labor Party will support. This was a process started by us in government. It is a sensible saving. The government have their own measures that they have put in place to replace this measure, and we will not stand in the way of the passage of this particular schedule. It represents a considerable saving, and the Labor Party are always prepared to support sensible savings put forward by the government. We see too few of those, but we will support this sensible saving.

We will also support the schedule which relates to the introduction of new deductible gift recipients. In the tradition of both Labor and Liberal governments, this is the normal process. These are worthy organisations. That schedule will attract our support.

We will not support the schedule which goes to the changes to research and development, and we will not support the schedule that goes to the seafarer tax offset. The amendments moved by the Labor Party in the other place will reflect that. I flag the Labor Party's position in the House and the approach we will take in the other place.

In relation to research and development, we see a pattern here from the government. It is a government which is prejudiced against science, research and development, and important measures to encourage innovation in the Australian economy. Almost everybody knows that innovation, science and technology are important key drivers for future economic growth. I say 'almost everybody' because it seems that everybody except the government knows that. We have a government that does not have a minister for science. It is a government which in its recent budget—the late and often lamented budget—cut research and development spending and cut science research spending quite considerably. We have seen the CSIRO cut by $115 million. We have seen the Defence Science and Technology Organisation cut. We have seen the Australian Nuclear Science and Technology Organisation, the Australian Institute of Marine Science and Geoscience Australia suffering cuts of $51.4 million. We have seen cooperative research centres, which have been so important over many years now for the Australian innovation task, have their funding slashed. We have seen important government programs when it comes to commercialisation and innovation abolished and replaced by a new program which has roughly half the amount of funding that was previously in place and has a vague and ill-defined mandate. I think it is just simply the government playing catch-up and trying to cover the fact that it is making cuts in this important area.

Why do I say this is so important? It is because these are the drivers of future economic growth. We condemn the government for their budget because it is unfair. We condemn the government for their budget because it represents prejudice against working Australians. We condemn the government for their budget because it represents fundamental breaches of promise and a web of deceit that the Liberal and National parties engaged in at the last federal election. But we also condemn this budget because it represents an attack on future sources of economic growth. It represents backward-looking policy. It represents an approach to policy which does not recognise the importance of innovation in Australia.

The fact is that high-growth technology companies currently generate less than 0.2 per cent of our GDP. But PricewaterhouseCoopers have estimated that, with the right policy environment, this sector could contribute four per cent of our GDP, generating more than half a million jobs by as early as 2033. So we need a government which embraces innovation, commercialisation, research and development, start-ups and the spirit of entrepreneurialism. The government are happy to talk about those things, but their policies, as in so many areas, go in exactly the opposite direction. We have a Prime Minister and a Treasurer who think if they say something it makes it so. But it is actually their policies that make it so—and their policies do not reflect their rhetoric.

A measure before the House here is a $620 million cut to the research and development tax concession. I will say a number of things about this. Firstly, the support given to research and development through the incentive in the tax system has been very important in Australia's research and development efforts. What the government is doing here is relinking the concession to the corporate tax rate. The previous Labor government explicitly delinked the corporate tax rate and the research and development incentive. We did that to provide certainty so that Australian companies investing in risky research and development ventures knew the sort of support they would receive from the government when they were undertaking the difficult decision about how much to invest. Some of these ventures will not pay off for the company and most of them, if they do pay off for the company, will have spillover effects for the entire economy. So that was the approach taken by the previous government.

This government has taken the approach of relinking the corporate tax rate with research and development incentives. I accept that there is a legitimate debate to be had about that and that there could be good arguments put on both sides. But the approach taken by the Labor Party in office that we continue to defend, protect and promote is that it is important that firms have certainty when it comes to investing in research and development.

But the government are so incompetent that, even if you accept their arguments, they have actually been quite tricky with the Australian business community. Firstly, this bill seeks to reduce the R&D tax incentive because the government wants to relink it with the corporate tax. The government is proposing to cut the corporate tax rate to 28.5 per cent from 1 July next year. But this change applies not from 1 July next year; it applies before then. If there is to be any justification for the government to implement this measure it should apply from the same date as the corporate tax rate which the government intends to introduce comes into effect.

Secondly, the government has forgotten about its little policy—I am sure many on the government benches would like to forget about the policy—of paid parental leave and the levy that will be applied to pay for it. The Prime Minister does not want to forget it but I think almost everybody else on that side of the parliament would like to forget it, because it is a terrible policy. It is an unfair policy. It is an extravagant entitlement scheme. The Treasurer, with his normal bluff and bluster, his chest beating and his lecturing of the Australian people about the age of entitlement, is introducing a massive entitlement scheme which will send cheques of up to $50,000 to Australians, regardless of their income, upon the birth of a baby. This will have no impact on productivity or participation in the workforce. That is what the Productivity Commission say. 'What would the Productivity Commission know about productivity?' says the government.

Mr Ewen Jones interjecting—

They would know more than you. They say that this will have no impact on productivity or participation. Why would it? It is not linked to participation in the workforce. You just get a cheque. Of course we oppose the government's Paid Parental Leave scheme. It is being paid for by a levy on Australia's large businesses, large businesses which undertake research and development. The government is proposing to reduce the R&D tax incentive because, it says, it is reducing the corporate tax rate, but at the same time it is introducing a levy. This is one of those old pea-and-thimble tricks that the government is engaging in. It is saying, 'Isn't it wonderful! We're cutting the corporate tax rate by 1½ per cent. Oh, but we're also introducing a new levy of 1½ per cent.' So the tax burden on those large businesses will be reduced by not one cent. The government is proposing to reduce the R&D tax incentive to reflect the new corporate tax rate, ignoring the fact that it is putting a levy on Australia's largest businesses to pay for its ridiculous, extravagant and unfair Paid Parental Leave scheme at the same time that it is attacking ordinary working Australians with its cuts elsewhere. We will oppose this schedule in the other place.

The other measure that we will oppose is the government's proposed abolition of the seafarer tax offset. Maybe the government does not understand the impact of its policy here or maybe it has thought it through and it does understand the negative impact of its policy. Either way it has got it wrong. The shipping trade is important for Australia. One-tenth of the world's sea trade goes to or from Australia, and Australia has the fourth-largest shipping task in the world. It stands to reason, as we are a maritime trading nation. It is in our national and security interests to revitalise Australian shipping.

The previous government did considerable work in this regard. The former Deputy Prime Minister and Minister for Infrastructure and Transport, the member for Grayndler, has very passionate views about this and was the key reformer in this place. Part of those reforms was the introduction of this tax offset in 2012 following lengthy industry consultation. The object of the offset is to stimulate opportunities for Australian seafarers to be employed or engaged on overseas voyages and to acquire maritime skills.

There is a pretty basic principle here. Under our tax system, if you are an Australian citizen and you are working elsewhere in the world you are covered by the tax system of that country. We are not like America, under whose system an American working anywhere in the world is regarded as being subject to the revenue task of the United States government; we have a different approach. But we say that if you are working on a ship which is not in Australian waters that should apply as well. This was an offset introduced by the previous government, designed by the Treasury—not by others—to achieve that policy aim. I dare say that honourable members opposite will somehow bring into play the claim that this was some sort of sop to the union movement or something to do with the Maritime Union of Australia. That is what the government will allege, I suspect.

Mr Ewen Jones interjecting—

What it will not tell you and what the member for Herbert in his contribution, if he makes one, will not tell you is the view of the Australian Shipowners Association, that well-known socialist organisation. The last time I checked they were not affiliated to the Australian Labor Party. I will have to check but I am pretty sure that it is the case that they are not an affiliated organisation to the Australian Labor Party. They said:

The Seafarers Tax Offset was a key element of the 2012 reforms which helped to reduce the operating costs of Australian vessels, increased the competitiveness of Australian shipping and provided significant opportunity for employment of Australians in international trades …    the impact [of abolition] is severe with regard to future opportunity.

I do not think we are going to hear that quoted by members opposite. The Australian Shipowners Association have called you out. Here is a measure which will reduce the competitiveness of Australian industry—called out by the Australian Shipowners Association, who know that you have got it wrong. You have got it wrong. This measure has got it wrong. The Labor Party will defend the seafarer tax offset in the other house, because you have got it plain wrong. This is not for a large saving; we are not talking about billions of dollars. It is quite a modest measure but it is an important one. I ask the government to reflect on this measure, maybe to consider the views of the Australian Shipowners Association, and to acknowledge that it has got it wrong. If it acknowledges it has got it wrong then it will have our bipartisan support on its back down.

Greg Hunt (Flinders, Liberal Party, Minister for the Environment) Share this | Link to this | Hansard source

That's very good of you!

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

Yes, it is. We are always happy to provide support when you acknowledge your error. I call on the minister and the Treasurer and the Assistant Treasurer, whoever he or she may be, to acknowledge that error. I think that if the government had a full-time Assistant Treasurer maybe these errors would not occur. I am a former Assistant Treasurer. It is an important role. If we had an Assistant Treasurer maybe these errors would not occur, because somebody would be looking at these issues full-time. It would not be an add-on. I do not like the member for Herbert's chances of being the next Assistant Treasurer. I do not have any money on him.

Let me turn to the Tax and Superannuation Laws Amendment (2014 Measures No. 4) Bill 2014. As I said earlier, we are more than happy to provide support for sensible measures, when we see them, and we will provide our support to this measure. This is a sensible measure because—guess what?—the government is implementing the former government's approach. We are more than happy to give credit where it is due and to commend the government for implementing Labor's proposals to reduce multinational tax avoidance, which are contained in this bill. I do want to say some things about multinational tax avoidance, because it is a very important issue for Australia. When we were in office, we laid out a very comprehensive plan to deal with multinational tax avoidance. It was at the end of the story and there was always more work to be done, but it was a very comprehensive plan indeed. There were measures that would have prevented $5 billion in revenue being moved offshore.

We put these measures in place because these are important principles and because, as I have said before, governments, Labor or Liberal-National, will always need to fund important government services, so there will always be a certain measure of tax which needs to be collected. If it is not collected from multinationals, then it is collected from somebody else. It will be collected from small Australian businesses, which do not have the wherewithal or the resources to engage in these elaborate and complex tax-avoidance schemes; it will be collected from Australian personal income taxpayers; or it will be collected from others through the tax system.

