Andrew Murray (WA, Australian Democrats) Share this | Hansard source

The Tax Laws Amendment (2006 Measures No. 1) Bill 2006 contains four disparate schedules amending the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997, the Fringe Benefits Tax Assessment Act 1986, the Taxation Administration Act 1953, the A New Tax System (Goods and Services Tax) Act 1999 and the Income Tax (Transitional Provisions) Act 1997. Schedule 1 amends the legislation governing foreign source income exemption provisions for temporary residents, schedule 2 amends business related costs, schedule 3 deters the promotion of tax exploitation schemes and schedule 4 updates GST mechanisms for prepaid phone products.

Schedule 1 amendments pertain to the Income Tax Assessment Act 1997, with consequential amendments to the Income Tax Assessment Act 1936 and the Fringe Benefits Tax Assessment Act 1986. This schedule seeks to implement part of the government’s new business tax system reforms by achieving the following two key objectives: firstly, to attract internationally mobile skilled labour to Australia; and, secondly, to assist in the promotion of Australia as a business location by reducing the costs to Australian business of bringing skilled expatriates to work in Australia. The amendment provides exemptions from Australian tax on non-Australian source income for individuals who are temporarily residents of Australia for tax purposes. Interest withholding tax obligations of temporary residents are also removed.

The main thrust of this schedule is the introduction of tax concessions for temporary residents at a cost to taxpayers of approximately $75 million over the forward estimates period. The government asserts that this is the best means of attracting highly skilled labour to our shores. Never mind the lucrative salaries; ignore our status as one of the most sought-after destinations on the planet: they are not enough. We also need to provide more generous tax incentives for our would-be expatriate workforce.

The government’s grand plan will provide exemptions from Australian tax on non-Australian source income for individuals who are temporarily residents of Australia for tax purposes. The bill defines who is considered to be a temporary resident and necessitates that the individual concerned: (1) be a holder of a temporary visa; (2) has not previously been an Australian resident within the meaning of the Social Security Act 1991; and (3) is not married to an Australian resident.

Notably, temporary residents who are involved in a de facto relationship with an Australian resident will still benefit from tax exemptions. So you are excluded if you are married to an Australian resident, but if you are shacked up with one you are not excluded. This is an unacceptable inconsistency since it does not even fit within the government’s own intention as stated in a note to the relevant paragraph which reads as follows:

The tests in paragraphs (b) and (c) are applied to ensure that holders of temporary visas who nonetheless have a significant connection with Australia are not treated as temporary residents for the purposes of this Act.

The government must be stuck in the past if it considers that a ‘significant connection’ to Australia in the context of one’s partnership is limited to marriage alone. Everyone—I am sure even including the very straitlaced people in the tax office—is surely aware that in Australia in 2006, from a taxation point of view, a de facto relationship is equivalent to marriage. For this reason, I will be moving to amend the spousal definition by replacing it with the interdependency relationship definition that is more comprehensive and better designed to achieve the government’s intention than that which I have previously described. The shadow minister indicated that this measure has been defeated twice in the Senate previously.

The measures contained in schedule 1 effectively seek to lower the labour market entry hurdle for the expatriate workforce. Historically, highly skilled foreign workers—and, presumably, reasonably affluent foreign workers since they must have a foreign passive income stream to be affected by the tax provisions in question—have supposedly been deterred from taking up employment in Australia because of the potential for foreign source income to be doubly or excessively taxed. But does anyone really think that our present taxation rules have meant a lack of high-paid foreign executives in our companies or of well-paid guest workers? In my opinion this measure is an unnecessary gift to foreign temporary residents. There are a thousand better uses for the money so wasted.

However, in fairness, I should indicate that those supporting these changes argue that removing these disincentives will make Australia a more attractive base for employment for affected individuals and corporations that desire such individuals in their workforce. Freeing up and globalising domestic labour markets is a natural step in the modern economic rationalisation process. If Australia is to become—and it must—a knowledge and information based economy, a critical requirement is the ability to attract and retain skilled labour. On a net basis, the upside of these provisions is greater labour productivity, technology, information transfer et cetera, which far outweigh the projected cost to revenue and the potential increase in foreign competition for domestic labour, and thus should be supported. Those arguments are all very well but the premise is unsound. The premise is that we lack the incentives for guest workers or for foreign executives, and we do not.

