Dennis Jensen (Tangney, Liberal Party) Share this | Link to this | Hansard source

This legislation applies the OECD destination principle, which recommends consumption should be taxed in the destination country of the imported digital products or services. This measure is estimated to be a gain to GST revenue of $350 million over the forward estimates. Simultaneously, the GST system is also often not well adapted to the circumstances of foreign suppliers regarding their dealings with Australian based businesses. Therefore, in many cases, supplies between such entities result in little or no final GST being payable. This results in the current GST settings, which impose unnecessary obligations and compliance costs on foreign suppliers.

Schedule 2 of this bill amends the GST act to better target the way Australia's GST rules apply to cross-border supplies that involve nonresident entities. It seeks to avoid nonresidents being drawn into the Australian GST system unnecessarily, all the while maintaining the integrity of the GST base. Measure 2 is all about reducing inefficiencies and removing red tape to revitalise our tax system so that businesses can just get on with creating jobs and growth. Limiting when GST will apply to supplies involving nonresident businesses accomplishes this intent.

Small and local businesses are important and integral to our economy. These changes mean that certain supplies are no longer connected with the indirect tax zone, or ITZ, or are GST free. Unlike the changes in schedule 1 that bring into the tax base current supplies that are not taxed, this measure does not alter the GST tax base. Rather, the amendments relieve nonresident suppliers of the obligation to account for GST on certain supplies. The measure came from the Board of Taxation's review of the application of GST to cross-border transactions. They recognised that too many nonresidents were being drawn into the GST system on business-to-business transactions where it would make no difference. This places unnecessary compliance costs on nonresidents, leading to embedded taxation for Australian businesses.

This measure improves the balance between ensuring Australia's GST system does not unnecessarily draw in nonresidents and maintaining the existing GST base by updating the test for when an enterprise is carried on in the ITZ so that it is better aligned with key GST concepts and by relieving non-resident suppliers of the obligation to account for GST on certain supplies. This is achieved by shifting the responsibility for identifying and paying a GST liability to the recipient where the recipient is registered for GST and carries on an enterprise in the ITZ, switching off the GST liability for certain supplies between nonresidents, extending the GST-free rules to certain supplies made to nonresidents and removing the GST registration requirements for nonresidents that only make GST-free supplies through an enterprise carried on outside the ITZ.

The amendments reduce compliance costs for GST-registered importers in calculating the value of taxable importations and simplify administration for the Australian Taxation Office. This allows them to focus on their principal job, which is ensuring compliance from those who should be remitting revenue to the Commonwealth. Together these two measures ensure that only those overseas businesses that should be in our GST system are in it and at the same time remove businesses that should not be caught in the system. These GST measures evidently show our government's commitment to improving our tax system, making it more growth-friendly and adapting to the changing times.

In my electorate of Tangney over 90 per cent of businesses are small and local. My job as the elected member is to ensure that small and local businesses in my electorate are looked after. The changes put forward in this bill ensure that local businesses in my area are given a fair go. It allows small and local businesses in Tangney to compete on the same playing field as all cross-border companies.

It is our job as the government to provide equal opportunity for all businesses, whether that is online or on the street corner. As John F Kennedy so eloquently said:

All of us do not have equal talent, but all of us should have an equal opportunity to develop those talents.

Measures 1 and 2 of this bill guarantee that any businesses in my electorate, in Australia and online are given equal opportunity to develop and grow.

Schedule 3 of this bill, although unrelated to the other two matters, is just as important. It takes important steps to improve Australia's taxation laws for primary producers. The changes reform the income tax treatment of farm management deposits by increasing their flexibility. This is an important and vital risk management tool for primary producers. It will aid and assist producers, giving them the ability to become more self-sufficient.

The changes were announced in the Agricultural competitiveness white paper on 4 July 2015 and are the result of extensive stakeholder feedback and consultation. FMDs will help Australian primary producers deal with uneven income between years. This frequently occurs as a result of weather variations, seasonal changes and natural disasters. Events like this are impossible to predict or plan for, in turn making it difficult to prepare financially. FMDs are an excellent example of how the tax system can be designed to fit the purpose and the needs of the taxpayers whom it should ultimately serve. Primary producers are an important and integral part of the Australian economy. They need to be safeguarded.

Farm management deposits assist primary producers with managing their financial risk by allowing them to set aside pretax income from primary production in a special account which can be drawn from in later years. Current restrictions placed on FMDs impair their effectiveness. However, this government is committed to continuously improving our tax system. These amendments double the maximum amount that can be held in FMDs by primary producers from $400,000 to $800,000. This change gives primary producers better flexibility to manage greater income instability with the funds they have set aside for when a downturn occurs.

Schedule 3 also allows primary producers who experience severe drought conditions to withdraw an amount held in an FMD within 12 months of a deposit. Previously, a declaration of exceptional circumstances would also allow for early access. However, this provision was removed when the farm household allowance was introduced, replacing a number of ad hoc forms of income support for primary producers. Now primary producers will be able to determine their eligibility by referring to rainfall data on the Australian Bureau of Agricultural and Resource Economics website at the time of withdrawal rather than waiting on ministerial decision.

We, the government, are determined to improve the tax system for the agricultural sector. We want to strengthen our approach to drought and risk management in order to facilitate more-effective risk management by primary producers. Agriculture is an important and vital part of the Australian economy. It is crucial that our tax system acknowledges this and gives primary producers a system that works for them.

In summary, both the GST amendments and the farm management deposit amendments respond to our changing economy and contemporary business needs. The first GST measure makes sure that overseas businesses pay GST on sales to Australian consumers; the second reduces red tape by removing from the GST system non-resident businesses which should not be brought in. Changes to the farm management deposits also reduce red tape, this time for primary producers, and create greater flexibility to manage their FMDs.

Our world is continually growing and changing. Technology has drastically changed the way our world communicates and operates. Ronald Reagan aptly said:

There are no great limits to growth because there are no limits of human intelligence, imagination, and wonder.

Our economy is growing and changing too. We need a tax system which reflects these real and tangible changes—a system which prepares today for the changes and problems of tomorrow. Our tax system must recognise and acknowledge that there is no great limit.

Ed Husic (Chifley, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Treasurer) Share this | Link to this | Hansard source

When you think about the level of seriousness that has been attached to the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016, it is really a sad joke. This is a bill that has sought, in many respects, to be a fig leaf. In the whole debate about multinational tax reform, people were asking the coalition: 'What are you going to do about the way in which multinationals game different tax systems all over the globe? What's your response?' The coalition's response is, effectively, to target the 15-year-old who downloads a video or some other person who is getting some other digital product and to apply the GST to it—as if targeting a music download or a video download and applying the GST to it is the big answer and will fix multinational tax issues that are confronting the nation. It is simply a joke that that is the big answer in all of this. Yes, it will raise some money, no doubt. Yes, it is important that we find different ways to improve revenue. But, if reliance on this is evidence of a government's commitment to tackle the big, pressing problem of the complete erosion of revenue as a result of multinationals gaming taxation systems in the world, it is just a joke. It is symptomatic of a government that is not really committed to this issue.

Labor has put forward a series of policies designed to address this. In fact, we believe that our policies would raise more than $7 billion through the measures that we put forward, not the least of which would increase resources to the ATO to enable better compliance. Targeting the 15-year-old who finds something cheaper on the internet and downloads it and hitting them with a GST—and this is apparently massive GST reform—is, as I said before, laughable.

What is also laughable is the speed at which the government took up this option. There have been concerns for quite some time about the way in which many of these large companies have gamed taxation systems, engaged in profit shifting and used transfer pricing to help themselves. Not only that but those acts—the use of transfer pricing and, in effect, profit shifting—have themselves impacted on Australian general consumers and small businesses. For years, we have been raising the issue of the way in which these companies set their pricing and overcharged Australian consumers and small businesses in the process. In fact, a report went to the then Minister for Communications, now the Prime Minister, indicating that Australians were being ripped off and that we were paying, in some cases, 50 per cent or, in some cases, 200 per cent more. These prices reflect the way in which major companies charge their subsidiaries for product knowing that, if they charge in a particular way and the local entity does not make a profit, they will not be required to pay tax at a particular level. They will be able to sidestep the obligations expected of them by the way that they structure themselves.

