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

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

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

“whilst not declining to give the bill a second reading, the House calls upon the Government to seriously tackle phoenixing and the black economy, including by urgently introducing legislation requiring every company director to be issued with a unique Director Identification Number”.

A couple of years ago, the Australian Taxation Office conducted a number of audits into illegal phoenixing activity. Following one of those audits, a Tasmanian business owner was charged with fraud for phoenix activity, which was alleged to have involved an original company that operated a chain of restaurants. According to the charges, the owners sold all the plant and equipment to another company, but didn't get paid. They moved the restaurant leases to the other company and then they put the original company into liquidation, leaving creditors with access to no assets. This is classic phoenixing activity in which a firm is deliberately burned and its assets moved to a new company.

Dodgy directors are in the minority but those who do it hurt their creditors, hurt taxpayers, hurt workers and hurt honest businesses. We have estimates of the cost of phoenixing activity in Australia. They're old estimates, because the government hasn't yet released the updated PricewaterhouseCoopers estimates, but even those outdated estimates suggest that phoenixing activity could cost every person in Australia $100 a year or more.

Labor has a plan to crack down on dodgy phoenixing activities. Over a year ago we announced that a Shorten Labor government, through a package of measures, would crack down on dodgy phoenixing activities. That package was based upon work done by the Melbourne Law School and Monash Business School phoenix research team. It included increasing the penalties associated with phoenixing activities, introducing an objective test for transactions depriving employees of their entitlements, clarifying the availability of compensation orders against accessories and consulting on targeted integrity measures, based on those recommendations from the phoenix research team.

But the principal measure underlying Labor's package, announced alongside the member for Gorton, was to ensure we have a director's identification number, with a 100-point ID check, because the extraordinary thing in Australia today is that it is tougher to open a bank account than it is to register as a company director. That means that a small minority of dodgy directors are setting up under multiple names, burning companies, and then re-registering as new company directors under a different name. To recognise how easily this could happen, I have to say that a backbench member of the government, a Liberal Party representative in this House, was registered under multiple names as a director. In that instance, I'm sure the error was inadvertent, but the fact that it could happen so easily to a member of the federal parliament illustrates the problem we're battling here in cracking down on dodgy directors.

The tax commissioner, Chris Jordan, said in response to answers to one senator that the current law was so easy that you could almost register your dog as a company director. That's why, on 24 May 2017, Labor announced that we would act. We would insist that all directors have a director's identification number. That's 371 days ago and we are yet to see any action from the Turnbull government. That's despite the fact that, in principle, they are supportive of the measure.

On 12 September last year, the coalition belatedly announced that they would follow in our footsteps with the director's identification number. That's 260 days ago. For 260 days the dodgy directors have been able to continue burning firms, hurting taxpayers, workers, and honest businesses—260 days in which dodgy directors have been able to siphon money out of our economy, yet the government has failed to act. It is 371 days since Labor said we'd act on dodgy directors. It is 260 days since the coalition said they would act on dodgy phoenix directors and we've still seen no legislation in this parliament.

The measures in this bill are unexceptional. They deal with the use of electronic sales suppression tools, prohibiting their production, distribution and possession to incorrectly keep tax records. The measures in this bill require entities having an ABN providing courier or cleaning services to report to the Australian Taxation Office information about transactions that involve engaging other entities to undertake those courier or cleaning services for them. But the measures missing from this bill are the critical ones. We need action to crackdown on dodgy phoenix directors. While the government is unwilling to crackdown on dodgy phoenix directors, it isn't taking the critical action which the experts recognise is needed.

It is not just Labor that believes we need to crackdown on dodgy phoenix directors. We have seen a plethora of organisations, across the political spectrum, saying that we need to stamp out this activity. Really, this activity is like tanking in AFL: it's failing to do your best, deliberately sucking resources out of one company and moving them into another company. We have seen the Productivity Commission, the Australian Institute of Company Directors, the Australian Small Business and Family Enterprise Ombudsman and the Australian Council of Trade Unions calling on the government to introduce a director identification number. The government have said that they will do it. They said 260 days ago that they'll do it, but there are still crickets when it comes to real action on dodgy phoenix directors. These measures may well add to the budget bottom line, but when we look at the budget papers the only revenue impact is an asterisk. It is an unquantifiable addition on to revenue, but it is an expense of a total of $40 million over the forward estimates. We certainly hope that these measures in the bill that we're debating today will add to the budget bottom line. But, as it is, we have unquantifiable impacts.

Reducing the prevalence of the black economy is absolutely critical, but it's Labor's leadership on this issue which has marked the true difference between the political parties. Australians should not have had to wait more than a year for this government to introduce a director identification number. When it comes to their proposed amnesty on employers who haven't paid superannuation for the past 25 years, that has been announced and they are trying to implement it straightaway. But when it comes to action on dodgy directors, they are as slow as a wet week. They are failing to act on the dodgy phoenix directors who are costing the Australian economy billions of dollars. Labor will act. A Shorten Labor government will crackdown on dodgy phoenix directors because we want to ensure that honest businesses, workers and taxpayers aren't being hurt by this egregious activity.

Linda Burney (Barton, Australian Labor Party, Shadow Minister for Human Services) Share this | Link to this | Hansard source

I second the amendment and reserve my right to speak.

