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

Labor's position is to support this bill, which enacts two tax changes announced by the former Labor government. Schedule 1 amends the treatment of earn-out rights associated with the sale of a business to allow the holder to defer their capital gains tax liability until the accurate financial value of those rights is known. This measure was first announced in the 2010-11 budget.

Schedule 2 introduces a new withholding tax requirement for those purchasing Australian property from foreign residents. Purchasers would be required to withhold 10 per cent of the purchase price and pay this to the Commissioner of Taxation to assist in meeting the foreign residents' capital gains tax obligation. While the first schedule was announced by the former Labor government, the second schedule was first announced in the 2013-14 budget.

Labor will always support sensible revenue measures which improve the budget bottom line without harming vulnerable Australians. The Labor Party has a strong and ongoing commitment to bringing the budget back into balance by sensible measures, including sound revenue measures such as these. 'Treasurer 2.0', Scott Morrison, is on record saying Australia has a spending problem, not a revenue problem. Yet he is now canvassing a 50 per cent hike in the GST rate. Claiming spending is the problem and then proposing GST tax changes that hit hardworking families is dangerously out of touch with economic reality.

A suggestion to the Treasurer from this side of the House could be that he might get around to releasing the tax white paper promised to the Australian people within the first two years of the government. Instead the government launched its 'Re:think' discussion paper, and then after business and community groups had spent thousands of hours and millions of dollars putting together their submissions to the 'Re:think' discussion paper the entire process has been junked. Now who knows when we are going to get the tax white paper. Indeed a timetable for the green paper, which would normally precede a white paper, is still up in the air. The government is at sea on tax reform. Good tax reform is hard. It requires more than smoke signals and thought bubbles about jacking up the GST. The impact on business and consumers needs to be fully fleshed out.

Returning to the specifics of the bill, former Assistant Treasurer Nick Sherry said when proposing the changes in schedule 1 that the measure will make it easier to buy and sell businesses. Capital gains taxation on earn-out requirements should not add inefficiency to the marketing of business assets. Earn-out requirements are an efficient and regularly used way of structuring business or business asset sales. Such requirements are commonly entered into when the buyer and seller are not able to agree on a fixed price for the transaction because of uncertainty as to the value of assets such as goodwill. Say, for example, that I were to purchase a small business from the honourable member for Cook for $1 million. He has a cost base of $600,000 and thus makes a capital gain of $400,000. However, as goodwill is an intangible asset—and he would know that more than most—I agree to give him an extra $100,000 a year if sales exceed an agreed upon threshold. The total capital gain would then be calculated using this earn-out pay-out, backdated to the point of the original sale. A reverse earn-out agreement follows a similar logic. The honourable member for Cook would repay amounts to me if an agreed performance threshold is not met within an agreed time frame—an arrangement which the Australian people might well be interested in engaging in with the member for Cook if his performance targets continue to be as they have been over the last few months!

The compliance measure in schedule 2 of this bill would impose capital gains tax withholding obligations on the purchasers of certain Australian assets. Although foreign residents have been subject to taxation on capital gains made when disposing of a taxable Australian property, voluntary requirements meant compliance was low. Given the non-resident status of the sellers, this made compliance a particularly difficult task for the Australian Taxation Office.

Talking about the resources available to the tax office, I should note that Labor favours a stronger compliance regime, better transparency and an appropriately staffed tax office. We welcome the changes in schedule 2 but they are overshadowed by the slashing of 4,700 jobs in the tax office. It beggars belief that the government can usher in compliance changes announced by the former Labor government yet completely undermine the ability of the tax office to make sure this regime is monitored effectively.

As housing prices continue to rise in Australia's largest cities, so too will the number of eligible properties. This measure applies to properties worth more than $2 million, and there will be an increasing number of properties in that range on the market. When buying from a foreign resident, the purchaser will be required to pay the Commissioner of Taxation 10 per cent of the purchase price to meet a portion of the foreign resident's capital gains tax obligation. The purchaser may then withhold an equivalent amount from the seller. The withholding can be claimed as a deduction by the seller when completing the required income tax return. If they fail to do so, Australians have the comfort of knowing that at least a portion of the capital gains tax obligation has been paid.

When we were in office, Labor pursued significant responsible changes to Australia's tax regime, recognising that, in a complex and fast-moving business environment, government needs to adapt what we do to make sure the revenue base is sustained. In 2013 the then Treasurer Wayne Swan and Assistant Treasurer David Bradbury announced a $4.3 billion multinational tax package. Labor's package changed the allowable debt-to-equity ratio for companies claiming a deduction. It tackled offshore marketing hubs and closed other loopholes that let companies shift their profits offshore.