The government have moved super-fast to charge some 15-year-old for downloading music and not having a GST applied to it—they have said, 'Well, we fixed that'—but what about the pricing overall? They have not dealt at all with those pricing issues that inject a level of inflation into the broader system. Their only answer has been: 'We're going to get those big multinationals. We're going to charge them GST.' That is not even half the job done properly.

It is all cosmetics. As is often the case with the government, it is all about the style; it is never about the substance. I think of the government and the way in which the Prime Minister has used his massive popularity. He has used the popularity of the government to, effectively, transform the government into a petting zoo. That is the equivalent of what they have done. This is a much cuter version of a government compared to the last lot. The last lot were the equivalent of a snake farm, and no-one really wanted to hang around them. Now they have brought in the petting zoo, with all these new, cute faces that they think will be there to answer for them. But, in most instances, when you turn to a petting zoo for a decision, they just blink back—they have no answer—and that is what we have got from the government. Every time there is a hard decision to be made, they do not want to sacrifice their popularity. They do not want to sacrifice feeling good about the way they are.

Mr Hunt interjecting—

I will take the interjection from the bestest minister in the world and thank him for it. Congratulations—

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

I think you are the best shadow parliamentary secretary in the world. We're batting for you.

Ian Goodenough (Moore, Liberal Party) Share this | Link to this | Hansard source

Order!

Ed Husic (Chifley, Australian Labor Party, Shadow Parliamentary Secretary to the Shadow Treasurer) Share this | Link to this | Hansard source

That is equally high praise, Minister, as that praise of your good self. I thank you very much for it, world's bestest minister. Thank you very much.

Ms O'Dwyer interjecting—

And, Assistant Treasurer, you have been notable in your performance in the last two weeks as well.

The problem with the government is that it is all about style. It is never about the hard decisions, and, when it is about the hard decisions, it is about the hard decision to take a scare campaign to the next level. That is why we get this type of flimsy proposed legislation put before us. We are not going to oppose it—of course not; it is about additional revenue—but, if they were fair dinkum about tackling this problem, they would look to the pricing that has been foisted upon Australian consumers and small businesses and the way in which they have been hit by the pricing approach that has been used. We do not get that; it is wrong.

I note in the chamber the presence of the member for Hughes, who, while we have differences of opinion, I know is a very strong advocate for small business with his previous advocacy background and the representational positions that he held. I am surprised that, on their side, they have not taken this issue up with gusto. I do have to say, though, that the member for Ryan, when she was a member of the Standing Committee on Infrastructure and Communications earlier in this parliament, also expressed concerns about the way in which pricing was handled by those big tech giants that operate in this country—but, again, nothing was done. Like I said, Malcolm Turnbull, the Prime Minister, the member for Wentworth, sat on that report when he was the communications minister. He did not respond to a parliamentary committee inquiry that detailed evidence of these higher costs. He has not taken any action to reduce those costs and see those costs flow through the broader economy, but the government moved super-fast to demonstrate, in some weak, limp effort, that they are tackling multinationals. Their big response is: 'We're going to impose the GST'. They hit young people who are accessing the internet to have digital downloads of the types of products and services that they want. As I said, it is simply farcical.

We will see if evidence demonstrates that their moves, for instance, to lower the threshold at which the GST is paid bring in more revenue than the cost of actually enforcing the system. Let us see if that works. A 2009 Productivity Commission report suggested you would not be able to achieve that. Let us see if they actually come through with the goods and are able to make more money out of lowering the threshold than the costs attributed to being able to follow this up. I remain a sceptic as to whether or not that will occur. Bear in mind that when they drop that threshold they are doing it to tax people more—this is from a government that said they were about lower taxes, not higher taxes. They will prevent people from being able to search out savings online for products and services they want, because they have now extended the breadth of the GST to that activity. So they are making people pay more and breaking a promise about lower taxes in the meantime.

Retailers will, obviously, cheer it. I have had a difference of opinion with retailers about this for some time. The internet has been able to completely smash the way in which production and distribution occur and has been able to deliver lower prices. That is the impact of disruption: changing the way that businesses work and delivering services at cheaper cost. From a government that is supposed to be pro-innovation and, particularly, from a Prime Minister that is supposed to be a champion of innovation, we often see decisions being taken that fly in the face of innovation. We have said that we will not stand in the way of this bill. We will support it, but I wish there was as much vigour to stand up for people.

This is quite unfair for young Australians who do not get a vote. They expect us to take decisions and actions that will help them at a time when they do not have the vote, because they cannot change a government on the basis of inaction, or action in particular ways that hurt them. Young Australians would expect that we would be able to deliver for them. Given the constraints on their disposable income, they use the internet to access products and services and digital downloads at a price that is cheaper for them. It would be nice to see a government actually stand up for those people who do not have a vote; not just chase votes but do the right thing for all Australians, regardless of their ability to cast a vote. I certainly would expect that the government do that and stand up for them, but, as evidence has shown, as history has shown, as their track record has shown, the government do not do it. The government figure young people do not have a vote, so they do not have to work hard for them at all. That is unacceptable. I have continually raised this issue on their behalf because I want to give them a voice in this place when they have had those concerns. I also want to give a voice to small businesses. When they look overseas and see the types of products that can be accessed online and at a price way cheaper than they have been charged here in Australia, I would imagine small businesses deserve a fairer go as well.

I will leave my comments at that. But, again, I call on the government to respond to the Productivity Commission report. It has been out for years, and those opposite have done absolutely nothing on it.

Melissa Price (Durack, Liberal Party) Share this | Link to this | Hansard source

Another end to a sitting week and yet another bill where I stand here in this chamber speaking about how the Turnbull government is fixing up the mess left by those on the other side. It bears repeating once again that it was a $310 billion bill, plus $123 billion in projected deficits in the following four financial years.

I am very pleased today to rise to speak on the Taxation and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016. This measure will extend GST to digital products and other services imported by consumers, simplify the GST cross-border business-to-business rules and double the maximum amount that can be held in farm management deposits to $800,000, which, of course, is great news for the hardworking farmers in Wheatbelt and the Mid West in my electorate of Durack.

Consultancy services, accountancy and legal services, financial and insurance services, telecommunications and broadcasting services, online supplies of software and software maintenance, and online gambling are all products which will now pay their fair share of GST under the measure we are discussing today. This bill will create a more level playing field for Australian businesses, ensuring that digital products and services will be subject to the same GST treatment.

Members sitting on this side of the chamber really understand the bush. Recently, I highlighted the work that the Turnbull government is doing in education in the country, such as a 42 per cent increase over the next four years in WA schools and the recent youth allowance reform, which will enable more regional, rural and remote students to further their education at tertiary level.

As well as cleaning up the financial mess that was left by the Labor Party, only members on this side of the chamber will provide the funding that is needed to educate Australia. The measure we are discussing today will go a long way to assist farmers in regional and rural towns of the Mid West and Wheatbelt, as agricultural businesses make up 26 per cent of small businesses in my electorate of Durack. As well as doubling the farm management deposits, this measure will also allow primary producers who are experiencing severe drought conditions to withdraw an amount that has been held in a farm management deposit for less than 12 months, without affecting the income tax treatment of the farm management deposit in the earlier income year.

In a further boost to farmers, not just in Durack but, of course, right across Australia, this measure will also allow amounts held in farm management deposits to offset a loan or other debts relating to farm management deposit holders' primary production business. Farm management deposits, as you well know, Deputy Speaker Goodenough, are a risk-management tool to help primary producers deal with uneven income between years, allowing eligible primary producers to set aside pre-tax income from primary production in a special account, which can be drawn upon in later years when times are tougher. Often, those times are much sooner than a farmer would expect them to be.

As I said earlier, it is unfair that international businesses selling goods to Australians do so without paying GST. It is a smack in the face to hardworking Australian business women and men and the nearly 13,500 small businesses, according to the Australian Bureau of Statistics, that are in my electorate. The Turnbull government understands this, and my message to the Australian business community is this: we will look after you because we understand you.

This measure we are discussing will bring in an estimated $350 million over the forward estimates—consisting of $150 million in 2017-18 and $200 million in 2018-19—to the federal government's coffers. This is yet another example of the Turnbull government's sound economic management, something which those opposite have failed to demonstrate that they understand.