This is about fairness. It is also about competitive neutrality, because businesses who do pay their fair share of tax should not be disadvantaged in their competition against these multinationals who seek not to pay their fair share of tax. This is a very important principle. We put in place comprehensive measures which the Treasurer just last sitting week referred to as being robust and world class. These are the measures put in place by the previous government: addressing aggressive tax structures that seek to shift profits by artificially loading debt in Australia; better targeting resource sector concessions for depreciating assets to support genuine exploration; improving the integrity of, and ensuring better compliance with, the foreign resident capital gains tax regime; closing loopholes in the offshore banking unit regime; preventing sophisticated investors from engaging in dividend washing; and—importantly—increasing ATO compliance checks on offshore marketing hubs and business restructures. As I said, the Treasurer himself referred to the robustness of this approach.

I do want to take the opportunity again in this House to pay tribute to the former member for Lindsay, Mr David Bradbury, who as Assistant Treasurer in the previous government provided detailed leadership in implementing these changes. So good was his work that, after leaving the parliament, he was engaged by the OECD in the important role of advising the OECD on tax reform. He now resides in Paris, advising the OECD on international tax. Again, the Treasurer has referred to the work of the OECD and to the Secretary-General of the OECD, Angel Gurria, who was in Australia last week, in Cairns—well, in very large part, the work of the OECD is being led by David Bradbury, the former Assistant Treasurer. It is testament to the work that he did in his portfolio that he was recognised by this international organisation and was engaged by it.

Most of that has been kept in place by the current government, except that the current government wants to leave open tax loopholes which are worth over $1.1 billion. This is to the government's great discredit. It is to the government's great discredit that it is reversing or not implementing changes that the previous government was putting in place which further minimised international tax evasion, at a cost to the Australian taxpayer of $1.1 billion. This goes to priorities and values. This is a government that says in its budget: 'We have to make tough decisions. We have to change the way we index pensions and make it less fair. We have to make people wait half a year for important Newstart arrangements. We have to cut $80 billion out of health and education. We have to make all these unfair cuts. But, by the way, we can give $1.1 billion back to tax evaders.' That just shows the wrong priorities that this government has.

Again, if the Treasurer wants to recognise the error of his ways and reverse his reversal of the previous government's initiatives, he will have our bipartisan support. I have said before that I fully accept and recognise that there can be implementation challenges on complex law changes; and, if he has a different way of doing it, we are more than happy to look at that. If he takes advice about how it could be done better, we would be more than happy to look at that. But he does not, because he does not want to provide the leadership necessary to ensure that these changes can be made. This just goes to show that this is a Treasurer who is strong when it comes to standing up to the weak but weak when it comes to standing up to the strong. He is not prepared to take on multinational companies who are engaging in tax fraud and tax evasion. He is not prepared to take them on. He is prepared to talk about it, he is prepared to beat his chest, he is prepared to say to other countries around the world that they should be doing more; but he is not prepared to show that leadership here in Australia, and that is to his discredit. That is to the discredit of the government and of the Treasurer.

We do think that more needs to be done when it comes to international tax avoidance. It is not good enough for the Treasurer to say here at the dispatch box that he has instructed the tax commissioner to double his compliance efforts in this regard while at the same time reducing the tax office's resources. How is the tax commissioner, who has the Labor Party's support—a very good tax commissioner, he has our support in his endeavours—meant to double his compliance efforts at the same time as this government is reducing resourcing for the Australian Taxation Office, which will have a clear and definite impact on its compliance measures?

Because of this government's cuts—let us be very clear—there will be tax avoidance which is not stopped because compliance is reduced because this government is reducing resources to the Australian tax office. The Treasurer is good at rhetoric. He is good at beating his chest and saying that he has issued an instruction to the tax commissioner to double his compliance efforts. Bu at the same time the Treasurer is reducing the resources available to the tax office for compliance. Again, the government and the Treasurer are full of rhetoric, but when it comes to action they are completely lacking in that important regard.

On behalf of the opposition, I have indicated those measures which the Labor Party are prepared to support. The schedules in bill No. 5 which we are prepared to support are schedule 1 and schedule 4, I believe, but we will be opposing the other schedules in the other house. We are prepared to give our support to bill No. 4 on the basis that it is implementing measures that were contemplated and begun by the previous Labor government. We commend the government for proceeding with them. We condemn the government for handing back $1.1 billion to international tax avoiders by not proceeding with the previous, Labor government's other important changes and we will vote accordingly in the other place.

Ewen Jones (Herbert, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Tax and Superannuation Laws Amendment (2014 Measures No. 4) Bill 2014. I like the member for McMahon. He is a good man. What he should do is google that limited-release DVD; I reckon it will sell more copies than his book! In all honesty, the member for McMahon is probably right: I may not be the next Assistant Treasurer over here! But I will tell you one thing, Member for McMahon; I am a damn sight closer to holding higher office at the moment than you are!

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

I can't see you! I can hear you but I can't see you!

Ewen Jones (Herbert, Liberal Party) Share this | Link to this | Hansard source

I may be far off, I may be out on the boundary, but I am a damn sight closer to sitting on the treasury bench than you are at the moment!

I love the Labor Party! They just spent six years in government, their credit card got so hot they had to get special gloves to handle it—that is how hot it got—and now they come in here and they have all these measures for us where we are missing out on tax revenue. They have all these ideas about where we are missing out, yet they did not implement a single one in their six years. They did nothing in six years except spend, spend, spend. But now they say we are missing opportunities and this bill does not go far enough.

This bill is dry by necessity, and therefore I want to concentrate in my contribution on what we are actually doing—not the bits and pieces that Labor think we should be doing but the bits and pieces that we are actually doing. I will concentrate on the Treasurer's second reading speech and make some personal points in conclusion.

This bill aims to improve Australian taxation laws by bringing together different taxation measures, ranging from multinationals' profit-sharing to the breakdown of everyday Australians' tax payments. The bill will assist small business. It will lead to around 1,200 taxpayers being excluded from the application of the thin capitalisation rules, out of 2,500 taxpayers currently subject to the application of the rules. I will give a more detailed definition of 'thin capitalisation' further on in this speech. We will be reducing more red tape and helping small business to get on with what small business should be doing, and that is what we as a government hold as a core belief.

This bill also delivers on the government's election commitment to introduce a tax receipt showing individual taxpayers where their tax dollars are actually spent, and continues the government's work on restoring the integrity of the taxation system, so poorly lacking under the previous government.

Soon after we were elected to government last year, we were advised that 96 tax and superannuation measures had not been legislated. We speak often about the Hawke and Keating governments in this parliament; we look back on them almost wistfully and sigh over what has gone before. I will always remember when Paul Keating stood at the dispatch box and around the country and stated that the tax cuts he had announced were 'l-a-w law'. The only problem with these 96 measures is that they were not e-n-a-c-t-e-d enacted. The previous government stand condemned for making all sorts of promises and laws and then squibbing on the task of getting them enacted—and now we find that they are actively opposing a lot of the measures that they believed in before.

The backlog created significant operational uncertainty for businesses and consumers. We acted swiftly to clean up Labor's mess and to provide certainty and reduce red tape for all taxpayers: investors, small business and corporate Australia. The government announced on 6 November 2013, just short of 12 months ago, that it would proceed with reforms to tighten up thin capitalisation limits. Schedules 1 to 3 of this bill implement measures announced but never developed or legislated by the previous government.

Labor's shadow Assistant Treasurer, Andrew Leigh, the member for Fraser, is a good man. However, his claim in The Sydney Morning Herald on 8 September 2014 that the Abbott government was not taking serious action on multinationals' taxation avoidance is wrong. The coalition has cracked down and will continue to crack down on tax evasion by multinationals. Dr Leigh has also wrongly claimed that the government walked away from closing $1.1 billion in tax loopholes relating to the taxation of multinationals. This is not reflected by the facts. Rob Heferen, Executive Director, Revenue Group, Treasury, said:

… through public consultation on that, it became apparent that the proposal that stood would not be a sensible proposal to proceed on.

The source is the Hansard of the Senate Economics Legislation Committee budget estimates hearing on Thursday, 5 June 2014. While the member for Fraser continues to get it wrong, the coalition is taking real action to crack down on tax-evading multinationals.

If Australian operations are funded by excessive debt, they are said to be thinly capitalised. Multinationals have the flexibility to determine where international financing can occur and how debt will be allocated within the group through intragroup funding arrangements. This provides them with the opportunity to influence the jurisdiction in which deductions for interest are claimed, for example, by allowing them to claim a greater proportion of debt deductions in higher-taxing jurisdictions where debt deductions are often more valuable. This can effectively reduce or negate Australian income tax while improving after-tax profits for the multinational group.

Thin capitalisation rules are designed to prevent multinationals from profit-shifting by allocating a disproportionate amount of debt in their Australian operations and claiming excessive debt deductions in Australia, thereby reducing their Australian taxable income. The current rules were introduced in 2001, following the Ralph review. It consisted of a number of debt limit tests. These tests calculate the maximum debt deductions allowed to be claimed for a multinational's Australian operations.

What this bill does follows extensive consultation with stakeholders, including business, tax practitioners and the Australian Taxation Office. The changes to the thin capitalisation statutory safe-harbour limits are in line with industry expectations following the Business Tax Working Group's consideration of this matter in 2012. We will introduce a worldwide gearing test for certain inbound investors. The legislation fixes thin capitalisation rules by making sure that repayments of interest to companies in Australia from overseas subsidiaries are subject to tax even when they are dressed up as dividends. These amendments take effect from 1 July this year. We are tightening the statutory safe-harbour limits to prevent erosion of the Australian taxation base.

The bill also seeks to reduce compliance costs for small businesses by increasing the de minimis threshold from $250,000 to $2 million in debt deductions. The main entities affected will be larger multinational enterprises with investments in Australia with business models that rely on high Australian gearing levels. The changes to the thin capitalisation rules and the exemption for foreign non-portfolio dividends are expected to provide an increase in revenue of $755 million over the forward estimates period. It is important to note that, while infrastructure projects and electricity generators generally carry high levels of debt and could fail the new statutory safe-harbour limit, they will continue to be able to access the arm's-length debt test that will allow higher levels of debt in those areas.

Other sectors likely to be affected by the reduced statutory safe-harbour limits are finance and insurance providers—those who are not in the business of on-lending—manufacturing, mining and construction. The changes will also affect Australian multinationals investing offshore with high Australian gearing levels. Small business stakeholders have welcomed the increase in the de minimis threshold, as this will reduce compliance costs for small business. The changes to the thin capitalisation rules and the exemption for foreign non-portfolio dividends—schedules 1 and 2 respectively—are expected to provide an increase in revenue of $755 million, as I said, over the forward estimates period.

