Andrew Hastie (Canning, Liberal Party) Share this | Link to this | Hansard source

Before the debate is resumed on this bill, I remind the House that it has been agreed that a general debate be allowed covering this bill, the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2018 and the Income Tax Rates Amendment (Sovereign Entities) Bill 2018. 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 question now is that the amendment be agreed to.

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 these bills subject to the second reading amendment moved by the member for Fenner. These bills deal with stapled structures and tightening tax concessions for foreign investors. The bills do four things. They increase the managed investment trust withholding rate on fund payments that are attributable to non-concessional managed investment trust income to 30 per cent, they modify the thin capitalisation rules to prevent double-gearing structures, they limit the withholding tax exemption for superannuation funds for foreign residents and they codify the limits and scope of the sovereign immunity tax exemption.

In respect of stapled structures, according to the government, the measures in these bills are designed to improve the integrity of tax laws relating to stapled structures. Prior to the introduction of the managed investment trust regime in 2008, profits made by stapled entities had a similar tax burden to companies. The MIT regime is aimed at increasing the attractiveness of certain funds to mobile foreign investment, lowering withholding taxes deducted from certain distributions from foreign investors. That rate is generally at 15 per cent. That means that foreign investors investing through stapled structures don't pay the company tax rate. The unintended consequence of the system is that we have foreign institutional investors being taxed anywhere between zero and 15 per cent, versus the company tax rate of 30 per cent. Obviously, that's an anomaly that we wish to clear up through these provisions.

In terms of the thin capitalisation rules that prevent double-gearing structures, these rules apply to foreign controlled Australian entities, Australian entities that operate internationally and foreign entities operating in Australia. Generally, they broadly deny deductions for debt-financing expenses if the entity's debt exceeds certain limits. Foreign investors have been entering into double-gearing structures that allow them to convert more of their active business income into interest income, which is subject to a 10 per cent interest withholding tax, or less in some cases. The explanatory memorandum states:

Double-gearing structures involve multiple layers of flow-through holding entities (trusts or partnerships) that each issue debt against the same underlying asset. This allows investors to provide a greater proportion of their capital as investor debt and gear higher than the thin capitalisation limits allow. As a result, investors are able to maintain and deduct higher levels of debt financing expenditure.

Currently, it goes on:

For the purposes of determining associate entity debt, associate entity equity and the associate entity excess amount under the thin capitalisation provisions, a trust … or partnership that is an associate of the other entity referred to in the relevant provisions will be an associate entity of that other entity if the other entity holds an associate interest of—

50 per cent or more in that trust or partnership. Schedule 2 of the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill lowers that associate entity threshold from 50 per cent to 10 per cent. The explanatory memorandum states:

In addition, in determining the arm’s length debt amount, an entity must consider the debt to equity ratios in entities that are relevant to the considerations of an independent lender or borrower.

It's good to see that the government has adopted this. It's similar to a measure that Labor has proposed in our nearest reforms—if we're elected—associated with thin capitalisation rules and cracking down on multinational tax avoidance.

This proposal that we're dealing with here today in these bills doesn't go as far as Labor's proposal, but it is a step in the right direction. We would urge the government to give further consideration to Labor's proposal, which will provide greater integrity and efficiency to our tax system and ensure that we get a fairer share from companies that have had a history—in particular, those larger companies—of using thin capitalisation rules to transfer debt to other countries.

The previous Treasurer and now Prime Minister unilaterally announced, on 14 September 2017, that managed investment trusts would no longer be able to acquire residential property, other than affordable housing. This did take the property and construction sector completely by surprise, putting the potential billion-dollar build-to-rent market in Australia at risk. After more than 10 months of uncertainty and confusion, the former Treasurer, the Prime Minister, finally backflipped and changed that, allowing MITs to invest in residential housing that is held primarily for the purpose of deriving rent.

Distributions attributed to investments in residential housing that are not used to provide affordable housing will not be concessional MIT income that is subject to a final MIT withholding tax rate of 30 per cent. The Property Council supports this element of the legislation, saying that the presentation of these bills is another step towards providing greater certainty around the rules for institutional investment in real estate, benefitting millions of Australians and their retirement savings. Tax justice advocates are supportive of this measure.

A report on the use of stapled structures has led to a Senate inquiry, chaired by Senator McAllister, that looks at the for-profit aged-care sector and stapled structures. Some sovereign wealth funds and institutional investors have criticised the package for not being fully prospective and have said that the measures will create a disincentive to investment in large-scale Australian projects, including infrastructure. The Financial Services Council has opposed much of that package.

The Tax Institute has raised the issue of why the Australian Taxation Office doesn't simply use Part IVA, the general anti-avoidance rule, to target the recharacterisation of active income to passive income, to exploit low withholding tax rates designed for passive investor income. It welcomes the transitional arrangements for infrastructure as a second-best option. But some stakeholders have raised the medium-term effect on horizontal fiscal equalisation. In particular, the package largely removes the ability for states to promote the use of stapled structures to inflate asset prices for the purposes of privatisation, and state governments of various political situations have championed the use of these stapled structures to increase the sale of assets for privatisation purposes. That's something the Labor Party has had some difficulty with in previous years, particularly the sale of essential assets associated with electricity that have led to some of the massive increases in electricity prices that we've been seeing for some years.

In conclusion, Labor supports the passage of these bills. While there are measures in here that go some of the way to closing some of the tax loopholes in Australia, particularly those around managed investment trusts and changes to thin capitalisation rules, in our view the reforms do not go far enough. The government should look at the proposals Labor has put in place around a fairer multinational tax system and some of these entities that are being used by big corporations to not pay their fair share of tax in Australia. It should look at implementing the very sound recommendations that have been put forward by Labor that would be fair dinkum about closing some of these tax loopholes for multinational corporations.