Andrew Gee (Calare, National Party) Share this | Link to this | Hansard source

I rise to support the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, and I commend the minister for introducing it to the House. In case any members of this House or, indeed, any residents of Australia are in any doubt, I would like to briefly draw on the words and work of the Black Economy Taskforce. The task force was convened by the Minister for Revenue and Financial Services, the honourable member for Higgins, and chaired by Michael Andrew, AO. I note that the interim task force report stated as follows:

The black economy refers to people who operate outside the tax and regulatory system or who are known to the authorities but who do not correctly report their tax obligations. It encompasses a wide range of practices, including understatement of takings, the payment and acceptance of cash wages off the books, welfare fraud, sharing economy contractors not declaring their income, grey trading, activities in the so-called dark web, moonlighting and phoenixing (where businesses deliberately liquidate to avoid paying employees and creditors). Complex interactions with illegal activities, including money laundering, must also be taken into account.

As you can see, it encompasses a wide range of activities, including those involving organised crime to not declaring income.

The government requires resources to function. As we all know, taxation is essential for every government program or initiative from our defence and border security to Medicare, the NDIS and the Pharmaceutical Benefits Scheme, which saves the lives of so many Australians every year. Funding our social welfare system and our education system and the billions this government is pouring into infrastructure and development in our communities—all these essentials require taxation revenue. Government revenue is critical to every process or action in the aid of Australia, so it's in people's interest and the nation's interest to be addressing the issue of the black economy.

According to the Australian Bureau of Statistics, the black economy is estimated to be worth up to 1.5 per cent of GDP, or $25 billion in current dollar terms. That's an enormous figure. There is a huge amount of money circulating outside the Australian tax system. I think we should also note that, in terms of employees being part of the black economy and superannuation not being paid, it's often the workers who are the victims because they don't get the benefits of superannuation and wages can be underpaid. In some cases these workers don't receive any superannuation at all. Again, the sum of $25 billion is absolutely vast. The point of this is that, if we want those services and if we want our workers to be looked after, then this issue does need to be addressed. That is the price we pay for living in a society that provides the infrastructure and the services that are required to function.

The Black Economy Taskforce looked at particular occupations and industries that are more prone to operating outside of our tax and superannuation systems. Under the taxable payments reporting system, the ATO has already experienced a lift in contractor tax compliance and reporting of income by participants in the building and construction industry. It, therefore, makes sense to extend this reporting system, which the bill does through schedule 2. It addresses two industries—courier and cleaning services. Courier and cleaning services businesses will be required to lodge a simple annual statement with the Australian Taxation Office. This statement will essentially identify payments they've made to other businesses for such services—that is, if they subcontract cleaning or delivery services, they need to identify the annualised payments made to those subcontractors.

Extending the taxable payments reporting system is a simple measure—and a simple reporting commitment, for that matter—that will contribute around $132 million to essential government services over the forward estimates. Again, very substantial dollars will flow to the federal government. It will close the loop on reporting and payments in these industries and, indeed, could be extended to other cash-intensive industries should it become necessary.

With respect to the amendment to schedule 2, the government has acted on concerns raised by stakeholders that mixed businesses providing courier or cleaning services may have a disproportionate compliance burden where the provision of those services is merely a small part of the overall activity of the business. The introduction of the threshold test will mean that businesses that receive payments for courier or cleaning services that are less than 10 per cent of the business's overall GST turnover for the reporting period will be exempt from reporting the payments they make to contractors commissioned to complete these services.

Another feature of the bill is that it creates offences for the manufacture, distribution, possession, sale and use of electronic suppression tools—that is, the software that deliberately distorts records of businesses so that they can reduce their tax. As this House has already heard, this software has no legitimate purpose. According to the OECD, the use of this software has been spreading globally and has been specifically identified in Canada, the United States, Germany and Sweden, and these jurisdictions are moving on the issue. They're not going to tolerate it, so it's important that this government and Australia also take steps to crack down on this as well. There are no reasons for Australian businesses to be using these suppression tools. This is an important and timely measure. I think that most Australians would be supportive of not only this measure, but the whole bill. So I would like to thank the minister and the task force for its work, and I commend this bill to the House.

Matt Thistlethwaite (Kingsford Smith, Australian Labor Party, Shadow Assistant Minister for Treasury) Share this | Link to this | Hansard source

I'm speaking in support of the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 amendment moved by the member for Fenner, which calls on the government to begin taking seriously the issue of tackling phoenixing and the black economy:

… including by urgently introducing legislation requiring every company director to be issued with a unique Director Identification Number".

I want to congratulate the member for Fenner for the work that he has done in this area over the course of the last couple of years. He's been working in particular with small businesses, with workers and with members of the Australian public on this issue of the black economy. This work will ensure that the true amount of revenue flows into government coffers so that we can adequately fund the important social services that we need, such as investment in hospitals and Medicare, properly investing in schools, investing in a decent TAFE system so that people get a tertiary education to give them a good start in life, and ensuring that we're investing in universities—all of the areas where we've seen substantial cuts in funding from this government.

We can't simply accept the status quo, that the government just prioritises tax cuts for big businesses rather than tackling some of the issues behind the scenes about businesses paying the right amount of tax and disclosing the right amount of tax. If we're going to build a stronger budget and a fairer tax system, we need to make sure that we're closing some of those loopholes and tightening laws. Instead of unwanted and unwarranted tax cuts for the top end of town, we should be cracking down on those companies and employees who are clearly operating outside the law. That's why we need to put the spotlight on the black economy, which the ABS estimates is costing at least $25 billion. Most experts agree that this figure is growing.

