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

Shortly after the election, I wrote to the Treasurer affirming Labor's support for the Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016 and, indeed, calling for its reintroduction. In my letter to the Treasurer, I wrote that this bill is an inherently sensible measure and one that will help streamline the work of our busy parliament. It would assist parliament in not getting bogged down with tweaks to existing legislation and allowing it to instead focus on the challenging tasks at hand. The principal provision of this bill is allowing a remedial power to sit with the tax commissioner that gives employees and businesses a clearer and more certain path to follow when tax and superannuation laws do not operate as intended.

My action on behalf of Labor in writing to the Treasurer to encourage the government to bring forward this bill, demonstrates Labor's ongoing, constructive role in this parliament in strengthening the integrity of our tax system, the efficacy of its operation and its enforcements. Our tax system is an integral part of the Australian social fabric. It ensures that the Australian government has the resources it needs to fund our schools, our hospitals, our teachers, our nurses and our police. It ensures, through having a remedial power, that the tax office is able to get appropriate revenue while minimising the cost to taxpayers through compliance. As the old line about taxation goes, 'It's the art of garnering the maximum number of feathers from the goose with the minimum amount of hissing.' And this does, indeed, achieve that goal.

But it must be acknowledged that this bill comes before the House at a time when the Abbott-Turnbull government has slashed over 3,000 tax office jobs. Indeed, the effect of cutbacks of so many jobs is to imperil the integrity of our tax system. We have a tax system today being enforced by a tax office that is badly under-resourced. We have recently seen another outage of the tax office website, further evidence that this government cannot keep the digital lights on. We have a Prime Minister who was much touted as a 'techxpert', in contradiction to his predecessor, the member for Warringah, who once said, 'I'm no tech head.' I am carrying no can for the member of Warringah, but I would point out that the ATO website never went down when he was Prime Minister. And yet, we have the ATO website going down and now accountants are bringing claims for damages against the government. The tax office has been under-resourced under this government, and taxpayers are suffering as a result.

Labor has been committed to being an important part of the debate over tax integrity in Australia. We brought forward a comprehensive multinational tax avoidance package, part of which was the appropriate resourcing of the tax office. We are hopeful that at some stage the government will fall into the slipstream that Labor has created and push towards a fair and functional tax system. They have occasionally done that. After attacking Labor for our moves on cigarette excise, the government belatedly fell into line. After attacking Labor on our attempts to ensure integrity in superannuation tax concessions, the government eventually fell in line with their own belated measures to close Australia's excessive superannuation tax loopholes. And we have seen some very timid measures towards making multinationals pay their fair share of tax.

When we on this side of the House see a measure that arises from those opposite that strikes us as reasonable we stand here ready to support it, as we are doing with the bill before the House today. This bill will facilitate a more timely resolution of unforeseen or unintended outcomes of tax laws, ensuring that they do not lead to lengthy delays and ensuring that we do not have uncertainty for stakeholders. There is broad community support for this measure and for its safeguards.

The remaining schedules to the bill are similarly uncontroversial. Schedule 2 amends the act to allow primary producers to access income tax averaging 10 income years after choosing to opt out, instead of that choice being permanent. This was a recommendation of the very late agricultural competitiveness white paper and it was well received by stakeholders. I commend the member for Hunter for his work in finally getting the agricultural competitiveness white paper out of the government. Week after week he called for the white paper to finally be released and eventually, well beyond their schedule, the government did release the white paper. It contains this sensible recommendation and Labor is happy to support it.

Schedule 3 exempts public museums, libraries and galleries from the luxury car tax, providing these institutions purchase applicable vehicles solely for the purpose of public display, have been endorsed as deductible gift recipients and are registered for the GST. It is a measure that was announced in the 2015-16 budget and, indeed, has its origins in a virtually identical but ultimately unlegislated measure from the 2011-12 budget. Its revenue impact is small, and it enjoys bipartisan support.