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

It's my pleasure to rise in this House and speak about another package of tax measures that this government is seeking to introduce to ensure that everyone in Australia pays their fair share of tax—the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018, the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2018 and the Income Tax Rates Amendment (Sovereign Entities) Bill 2018. This is important because we need people to pay their fair share of tax to ensure that we have the funds in the budget to provide for our infrastructure, our schools and our essential services that all Australians expect and deserve. The current concessions and loopholes have leaked hundreds of millions of dollars in revenue, and it's important that we seek to close those because we can't afford to leave those loopholes and concessions unaddressed.

These bills aim to address the unintended loopholes while tightening some broad tax concessions, including, as the member for Kingsford Smith outlined, stapled structures that currently allow foreign investors to get a very low rate of tax and, in turn, get a competitive advantage over Australian investors by paying little, if any, tax. Foreign investors have been taking advantage of this system by converting trading income into more favourably taxed passive income in land-rich sectors such as infrastructure. That these tax benefits are available only to foreign investors places Australian investors and businesses at a competitive disadvantage. That these concessions are available only to foreign investors results in a two-tiered tax system that has the potential to distort investment decisions and biases investments towards those structures I outlined before. As we look across our economy, it's important that, irrespective of your structure and your business, everyone pays the same rate of tax to ensure that we have the necessary revenue for the services that we need to provide. This bill will stop double gearing so that foreign investors will be unable to shift profits to avoid tax. It will stop foreign investors getting tax concessions on their stapled structures to achieve tax rates well below 15 per cent on their Australian business income or, in some cases, be tax free. That's in stark comparison to Australian entities, who pay a corporate tax rate of up to 30 cents in the dollar.

But, importantly, these bills are the latest in a range of measures that this government has sought to introduce over the past few years that are resulting in some of the strongest taxation integrity rules in the world. However, these stapled arrangements and the broad tax concessions provide an opportunity to avoid or minimise tax, and that poses a risk to the integrity of our tax system, and these bills seek to reduce or close those loopholes. One of the loopholes that we're closing concerns trading income that is presently converted to passive income—income from agricultural land and residential housing, other than affordable housing. We will see this income taxed at the corporate tax rate for foreign investors, which will improve the outcomes for all Australians across the housing spectrum, particularly those most in need of home ownership. The proposed reforms will, again, prevent foreign investors from double gearing these investments to generate more favourably taxed income. These measures address risks to Australia's corporate tax base posed by this range of structures.

Schedules 1 to 5 of the bill amend the Income Tax Assessment Act 1997, the Income Tax Assessment Act 1936 and the Taxation Administration Act 1953 to improve the integrity of the income tax law for these arrangements, including foreign investors using managed investment trusts and the income that flows through those. Increasingly, we've seen businesses in a broad range of sectors seek to use tax structures to minimise the tax that they pay, and, with the managed investment trusts concession being used through stapled securities and similar arrangements, we've seen the conversion of active income into passive income. Further, some foreign investors have entered into arrangements that generate debt greater than the prescribed thin capitalisation debt limits by using double-gearing structures, leading to the ability to claim greater tax deductions than were otherwise available to Australian investors and therein create, as I outlined before, a two-tiered tax structure and a commercial advantage for many of these entities.

Several of these measures are specifically designed to address housing affordability for members of the community earning low to moderate incomes by providing incentives for investors to increase the supply of affordable housing. As a result, managed investment trusts will be able to invest in residential housing that is held primarily for the purpose of deriving rent. However, distributions that are attributable to investments in residential housing that are not used to provide affordable housing will be non-concessional managed investment trust income and subject to a final withholding tax of 30 per cent.

Schedule 2 improves the integrity of the income tax law by modifying the thin capitalisation rules to prevent double-gearing structures. This schedule will apply in the income years commencing on or after 1 July 2018, with no transitional period, as the amendments close a clear technical loophole in the law. The thin capitalisation rules will bring in about $400 million in revenue over the forward estimates, while helping to put Australian investors on a more equal footing by removing lower and unintended tax rates currently available to foreign investors. Foreign investors have increasingly entered into these structures that allow them to convert active business income to interest income with lower withholding tax rates.

This is just another example, as I said before, of the government seeking to address a range of issues to ensure the integrity of our tax system. Importantly, the measures that have been put in place over the last few years create a tax system that is much stronger in its tax integrity than many others around the world. And as a result, under this government, Australia is a global leader in the fight against multinational tax avoidance. Some of the measures that have been introduced have resulted in approximately $7 billion in liabilities being raised against large public groups and multinationals and around another $7 billion in sales being returned to Australia each and every year. That results in hundreds of millions of dollars of additional GST revenue, which is a direct benefit to the states.

Once again, this is a demonstration that this government is focused on making sure foreign investors pay their fair share of tax as part of their social licence for operating in Australia. This in turn ensures that we have a strong economy, resulting in more jobs and opportunity for hardworking Australians, who are looking to build and grow the wealth for their future and for their families and, importantly, ensuring that their government can provide and fund the essential services that Australians expect and rely on. It's pleasing to see that progressively over the last few years we have continued to strengthen the integrity of our tax system to ensure that everyone, whether foreign or domestic, is paying their fair share and allowing us to generate the revenue necessary to provide the services that every Australian expects. I commend these bills in their original form to the House.

Andrew Wallace (Fisher, Liberal Party) Share this | Link to this | Hansard source

Mr Deputy Speaker, I know that you will be riveted to hear that the implications of this bill, the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018, as part of the coalition government's historic program of tax reform, are both practical and profound. People who live in my electorate of Fisher who want to invest in Australia's future will see the day-to-day benefits of the bill in the form of a level playing field, beginning on 1 July this year. But the values and beliefs that underlie this bill and our tax reform policies in general are fundamental to the weighty choice that will face all Australians at the coming federal election. It is a choice between two visions for the future of our country and between two contrasting beliefs about the success that Australians deserve.

