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

In rising to speak on the Tax Laws Amendment (Norfolk Island CGT Exemption) Bill 2016, I move:

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 calls on the Government to make Australia’s capital gains tax regime fairer and more sustainable.'

Labor supports the measures in this bill, in the same spirit with which we supported the initial suite of legislative changes in the Norfolk Island Legislation Amendment Bill 2015, passed by this parliament with bipartisan support last May.

This bill goes to the particular issue of capital gains taxation, providing the same protection against retrospectivity as for assets held by Norfolk Islanders, as was put in place when the capital gains tax was introduced in Australia in 1985. This is, indeed, an exciting time to be talking about capital gains tax. It is interesting, however, to note that the government has not shown the same passion and interest in economic reform for the mainland of Australia that it has shown for Norfolk Island. The Prime Minister, this week, ruled out changes to the capital gains tax discount, choosing the sort of scare campaign that he promised he would not engage in over a sensible economic conversation with the Australian people.

The government's own financial systems inquiry describes the combination of negative gearing and capital gains tax discount as a major tax distortion. We saw, in his last speech to the parliament, the former Treasurer, Joe Hockey, saying that negative gearing should be restricted to new-built homes. We have had former Liberal Premier of Victoria Jeff Kennett saying that Labor's reforms in this space were sensible policy and urging his own side of politics not to engage in the sort of fearmongering that Australians were promised had been removed when Tony Abbott was deposed from the prime ministership.

These unfair and unsustainable tax concessions are among the fastest-growing tax concessions in the budget, and they are contributing to house prices massively outstripping wages growth. On the latest figures, wage growth is running at around two per cent—an 18-year low. It has been nearly two decades since wages grew this slowly, and yet, in recent years, we have house prices growing at around 10 per cent a year, so you can understand why young Australians are frustrated when they see house prices growing five times as fast as pay packets. Young couples in my electorate come to me and say, 'The deposit always seems to be slipping out of our grasp. We just can't get a foothold in the housing market.'

Over the last generation, the chances of young Australians owning their own home has halved. The home ownership rate for 25- to 34-year-olds was around six in 10 in the early 1980s. Today, it is around three in 10. But you do not hear the Prime Minister and the Treasurer talking about how tough it is for young Australians to buy their first home; instead, you hear them busy defending the rights of those who are tax deducting their 10th home. They will have you believe that it is teachers, nurses, police and cleaners who are the principal beneficiaries of negative gearing but, in fact, the average tax benefits to surgeons and anaesthetists are multiples of what they are for teachers and cleaners. It might be true that there are more teachers than anaesthetists in Australia. If you add up anything that teachers have—

Luke Simpkins (Cowan, Liberal Party) Share this | Link to this | Hansard source

This is a free-ranging debate, isn't it!

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

It is the value of a second reading amendment, remember! If you total anything going to teachers, it probably outweighs what goes to the few thousand surgeons in Australia. But these are benefits which go, disproportionately, to the top of the distribution—70 per cent of capital gains tax subsidies go to the top 10 per cent of income earners. Our plan improves the budget bottom line by around $32 billion over the decade. It gives investors certainty by guaranteeing that existing investors will not be affected and provides the scope for us to begin to restore some of the savage cuts to schools and hospitals that have occurred under this government.

By stating that investments made before 1 July 2017 will be treated under the existing rules, we ensure that there is no retrospectivity. That is what this bill does, in the case of capital gains tax arrangements for Norfolk Island residents, and it is, in general, a good tax principle.

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

Member for Fraser, can I just explain to the House and to the people listening to your presentation that this bill is an act to amend the law relating to taxation and for related purposes, so the member for Fraser is quite within his rights to range fairly widely on taxation matters.

Luke Simpkins (Cowan, Liberal Party) Share this | Link to this | Hansard source

I was not doing a point of order. I was just saying that it was wide.

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

Thank you for your wise guidance, Deputy Speaker. Labor's policy ensures that, for investments other than in new housing stock, the capital gains tax discount is reduced. Deductions will still apply for investment streams so that investment deductions can be made against investment income.

We are still failing to get from this government the sorts of assurances that they are providing to the people of Norfolk Island. They are saying to the people of Norfolk Island that capital gains tax will not be applied retrospectively, but they are failing to say to the Australian people that their mooted changes on negative gearing will not be applied retrospectively. Having dealt properly with the issue of capital gains tax for Norfolk Island residents, it is important that other Australians be given that assurance from this government—that any changes to negative gearing will not be retrospective. We waited in question time, yesterday, for such an assurance from the Prime Minister and it never came. The Prime Minister has been unwilling to rule out retrospective changes to negative gearing.