One of the coalition's very first acts on coming to office was to trash $1.1 billion of those tax changes, effectively giving a $1.1 billion tax break back to some of the world's biggest firms. Like a fish out of water, the Abbott-Turnbull government has flip-flopped on small business measures. Labor introduced an instant asset write-off scheme, allowing small business to immediately deduct the cost of new assets and equipment. Treasurer Hockey scrapped it and then brought back a larger but temporary measure that is due to expire next year. I suspect many of those firms that supply assets to small businesses are wondering what is going to happen to the pipeline of demand for their capital goods when the instant asset write-off suddenly ends at midnight on 30 June 2017. That is what happens when you structure policies based on the political cycle rather than focusing on the economics first.

From opposition, the Labor Party has announced a range of measures that improve the budget bottom line, without a regressive GST hike. Indeed our policy changes, amounting to some $70 billion over the course of the next decade, constitute the most significant package of economic measures to be proposed and costed from opposition in over 20 years. Starting with superannuation, Labor's superannuation changes will yield $14.3 billion in the first decade of operation. Superannuation tax concessions overwhelmingly go to those Australians who are in the highest income brackets, and it is those concessions that we are seeking to scale back for a fairer retirement system.

The government's own Financial System Inquiry found that 10 per cent of Australians receive 38 per cent of our super tax concessions, with a majority of concessions accruing to the top 20 per cent of income earners. Indeed, the top one per cent get a larger share of superannuation tax concessions than the bottom 40 per cent. We have superannuation tax concessions, because two positive externalities result from people who put money in superannuation. One is that they are less likely to draw on the age pension. The other is that there is a public benefit from a pool of national savings. But that second public benefit is considerably smaller than the first, and we should be careful about providing overgenerous tax breaks to people whose superannuation balances clearly indicate that they will never be in the range of applying for even a part pension.

Labor has proposed two significant ways of reining in superannuation tax concessions. The first is to reduce tax-free concessions for people with annual superannuation earnings of more than $75,000 during retirement. Earnings above the $75,000 threshold will attract the same concessional rate of 15 per cent that applies to earnings in the accumulation phase. So, it is still a good deal to have your money in super. Earnings above $75,000 in the retirement phase are simply treated the way all earnings are treated in the accumulation phase.

Our estimate is that about 60,000 superannuation accounts with balances of over $1.5 million will be affected. Capital gains will be grandfathered, and the policy will have no impact on the basic income test to the age pension. We will also remove the 10 per cent tax offset for the defined benefit superannuation scheme incomes above $75,000.

Secondly, we will reduce the higher income superannuation charge threshold. When in government, Labor introduced the higher income superannuation charge, which lowered the tax concession available to incomes above $300,000. Lowering the concessional rate to higher income earners better aligns concessions with those available to lower and middle incomes. We propose to lower the threshold from $300,000 to $250,000.

I note in passing that it is a key priority of Labor to see greater gender equity in the superannuation system. We noted with great disappointment an early decision of the coalition government to scrap the low-income super contribution, a measure that affects around three million Australians on low wages, two-thirds of whom are women. Anyone who is serious about gender equity in superannuation should have shaken their heads at this government's ill-conceived decision to scrap the low-income super contribution.

In the area of multinational tax avoidance, Labor has a fully costed $7.2 billion multinational tax package that contains a range of measures that are carefully calibrated to raise revenue without hurting growth. We propose to amend the current debt deduction rules. We will scrap the two rules that lack strong economic intuition and will keep the one that does. Under Labor's proposal, the worldwide gearing ratio should be the sole debt deduction test. That essentially says to companies, 'Look, if you owe a lot of money to the banks then you should be able to deduct a significant amount of money from your Australian operations, but if you don't owe a cent to the banks then don't think you can profit shift through internal debt.' Internal debt has a place, but invariably one notices, looking at the borrowing patterns of multinationals, that they tend to follow a pattern whereby the borrowings are made in the higher-tax jurisdiction and from the lower-tax jurisdiction. Better aligning our debt deduction rules is in line with work that has been done by the OECD and represents a measure that still provides business with certainty. The measure that Labor proposes to allow companies to deduct debt under already exists in our tax laws; we simply propose to get rid of two out of three of the debt deduction rules.