The Liberal-National coalition want to keep tax rates as low as possible to allow people to keep more of their own money. Labor, on the other hand, want to take $200 billion more from Australians' back pockets. The coalition want to reward aspiration and ensure that hard work is not punished. Labor believe that, the harder you work, the more the government should take from you. The coalition want to encourage Australians to invest in their future and in the future of our country. Labor want to punish investment and discourage Australians from saving for their future because Labor want more Australians to be reliant on the public purse. The coalition want a tax policy which helps grow a strong economy and allows us to pay for the services that Australians need. Labor will weaken that economy with an onerous, unaffordable tax burden that will eventually drag all of us down. Our government wants a level playing field. We want to ensure that the tax rules are the same for everyone, regardless of wealth, size of corporation or geographical location. Labor want different rules for different people, unfairly targeting retirees or hardworking families who own an investment property.

That is the contrast between the coalition's historic tax reforms and Labor's shameless tax grab. That is the context of this bill and the tax reform program in which it fits. In particular, it is an encouraging domestic investment in ensuring a level playing field where this bill will have its impact. Schedule 1 of the bill will ensure that a foreign investor cannot take income they derive from trading in Australia and avoid paying the full rate of tax on it by converting it through what is known as a stapled structure into passive income from agricultural land or residential housing. Until now, these stapled structures have allowed foreign investors, and only foreign investors, to achieve effective tax rates of less than 15 per cent, far lower than what Australians would ordinarily pay. It has also allowed them to get an unfair tax advantage over Australian citizens who want to invest in our domestic, agricultural or residential property. The coalition government encourages foreign investment in Australia. However, we believe that, if you earn an income in Australia, you should pay the same tax on that income that an Australian must pay.

Schedule 2 of the bill prevents foreign investors from creating layers of trusts which can convert the active business income that investors have gained into interest payments taxed at a much lower rate. The bill would group these trusts together, apply the same so-called thin capitalisation rules to them as apply to other entities investing in Australia and thereby ensure that they cannot be used to create large debt deductions and reduce the tax owed to Treasury.

Finally, schedules 3 and 4 would reduce the tax exemptions enjoyed by foreign pension funds and sovereign wealth funds. While the government want to encourage overseas pension funds to invest in Australia, currently our tax incentives to do so are far more generous than most equivalent countries afford to Australians. We need to redress the balance and ensure that our investors are not comparatively disadvantaged by the excessive concessions that we grant to overseas funds.

Importantly, however, the government recognises that there are high areas of need in Australia where additional tax incentives for foreign investment are in fact appropriate. With a rapidly growing population, we face a considerable need for new infrastructure and more affordable housing right across this country. As such, the government has built in, for example, a pragmatic exemption to schedule 1 of this package for 15 years for nationally important infrastructure projects and has included in the bill further support for affordable rental housing. It's ensured that these measures were developed in close consultation with industry groups, businesses, investors and other tiers of government across two years of discussions. We have ensured that there are transition arrangements built in of between seven and 15 years in the case of existing arrangements to make sure that no-one is unfairly disadvantaged. These reforms are targeted and pragmatic, ensuring a level playing field without discouraging the investment that we so badly need in this country.

In total, closing these loopholes will ensure that Treasury recoups around $400 million over the next four years in taxation which foreign investors would otherwise have avoided paying. That's $400 million in unfair advantage negated, and $400 million that the government can put towards the services on which Australians rely. If left unchecked, this loss of revenue could have grown into the billions, as more foreign investors would seek to take advantage of the loopholes, to the serious detriment of Australian domestic investment.

Overall, as I've sought to describe, this bill is an essential element of the coalition's wider taxation reform package, helping to ensure a level playing field, enforce the same rules on all and encourage domestic investment. In assessing the merits of this bill in its wider context, the House should consider what the coalition's taxation reform package has already delivered for all Australians. Sixty thousand people in my electorate of Fisher, for example, are already better off because of the coalition government's tax reforms. Working Australians who live in communities like Caloundra, Beerwah, Maleny or Mooloolaba are seeing up to $530 more in their pay packets every year. Ordinary families in those communities, in towns like Kawana, Alexandra Headland, Beerburrum or Landsborough are getting up to $1,060 back from this government. We've passed further reform which ensures that 94 per cent of Australians, including residents of Fisher, will never have to pay a marginal tax rate of more than 32½c in the dollar.

We believe that if you choose to put in the effort to succeed, you deserve to enjoy the fruits of that aspiration. At a time when wage growth is low and when bills for electricity and housing are high, the coalition government has acted responsibly and pragmatically, and said to people in my electorate, 'We are not going to take any more of your money than we absolutely have to.' Small businesses in Fisher that are creating the industry and jobs of our future are already feeling the practical benefits of the coalition government's policies. Companies like Helimods at Caloundra Airport, Eniquest in Bells Creek and APAC Infrastructure in Caloundra West are already investing in new products and offering new jobs in the knowledge that the return on those investments will be greater under the government's corporate tax cuts. Day-to-day businesses on which local residents rely, like CK Whole Foods in Mooloolaba, Maleny Jewellers, and Peachester Fuel and General Store, have been given greater confidence that they can earn, employ locals and invest for the future, because this government is taking less of their income every year.

We all see the benefits in thriving shopping districts and a low unemployment rate across this country. The bill we are considering today will further encourage that sort of confidence and that investment by ensuring that overseas investors are not receiving an unfair advantage which increases their returns and makes it harder for domestic businesses to compete. The people of Fisher and its local businesses are already experiencing the positive practical impact of the coalition government in their pay packets and on their balance sheets. This bill will support them further.