This bill provides an exemption for certain foreign non-portfolio dividends—that is, holdings of more than 10 per cent paid to an Australian company. The exemption helps ensure that offshore investments by Australian companies are able to compete on an equal footing with other businesses in that foreign country. We will modernise the foreign dividend exemption so that it is available to all Australian entities which are taxed as companies and that the exemption only applies to returns on instruments treated as 'equity interests' under the debt-equity rules. This is intended to broaden the exemption to apply in respect of a broader range of equity-like interests, rather than interests that involve significant voting rights and to exclude any returns on 'debt interests' from the exemption. By excluding 'debt interests' from the exemption, it also ensures the integrity of the thin capitalisation rules. That is the core to it. Obviously, the object of the foreign resident capital-gains tax regime includes ensuring that interests in an entity remain subject to Australia's capital-gains tax laws—if the entity's underlying value is principally derived from Australian property.

This bill will amend the income tax laws to improve Australia's foreign resident CGT by stopping double counting of certain assets under the principal asset test. This test determines an entity's underlying value is derived from Australian real property. By removing this double counting of assets, we will ensure that foreign residents' interest in an entity derives its value principally from Australian real property within Australia's tax net. Under Australia's taxation laws a foreign resident is subject to CGT only where the disposed asset is either a direct or indirect interest in Australian real property or where the asset is used in carrying on business through a permanent establishment—for example a branch—in Australia.

The amendments in this bill extend the original 2013-14 budget announcement to include interests in unconsolidated groups, as well as in consolidated groups held by foreign residents, to ensure the principal asset test operates as intended. We made the election commitment that from 1 July 2014 the ATO would begin issuing tax receipts under the Tax Commissioner's existing powers. The bill amends the tax laws to provide better transparency to taxpayers about how their tax money is spent. We will ensure this government is, and future governments for that matter are, held accountable for the way they spend taxpayer contributions and the debt they maintain. The tax receipts amendments in schedule 4 are of major interest to mum and dad taxpayers. These amendments ensure that future governments are obliged to continue what we began in 2014—issuing receipts to taxpayers to show how their hard earned tax contributions have been spent.

We went to the last election with four main pillars to our commitment to the Australian people. We said we would axe the bad taxes, such as the carbon and mining taxes; we said we would stop the boats; we said we would build the roads and the infrastructure of the 21st century; and we would fix the budget mess left to us by Labor. The carbon and mining taxes are gone, and we are seeing price relief from that coming through now. We have had one successful boat this year; Minister Morrison has led a team that means business, and we are now closing detention centres across the country. We said we would build the roads and infrastructure of the 21st century and, despite the member for Grayndler telling the country that all these projects have already been delivered, he was talking in the same sense as the aforementioned Paul Keating was about the l-a-w law. He may have s-t-a-r-t-e-d some of these projects, but he has not started any; he did not fund them; and he did not get the tender organised; he just a-n-n-o-u-n-c-e-d them.

We have to follow through on what the Treasurer and the Prime Minister have said about being open for business. We have to fix the mess. If you are saddled with interest and principal repayments, your cash goes to that, and your options are reduced. We do not have the cash at home to withstand international events. We must run tight fiscal policy if we are to be the responsible leaders of our community. Above all, we must respect the tax dollar given to us by the people of this country and we must make sure we take every step to ensure we do not miss opportunities which are fair and right and just to collect that tax.

This bill does not close every international tax loophole; it does not address every single issue that those opposite suggest that we should. What it does is set out the plan that we are going about in trying to rectify the budget mess with which we were left. What it does is say to the people of Australia that we are getting on with the business of government; we are opening our doors to opportunities for people to get on with their lives and to deliver for themselves the opportunity to create wealth and employment. That is no more and no less than the people of Australia demand of us. We must make sure that we use these things to do it properly, but we cannot simply go through and cut and rape and blast the place open. We are doing the calm, methodical job that the Prime Minister and the Treasurer said we would. You have seen what happened in Cairns on the weekend: we are talking to the world on so many fronts and we are doing the right thing. This bill goes about that part of the business. I thank the House.

Lisa Chesters (Bendigo, Australian Labor Party) Share this | Link to this | Hansard source

I do not believe there is an area of public policy that differentiates between Labor and the coalition more starkly than that of tax and tax reform. One side believes in tax reform that benefits the most wealthy; and we have seen that not only in some of the measures in this bill but also in their budget. We have also seen it in some of the measures that they have pushed through this parliament already. The other side, the Labor side, believes in a fair, sustainable and equitable system—not just because it is fair, sustainable and supports those on the lowest incomes but because by supporting those on lower incomes we also help grow our economy. To me, that is one of the fundamental differences between our side of the House and the other side. When you give tax breaks and tax reform to those on the smallest incomes, that money goes back into the local economy. Every single dollar that is put into a low-income budget is spent, because they need to spend it to survive, to make sure that they get food on their table and to make sure that they get their kids off to school. That does not happen when you apply tax reform to those at the highest end; their extra income just goes into the bank; it is put away for a rainy day. If you are serious about growing the economy and if you are serious about creating local jobs, then tax reform that supports those on the lowest incomes helps deliver that.

In the bills before us there are some sensible reforms, which we support, some silly reforms and some reforms that only tinker with the broader tax issues. Let us be frank: in relation to multinational tax avoidance, this is just another government stunt. It is a stunt to distract from its inaction on this issue and it is a stunt to distract from its unfair budget. The government wants to blame, and continues to blame, Labor for its tax increases and its attacks on low- and middle-income Australia. It continues to say that we are in debt and deficit over and over again like a broken record, but that is just a smokescreen for its real agenda—that is, its twisted priorities in supporting those at the highest end, instead of supporting those most in need at the lowest end.

Some of the changes that we have seen include tax of up to $6,000 a year on families. The burden of this budget is not being fairly shared. It is estimated that the $6,000 a year in tax will disproportionately impact families in our regional areas—regions like my own. Research shows that these attacks on income will see a single parent in the bottom quartile of income pushed further into poverty. I have seen this when people in my local community come to see me in my office. A single parent from Castlemaine walked in with her bills and said: 'I've got $2,000 worth of bills due. It does not matter how much I save, I literally don't have the capacity in my budget to pay them. Which bill should I pay, Lisa? I am going to have to ask family to support me.' That is part of the problem with this budget; it shifts the burden back onto those who are at risk and those on the lowest incomes. Those opposite are doing that by giving tax breaks and support to those at the highest end.

Another single parent who could be hit hard by the government's proposal to hit people's income by $6,000 said that she says to her children, 'Look, we can't go to that birthday party on the weekend.' The reason for that is that they cannot afford to buy a birthday present for the child whose birthday it is. These are real stories about real people in regional communities who are struggling—struggling to pay the bills and struggling to keep their head up. These are the people who will be hit even harder by the reforms of this government in its budget and in the bills and the measures that have been introduced.

An example of how our community understands the importance of ensuring that tax reform is targeted at those most in need is Country Cob Bakery in Kyneton. They fear every time the government talks about decreasing the pension, and they fear every time the government talks about winding back tax reform that helps those on the lowest incomes, because that is their customer base. Their customer base is people on the lowest incomes, people who come in and have a cup of coffee and a cake. When we attack those on the smallest incomes, we start to slow the growth in the community and we start to hurt those local businesses that rely on families with small incomes to survive.

Low-income households tend to spend every single dollar in their income, whilst high-income households tend to save as much as $1 in every $5. That is where this government does not understand that, if you want to get the economy growing, then the more support you give to those on the lowest incomes, the more money will be spent in our local economy.

This government's budget and its tax reform agenda are built on the flawed principle of giving support to those at the high end. That does not create the growth that we need to continue to ensure that Australians remain employed and that our economy grows. The redistribution of money from the bottom to the top as a result of this government's budget is just not fair; it is also bad for our economy.

Compare the government's agenda and its plan for our tax system and our economy to Labor's approach in government. It demonstrates, again, the difference between that side of the House and this side of the House. Labor was the government that tripled the tax-free threshold from $6,000 to over $18,000. It was a reform that rewarded hard work and put back into the pockets of low-paid workers money which they then spent. At the time that this measure was introduced, more than seven million people received tax cuts, with more than six million receiving a tax cut of at least $300. That money went straight back into the local economy, because we know that when you use tax reform and tax relief to increase the income of those on the lowest incomes—as opposed to those on the highest incomes—every dollar is spent.

Another example of Labor tax reform is in the area of wealthy self-funded retirees

The reform introduced by the former government said that those self-funded retirees whose income was over $100,000 a year were to pay some tax, but the tax rate was 15 per cent. That is the same as somebody who was on an income of $68,000. This was only on the amounts that exceeded $100,000 in a tax year. There are not too many self-funded retirees in the Bendigo electorate—in fact, across regional Victoria—that receive more than $100,000 a year from their superannuation. These changes addressed an anomaly that provided open-ended tax concessions for some of our highest income earners. The plan was that from this year superannuation payments of up to $100,000 would still be tax-free but after that those who are living on the highest superannuation incomes would pay some tax.

This is one of the first changes that this government made when they came in—an example of twisted priorities, of taking away a reform that would have seen people receiving more than that $100,000 paying some form of fair tax. This is the difference between our sides. One side is really helps their own—those on the highest income; whereas the other side tries to lift everybody up. This reform alone was subsidised by people on the lowest incomes. Pick any measure, whether it be their changes to the family tax benefit, whether it be the repeal and removal of super contributions up to 12 per cent, this government funded the tax change to self-funded retirees by taking from those on the lowest incomes.

Labor is committed to a fair and sustainable tax system—a system that provides incentives for all Australians to work, to undertake productive enterprise, whilst guaranteeing adequate revenue to provide quality public services and ensuring a more equal distribution of income and wealth. There are not too many people that you meet out there in community who do not believe in good, well-funded public services. People get that, particularly in regional areas. They get and want well-funded public services. Yet in this era of, 'Lets focus on smaller and smaller government,' this government is completely ignoring the wishes of the community.

In this bill Labor does support sensible measures but not the silly ones, sensible savings they do not unfairly impact those who can least afford it. Labor does support abolishing the mature age worker tax offset. It was actually a reform that was started by the previous Labor government, who commenced the phase-out of this particular tax offset. We need to increase the workforce participation of older Australians. What we also need to do, apart from this measure, is to start talking about jobs plan for older Australians. It is not enough to have this reform and then to offer money to employers to take on older workers; we have actually got to help create the jobs—the industries that will create those jobs.

