Helen Coonan (NSW, Liberal Party, Shadow Minister for Finance, Competition Policy and Deregulation) Share this | Hansard source

The bill before us is the Tax Laws Amendment (2009 Measures No. 1) Bill 2009. It contains three schedules. Schedule 1 to the bill amends the Taxation Administration Act 1953. This schedule will reduce the PAYG—pay as you go—instalment amounts for certain taxpayers by 20 per cent, starting from the December 2008 quarter. Schedule 2 to this bill contains consequential amendments to the recent changes made to temporary residents’ superannuation and schedule 3 to this bill includes amendments relating to income test changes that were announced almost a year ago in the 2008-09 budget. I am obviously speaking on behalf of the coalition. There are some complex matters in this bill, so I will address each of them in turn and then address some concerns.

I will deal with schedule 1 first. On 20 November 2008 the member for Moncrieff announced the coalition’s policy to provide PAYG relief for small businesses. PAYG relief directly assists small businesses experiencing cash flow problems. Small business is the backbone of our economy and provides jobs to 3.8 million Australians. Of course, we all want to focus very much on the capacity of the economy to produce jobs. Our proposal would protect jobs by directly helping small businesses to keep employing their employees. This proposal illustrated the coalition’s demonstrated understanding and commitment to helping all small businesses in Australia. We recognise that many small businesses are experiencing cash flow problems. Unlike the Labor government, who are asking small businesses to spend large amounts of money that they do not have or that they are having difficulty borrowing before they can be eligible for any assistance, we understand the issues affecting small business. We have learnt that lesson well.

Almost a month after our announcement the government announced on 12 September 2008 that it would reduce the quarterly PAYG instalments by 20 per cent for quarterly taxpayers. The reduction will apply to small business entities, individuals and multirate trustees, full-assessment taxpayers with $2 million or less in instalment income for the previous income year, and full self-assessment taxpayers with more than $2 million in instalment income for the previous income year who are eligible to pay an annual PAYG instalment but have chosen not to. I am glad that the government was able to take our advice and assist small business by reducing the PAYG instalment amounts, so obviously we support schedule 1 of this bill. It is a very sensible measure.

Schedule 2 of this bill contains consequential amendments to the recent changes made to the temporary residents unclaimed money regime. This schedule will make the rules governing unclaimed superannuation for Australian residents consistent with the rules governing unclaimed superannuation for temporary residents. This will reduce the compliance burden on superannuation funds from maintaining two separate regimes. We clearly support schedule 2 of this bill, which is reasonably straightforward and uncontroversial.

Schedule 3, however, is a bit more complicated. This schedule contains the changes to income tests for financial assistance programs that were announced in last year’s budget. There are two elements to income testing: the items included in assessing income and the income threshold for that test. This schedule makes amendments to the first of these by expanding the definition of terms used to determine income. This element of income testing goes to ensuring the integrity of government assistance programs and should accurately reflect a person’s income.

The previous coalition government demonstrated our commitment to maintaining the integrity of income tests by undertaking decade-long reforms to income tests, starting in the 1996-97 budget—way back then. The coalition’s reforms to income testing did receive broad support from a wide range of stakeholders. This schedule then has three key parts: firstly, changes to some key definitions used in income tests; secondly, changes to the reporting requirements for taxation purposes; and, thirdly, changes to some of the actual income tests to give effect to the changes in part 1.

Part 1 introduces definitions for adjusted fringe benefits for reportable superannuation contributions, the total net investment loss, rebate income, income for Medicare levy surcharge purposes and reportable employer superannuation contributions. Part 1 of this schedule inserts a new definition of ‘adjusted fringe benefit’ to replace the existing definition of ‘reportable fringe benefit’. The definition of a reportable fringe benefit used for tax purposes is not suitable for income testing for government programs, for the reason that it does not reflect the cash benefit received by the employee. The Family Assistance Office currently uses an identical definition to the one being introduced by this schedule. This definition better reflects the fringe benefit received by the employee and it is consistent with the income definition currently used by the Family Assistance Office for income tested payments. As adjusted fringe benefits will be included in the new definition of rebate income, this new definition will apply to income tests for the senior Australian tax offset and the pensioner tax offset.

Part 1 of the schedule inserts a new definition of ‘reportable superannuation contributions’. This definition includes salary sacrifice to superannuation contributions and reportable employer superannuation contributions, which I will deal with a little bit later on. This definition ensures that salary sacrificed amounts are included under the income test when determining eligibility for government benefits.

I will now deal with total net investment loss. Part 1 of this schedule inserts a new definition of ‘total net investment loss’ and a related definition for ‘financial investment’. Currently, only net rental property losses are considered. The new definition will expand this to include losses arising from financial investments. Total net investment losses will include the existing definition of net rental property loss and losses arising from financial investments. Financial investments will include shares in a company, interests in a managed investment scheme, interests in a forestry managed investment scheme, an optional right related to any of the above, and any other investment that is of a similar nature to any of the above. A total net investment loss will include a taxpayer’s losses from financial investments and rental property that exceeds the income they received from the sources I have just mentioned.

This will not affect the ability of taxpayers to claim the tax deductions for those losses. However, the amount they would deduct will be included for determining eligibility for income tested government assistance. These amendments will add total net investment losses to the income test for the Commonwealth seniors health card. The income test for the Commonwealth seniors health card will also be amended by the Social Security and Veterans’ Entitlements Amendment (Commonwealth Seniors Health Card) Bill 2009, which we have not yet voted on but which is certainly before the parliament. Amendments in that bill add amounts that are salary sacrificed into superannuation funds and superannuation stream income from a taxed source to the income test for the Commonwealth seniors health card.

