Barnaby Joyce (Queensland, National Party, Shadow Minister for Finance and Debt Reduction) Share this | Hansard source

I rise today to speak on the Tax Laws Amendment (2010 Measures No. 1) Bill 2010. The bill establishes a free superannuation clearing house for small services businesses with fewer than 20 employees. In addition, it makes changes to the tax treatment of managed investment schemes, managed investment trusts, the entrepreneurs’ tax offset and consolidations. Schedule 6 makes a number of housekeeping amendments.

The coalition supports the amendments contained in the schedules 2 to 6 of this bill. Many of these amendments will enhance investor certainty about the tax status of investments and, hence, should encourage additional investment. In particular, the changes to protect investors and managed investment schemes are a worthwhile response to the high-profile collapse of a number of these schemes. Under current arrangements investors can claim immediate deductions as long as a capital gains tax event does not occur within four years after the end of the income year in which the amount is first paid. These changes will protect the returns of investors from unanticipated, uncontrollable changes which cause schemes to collapse before the four-year rule is satisfied. Recently, the insolvency of several managed investment schemes has had a devastating and unexpected effect on investor funds. The Australian Taxation Office has not had the scope to provide relief to investors in these circumstances. This bill will change that and allow investors to keep their deductions where a capital gains tax event occurs because of factors outside the control of investors. Importantly, these amendments will apply retrospectively from 1 July 2007 providing some welcome relief to those affected by the recent collapses of some managed investment schemes. This bill also amends the tax law to allow managed investment trusts to make an irrevocable election to apply capital gains tax on the disposal of certain assets, such as shares and real property. Again, these provisions will provide greater certainty.

Schedule 4 introduces an income test for the entrepreneurs’ tax offset. The entrepreneurs’ tax offset was introduced by the former coalition government and took effect from 1 July 2005. Its aim was to provide greater incentives for very small businesses in the early stages of their development. This bill limits access to this concession by applying thresholds to taxable income over $70,000 for single individuals and $120,000 for families. Currently, eligibility for the entrepreneurs’ tax offset is not restricted by sources of income other than those derived from the small business. The coalition is concerned that these amendments will deter some from starting a business. This bill also makes some changes to the consolidation regime from a tax perspective. This regime has been continuously improved and the changes presented here stem from proposals of the former coalition government in 2007. Finally, schedule 6 contains a number of housekeeping amendments. It makes a number of minor changes to the existing tax law to ensure they operate as intended.

I turn now to schedule 1 of this bill, which introduces a superannuation clearing house. The coalition supports a superannuation clearing house for small businesses. The clearing house will provide small businesses with free access to services which allow them to pay their superannuation guarantee contributions in a block to an approved clearing house. Small businesses are then relieved of the need to split contributions into individual payments according to each employee’s respective superannuation fund. A clearing house provides scope to achieve economies of scale and reduces the overall costs of Australians saving for their retirement. This will reduce red tape for small business while maintaining choice for individuals to choose their own superannuation fund. Lower costs will improve the ability of small businesses to compete and will increase productivity and, ultimately, the wages of Australian workers.

The government likes to talk about slashing red tape and increasing productivity but has been slow to act in these instances. The government originally promised to establish the clearing house by 1 July 2009. Senator Sherry released a discussion paper in November 2008, but then over 12 months went by with no further news from the government. The deadline passed without a murmur. The superannuation industry was left doubting whether the reforms were progressing. There are private operators which already provide clearing house type services to businesses. How could they invest with any certainty while the government sat on changes that would affect the industry substantially? We should not be surprised by the government ignoring these effects. This government does not understand business. Few of its members have ever run one. As in so many other areas, the government put a high priority on discussion and consultation but less on actually delivering results. It appears that an election year has finally woken the government from its slumber.

Notwithstanding the coalition’s broad support for these changes, the specific proposals that are in front of us here are different from those that the government initially proposed. We do not think that many of these changes have been adequately explained. Originally the government proposed to tender the operation of the clearing house to the private sector. The Prime Minister made this promise in his original 2007 proposal. At the time, Senator Sherry claimed that the government’s proposal would not create a new bureaucracy, because the government would leverage off existing private sector providers. The discussion paper in late 2008 continued to support a tendering process, yet in November last year something changed. Suddenly the government announced that Medicare would operate the clearing house; no consideration was given to the private sector operators. On top of the uncertainty the government generated by inexplicably delaying the establishment of the clearing house, it then took away the option for private sector operators to provide these services as promised. What changed in the 12 months after the government released its discussion paper? No-one knows, and the government has provided no explanation. As one company payment adviser said:

We did not hear from Treasury or anyone associated with the Government after putting in our submission. We worked to develop this solution and a few other people looked at what they could do to provide a solution to small business. And it was quite a shock late last year for a press release to say that the Government was going to give it to Medicare.

The coalition has two major concerns with this surprise decision. First, it would appear that the government is again rushing the implementation of a new program without doing sensible due diligence beforehand. Second, the special advantages that this bill provides to Medicare could have harmful effects on competition in this sector and ultimately push up the costs for businesses with more than 20 employees. The Senate inquiry on this bill has revealed that Medicare is worryingly unprepared to deliver these services to small business. It might be easier if I simply listed all the things that Medicare has not done.