Schedule 4 to the bill makes a number of miscellaneous and uncontroversial amendments to taxation, superannuation and other laws, including formatting changes, the repeal of redundant provisions, the correction of anomalous outcomes and corrections to previous acts—straightforward typographical errors, which are the business of government to fix up. The parliament should thank its lucky stars that the government is not deciding to have a typo-fixing day to pat itself on the back for schedule 4. This is just the regular work of government. The red tape repeal days, which themselves appear to have now been repealed, are completely unnecessary. Parliament should, as a regular matter, clean up these formatting errors, and this bill indeed does so. It is a result of a periodic review of tax laws. The periodic review and maintenance of tax laws was a recommendation of the Labor-commissioned Tax Design Review Panel in 2008. Labor, too, supports these measures.

When we speak about the closing of tax loopholes, it is critical that we acknowledge—as the member for Kingsford Smith did in a committee debate immediately preceding this legislative conversation—that we need to close down the excesses of negative gearing and the capital gains tax discount. These two tax rules have had the effect of blowing up the Australian housing market, making housing increasingly unaffordable for low- and middle-income Australian families. The home ownership rate in Australia today is at a 60-year low. Once the party of Menzies used to care about home ownership. They used to be a party that stood for the home owner, not for the investor. But, now, the Liberal and National parties have become the parties of property investors. They care not for the fact that the share of Australians who own their home is as low as it has been in 60 years and that the share of young families who own their own home has plummeted in recent decades.

Instead, they trot out furphies, such as suggesting that the benefits of negative gearing go overwhelmingly to those at the bottom. But put together these two benefits and you see how laughable that claim is. More than half the benefits go to the top 10th of the population. Surgeons are 16 times more likely to be negatively geared than nurses. Surgeons are 100 times more likely to be negatively geared than cleaners. This is not a policy that is expanding the supply of the housing stock—a topic about which the Treasurer has had much to say. No, it is a policy that is largely encouraging the bidding up of asset prices in the existing housing stock. Only seven per cent of negative gearing goes to new homes. So, if the aim of the policy is to increase housing supply, it is a policy with a 93 per cent failure rate.

Changes to negative gearing have been backed by those across the political spectrum—as the member for Kingsford Smith noted, Saul Eslake, among them, but also Cassandra Goldie, Chris Richardson, the Murray review, the Henry review, the Reserve Bank of Australia, Jeff Kennett, Joe Hockey, in his farewell speech in this place, and Malcolm Turnbull, the Prime Minister, in 2005. Many people across the political spectrum have acknowledged that this is a tax loophole that needs to be closed.

Labor's policy grandfathers existing assets. So it does not affect those existing investors but only new investors. It continues negative gearing for new-built homes, encouraging investors to put their money into new-built homes. Now, that is a principle the coalition supports when it comes to first homeowner grants. Over the last decade, every state and territory has changed their rules, and so first homeowner grants are either only available for new-built homes or are much more generous for new-built homes. At a state and territory level, the coalition believes that we ought to have a different policy for new-built homes as for the existing stock, but they do not take that approach with negative gearing.

When it comes to foreign investors we have a different set of rules for new-built homes as for existing homes. We say to foreign investors, 'You can buy Australian real estate, but only if you are going to add to the total stock.' Again, the coalition supports this principle that we should be encouraging an addition to housing supply. They support that when it comes to foreign investment, but they do not support it when it comes to negative gearing. This hypocritical approach to policy has led the coalition down to the dead end of opposing any changes to negative gearing, despite the fact that this is a policy change which the Prime Minister and the Treasurer themselves took to the cabinet last year. Extraordinarily, the Prime Minister and the Treasurer were rolled in their attempts to phase out the excesses of negative gearing and the capital gains tax discount.

Labor continues to lead this policy debate and others. We propose that multinationals not be allowed to use debt shifting to excess and that we use a worldwide gearing ratio rule rather than allowing multinationals to choose their favourite of three debt deduction rules. It has more economic sense behind it and it adds to the budget bottom line. Labor will be supporting this bill, but we do so with a great wish that the government would do more to close tax loopholes in Australia and provide greater integrity to our tax system.