Labor proposes to better align Australia's rules on hybrid entities and instruments with tax laws in other countries. Currently some companies can effectively 'double dip' by claiming tax exemptions in one country and tax deductions in another, because some countries treat hybrid instruments as equity and others treat them as debt. Companies are looking around the world to see how different tax authorities behave, and it makes perfect sense that the Australian tax office itself should be allowed to look at how its counterpart organisations in other countries treat a hybrid instrument. The ATO should not be blind to the tax treatment of hybrid instruments in other countries.

Australia also needs a better resourced tax office. Stronger compliance measures proposed in Labor's package will ensure that we add significantly to the bottom line. By contrast to this government, which has cut 4,700 jobs from the tax office, severely hampering compliance efforts, Labor will make sure that the tax office has the resources it needs in order to crack down on multinational tax avoidance.

Disappointingly, the government has been dragging its feet on tax compliance initiatives. We welcome the government's introduction of the Common Reporting Standard for sharing tax information with other countries, but Australia is starting much later than the rest of the world. In the past two years Labor has repeatedly called on the Abbott-Turnbull government to join around 40 other advanced countries that will start exchanging information next year. By contrast, Australia, under the Abbott-Turnbull government, proposes not to begin exchanging information until late 2018 for the accounts of individuals and until 2019 for accounts of corporate entities, effectively putting off the exchange of information until the election after next. Labor believes that the exchange of information ought to happen as soon as possible—that Australia should be moving with the rest of the advanced world, not sitting up the back and dragging its feet. It is extraordinary to see the gulf between the government's rhetoric about tax reform and the reality of having produced only a tax discussion paper which now has been junked by the incoming Prime Minister and Treasurer.

Compare and contrast that to what Labor did in government. Labor gave every Australian a tax cut by raising the tax-free threshold from $6,000 to $18,200. It was a Labor policy that not only cut taxes but also reduced paperwork burden for around a million Australians. The government likes to talk about cutting red tape but what better red-tape reduction could there have been than tripling the tax free threshold and saying to a million Australians: you do not have to file a tax return. For a typical Australian it takes around eight hours to prepare their tax return. So, effectively, Labor's measure gave a million Australians an extra public holiday every year. Labor also delivered three rounds of income tax cuts to low- and middle-income Australians.

By supporting this bill, Labor are demonstrating that we are always willing to have a serious and constructive conversation about tax reform. The government are welcome to join us, but so far we have seen them failing to adopt Labor's proposals regarding multinational tax avoidance or rein in unfair and unsustainable superannuation tax concessions. We know that a majority of Australians oppose an increase to the GST. The majority of Australians recognise that a 50 per cent hike to the GST is not tax reform, that it is lazy—as a former Treasurer once said—'bang you over the head' tax reform. It is an attack on the household budget of low- and middle-income Australians and a measure which will not only worsen inequality but also hurt growth.

Australians will remember that when the GST was introduced in the year 2000 the economy almost slipped into recession. That is because household spending makes up about three-fifths of the Australian economy. Add to this the fact that we have got slipping consumer sentiment. We have had a 3½ per cent fall in the Westpac-Melbourne Institute Index of Consumer Sentiment. We have got jitters on global stock markets, with some losing around a tenth of their value this year. Australians will recall Japan's experience in 2014 of raising their consumption tax from five per cent to eight per cent and sending a fragile economy back into recession, as a result of a two per cent drop in consumption.

What is extraordinary about Treasurer Morrison is that he says that he wants to 'protect consumption'. Raising the tax on consumption is a funny way of doing it. You would have to think that, if you are going to raise the tax on consumption, you are going to get less consumption. That was the experience of Australia when we introduced the GST. It was the experience of Japan when they hiked the GST. The government like to say that they believe in boosting growth. We heard the member for Wannon on radio this morning saying that the key to tax reform is boosting growth. He is a GST spruiker, who is arguing that if we were to raise the GST and cut income taxes that would deliver a growth dividend. I would urge the member for Wannon to have a look at his government's own Re:think discussion paper. It is a discussion paper which looks at the growth drag of the GST and income tax and which finds that the growth drag, which economists call the deadweight cost of both those taxes, is about one dollar in five. The best estimate from Treasury is that, if you raise $5 of revenue from the GST, the cost to economic activity is about $1. If you raise $5 of revenue from income tax, the cost to economic activity is about $1. So I would like to know how the member for Wannon thinks there is going to be a growth dividend from hiking the GST and cutting income taxes. In fact, their own modelling suggests that that would have no benefit to growth whatsoever, but it would certainly worsen inequality. We know the proportional impact of the GST is nearly twice as high for the poorest fifth as for the richest fifth, and that is because the poorest fifth are not saving. In fact, they are often net borrowers, whereas the richest fifth are saving about a quarter of their incomes. So the GST is a regressive tax that does not boost growth.

