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

The Tax Laws Amendment (2006 Measures No. 5) Bill 2006 amends the Fringe Benefits Tax Assessment Act 1986 in schedule 1 to increase the minor benefits exemption threshold from less than $100 to less than $300. It increases the reportable fringe benefits amount threshold from more than $1,000 to more than $2,000. It increases the reduction of taxable value that applies to in-house fringe benefits and airline transport benefits from $500 to $1,000 and it widens the definition of ‘remote’ for the purposes of fringe benefits tax concessions where the shortest practical route involves water travel. According to the explanatory memorandum, the financial impact of the schedule 1 amendments will be $43.2 million over the four years from 2006-07 to 2009-10. The explanatory memorandum states that compliance costs and hence regulatory burdens on businesses will be reduced, and obviously the benefit to those recipients of these tax concessions will be increased to the value of that cost that has been estimated in the explanatory memorandum.

Schedule 2 of the bill amends the A New Tax System (Goods and Services Tax) Act 1999 in relation to the goods and services tax status of pharmaceuticals and cars for Defence Force veterans. Supplies of drugs, medicines and other pharmaceutical items will be GST free when they are supplied as pharmaceutical benefits under the Military Rehabilitation and Compensation Act 2004. The GST-free car concession will also now be extended and will be available to a wider range of injured veterans, providing that they receive or are eligible to receive a special rate disability pension under part 6 of chapter 4 of the Military Rehabilitation and Compensation Act 2004. According to the explanatory memorandum, both the financial and compliance cost impact will be negligible.

Schedule 3 of the bill amends the Income Tax Rates Act 1986 and replaces the pro rata tax-free threshold for taxpayers ceasing full-time education for the first time with the full $6,000 tax-free threshold. According to the explanatory memorandum, the financial cost will be nil in the 2006-07 financial year and then $2 million per year from 2007-08 onwards. The explanatory memorandum also expects there to be a reduction in compliance costs for those taxpayers who are beneficially affected by these changes.

Schedule 1 implements the recommendations made in the report of the task force on reducing the regulatory burdens on businesses, Rethinking regulation, which was the end result of a task force established by the Prime Minister and the Treasurer to identify options for alleviating the regulatory burden on small businesses. It also implements proposals announced in the 2006-07 budget. The cost of complying with the regulatory regime, including the tax regime, is a major burden for small business holders and its simplification would be a welcome relief for many. With lower compliance costs comes greater administrative efficiency.

Schedule 2 seems fairly non-controversial. However, in his speech on the second reading a member of the House of Representatives, Mr Alan Cadman, did raise the question of such a move paving the way for further concessional demands in the future that we should be alert to and watch out for.

Schedule 3 could be viewed as a step in the direction of equity. Students and people of this sort normally have other costs associated with the transition from study to the workforce. It seems unfair that they should have borne an additional tax liability. This is a useful area to have remedied and reformed.

According to the Bills Digest, the Institute of Chartered Accountants support an overhaul of Australia’s fringe benefits tax regime. The Bills Digest itself raised the issue of whether or not the bill goes far enough in reforming the fringe benefits tax regime and noted that Mark Fenton-James, writing in the Australian Financial Review, has commented that, whilst the changes are welcomed, they do not go far enough and the whole system needs a revamp.

Of course, the fringe benefits tax regime as a whole is resisted and resented by a large number of businesspeople in Australia. At some stage the government has to accept that it can never satisfy those who oppose the FBT regime. The government’s role, in my view, is simply to ensure that the regime is fair and equitable and delivers the policy outcome that is necessary. To reform FBT so that it is simplified, fairer and more practical is a good idea, but to erode the very policy on which fringe benefits taxation is predicated is unwise. I am not suggesting that the government has done that in this bill, but there is that climate out there where reform in this area will never be enough. You will never ever satisfy those people who essentially resent this regime and resist it. I think we have to restrict reform in this area very tightly to those areas that need addressing from an equity, practicality and simplification point of view.

In making a few remarks on this matter, I encourage the government to return to the plea of the Ralph Review of Business Taxation for the reform of motor vehicle fringe benefits to occur. That report came out in July 1999. I turned to the executive summary to remind myself exactly what the Ralph review had said. They said that, without further adjustment to the fringe benefits regime, they urged the present treatment of car fringe benefits be reformed. They thought it was unsatisfactory in a number of respects and strongly concessional. I make the point that reforming or simplifying the fringe benefits tax regime does not necessarily mean lowering the tax impost. It can mean increasing the tax impost, which is exactly what the Ralph review recommended. They thought the fringe benefits regime for cars was too concessional—it was strongly concessional.

I make the point to the government that, now that you have reformed the income tax rates, schedules and thresholds in the way that you have, there is no longer quite such pressure to compensate, as it were, higher income earners—who benefit most from motor vehicle fringe benefits tax—for a high tax regime as there used to be. In my view the motor vehicle fringe benefits situation is still too concessional. I think Mr Ralph’s view on these matters still needs to be heeded. In his report he recommended that the current statutory formula for valuing car fringe benefits be replaced with a schedular approach, and he essentially recommended that the actual degree of private use be more tightly examined.

I recall that, when I looked at this matter in some detail in 2004, the fringe benefits tax concession, which encourages the use of cars, was at an estimated revenue cost then of about $900 million. It would be well over $1 billion now—I have not had a look at the tax expenditures statement to confirm that. I urge the government, in reviewing and reforming the fringe benefits tax regime, to consider returning to the Ralph business tax review consideration of this issue and to think about tightening up a concession that is unwarranted for many higher income earners.

Having said that, I recognise the commentary from within the Bills Digest and from the community at large for further reform and simplification in this area. The Democrats are not unsympathetic to that, and we do in fact support this bill.