Under Labor, my constituents would receive none of these practical benefits. Labor voted against our personal income tax plan. They voted to take $70 billion more from taxpayers, including from the back pockets of 60,000 working Australians in Fisher. Labor have promised to repeal the coalition government's company tax cuts and undermine the investment decisions taken by tens of thousands of businesses in my electorate. Labor have promised more than $200 billion in other new taxes on housing, electricity, small business, investment, income and even pensions. Every day, whether you're a working Australian, whether you're an Australian investor or a small business owner or a retiree—it doesn't matter—you'll better off under the coalition than you would be under Labor.

But the debates over taxes that have taken place in this parliament reveal something more fundamental about our competing visions for Australia. Members of the Liberal-National coalition believe that the success that Australians want is a success built on hard work, investment for the future, and personal responsibility. We believe that Australians want the satisfaction of knowing that they have earned what they have, that they have provided for themselves and their loved ones, and that they've helped to build Australia's future. Labor have fought tooth and nail to stop us implementing our historic tax reforms at every stage, because Labor don't believe in aspiration; some of them don't even know what it means. They don't understand it. Labor don't believe in rewarding hard work and investment for the future or celebrating the success of ordinary people. For them, the more you work, the more the government should take. Labor demonise achievement. They punish hard work and they penalise investment, because Labor believe that the only success Australians deserve is the success that the government hands out.

That is the choice that faces the people of this country: opportunity and prosperity under the coalition, or Labor's politics of envy. I know which Australians will choose. I encourage this House to do the same by supporting this bill and helping us progress the vital work of tax reform today.

Keith Pitt (Hinkler, National Party) Share this | Link to this | Hansard source

I rise to speak on the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill 2018. This bill addresses unintended loopholes and tightens some of the broad tax concessions that allow foreign investors to get a very low tax rate and a competitive advantage over Australian investors. But while I'm on my feet, we should look at a few things in terms of comparison with those opposite, because we've heard over many years their shrill screams about multinationals and companies in Australia that haven't paid any tax. Well, I've got news for those opposite. There are some rules around taxation in this country—some very important rules. And I think the first one is this: if you don't actually make a profit then you don't pay any tax. Those opposite have made calls about Australian companies who haven't paid tax for a particular year. Mr Deputy Speaker Goodenough, I know you've been in business yourself, and the minister at the dispatch box is probably in a similar position, and the member for New England in front of me—you have had experience in employing people and setting up business structures and companies, paying tax to the Australian government. But those opposite certainly have it wrong.

There are things that happen to companies and businesses in this country that mean that they don't make a profit. I was in business for more than 15 years before I came into this place. There were years when I didn't have a tax bill because I made a loss. At that time, you dip into your overdraft or you dip into your savings or your previous years' earnings, and you use that to keep your business going, to pay your wages and to keep your staff in their jobs. They are the things that companies in this country do. So, I think these shrill screams about multinationals and for more tax to be paid by companies in Australia need to be tempered by the reality of what happens in business. It is one day of the year when you assess your position, on that day, for your taxation responsibilities to the Australian government, and if you owe them you pay them. It is very straightforward.

In terms of profit shifting for multinationals, we've already cracked down on that, and the proof of the pudding is in the eating: more than $5 billion has been recovered. That is an enormous amount of hot dogs down the road for those who might be looking for support. And can I say, we know that those opposite do know something about taxes. They know that they like to hand them out. The proposal that they are taking to the next election is a tax hammer to the Australian economy: $200 billion in additional taxes and costs.

I know, as a previous owner of a business, that you make decisions based on a couple of things. You make decisions based on forecasts and you make a decisions based on confidence and your bottom line. The stronger your bottom line is the more likely you are to invest, to take calculated risks and to employ more Australians. We've been successful over the past six years. More than a million jobs have been created in this country. I think that has been incredibly beneficial. We have at the moment one of the lowest unemployment rates for many years. It comes down to the structures we've put in place to help businesses be successful, because at the end of the day a profitable business employs Australians in this country—and they all pay tax. But we know that that is not enough for those opposite. They want more money to spend on the things that they want. The difference between us and them is that we want Australians to keep more of their money to spend where they want it, so they can make a decision about where their kids go to school, not necessarily pour it into government coffers for Labor's ideology.

We know what will happen to running costs. One of the things that I was surprised—in fact, absolutely gobsmacked—about during my period in business was the increase in the cost of electricity. Without a word of a lie, I started with an irrigation tariff of around 12 cents a kilowatt hour. It is now in the high 20s. If you were in business, your electricity bill was not in the top three costs for your operation unless you were a large energy user. It is now in the top two. Minister Angus Taylor and I met with a small-business man last week. Electricity is now his third highest cost after wages and rent. This is a coffee shop. It is not a huge operation that requires enormous amounts of energy. It is unsustainable. You cannot continue to have such high energy costs. Yet, those opposite want to increase it again. They want to implement a 50 per cent renewable energy target, with intermittent wind and solar. We know exactly what would happen. You can go to South Australia. It has the highest electricity costs in the world. What would that mean for regional Australia? It's pretty straightforward. It would mean a loss of jobs and businesses.

Minister Taylor and I attended the Bundaberg Foundry in recent weeks. They have been in place for 130 years-plus on the Burnett River in Bundaberg, providing training and services. They employ over 100 people and have done for a very long time. On 30 June next year, when their existing energy contracts expire, their costs will go from $1 million to $1.7 million in one year. For a business with a turnover of $40 million—and I know all of those in the House at the moment who have ever had a business know what the margins are—$700,000 is a very substantial amount off your bottom line, and the question will then become one of viability. So I say to the Queensland government, because they are solely responsible: you need to take action. We have called for years to make changes to tariffs. In fact, the tariffs that they are suggesting is 48 cents a kilowatt hour for a commercial business. Forty-eight cents! That is just unsustainable.