We also have the small matter of compensation. We have the Treasurer claiming that the government's plan is not to increase the tax share. Taken literally, it means that not a dollar of increased GST revenue could be returned in pension increases or family benefit increases. If you take just one dollar of additional GST revenue and put it back through higher household payments, you have raised the tax share. So, if Treasurer Morrison is to be believed, the impact of a GST hike would be devastating for Australian pensioners, who would see the cost of many of the things they buy go up by five per cent but who would get not a dollar of household compensation. If that is wrong, if in fact Treasurer Morrison does not know what he is talking about and there are plans to compensate people on fixed incomes, then in that case do not go around the country telling us you are not planning to raise the tax share, because you clearly would. Either this government's GST rise will not compensate people on fixed incomes or it will increase the tax share. You cannot have both.

Jacking up the GST is not real tax reform. Hitting household budgets while refusing to make big companies pay their fair share is not real tax reform. It is simply going soft on the strong so you can go hard on the weak. The measures in this bill are measures that Labor can support, because in at least one case they are measures that originated under Labor. If only we had a government that was willing to apply this approach more broadly, engage with Labor over our fair and sustainable revenue and tax measures and recognise that we can make sensible and targeted cuts to the slush fund for polluters through not instituting the baby bonus, through cigarette excise, through multinational taxation and through changes to our unfair and unsustainable superannuation tax concession system. If we do that, we would be able to reduce inequality and raise growth—unlike increasing the GST, which would hit growth and worsen inequality.

In closing, I move the second reading amendment that has been circulated in my name:

That all the words after "That" be omitted with a view to substituting the following words:

" while not declining to give the bill a second reading, the House condemns this Government ' s failure to pursue real tax reform and instead hit families with a higher GST. "

Sarah Henderson (Corangamite, Liberal Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Gary Gray (Brand, Australian Labor Party, Shadow Minister for Resources) Share this | Link to this | Hansard source

I second the amendment.

Sarah Henderson (Corangamite, Liberal Party) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Fraser has moved as an amendment that all words after 'That' be omitted with a view to substituting other words. If it suits the House I will state the question in the form that the amendment be agreed to. The question now is that the amendment be agreed to.

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

It is always a pleasure to follow the member for Fraser and to listen to him wax lyrical about Labor's record in government and their plans for this utopian future in which increasing taxes across the board will solve all of the ills in our economy. What we did not hear the member for Fraser say in his contribution is that they are actually going to reduce the tax burden on the Australian economy. All he talked about was increasing taxes. It would be worthwhile for the member for Fraser to remember—he was in this House when this occurred as he came in in 2010 when I did—that the increase in the tax-free threshold to $18,200, just to refresh your memory, Member for Fraser, was because of the introduction of the carbon tax. So it was no magnanimous gesture on the part of Labor when they were in government that they would increase the tax-free threshold to $18,200; it was because of the compensation for the carbon tax. It was this government—

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

It was textbook tax reform.

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

It was not tax reform. When we came into government, we abolished the carbon tax and left the tax-free threshold at $18,200. That is genuine tax reform and compensation for the Australian people. The other interesting comment the member for Fraser made was when he touched on the fact that the top 10 per cent of income earners receive approximately 38 per cent of superannuation concessions. What he failed to mention in that contribution, which is much more relevant because it is a much higher figure, is that the top 10 per cent of income earners in this country pay approximately 50 per cent of all income tax. So the notion of equity that he talks about when he only focuses on part of the equation is disingenuous in the extreme.

I will now return to the substance of the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Bill 2015. I rise to speak in support of bill, because it introduces amendments to our taxation laws to improve the operation of our capital gains tax regime. One of the focuses of this government has been looking for opportunities that simplify our tax system and make it easier for compliance to be achieved.

I readily acknowledge that the measures in this bill were two unenacted measures left by the previous government. If they were such good measures, as the member for Fraser has told us in his contribution today, the question becomes, 'Why didn't the previous government enact them?' But, just like many things of the previous government, they were left half done or not done at all.

If there is one thing Australian small businesses deserve, it is certainty and clarity. In my electorate of Forde, where we have more than 11,000 small businesses, it is important we provide legislation that helps our businesses invest, grow and create more jobs. We can best achieve this by reducing red tape and compliance costs that our small business sector frequently struggles with. We want small business to be able to be confident in making their investment decisions.