Bringing Norfolk Islanders into the mainland tax system is an important reform and a progressive reform at that. I acknowledge the work of the bipartisan committee which recommended this change. But it is important that, as Norfolk Islanders are brought into Medicare, the Medicare system remains strong. It is important that, as public servants work on the island in order to expand access to Medicare, we have a government that respects the hard work of public servants.

Norfolk Islanders will have access to the age pension as a result of the package that passed this parliament last year and it is vital that that the pension is protected against cuts from this ideological government. It is absolutely vital that Norfolk Islanders are protected against the cuts to the social safety net that are still on the table—that $80 billion ripped from health and education now looks to be increased by further cuts. My colleague the member for Jagajaga has been a fierce defender of Australia's social safety net, not just for mainlanders but now for Norfolk Islanders as well. Norfolk Island is, for the purpose of service provision, a part of New South Wales so that means that cuts to schools funding in New South Wales will affect Norfolk Island as well. Needs based school funding is vital for Australians and vital for Norfolk Islanders.

The changes in this bill are welcome changes. They are absolutely sensible ones. But we on this side of the House cannot help noting the irony of proposing capital gains tax changes that ensure that Norfolk Islanders are not given retrospective treatment while failing to give other Australians the assurance that they will not suffer retrospective changes under this government.

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

Is the amendment seconded?

Jason Clare (Blaxland, Australian Labor Party, Shadow Minister for Communications) Share this | Link to this | Hansard source

I second the amendment.

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

The amendment has been seconded. The question now is that the amendment be agreed to.

Luke Simpkins (Cowan, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (Norfolk Island CGT Exemption) Bill 2016. It is always nice to have the opportunity to speak on matters to do with Norfolk Island. Norfolk Island is a place that I have had a long-term interest in. I had the opportunity to visit there in 1979 when I was still in high school and since then on several occasions in the last few years as the chair of the Joint Standing Committee for the National Capital and External Territories.

I am very pleased to be part of a government that has seen what action needs to be done. It is nice to have bipartisan support for these measures that we have seen come through in previous legislation with regard to changing the governance arrangements on Norfolk Island. It was important that those changes took place. I thank the previous minister, Minister Briggs, for his determination to get the best possible outcomes for the people of Norfolk Island—all the people on Norfolk Island, not just the elites. It is good that as a government we progressed these bills that needed to pass to be able to provide the best possible deal for Norfolk Islanders.

The island itself is a spectacular place in Australia; there is no doubt about it. It is a very nice place to visit if you are lucky enough to have been there. The scenery is wonderful and the people are very friendly. It also plays an interesting part in Australian history. It was in 1788, not long after the First Fleet landed in Sydney, that the colonists went out to Norfolk Island as well. Since then, Norfolk Island has been firmly within this nation's area. It has been part of Australia.

As the chair of the Joint Standing Committee for the National Capital and External Territories, I know and my committee has known that all Australians should have access to a reasonable level of service and amenities despite being in a remote location such as Norfolk Island. The committee, during this parliament, has looked closely at the situation for this part of Australia and made a number of recommendations. The recommendations were all adopted by the government. Clearly the services, infrastructure and welfare arrangements were not of a reasonable standard on Norfolk Island. Such arrangements on mainland Australia are financed through the tax system. It was certainly clear that a better future for Norfolk Islanders would be provided through changed governance arrangements together with the implementation of the Australian tax and welfare system.

It is true to anyone who visits Norfolk Island that the roads and other infrastructure are not in good shape. The hospital reminds me of regional base hospitals in country towns in the 1960s and 1970s, and the financial system for those health services is just not up to the job. For those who have been able to afford to, islanders have often travelled to Australia for medical treatment. Through the overall changes the government is progressing, the health system on Norfolk Island will soon be improved with a better delivery of health and aged care services.

This bill is one of a number of bills that have been designed to amend the income tax laws to implement overall improvements to the way in which Norfolk Island is transitioning into Australian tax laws. Certainly we as a committee were mindful of the need to ensure that radical and traumatic change was not part of what needed to be done. This bill will actually provide a full capital gains tax exemption on assets held by Norfolk Island residents.

There is no doubt that many on Norfolk Island have struggled in the years since self-government began in 1979. An independent health system was simply not up to the task. The economy has continued to struggle in the face of inconsistent tourism revenues and overall economic problems. Consistent with the committee's report, in May 2015 the parliament passed the Norfolk Island Legislation Amendment Act 2015. That bill made the changes required to commence the integration of Norfolk Island into the Australian tax and social welfare systems including Newstart and other pensions but also enabled access to Medicare and the Pharmaceutical Benefits Scheme.