I do not want this business to leave my local district. They have trained literally thousands of people—apprentices, trainees—over more than 100 years. We need them to stay because they are a mainstay of what happens in regional Australia. But we need to ensure that our taxation system in fair, so we are reducing the taxation rate, particularly for small business. Those opposite want taxes to increase. We want people to be competitive. We want their businesses to grow. Those opposite want to take more off them to subdue what they do, every single day, week, month and year, to ensure that their life is more difficult and their business is more difficult to operate.

This is a pretty straightforward contest. On that side, they want to take more taxes from every Australian. On this side, we want them to have more in their pockets, so they have more reliability and more money on the bottom line, and so they employ more Australians so our economy continues to grow. It is very straightforward. Taxation for them means changes in negative gearing. The stated goal of those opposite is to drive down the value of every Australian's home, to drive down the value of their home. The silence is deafening. I admit there are only a couple of us in here, but how is it possible for them to go to every Australian home owner and say: 'We want the equity in your house to deteriorate. In fact, we want it to go so low that the bank will come and take it off you'? That is just outrageous. These people have invested at a time when they could. They saved their deposits. They work hard. A potential Labor government change in taxation policy that would take their houses away from them is not in the interests of anyone. It's not in their interest. It's not in the nation's interest. It's not in the economy's interest. We are deadset against those changes. We need to ensure that a Labor government is never elected in this country, because they will destroy our economy.

You only have to look at what we are doing with the tax offset. My electorate are not high-income earners. In fact, their average every year is around $34,000. It is just $34,000 for their median income. For them, it's approximately a $500 change. Some 49,000 individuals in my electorate will gain the tax offset of around $500 after the end of the financial year in 2019. That makes a big difference to them. Once again, in comparison, we know the retiree tax from those opposite will take, on average, $2,200 from 5,500 retired Australians in my electorate. They use that to pay their rates bill, they use that to pay their electricity bill and they use that to pay their everyday costs of living. It is not a lot of money. They are entitled to it. Those opposite suggest it is a loophole for someone who hasn't paid tax. Well, they have clearly paid tax. That's how they got a return. When they lodged their return on 30 June, their income is either less than the threshold or less than the rate and they get a return on the taxation paid on their behalf through shares. It is very, very simple and very, very straightforward.

The legislation before the House is very straightforward. It is intended to stop double gearing so that foreign investors can't shift profits to avoid tax. It is about stopping foreign investors from getting tax concessions on stapled structures to achieve tax rates of 15 per cent or less or, in some cases, being almost tax free for Australian business income. We need to ensure that every Australian company has the same advantage as those who want to come from overseas to invest here. Let me be very clear: we need foreign investment. Our country is built on foreign investment. But that foreign investment needs to be fair and should not disadvantage Australian companies, Australian businesses and, in particular, Australian superannuation funds.

While I'm on my feet, I will again put out a call to the Australian superannuation funds: take Australians' money and invest it in the Australian nation. It can be in infrastructure, housing, hotels or agriculture. To be pretty damn frank and blunt, I don't care where it is as long as it is Australian super invested in this country for every Australian's benefit. In fact, if superannuation funds went to their members, put a check box on those forms that they make you fill out every single year and asked them their members they wanted more investment in Australian infrastructure or in Australian agriculture, I think it would be overwhelmingly a yes. For the life of me, I can't understand why Australian super funds are so hell-bent on investments in agriculture and infrastructure in the United States, in Canada or in other countries, but they are not as interested in investing in this country. I've called for Australian investment before, and I will call for it again.

While we are talking about it, the changes to the bill include taxes on foreign investors' income from Australian agricultural land and Australian residential property other than affordable housing, disability accommodation and management investment trusts at the top corporate tax rate. It provides transitions for periods of seven to 15 years for existing investments. It allows for a 15-year concessional rate for investments in new nationally significant infrastructure, as determined by the Treasurer, and implements the government's budget commitment to support affordable rental housing by providing a 15 per cent tax rate. As I said earlier, we have already made changes to those multinationals who might be looking to avoid tax in this country. That has resulted in $5.6 billion of additional income from those now taxpayers to the Australian government, which can be used for many, many things that are helpful and beneficial to the Australian people.

In the short time I have left, I want to again put out a call to the Queensland Labor Premier, Annastacia Palaszczuk. Premier Palaszczuk has been sitting on her hands for months when it comes to the national health agreement. Why is it important? Because the health minister has $8 billion on the table for Queensland's public hospitals. This is not fiddlesticks; this is $8 billion. Can you imagine the nurses, the doctors, the support and the surgeries that can be conducted with $8 billion? Yet she flat out refuses to sign the agreement and even has the gall to say that there have been reductions from the federal government for funding for public hospitals in Queensland. It is an absolute nonsense. In fact, for the Wide Bay Hospital and Health Service area, our funding is up 37 per cent— that's federal funding. The reduction that is in there came from the state government. The Labor state government dropped $16 million out of my area and tried to claim that it was the feds. Well, this is rubbish.

I say again to Premier Palaszczuk: get out your pen, sit down at your desk, sign the national health agreement and deliver $8 billion for the people of Queensland to support their health, because, quite simply, they need it. And while she's at it she should sign the Skilling Australians Fund—$240 million just for Queensland. It will deliver 50,000 apprentices and trainees. Anyone who lives in Queensland, anyone who lives in the regions and anyone who lives in the cities knows that we need more apprentices and trainees because we need to deliver those skills into our economy. And there is no more important part of the Australian economy than the regional economy. We have had massive reductions in the number of apprentices and trainees who are coming through the system.

I'm the beneficiary of an Australian apprenticeship. I'm an electrician by trade. I was fortunate enough to land an apprenticeship at a local sugar mill, but that sugar mill is now closed. It is not there anymore. So I say again to the Labor Premier, Annastacia Palaszczuk: sign the national health agreement and sign the Skilling Australians Fund. The sarcastic side of me thinks that she is not signing up only because there is a federal election on the horizon and she wants to stand up with the Leader of the Opposition and complain about how hard done by the Queensland state has been. Sign the agreement. We will deliver the money that is necessary and it will be delivered now. It is ready now. The Minister for Health is ready to put forward $8 billion just for Queensland, on top of what's already there. This is a massive increase and it is necessary.