As we heard from Treasurer Scott Morrison at his National Press Club speech recently, the economy is transitioning well out of the mining boom, with 298,300 new jobs added in the 12 months to January. This complements the government's record in 2015, which saw a 10-year high of 301,300 new jobs created. I am very pleased to say that the annual jobs growth rate of 2.6 per cent is well above the decade average of 1.8 per cent. In the last two years, under the leadership of Trade Minister Andrew Robb, this government has signed the historic free trade agreements with Korea and China, and we know that the Trans-Pacific Partnership will also be a tonic to the improving economic statistics I have just mentioned.

When those opposite were running the show, employment growth was a measly 1,900 per month, with an annual growth rate of only 0.2 per cent. Compare that to this government's record, where jobs growth has been more than 10 times that amount. More than 25,100 jobs have been created per month since we were elected, with an annual growth rate of 2.6 per cent. Job advertisements are at their highest level since July 2012, increasing by 11 per cent over the past year, according to ANZ. This side is truly working to identify ways we can make our tax system more job- and growth-friendly.

Those opposite—well, we have heard what they have been talking about lately; namely, their fabulous negative gearing policy, which will remove around one-third of the demand for established property, killing the value of homes, some of which have been in Durack families for hundreds of years. We think it has been poorly thought out, but do not take our word for it. I am interested in the report that was released by BIS Shrapnel just recently. This is what they say about the Labor Party's negative gearing policy. They say it will raise rents by 10 per cent; push 70,000 extra households into housing rental stress; result in four per cent fewer new homes being built; shrink GDP by $19 billion per year, on average, or one per cent of GDP—not to be sneezed at; result in 175,000 fewer jobs, increasing the unemployment rate by 0.1 per cent; and reduce government revenue by $1.65 billion per year.

This will no doubt decrease consumer confidence and growth, and, as I have said, it is going to smash house prices. So I stand here and I say very loudly and clearly that I do not support any changes whatsoever to negative gearing. I say that because, in Durack, we have double the national average of negative gearers—people in the mining industry, farmers, investors, in Geraldton, in Broome and in other towns, and there are many more that plan to do so. Through negative gearing, or their plan to negative gear, they want to create a nest egg for themselves and their families for the future. That is enough about negative gearing.

Despite the opposite side's scare campaign on the GST, we have said very clearly that this government is not seeking to increase the GST. Treasury modelling shows that raising the GST, in exchange for lowering income tax, will not deliver significantly higher GDP growth. However, our ideas will oversee the expansion of the Australian economic pie. The National Innovation and Science Agenda has been warmly welcomed in Durack. This agenda will help to create a more modern, dynamic economy, which Australia desperately needs. We have announced 24 measures, involving $1.1 billion of spending, to create well-paid jobs and help Australia compete globally, encouraging every business across the country to be more innovative, entrepreneurial and prepared to take risks.

In conclusion, only this government will create the jobs for the future as well as ensuring hardworking Australians pay the least tax possible, with our debt reduction management. The bill we are discussing today will reap a predicted $350 million from international companies, lessening the Australian taxpayers' burden. It will also assist my farmers in the Mid West and the Wheatbelt, who need this helping hand from the government. I commend this bill to the House.

Julie Owens (Parramatta, Australian Labor Party, Shadow Parliamentary Secretary for Small Business) Share this | Link to this | Hansard source

I am really pleased to be able to speak on the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016 today, particularly schedules 1 and 2, which are known around town, in the media, as the Netflix tax. It reminds me of the time when the GST was first introduced and I was in the music business. We were well and truly into international trade of intangible assets, and I remember at the time sitting down with my colleagues and wondering, with the way the world was changing, how on earth the GST would even be applicable in what we thought would be five or 10 years, but it turns out to have been a little slower than that.

This bill deals with the changes in the Australian economy in the last two decades, really, but certainly in the 15 years since the Liberals introduced the GST in the year 2000. It attempts to introduce collection of GST on intangible goods, but unfortunately the bill does not define how that will actually happen. So, while it is good in principle and Labor believes we do need to level the playing field, it is questionable whether or not it is actually enforceable at all, and we will be referring these sections to a Senate inquiry to investigate just that point.

I want to take the House back to the state of the industry in 1998, when the then Howard government campaigned on the GST, and in 1999 and 2000, to give an indication of how long this eroding of the tax base and unlevelling of the playing field between Australian companies and international companies has been heading our way. I remember talking to David Bradbury when he was Assistant Treasurer, in this chamber, sitting on that side during a division, when the percentage of international sales was about five per cent. I remember saying to him: 'It's going to be 10, it's going to be 15, it's going to be 20, it's going to be 25. At the moment it would cost more to collect it than it would raise, but it's going to be a very short time before that changes.' That was apparent back in 1999 for those of us who were already working in the field that led some of the international sales of intangible assets.

The Internet Underground Music Archive, which anybody younger than me—probably a little older than Kate—would remember, was started by a group of kids at the California university in 1993. It was so large it crashed the US systems. Kids were using it so prolifically that every college in the US had to ban the downloading of music, because 60 per cent of downloads in the US in 1993, 1994 and 1995 were music. That is how big it was in 1993. I had one of the founders, Jeff Patterson—I swear he was 12, but I think he was about 18—over to Australia to talk at our national conference on music and the internet in about 1995. By that stage this trend of MP3 download was so huge it was already disrupting the entire music sector—and that was a good six or seven years before the introduction of the GST.

We had already had Bill Kreutzmann out for another forum on music and the internet. He is the drummer from the Grateful Dead. The Grateful Dead was still the biggest-grossing live band in the world, so that must have been before 1995. I think Jerry Garcia died in 1995, so it must have been in the early nineties—I know I had to scrounge for that one! The whole purpose of their talk here was that the Grateful Dead had used the internet. Unlike everyone else, who were so scared, they allowed people to bring cameras in, record their concerts, bootleg them, put them online and sell them any way they wanted to. They encouraged that kind of activity and they remained the biggest-grossing live band in the world. You could already see the beginning of a change in how companies marketed their work.

By the time the GST was actually introduced, Napster had 80 million registered subscribers. It lasted only a couple of years because of copyright issues—and at that stage they were not selling—but it absolutely demonstrated how quickly the world was going to change because the technology made it possible for that early peer-to-peer platform. That is what Napster was: a very early version of what we now hail as something new, which is peer-to-peer—80 million registered subscribers to Napster by the time we introduced the GST. We introduced a GST at a time when it was going to become very difficult to collect tax that way because the world was changing very fast.

Alison Wenham, who was my equivalent in the UK—she was the head of the UK Association of Independent Music—had already come over and met with me to talk about a click-and-drag, cross-border copyright management system that would allow a person in Australia to go to the central website, click on a song and drag it to the Australian continent, and that would form the contract; that would be it. Everything else would be done behind that scene—the payment of royalties. It was incredibly forward thinking by Alison. The UK put funding into it. We started building the Australian national music database to prepare for that future. We started doing that around the same time as John Howard was introducing the GST. Again, those of us who were in the music industry knew that the world was changing very fast and it was only going to be a matter of time before this GST notion of a trader and a purchaser being in the same country would disappear very quickly. We knew that digital sales were going to go through the roof.

If you thought that was really going to change the world, the UK independents and all the copyrighters have now built their copyright hub. They have built a hub, which is an industry owned open data portal, where any piece of copyright—including a photo you put on Facebook—can be registered and traded through click and drag. They have done it. Once that system expands into other territories—and I know the Australian copyright owners are very keen to adopt it as well—there will be an open data system of copyright ownership that will allow an infinite number of small companies to come on and trade in intangible assets of all kinds and in all sorts of ways that we have not even thought of. So, if you think what is happening now is exploding, that is nothing compared with what is going to happen when this very forward-thinking sector—who has been working in the international trade of intangible assets for close to 30 years—gets this large international open data portal up and running. It will explode. It will make a trade in intangibles possible in ways that it currently is not because the difficulty of tracking down copyright ownership and going through the process of getting the right owner et cetera is incredibly complex. This will turbocharge the trade in intangible assets.

At AIRLA—Australian Independent Record Labels Association—as I said, we were well on the way to building the national music database. We had already negotiated a deal with an online distributor that allowed any self-released artist to sell online. We had buy buttons available and a distributer set-up, which meant that all the difficulties in payment at the time were gone. We set-up that system and the database ready for MP3. We were ready to go then. We were sitting there watching a GST come in, which could not have captured what we were talking about even then. Even then legislation lagged behind what the sector was doing in an extraordinary way.