We know that there are dodgy labour hire firms paying casuals cash in hand, which means lower wages for workers, no superannuation contributions and tax avoidance by those companies. We know that the so-called gig economy jobs are inflicting industrial-scale underpayments on many people who are working in these emerging industries. We know that ABN fraud sees the use of multiple or incorrect business numbers to avoid paying tax, to avoid paying clients and to avoid paying workers. And we now know about phoenixing, which is where companies liquidate their businesses in order to dodge the debts that they owe to employees and creditors, and then, hey presto, they pop up a week later operating under a different name—truly unconscionable conduct. These problems have been left by this government for too long, despite a number of calls for reform to be undertaken in this area. You can't be serious about budget repair and stronger surpluses while standing by and allowing this kind of industrial-scale tax evasion to go unchecked. It really is all about priorities. The Turnbull government clearly aren't serious about tackling the blight of the black economy if they're not delving into those issues of phoenixing and looking at issues such as registration numbers for company directors.

It was only in September 2017 that the Turnbull government finally announced that it was taking action on phoenixing activity, including that it would finally introduce some of those reforms that Labor had been talking about for some time, including identification. Because of the slow nature of this reform, dodgy directors have been able to continue scamming honest businesses, employees and taxpayers. At present, the registration of an Australian company simply requires the name, address, and date and place of birth of each of the office holders. It obviously makes it too easy for fraudulent activity and for directors to escape their obligations. The phoenix operators are allowed to run rampant in our economy in areas like construction and labour hire. They're giving good directors a bad name and they're ripping off honest workers. The government needs to get serious about tackling phoenixing and the black economy, including urgently introducing legislation requiring every company director to be issued with a director identification number.

The case for such a move is clear. In requiring prospective directors to quote their numbers when incorporating a new company, ASIC would then be able to be given a detailed picture of the company and its management. With more information and more transparency, dodgy directors can be tracked via ASIC and through other government agencies. The unique identification number is also crucial for small businesses and liquidators to access information on directors, including accurate information about director histories. Yet the government hasn't clarified whether acquiring a director identification number will require a 100-point identity check—a fundamental aspect of the proposal that was announced by the Labor Party last year. The government keep missing deadlines on a register of beneficial ownership—something that they're yet to commit to publicly.

Questions also remain over the public release of updated modelling of the costs that dodgy directors impose through phoenixing activity. The Turnbull government is continuing to use figures from five years ago. Despite receiving updated costs in 2015, the 2012 estimate put the cost of phoenixing at up to $3 billion a year. The question needs to be asked as to why the government isn't using those updated figures. One suspects it's because the nature of that activity has grown and, indeed, the scale of it in dollar terms has grown as well.

Labor is serious about tackling the scourge of phoenixing on our economy. Labor has been calling for the introduction of a director identification number for well over a year now. We've seen the backing of director identification numbers from a number of organisations: the Productivity Commission, the Australian Institute of Company Directors, the Australian Small Business and Family Enterprise Ombudsman, the Tax Justice Network, the Australian Chamber of Commerce and Industry, the Masters Builders Association, the ACTU, the Australian Restructuring Insolvency and Turnaround Association, the Phoenix Project—a group of experts from Melbourne Law School, and the Australian Institute of Credit Management. It's clear that there's industry support for this proposal. It simply makes sense and it simply makes sense to do it properly. For the sake of Australian taxpayers, workers and honest businesses, the Turnbull government should take a fulsome approach to implementing this director identification number. We know that, although the Turnbull government are committed in some respects to the identification numbers, they've delayed implementation due to the modernising business registers measure in the budget. They haven't given a time frame, and it's clearly not a priority in terms of registration numbers for directors.

We know that ideology has been overlooking facts and figures on these issues when it comes to the budget, in particular, and some of the calls from people in the industry to crack down, particularly on phoenixing activities around labour hire. Instead of focusing on the checks and balances on government, there's no consideration given to the checks and balances on the power that dodgy businesses have over driving the black economy and the effects that can have on workers, families and, in particular, small businesses, who often rely on regular turnover and payment of invoices to ensure they can continue to survive. There's no prioritising cracking down on those who are clearly avoiding community obligations.

We have seen plenty of announcements and talk from this government but when it comes to action it's been quite scarce. It took Labor, really, to put this issue on the agenda. The member for Fenner and the shadow Treasurer have been pushing these amendments and changes for some years now. For the sake of Australian taxpayers, workers and honest businesses, the Turnbull government must implement Labor's director identification number proposal in full. It's time that the government ditched the tax cuts for the big end of town and it's time they started getting serious about shedding some light on the black economy, cracking down on some of those companies that are undertaking these activities—particularly in that area of phoenixing and, of course, the wrong payment of invoices, which are some of the activities that have been identified in the explanatory memorandum to this particular bill.

But, aside from that, I again reiterate the amendment that was moved by the member for Fenner regarding the introduction of legislation requiring every company director to be issued with a unique identification number. That is a big step towards cracking down on some of this phoenixing activity and ensuring that the right amount of taxation revenue comes into the budget to properly fund services in health, education and tertiary training.

Tim Wilson (Goldstein, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, and, as always, it's a pleasure to see you in the Chair, Deputy Speaker Buchholz!

When I think about the issues facing people around tax in this country, I always think of those thousands of small businesspeople who, whether in retail or running small businesses and activities, spend their days creating commerce and opportunity for themselves so that they can stand on their own two feet and support their friends and their family. Then I think also about the hours they spend at night working through paperwork: the obligations, the regulations, the BAS statements and the reporting requirements under the tax system which take them away from their family, their loved ones and their friends. I have always thought that the very basis of any just tax law is not just that people pay their contribution to the collective aspiration we have for our society, despite our differences, but that there's a sense of justice around making sure we minimise obligations and the burden that is placed on those people to adhere to the tax act.