In its current form and even with the ascribed arguments proposed by the government, I do not feel that schedule 1 of this bill is worthy of support. There are not equity, efficiency or productivity grounds or even supply and demand grounds that lend support to such a tax concession for temporary residents. Skilled temporary residents already benefit from lucrative salary deals. They reside in Australia temporarily and therefore they are not overly exposed to any detrimental tax effects for any significant period of time. Australia is already attracting a significant number of skilled temporary residents to take up employment under existing taxation measures. In short, I do not believe that there is a case for changing the status quo.

Schedule 2 seeks to amend the Income Tax Assessment Act 1997 to increase the scope for tax deductions for business related capital expenses that are not otherwise recognised and which are not denied a deduction elsewhere in legislation. The provisions contained in the schedule will have a retrospective effect for all expenditures incurred on or after 1 July 2005. That retrospective effect will be beneficial to those receiving the concession. These business expenditures I refer to are better known as black hole expenditures, which can include pre and post business ownership capital expenses or capital expenses not included in the cost base of an asset that induces a capital gains tax event. Nor are they included in the cost of a depreciating asset. Consequential amendments are also made to the cost base for capital gains tax assets and cost rules for uniform capital allowances assets.

The projected cost to revenue of the amendments contained in schedule 2 is significant at approximately $219 million over four years. The quantum of this figure concerns me principally because of the fact that the legislation as proposed is, I think, decidedly vague. I find this perplexing since the government’s mind-set appears to be: if the problem is vague, let us address it with a vague solution. It does not take a team of taxation advisers to know that the best means of addressing a vague problem is to try to nail it down with a liberal dose of clarity.

Despite the vagueness of the wording of the proposed legislation and the limited explanation provided in the explanatory memorandum, I acknowledge that this is a longstanding and legitimate business tax concern that was the subject of the Ralph review and does need to be addressed as an equity and efficiency measure. The danger is that the lack of clarity in the proposed measures may leave the door open to undesired or unexpected tax avoidance by unscrupulous corporations. My problem is not with those who deal with this amendment in a legitimate manner but those who might seek to deal with it an illegitimate manner. This is a concern and I note that the member in the lower house Joel Fitzgibbon, the shadow minister, in his speech in the second reading debate, indicated that he would seek assurances from the government that the wording of schedule 2 was not too loose. Schedule 2 as a business equity and efficiency measure that costs $219 million over four years does need careful monitoring to ensure no abuse or unintended consequences, and I hope that the Treasury officials responsible for monitoring that area keep an eye on it.

The Democrats strongly support schedule 3. It is a long overdue measure which seeks to help deter the promotion of tax exploitation schemes and is a long awaited measure that addresses the awful experiences of the tens of thousands of unsophisticated Australian investors who were caught up in a number of failed or illegal mass-marketed tax exploitation schemes. The schedule amends the Taxation Administration Act 1953 and the Income Tax Assessment Act 1997 to introduce a new civil penalty regime for promoters of tax exploitation schemes or schemes based on a taxation product ruling that is promoted in a materially different way from the context of the ruling. It is a pity in some ways that it is just a civil penalty regime; some of them deserve to go to jail, in my view.

The powers of the Commissioner of Taxation are further strengthened to enable the commissioner to enforce a voluntary undertaking given by a promoter and to apply to the courts for an injunction to stop the promotion of the tax avoidance or tax evasion scheme. Businesses involved in high-risk but legitimate tax effective schemes can avoid these proposed measures by seeking a tax ruling from the commissioner, which seems very sensible. This is a two-pronged attack on the illegitimate promotion of tax avoidance measures as the new legislation encompasses new taxation schemes that are considered to be illegal as well as taxation schemes that are based on existing taxation rulings by the ATO but which do not comply with the measures and intent of the ruling. Businesses involved in high-risk but legitimate tax effective schemes should be able to get a ruling from the commissioner at a negligible expense. These measures are expected to be revenue positive with an estimate of approximately $75 million over the forward estimates period. That figure alone, which is very low compared to the billions previously at risk, shows how successful the many years of ATO crackdowns on mass-marketed tax effective schemes have been.

When the Australian Taxation Office announced that it had broadly accepted the settlement concessions for mass-marketed tax effective schemes—as spelt out in the September 2001 second report of the Senate Economic References Committee—I commended the taxation commissioner, Mr Michael Carmody, for his decision to accept that victims of unscrupulous promoters should be granted relief from tax penalties and interest. I also supported his confirmation that he was going to go hard after the promoters and advisers who contrived these disallowed schemes. And those who tried to come to my office pleading on that count—I have to confirm that I have given them short shrift.