What Labor does not support is the abolition of the seafarer tax offset. The abolition of the seafarer tax offset is the start of the coalition's attempt to remove the support that Labor put in place to revitalise Australian shipping. The object of this offset was to stimulate opportunities for Australian seafarers to be employed or engaged on overseas voyages and to acquire the maritime skills. That is what I am talking about when I talk about creating jobs plan, linking it in with these kinds of reforms that actually encourage and create opportunity and employment. Even before this offset is two years old the government is moving for its abolition. It must be given the opportunity to work, to give ourselves the opportunity to create those jobs, to create the skilled workforce that we need to maintain and expand our maritime skills base. Even the Australian Shipowners Association strongly oppose the abolition of this offset. Currently, companies who are eligible to claim the seafarer tax offset are saying this creates uncertainty. This will actually challenge their ability to ensure that they give opportunities to Australians first.

Fair tax reform will boost growth and our economy. Our tax system should be fair and sustainable. It should be a system that rewards hard work but at the same time guarantees that we have the revenue to provide those quality public services. We need a progressive tax system that ensures that those who can afford to pay more, do. We need to ensure that we have a tax system that is not focused on tax incentives for those at the highest income, whether they are working or whether they are retired. Public confidence in Australia's tax system depends on a simple and transparent tax system where everybody pays their fair share of tax.

Implementing important and fair tax reforms will improve competitiveness, will boost savings through superannuation, will make superannuation fairer, will signify personal tax and reduce barriers to participation in the workforce. We need to ensure that tax reform is focused on ensuring our system is fair and sustainable. We need a fair and sustainable tax system that encourages and provides incentives for people to work and to undertake productive enterprise. We need to ensure that there is a link between our tax system, our economy and between what we are introducing in future budgets between industry. But what we have seen from this government is an endless list of stunts. What we have seen is some small sensible measures that we support, some very silly measures and then some other measures that only tinker at the edges.

Andrew Laming (Bowman, Liberal Party) Share this | Link to this | Hansard source

I thank the member for Bendigo for her enlightening defence of the opposition's position! I thought she made a salient division between the silly and the sensible, only to undermine her argument by picking out what she thought was the sensible, and that was the payments to the maritime workers union as a way of retaining inflated wages for those working on Australian vessels, which in the end was futile, claimed for only about 250 workers and was done at a time when our maritime capacity actually shrunk by two-thirds. It is fascinating that she chose that as an example of sensibility while at the same time ignoring much of the bigger picture and possibly, I concede, more complex arrangements that she did not have talking points to deliver on.

Today I want to talk about two areas: thin capitalisation and foreign dividends. They are two really important areas. They will make a big difference. Let us take partisan politics out of this for a moment, despite the previous speaker, because this is an area where we fundamentally agree on making sure we have a fairer tax system. Particularly because we are a medium-sized, financially open economy we have to work assiduously to make sure that we collect the appropriate amount of tax for activities that are based here and are a result of work within Australia, but at the same time we cannot be overly draconian or we risk losing some of that highly mobile financial capital to other countries where they have more friendly tax arrangements. Walking that fine line is not easy. I concede it is quite complex. That is why we discuss these matters at the G20 and do not act unilaterally and spontaneously on some of these matters.

Both sides of politics have given this a crack and I think it is fair to say that both sides of politics could be doing more. There is more to be done but it is a technically difficult area and so I appreciate the time that is required. If you look at the heart of the effort that the Labor Party made in tax reform, you do not have to go far past Kevin Rudd's request of Ken Henry to do a review into Australia's tax system. At the time when we were seeing press releases from Kevin Rudd two or three times a day and then being reported verbatim by the press at the time, it seemed like just another gallant attempt to take on one of the great chestnuts in Australian policy by a Prime Minister who, at least in his own mind, was up to the task. When the Henry tax review was released we saw 128—if my counting is correct—recommendations to make Australia's tax system fairer and more effective. I think the Labor Party managed to respond to 1.5 of those 128 recommendations in some sort of policy action. Here was the great party of the Australian worker not just mesmerised but paralysed by the prospect and the complexity of tax reform. Yes, it was just all too much for the Labor Party.

The only thing they managed to have a red-hot go at was the mining tax. Why? Because that was a great way to target those nasty billionaires. It is always easy to hate the billionaires, isn't it? This comes back to the subtle subtext of the member for Bendigo, who when talking about the sensible and the silly was really effectively asking, 'How do I get an arrangement that allows easier transfers to the union movement?' While her speech may read well to her constituents in Bendigo, what I found most interesting was her assessment of microeconomics. The member for Bendigo said herself, 'The greater tax breaks you can give to low-income earners, the more money gets spent locally, because they spend it all locally.' I presume she was saying that poor people do not have access to the internet to do any online shopping. No. Let us get this quote right—poor people, in contrast to the wealthy, will spend it all locally. Her claim about 'wealthy' was most interesting. If you give any kind of tax break to the wealthy, that money she said 'goes away'. I am not quite sure where it goes, but she did say that it is put away for a rainy day. That was an incredibly insightful and educated explanation of what happens when high-income and low-income earners actually receive some form of tax expenditure from the government through a tax concession.

Let us go back to the bill. The bill does seek to take on a couple of the areas that will build well on reforms that were attempted by the previous government. They were in the general anti-avoidance rules, subsection 4(a). There was some concern on our side of the House about the possible retrospectivity of those, but they were passed into law. Secondly, transfer pricing was an area where the previous government focused. Today what we are looking at—and this is in addition to tax receipts, which I want to touch on briefly—are changing arrangements for profits that are brought back into Australia by Australian entities that own foreign subsidiaries and of course the thin capitalisation rules.

I will start with thin capitalisation. Increasingly over the last few years there has been an appreciation that entities are using large amounts of leverage with debt as a way of concealing the profits that they make through domestic activities. I will try to describe that. The sense was that the firms were borrowing large, funding some activity in Australia and using the costs of that borrowing as a way of hiding their domestic profits and then therefore the amount of tax that needs to be paid to Australia. By looking at what was an increasing tendency to use higher and higher amounts of debt, they have rightly used the safe harbour provisions to have the 60 to 40 ratio—that you can effectively borrow up to 1.5 times the amount of equity that you bring to an enterprise. They have also brought down the ceiling for financial entities from I think 20 to one to 15 to one. They seem perfectly reasonable because at the same time this government has acknowledged that we do not want to be interfering at the minima level for individual taxpayers who are engaging in debt related activities so we have raised the financial threshold where you activate these provisions from $1 million to $2 million. That allows individual taxpayers to be able to take out a loan without running headlong into these thin capitalisation provisions.

On another level we have the issue of foreign dividends. These are some clever arrangements where an entity purchases or moves into a foreign subsidiary and then, with these debt equity rules, by making equity look like debt they can get more friendly tax treatment at home. This is another clever way in which money can be basically repatriated to Australia as a result of your work overseas and, by making it look like debt, there is a way of disguising these dividends and making sure that you do not have to pay tax on them. Again it is not the provision of an eye surgeon, but there is an accountant down here, the member for New England, nodding his head telling me that I am not doing a bad job of explaining the challenge. In that respect also, there will be much closer scrutiny to make sure that we get what the Australian taxpayer deserves.

It is often forgotten that every time one offers a deduction that is effectively tax expenditure—it is money that you are passing up. It is often tempting when you have representations about making concessions on having to pay tax, but it is effectively tax that the nation will never see and effectively simply tax that we have to collect from somewhere else or offer fewer services. To that end, I want to finish on the general Labor Party approach to this area. Increasingly, there has been a general opacity in the way the Labor Party operate around how they collect their tax and how it is moved around to taxpayers.

The tax receipt notion of the coalition delivers on our election commitment to be transparent around not only where the money is collected but how it is spent—how it is broken down. What we are saying to a taxpayer—on this side of the chamber; you do not hear it from the other side—is: 'Thank you very much for paying tax. Thank you very much for the contribution you make. We don't hate you because you've earnt money and you are wealthy; we actually thank you for doing it.' We particularly say that to our net tax payers, who actually pay more in tax than they receive in dividends. I say to those people: I want to hug you. I want to say, 'Thank you for what you do for Australia.' What is the point of hating the very people who run the systems that make Australia such a great place to live? To those people who are net tax payers in particular, and even to low-income earners, who make their small but significant contribution, we need to be saying (a) 'Thank you,' and (b) 'This is what we are doing with your money. No, it's not our money. We know you earned it and we are giving it to someone else who didn't earn it. For that, we want to say thank you. For that, we are going to tell you how we spend it, where we are spending it, where it is going and the categories in which it is being spent. And, fundamentally, in situations where we couldn't raise it from a taxpayer because the Labor government didn't have the wit to find a way to raise it and instead took the easy option and financed these activities in debt, we will tell you how much debt was taken out and we'll tell you how much this debt costs.'

In the great, superficial world of the Labor Party, where you are simply pinching money from people when they least suspect it or borrowing it from overseas entities, in the Middle East and China, predominantly, the great day of payback will never come. Under the Labor Party's arrangements, where there were unlimited and unending budget deficits, the debt, as many up here in the gallery who have probably studied economics know, sequential deficits simply add to debt. Even at the moment, where we can bring Australia out of the spiral of increasing deficits—even at that point where we balance a budget—we have not started to pay off one cent of the debt because the debt has been racked up year after year from the moment you voted out a coalition government. It will stop being increased from when we finally can arrest the spiral, which at this point is 2017-18. That is our plan. I know there is not a lot of support on the other side of the chamber. We are intent on balancing the budget, but you need to know, from the pain of budget 2014, with everyone putting their shoulder to the wheel, and of subsequent years, we will only balance the budget, potentially, by 2017-18. Had we kept the Labor government in power, there was simply no chance of even arresting the death spiral into debt.

This brings us into the debate about whether our debt-to-GDP ratios are (a) any larger than other economies or (b) growing at a rate, which is the issue, faster than other economies. It was not that we had not racked up enough debt—no, we did not have a Labor government in there long enough to do it. That is why we do not have a lot of debt. What we did have was debt increasing at an alarming speed, and that is the underpinning of the budget emergency. It was a government where, no matter what it told you about getting into surplus, it was patently obvious to everyday Australians that that was never going to happen because it is beyond Labor's capabilities to say no to someone who holds out the hand seeking somebody else's money. For that reason, what we saw was not only consecutive budget deficits, despite the rhetoric, but no hope in the forward estimates that Labor was ever going to pull Australia as an economy out of the death spiral.

What we are talking about here are two significant measures to take Australia along the road to reducing profit shifting. It is an important step. I concede that there were steps taken by the previous government as well. Together with Australia's chairmanship of the G20, we can look to agreements being struck between major economies, which in the end is the only way that we can genuinely, without creating sovereign risk, ensure that we have profit shifting brought to an end globally.