It was in many ways a really exciting time to be alive for those of us who were pushing the future and those of us who were champing at the bit to get to this high-speed transfer. I have said before in this chamber that I asked a tradie to put the ducts and the drawstrings in for fibre when I renovated an office building because I was so ready. As soon as the fibre arrived I wanted it. That was in 1984, and I was ready. Then I waited through the rest of the Hawke-Keating years, then I waited through the Howard years, and then I heard Kevin Rudd talking about the NBN and I thought, 'Finally!' That building is demolished now, but I thought that I might finally get the fibre I had been waiting for since 1984. Then we had a government change and my suburb was taken off the plan and still is not on it. So I am still waiting, some 30 years later. The ducting is gone now.

Many in the music and film industry had been waiting for this. By the year 2000 composers, musicians and post-production people in film were already doing the overnight shift for the US. They were already sending over to Australia the footage they had shot during the day, and it was having soundtracks, editing and everything done in our day and then sent back. They were starting to work 24-hour production shifts on the back of that possibility. We knew that that was only going to grow. We knew that it was not going to be only intangible assets like music and film but also the transfer of labour and skills, and we knew that it was going to come very fast. I had already done my first soundtrack for German cable that way by 2000. Again, it was a world that was changing rapidly. Globalisation in the music and film industry was not about goods and services; it was about the genuine mixing of supply chains—and not the global supply chain in goods and services that we talk about now but the global supply chain in skills, which we are not talking about yet. That is on its way and has been on its way since 1994-95. When we talk about the GST problems in the sale of intangible goods we should also be talking about the transfer across borders—in fact the demolition of borders in terms of the transfer of labour.

Elance—the precursor to Upwork—was founded in 1999. It partnered with oDesk a few years later and created Upwork, which is one of the biggest online portals for freelancers. If you have not had a look, it is quite extraordinary. It literally takes down all borders for freelance work. All borders are gone. Finding skill wherever it is, and using it and paying for it is now as easy as looking something up in the yellow pages used to be. In fact, it is easier; it is incredibly easy. That existed in 1999. The technology and the possibility for those global skill chains, which we are still only seeing developed now, was already there when the GST was introduced. It will be really interesting to see how governments respond to that when it comes to collecting tax. It will be really interesting to see how governments respond to that.

It is good to see the government beginning to act on this. I think they will find it is a much harder tax reform, and it is actually genuine tax reform if it is done properly. I am not sure this is that. It is going to be much harder than they think. Trade online is not a shop. In fact, it will not necessarily be even one business anymore. We see the capacity of peer-to-peer trade changing the whole nature of what a seller is—as you can see through the Airbnb and Uber style portals. They are really just the beginning. They are very close to what we already have. When it genuinely gets going, sales will not necessarily be between Myer and a customer. This legislation treats the collection of GST on intangible products as if that is what we are talking about. We are not. In future years, in a very short period of time, we will see transactions online explode out of a small number of companies and through intermediaries in ways that we cannot imagine.

I would seriously ask the government to consider this. What they have done already is a good start. It is hard to see how they are going to make it stick. It is hard to see how they are going to check it, let alone enforce it. But it is at least an attempt to recognise that there is a major issue looming for small businesses that will find it difficult to compete when we have a tax regime which is different from those they compete with elsewhere. It will erode our tax base much faster than we expect. Congratulations to the government for identifying it, even though it is now 2½ years since they did. Two-and-a-half years is a long time in this business—Napster had 80 million subscribers in two years. It is good to see them starting to move but, my goodness, it needs more work than this. It needs a way of dealing with the flow of money across international borders for intangible services of all kinds, including labour, in ways that are not caught in our current tax system and that put our local businesses at a disadvantage to those that are using those free-flowing international channels. Still, it is a start and I thank the government for that.

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

I am pleased to rise this morning to speak on the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016. There are three schedules in the bill. The first schedule is 'tax integrity: extending GST to digital products and other services imported by consumers'. The second schedule deals with GST treatment of cross-border transactions between businesses, and the third schedule is changes to the farm management deposit scheme.

Before I get into some of the nitty-gritty of the bill, I would like to respond to a few comments made by other members during the debate on this bill. I will start with the contribution of the member for Melbourne. The member for Melbourne was talking about how he had to go to five or six auctions before buying a house. He talked about other buyers who were part of a tax scheme that allowed them to rent it out—meaning the residential property that they were purchasing—at a lower rent. The member for Melbourne is exactly correct, because if we remove negative gearing you will get higher rents. It is the fact that we allow negative gearing that rents are lower in this country than they would otherwise be. Backing up the member for Melbourne's assumption that this leads to lower rents, this is exactly what we have seen overnight in the BIS Shrapnel report. They found that if this country were to adopt Labor's policy of repealing the ability of individuals to use negative gearing, it would result in capital city rents increasing by up to 10 per cent. BIS Shrapnel said: 'The policy intervention'—that is, Labor's changes to negative gearing—'would raise rents.' For anyone listening to this: if Labor were to be elected to government later this year and they implemented this policy, BIS Shrapnel say rents would increase on average across this nation by $2,600. How are people going to find another $2,600? That will be the outcome of Labor's policy.

At the moment in Sydney the median rental is $510 a week per property. If negative gearing were to be taken away, to compensate for the losses landlords would need to raise rents in Sydney by $73 a week for the median rent. I ask the constituents of my electorate who are renting to consider that the election of a Labor government would see their rents increase by $73. This is a finding from one of the nation's most respected economic-modelling companies.

The member for Melbourne was complaining about housing prices and having to go to five or six auctions. He fails to understand that policies from Greens- and Labor-controlled state councils and governments, year after year after year, have simply failed to release enough land. The problem with housing affordability is not because of negative gearing but because of supply. It is simple economics. We know what the demand will be. We know there will be more demand for housing in this nation every year.

Demand from our immigration policy, demand from overseas and demand from our population will see an increase in demand every year. But the supply is not allowed to respond like a normal market would to meet that increase in demand because of all the artificial restraints from Labor- and Greens-controlled state councils and local governments. For a member of the Greens to come into this parliament and whinge about how difficult it was for him to get into the housing market and to blame negative gearing is simply missing the point. The point is we must fix the issues of supply to deal with the housing affordability crisis, not play with negative gearing.

A lot is said about negative gearing. I found a quote from former Treasurer Peter Costello. One day after the 20th anniversary of the election of the Howard government in 1996, the government that brought so much prosperity and wealth to this country, I thought it worthwhile to quote the former Treasurer. He said:

When I was treasurer we looked at all of these things—

referring to negative gearing—

and the basic principle of the tax law is this—if you have an expenditure, a necessary expenditure, incurred in the course of producing income that expenditure is deductible.

The cost of interest is a necessary expenditure in the course of producing a rent return from a particular asset. Former Treasurer Costello also said:

Expenditures are deductible against income that is the basic principle of our tax law.

What Labor want to do is change all that, put all these distortions in without dealing with the main problem which is supply, supply, supply, supply. We have seen the damage that this would cause.

Also in this debate we had the speech from the shadow Assistant Treasurer, the member for Fraser, in which he rabbited on and said, 'We have announced measures on housing affordability which will boost housing supply.' Wrong. The BIS Shrapnel report has shown the exact opposite. This would not be the first time we have seen that the effect of a Labor policy is completely the opposite to what they think it would be. The shadow Assistant Treasurer says their policy will boost housing supply. Far from boosting supply, the BIS Shrapnel report says of Labor's policy: 'At the end of a 10-year horizon'—this is after the implementation of Labor's policy—'the market would find a new normal but the legacy would be a lost decade. The dwelling stock deficiency will be 60,000 homes instead of 20,000.'

So we are going to see a decline in housing construction of 7,200 new houses per year. The shadow Assistant Treasurer could not be more wrong. If Labor's policy will cost 7,200 new houses not being built, just think of all the jobs that that will affect. Think of the carpet-layers, the kitchen-makers, the plumbers, the builders, the electricians, the landscapers, the tilers, the painters and so on who will not have work. The BIS Shrapnel report estimates that as a result of Labor's ill-conceived and ill-thought out policy, the net job loss over the next decade will be 175,000. This is complete insanity, but this is the policy of the Labor Party of Australia.