All income will be considered within the mainstream taxation system. The multiple part-time jobs that are so often the means by which islanders derive their income and sustain themselves will be part of the system but all will at last be underpinned by social security system and government provided services that will, through the Australian government programs, help to rejuvenate infrastructure in Norfolk Island facilities.

I recall from our inquiry into the governance and economic situation and the future for Norfolk Island in 2014 there were a number of people that spoke to us about the impact of the implementation of the Australian tax system on Norfolk Island. This bill does relate to those sorts of concerns and it is good that, through this bill, the same exemptions for the introduction of capital gains tax that were offered on the mainland in 1985 will also be provided for those on Norfolk Island.

Since the committee's report, the administrator, the Hon. Gary Hardgrave, and Commonwealth officials have been working with constructive locals and with the Norfolk Island Advisory Council to work out how the plans to apply the tax and welfare system will translate to the way things have been done in the past. This legislation is required because things are different on Norfolk, and they have been done differently there over time. The point was made that there was a lack of formal documentation regarding the sale of assets and a local way that assets have been inherited, so Commonwealth law must take that into account, and that would make the application of the capital gains tax more difficult. I am pleased that the minister has understood these differences and has provided this bill to address those concerns and the realities of Norfolk Island. The passage of this bill will, therefore, provide a full capital gains tax exemption on assets held by Norfolk Island residents before the announcement to that effect on 24 October 2015.

Everything about the process that has been followed, and the action taken by this parliament and the Australian government, has been focused on what will be in the best interests of the individuals on Norfolk Island. There is no magic involved and there are no silver bullets to fix the economy on the island. The Australian government has been determined to ensure a reasonable quality of life is available to everyone on Norfolk Island. I know that some people on Norfolk Island have been opposed to the change in governance arrangements and also opposed to the implementation of the Australian tax system but, for the vast majority of Norfolk Islanders, these changes are necessary, highly beneficial and desired.

I am pleased that the legislative changes for Norfolk Island have bipartisan support, as did the work of the Joint Parliamentary Committee on the National Capital and External Territories. This bill properly acknowledges the circumstances of Norfolk Island and I am pleased to endorse it to the House, as I endorse all the steps that the government has taken to advance the welfare of the people of Norfolk Island as Australians.

Gai Brodtmann (Canberra, Australian Labor Party, Shadow Parliamentary Secretary for Defence) Share this | Link to this | Hansard source

I am pleased to speak today on the Tax Laws Amendment (Norfolk Island CGT Exemption) Bill 2016. This legislation is part of a much broader package of reforms for Norfolk Island. These reforms came about following the Joint Standing Committee on the National Capital and External Territories' report into the current situation on Norfolk Island and build on many reports over decades on the situation on Norfolk Island.

The committee, of which I am a member, produced the report 'Same country: different world—the future of Norfolk Island', which looks at the island's prospects for economic development in the wake of falling tourism figures, a budget deficit and other ongoing financial concerns. The committee recommended that, as soon as practicable, the Commonwealth government repeal the Norfolk Island Act 1979 and establish an interim administration to assist the transition to a local government-type body, determined in line with the community's needs and aspirations. The first tranche of legislations to enact these reforms was the Norfolk Island Legislation Amendment Bill 2015, which passed parliament in May 2015 with bipartisan support. This legislation brought Norfolk Island tax residents into the mainstream Australian tax system, giving residents access to social security payments, health services such as Medicare and other government programs that are available to mainland residents.

This bill we are debating today makes a relatively small change in the scheme of these reforms, but it is an important one because it amends the Income Tax (Transitional Provisions) Act 1997 to give capital gains tax-exempt status to assets held prior to 24 October 2015. This is akin to the pre-capital-gains-tax-exempt status applied to assets purchased before 20 September 1985, when capital gains tax was introduced into the Australian income tax system. This small amendment remedies concerns raised by Norfolk Island residents about the tax treatment of capital gains in the original legislation bringing the island into Australia's tax regime. This eliminates retrospectivity and makes the system fairer.

This is an important point, because it demonstrates that the government and the opposition are listening to the concerns of Norfolk Islanders and are responding accordingly. This change will not apply to assets held by Norfolk Island residents that would not have been exempt from capital gains tax before Norfolk Island was fully brought into the Australian income tax system. Assets acquired by Norfolk Island residents on or after 24 October 2015 will be subject to the normal operation of the capital gains tax rules from 1 July 2016.