Jim Chalmers (Rankin, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition) Share this | Link to this | Hansard source

To those who have joined us in the gallery, who have maybe come from all corners of the country and perhaps waited in line for their big chance to listen to a speech in the chamber, I apologise that you had to listen to the member for Bowman in your one visit to this place. Much of what he said was rubbish.

Like the member for Bowman, my colleague the member for Bendigo and others, I rise to speak today on the Tax and Superannuation Laws Amendment (2014 Measures No. 4) Bill and the Tax and Superannuation Laws Amendment (2014 Measures No. 5) Bill 2014. Characteristic of these kinds of pieces of legislation, they are taken together into a bit of a grab bag of measures, but together they make a number of changes to the legal framework underpinning the tax and superannuation system, including, for the sake of completeness: enacting the tightening of the thin capitalisation rules announced by the previous Labor government; enacting reforms to the exemption of foreign non-portfolio dividends, again as announced by the previous government; abolishing the mature age worker tax offset; abolishing the seafarer tax offset; reducing the research and development tax offset; and a number of other mechanical changes to the tax and super laws, including what I think is a fairly obvious stunt, which is changing the way that tax receipts are presented to individuals. I will consider these policies individually shortly, but it is first worth touching on the government's general approach to taxation and budget repair.

The May budget showed that the government have pretty twisted priorities when it comes to fixing what they call the budget emergency. That is effectively a con, but they do have a fairly unusual and unfair way of going about repairing the budget as we go forward. The biggest problem we have with the budget, as we have said in this place time and time again and as my community is certainly telling me—I am sure the member for Lingiari has had the same experience; I am sure everyone in this House has had people come up to them and tell them this—is that this budget is grossly unfair. That is why people have rejected it in such overwhelming numbers. It is unfair because it targets people on low and fixed and middle incomes. It asks the most vulnerable in our community to do the heaviest lifting, and that is why those opposite have had no success whatsoever in finding community support for it.

My community is Rankin, south of Brisbane, comprising a big chunk of Logan City and some surrounding Brisbane suburbs. The Courier-Mail did an analysis to find the hardest hit community in Queensland and, unfortunately, it is my community of Rankin. It is the hardest hit by the combination of pension cuts, cuts to family payments, cuts to tax breaks for low-income people, the GP tax, the petrol tax and more. This would be bad enough on its own, but what really rubbed salt in the wound for a lot of people in my area is that, at the same time that the government is taking money from people on low and middle and fixed incomes, it says it has enough money to give $50,000 to some of the wealthiest people in our community just to have a baby. It has found money to give superannuation tax cuts to the 20,000 wealthiest people in the superannuation system. It is also reopening $1.1 billion in tax loopholes that multinational companies rely on—and we will get into that in a bit more detail in a moment.

You can see that one of the reasons this budget is such a stinker in the community—not just in my community but right around the country—is that it asks the vulnerable to do the heavy lifting, and it gives new entitlements. We are supposed to be ending the 'age of entitlement', in the Treasurer's words. He gives new entitlements to some of the wealthiest people in our community.

We have heard a lot of bluff and bluster, by the Treasurer, out of the G20 finance ministers meeting about tackling profit shifting and base erosion. All are words, he said, we can sign up to. It is important that we tackle this issue. The Labor government—which I worked for, for a time—did take some steps. They were part of this G20 OECD agenda about base erosion and profit shifting, and we agree this is a substantial problem that needs to be tackled. The unfortunate thing is that the Treasurer's words are far from the reality of the government's actions.

The two measures introduced in this package that we are debating were announced by Labor. They are, unfortunately, a drop in the ocean compared to the full suite of measures needed to properly combat multinational profit shifting. It is a big problem. We have had numerous examples in the mainstream media of companies that are making billions of dollars here in Australia and paying a negligible amount of tax. That is as a result of some of the substantial loopholes and practices that have developed over time. What they are doing is not illegal, but it is doing real damage to our bottom line, and there are big holes in our revenue system when companies can take advantage of us in this fashion.

The previous Labor government closed-up loopholes worth about $5.3 billion. In the 2013-14 budget alone we were taking substantial steps to ensure that companies which made money here from our citizens were also paying the right amount of tax, or more tax, a just level of tax, here in Australia. There was a lot more work to do at the international level as well. Particularly disappointing was that when the Abbott government came into office one of the first things they did—at the same time as they were saying there was a budget emergency—was reopen two loopholes worth $1.1 billion to the Australian people, which allowed multinational companies to engage in the sorts of practices Labor was cracking down on.

This shows that the government is not serious about making multinationals pay their fair share of tax. We get all the flowery words and bluff and bluster from the Treasurer, all the grandstanding at the G20 level, but we do not get the action here at home. If they were serious about it, they would not have reopened those two loopholes on the biggest multinational companies in the world. The government is going ahead, thankfully, with two of Labor's profit-shifting measures in this legislation, including a change in the debt-limit settings, as they apply to the thin-capitalisation rules. Once again, this is only one aspect of Labor's intended thin-capitalisation reforms, but it is better than nothing.

Thin capitalisation, as other speakers have tried to explain, refers to a tax-minimisation strategy employed by multinational companies operating here in Australia. Under this strategy, companies allocate a disproportionately large amount of debt to their Australian operations to claim excessive debt deductions here in Australia, thereby reducing their taxable income. Because the Australian operations may be funded by excessive debt, compared to the capital raised in Australia, a company employing this strategy is said to be 'thinly capitalised'.

Multinationals have an incentive to place large amounts of debt on their Australian arms because generous deductions for interest can offset their tax in Australia, where deductions are more valuable than in low-tax jurisdictions or tax havens. Thin-capitalisation rules operate by disallowing a proportion of otherwise-deductible debt related expenses where the debt in Australia exceeds certain limits of debt as a proportion of equity.

Since these rules were introduced in 2001, during the days of the Howard-Costello government, data analysis has shown that the allowable gearing ratios were far too generous and much higher than the general gearing level of corporates with independent financing arrangements. This legislation implements Labor's recommendation in the 2013-14 budget that the maximum statutory debt limit for general entities be halved from 3:1 to 1.5:1, and from 20:1 to 15:1 for non-bank financial entities. On top of this, to reduce compliance costs for small business, this legislation implements Labor's recommendation to raise the de minimis—or minimum—threshold for thin-capitalisation limits from $250,000 to $2 million of debt deductions, ensuring that well-meaning small businesses are not caught up in the net.

These changes, along with related amendments to the exemption for foreign non-portfolio dividends as they interact with the thin-capitalisation rules, are worth more than $750 million to the budget bottom line. These still pale in comparison to the full suite of reforms that Labor would have introduced had it got up in September last year. The total cost of the squibbed multinational profit-shifting reform has been estimated at $1.1 billion, which, as the Member for Fraser has observed, is more than enough to fund a new regional hospital. We support the thin-capitalisation rules in this bill but we must observe that there is a huge lost opportunity here. This is why I support the second reading amendment moved by our side of the House.

The next issue in this package of legislation is the abolition of the mature age worker tax offset, or what people call the MAWTO. The MAWTO is a $500 concessional tax offset that is intended to provide an incentive to mature-age workers to remain in the workforce. It is a very noble objective. In principle, and given the ageing of our population and all the challenges that brings, it is crucial that we have effective measures to encourage mature-age employment. They have to be effective and they have to be cost effective.

It is something that Labor governments have a strong track record on, this idea of encouraging older Australians to stick around in the workforce, be that part-time or otherwise. We did introduce a range of measures, including the Productivity Ageing package, which provided additional training and financial incentives for employers hiring older Australians. It is also why the last Labor government funded the Blueprint for anageing Australia report, spearheaded by a really great Australian, Everald Compton. His report was unfortunately defunded by the Abbott government in November last year.

Characteristically of Everald, he found another way to provide this important advice to do this important work. He does not quit easily, Everald. He is a good friend of both sides of this parliament. I want to congratulate Per Capita, one of the progressive think tanks in Australia, for finding the opportunity to engage Everald so that he could conclude and complete his important work. Everald launched his report a few Wednesdays ago at the National Press Club.

In his report, Everald and the panel had several prescient recommendations, including having a government minister for ageing—something that Labor had throughout its most recent term in government, but which was notably excluded by the Abbott government. Everald's panel also had the right idea when it comes to engaging mature workers in employment for longer. His idea is that vocational education and training to re-skill and transition older workers is the key. We need not just wage subsidies and tax offsets like the one we are debating today, but real, genuine lifelong learning so that the skills that older Australians have in the workforce remain relevant and that the workers remain competitive, have the ability and resilience to adapt, and that we have dynamism that is necessary for the modern Australian workforce.

The MAWTO at present is not well understood and is not sufficient incentive for mature Australians to re-enter employment. That is why the former government commenced the phase-out of the MAWTO in the 2012-13 budget, limiting it to taxpayers born before 1 July 1957. The idea is that this money, worth $760-or-so million over the forward estimates period, can be better spent on targeted programs to return mature people to employment.

We also need to consider these types of measures in the context a broader suite of things. It pains me to say that we are making these decisions in the context of the retirement incomes system being attacked through the slow-down of the increase in the contribution. Other funding for seniors concessions has been scrapped and there have been pretty draconian cuts to the pension.

The next issue in this package of bills is the seafarers tax offset and the reduction of the R&D tax offset. I will be a bit briefer with these. Labor will not support the abolition of the seafarers tax offset or the reduction of the R&D tax offset. We believe in the Australian shipping industry and we want opportunities for Australian seafarers employed or engaged on overseas voyages. Australia has the fourth largest shipping task in the world, and companies in the industry are strongly supportive of this offset.

Labor will continue to advocate for the shipping industry, rather than support the coalition approach of walking away from practical action to save jobs and defend Australian skills. In a similar vein, we will not be supporting the reduction of the R&D tax offset either, which has been justified with reference to the reduction in the company tax rate. In government, Labor reformed the R&D tax incentive to make it an offset rather than a credit, for exactly this purpose—to decouple the R&D tax incentive from the corporate tax rate.

I could go on about those measures but I will not, because I want to touch briefly, in the time remaining, on what I think is a stunt over the tax receipt. It is worth mentioning this obvious distracting stunt contained in this legislation. It is something that the government announced on a slow news day when there was nothing else that they could think of. The government will require the Taxation Office to issue receipts that have been described by other speakers. Labor will always welcome genuine measures to improve transparency, but this particular measure is a partisan thing. It is something that they hoped—unsuccessfully—would distract from the rest of their budget.

Barnaby Joyce (New England, National Party, Minister for Agriculture) Share this | Link to this | Hansard source

Cunning!

Jim Chalmers (Rankin, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition) Share this | Link to this | Hansard source

It was a cunning stunt, as the member for New England said. I will get him on the Hansard record!