Medicare has no estimates on the cost of providing free clearing house services. How much will costs be affected by the ultimate take-up by small businesses? We do not know. The government has allocated $16.1 million over four years, but we have no certainty of whether this is enough. Second, Medicare has not finalised its data-processing system or the types of payments that are to be accepted. Third, Medicare has not developed key performance indicators for the scheme. It cannot say how it will deal with any of the errors that arise. Fourth, Medicare has no targets for business take-up or time lines for getting the system up and running by the due date, nor has it committed to any time lines for remitting contributions to personal accounts. Medicare told the Senate inquiry that it could not commit to a time, because it did not know if there would be ‘issues with matching and some requirements for us to do follow-up work’. Funds that are not quickly transferred to the relevant accounts can have adverse effects on investor returns. We would have seen that lately. Medicare has not revealed how it will deal with the massive quarterly peaks in workloads when payments arrive. Sixth, we have not been assured that Medicare will establish a sufficient database to protect the life insurance and other entitlements of members.

It is almost unbelievable that the government had not worked through these issues before committing to use Medicare as its approved clearing house. If it had made a request for proposals from the private sector for these services, the government could have asked for all this information in bid documents. We would then be in a position to undertake proper due diligence, review the capacity of different providers and use pressure on different competitors to sharpen their pencils and provide the best deal for taxpayers. Instead the government has chosen a provider without any of this information being available. We are in the dark, and Medicare itself appears to be in the dark on its ability to deliver.

The government and Treasury have claimed that Medicare has been chosen for risk management reasons, but when the chosen provider cannot inform us of the kinds of details that normally would be contained in a bid document, how rigorous can that risk management process be? As Craig Osborne, Managing Director of MicrOpay, commented:

Medicare is not looking at the full detail that needs to be achieved when there are adequate private enterprise solutions out there ... To run with a government agency that doesn’t have a track record in collecting this information and collecting these sorts of funds, and doing the disbursements and matching and cross-checking that’s needed to ensure the system is efficient, has not been addressed or even contemplated.

The Senate inquiry had a number of existing private providers which could provide clearing house services. These providers already have road-tested systems to process transactions. They know how much each transaction costs and they could implement the government’s policies quickly. Indeed, many of these providers would likely perform clearing house functions for much less than the estimated $16 million cost to Medicare. One private clearing house operator has already begun free services to small businesses without any government inducements. But overpaying for things has become a very bad habit for the Labor Party.

We have further reasons to be sceptical of the government’s decision to ignore these private providers and their reasons for it. A failure to manage risk is becoming a pattern. We have seen them ignore the risks highlighted to them on the pink batts program, with tragic consequences. We have seen them ignore the risks of rorting the solar hot water rebates. We have seen them ignore the risks of cost blow-outs in school halls. Once again here, we see a government that is being reactive, waiting for the risks to materialise before acting. We need a government that proactively identifies and mitigates risks in accordance with the best due diligence practices.

This whole delayed and incomplete process is reflective of the inherent paradoxes at the heart of the Labor government. They are slow to act but then hasty to decide. They spend years asking questions but then ignore the experts. They are busy creating announcements but do not follow them through to implementation. In summary, they are incompetent. They are managers of public policy—not necessarily a do-nothing government but an achieve-nothing government. The coalition believes that the government should return to their original plan. We believe that a competitive tendering process would provide the strongest guarantee for the transition to a clearing house which provides free and seamless service to small business while providing no interruption to the services and returns that members expect from superannuation funds.

But in addition to the process of establishing a clearing house there is also the actual impact that these arrangements will have on the existing providers in the sector. In particular, this bill delivers the approved clearing house a number of special advantages over its competitors. First, this bill provides that employers will be able to discharge their superannuation guarantee obligations by making a bulk payment to the approved clearing house on the 28th day of the month in each quarter when the payment is required. But current private clearing houses must themselves process the payments by the 28th day of the month in which the payments are due, which means that employers must make payments in advance of that date. Under these conditions, why would any employer not choose Medicare as its clearing house? Obviously there is a cash advantage in the cash management capacity of sending to a clearing house that has a later date of real acceptance.

Second, at the moment the Australian Securities and Investments Commission requires clearing houses, as financial service providers, to issue product disclosure statements which must detail the conditions of the facility, the fees and charges, how transactions are to be made and authorised, and any risks associated with the facility. So Medicare will have a lower compliance burden than private operators, and small businesses could end up with less information on the terms and conditions of their facility.

One of the last acts of the Keating government was to introduce principles of competitive neutrality in the delivery of government services. In simple terms, this requires governments to ensure that their own enterprises compete on a level playing field with private competitors. This bill contains elements that contradict the principles of competitive neutrality. Medicare will have a clear advantage over private sector clearing houses. The coalition view is that there is a simple way of correcting this issue. There is a real opportunity to create a more efficient superannuation clearing house market by extending the definition of ‘approved clearing house’ to privately operating clearing houses holding an AFS licence and subject to prudential requirements—a change of the term to include privately operating clearing houses. This will create a more level playing field and allow employers to make their superannuation guarantee payments to a number of clearing houses with the same deadlines. The government should also select a government subsidised clearing house following a competitive tendering process. The coalition’s changes would increase competition and could be expected to lower fees in the sector.

As I stated earlier, the coalition supports the broad changes in this bill. We support the changes to give investors greater certainty about the operation of the tax system. We support the principle of establishing a superannuation clearing house to lower compliance costs for small businesses. However, we do not support achieving this by giving a government entity an unfair advantage over private suppliers and private businesses and the aspirations of other Australians to participate in this market if they so choose. The coalition’s proposed amendments will maintain a level playing field among clearing house suppliers. Competition is the best way to ensure that these services are delivered at a lower cost—and the government on budget day should be more focused on lowering costs than at any other time during the year—and, more importantly, that these services are delivered in a way that guarantees no interruption to the timeliness of superannuation payments and accordingly protects members’ benefits.