The changes to the Treasury laws make substantial and necessary changes that are to the benefit of the Australian country, the Australian people and the Australian nation. Of course, I commend the bill to the House.

Julian Leeser (Berowra, Liberal Party) Share this | Link to this | Hansard source

It's always such a privilege to follow the member for Hinkler. The member for Hinkler represents his constituency incredibly well. He is a doughty advocate for them. He and I are neighbours in terms of our offices being next to each other. He also sits next to me in the joint party room. He provides lots of good pastoral care for new members like me. And, as people listening to this debate will have recognised, he is a tremendous voice for his community in Queensland—a community very different to mine in Berowra but whose values are very similar, and Berowra is a community that would be concerned, like his community, about ensuring people pay their fair share of tax in Australia.

Like the member for Hinkler, I have a bias in favour of foreign investment. Foreign investment has helped build this country. First we had British investment in Australia, and we had the Americans. In more recent times we've had the Japanese and now we have the Chinese and the Indians. We have a range of different foreign investors, and foreign investment is always a good thing for Australia because this country simply doesn't have enough capital to build the things that we need to build here.

But Australians, rightly, ask questions about foreign investment where they feel that the playing field is not level. The purpose of these laws, in this cognate debate, is to level the playing field to make sure that foreign investors are paying their fair share of tax here, to ensure that they're not hiding behind particular structures and getting particular advantages that they might not otherwise get and to ensure that markets are not distorted. This is a fundamental principle of what we're trying to do as a government.

The performance of the Australian economy has relied on foreign investment. When you think about Australia's economic performance over more than a quarter of a century now, we are the envy of so many countries for the duration of our economic growth—and the 1.2 million jobs that we've created in the five years since we've come into government. With a growth rate of 2.8 per cent, we are second only to the United States in terms of growth rates in the OECD. Our unemployment rate has fallen to 5.1 per cent, which is just extraordinary. Our levels of welfare dependency as a country have fallen to 14.3 per cent, the lowest rate of welfare dependency in 30 years. That's just extraordinary. This only occurs if you've got the economic settings, investment settings and tax settings correct and if you've got a government that's focused on these things. That's why I was so pleased to hear the Prime Minister announce his plan for 1.25 million new jobs.

So what role does this bill play in strengthening the Australian economy, levelling the playing field and ensuring that investment continues in an orderly and helpful way? In the second reading speech, the Assistant Treasurer made a number of key points, and I might just pull out a couple of those points about this bill which I think are very important. The bill implements measures that the government announced to protect the integrity of our corporate tax system. As we know, taxpayers in the main comply with Australia's tax rules and pay their fair share of tax here. I've sat on the House Standing Committee on Tax and Revenue for the duration of this term, and Australia has an interesting statistic, an interesting fact: more than 75 per cent of Australians use an accountant to comply with their tax obligations. That, I think, helps the quality and the level of compliance with our tax laws generally.

But we know some foreign investors have been using complex arrangements which are known as stapled structures and other tax concessions in order to get profits from Australian businesses basically at a tax-free level, and that just can't continue. The way they do this is by taking trading income and putting it into more tax-favourable passive income, and they do this in land-rich sectors like infrastructure. When you take that and you combine it with the existing concessions for foreign pension funds and sovereign wealth funds, some foreign investors can achieve tax rates well below 15 per cent on their Australian business income and in some cases are almost tax free. Hardworking Australian families who are paying their fair share of tax look askance at some of these arrangements, and they say: 'Well, I'm a citizen of this country. I'm a taxpayer of this country. I'm abiding by the rules. Why are these foreign companies able to get away with doing this sort of thing?' These tax benefits aren't available to Australians; they're only available to the foreign investors. So it places not only Australian individuals but also Australian businesses at a competitive disadvantage because these things are only available to foreign investors. What we end up with is a two-tiered tax system which effectively means that we get distorted investment decisions. It effectively says to people: 'Invest in land-rich things. Don't invest in companies. Don't invest in things that are actually growing the economy more broadly.'

Stapling and the broader tax concessions pose serious threats to the integrity of our corporate tax system, and use of staples has become quite widespread in infrastructure, in property, in renewable energy and in agriculture. Meanwhile, access to concessional withholding tax for foreign investors has spread much, much further than it was ever intended to, and this is particularly the case in the agriculture and residential housing sectors. We know how strongly Australians rightly feel about Australian ownership of agriculture, because agriculture is obviously an important industry for the country economically but it's also important culturally. Australia has always had a very strong agricultural sector. It's one of the things that we are best at in the world, it is one of our key economic strengths, and it's something that Australians feel deeply connected to even if they have no personal connection to farming and agriculture more generally. They want to have a sense that Australians will continue to own agricultural produce. I know that in my own electorate, where we've got some small semirural areas producing things in the horticultural sector, particularly large horticultural production, people feel very proud that there's such a strong sense of Australian ownership of the horticultural sector.

The other issue in relation to different tax structures, besides the fairness as between Australian companies and individuals and foreign companies, is large amounts of revenue forgone. There are estimates up to hundreds of millions of dollars, and it could be as much as billions of dollars that Australians are not getting as a result of these arrangements that the foreign investors make. This means that ultimately there are fewer opportunities for governments to spend more on infrastructure, to spend more on health and education, to spend more on our defence and securing our borders—all the key things that Australians want us as a government to spend money on. If we were able to pass this important legislation, we would have more money coming into revenue that is not being raised from Australians but being raised from foreign investors who heretofore have sought particular structures in order to minimise their tax.