Rowan Ramsey (Grey, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on this bill to amend the Income Tax Assessment Act 1997 and Taxation Administration Act 1953. Largely, these changes to these acts are noncontentious. I thank the previous speaker for his support even though I must admit I was a little bemused when he congratulated the member for Hunter for extracting the agriculture white paper out of the government—something that he was unable to do for the six years that they were in government. There were no agriculture white papers at that stage. It gives some idea of just how much attention the Labor Party applies to agricultural issues in the general matter.

This is a fairly small adjustment to law which allows a primary producer to re-access taxation averaging arrangements after a period of 10 years. It might be worthwhile, considering that not everybody in Australia is a farmer, to try and just briefly explain what averaging is about. Farming is an industry of highly fluctuating income lines. It is mostly driven by season, but international prices can be a pretty precarious beast as well. It enables farmers to not average their income but to actually generate a percentage of taxation that should be levied from their income so that it is on a more steady and regular basis. This means that if they have had a couple of particularly high income years which have come after a period of drought they will not be taxed at the extraordinarily high levels that marginal tax would normally generate in that case.

What has happened in the past is that it has been a one-way street. If a farmer opts out of this scheme they cannot come back, which of course makes people pretty reluctant to step away from it in the first place. I have had a number of constituents over the years come to me and say: 'Our circumstances have changed greatly since the day we stepped out of the averaging system. We've accumulated more land, we've changed the production platforms and we've changed the mix of the farming enterprise. So why can't we get back onto the averaging system?' I think this is an overdue reform. It is not huge and it will not affect thousands of people, but it is a good reform.

It goes along with the government's excellent efforts in other areas to assist farmers—in particular, the reforms to the farm management deposits, which operate on personal taxation schedules on income generated from primary production. It actually provides a financial haystack, if you like, for farmers. I was a farmer when these farm management deposits were first introduced, and I can say it was one of the greatest assistants to good management in farming that I have seen. Previously, farmers would near the end of a financial year and then go rushing into town to buy some merchandise that might help reduce their taxation. Now they can plan for those arrangements and push the money to one side as a full tax deduction in the year in which it is generated, and then bring it back in the years in which their farm income is not so high. But because of a rise in costs of farming, the limits that existed on the farm management deposits were starting to really impact on some of the bigger farming operations. That was a great reform for the farmers in my electorate of Grey. We have some very large farmers, as indeed we do in a lot of the more marginal areas in Australia, in particular where their incomes fluctuate so much and can be of a very high nature or of a great loss in any particular year.

It is not the only thing this government has been doing for farmers. We have made some great changes to tax write-offs for things like water storage, fodder storage and fencing, which are all aimed at making farmers more efficient and able to deal with the vagaries of the weather. These policies go hand-in-hand with recognising Australia's agricultural pressure and its special relationship with our economy—the accelerated tax write-offs; the $100 million we put into agricultural research; reform laws surrounding foreign acquisition of agricultural land and business; extra support for biosecurity; and of course, as has been talked about at length in this place, the free trade agreements with China, South Korea and Japan. It is worth pointing out in these free trade agreements—particularly the one with Japan—we are also granted most favoured trading nation status, which means that if they should strike a better deal with another nation Australia will get the same, thank you very much.

These bills, outside the issues of agriculture, also deal with the luxury car tax to provide an exemption from the luxury car tax to certain public institutions that import or acquire luxury cars for the sole purpose of public display. This is a very small condition but is plainly common sense. It does raise the issue of the luxury car tax generally and the appropriateness for us to have a luxury car tax at all now that we are on the verge of not having an Australian car manufacturing industry. If the purpose of tax is to provide some kind of protection to our local car builders, then surely it is time for it to go. If it is purely a means of raising tax dollars from those in our community who are better off, well, yes, it works, but one would have to question its efficiency. If someone who has dollars has a penchant for purchasing cars and likes to own motorcars, it seems to me that they should not be any more highly penalised than someone who likes boats or, indeed, likes taking expensive and extensive holidays. That is not on the table at the moment, but, as this government works to bring our budget back into order, it is something that we should give attention to. It seems hardly justifiable to me.