Schedule 1 of this bill clarifies the treatment of earn-out arrangements by making any financial benefits payable under such rights part of the original value of the business or business asset for capital gains tax purposes. This makes enormous sense, because you never know at the original settlement time of the sale of the business, if there are earn-out rights attached, what the ultimate value of those earn-out rights are going to be.

Earn-out rights involve the sale and purchase of a business or business assets where the value of the underlying asset is uncertain. Earn-out rights can create flexibility and address uncertainty for purchasers and sellers of business assets and are a legitimate and efficient way of structuring the sale of a business to deal with the uncertainty about its value.

A draft ruling by the ATO specified that an earn-out right is a separate and distinct asset from the underlying business and must have its market value estimated for capital gains tax purposes. However, as I have touched on just before, the market value of an earn-out right is very difficult to quantify as there is no liquid market available to price the right, and it is dependent on the unknown future performance of the underlying business. In addition, a seller may not be able to assess certain capital gains tax concessions that are relevant.

Treating the earn-out right as a separate and distinct asset from the business itself resulted in significant complexity and additional compliance costs for businesses that use earn-outs. The complexity of the current operation affects the ability of businesses to efficiently price their business assets and, following concerns expressed by stakeholders with this treatment of earn-out arrangements, the previous government, to their credit, announced capital gains tax look-through treatment for these earn-out arrangements.

Providing capital gains tax look-through treatment for earn-out arrangements will allow taxpayers to disregard the earn-out right itself, while making any earn-out payments part of the original value of the business or business asset for capital gains tax purposes. This will result in payments made under the earn-out right being added to the capital proceeds or the cost base of the original sale through amendments to the taxpayer's tax return for that period. By providing the look-through treatment to earn-out arrangements, the government will help provide certainty and clarity for businesses entering into earn-out arrangements as well as protect any entitlements they have to small business capital gains tax concessions.

Australian businesses are expected to have a net reduction in compliance costs from the measures in this schedule as it simplifies the system and the market value of the earn-out right no longer needs to be estimated at the time of sale. This is another example of our government's commitment to improving legislation for business, reducing the costs of compliance and uncomplicating tax measures. The amendments made by this schedule will apply to all earn-out arrangements entered into after 23 April 2015. Importantly, to protect taxpayers who have in good faith anticipated changes to the tax law in this area as a result of the announcement by the previous government in 2010, the measure also includes protections to preserve their current tax outcome.

Schedule 2 to this bill introduces a new collection mechanism to support the operation of Australia's foreign resident capital gains tax regime. Foreign residents who dispose of certain Australian assets—broadly, direct and indirect interests in real property—are liable to pay tax on capital gains. The Australian Taxation Office has indicated that foreign residents' voluntary compliance with our capital gains tax regime is poor. In addition, there are difficulties in the ATO undertaking effective compliance after a transaction takes place, given the funds would likely be offshore and the foreign resident may otherwise have little connection to Australia.

Australian property investors are required to pay capital gains tax on the profits from an investment property sale. Many of these investors are mums and dads on median incomes who are putting these investments towards their retirement. They are required to pay capital gains tax, and do so when completing a tax return. It is unfair that they should be held to account on paying this tax when foreign residents avoid their responsibility of complying with our capital gains tax regime.

The schedule seeks to address these difficulties associated with collecting tax from foreign resident taxpayers. Originally announced in the 2013-14 budget by the previous Labor government, the government announced it would go ahead with the measure on 6 November 2013. Our government is committed to ensuring that foreign residents investing in Australian real property comply with their Australian legal obligations, and this measure is consistent with that effort. It is also consistent with efforts by this government to ensure that multinational companies comply with their tax obligations. It is interesting to note that the member for Fraser in his contribution waxed lyrical about Labor's plan for multinational taxation, yet in the whole six years of government they did nothing and when we introduced our multinational tax package towards the end of last year they voted against it. They can wax lyrical about multinational tax and foreign tax but this was a policy of theirs yet they never did anything. They also talked about multinational tax but, as usual, did not do anything. It is this government that is putting the time and effort into making the changes to protect and increase the integrity of our taxation system.

The schedule in this bill also complements recent changes to Australia's foreign investment framework to increase scrutiny and transparency with respect to foreign investment in residential real estate. Under this measure, where the seller of certain Australian assets is a foreign resident the buyer will be required to withhold and pay to the ATO 10 per cent of the purchase price. Withholding regimes are a common part of Australia's and other countries' taxation systems. Countries such as the United States and Canada have similar withholding tax regimes in place to support their foreign resident capital gains tax requirements.