The commissioner had accepted that there was a difference between unscrupulous promoters, who deserve the full and strong application of the law, and the thousands of victims who were duped into losing their hard-earned savings. Senators Gibson, Murphy and Murray negotiated that investor victims be entitled to a deduction for actual cash outlaid, to full remission of penalties and interest, and to a two-year interest-free period in which to pay the scheme debt. In the interests of protecting revenue I continue to strongly support the ATO in its efforts to end tax system rorting via mass-marketed tax effective schemes.

As a member of the Senate committee negotiating team I worked hard to convince the ATO that most participants in tax effective schemes were not tax cheats. Most were honest people, and it was rewarding to see that the ATO offered a mostly fair solution to this complex and painful tax crisis. I say ‘mostly fair’ because there were still some hard luck cases and there are some outstanding cases that deserve to have a lenient eye cast over them. But putting that cost—$75 million over four years—in this bill into perspective, on that negotiation by Senators Gibson, Murray and Murphy alone the Senate had won an estimated $900 million for approximately 40,000 Australians, which was an unprecedented and, I regret to say, largely unacknowledged achievement. The mass-marketed tax effective schemes problem is not what it was, thanks to ATO action, however slow they were originally to get off the mark.

The provisions contained in schedule 3 of the bill will go some way towards tightening up the regulations governing mass-marketed tax schemes that can target unwary investors. These measures are long overdue and they do have the Democrats’ full support. Schedule 4, the final schedule in the bill, is a technical clarifying amendment that concerns the mechanics of the GST in relation to prepaid phone products. The amendment confirms that GST is to be paid on redemption of the prepaid expense and not at the time of prepurchase, as per the provisions contained in division 100 of the GST act 1999. As these measures clarify the intent behind the operation of the GST, they have my support.

I noted the remarks of the shadow minister concerning the GST and the fact that I think, by his calculation, there have been over 1,600 amendments to the GST since it came into action in 2000. I am not at all surprised, frankly, because if you have a measure that delivers over $30 billion worth of revenue and is a complicated piece of tax machinery it will need periodic amendment, and I do not personally think that is a problem. I want to put on the record yet again my continuing strong support for the GST and my surprise that the Labor Party in the federal sphere continues to argue negatively about it when it is the single best thing that ever happened to the Labor premiers who now govern the eight governments of the states and territories, and is probably largely responsible for them remaining in power as they do at present.

I am always astonished by those on the progressive or the left or the centre side of politics who argue that the conservatives were wrong to introduce it when those on the progressive or central left side of politics argue for more expenditure for police, for roads, for schools, for health, for environment and for state services when it is money they needed—a secure amount of money—and that is what they get. It is no accident that the states and territories are better off financially they have ever been, although I obviously recognise they still have lots to do.

Whilst I am on the subject of the GST, there have been some remarks about the circumstances the Democrats find themselves in currently, with low public support, and the indication from some people that this is the consequence of Senator Lees and the majority of her colleagues negotiating the GST. I will remind the chamber—because people do have a short memory on these matters—that the Democrats went to the 1998 election saying we would support the GST in certain circumstances. We negotiated in 1999—we did not get everything we wanted; you never do in a negotiation. The GST was introduced in 2000. In 1998, saying we would support the GST under certain circumstances, we got four senators elected. In 2001, the year directly after we had introduced the GST, we got four senators elected. So those who think the GST is responsible for the demise of the Democrats are wrong. I freely admit it impacted on our support, our unity, our sense of coherence and so on, but I do get annoyed when people trot out a myth without regard to the facts.

The last measure I want to attend to is the opposition’s amendment concerning bribery. I would be very interested to hear the government’s rebuttal. On the face of it the argument put by the opposition for making the tax act and the criminal act consistent seems attractive. I would draw the attention of the chamber, particularly Senator Sherry, to page 21 of the Notice Paper. You will find a set of questions from Senator Murray to the Minister representing the Treasurer and the Minister for Justice and Customs concerning bribery and corruption and Australia being well behind the ball in terms of the United States’ and the United Kingdom’s laws. I think that is a useful adjunct to the case you are making for Australia sharpening up its assault on bribery and corruption. I have asked an interesting set of questions in the Notice Paper of the ministers concerning weaknesses, inconsistencies and problems with attacking bribery and corruption. I do hope the Treasurer and the Minister for Justice and Customs will respond rapidly to what I regard as very serious questions.