Part 1 also introduces two definitions that are the sum of other definitions used for income testing. One of these new definitions is ‘rebate income’. Rebate income is a definition that consists of the sum of other definitions and includes taxable income, adjusted fringe benefits, total net investment loss and reportable superannuation contributions. The single definition will make it easier to amend related income tests in other legislation. Rebate income will be used for determining eligibility for the senior Australian tax offset, the pensioner tax offset and the eligibility of a trustee for an offset. Part 1 of this schedule includes a new definition of ‘income for surcharge purposes’. This definition will be used to determine a taxpayer’s liability for the Medicare levy surcharge. This definition is similar to ‘rebate income’ as it is a definition that consists of the sum of other definitions. Like rebate income, this definition will make it easier to amend the income test for the Medicare levy surcharge. This definition will include taxable income, reportable fringe benefits, reportable superannuation contributions and the total net investment loss.

I place very clearly on the record that the coalition broadly supports measures to improve the integrity of income testing for government assistance programs. Part 1 of this schedule proposes a new definition of ‘reportable employer superannuation contributions’—or RESC, as I will be referring to it. I mentioned it earlier. RESC does not include payments made by an employer to meet the compulsory nine per cent superannuation contribution. It only includes amounts made by employees in addition to the nine per cent compulsory contribution. The proposed definition of RESC includes payments made by the employer to the employee’s superannuation fund where the employee ‘has or has had, or might reasonably be expected to have or have had, the capacity to influence the way the amount is contributed so that his or her assessable income is reduced’.

Any contributions made by an employer to an employee’s superannuation fund that the employee did not control will not be included in or as RESC. This includes the contributions made by an employer as part of an agreement that has been negotiated by a third party, who, of course, is often a union representative. This is another clear example of the Labor government’s policy agenda being driven by ideology rather than by common sense, as I think we will see in a moment. This proposed definition highlights Labor’s approach in managing Australia’s tax and transfer system. The Labor government have continuously claimed to be concerned about ensuring equity within the tax system. They have talked about that, but it can be a very different thing to actually implement changes to the tax system in a fair and equitable manner.

Labor’s legislation that we are considering will create two classes of employees: one class of employees who choose to negotiate their own employment arrangements and the second class of employees who choose a union negotiated agreement. Those employees who choose to negotiate their own arrangements will be treated very much as second-class citizens compared to those who are under a union negotiated agreement. This will create a bias towards workplace agreements negotiated by unions over those negotiated by employees. This is an example of an ideologically driven policy agenda for Australia’s tax and transfer system. I place on record that I am very pleased that in discussions with the minister’s office this has been recognised and there has been an approach that I think satisfies the coalition and indicates good faith in this respect.

I would like to provide an example of the effect of this proposal. For a certain government benefit the income test is $51,000. For example, let us take two people—Angus and Thomas—who both have a taxable income of $50,000 per year. Both of their employers make a 15 per cent superannuation contribution to their super funds, amounting to $7,500. Thomas reached an agreement with his employer to have 15 per cent paid into his super fund and Angus’s employment conditions are determined by a union negotiated agreement. Angus and Thomas both take home $50,000 and have $7,500 contributed to their respective superannuation funds. Angus will be eligible for the government benefit because the contributions made by his employer above the compulsory nine per cent are determined by a union negotiated agreement; however, Thomas will not be eligible for the government benefit because the additional six per cent superannuation contribution his employer contributes into his super fund will be included in determining his eligibility under the income test only because he negotiated it himself—and therein lies the rub, the problem.

So Angus and Thomas both take home the same amount of pay and have exactly the same amount of superannuation contributed by their employers but only one is eligible for government assistance. The government simply cannot justify this proposed definition as an integrity measure. As this example illustrates, the proposed measures will intentionally introduce a bias to income tests. The effect of the proposal in this measure is de facto discrimination against those Australians who choose to negotiate their own employment arrangements. This proposed change shows that either Labor do not understand the consequences of changes to Australia’s tax and transfer system or they simply have not addressed it, which is probably more the case.

I note that the report into this bill of the Senate Standing Committee on Economics shows that the additional comments made by coalition senators raised the concern that the proposed definition of RESC may create an unintentional bias. They also recommended that the bill be amended to ensure that such inequality is avoided. We have raised this issue in good faith with the government and have asked the government to address it. The fact that we are deliberating on these important and complex matters on this day in this additional sitting, and the fact that the bill was only brought on for debate in the House on Wednesday and we are told that the government needs it to be approved by parliament today in order to meet administrative deadlines, speak volumes, I think, as does the fact that we are not sitting beyond today before the budget.

The government first announced the intention to legislate these areas on budget night last year but is seeking to debate the matters in both houses in just the last few days before this year’s budget. We place on record our strong concerns about how this bill has been drafted. The parliament should have been given more time to consider the outcomes of this bill. We have stated in the other place, and I restate it here in the Senate, that we support integrity measures and we support the aspects in this bill dealing with other matters, but we do not support a system that treats employees on the same remuneration package differently based on the terms of their employment.

On Wednesday in the House the shadow Assistant Treasurer raised these concerns regarding the inequality arising from the RESC definition in good faith with the government and the minister has acknowledged the validity of our concerns. The government, as I said, has demonstrated good will by engaging in extensive discussions with the opposition to work through the inequality issues that we are concerned about that will arise from this bill.

Because of the good faith shown by the minister and his staff and Treasury, and recognising the fact that there are administrative deadlines that will be onerous for business in terms of compliance, we will not be obstructing this bill or moving an amendment to try to address it. This approach from the opposition is on the basis of, and following, the minister’s undertaking to ask his department to seek to examine any possible solution to resolve the issues we raised in the bill. On that basis we will not move amendments or vote against the bill, but we strongly urge the government, the minister and Treasury officials to work for a more equitable solution than we currently have in the bill.