The shadow Assistant Treasurer talks about 'improving housing affordability' and 'helping young Australians attain the dream of owning their own home.' He says that Labor's policies on negative gearing and capital gains tax will deliver $32 billion to budget over the next decade—but he is dead wrong again. The BIS Shrapnel report estimates that, yes, if Labor introduce these changes, at first they will get an extra $2.1 billion a year—you beauty; the Labor Party can spend that over and over again—but they also calculated the secondary effects. They said that, firstly, there would be a loss to government revenue of $1.8 billion from a drop-off in building activity. So we get $2.1 billion but we lose $1.8 billion in revenue. So we are only $300 million in front. But then we have to add an extra $1.95 billion loss on lower tax receipts, lower stamp duties, lower GST receipts, lower council rates and lower land tax receipts. When all these are taken into account, we do not end up with more revenue; we end up with less. We actually end up with a cost to the budget of $1.65 billion a year.

So here we have classic Labor policy, thinking, 'This is great; we'll get all this extra revenue that we can then go and spend'—tax and spend, tax and spend—but the damage that they will do to the economy will have a negative effect on revenue. So, at the end of the day, the money flowing into the government's treasury will be $1.65 billion less than if they had not implemented this policy. It just goes on and on and on. We have seen this before from the Labor Party. We saw this during their six years of government—poorly thought through policy brought in on the run. We saw it with the BER, we saw it with green loans schemes, we saw it with the carbon tax and we saw it with the mining tax. I could go on and on and on about their ill-conceived policies, damaging the very people they think they are helping. History is repeating itself with the current Labor policy. The Labor Party's change to negative gearing—which was brought up by the member for Fraser during debate on this bill—will damage the economy. The risk to our economic prosperity should now be crystal clear to every single Australian.

We have this economy on the right track. We saw yesterday GDP growth in this nation hitting three per cent for the last year. That places us above every single G7 nation. We are well above the average of the OECD nations. In addition, over the last two years, we have seen 400,000 new jobs created in this economy—not created by government, but created by business, and mainly small business, because we have been getting the economic settings right to encourage them to go out and take risks. What do the Labor Party want to do to those people we have encouraged to take risks, to start new businesses and to try new ideas? They want to increase the capital gains tax. They want to slug the very people out there in our society creating wealth, taking risks and creating new jobs with a 50 per cent hit in capital gains tax.

What is quite tragic in this is that it is clear that many in the Labor Party simply do not understand the capital gains tax system in this country. That was shown during this debate, when we heard the member for Melbourne talk about a capital gains discount at the end of it. The 50 per cent allowance on capital gains tax is not a discount. That came about from a change made back in 1999. The simple principle of a capital gain is that it is only the gain you get over and above the rate of inflation. So, if you bought an asset for a million dollars in the year 2000, with the rate of inflation, you would need a 50 per cent increase just to keep up with the rate of inflation. It is only anything above that that is true capital gain. That is how we used to tax capital gains in this country. We have taken away that allowance for inflation but the offset is that you now get a 50 per cent reduction on the tax rate that you pay. It is simple economics 101—something this Labor Party simply do not understand.

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

It is a great pleasure to be speaking on the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016, which concerns taxation and superannuation laws amendments. I want to start by making an observation. If the rumours sweeping their way around this building are true, we have no more than five sitting days between now and the next federal election. That is right: the speculation running rife around this building is that the government are going to rush to a double dissolution election after having secured the agreement of the Greens to their Senate voting reform bill; that they are going to basically gag the proceedings of the parliament immediately after or immediately before budget day and then rush to the polls.

You would think that, if a government had a plan such as this, after three years, they would have an economic story, an economic plan, for the country. But, sadly, this is not the case. You have a 'push me-pull you' approach, where you have half the Liberal Party caucus running in one direction and half the Liberal Party caucus running in the other direction. Of course, we cannot be blaming them for that, because their elders and betters, half the cabinet, are running in one direction on this and half the cabinet are running in the other direction on this. They are divided when it comes to taxation and they are divided when it comes to what you do with the money that you collect as a government.

We have a Prime Minister who is like a man in a room. He knows that he has to get out of that room, but he is busy going around closing off every door and every window that is a path out of the room he finds himself trapped in.

We know that there is a way forward for this country, and we have carefully prepared the policies and are rolling them out and explaining them to the Australian people. Before the last election the government promised us there would be a tax white paper within two years of the new government. The white paper was meant to be a clear and concise explanation of the government's views on this admittedly complex matter. But it is little wonder that they are unable to put that down on paper, because they cannot explain their views. They cannot even agree on the taxation reforms.

The government have spent over a million dollars in consultation fees. They like to talk about waste and mismanagement. Here is a place where they might start: over a million dollars in consultants' fees to produce a tax white paper that will never see the light of day. The finance minister has now described it as 'stationery'. The Treasury secretary, John Fraser, said that he was 'waiting for further direction from the government'. He is a man waiting for Godot. There is still no white paper, because the government are so hopelessly divided that they cannot agree on what they want to do, despite the fact that they received over 800 community and business group submissions. Not surprisingly, these groups are all disappointed at the government's inaction, and Australians are still none the wiser on what the government will decide to do. But, worse still, the Prime Minister and the Treasurer are none the wiser on where they are going to go when it comes to tax reform on this important issue.

Let us deal with the GST. Malcolm Turnbull and co.—the Prime Minister and co.—were keen on having a wide-ranging conversation about tax, but it was a conversation that began and ended with the GST. A proposal for an increase in the GST was being strongly floated and we know was seriously discussed with state premiers and chief ministers around the country. There was speculation about a 50 per cent increase in the GST, which would add 15 per cent to the price of everything, being possible and about broadening the tax base to food, to medicine and even to drinking water. The Prime Minister—we are yet to find out what he does believe or what convictions he maintains on any of these issues—appears to have been spooked by what the Treasurer describes as 'the bedwetters on his backbench' and, after months of deliberation, that one has been ditched as well. At least for now.

Multinational tax avoidance is something that we believe we need to address. We believe we have a problem with base erosion. On one day the government will say, 'We don't have a revenue problem; we've got a spending problem,' and on the other day they will say, 'We've got a revenue problem; we really need to do something about it.' We understand that there needs to be fiscal discipline, which is why we have put in place a range of savings measures, but we also believe there is an issue with base erosion.

First and foremost the area that we need to look at is multinational tax avoidance. Almost 600 of the largest companies operating in Australia did not pay income tax in the 2013-14 financial year. I want to repeat that for all of those hard-working pay-as-you-earn taxpayers, who would be devastated to know, that over 600 of the country's largest companies did not pay income tax in 2013-14. So after talking a big game, the Abbott and now Turnbull government have delivered literally nothing when it comes to multinational tax avoidance. We were promised a comprehensive tax reform that would see the big end of town pay their fair share, but instead the government's own budget papers have a series of asterisks where revenue estimates should be. That is right. They talk a big game when it comes to multinational tax reform, but when we asked them—and, in fact, when the budget processes mandate—in place of their estimates of the revenue that will be gained by their tax changes over the forwards we have asterisks. That is the budgetary equivalent of crickets.

They have not even bothered to predict how much money they are going to raise, because they know they would be held accountable to their dodgy claims and accounting practices. In contrast, Labor's plan, which has been independently costed, will deliver $7.2 billion to the budget bottom line. Under Labor multinational companies will no longer be able to claim up to 60 per cent debt-to-equity ratio for their Australian operations; instead, we will use their global debt-to-equity ratio. We will be cracking down on the common practice of cost shifting from a reasonable tax jurisdiction like Australia to a low- or no-tax jurisdiction, effectively shifting the tax burden to those wage and salary earners who are doing the right thing. Labor will standardise our tax laws with other countries so that companies cannot double dip. A Labor government will improve compliance with the ATO by ensuring that it is properly funded to do the job that all Australians expect it to do.

Labor will also increase the effort when it comes to data matching. We are going to bring forward third-party reporting and data matching early to improve compliance when it comes to tax payment. The Turnbull government have been too scared to take on the challenge of closing the loopholes for multinational tax avoidance. Worse still, on the final sitting day of last year the Turnbull government did a dirty deal with the Greens political party—they trashed tax transparency laws, taking two out of every three private companies out of the tax transparency net. That is right—two out of every three private companies have now been relieved of their obligation to have some tax transparency when it comes to disclosure.

The Prime Minister and the Treasurer—divided, clueless and with no vision for tax reform in this country—surely cannot be trusted with the future of our economy. They cannot even be trusted with each other! When it comes to superannuation the government still have no plan about what they are doing in this area, either. It is often the case that people give their most honest speeches in their last appearance in this place. We had the former Treasurer, the former member for North Sydney, single out this and capital gains tax as areas that are desperately in need of reform. There are 475 people with superannuation balances in excess of $10 million who are earning tax-free income of about $1.5 million a year.