Tax—paying tax—is not a privilege. Paying tax is a responsibility. Paying tax is a burden. It's when the government comes and takes away from people, compulsorily, their hard-earned work—the reflection of that work in their money. But part of making sure that you have a just tax system—and I put the emphasis on the word 'just'—is that everybody contributes fairly and that the tax system treats everybody equally: we don't have special legal privileges, we don't turn a blind eye to those who seek to avoid their tax and we make sure we capture as much of the economic activity that is engaged in in this country as possible. If we don't do that, if we overburden those mums, those dads, those fathers, those mothers, those brothers, those sisters—everybody who is making a contribution to paying the tax system and keeping it afloat—then what we are doing in giving people a free pass, where they do not have to contribute, is passing the buck onto those who are doing the right thing to benefit those people who can find their way out of it. That is, in the end, an unjust nature in our tax system.

There was a very good book written a few years ago called For Good Or Evil: The Impact of Taxes on the Course of Civilisation. It is a synopsis, looking at the history of taxation. I know it's something that will excite many members—a book on the history of tax—but it is a good read. When you read it, there are some very clear points about tax and how you have a just tax system to support a society, particularly one that either declines or succeeds.

A successful society has a taxation system that is actually relatively simple. It has relatively simple and clear rates so that people have no incentive to avoid it. But, critically, it has relatively low rates as well, and—importantly—everybody makes their contribution to the tax burden necessary to provide for the nation. When it becomes narrow, when it becomes high, when it falls onto the few rather than the many, and when there are incentives and ways and means that people can minimise their obligations, those who can, do. Let's face it, that's many of the problems at the heart of the tax system that we have in Australia today. It is a system that encourages people to minimise their obligations, to set up complex structures to try and minimise their contribution to the tax system. Increasingly, it is a narrow base of people who are paying tax, and they are people earning an income within a defined age range and, principally, at a particular income-earning age.

Every policy around tax and the economy I look at from that basic perspective. How do we make sure that we reverse that trend? And how do we make sure that we have a regulation or system that works for the decent, hardworking, honest Australians in the real economy, not the black economy. The people in the black economy are those who seek not just to avoid legality of their trade and commerce but to minimise their contribution to this nation. In many cases, they take advantage of the goodwill and aspirations of every Australian.

One of the hallmarks of the coalition's historic success is its balanced, evidence based approach to taxation and who shares the burden of our society. We reject attempts by those in the opposition and other minor fringe parties, where we say it should fall onto the few in favour of it falling onto the many, to the millions of Australians who share a collective responsibility for the nurturing of our nation. If government sets the rules for enterprise, then the basis of these rules should enshrine a sense of justice at the heart of it, that there be a level playing field for the Australian entrepreneurial and business community. When it comes to just taxation, our framework should be simple and, as I outlined before, non-discriminatory.

This bill is designed not to add more regulation but to protect our non-discriminatory tax system against the scourge of tax evasion by those who engage in black-market activity. On average, small-business owners spend three hours a week invoicing, bookkeeping, reviewing banking contracts and reporting their tax liabilities. That is time taken away from creating wealth, growing opportunity. It is time taken away from family and friends. It is the human cost of a burdensome tax system that, sadly, so many in the opposition never seem to understand, probably because they've never had to do it themselves.

The government is reducing unnecessary regulatory burden on business to the tune of $5.8 billion annually, but I won't try and pretend I think that is satisfactory. If the truth be told, I think that is the beginning, a start point, and there is so much further to go. Liberals do understand this burden and would never seek to add to it without justification. When sections of the economy start to chronically evade tax, you see a situation where too few carry too much.

This bill tackles one of the foundational ways that people minimise their tax obligations. It is one of the most modern methods by which sections of the economy undermine the integrity of a just tax system. It targets deceit and ensures that businesses report their income accurately and that those who seek to evade and operate in the black economy are caught out. Principally, it targets electronic sales-suppression tools that simply seek to facilitate tax evasion by suppressing or falsifying records or transactions. The tragic reality is, in a global marketplace, there will always be people seeking to find ways to use the advantages of each country's legislation to sell products to minimise people's contributions to them. And we must be forever vigilant. If you want to have a just tax system you have to evolve and adapt the laws with the technology to correspond with it and not engage in the cheap indulgences of so many on the other side of politics today, who constantly seek to demonise good, hardworking Australians who are setting up businesses and running them, but targeting those people and businesses that only survive by nefarious means.

In 2012, the Australian Bureau of Statistics estimated that the black economy in Australia could be as large as 1.5 per cent of Australia's gross domestic product, around $25 billion. Now, let's face it, that is a concerning percentage of enterprise operating outside of the tax system, operating with an unjust tax advantage and operating where they take the burden to carry the weight of the nation off themselves and disproportionately impose it on others. A free, enterprising economy should never reward people who are seeking to do so. We should, of course, reward ingenuity and disruption, but we should not reward not obfuscation. Electronic sales suppression tools serve no useful purpose. Their manufacture and sale should attract penalties. By extending the taxable payments reporting system to the high-risk courier and cleaning industries, the efficiency of taxes, such as GST, can ultimately be strengthened.

Ultimately, this bill depends on this fundamental principle: we are creating a robust tax system designed for the 21st century, one that will seek to ensure everybody contributes their fair and just share. We must make sure that those people who operate outside of the law are not able to do so and neither have the power of complication nor the technology to do so. That is so that we, as all Australians, can look each other in the eye and say that we are doing our fair share.

Matt Keogh (Burt, Australian Labor Party) Share this | Link to this | Hansard source

As we look at the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018, which is about a crackdown on the black economy, what's at the heart of this? The government has worked out that, by cracking down on the black economy in Australia, it is able to skerrick together sufficient funds to almost bring its budget back into surplus. The Liberal government has worked out that by cracking down on the black economy, as well as tax avoidance and concessions, it should be able to bring its budget back into surplus—just—by 2019. That's because a significant portion of what's planned for this surplus will come out of the funding that the government believes it will get in revenue from this legislation.