We've got some of the strongest tax integrity rules in the world, and I think we should be very proud of them. We talked to the tax commissioner on the House Committee on Taxation and Revenue. This is a point that he regularly makes. It's important to note that this suite of legislation is part of a whole range of legislation that the government has already introduced, including multinational anti-avoidance laws, the diverted profits tax laws and country-by-country reporting, which has been very important in further bolstering the integrity of the tax laws in this country.

The measures in the bill build on the government's work in protecting the integrity of our corporate tax system. It is absolutely fundamental that we all pay our fair share of tax to ensure that the government is able to continue to provide the services that Australians want and that they deserve, whether it's schools and hospitals or whether it's infrastructure like NorthConnex in my electorate, a $3 billion road that connects the M1 to the M2. The federal government's contribution to that road is $412 million. But that money has to come from somewhere, and it comes from the taxation receipts of the Commonwealth. At the moment, the foreign investors haven't been paying their fair share of tax. These bills are designed to level the playing field to ensure that they can't take unfair advantages that are not available to Australians.

The bill neutralises the tax benefits delivered by staples by ensuring that active business income is taxed at the top corporate tax rate for foreign investors. The government's intention in introducing this package is so that active income that is converted to passive income shouldn't have access to concessional rates. The Australian Taxation Office will continue to closely monitor this area to ensure that that is actually happening and will take strong action. I know Commissioner Jordan and will take that action if it's necessary. Consistent with the Australian Taxation Office's taxpayer alert, the government expects that our anti-avoidance tax laws—known as part IVA of the tax legislation—are well understood and a litigated part of the tax law. It's fair to say they will continue to apply to egregious tax-driven arrangements such as royalty staples. This is very important. This bill delivers on our promise as a government to protect Australia's corporate tax integrity. That's what we have to do to ensure that taxpayer dollars are spent prudently.

One of the things that I note in the amendments that particularly pleased me is what is happening in relation to student income. The amendments to schedule 1 of the bill remove provisions of the bill that meant all tertiary student accommodation—for example, a purpose-built student accommodation development—would have been subject to the 30 per cent managed investment trust withholding tax. This amendment has been in response to some key views that were raised by some stakeholders at the Senate Economics Legislation Committee that looked into the parliamentary minutes to the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill.

Student accommodation is very important. Prior to my becoming a member of parliament, I spent four years working in the higher education sector. Student accommodation is particularly important at our universities right across the country because, without adequate student accommodation, we don't have adequate places for not only overseas students but also students from rural and regional parts of Australia. There is a great deal of importance in encouraging and enabling more students in rural and regional parts of Australia to enter the higher education market.

I note that the Minister for Education is the minister at the table. He represents a rural and regional constituency in Wannon. He has been doing a terrific job implementing the recommendations of Professor Halsey in his review and knows well the difficulty that regional and rural families face in getting and paying for student accommodation in universities that are outside the areas in which they live. That's such an important thing, so I was particularly pleased to see the government looking at this important question. I commend both the Assistant Treasurer and, importantly, the Minister for Education on the work they are doing. I'm proud to be the chair of his government members committee in that regard.

This bill is an important integrity bill. In order to ensure the bill's safe passage, there won't be specific rules for management investment trusts for tertiary student accommodation, and I think that's an important thing. Instead, consistent with all other premises, the application of the higher withholding tax rate treatment outlined in the bill will now depend on whether a tertiary student accommodation development is considered to be a residential dwelling asset, under the general definition considered in the bill. This amendment doesn't affect our clear intent that other residential property, such as houses, apartments and build-to-rent developments of which we see so many now, will be subjected to a managed investment trust withholding tax rate of 30 per cent. But it does acknowledge that student accommodation is in a completely different class and that there is a public good as a result of that student accommodation.

The amendments also provide that premises used primarily for the provision of disability accommodation under NDIS or regulations yet to be made can receive concessional managed investment trust taxation treatment, despite being residential premises. I note that the minister at the table had responsibility for the NDIS before he became Minister for Education, so he will understand these issues of disability accommodation very well. People with disability are often at a real disadvantage, in terms of finding quality accommodation, and so the provision of more accommodation—and more accommodation that is fit for purpose for their needs—is absolutely vital. The amendments also don't change the requirement that a managed investment trust investing in land must invest for the primary purpose of deriving rent, and that seems to be a fair and reasonable integrity measure.

I think the government's bill here is good. Some of the amendments it's brought forward are very useful, and I encourage all members to support the government's program, in making sure foreign investors pay their fair share of tax.

Luke Howarth (Petrie, Liberal Party) Share this | Link to this | Hansard source

I'm very happy to rise and speak on the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Bill. As the previous speaker said, what we want to see as a government is foreign investors and Australians pay their fair share but—particularly for Australians—that they don't pay more than they need to. We're just asking that everyone pay a fair amount so we can continue to deliver those essential services. We've seen massive economic growth over the last 5½ years of the coalition government, with some 1.2 million jobs created and a target to create another 1.2 million over the next five years. We've seen unemployment at five per cent.

As the economy continues to grow and strengthen we're able to reduce taxes for many Australians, which is really important as well. We want to make sure, and I want to make sure as the federal member of parliament representing the seat of Petrie, that foreign investors pay the right amount of tax. It's a privilege for them as non-Australians to be able to invest in Australia, but it's important to make sure they pay their fair share. This bill addresses unintended loopholes and tightens some of the broad tax concessions that allow foreign investors to get a very low tax rate and a competitive advantage, in some cases. Current concessions and loopholes are leaking millions in revenue that could turn into billions, if left unchecked. That's why the government is putting this amendment in place now.