People in the gallery, who I am sure are earning modest incomes, might be surprised to know that there are people—it is perfectly legal; I make no criticism of them, as they are doing nothing that is illegal—who are earning a tax-free income of $1.5 million a year. Surely something has to be done about that, because it simply is not fair. But the government does not want to disadvantage these people. We think—and I am sure that the majority of them think—that this is not a sustainable situation.

Labor has a positive plan that will end the tax concessions the government is currently giving to the very rich. Labor will reform the tax exemption for earnings on superannuation balances that exceed $1.5 million. That is only about 60,000 of the most wealthy Australians. Labor will tax superannuation pensions at a rate of 15 per cent for people drawing down in excess of $75,000 or more per annum, dealing with that issue. I think most people would agree that a retirement income of $75,000 per annum is a very comfortable income, particularly if you are in a position to own your own home, as the majority of people who are earning returns from their superannuation investments of $1.5 million most certainly would.

We will reduce the higher income superannuation charge threshold from $300,000 to $250,000. We will thereby reduce the tax concessions for 110,000 of the highest superannuation contributors. Labor's changes, which have been independently costed, will save over $500 million over the forward estimates and $5.1 billion over the decade. We argue, and the majority of respected economists and financial commentators agree, that these are changes that the Australian government cannot afford not to do. They are responsible, well costed and well planned. These are changes that the Australian government cannot afford not to do, and Labor will do it.

I want to say something about tobacco, because it is important to note that there is still at least one political party in this parliament—and that is the party of the Deputy Prime Minister and, ironically, the Minister for Rural Health—that still accepts donations from tobacco companies. We do not, which means we are unencumbered when it comes to setting policy which is in the national interest and puts the interest of Australian's health at the front. Last year, the Nationals accepted close to $11,000 in donations from Phillip Morris. That is at the same time the coalition government has frozen the Tackling Indigenous Smoking program by cutting $130 million over five years. Labor has not accepted donations from tobacco companies for over a decade. We developed the Tackling Indigenous Smoking program, we introduced plain packaging and we have defended those bans in the parliament, in the community and in the courts.

Labor will increase the tobacco excise and bring us into line with the World Health Organization's view that tobacco taxes should be set at more than 75 per cent of the retail price to be the most effective and cost-effective tobacco control interventions. The policy has been independently costed—again, by the Parliamentary Budget Office—to raise $3.8 billion over the current forward estimates period and $4.7 billion over the medium term. Again, viewed from a revenue point of view, viewed from a budgetary point or view or viewed—as I like to see it—as a health initiative, these are changes that Australia cannot afford to avoid. These are changes that any responsible government would implement, and Labor will do it.

I want to talk about negative gearing. There is a bit of a buzz around Parliament House today. It is one of the greatest horn swallows that we have seen in a long time. I am sure a cartoonist is busy somewhere in the press gallery drawing a picture of the Treasurer with egg on his face, swallowing the horn that he was out there blowing through yesterday and this morning. Labor has a plan for negative gearing. It is a responsible plan that every responsible economist in the country is backing. I think Australians are attuning to it because they can see that it is fair and reasonable.

I want to say something: it is unfortunate that the member for Hughes did not switch on the radio before he raced into the parliament with the government speaking points from yesterday. That is because if he had tuned in to the radio and looked at the government speaking points from yesterday he would have realised that this fantastic report that he was championing as conclusive evidence of some great killer point was actually a study of something else. It certainly was not Labor's policy. In fact, it was a study that was conducted months ago. The Treasurer claims he does not know who commissioned it, but we will interrogate him further on this, because I am sure his fingerprints are all over it.

But seriously, they suggested that a study that was conducted sometime over Christmas was a serious analysis of a policy that was released a couple of weeks ago. A serious Treasurer, a serious government and a serious Prime Minister would not commit such a C-grade error. There are many people in the community who had hoped that the man who rolled Tony Abbott in August last year was a different guy— (Time expired)

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

I am pleased to make a few comments regarding the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016 and this important reform. Other speakers and the shadow Assistant Treasurer have outlined that Labor is reserving its position on this bill until the Senate Economics Legislation Committee has conducted an inquiry into the operation of the bill and heard the views of Australians regarding how this bill will operate.

I do understand the need to ensure that our tax system keeps pace with technological development and its effect on commercial transactions. There is no doubt that particularly over the last decade there has been a large increase in the number of Australians purchasing goods and services from offshore suppliers over the internet and the value of those purchased goods and services. The effect of this has been to shrink the Australian tax base and to leave locally based suppliers at a competitive disadvantage compared with those foreign suppliers. When the GST was first implemented in the late 1990s we did not see the volumes of purchases being made over the internet, and the decision was made that the GST would not be charged on certain purchases from foreign suppliers made under those circumstances. Those circumstances of course have changed. There are now a large number of transactions done on a daily basis over the internet from between Australians and foreign suppliers of intangible goods, such as, in particular, music, videos and the like.

The intent of this bill is to modernise our tax system to ensure that those digital products and intangible goods and services supplied to Australian consumers by overseas businesses are subject to GST, as Australian based businesses are. In principle, that is a noble objective. We do not want to see Australian businesses at a competitive disadvantage compared with foreign businesses, and I support the concept of extending those taxation arrangements to ensure that we do level the playing field. The issue I have with this bill is how you do it. I have had a good look at the explanatory memorandum, and I am somewhat confused about how these provisions are going to operate and, importantly, how they are going to be enforced

The bill is to take effect from 1 July 2017 next year. The amendments are modelled on the European Union rules regarding the supply of digital goods. A number of other nations have taken up this challenge of looking at how you charge consumption taxes on goods that are purchased from foreign suppliers over the internet and the like and have made some amendments. I am not au fait with the ways other nations have done it, but I have read the explanatory memorandum in the case of this bill and it is still not clear to me how this bill will operate in practice—in particular, how the government will collect the GST from foreign suppliers and, importantly, how they will enforce the measures contained in the bill if a foreign supplier just simply refuses to collect and remit the GST to Australia.

The explanatory memorandum makes all suppliers of things other than goods or real property connected with the indirect tax zone where they are made to an Australian consumer. This amendment will make that connection with Australia for the purposes of GST. It means that a supplier of digital products, such as streaming or downloading of music, movies, apps, games et cetera, and, indeed, consultancy and professional services, will be subject to the goods and services tax if they are supplied by a foreign supplier. That sounds fair in theory and it sounds achievable in theory but the issue for me is how you do it in practice. Reading the explanatory memorandum, it appears there are two ways this will occur. One way is that it will be the responsibility of the operator of an electronic distribution platform, if that operator controls the authorising of billing, the authorising of delivery of supply and the setting of the terms and conditions under the supply.

That is somewhat confusing in itself; indeed, there are many operators of these electronic platforms that are supplying goods into Australia that do not operate within Australia and operate offshore, and it is not clear how they are caught by these provisions. The second manner in which I understand a supplier will be caught by the GST obligation if they are supplying goods and services from overseas is based on whether or not the Australian consumer is registered for GST and whether or not the supplier believes, and has taken reasonable steps to obtain information concerning whether, the recipient of the supply is an Australian consumer. Examples that are given in the explanatory memorandum highlight how some of the confusion around this particular provision could come about. I take it that this would be a rare example, but we are given the example of an Australian dual citizen who may be in London at the time that they make a purchase of, say, an app or particular music over the internet. They use their London address but an Australia credit card. It is not exactly clear whether or not the supplier is then liable to charge GST and remit that to the Australian government.

These, no doubt, are issues that will have to be resolved in the course of the operation of this bill, most notably, probably, by the tax commissioner, but in my view they are confusing. I think this is why this particular bill should be the subject of an inquiry by the Senate Standing Committee on Economics to tease out all of the issues about how the particular provisions are going to work and, importantly, whether or not the operation of the scheme and the enforcement of the scheme is going to cost more than the actual revenue that is going to be raised by this scheme being put in place. This is an issue that has been highlighted in the past. The former Assistant Treasurer in the former government, David Bradbury, did a lot of work on this and used the inquiry and the report of the Productivity Commission, which highlighted this exact issue. The Productivity Commission reached the conclusion that the change of extending the GST to the provision of goods and services from international suppliers below $1,000 was not worth it, because the cost of the operation of the scheme and the enforcement of the scheme would be much greater than the actual revenue that would be raised for the government.