Now, to be clear, the black economy in Australia is significant, it is complex and it is a growing economic and therefore also social problem. It is manifestly unfair to allow some to play by their own rules while penalising business, employees and customers who do the right thing in order to make sure that we can fund essential government services. Hiding under the black economy, workers can be exploited, criminal groups can flourish, and social capital and trusts are undermined. This task force that the government seeks to establish through these rules and laws will focus on minimising tax avoidance and on money launderers, while the illicit tobacco task force that has been created will investigate, prosecute and dismantle organised crime groups operating in the illicit tobacco industry.

In fact, through this process, the government has said in its budget that it will be providing additional funding to the ATO, Border Force and the Commonwealth Director of Public Prosecutions to pursue making sure that these revenues do come to government and those who are breaking the law do feel the full weight of the law. It's anticipated that many millions of dollars will come into the budget through revenue through these measures. As the Minister for Revenue and Financial Services has said, the illicit tobacco market is dominated by organised crime groups that use tobacco profits to fund their other criminal and black economy activities. The minister said:

These strong new measures will shut down the avenues that organised crime syndicates have to access illicit tobacco to fund criminal activity.

This is the fifth year of this Liberal government. It's better late than never, I guess, that they focus on this. But maybe there are some bigger, or at least other, eggs that also need to be fried.

Currently, the government is working with the banks to provide them with a $17 billion tax handout as part of its budget, whilst also defending—as part of this budget—its cuts to ASIC, which is the law enforcement body that should be tasked with holding the banks to account. That's not all, because the government has also reduced funding to the AFP and the Commonwealth Director of Public Prosecutions. Not only was this government dragged kicking and screaming to hold a royal commission into the banks; it's now rewarding those that have been the subject of this financial misconduct—those that have been creating it and that it is having a royal commission into—by making sure that they will be the biggest recipients of its corporate tax cuts. But, at the same time, this government is also ripping tens of millions of dollars away from the Commonwealth agencies, such as ASIC, that should be policing the banks. The government is taking millions of dollars off the Director of Public Prosecutions, which should be enforcing the law against the banks and against those whose misconduct has been revealed by the banking royal commission.

Then we find that the Serious Financial Crime Taskforce is not funded beyond the current year. So there is no funding in the budget in the forward estimates. The government tries to say that it will continue with this task force, but it hasn't actually allocated it any dollars. The Commonwealth Director of Public Prosecutions has revealed that there is no assurance that the funding for the Serious Financial Crime Taskforce will continue beyond June 2019.

This government needs to get its priorities right. It has funding to deal with a black economy but not to deal with the banks and the financial misconduct that has been revealed by the banking royal commission. It has specific funding line items in its budget for these very laws; yet—while we have a royal commission going on into the misconduct in banking and a Treasurer who has gone out in front of the media to say, 'We will throw the book at the people that have been responsible for this misconduct'—when we actually look into the budget, we see that the funding for the very agencies that should be doing that work has been cut! There's no special funding for them. If the government wanted to be taken seriously and show that it had some bite to go with its bark then it would also fund those bodies to follow up on the banking royal commission—just as it has, rightly, to make sure that this legislation is properly enforced as well. ASIC has been asking for five years for tougher penalties for this misconduct, and yet the government has done nothing.

And still it is doing nothing, but it is at least turning its mind to the black economy. So we've had nada when it comes to looking at financial misconduct and making sure that there's bite, but we are looking at the black economy. I guess it's a start, as I say.

But then look at this. We're going to make sure that those who are responsible for importing illicit tobacco face jail penalties. But what if you've ripped off your banking customers? What do you get? You just rock up at ASIC and enter into an enforceable undertaking for a nice little slap on the wrist—a few million dollars sent off to a charity, quite possibly tax deductible—and then you turn around and you keep going. Where's the penalty? Where's the enforcement? Where's the looking at what's happening to your financial services licence, as has been revealed by the ABC today? Effectively, ASIC says, nothing will happen to you.

We, on this side, have a different approach. Labor has committed $25 million to a special task force inside the Commonwealth Director of Public Prosecutions to pursue those who are found, through this banking royal commission, to have acted improperly. Only Labor will continue to work to ensure that the royal commission delivers justice to those who have suffered from the misconduct in the banking and financial services sector, and, importantly, that those who have been responsible are actually held to account for their actions, because it is only through that that we will see the cultural change that is fundamentally needed in our financial services sector.

Meanwhile, this government has worked out, it reckons, that it can cook up enough money out of pursuing the black economy to bring its budget back into a small surplus through the course of this budget. But, at the same time, it's going to hand over $17 billion in tax cuts to those big banks and $80 billion in corporate tax cuts overall.

Labor supports the proposals to reduce the amount of untaxed tobacco being smoked in Australia, to make sure that we're cracking down on the black economy. We recognise that unlicensed production and manufacturing of tobacco products not only significantly deprives the community of tax revenue but also puts Australians at risk. The measures to minimise tax avoidance will help ensure that businesses and employees and those people in Australia that are doing the right thing get the benefits.

But those in the Turnbull government do not have their priorities straight. They have allocated funds to help big business, through tax cuts, and they're helping their mates in the big banks by running a protection racket. Even when they finally concede we need a royal commission, they de-fund the agencies that will actually hold them to account.

In the scheme of things, these measures will not ensure that we're supporting low- and middle-income taxpayers and workers in Australia. They are a start, but they are a distraction from the main game. We need to do this, but we need to do so much more. Only appropriate regulation of the banks and our financial services, and funding for the authorities that will hold them to account, will ensure that businesses and employees that are doing the right thing benefit, and that they are contributing to the long-term and economic sustainability of our nation. Alas, this government appears completely incapable of delivering on such a mandate.