Broadly, this measure applies to transactions where a foreign resident disposes of direct or substantial indirect interests in Australian real property. Australian residents and foreign residents should be on a level playing field when it comes to meeting their tax obligations. The measure does not apply to direct real property transactions below $2 million, in order to appropriately target those areas where revenue is at greatest risk and minimise the impact on other property transactions.

Foreign resident sellers will no longer have the full amount paid to them until they lodge their tax return under this new measure. It requires the buyer of such property to withhold and remit to the ATO the 10 per cent withholding amount. The government, through the Australian Taxation Office, will continue to work with industry to assist them in preparing for the commencement of this measure. Once effective, it will prevent foreign residents from avoiding paying their fair share of capital gains tax when selling real property in Australia. They will be on a level playing field with Australian residents, and the measure will ensure that our capital gains tax regime is fair and sellers from overseas meet their obligations. This is another bill in a long list of bills that demonstrate the government is ensuring the integrity of our taxation system for all concerned.

Tony Zappia (Makin, Australian Labor Party, Shadow Parliamentary Secretary for Manufacturing) Share this | Link to this | Hansard source

I support the second reading amendment moved by Labor's shadow Assistant Treasurer, the member for Fraser, who spoke just a few minutes ago on the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Bill. This legislation enacts two changes that were previously announced by the Labor government. The member for Forde asks why we did not enact these changes when we were in government. The Labor government enacted over 500 pieces of legislation, I believe nearly 600, in its term in office. It was almost a record amount of legislation. The parliament has only a certain capacity to deal with matters and there are always priorities. Nevertheless, these were matters raised by the previous Labor government.

There are two schedules to this bill. One effectively deals with capital gains tax liability and the other deals with capital gains tax obligations on foreign residents, where 10 per cent of the sale of a property will be withheld until the capital gains tax issues have been finalised. In my view, both of these measures are sensible. The first will cost the government and the budget bottom line some money but the second will save some money for the taxpayers of this country. I think that is fair and reasonable, given that it is obvious that there are foreign investors who are gaming the capital gains tax system in Australia at the moment.

The legislation is before us because the government has a budget problem: it simply cannot balance its books. The deficit is projected to blow out to $38 billion by the end of this financial year, and that is after the government has made substantial cuts to just about every policy area and every department of government: $80 billion of health and education cuts; $11 billion cut from the foreign aid budget; $1 billion or thereabouts from the research sector; industry assistance has been decimated—about $1 billion has also been cut from that; we saw over $1 billion cut from local government assistance grants; and then we had another $1.3 billion cut from pensioner concession payments made to the states. In addition to that, there have been cuts to the ABC of about half a billion dollars; social welfare pension disability reforms which effectively reduce the amount of money that is going into social payments around the country; and then, only in December, when we had the MYEFO statement handed down, we saw another $650 million of health cuts to pathology and diagnostic imaging services—cuts that will hit the lower income people of this country the hardest and will hit people who are already not only on low incomes but perhaps facing serious health problems. They are cruel cuts that any decent government would never implement.

It is no good—as the Prime Minister continues to do and as we saw him do in question time only this week—to continue to mask the government's incompetence by blaming the previous Labor government for the financial position we are in. This government has been in office now for 2½ years. In fact, this is an election year and we are almost at the end of this government's term in office. It is time that they took responsibility for their own actions, for their own policies and for their own mismanagement of the economy, rather than continuously try to blame it on the previous Labor government. It is not washing anymore with the Australian voters. It is wearing thin with them because they know that there comes a time when governments need to take responsibility for their own incompetence and their own actions.

The truth is that it is this government's own foolish policies that have contributed to and largely caused the financial mess it is in. Turning its back on industry, attacking Public Service jobs and other government institutions, creating job insecurity and taking away workers rights do nothing to raise confidence or strengthen the Australian economy. So the government then looks to more cuts.

Rather than cuts, the government should look to a more equitable tax system, a tax system that ensures that all taxpayers pay their fair share of tax—something that the Turnbull government dances around but does little about. Indeed, it is clear that it seeks to protect large corporate entities and other high-income earners from being scrutinised. Only last month we had a tax commissioner's report released. From that report we learn that, out of 1,539 of Australia's largest corporate entities, 38 per cent did not pay any tax in 2013-14. Of those 1,539 entities 985 are foreign owned, and those 1,539 entities had a combined turnover of $1.6 trillion—that is, $1,600 billion. They also made a significant profit—$169.9 billion—and they paid a combined amount of tax of just $39.9 billion. That is a tax rate of less than 25 per cent. Notably, the 579 local and foreign based companies that paid no tax had a combined turnover of $405.9 billion and a taxable income of $4 billion. That is, 579 companies pay no tax, yet they have a taxable income of $4 billion. It is no wonder that ordinary taxpayers and people around Australia are angry about the tax system which allows people earning that kind of money to not pay tax.