Other bills in the omnibus bill refer to giving the power to the taxation commissioner to amend rulings within the spirit of the original legislation by means of a disallowable instrument, basically to give them remedial powers. It is an obvious amendment allowing the commissioner to manage the dynamics of tax payments and avoidance. The bills also make some technical amendments to 10 acts and repeal 45 excise acts, including the Income Tax (War-time Arrangements) Act 1942 on its 75th anniversary, so it is probably high time that one at least was pensioned off.

By and large, it is good work of government. These are common-sense things to do. I appreciate the fact that we have the support of the other side of the House. From the government's point of view, we continue, particularly from my interest, to support Australian agriculture.

Rick Wilson (O'Connor, Liberal Party) Share this | Link to this | Hansard source

It is a real privilege to follow my colleague, the member for Grey, today to speak on the Tax and Superannuation Laws Amendment (2016 Measures No. 2) Bill 2016. As the member for Grey outlined, as a farmer himself he very much appreciates some of the measures contained in this bill. I will speak specifically about schedule 2, which increases the flexibility around income tax averaging. I want to start by reiterating the strong support for agriculture that this government has shown. One of the key planks of that support has been encouraging farmers to be self-reliant. As the member for Grey mentioned, farming is a very variable game when it comes to income. We are at the vagaries of the season and we also suffer from the vagaries of world commodity prices. Sometimes they can both go against you and you can have very poor returns and it can turn around very quickly when you have a good season and good prices. Then, all of a sudden, you are faced with not only this year's tax liability but also provisional tax, and that creates a big burden for farmers, particularly when they are trying to get some fat into the system and provide for the lean years that are coming up. This measure came out of the ag white paper. In a moment, I will touch on some of the other measures that the ag white paper has delivered.

Dealing with the specifics of schedule 2, it increases the flexibility and fairness of income tax averaging for individual primary producers by allowing them to re-access income averaging 10 years after they have chosen to opt out. Currently, if a primary producer elects to opt out of income averaging in circumstances other than where their income is permanently reduced, they can never re-access these benefits. An estimated 12,000 primary producers opt out of income averaging every year, the vast majority because they are going into retirement. This change will benefit those who opt out for other reasons and are currently permanently excluded from re-accessing tax averaging. As I said previously, the government announced this change in the Agricultural Competitiveness White Paper released in July 2015. The inflexibility of averaging rules was raised by many stakeholders throughout that process.

Income averaging smooths out the tax liability of primary producers over a maximum of five years by creating a rolling average which takes into account good and bad years. Its objective is to ensure that primary producers are not penalised for their fluctuating incomes by paying more tax than those on a comparable steady income. Generally, primary producers will receive a tax offset in years when their income is above average and they pay extra tax in years when their income is below the average. Income averaging will apply automatically 10 years after a farmer has opted out so that farmers do not have to fill out any forms or reapply. It will only apply when it is to the farmer's benefit and they are eligible for a tax offset. They will be alerted through their notice of assessment and can always make the choice to opt out again. If a farmer chooses to opt out again, they will be unable to access income averaging for another 10 years, which makes sense.

As I said earlier, the Agriculture Competitiveness White Paper produced many good policies and benefits for farmers across my electorate of O'Connor and, indeed, across the electorate of Grey and all around Australia. One of the key issues that are part of those improvements was the Farm Management Deposits scheme, where we doubled the limit per partner in a business from $400,000 to $800,000. That was a very important change because many farm businesses nowadays, where there might be only two partners, can turn over several million dollars a year, so the $800,000 limit allows a reasonable amount of money to be set aside. We also changed the rules around farm management deposits to allow offset accounts. If money is held in a farm management deposit, it could be offset against the loan account. I notice that in my area the commercial banks have started to roll out a product where, if you have money in farm management deposits, you can offset that. That is a commercial matter for the banks, as it should be, and it is great to see them starting to roll that product out. We also introduced the accelerated depreciation on new water infrastructure, fodder storage and fencing. That is very important for farmers when they do enjoy good seasons and when they do have some surplus cash they can reinvest in their business and build it up for the better times.