Labor will be voting in favour of these bills, but not without first expressing our concerns about this government's underperformance in addressing multinational profit-shifting, about their lack of support for Australia's shipping industry and about their interest in stunts, rather than real reform. For this reason, I will be supporting the amendments moved by our side and will continue to support greater action, in particular on that crucial issue of multinational profit-shifting.

Michael Sukkar (Deakin, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on this package of bills. I have been listening intently to the member for Rankin's contribution. It is always easy being an armchair expert. After six years in government and delivering the five biggest deficits we have ever had, it is very easy for the member to sit back and claim that the former government had a path to eliminating multinational tax avoidance. If it was so easy, jurisdictions around the world would not be grappling with these issues, as all jurisdictions are. So it is obviously ridiculous for the member for Rankin to claim that it was stitched up, and that the package of changes that the Labor government had proposed would, for all time, end multinational tax avoidance. Somebody with such little credibility should not be listened to.

The two aspects of the No. 4 bill that I would like to talk about revolve around the proposed thin capitalisation changes and the changes to foreign dividends. I note that the member for Rankin also criticised those changes, but the opposition is going to support them. I thought that was quite interesting. It is always difficult, in a world of mobile capital, to strike the right balance between ensuring that we have an effective and efficient tax regime and ensuring that we do not disincentivise multinationals from investing in our country. In my former life as a tax lawyer, the thin capitalisation rules were something that every single multinational taxpayer had to think about. Contrary to the contributions of those opposite, the thin capitalisation rules, when they were first introduced by Treasurer Costello in 2001, were really put in place to set a cap on which a company or a multinational could be capitalised in Australia before debt deductions were denied. It is a tool that can be used to impact multinational tax avoidance but it was not necessarily the primary reason for it.

The changes in schedule 1 to the bill tighten the debt limit settings in the thin capitalisation rules to ensure that multinationals do not allocate a disproportionate amount of debt to their Australian operations. It also increases the de minimis threshold to minimise compliance costs for small businesses. This is a really positive change. Businesses that do not have a debt deduction above $2 million do not need to think about the thin capitalisation rules. That is a really outstanding measure to try and encourage small to medium offshore companies looking to set up in Australia to do so.

In schedule 1 to the bill we introduce a new worldwide gearing debt test for inbound investors. In my view, it is one of those tests in practice that have been more susceptible in the past to being abused. These measures have strong links with the government's initiative on base erosion and profit shifting. We have seen the outstanding work that the Treasurer has done with the G20. Contrary to the member for Rankin's contribution, it is tough work and it is difficult getting jurisdictions with very different tax regimes together to agree on just about anything. It is really tough. I take my hat off to the Treasurer for doing such an outstanding job thus far with respect to the G20.

In respect of these initiatives, we believe that the current thin capitalisation rules are too generous compared with the actual borrowing levels of companies with truly independent arrangements. Other speakers have, in a sense, spoken about the evolution of those debt levels that companies and multinationals have had over the last 13 years of the thin capitalisation regime. It also addresses our view that ultimately base erosion and profit shifting are eroding our corporate tax base and, therefore, penalising all other taxpayers, because for every dollar we cannot collect from a multinational is, quite frankly, a dollar that we need to collect from other taxpayers.

In our view, taxpayers who genuinely require higher borrowings will continue to have these recognised through the operation of the arms-length test. Irrespective of the safe harbour rule in the thin capitalisation rules, if there are really good commercial reasons that fit into your industry profile for a multinational, or any company, to carry debt above the thin capitalisation levels, to the extent that that can be objectively proved, a company can carry that debt. These changes are really an outstanding way to address them. I think they strike a balance.

The changes to the debt-to-equity levels that are allowable, as other speakers have mentioned, reduce the maximum statutory debt limit from three to one to 1.5 to one for general entities, general taxpayers, and from 20 to one to 15 to one for non-bank financial entities. I think these changes strike a sensible balance. Again, it is not as simple as the Labor Party would make out—that you just bash multinationals over the head and tell them that they cannot deduct any debt in Australia. That would obviously have a devastating impact on our economy. Unlike the armchair experts opposite, we actually have to come up with sensible changes.

Schedule 2 of the bill amends some aspects of section 23AJ, which is an exemption for foreign non-portfolio dividends by Australian companies. In our view, it amends the exemption to address a flaw in the system that effectively allows the exemption to apply to a debt instrument and, in effect, to ensure we have greater integrity in the thin capitalisation system. So, rather than focusing on voting interests of a particular interest that an Australian entity might hold in a foreign entity, it will look at the participation interest. I think that is sensible and I would say most corporations and tax advisers would believe that that is a very sensible change. However, at the same time we do not want to impact Australian companies expanding offshore. It is absolutely outstanding for our great Australian companies that are the best at what they do—and many of them are iconic. We want them to set up offshore and we want to ensure that we have a tax system that can appropriately cater for the fact that in many cases those Australian companies will need to raise debt in Australia in order to fund offshore expansions or acquisitions. The Labor Party in some way thinks that in a perverse way we should whack these Australian companies, but these Australian companies are a success story. So I think the changes to section 23AJ, or the non-portfolio dividend exemption, strike that sensible balance.

Schedule 3 ensures that foreign resident capital gains tax regimes operate as intended, by preventing the double counting of certain assets under the principal assets test. I will not go into that in much detail. I do not think it is controversial, but it cleans up some issues that have been really there since the foreign resident CGT regime was put in place. The foreign resident CGT regime basically tries to have the effect that a foreign entity pays tax in Australia if it is making a gain on the sale of Australian real property even though it may not have a tax presence in our country.

Schedule 4 to the bill is an outstanding piece of policy. The Labor Party have criticised it and the member for Rankin criticised tax receipts. What is wrong with telling the Australian people and outlining to them in a transparent way where their tax dollars go? I think it probably highlights the divide between both sides of the House. I believe that government expenditure is ultimately taxpayers' money that they have entrusted us with that we have spent. I get the impression that many people on the left of the Labor Party think that is the government's money. But if you come at it from where I believe is a sensible starting point, which is we are spending taxpayers' money on their behalf, it absolutely makes sense for us to be extraordinarily transparent with those taxpayers on where their money is going. I heard the member for Rankin criticising this policy. Taxpayers would be wise to be quite suspicious of anybody that criticises this form of transparency. What is wrong with this parliament, in a very clear way, letting Australian people know where their money goes?

The tax receipt will include a notional breakdown of the taxpayer's personal assessment into various categories of government expenditure, and those will be decided by the government of the day. But those categories and those breakdowns will be things that the Australian public, and Australian taxpayers, will be entitled to scrutinise. Approximately 10 million taxpayers will receive a tax receipt for the 2013-14 financial year. Like the member for Bowman, I think it is a nice way of saying thank you—thank you to those 10 million taxpayers for everything they do in funding all of the necessary aspects of government activities and, in an egalitarian society, helping people who are less fortunate and who need that support; in many cases, only for short period of time. Most of those taxpayers will have received some help in their life from other taxpayers, and then they get to a point where they start giving back and providing help to others. I think that saying thank you, in the form of a tax receipt and transparency, is a good way to go.

In respect of the other bill in this cognate debate, the Tax and Superannuation Laws Amendment (2014 Measures No. 5) Bill 2014, I will, just quickly in the remaining time, touch on three aspects of this bill. And again, I think this is sensible tax policy. Schedule 1 of the bill abolishes the mature age worker tax offset from 1 July 2014. As members opposite have noted, the Labor government started to phase out the offset by restricting access to it for taxpayers born before 1 July 1957. We have accepted that the mature age worker tax offset is complicated. It is not really well understood and, in our view, it is not a cost-effective way of encouraging continuing engagement in the workforce by mature age workers. Importantly though, savings from abolishing this offset will be redirected to the government's new seniors employment incentive payment, called Restart. This payment will provide a clear, long-term incentive for employers to hire and retain mature age Australians, and to help them overcome discrimination. In this sense, Restart is a subsidy of up to $10,000 and it will be available to employers who hire a mature age job seeker aged 50 years or over who has been receiving income support for a minimum of six months. The Restart program will help mature age Australians to re-enter the workforce. Around 32,000 mature age job seekers per year are expected to benefit from the subsidy. I think that redirecting the lost revenue from the mature age tax offset to the Restart program is an outstanding policy, and will ultimately help us reach the objective of more senior Australians in work.

Schedule 2 has been spoken about. It is abolishing the seafarer tax offset, which provided a refundable tax offset to Australian shipping companies for certain salary and wages of seafarers. I think it benefited a couple of hundred seafarers. This really was just a part of Labor's shipping reforms—which were really just a sop to the Maritime Workers Union. And that is why, ultimately, this is bad policy and needs to be abolished.

Finally, schedule 3 to the bill amends the Income Tax Assessment Act, to reduce the rates of tax offsets available under the R and D tax incentive. The refundable and non-refundable tax offset rates will be reduced by one-and-a-half percentage points: from 45 per cent to 43½ per cent, and from 40 per cent to 38½ per cent, respectively. These changes are really just consistent with the government's commitment to cut the company tax rate.

This is ultimately a broad package of changes in the bills before us today. It cleans up a lot of the issues that are legacy problems which were not dealt with by the former Labor government, and I think it is good tax policy for the country.

Stephen Jones (Throsby, Australian Labor Party, Shadow Parliamentary Secretary for Regional Development and Infrastructure) Share this | Link to this | Hansard source

I rise to speak on the Tax and Superannuation Laws Amendment (2014 Measures No. 4) Bill 2014. There are four parts to this bill which is before the House today; two of which Labor supports, and two of which we cannot support. This is in complete contrast to the member for Deakin—who has spent, out of 15 minutes, the best part of 30 seconds talking about what is probably the most important part of this bill: the abolition of the seafarers offset, which he sought to dismiss because somehow it provided a benefit to workers who also happened to be union members. It just goes to show how far members of the government will go to drive jobs offshore, but it also shows what a very clouded view members of the government caucus have not only of economic policy but also of how to introduce policy for the betterment of ordinary Australian workers.

There are four parts to the bill. We will support two of them. We will support the mature age worker tax offset; in fact, in office we started the process of abolishing this, by a number of measures. In our view, it is a high-cost method of boosting older workforce participation, and can be done more effectively through other means. We will also support, obviously, the updating of the conditions relating to deductible gift recipients. These updates by way of legislation are generally bipartisan propositions, and I see no reason to depart from that today. Those will have our support as well.