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

I'm pleased to rise this evening, or late this afternoon, to speak on the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018. I want to start by talking about the black economy. There are really two forms of the black economy: firstly, there are the illegal activities. There are criminal enterprises dealing in drugs, illegal tobacco, prostitution and the like that are simply operating outside of the law and that are dealing in cash. We've seen some estimates that there is up to half a per cent of GDP in that activity. The other part of the black economy is legitimate businesses that are engaging in lawful activity but not declaring the correct rate of tax or paying the correct rate of tax.

Firstly, when it comes to those engaged in illegal activity, we have to have a strong iron fist to crack down on that activity. That's why we've seen strong legislation on the proceeds of crime, so that if people are engaged in that activity those proceeds can be confiscated. We've also seen unexplained wealth legislation. If someone cannot legitimately explain where their wealth came from, it most likely, or almost certainly, came from illegal, criminal activity. That also needs to be cracked down very hard on.

I'm pleased to see in the budget methods and improved resources to crack down on illegal activity when it comes to illegal tobacco. I don't think there's a member in this House or this parliament who thinks we should not do everything we can to drive down the rate of cigarette smoking in this country. One of those methods is through price. We are effectively going through a form of prohibition by price on tobacco. There is, I think, about a 12½ per cent increase in the excise on tobacco year after year after year. That will push the price of a packet of cigarettes to around $40. When that happens and when you can buy that same packet of cigarettes for around $1 to $2, lawfully—if it's a lawfully made product in the country of origin—overseas and the retail price is $40 in Australia, we will have created a huge incentive for a black market and for a black economy. So, it's very important that we put those extra resources into our Border Force and into tackling that scourge of illegal tobacco. The incentives, those price differentials, are far too great to just sit by and not do more in that particular area.

The other area of course is legal businesses—businesses operating in a lawful manner—that for some reason decide that it is better for them not to declare their rate of tax. The first thing we can do, and one of the best ways that we can do it, is make sure our corporate rate of tax is low and fair. Unfortunately, we are heading for a situation in this nation where the rate of tax will no longer be internationally competitive. That is the situation that we face today. Since the turn of the century, about the year 2000, we have seen almost every major OECD nation lower their rate of corporate tax. The reason almost every nation has done that is they understand that if you lower the rate of tax you actually create more incentives, you get more economic activity and you get more tax revenue flowing in. Some people say, 'Oh, that's just an assumption,' but I'll tell you what: it's not just an assumption. Every single time in this nation that we have lowered the corporate rate of tax we have ended up not only with a bigger economic pie but with more company tax receipts as a percentage of GDP.

When Paul Keating lowered the corporate rate of tax, he understood that it wasn't a giveaway of money, as we hear so often. He understood that it was important to keeping Australia internationally competitive and to driving entrepreneurial activity and that ultimately it would result in a larger economy, more jobs and more revenue flowing in. We saw the same thing when Peter Costello lowered the corporate rate of tax in this nation. He lowered it from 36 per cent to 34 per cent to 30 per cent, where we are stuck today. It was argued, yes, that it was going to give away a lot of revenue. But we've seen the lowering of the corporate rate of tax from 36 per cent to 30 per cent, and how much did it cost the economy? Nothing. We are getting more revenue at 30 per cent, as a percentage of GDP, than we got at 36 per cent, 39 per cent and even 49 per cent. That's why it's important that we lower our corporate rate of tax. We can't have an internationally uncompetitive corporate rate of tax. We can't have an internationally uncompetitive cost of energy in this nation and also have higher wages and a prosperous economy. The three things do not go together.

There are two schedules in this bill. The first schedule is a ban on electronic sales suppression tools. The schedule creates a new offence for the manufacture, distribution, possession, sale and use of electronic sales suppression tools for the purpose of not disclosing business income. There's simply no legitimate reason for such types of computer software. They remove transactions from electronic record-keeping systems, they change transactions to reduce the amount of each sale and they can modify GST-taxable sales to GST non-taxable sales in all instances, with no audit trail made to exist.

We want to have an economy with a low rate of tax because we want businesses to report their sales and, strange as it may seem, be happy to pay the rate of tax. That actually increases the value of that business. If a business is able to have a set of accounts that say, 'This is the rate of tax we have paid and these are the profits that we have made,' in the long term that makes that business more valuable. So, if that business owner ever wants to sell that business in the future, showing the results that they have and their sales makes their business much more valuable for them to sell. The benefit that they get from that can be much greater than any short-term benefit they may have got through avoiding tax. So I'm glad to see this measure of banning electronic software for suppression of sales information. It's something that should be banned. It should be prohibited. I'm pleased that the opposition have given their support to that part of the legislation.

The other part of the legislation goes to third-party reporting. From 1 July 2018, businesses in the courier and cleaning industries will be required to give annual reports to the Australian Taxation Office regarding the payment they make to businesses for them to provide courier and cleaning services. The reporting obligation will apply for the 2018-19 income year, and reports will be required by 28 August 2019. The government has acted on concerns raised by stakeholders that small, mixed businesses providing courier or cleaning services may have a disproportionate compliance burden where the provision of those services is merely a small part of the overall activity of the business. Again, that goes to making all these compliance burdens that we put on business as low as possible. We want Australian people who are running businesses to be entrepreneurs. We want them to spend as much time as they possibly can on improving their businesses and thinking of new ways of production, distribution and manufacture. We want them to be creative and come up with new products. That's what we want our entrepreneurs to do. We don't want them tied to a desk with a red tape burden, because not only does that have a direct cost; it has the indirect cost of taking away the time they should be spending on the creative and wealth-creation processes that are so, so valuable and vital to this nation.