In my electorate, and I am sure in the electorate of Grey, we have just finished enjoying a pretty good season—16.6 million tonnes of grain delivered across Western Australia. Prices are not the best but that is a record harvest by about 800,000 tonnes. I think that is a great credit to the innovation of the farmers in my region and across Australia. They certainly are a very innovative group of people.

We are also experiencing record prices for red meat across the electorate and across Australia, and that is certainly putting a lot of confidence back into the livestock industry. I think the government can take a great deal of credit for that because of the support for live exports. We are seeing a lot of product going overseas through the live export trade, which is increasing demand here locally. I attended a cattle sale in Mount Barker just the other day, when 10-month-old baby beef were selling for between $1,200 and $1,400, which is a fantastic price and a great reward for those producers.

We are also seeing wool values pushing up to levels we have not seen since 1988. It is sad to say that it has taken 29 years for wool prices in my region to get back to over 1,000c greasy. So wool growers in my area are experiencing some good times.

We have also seen good demand for our grains through the new free trade agreements we have signed with China, Korea and Japan. These free trade agreements are already having a massive impact and are another initiative of this government that has really benefited agriculture. With the China free trade agreement, we have seen massive increases in the amount of wine exported to China, and that has been of great benefit to the wine industry across the Great Southern, Plantagenet and Porongurup regions in my electorate. We are also seeing seafood exported in record quantities. The Southern Forests food region, around Manjimup, which produces some of the world's best horticulture, is also seeing great benefits from those free trade agreements.

Some other important deals we have done include the Indonesia-Australia Comprehensive Economic Partnership Agreement and the Australia-Singapore Comprehensive Strategic Partnership, and there are many other emerging market opportunities.

While we are talking about tax here today, I want to touch on the enterprise tax plan. Many farm businesses turn over less than $10 million, so they are very much looking for that tax relief. I see the Assistant Treasurer here and nodding her head, and I urge her to push hard on that particular policy, because it will be a great benefit not only to the farmers across my electorate but to the small businesses that operate in my electorate—those people who supply the farmers. It is very important that we get those tax changes through the parliament, so that people can reinvest in their businesses and look to generate more profits, because they will keep more of that profit in their pocket. That will create more jobs and more opportunities across my electorate.

That is the summary of my thoughts on this particular piece of legislation. It is very important for farmers across my electorate and across Australia. I commend the bill to the House.

Kelly O'Dwyer (Higgins, Liberal Party, Minister for Revenue and Financial Services) Share this | Link to this | Hansard source

Firstly, I would like to congratulate and thank those members who have contributed to this debate, particularly the member for Grey and also the member for O'Connor. Your contributions have been really superb and have outlined the real impact that this bill will have on farming families and farming businesses, which will enable them to be far more flexible in their approach and ensure that they can be viable and thriving businesses.

As the chamber would know, this Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 amends various taxation laws to improve their flexibility and effectiveness while reducing red tape on individuals, businesses and community organisations. Schedule 1 of this bill will establish a remedial power for the Commissioner of Taxation to allow for a more timely resolution of certain unforeseen or unintended outcomes in the taxation and superannuation laws. The power will help provide greater certainty for taxpayers over their tax affairs while also reducing compliance costs associated with laws that produce anomalous outcomes.

The government believes that this bill strikes a good balance between adding a useful degree of flexibility to the administration of our tax and superannuation laws while providing appropriate safeguards for taxpayers against administrative overreach. Taxpayers are protected from adverse outcomes under this power as it will not apply to a taxpayer where it would produce a less favourable result for them.

In circumstances where applying the less favourable test would create onerous requirements, use of the remedial power may not be appropriate. This power is expected to create benefits for taxpayers that should outweigh any costs associated with learning about how the power may be used.

Certain costs will arise as taxpayers learn and understand the power and how it operates as well as any modifications made as a result of the use of the power. These costs need to be weighed up against the benefits the power will create in terms of resolving unintended and unforeseen outcomes in the tax law and maintaining the tax system.