We will not be supporting the changes to the R and D offset, because we do not think they are in the public interest. We certainly will not be supporting the changes to the seafarer tax offset, and I would like to put a bit of context around that. The bill seeks to abolish the offset, and it does this as a bloody-minded attempt to pull apart the previous Labor government's shipping policy reforms which were contained in the Stronger Shipping for a Stronger Economy package of measures. It is the start of the coalition's systematic attempt to dismantle historic reforms that were put in place to strengthen and revitalise the Australian shipping industry. It has probably been the most significant overhaul of the Australian shipping industry in over 100 years—so it beggars belief that those opposite are coming in here today and advocating the dismantling of these important reforms. In 2012, a bloke who spent most of his life at sea and knows a fair bit about the Australian industry, Paddy Crumlin, had this to say: 'This, without doubt, is one of the most important days in Australian maritime history. It marks the day that Australian shipping was saved from near death.' He was referring to the stronger shipping reforms, the package of bills introduced into this House by the member for Grayndler and former minister for transport and infrastructure—a package of bills that was welcomed by industry and literally gave us the chance to save our maritime industry.

It is worth reminding the House that at that time we were in a position where over the past decade the Australian shipping fleet had gone from 55 ships to 21, with only four operating on international routes. Today there are only four ships operating on international routes, principally in the LNG trade. In a country where 99.9 per cent of our trade is moved by ships, without any action we were going to be left without an international shipping fleet and we were going to be at the mercy of the rest of the world. You have to ask yourself, when we put so much effort into negotiating new trade agreements with other countries, why we would be neglecting the essential link in that chain—our own domestic shipping industry.

Labor wanted to see a bright and prosperous future for shipping in Australia, and the coalition wants to walk away from that. That is entirely consistent with about 80 years of coalition history. The one constant from that spat-wearing Londoner, Stanley Melbourne Bruce, as a former Liberal prime minister of Australia, right through the generations of conservative prime ministers to John Howard and the reign of his minister who did a lot of interfering in this area, Peter Reith, to Tony Abbott, the Prime Minister today, is an absolute hostility to Australians working on the ships that move in and out of Australian ports. The one thing they have been absolutely consistent with is their hostility to a domestic maritime workforce. The policies you see before you today are a reflection of that hostility. We saw it just now in the brilliant contribution from the member for Deakin, who dismissed this important piece of economic policy merely because it provided a benefit—a job—to an employee who happened to be a member of a union. For that reason and that reason alone, those opposite seek to dismiss it as having no benefit to the Australian economy and as something that warrants dismissal and removal.

Let us have a look at the cost of this seafarer tax offset. The seafarer tax offset is absolutely critical to the maintenance of the international register—it is the critical link in the chain. For this offset to occupy so much time here in parliament, and for it to enjoy the hostility it has received from members opposite, you would expect it to be a massive drain on the public purse over the forward estimates years. The cost of the measure which is going to decimate the capacity of Australian workers to work on ships sailing in and out of our ports is $8 million over the forward estimates. When you understand that, you understand that it is nothing short of ideology and utter contempt for Australians working on the ships that ply our coast that has led to this measure before the House today. We oppose it—we will oppose it here and we will oppose it in the Senate, and we will do that because that is in the interests of Australian workers.

Barnaby Joyce (New England, National Party, Minister for Agriculture) Share this | Link to this | Hansard source

Deputy Speaker, I rise on a point of order. For the record, Stanley Melbourne Bruce was not in the Liberal Party. He was a Nationalist, and he was in the United Australia Party.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

I thank the minister. The member for Throsby has the call.

Stephen Jones (Throsby, Australian Labor Party, Shadow Parliamentary Secretary for Regional Development and Infrastructure) Share this | Link to this | Hansard source

I am pleased to see that the member opposite who has made the interjection and then walked out of the chamber has access to Google. It took him all of about five minutes to be able to access Google and work out that Stanley Melbourne Bruce was indeed a member of the United Australia Party, the progenitor of the Liberal Party of today. But the point remains the same—the absolute hostility of conservative members of this parliament from the 1930s to today to Australians working on ships that come in and out of our ports.

The object of the seafarer tax offset was to stimulate opportunities for Australian seafarers to be employed or engaged on overseas voyages and to acquire maritime skills. Now, even before the offset initiative is two years old, when it has hardly had the opportunity to stretch its legs, they are moving to scrap it because of a massive $8 million drag on the budget over the forward estimates! You have to ask yourself where the priorities are. It is going to have a devastating impact on the electorates that have ports and are reliant on maritime trade, particularly international maritime trade. I represent such an electorate. The port of Port Kembla directly employs more than 3,500 people and contributes around $418 million to the Illawarra economy every year. Make no mistake about it—this will have an impact. We need a vibrant shipping industry, and we need it in my electorate and in places like the Illawarra, whose economies are going through a transition. We are going to be relying on a viable maritime sector and a viable port sector to regenerate the Australian economy. But we want to ensure that as the port expands there are Australians working on the ships that come in and out of those ports.

The seafarer tax offset has already helped to reduce the operating costs of Australian vessels; we know that. It has increased the competitiveness of Australian shipping and has provided significant opportunities for the employment of Australians in international trades. The Australian Shipowners Association—and I had the pleasure of meeting with Teresa Lloyd, their executive director, earlier today—are pulling their hair out over this. They cannot see the sense of it. And they have been very critical over the years of a number of initiatives of members of this side of the House, but they are absolutely in lock step with us in opposing this proposition, because they can see the fact that this is going to decimate the capacity of Australian workers to compete and to work on those international voyages. The shipowners association has come out strongly against it. They are saying that it is reckless, that it is needless, and that without the offset it is significantly more expensive to employ Australians overseas. They know what is going to happen: jobs are going to be lost. It is as simple as that.

In the time I have left I want to make a few points about the importance of ensuring that we maintain a vibrant shipping industry in this country. Anybody who knows anything about the shipping workforce knows it is an ageing workforce. If we do not move now to ensure that there are replacement workers who are going to be regenerating the maritime industry workforce and if we do not move now to ensure that we maintain the skills, not only for domestic voyages but international voyages, then we will lose those skills forever. These are not things that you can turn on and off like a tap. So, in a country with over 99 per cent of its trade coming in and out of our ports—and in a parliament that gives bipartisan support to the importance of free trade agreements, international trade and ensuring that we are connected to the world—why on earth would any member stand in this place and vote for a proposition that is going to undermine that most important link in the chain: the capacity for Australians to be working on ships that ply our coasts and ply the international trade routes and to ensure that we have a skilled workforce, that we have an experienced workforce, that we have a vibrant Australian maritime workforce? This is one of many measures put in place as part of the maritime reform package. It is reckless. It has no drag weight on the budget whatsoever. All right-thinking members of the House should reject it, and I call upon the government MPs to do exactly that.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Parliamentary Secretary for Foreign Affairs) Share this | Link to this | Hansard source

I support the reforms contained within the Tax and Superannuation Laws Amendment (2014 Measures No. 4) Bill 2014 relating to the tightening of debt limits in the thin capitalisation rules to ensure that multinationals do not allocate a disproportionate amount of debt to their Australian operations. But in terms of the cognate bill—the No. 5 bill—we in the Labor Party are opposed to the abolition of the seafarer offset—for reasons I will outline in a moment—but also the research and development tax incentive change and the decoupling of the link with the reduction in the company tax rate.

The government has shown a significant gap between its rhetoric and its actions when it comes to ensuring that multinationals pay their fair share of tax within Australia. I had to laugh when I read in the papers that at the first meeting of the G20 some months ago Australia's focus was going to be on ensuring that multinationals were not corporate profit shifting—that companies that are based in Australia and other nations throughout the world should pay their tax in the source country where the income is derived. I laughed because of course when Labor was in government, going back to 2012, Labor sought to introduce a number of reforms that would have added revenue to the Australian budget to the tune of $1.1 billion and were aimed at cracking down on this exact issue of multinational corporate profit shifting. The Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013, introduced by the then Assistant Treasurer, David Bradbury, went to that precise issue. It contained amendments to the general anti-avoidance rule, known as part IVA, and the transfer pricing regime. The reforms were two key weapons in the fight against base erosion and profit shifting, and they would have helped protect the integrity of Australia's income tax system and made sure that large-tax payers—multinational corporations—paid their fair share of tax right here in Australia, where they derived those profits, rather than shifting some of that profit to other nations where there were tax havens.

One would have expected that the opposition at the time would have supported a positive reform like that—one that adds $1 billion to the bottom line in Australia. But my staff and I had a good chuckle when we had a look at the result of the division on the Tax Laws Amendment (Countering Tax Avoidance and Multinational Profit Shifting) Bill 2013 in the House of Representatives. We were rather surprised to find out that those who now occupy the government benches at the time voted against this particular reform, for no apparent reason other than it was the ethos of the then opposition to simply vote against everything the Labor government put before the House. As a result, the bottom line in the Australian budget has suffered to the tune of $1.1 billion in forgone revenue, which is now being made up by cuts to other services, to education, to health, and to the ABC and SBS, and in changes to the pension. So Australia is paying in other ways for the significant gap between the rhetoric and the actions of this government.

Every dollar that is avoided by multinational companies must be paid for by Australian taxpayers and businesses, or by cutting services. With this budget we have seen which side the government is on. It is on the side of the big companies. When you look at some of their budget outcomes you can see that they are certainly not on the side of the battlers.

Labor supports sensible savings measures that do not unfairly impact on those who can afford it the least. Labor will be supporting the abolition of the mature age worker tax offset. Labor has a strong record of increasing workforce participation for older Australians. While in government, Labor introduced a number of measures, including the Productivity Ageing Package, which provided additional training and financial incentives for employers hiring older Australians. It was actually the previous Labor government, in its 2012-13 budget, that began the process of the phase-out of the mature age worker tax offset, limiting it to taxpayers born before 1 July 1957. That measure had an estimated $255 million gain in revenue over the forward estimates period. This is a reform that Labor is happy to support, given that we began the process when we were in government. Also, we are committed to measures that support older Australians who wish to work.

But wage subsidies, which this government is offering in the form of a $10,000 payment, are not enough. Labor knows that a comprehensive mature age employment agenda needs a comprehensive suite of measures. That is why we established the seniors work bonus, increased the superannuation guarantee, established an age discrimination commissioner, reformed the age pension to make it strong and sustainable, and set up the advisory panel on positive ageing.