This is a key point, particularly when we have a tight budget scenario at the moment. It is something that I think needs to be teased out by the Senate economics committee: will the difficulties with the operation of this scheme and the costs associated with it outweigh the revenue that will be raised?

When the government came to office in September 2013, they promised a white paper on tax reform for Australia, and they promised that within two years. It is now almost three years, and we still do not have the white paper. The former Prime Minister, Tony Abbott, promised the most comprehensive review of Australia's taxes to ensure that there was fairness and said that they would be—in their words—looking at lowering taxes for Australians. That was almost three years ago, so this is another broken commitment from the Liberal-Nationals government. They promised the white paper within two years, and we are yet to receive it.

There is now beginning to be some doubt about whether or not that white paper will ever be delivered by the government. They are now saying that they will do some sort of statement in the lead-up to the budget about tax reform and that the major elements of their tax reform package will be contained in the budget. There is even confusion now about whether or not this white paper will be delivered. They have floated these ideas about increasing the GST, and there is no doubt that the Prime Minister gave the Treasurer the obligation to go out and look at increasing the GST, to get the business community to get out there and support this campaign and to get the various state Liberal premiers to get out there and do the same, and they did. And then they dumped it for no apparent reason and left all of those people in the lurch.

Obviously, as Labor members of parliament, we support the dumping of an increase in the GST because it would have been unfair, and it would have been a handbrake on economic growth in our economy, in my view. But it is a great symbol of the chaos and dysfunction of this government when it comes to developing a plan for tax reform that is needed within Australia. We saw the Treasurer over the last couple of weeks, after he dumped the GST, then begin to talk about negative gearing. He mentioned—they are his words—'the excesses of negative gearing' as something that his government would look at targeting through its tax reform package. It now appears that that has been dumped as well.

Two major tax policy reforms that were floated by the Liberal Party—it was not us who put these on the agenda; they were floated by the Liberal Party—were dumped in a matter of moments. Some would say it is because the former Prime Minister, Tony Abbott, has begun to agitate on these issues and has begun to stir up the pot about it within the Liberal Party caucus and get people onto his side for his comeback to the prime ministership, and that has meant that Malcolm Turnbull, the current Prime Minister, has become timid on tax reform and unable to make a decision—while the Australian people suffer the whole time.

And now today we have this utter embarrassment for the Treasurer. It proves what a joke this Treasurer has become, when he goes out there and starts spruiking a BIS Shrapnel report done on negative gearing in Australia. In his words, it is 'an indictment on Labor's policy' and shows that 'they just haven't done their homework'. It appears that the person who has not done his homework is the Treasurer. It appears that the Treasurer never even read the report. If he did read the report, what an embarrassment, because he does not know the value of the Australian economy. On the first page of the report, it says that the value of the Australian economy—our GDP, if you like—is $190 billion. That is actually the GDP of New Zealand, one of Australia's nearest neighbours. Here we have the Treasurer of this nation, and he does not even know the value of the Australian economy. What an embarrassment! The study was also released before Christmas, and the authors of the study have today admitted that it was not a study of Labor's recently announced negative-gearing policy at all; it was done before this policy was announced.

So, firstly, the Treasurer does not know the value of the Australian economy. Secondly, the report is discredited because it gets severely wrong the value of the Australian economy, one of the key assumptions in the report that underlies the findings that were made in respect of negative gearing. Thirdly, the report was done before Labor even released its policy on negative gearing. So how can this Treasurer claim that it is 'an indictment on Labor's policy'? All it is is an indictment of his performance as the nation's Treasurer and the fact that he cannot even get these fundamentals of the Australian economy right.

This is the reason the Prime Minister, it appears, has taken the issue of tax reform away from the Treasurer completely. The major part of the Treasurer's portfolio has been taken away from him and given to the head of the Department of the Prime Minister and Cabinet. This proves that the Treasurer is just not up to it when it comes to tax reform. He is not up to it when it comes to managing our economy. More dastardly and more importantly, the division and chaos and dysfunction of this government is actually harming the Australian economy.

That is why the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016, in respect of the GST, needs to be inquired into by a Senate inquiry before this parliament makes a decision on it.

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

I am pleased to follow the member for Kingsford Smith in speaking on the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016. This legislation highlights the difficulty of administering a fair tax system in a globalised world in which everyone is connected by the internet. The legislation has three schedules to it. Schedules 1 and 2 relate to proposed changes to GST policy in the country. In particular, schedule 1 seeks to ensure that digital products and intangible goods and services supplied to Australian consumers by overseas businesses are subject to the same GST as applies to suppliers within Australia. Schedule 2 relates to the treatment of GST with respect to cross-border supplies that involve nonresident companies. The internet has opened up world markets to everyone and online shopping for goods and services is now widespread. If time permits, I will come back to that a bit later on.

This legislation is presented as legislation that seeks to create a level playing field to overcome an existing unfairness arising from the current application of the GST. I have previously raised questions about a level playing field and how Australian entities are disadvantaged when competing with international counterparts. The legislation is also about tax revenue raising. I suspect that that is the prime objective of it. Both ensuring a level playing field and having a fair tax system are legitimate arguments for change; however, the level playing field argument should not be limited to services, as appears to be the intent with this legislation. Why has the government taken an interest in an uneven playing field on this occasion? Most likely because the government is missing out on GST tax revenue. However, when the victim of an uneven playing field is private enterprise then the government seems to show little concern. The free marketeers response is that if you cannot survive then get out.

Australia's high standard of living is increasingly being made possible by Australia's willingness to buy goods and services provided by people working under conditions that Australians would never accept for themselves. Claims that we are helping developing countries out of poverty by buying their cheap products may have some merit but are also an excuse for turning a blind eye to unethical conditions—likewise with claims about improved competitiveness.

Recent decisions by the government to allow foreign flagged vessels to operate within Australian waters will of course result in lower shipping costs because the vessels used are poorly maintained, are registered in low-tax jurisdictions and pay slave labour rates, with workers having little or no rights and the ship operators having little regard for environmental safeguards. Yet that is exactly what the Turnbull government did when it provided temporary licences to foreign flagged vessels to replace the MV Portland and CSL Melbourne. The Australian government is, however, also foolishly ignoring the fact that the shipping operators, to my knowledge, pay no tax to the Australian government and the employees on board the vessels pay no Australian income tax for work carried out within and for the Australian economy.

Let me turn to other products or services—whether it is a call centre operating from within a developing country or a product manufactured overseas—where there are no industrial relations protections, no environmental standards and lower government taxes. Australian entities complying with all of their industrial and environmental obligations simply cannot compete where there is no level playing field. The concept of free trade between countries has merit only if a level playing field exists, but that is not the case. Tariffs, government subsidies and other bureaucratic barriers are commonly used to protect local markets in other countries.

Those who argue that tariff protection stifles innovation and modernisation fail to acknowledge that tariffs may equally be used to create a level playing field against goods or services provided or produced without adequate human or environmental safeguards. That is why we have in this country antidumping laws and that is why other countries have antidumping laws. Those laws allow the government to impose duties—in other words, tariffs—on imports found to be dumped onto their markets. It is a common practice used around the world and the antidumping laws were brought in for good reason—to create a level playing field.

Indeed, we are now having debates about Australia's antidumping laws. I note that they have been changed in recent months, and I accept that they have been changed for the better. There is still, nevertheless, a real problem in being able to properly administer the intent of those antidumping laws. Only this week I and several of my colleagues met with some of the steelmakers of this country. They are in a situation where they find it almost impossible to compete with overseas steel imports on two grounds: one, because the cost of producing steel overseas is much cheaper because, as I referred to earlier, the industrial relations conditions that apply and the wages and so on make it much cheaper to produce overseas and, two, because the products do not comply with Australian standards. How we can manage and monitor that is extremely difficult but the reality is that our producers are not competing on a level playing field and that comes at the expense of industry in this country that not only pays taxes but also employs hundreds of people who in turn pay weekly income tax. We have seen again in recent weeks the difficulty that Arrium Steel in Whyalla is facing. Some 600 employees have already been laid off as a result of the difficulty that that steel company has in competing with the overseas imports.