The legislation stops double gearing, so foreign investors can't shift profits to avoid tax. It stops foreign investors getting tax concessions on stapled structures to achieve tax rates of 15 per cent or less or, in some cases, almost tax free on business income. As you know, we've had a debate in this place, over the last term, about company tax and lowering the company tax rate to 25 per cent, which we've been able to do for SMEs, small and medium enterprises, with a turnover of up to $50 million. For companies above that, their tax rate is 30 per cent. But what we're seeing with this loophole is that some are able to pay a lot less, so this step will tighten that up. I say to everyone in my electorate of Petrie that this is an important step. Stapled structures were historically used to facilitate complementary, but separate, trading business being carried out in a company and in a trust. They've been able to basically split it so the tax rate is only 15 per cent, rather than 30 per cent, which is what we want to see them pay.

This bill also taxes foreign investors' income from Australian agricultural land and Australian residential property in managed investment trusts at the top corporate tax rate. It does provide transitional periods for existing investments. We know that foreign investment is important, and we want to make sure that Australians can also invest overseas, so it's important to have a reciprocal arrangement. Some foreign investment is important, but I also know that not everyone in my electorate likes foreign investment, so they'll be pleased to know that we are acting on this.

As part of the government, as a member of parliament and as a member that represents the seat of Petrie, I want to see lower taxes for the people I represent. I really want to see lower taxes. At the moment everyone in my electorate, whether it's myself, a doctor, someone who works on the council, someone who works at the local cafe or someone who is 68 and has a part-time job—whoever it is—gets $18,200 tax free. You get the first $18,200 tax free. After $18,201, up to $37,000, people pay 19c in the dollar. That means they get to keep 81c of everything they earn, which I think is fair. It's good. We then have a 32½ per cent tax rate—a third of what you earn, you pay in tax—for $37,000 and above. It used to cut out at $80,000; the federal coalition government this year has raised that up to $90,000. The benefit to the people in my electorate earning up to $90,000 over the last few years is that, on the $10,000 worth of money that they're earning, they're paying a 32½ per cent tax rate rather than a 37 per cent tax rate. That means that they're saving, effectively, 4½c in every dollar on $10,000, which is important if they're saving for a home loan, they're putting kids through school and they have school expenses, they just want to save for a family holiday or they're a young couple who are about to get married and are trying to get a deposit together—they can both save that extra money.

We have gone further. Because the economy is growing and because we believe in lower taxes, we've now legislated right up to $200,000 that you can only pay 32½c in the dollar, so you'd actually keep 67½c. I think that's really fair. It provides incentive for people to work harder and not be taxed at 37 per cent or 45 per cent, plus the Medicare levy. That's a great incentive, and, with a strong economy, we can continue to do that. We can continue to lower taxes. We can come back to surplus—which is what we'll see when we deliver a budget on 2 April of this year—for the first time since way back when John Howard and Peter Costello delivered the last budget surplus. That's very important. We can continue to invest in social services, roads, infrastructure, sporting facilities and all the things that are important to the people in my electorate.

We know that foreign residents pay 32½c in the dollar from the first dollar they earn, and I think that's fair. As Australians, we get a benefit of $18,200 tax free and then the lowest rate of 19c, but if you're a foreign resident you'll pay up to 32½c this financial year for up to $90,000.

This is in stark contrast, of course, to those opposed to what we're trying to do here: the federal opposition. They want to see higher taxes for people in my electorate. They want to see higher income taxes. I say to those living in my electorate that this is the wrong time to do that. We've got a strong economy; the economy's growing. I want to see lower taxes; the opposition want to see higher taxes. They don't want to see 32½c right up to $200,000; they want to tax people living in my electorate at 45 per cent and 37 per cent, killing incentive. Considering, as I said a moment ago, that this will be the first time that we've come back to surplus in a long, long time, this is absolutely the wrong time to do it.

Labor actually have a policy that they're going to take to the election this year of not just increasing income taxes which have been legislated and reduced but increasing taxes right across the board—some $200 billion over the next 10 years. I say to people that that will be bad for the people of Brisbane and Moreton Bay. That will be bad because it's not just about income tax rates; the opposition want to see higher taxes on businesses. They voted so many times, over and over again in the last term of this parliament, to keep taxes on small and medium-sized enterprises in my electorate at the higher rate of 30 per cent. As I said, we've managed to get it through at 25 per cent, but they voted to keep it at 30 per cent for places in my electorate, whether it's a local cafe or a local restaurant, or perhaps East Coast Bullbars in my electorate, or all the businesses in the Narangba business district and the Clontarf business district, which employ a lot of people. They voted for higher taxes. They just don't understand that business actually employs so many local people in my electorate. That's why I want to see lower taxes: so that there are more jobs and there is more investment locally.

I'm also terribly concerned about a part of the new taxes that the opposition want to bring in and the effect that they will have on retirees who have saved for their retirement. Effectively, Labor's retiree tax will mean that retirees will no longer receive an $18,200 tax-free threshold, because, if they're receiving their income through shares that they bought to save for their retirement and they're not on the pension—or they might be part-pensioners in the future—they will actually pay a rate of 30 per cent, which I think is really the wrong way to go. I stand for lower taxes. The government stand for lower taxes. We have a plan to continue to create jobs, which will mean that we can continue to offer those lower taxes, whereas those opposite don't.

I quickly want to talk about superannuation too. People in my electorate can put money into super and only be taxed at a rate of 15 per cent, which is really important. The government have introduced the First Home Super Saver Scheme, so I say to anyone reading this in my electorate: basically, you can put $10,000 worth of gross income in the bank and you'll only end up with $6,750 because you're taxed at a rate of 32½ per cent—whereas, if you salary sacrifice that money into your super fund, you'll end up with $8,500 because you're taxed at 15 per cent. That's an important change. As I said before, if a young couple is saving for their retirement, then they will end up some $6,000 better off, which they can put towards their first home. That certainly is an important change.

I'll continue to support people in my electorate, and I will continue to vote for lower taxes because I want people to keep more of their own money and get ahead. The amendment in relation to foreign investors is an important amendment which I support, and I know that my electorate will support it as well.