I respect of the research and development tax incentive and reducing the rates of the refundable and non-refundable tax offsets, Labor has a strong history of supporting research and development in Australia. This stands in contrast to the government's attacks on science and research with their cuts to the CSIRO and to university funding associated with research. And, quite simply, this government does not even have a science minister, which clearly demonstrates their lack of support for research and development and an emphasis on scientific research in this country. In respect of the changes to the offset, Labor has some concerns in that the level of the R&D tax incentive is determined by the R&D rate and the company tax rate, together. As company tax is being reduced to 28.5 per cent, maintaining the current R&D rate would effectively increase the subsidy. Companies will already receive a benefit from the reduction in company tax, so this reduction should not reduce overall R&D expenditure, as the size of the subsidy is maintained.

But there is a potential timing issue with the R&D tax incentive reduction occurring one year earlier than the cut in the company tax rate. When Labor in government changed the R&D tax incentive arrangement from a tax credit to a tax offset, one of the reasons we did that was to increase the certainty by uncoupling the level of R&D support from the corporate tax rate. This proposed change undermines that uncoupling and raises an expectation that every time there is a change in the corporate tax rate we would see the incentive adjusted accordingly. Labor has concerns with the manner in which this particular element of the reform has been introduced.

The No. 5 bill also seeks to abolish the seafarers tax offset. The objective of this offset is to stimulate opportunities for Australian seafarers to be employed or engaged on overseas voyages and to acquire maritime skills. Even before this offset is two years old—it has only been in existence for close to two years—the government is moving for its abolition. We believe it must be given an opportunity to work, because Australia needs to maintain and expand its maritime skills base. Labor will oppose this measure on that basis. The tax incentive was one of several that arose from a lengthy industry consultation that led to Labor's shipping reform package. This package commenced in July 2012 and has been operational for just two years. After 100 years of interactive change, this major reform should be allowed to work. The current government should promote the reforms, which, of course, it is not doing. Australia is an island nation. One-tenth of the world's trade goes to or from Australia, and Australia has the fourth largest shipping task in the world. So we need to be supporting jobs for Australian seafarers and maritime workers. That is exactly what this particular tax offset did.

We know that the coalition is soon going to try walking away from supporting Australian coastal shipping, opening up the coast to an increasing number of foreign vessels and to Third World wages. It is bad for safety, it is bad for our sensitive maritime environment, it deprives us of the skills needed to maintain security in our ports and harbours and it makes related activities, like shipbuilding and ship maintenance, less viable, and weakens our long-term naval capacity.

The Australian Shipowners Association, the industry body for this sector, strongly opposes the abolition of the seafarer tax offset. They say that the offset was a key element of the 2012 reforms, that it helped to reduce operating costs on Australian vessels, that it increased the competitiveness of Australian shipping and that it provided significant opportunities for employment of Australians in international trade. The impact of the abolition on future opportunities will be severe. It again demonstrates this government's lack of commitment to building a sustainable and strong domestic shipping capacity in Australia. On that basis, as I mentioned earlier, Labor will be opposing this element of the No. 5 bill.

Labor is committed to finding savings within the budget. We demonstrated that during our period in government. We have demonstrated that in putting before this parliament specific reforms aimed at improving the bottom line of the budget. One area of reform we put forward was in the area of corporate profit shifting—something, again, that was opposed by the current government when in opposition. We are pleased to see some of the reforms that Labor commenced in government forming part of this bill, but we do not support the changes to research and development and the changes to the seafarer offset.

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

The government, in its zeal to balance the budget, never looks to those who are most able to afford it. The top end of town, the wealthy miners, the resource companies, the banks—we never see them being asked to pay a bit more to help balance the budget. It is always everyone else who is asked to share the burden. In this legislation we see measures that, even while only offering very small savings, are going to affect people's livelihoods and jobs—and that are going to affect the future growth of industries that will sustain this country when the mining boom is over and the rest of the world tells us to stop digging.

One of the measures contained in the Tax and Superannuation Laws Amendment (2014 Measures No. 5) Bill 2014 is the abolition of the seafarer tax offset. This offset provides a rebate to an employer of Australian seafarers for withholding tax paid on the wages and salaries of those seafarers while on overseas voyages. The object of the offset is essentially to encourage a domestic shipping industry—and employment in that industry—by making the employment of Australian staff on ships no more burdensome than employing someone from another country. The seafarer tax offset goes some way towards stimulating employment of locals in the sector. The offset for the employers who do the right thing and employ locals is significant for them. It might mean the difference between employing a local or employing someone from another country, perhaps a country that does not have the same standards of employment that we enjoy in Australia—our minimum wages or our safety standards.

The cost of the seafarer tax offset to the government, on the other hand, is small. Even though the benefit of the offset is large and helps employment, the cost to the government is small. We are looking at a cost of $8 million over the forward estimates. The budget papers state that the government will achieve savings of $12 million over three years but that in underlying cash terms the saving is $8 million over the forward estimates period. For the sake of $8 million, why is this government prepared to make it more difficult for people who operate ships in and around Australia to employ Australian crew? It is an ideological tack—nothing else. For the sake of $8 million, which is less than a rounding error in the context of four years of the budget, they are prepared to threaten the ability of companies to employ local labour at a rate that is competitive with overseas labour.

Also in this bill is another attack by the government on research and development. Our Prime Minister's views on science—and in particular his view that the science of climate change is 'crap'—are well known. It seems that this attitude to science is to be demonstrated yet again through a reduction in the research and development tax incentive. The countries that are going to do well in the 21st century are those that invest in innovation and research and development. Australian is never going to be able to compete with China or India on wages. It is a losing game for us to try to do that. What we can compete on is our brains and our innovation. What we need to do is not only properly fund research at our universities and through our research councils—something that the government is intent on attacking—but encourage the private sector to invest in research and development as well. On the whole, Australian does poorly when it comes to involving people with PhDs in private sector research and development. We rank quite low. There is also the perennial complaint from companies that good ideas get developed in Australia and then they feel that they need to move overseas because other countries will provide a much more supportive ecosystem for their research and development.

One of the good things that we have in this country is the R&D tax incentive which encourages companies to direct money that they might otherwise spend elsewhere into research and development. What the government wants to do in this bill is reduce the rate of the tax offset that is available under the research and develop tax incentive by 1½ percentage points from 1 July 2014. The government's justification for it is that it is okay because at some later stage it is going to reduce the company tax rate by 1½ per cent as well. I disagree with that. But if that is what the government wants to do, isn't it incredible that it is prepared to say it will cut your tax rate at some time in the future but it is going to cut your benefits now?

For the sake of $620 million, the government is prepared to diminish this country's investment in research and development. When you put this side by side with $111 million in cuts to CSIRO and the 20 per cent cuts to university funding, you can see why, under this government, 'science is crap' has become a mantra. It has become their guiding principle that underlies this budget and this legislation. This is the most antiscience government we have seen for a while, and now we are seeing it flow through to a tax on research and development.

One of the other elements of this bill that would not be supported, from our perspective, is the mature age worker tax offset. This is a measure that, at the moment, provides an incentive for workers to stay in the workforce. This was introduced in 2004-05 and it is worth up to $500 a year for individual mature age workers. The government says we can do this because we are now providing an incentive to employers to continue to employ people. But there is a difference because that money that they are providing to employers is not necessarily going to find its way into the pockets of these people who stay in the workforce—that is, it will go to the employers but not necessarily to the employees. So, yet again, we have the prospect—it is a bit like the R&D tax cut—of, 'Trust us, we might give you some benefit in the future, but we are going to take away the benefit you have got now.'

That is not the way to balance the budget. If the government were serious about balancing the budget, it would look to those who can afford it the most and ask them to pay their fair share. As it is, we know that this government is turning its sights on the young, the old, the sick and the poor. We are now finding it turning its sights on companies that invest in R&D and companies that try and do the right thing by employing local workers to work on ships surrounding Australia. For those reasons we are not in a position to support the bill.

Bernie Ripoll (Oxley, Australian Labor Party, Shadow Minister Assisting the Leader for Small Business) Share this | Link to this | Hansard source

It is a pleasure to have a few minutes to make some comments on the Tax and Superannuation Laws Amendment Bill 2014. In particular, this bill has five schedules which tighten the debt limits settings in the thin capitalisation rules to ensure that multinationals do not allocate a disproportionate amount of debt to their Australian operations. There is a range of other reforms, including reforms exempting foreign non-portfolio dividends, amendments to the Income Tax Assessment Act to ensure that foreign resident capital gains tax operates as intended and a number of other miscellaneous amendments to the taxation and superannuation laws.

The good thing about these is that they were done under Labor. It is Labor that did the work, and there was a whole package of measures on multinational tax avoidance, in particular. It is work that was done by former Assistant Treasurer David Bradbury when we were in government which is exceptionally important not only to the tax revenue base for Australia but also the way that our tax system operates fairly for all Australians. While it is good to see that the government is taking up some of these measures, you would have to say that it has been late in coming. We are more than 12 months into this new government and it is work that was already done, work that had taken some time to develop. But it is good to see that the government is now bringing that forward.

Unfortunately, the government is not fully implementing these measures. As such, this is costing the budget over $1.1 billion over the forward estimates. That is a substantial amount of money. That is a huge loss to the Australian taxpayer and something that should not be lost. We think that the government has got this wrong. The government should be going further. There are no excuses not to follow through on the good work that was done by Labor when it was in government. Labor always welcomes genuine measures to improve transparency, but we should see things as they are in what is being put forward. Some of the measures being put forward here are a stunt, pure and simple. The timing of some of these things and what the government is doing are certainly part of a distraction from the government's very unfair budget. It is a budget that decreases the tax intake that you might have had in revenues if it had followed through fully on Labor's multinational international tax avoidance measures that we were putting in place. It also disadvantages lower and middle income Australians, particularly when it comes to superannuation and a range of other measures.

It has been said—and I have spoken on these matters many times—that the people that are hurt most by the government's budget are the lowest income workers, particularly women, who will not benefit from, for example, the low income superannuation contribution. This includes around 2.1 million working women in the country, all of whom are low income earners but would benefit the most. In this place, you often hear people talking about the ageing population and talking about how we have got to look forward and how we have got a look to the future so we can support more people to be independent in their retirement. Labor had those policies and measures in place. So it is not as if we are talking about something that was not done. It was something that was already there. But we see a government that has come in and has taken those measures away.

The other bill has four components to it: abolishing the mature age worker tax offset, abolishing the seafarer tax offset, reducing the R&D tax offset and updating the listing of deductible gift recipients. Some of these Labor will support, but there are some things that we think that, again, the government have got completely wrong and we will not be supporting them.

Bruce Scott (Maranoa, Deputy-Speaker) Share this | Link to this | Hansard source

Order! The debate is interrupted in accordance with standing order 43. The debate may be resumed at a later hour. The member for Oxley will have leave to continue his remarks when the debate is continued.