The figures are confirmed in several other reports that have identified the level of corporate tax being evaded or avoided here in Australia and around the world. The Tax Justice Network has been particularly focused on global tax avoidance or tax minimisation schemes and the additional burden that tax avoidance places on ordinary Australian taxpayers. A report put together jointly by Tax Justice Network Australia and United Voice found that, through the use of trusts, stapled securities and related party transactions that utilise thin capitalisation, transfer pricing and tax havens, billions of dollars in tax are avoided each and every year. The report also found that the overall tax rate of the Australian Stock Exchange 200 companies over the last decade is 23 per cent—that is, below the statutory rate of 30 per cent. If the ASX 200 companies had paid tax at the statutory rate it would have produced an additional $8.4 billion in annual income for the Australian government. Within the ASX 200 companies, nearly one third have an average effective tax rate of 10 per cent or less. I repeat: a third have an average effective tax rate of 10 per cent or less. Fifty-seven per cent disclose having subsidiaries in secrecy jurisdictions and 60 per cent report debt levels in excess of 75 per cent—a matter that the member for Fraser alluded to in his comments when he spoke on this legislation. By having those excessive debt levels they artificially reduce their taxable profits.

Corporate tax is the second largest tax revenue base for the Australian economy, comprising 28 per cent of total income tax revenue in 2013-14 budget estimates. For that year, the government projected that they would collect $70.4 billion from company tax alone. By comparison, GST was projected to collect $52.7 billion. Australia's statutory 30 per cent corporate tax rate is also below the 2013 weighted average corporate tax rate for all OECD countries of 32.5 per cent. So, when members opposite claim that we need to reduce the corporate tax rate in Australia, the reality is that by comparison with other OECD countries we are not doing too badly.

Interestingly, mining corporations are huge beneficiaries of tax concessions. It has been estimated that the mining sector benefited from $4.5 billion in federal tax subsidies in 2013 and $3.2 billion from state and territory subsidies. Also I note from the tax commissioner's report that some of Australia's biggest earners that did not pay tax in 2013 were indeed some of the world's biggest and best-known mining and oil entities. So not only do they pay little or no tax but their Australian operations are being subsidised by the Australian taxpayers. It is little wonder that the government has a budget problem.

Yesterday there was also the report of how McDonald's Australia halved its Australian tax bill by paying McDonald's Asia Pacific, based in Singapore—which has a lower tax rate than Australia—an inflated service fee of $392.6 million. It appears to be nothing more than an internal company transfer of money from Australia to Singapore, under the guise of a service fee, for the purpose of minimising tax paid here in Australia because Singapore has a lower tax rate.

I suspect McDonald's would not be the only company doing this. Avoiding tax is a very clever way of boosting profits.

The budget deficit is blowing out under the Turnbull government, and the government needs to do something about it. We support this kind of legislation because it is sensible. However, if the government really wants to increase the bottom line of its budget—if the government really wants to increase total tax revenue in this country—the answer is not to do it by raising the GST or adding it to items such as food or health expenses. As the member for Fraser quite rightly pointed out, raising the GST just dampens economic growth in the country. It is actually a retrograde step. Indeed, the most effective way of raising income for the government is to boost productivity around the country.

But there is also another compelling argument as to why raising the GST is not a good idea. Anyone arguing for an increase in the GST must explain to the Australian people why they are being forced to pay more tax when hundreds of corporate entities turning over billions of dollars every year and making millions of dollars in profits are paying little or no tax. They also need to explain why they are supporting an unfair GST tax when there are much fairer options available to the government and which federal Labor has drawn attention to.

Those people supporting a GST increase should also explain to the Australian people why people at the lower end of income levels in this country—people often already doing it tough—should pay more of their meagre income in tax, because it is those people that the GST hits the hardest. The fact is that nobody rejects that argument. We have raised many a time that the people at the lower end of income are the ones most affected by GST increases, and I have never heard anyone reject or rebut that argument. We already have inequality at a 75-year high in this country, and the GST will simply widen the gap between the rich and the poor.

