Nick Sherry (Tasmania, Australian Labor Party, Shadow Minister for Banking and Financial Services) Share this | Hansard source

The Financial Sector Legislation Amendment (Restructures) Bill 2007, which the Labor opposition is supporting, encourages the use of what is known as a non-operating holding company, or NOHC, structure. It makes amendments to facilitate the adoption of such a structure as the ultimate holding company of a financial group in Australia by removing the regulatory impediments to the adoption of such a structure that arise under particular requirements of the Corporations Act 2001, removing the impediments that arise under income tax law and making some consequential amendments to other acts.

The measures will offer a financial group greater operational flexibility. They will provide for more efficient and effective means of meeting the prudential requirements by allowing the appropriate allocation of risk between prudentially and non-prudentially regulated businesses of a group. They will also assist efforts aimed at quarantining risks in the various parts of a financial group by, for example, separating the risks of a group’s entrepreneurial private investment activities from its insurance and banking operations and encouraging new entry and greater competition in the financial services sector.

Schedule 1 will remove the regulatory impediments to the adoption of such a structure identified under the particular requirements of the Corporations Act that currently impede such restructures. The bill will facilitate the adoption of such a structure by providing the minister with the power to grant financial entities relief from specific statutory requirements under the Corporations Act that currently impede such restructures. Any relief granted will be specified in a restructured instrument. The minister will issue a restructure instrument that specifies the statutory provisions and the entities of a company group and any person involved in complying with the requirement to which the relief applies. The relief provided by the minister will only relate to specific provisions of the Corporations Act.

The minister will approve an application if he or she is satisfied that the restructure would improve the operating body’s ability to meet its prudential requirements as administered by the Australian Prudential Regulatory Authority, commonly known as APRA. I have to say that it would be a very foolish minister indeed who did not receive advice from APRA in respect of any level of additional risk that may be involved in such a structural rearrangement. That is just a word of caution for the record. Whilst we support this approach, the minister will obviously need to be well briefed and to keep a close eye on any such arrangements that are entered into.

There will be the application of internal transfer certificates and the bill will provide the minister with power to approve the issue of associated internal transfer certificates by APRA and an internal transfer certificate will provide for the transfer of assets and liabilities between the two entities of the company group being restructured to facilitate the rearrangement of different types of activities into separate business lines.

Also, we note the engagement of employees and contractors. Division 5 of the bill provides for the continuity of terms and conditions of employment for each group that immediately before the restructure was performing duties in the group. The objective is to leave the employer and employee in the same position with the same entitlements following the restructure. The restructure cannot be used by either party to change employment conditions or to trigger redundancies. The measure will apply from 1 July 2007 and was announced on 8 May 2007 in the 2007-08 budget.

Schedule 2 amends consolidation membership rules and the capital gains tax provisions in the Income Tax Assessment Act. The tax consolidation rules treat wholly owned groups as single entities for tax purposes. A consolidated group consists of a head company and all of its wholly owned subsidiaries. Currently, if a consolidated group contains an ADI, the head company tends to be the ADI to ensure that an ADI can be a wholly owned subsidiary of a non-operating holding company for tax consolidation purposes following an ADI structure and can continue to issue certain preference shares to meet its capital requirements. The amendment ensures that certain dividends paid by the non-operating holding company are frankable if those dividends would have been frankable had they been paid by the ADI prior to the restructure.

There are some consequential amendments to the Australian Prudential Regulation Authority Act, the Income Tax Assessment Act 1997 and the Financial Sector (Transfer of Business) Act 1999, which will be renamed the Financial Sector (Business Transfer and Group Restructure) Act 1999.

I note that the bill we are considering in fact arises from a recommendation from the financial systems inquiry in 1997 known as the Wallis review. We are now 10 years on. It has taken some 10 years for the government to act in this regard. In September 1997 the government announced its response to the Wallis review. As part of that response, the Australian government agreed to facilitate the establishment of non-operating holding companies to encourage new entry and greater competition in the financial sector. So here we are, some 10 years on, dealing with the issue.

Labor, as I said, support the proposals. We support the efforts to address tax avoidance and evasion and to increase fairness in protecting revenue, but we note that the changes to secrecy and disclosure rules also contained are limited to Operation Wickenby and future large-scale tax avoidance and evasion task forces. Proposals to change the secrecy and disclosure framework due later this year will be carefully considered by Labor when introduced to parliament. There are claims that revenue estimates to be collected by Project Wickenby are inflated. However, in the Senate estimates committee the Commissioner of Taxation expressed confidence that the target of $323 million in extra revenue will be reached. As it always does at Senate estimates, Labor asked the ATO questions and received an update. Obviously, if Labor is in government at the end of the year, such an approach will continue and, if there is a change of government, whoever becomes the minister responsible for administering the instruments contained in this act will act cautiously and prudently on the advice of APRA to ensure that there is no increasing risk to any sector of our financial system. Labor will support the bill.