Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Hansard source

I rise to speak on the Tax Laws Amendment (2006 Measures No. 2) Bill 2006. This bill amends various sections of the Income Tax Assessment Act 1997 and has six schedules. Before turning to the bill, I would like to make some comments with regard to the taxation aspects of the budget. Labor is concerned that the extraordinary budget spending spree has been financed by Treasury projections of company tax revenue, which itself has had to be revised upwards by $40 billion since December. This government has revenue exceeding a quarter of GDP. The Treasurer can now gloat that he is the highest taxing treasurer in the history of the Commonwealth. This enormous tax take is based on the assumption that corporate tax revenue will grow greater than company profit. Concerns have been raised that the accelerator is not sustainable. Access Economics has argued:

Funding a Budget on such a speculative assumption is an enormous policy gamble.

Last year in the budget, company tax was $40 billion. However, for this year it is estimated at $50 billion, increasing to $6l billion over the forward estimates. The $40 billion parameter revision in the last four months is quite extraordinary. It shows that there is enormous scope for error in these estimates. If there is scope for error on the upside, why not on the downside when commodity prices fall as the Treasurer accepts that they will?

There is a real risk that company tax revenue will collapse and the current tax cuts and family tax measures will have to be continually financed from a rapidly eroding tax base. It was not responsible of the government to engage in this sort of extraordinary spending when there is still considerable uncertainty in relation to the company tax revenue projections. The same uncertainties also apply to the petroleum rent resource tax, which is now predicted to blow out to $4 billion in 2009-10. Labor does, however, support many of the tax measures in the bill and will not oppose any measure, subject to the caveat that the relevant legislation adequately represents the policy intent.

I now turn to the schedules to the bill. Schedule 1 will see ex gratia lump sum payments of either $40,000 or $10,000 made to aircraft maintenance personnel working on F111 fuel storage upgrades. These one-off payments are being made to certain personnel who experienced a unique working environment in the maintenance of F111 aircraft fuel tanks. This measure follows concerns about adverse health effects of the aircraft maintenance personnel working on those F111 fuel storage upgrades. The government does not accept liability, but seeks to legislate to create certainty that any payments received will be tax-free in the hands of the beneficiaries. As capital items, they should not be assessable but could potentially be deemed as income in kind, as they relate to employment under section 26(e). While such special interest group legislation tends to add to the complexity of the tax laws, the opposition supports this measure.

Schedule 2 will add two organisations as deductible gift recipients, thus allowing donations to be tax deductible. The first recipient is Playgroup Victoria Inc., an organisation that offers valuable support to parents. Playgroups facilitate positive learning and social experiences for children, families and carers. The St Michael’s Church restoration fund is the other recipient. St Michael’s Uniting Church in Melbourne is raising money for urgent restoration and critical repair work required to preserve the church building.

Schedule 3 will ensure the cost base for capital gains tax is extended to correct a previous error. The Tax Law Improvement Project was the government’s notoriously unsuccessful attempt to simplify the tax act. In what has become a familiar story under the Howard government, it actually resulted in a much larger act. The government is now seeking to correct an anomaly that was created as part of this process. The cost base for capital gains tax was adjusted in the 1997 act to include options for the disposal of assets and issuing of shares. However, it has now come to light that this has excluded certain types of options, most commonly those related to the issue of options in a unit trust. These options, and any payment to exercise them, are to be included in the capital gains tax cost base.

Do the government read legislation before it is introduced, or are they content to catch the errors after they have hurt small businesses? The number of mistakes this government have been forced to correct suggests that they are asleep at the wheel. Unfortunately, it appears that Minister Dutton is following the worst traditions of his predecessor, Mr Brough, who was notorious for the number of ‘Brough-ups’ in the tax legislation that he introduced. Those errors or corrections came to an impressive list. The current total is approximately 14 in the last 12 months or so.

Schedule 4 of the bill retrospectively allows capital gains tax rollover relief where assets are compulsorily acquired. When an asset is disposed of post May 1985, capital gains tax applies even if the asset is acquired as a result of Commonwealth law. In some cases, where an asset must be disposed of, this means that the pre 1985 GST free treatment is lost. This change ensures that rollover relief is provided where acquisition is compulsory. That means that the GST free treatment will transfer to the new owner if the asset was purchased before the CGT regime applied, and post 1985 assets will not incur capital gains tax until sold. This provision appears to be necessary to ensure compulsory acquisitions occur on just terms. The explanatory memorandum of the bill does not make it clear exactly what type of contracts and acquisitions the bill is intended to cover. It would certainly help the debate if the government disclosed its intentions.

Schedule 5 of the bill narrows the scope of the franking deficits tax. Under the simplified imputation system, a company’s tax transactions operate though a franking account. Payment of tax is a credit, and the franking of a dividend creates a debit to the franking account. To ensure against excessive dividend franking, a franking deficit tax applies if, at the end of the year, the franking account is in deficit. The tax is equal to the deficit. As the deficit tax is simply a bringing forward of a future tax liability, the tax can be offset against future tax liabilities under what is called the ‘franking deficits tax offset’. But this offset could also be a mechanism for excessive franking. To protect against this, where the franking deficit tax liability is greater than 10 per cent of franking credit in a year, the deficit tax offset is reduced by 30 per cent. This can be a harsh provision where the variation in the franking deficit occurs due to something outside the control of the company. The bill narrows the scope under which this reduction in the offset occurs so that, if the deficit is outside the company’s control, the offset is not reduced. The commissioner is given a new discretion to remit a reduction in this offset.

While on the surface this provision appears reasonable, the explanatory memorandum does not outline the cases in which it is expected to occur. There is some reference in the explanatory memorandum that this measure is required in the case of a reduction in PAYE instalments due to some downturn in profit. Again, I call on the minister to provide further explanation of when this provision will apply and to indicate that its introduction has no relation to the extreme industrial relations laws introduced by the Howard government.

Schedule 6 overrides the requirement for a superannuation guarantee contribution to be made to a state fund if an employee nominates another fund. The superannuation choice regime allows an employee to nominate the fund where their superannuation guarantee payments are to be made. However, superannuation guarantee contributions to certain funds are mandated under state law. This schedule overrides such state legislation to specify that, if an employee specifies a fund, no obligation exists upon the employer to make the superannuation guarantee payments mandated under state law.

Labor does not seek to oppose this schedule, as it is necessary for the introduction of the super choice regime. However, Labor must register its concern surrounding the criminal penalties and the compliance burden imposed on small business by this super choice regime. A two-year jail sentence for a discussion with an employee about which fund to choose certainly does not seem fair. These compliance costs hurt small business owners, both in the hip pocket and with the time it takes to complete this government’s red tape.

A further schedule corrects anomalies and errors in previous tax bills.