In bringing Norfolk Island tax residents into the Australian income tax system, Labor supports giving clear tax guidance and certainty to investors. These changes will provide certainty on capital gains tax without retrospectively affecting investment decisions made under the previous Norfolk Island tax regime.

The amendment in the Tax Laws Amendment (Norfolk Island CGT Exemption) Bill 2016 gives further certainty and clarity to Norfolk Islander tax residents as they become part of the Australian tax system on 1 July 2016.

I am not going to speak for long on this legislation—we have another piece of legislation enacting further reforms that we will debate in coming days, and I will speak in greater detail on that. But I do want to make this point—I want to say to the people of Norfolk: we are listening to your concerns, we are responding accordingly and I think this bill is evidence of that. Just yesterday I met with the minister to discuss the reforms and I raised a number of other concerns with him—concerns that had been brought to my attention by residents of Norfolk. I will continue to make these representations. I am looking forward to speaking in more detail on the next suite of legislation to enact these important reforms in the very near future.

In closing today, I want to take the opportunity to thank the minister. I know that there was some concern when we had a change of minister that the reforms would lose momentum, but that has not been the case. I thank the minister for continuing these vitally important reforms in this area for the wellbeing of Norfolk Islanders, for their human rights. I especially want to thank the minister for having an open door policy with me when it comes to discussing these reforms and making representations on behalf of Norfolk Islanders.

Finally, I would like to put on the record my very great appreciation to the five members of the Norfolk Island Advisory Council, who have been overseeing the reform transition on the island. My sincerest thanks go to Duncan Evans; to Eve Semple; to Melissa Ward, who is the chair; to PJ Wilson and to Wally Beadman. They have a role that has not always been easy, but they have done it with great integrity and have carried it out in a way that has earned them great respect both on Norfolk Island and here in Canberra. Thank you to those members of that advisory council for the great work they have done on the transition to reform. I commend the bill to the House.

Sussan Ley (Farrer, Liberal Party, Minister for Health) Share this | Link to this | Hansard source

I am delighted to sum up the Tax Laws Amendment (Norfolk Island CGT Exemption) Bill 2016 and I thank those members who have contributed to this debate. This bill amends various taxation laws to provide a full capital gains tax exemption on assets held by Norfolk Island residents to assist the Norfolk Island community in transitioning to Australia's mainstream taxation system. This exemption is part of a broader reform package which delivers on the government's election commitment to introduce taxation, social security and healthcare arrangements on Norfolk Island effective from 1 July 2016.

On 14 May 2015 the parliament passed the Norfolk Island Legislation Amendment Act 2015, ending decades of uncertainty for the residents of Norfolk Island. The Australian government will integrate Norfolk Island with mainland social security systems, including access to Medicare and the Pharmaceutical Benefits Scheme. Immigration, customs and quarantine services will also be included from 1 July 2016. Further consultation with the community raised concerns about the potential retrospective taxation of capital gains. Through this consultation it was also revealed that a historical lack of formal documentation for asset sales as well as cultural practices relating to inheritance assets are likely to inhibit the legislated application of CGT in some instances. In order to address these concerns, this bill will provide a full CGT exemption on assets held by Norfolk Island residents prior to 24 October 2015, the date the exemption was announced. The CGT exemption demonstrates the government's commitment to actively and regularly engage with the Norfolk Island community to ensure all residents have significant input into their future governance, including through the Norfolk Island Advisory Council.

The broader reform package addresses longstanding issues facing Norfolk Island, which were explored in a royal commission, numerous reports, 12 parliamentary inquiries and submissions over a 30-year period. The government is putting in place the necessary structural reforms to improve service delivery and boost economic growth while preserving the island's culture and local representation through concessions such as the CGT exemption in this bill. The exemption will apply to those assets that were exempt from CGT before Norfolk Island was fully brought within Australia's income tax system. Similarly to the treatment of assets when CGT was first introduced in Australia in 1985, these assets will continue to be exempt until a CGT event happens—for example, when the asset is sold or disposed of.

Again, I am pleased to present this summation of the bill on behalf of the minister. Can I say, as one of the members in this place who has visited Norfolk Island—it was in my capacity as shadow minister for justice and customs a very long time ago—you cannot visit the island and not to be charmed by its people, its history and its prospects for the future. There is much warmth for the people of Norfolk Island felt by the members of the Australian parliament today. I commend the bill to be 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.

Original question agreed to.

Bill read a second time.