We in this government have a big task. We've almost got the budget back to surplus. We've done the hard yards. We inherited a mess five years ago from the Labor Party. We've made hard decisions. We've got the budget in sight of being back to a balance and then a surplus, and we have the long, hard road to pay that debt down. The coalition has done it before. John Howard and Peter Costello did it when they paid back $96 billion worth of Labor debt, and along the way—we should never forget that it wasn't only the $96 billion—they also paid back $54 billion in interest payments on that debt.

The coalition have done it before and we can do it again, but to do so we must make sure that we've got the tax burden as low as we possibly can so we can incentivise Australians to get out there and take risks. Not all of them are going to succeed, but we need enough of them to take risks to develop new products, new services and new ways of distributing goods. We need them to develop those things to drive the economy and create wealth so we can get that debt down. That's the task of our government going ahead. We've done a good job so far. Over a million new jobs in this economy have been created since the coalition government was elected. I can remember being in this chamber when we first talked about a million jobs during the coalition's first two terms. Those on the other side laughed. They sat there and they laughed at us. They sniggered and said, 'You cannot create a million jobs in the economy.' Not only have we done it; we've done it early. We've done it in a little over five years and we're going to exceed those million jobs.

Ultimately, it's not us here in government who create jobs; it's those entrepreneurs out there, taking risks, who create the jobs. We have to provide them with the legislative framework that gives incentives to those who are doing the right thing and penalises those who are engaging in the black economy; a legislative framework that gives the businesses that are out there competing every day a level playing field and the opportunities they need to succeed. If we're able to do that, we'll see in the years to come, with continued good government, that we're able to get surpluses happening and get the debt paid down so that it's not something our children and grandchildren have to inherit. This legislation is just one small piece of the jigsaw that the coalition is working on. I congratulate the minister on the work done on this and I commend the bill to the House.

Jason Falinski (Mackellar, Liberal Party) Share this | Link to this | Hansard source

May I say, Mr Deputy Speaker Buchholz, that chair suits you very well. You, sir, make the chair; the chair does not make you. May I also congratulate the member for Hughes on such a fantastic speech, in which he explained to all of us here the importance of incentives in the tax system, because that's what this bill is about. The Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 is about ensuring that we incentivise people to do what is right, not what is wrong.

Australia has a population of 24 million people, and we very well know that those 24 million people love their caffeine. However, if we assume that each Australian consumes only one cup of coffee a day, so as to balance those who excessively drink against those who do not drink at all, we find that a total of $200 million is spent on barista-made coffee per year. Obviously, these calculations form an extremely rough estimate, yet even an error margin of 10,000 per cent would not be enough to justify the myth that Australia's cash economy is principally derived in coffee expenditure or daily purchases of a similar sort made in cash.

Our cash economy—or, better put, our black economy—could be as large as three per cent of GDP. In 2016, this was the equivalent of $50 billion of underreported income, money laundering, criminal activity and fraud, not merely unreported cash based coffee income. As a result of these evasive illegalities, government has lost approximately $10 billion of taxation revenue per annum. To put that into perspective, total revenue in 2016 was only $370 billion, meaning lost tax amounted to roughly three per cent of existing revenue. Further direct costs of the black economy include abuse of the welfare system resulting from claims for benefits that would not otherwise be claimed. On the other hand, indirect costs include an uneven playing field among competing businesses and lack of community trust in the tax system.

In response to this pressing issue, the Turnbull government consequently established the Black Economy Taskforce in December 2016 to develop a whole-of-government response for tackling the underground market. The task force has made 80 recommendations to government, many of which were addressed in the 2018-19 budget. These include an economy-wide limit of $10,000 for cash payments made to businesses for goods and services; a range of measures aimed at combating the sale and production of illicit tobacco and to improve the collection of excise and customs duty on tobacco; providing the ATO with $3.4 million over four years to lead a multi-agency black-economy standing task force; removing certain deductions for those taxpayers who fail to comply with their pay-as-you-go withholding obligations; and designing a new regulatory framework for the Australian business number system. Based on figures in the budget papers, these measures will produce a net gain of $4.6 billion.

I pause here to say that it is not about just getting more money for government to spend. This is about creating a fair system of taxation where all people, regardless of where they come from and regardless of what they do, have faith that the people in this place, those administering our tax system, are doing all that they can to ensure that our tax system is fair and equitable to those people who interact with it. The most important thing in a society is a fair society—one in which people, no matter where they're from, believe that what they put in they get out, not one where they believe that their next-door neighbour is somehow not doing all that they could to provide for themselves and provide for the community in which they live. That is the definite cancer which we find ourselves arguing against very strongly in this tax bill. If you allow people to believe, regardless of where they are, that they can get away with not making their fair contribution and not doing all they can for the tax system, then their neighbours and others in the community will believe that too. I believe in the economic textbooks it's called 'the tragedy of the commons'. Labor would never be able to achieve something like this. They are too focused on some sort of archaic class warfare wherein they snatch hard-earned money and reallocate it in a Marxist fashion. They redistribute income without valid justification.

Australia's top 10 per cent already contribute almost half the total net tax paid. Moreover, the top one per cent, about 90,000 individuals, are liable for approximately 17 per cent of the government's income tax revenue. There is absolutely no need to propagate this existing inequality. Instead of targeting the compliant wealthy, government should be knuckling down on those who rort the system and those who manipulate the cash economy, launder money, phoenix, commit fraud and underreport income. That is exactly what we on the right side of the chamber are trying to do here today. In addition to measures provided in our 2018-19 budget, we seek to legislate a number of other bills concerning the black economy.

The Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill, for instance, aims to criminalise the production, supply, use or possession of sale-suppression technology. It also extends the taxable payments reporting system to cleaning and courier businesses which have an ABN. The first part of the bill, creating new offences regarding sale-suppression tools, will ensure that our tax system is equitable, unbiased and efficient for all stakeholders and all Australians. The aforementioned technology removes transactions from electronic record-keeping systems, falsifies transactions to reduce sales revenue, and modifies GST-taxable sales to non-taxable sales—all of this while leaving no audit trail. There is no legitimate reason for these tools—well, there is actually, and that is precisely what they're not meant to be used for. The new strict liability offences will target each stage of the supply chain, potentially imposing heavy penalties so as to deter the production, supply, use and possession of this technology.

The latter part of the bill introduces compulsory reporting to the ATO for businesses operating in the courier and cleaning industries. The Black Economy Taskforce identified that contractor payments in such industries are areas of high risk for the non-reporting of income. The Turnbull government is therefore extending the taxable payments reporting system to the courier and cleaning professions. The taxable payment reporting system applies to entities holding an Australian Business Number that provide services in identified industries. These industries have to report annually to the ATO about payments they have made to contractors undertaking profit-driven services for them. Reporting these payments will improve transparency for the ATO, and will align the payments with compliance obligations of employers, who must report the wages they pay. The taxable payments reporting system has been successful. Its implementation in the building and construction industry led to significant improvements in contractor compliance with GST and income disclosure. Consequently, I believe that the introduction of mandatory reporting of business-to-business payments within the courier and cleaning industries will encourage correct disclosure of income. The payments received by the subcontractors will have been reported to the ATO by the businesses that acquired their services. This additional reporting will allow the ATO to target compliance activity.

As I said earlier, government should be sealing loopholes instead of increasing taxes on the compliant. The Turnbull government has listened to the needs of taxpayers. We are providing relief where relief is needed, and stricter policy where severity is due. Through legislation, both niche and expansive, our government is creating a prosperous economic environment. We are fulfilling our purpose as the great enabler—not the great enforcer—of the Australian society. Whilst Labor in opposition has already announced over $200 billion of taxes, we as a government have successfully sought to reduce our taxpayers' burden. At the same time, we have put an end to the debt-creating machine initiated by the Rudd government and the then Treasurer, Wayne Swan. We have established the Personal Income Tax Plan, a threefold, fiscally responsible strategy to alleviate household budget pressures and provide certainty for most working Australians. It is a long-term, sustainable scheme to reduce income tax payable for nearly every Australian. It puts an end to bracket creep and provides long-lasting certainty in our tax system. Through this plan, the 37 per cent tax bracket will be completely removed, and the top marginal tax rate of 45 per cent will remain only for those with incomes exceeding $200,000.

In addition to amending personal income tax policy, the government has proposed a number of more niche changes to legislation, such as the Primary Industries Research and Development Amendment Bill. This incoming statute aims to combat the ghastly cost of a statutory marketing levy by allowing R and D through voluntary contributions. For rural industries, this reduced regulatory burden results in more time spent on productivity-enhancing innovation. For individual Australians, the removal of the levy, and thus lower costs, engenders lower prices. And for the government, as always, reduced regulation results in more resources being devoted to higher priority and more productive areas.

It is absolutely imperative that Australia expands its research and development capabilities, as this is our future economic path. Following the mining boom, our economy has lacked impetus and direction. We were global economic leaders with our iron ore and minerals, but what do we have now? What makes the Australian economy special today and, more importantly, will make it special in the future? Where, in short, is our source of competitive advantage? It is about time that we consider the path of innovation, just like Israel, South Korea and the US. We should look to avant-garde creativity and development for economic progress. However, at the core of becoming a more innovative, efficient and equitable economy, is lower and fairer taxes, because decreased taxes, not higher taxes, represent lower costs for individuals and businesses, engendering significant increases in consumption, savings and, thus, investment. In a time where our economy is at a lag, where our confidence could be much, much higher and where progress is always at the forefront of our mind, lower taxes and a budget surplus are the way to go. This is what this bill is doing. This is why I rise to support it. This is why I commend it to the House.

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

I thank the member for Mackellar for his sterling contribution to this debate on the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018. Firstly, I'd like to thank those members who have contributed to this debate.

This bill is the first instalment in the government's legislative response to the Black Economy Taskforce interim report. In last year's budget, the government responded to the Black Economy Taskforce's interim report by announcing measures to address the growing economic and social problem of the black economy. The non-reporting of income by contractors and the use of technology to conceal income are two such black economy activities that are targeted in this bill. More broadly, participation in the black economy undermines the community's trust in the tax system, creates an uneven playing field for business, fosters the exploitation of workers and results in loss of government revenue and undue welfare expenses.

Schedule 1 to this bill bans the manufacture, distribution, possession, sale and use of sale suppression technology. This technology has no legitimate use and allows businesses to understate their income. Large penalties for the use and possession of this software will strongly discourage its use. Currently, penalties are confined to the taxpayer for minimising their tax obligations. This is not a sufficient deterrent to this behaviour. This bill casts the net over those involved in manufacturing, supplying and using this software.

Schedule 2 to this bill provides that businesses that are in the courier or cleaning industries will be required to report to the Australian Taxation office details of payments they make to contractors who provide courier or cleaning services. The expansion of the taxable payments reporting system to the high-risk industries of couriers and cleaning will result in improved compliance in GST and income reporting.

The government is committed to countering the black economy and its practices in Australia. I commend the bill to the House.

Steve Georganas (Hindmarsh, Australian Labor Party) Share this | Link to this | Hansard source

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

Question negatived.

Original question agreed to.

Bill read a second time.