I also note reports that there is a growing nervousness amongst government backbenchers as to increasing the GST. Perhaps they are waking up to the fact that the Australian people are not fools and that they understand unfairness when they see it—they understand the unfairness of raising the GST when other people in this country who are making huge profits are being allowed to get off scot-free with paying little or no tax.

In March last year Labor put forward a $7.2 billion multinational tax package. Labor also announced that we would scale back superannuation tax concessions, which overwhelmingly go to those with the highest income. Labor has made it clear that, if we want to increase income for the government in this country, we need to lift productivity levels. That is the way to fix the budget problem: to look at those areas where we are currently neglecting the ability to raise tax, rather than to hit the people on lower incomes.

This measure, whilst it goes some way towards achieving some of those objectives, is only a small drop in the bucket. There is much more that we can do, and, despite the Prime Minister's protestations that this government is acting in closing the loopholes and the schemes available to those who want to minimise their tax, the reality is that the government is not doing anywhere near enough, when the facts and the figures are clearly before it pointing out that the country could do much better and would have a much fairer system if those people and those entities making millions of dollars in tax every year paid their fair share of tax.

Alex Hawke (Mitchell, Liberal Party, Assistant Minister to the Treasurer) Share this | Link to this | Hansard source

Firstly, I would like to thank all those members who have made a contribution to this debate. The Tax and Superannuation Laws Amendment (2015 Measures No. 6) Bill 2015 makes two important changes to Australia's capital gains tax regime and implements two measures announced but unenacted by the previous government—and that is important for opposition members to note.

Schedule 1 to this bill amends the taxation treatment of earn-out arrangements in order to provide more clarity for sales or purchases of businesses involving earn-out rights, which are rights to future financial benefits linked to the performance of the asset after the sale. This bill will make any financial benefits received under the earn-out right part of the original value of the business or business asset for capital gains tax purposes. When payments under the earn-out right are made, these payments will be added to the capital proceeds or the cost base of the original sale, through amendments to the taxpayer's tax return at that time.

Earn-out rights involve the sale or purchase of business assets where the value of the underlying asset is uncertain, and can create flexibility for purchasers and sellers of these assets. Earn-out arrangements are a legitimate and efficient way of structuring the sale of a business, or business assets, to deal with uncertainty about its value.

However, there is significant complexity in the current treatment of earn-out arrangements, which may affect the ability of businesses to efficiently price their business assets. This measure not only provides more clarity and certainty to businesses but also protects any entitlements they have to small business capital gains tax concessions.

This measure was initially announced by the previous government on 12 May 2010. The measure will apply to all earn-out arrangements entered into after 23 April 2015. In addition, to protect taxpayers who have reasonably and in good faith anticipated changes to the tax law as a result of the announcement by the previous government some five years ago, the bill also includes protections to preserve their current tax income.

Schedule 2 to this bill amends the taxation laws to introduce a withholding tax on the disposal of certain taxable Australian property by foreign residents. The measure puts Australian residents and foreign residents on a level playing field when it comes to meeting their tax obligations.

Together with the strengthened foreign investment rules introduced recently by the government, the implementation of this measure reflects the government's commitment to ensuring that foreign investors are following the rules. This measure seeks to address difficulties associated with collecting tax from foreign resident taxpayers. It will do this by requiring, from 1 July 2016, the buyer of certain assets held by a foreign resident to withhold and pay to the Australian Taxation Office 10 per cent of the purchase price. The amount collected is an estimate of the vendor's final income tax liability. The vendor is still required to lodge an income tax return and pay any outstanding debt. They may claim a credit for the amount of tax withheld in the income tax return at this time. In this way, the withholding measure also encourages participation and engagement by foreign residents with the Australian Taxation Office. The withholding obligation arises where a foreign resident disposes of certain land or land related assets. It will not, however, apply where the transaction involves real property valued at under $2 million. This ensures that the measure is appropriately targeted at those areas where revenue is at greatest risk and minimises the impact on other property transactions. The development of the measure has undergone extensive consultation with stakeholders. The government believes that the final design of the measure strikes an appropriate balance between maintaining the integrity of the tax system and minimising the impact on the majority of property transactions. This measure was initially announced by the previous government as part of the 2013-14 budget.

I commend the bill to the House.

Russell Broadbent (McMillan, Liberal Party) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Fraser has moved as an amendment that all words after 'that' be omitted with a view to substituting other words. The immediate question is that the amendment be agreed to.

Question negatived.

The question now is that the bill be now read a second time.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.