There is another matter I will refer to. The government is currently attempting to enter into the WTO Agreement on Government Procurement. My view is that the application to become a member to the WTO government procurement agreement should not be rushed and should be carefully considered. In a submission to the government on this very matter last year the Australian Forest Products Association noted the uneven playing field that Australian paper suppliers were operating in and the inconsistency across government departments in the paper that they purchased. It seems to me absurd that a consistent procurement policy approach does not even exist across all federal government departments, let alone the three levels of government. The submission by the Australian Forest Products Association highlighted that six out of 22 federal government departments procured Australian-made paper and the other 16 bought their paper from offshore, mainly from Germany, Austria or Indonesia. If six departments can justify buying the Australian-made paper, why cannot the other 16 and, indeed, why cannot all levels of government?

I also note that, when faced with an election, the government rolls out a string of spending projects, often specifically brought forward for the purpose of boosting the local jobs that can be created from those projects and in turn injecting money into the local economy. There were plenty such announcements made in recent days related to the defence white paper. Indeed, only yesterday we heard of one particular electorate perhaps benefiting to the tune of $1 billion as a result of procurements that will take place in that electorate. So clearly the government understands that government procurement can be a very effective lever, but it chooses to apply that principle only when it is facing an election or when it is under pressure.

The strategic use of government procurement is well understood. It can be used as an effective economic lever, and many other countries have done so where they have very clear government procurement policies which support their local industries and in turn their local communities. One of the issues that concerns me is that when we enter into agreements with other countries, whether it is the procurement agreement that I was referring to earlier or free trade agreements, I do not know to what extent we write into those agreements that the products and services we will get from those countries must comply with the standards that we expect here in Australia. But, even if we do write that in, the reality is that we have no way of policing whether that is the case. We do not even test most of the products that come into this country to ensure that they comply with the standards that they claim to comply with, let alone have any ability to ensure that the workers who make those products are working in conditions that we would find appropriate. So writing in standards might sound good, and it might appease some people, but the reality is that they become meaningless. That applies to this legislation as well, and again I will come back to that in just a moment.

The world is not a level playing field. Not only should the government intervene in order to protect its own tax base, as it is doing with this legislation; but the government should equally intervene to ensure that all Australian businesses can genuinely compete on an international level playing field. The fact is, if they cannot, they have two options: they can either close down or relocate to an offshore country, as many of them have done. When they do that, again our tax base goes down. The people they employ will not pay tax and the company will not pay tax here in Australia. So it is not in Australia's long-term interests to force companies that are currently based here to move offshore. The reality is that it is Australian businesses that sustain our economy, that pay taxes and that employ people. Every time one of them leaves this country, the nation is worse off for it.

In 2014-15, some $54 billion was raised in GST in Australia. This legislation seeks to increase that by another $150 million in the year 2017-18 and then $200 million in 2018-19. I point out that, whilst that might be an appropriate ambition, there are other areas where we could similarly be looking to increase the GST in this country. One of the matters that I refer to is the online gambling that is occurring in Australia. My understanding is that two out of every three online gambling dollars is estimated to go offshore. I do not know what the exact figures are, but the estimates are that in excess of $1 billion is now spent each year on offshore gambling. Again, that is money going offshore to gambling operators who pay no tax whatsoever, let alone contribute anything to the Australian economy. I am aware that is an issue that is being discussed broadly around the community, but those are the kinds of loopholes and areas where we should also be looking if we want to close down the tax loopholes in this country and if we genuinely want to lift the tax base.

I now turn to this legislation as it currently stands. Whilst the intent of the legislation is something that we on this side of the House have no problem with, it raises a real question, and that is: how do we ensure that the intent of this legislation is complied with? How do we ensure that we have good enforcement measures in place? Other speakers on Labor's side have pointed that out. The reality is we cannot ensure that and there is no assurance provided within this legislation that gives me any confidence that, even if we enact it, we will be able to implement it in an effective way. It seems pointless to implement legislation that may ultimately cost us more than it is going to return to government.

There just may be a better way of dealing with the matter that we are trying to address. As Labor has proposed, this legislation should be referred to the Senate Economics Legislation Committee for consideration for that very reason. Ultimately, creating a level playing field for all players within the Australian market should be an objective of this parliament. Everyone should be treated equally. Doing that, however, is not as easy as it sounds. Perhaps, just perhaps, we can come up with a better form of legislation once the Senate committee has had a look at it.

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

Firstly, let me thank all members who have contributed to this debate. This bill is making important changes to the application of the GST to cross-border transactions and the operation of the Farm Management Deposits Scheme.

The first element of this bill changes the goods and services tax, the GST law. Schedule 1 applies the GST to digital products and other services imported by Australian consumers. Under current law, digital supplies and products imported by consumers are not captured by the GST legislation. This is, of course, an anomaly from when the GST legislation was first implemented back in the year 2000, when the potential growth in the digital economy was not well understood and thus not captured by the legislation at the time. This measure seeks to rectify this gap, and digital products and other services imported by consumers will now be subject to the GST, under similar GST laws as those that apply to resident businesses. This measure is the product of extensive stakeholder feedback and consultation.

The government will require overseas businesses making supplies to Australian consumers to register, collect and remit GST on sales to Australian consumers, in the same way as Australian businesses. We are able to implement such a system through the strong and collegiate engagement we have had with international tax authorities and bodies such as the OECD and the EU, who are pursuing similar models and, in Europe's case, have already implemented them.

Schedule 2 complements this measure with a second GST amendment, which implements an announced but unenacted measure from the 2010-11 budget which limits when GST will apply to supplies involving non-resident businesses. The origin of the measure was the Board of Taxation's review of how GST is applied to cross-border business-to-business transactions. This measure ensures that fewer non-resident businesses are unnecessarily drawn into Australia's GST system, reducing the costs of compliance for business and simplifying administration for the Australian Taxation Office. These measures are a good example of the government's objective to pursue a simpler and fairer tax system.

Schedule 3—the second element of this bill—makes three important reforms to farm management deposits. It doubles the maximum amount that can be held in a farm management deposit to $800,000 and allows primary producers experiencing severe drought conditions to withdraw an amount that has been held in a farm management deposit for less than 12 months without losing the tax concession. It also allows amounts held in a farm management deposit to be utilised as an offset to reduce the interest on a primary production business loan or debt.

These changes were announced in the Agricultural competitiveness white paperon 4 July 2015 and are the product of extensive stakeholder feedback and consultation. Farm management deposits are a risk management tool to help primary producers deal with uneven income between years, which frequently occurs as a result of weather variations, the occurrence of natural disasters and changing market conditions. Farm management deposits allow primary producers to set aside pretax income from primary production in a special account that can be drawn on in a future year. Income deposited is tax deductible in the year the deposit is made and is included in assessable income in the year it is withdrawn.

However, we have heard from stakeholders that the current rules impose a number of unnecessary restrictions. The current rules limit the total amount that can be deposited to $400,000, bring forward tax paid where a primary producer affected by drought needs to access their funds within 12 months and prevent financial institutions from offering farm management deposits as an interest loan offset.

The reforms in this bill seek to alter these restrictions, ensuring that farm management deposits remain a useful tool and provide farmers with enough flexibility to be self-reliant and adapt to harsh conditions in the longer term. This schedule provides farmers with higher amounts to build up larger cash reserves to act as a buffer in hard times. The schedule reintroduces earlier access provisions to ensure that primary producers are not discouraged from making deposits if they fear they may have to withdraw them within 12 months as a result of severe drought. This schedule also removes the restriction that prevents financial institutions from allowing farm management deposits to offset loans, providing the potential for farmers to have greater flexibility in how they manage debt and improve cash flows. Full policy details are in the explanatory memorandum.

Both the GST and farm management deposit amendments adapt Australia's tax laws to meet contemporary business needs and respond to our changing economy. Australia's GST law needs to evolve to capture the international digital economy, and our domestic law needs to adapt, be adaptable and account for the difficult and trying conditions that our farmers may encounter. The two GST measures contained in this bill ensure that the overseas businesses that should be in our GST system are in the system and paying the GST on their sales to Australian consumers. At the same time, businesses that should not be caught in the system are removed, reducing red tape and simplifying administration and compliance. A similar principle applies to the farm management deposit amendments. These amendments reduce red tape for primary producers and provide them with the vital flexibility that they need to prepare for hard times. These measures seek to ensure that Australian taxes are contemporary to the needs of the economy and are fairer, simpler and more consistent.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.