Conferring on the administration an explicit power to remedy defects in legislation requires a compelling justification. The government appreciates that this policy could appear to bestow a lawmaking power on an unelected official. While ensuring the schedule meets the policy objective, it includes strict and precise safeguards to limit the impact of the power and to maintain the respect for the rule of law.

The power is to be used as a last resort by the commissioner. Before the commissioner can apply the remedial power, he must have interpreted the law, taking into account its purpose, and sought to use his general powers of administration of tax laws in the first instance. In addition, the commissioner can validly exercise the power only where: the modification is not inconsistent with the intended purpose or object of the provision; the commissioner considers the modification to be reasonable, having regard to both the intended purpose or object of the relevant provision and whether the costs of complying with the provisions are disproportionate to achieving the purpose or object; and any impact on the Commonwealth budget would be negligible.

On the last point, the commissioner can create a legislative instrument only where he has been advised by the secretary of the Treasury or the Finance secretary that any budget impact is negligible. If the commissioner acts without this advice, the exercise of the power will be invalid. However, if that advice is for some reason incorrect, the exercise of the power is not invalidated. Importantly, any modification to the operation of the law made by the commissioner using the remedial power cannot have any legal effect until both houses of parliament have had the opportunity to disallow the relevant modification.

While the remedial power would usually have prospective application, any retrospective application must not disadvantage the rights of a taxpayer. Prior to exercising the power, it is expected that the commissioner will undertake consultation. The public would be invited to comment and, in addition, the commissioner would consult with the Board of Taxation, relevant agencies and a technical advisory group with private sector representation. Together, these safeguards provide an assurance that the remedial power will not be exercised in a manner that undermines parliamentary sovereignty, the consistent application of our taxation law regime, the separation of powers, parliamentary control over public resources, or the principle against arbitrary use of power. Three years after the remedial power commences, a ministerial review may be undertaken, and the written report of the review would be tabled before each house of parliament.

Schedule 2 amends the law so that farmers can re-access the benefits of tax averaging 10 income-years after opting out. Approximately 12,000 farmers opt out of income averaging each year. Currently, a farmer who chooses to opt out of income averaging can never re-access the concession. Income from primary production can be volatile, due to factors outside of a farmer's control, such as drought and fluctuating commodity prices. The averaging rules even out a farmer's income tax liability from year to year so that they pay fairer amounts of tax in relation to taxpayers on comparable but steadier incomes. The government heard from stakeholders in consultation that the current averaging rules are inflexible and do not make sufficient allowance for changing business circumstances. A farmer choosing to opt out of income averaging may later realise that choice was not in their best interest. While the tax law should prevent strategic tax minimisation, it should not be overly harsh.

This schedule will ensure farmers eligible for income averaging will be able to regain access after 10 years. This schedule will not disadvantage any farmer, as averaging only recommences when they are eligible for a tax offset. A farmer may always choose to opt out again if it does not suit their circumstances to remain in income averaging. Their choice will be effective for another 10 income years. And this measure forms part of the government's white paper on agricultural competitiveness.

Schedule 3 implements the government's 2015-16 budget measure, allowing public museums and art galleries to acquire cars free of luxury car tax where the car is being acquired for the sole purpose of public display. These amendments to the luxury car tax will provide tax relief only to museums and galleries that have been endorsed by the commissioner as deductible gift recipients. Further, to ensure the integrity of these amendments, if the car is no longer used solely for public display, a luxury car tax liability will arise. Relief from luxury car tax when acquiring a car for public display will remove an existing burden faced by public museums and art galleries.

Schedule 4 makes a number of amendments across the tax law to provide certainty for taxpayers. These amendments make sure that the law operates as intended by correcting technical or drafting defects and removing anomalies and redundant provisions, as well as addressing unintended outcomes. The schedule demonstrates the government's commitment to the care and maintenance of the tax and superannuation laws. Full details of each of these measures are contained in the explanatory memorandum. I therefore commend the bill to the House.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.