Penny Wong (SA, Australian Labor Party, Shadow Minister for Corporate Governance and Responsibility) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (2005 Measures No. 6) Bill 2005. I want to commence my remarks by commenting on the state of tax reform in this country. Over the last number of months we have seen various people in the community, from the opposition to the business community to Mr Turnbull in the other place, putting it on the Treasurer to actually engage in some tax reform. We have seen the Treasurer resisting it, saying, ‘We don’t want tax reform; what people want is tax cuts.’ Now, magically, we have a committee appointed by the Treasurer—with Mr Hendy and Mr Warburton—that is going to report on tax reform hopefully prior to the budget.

What is interesting about this is that it is quite clear that, if a committee is engaged currently in any reviews of tax, the likelihood of the committee actually impacting upon the budget is marginal. I am sure those opposite will tell us quite clearly that budget processes take far longer than this. Yet what we have is a committee that is supposed to report in time for the Treasurer to take account of this issue before the budget. Clearly what is happening is that the Treasurer is simply, by virtue of this committee, trying to take control of the tax debate—a tax debate that has been run largely out of his control via pressure from the opposition, his own backbench and the National Party. This committee is really nothing more than a chimera for the Treasurer to try to regain control of the tax debate prior to the budget.

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

I endorse those comments from my colleague Senator Wong in talking here about the Tax Laws Amendment (2005 Measures No. 6) Bill 2005. In the context of the raging tax debate of the last few months, we have seen a largely sidelined and irrelevant Treasurer, Mr Costello. All around him we have had the advocates—

Rod Kemp (Victoria, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

In your dreams!

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

Except for Senator Kemp. I will give Senator Kemp credit via criticism. He is one of the few from the government side who have not had a new tax idea. We had Mr Turnbull, whose recent promotion was in fact based on getting him out of the tax debate, making a contribution on tax reform. We had the recent foray of Senator Minchin, the Minister for Finance and Administration, advocating the complete abolition in one hit of the 15 per cent superannuation contributions tax.

Rod Kemp (Victoria, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

You were a great supporter of roll-back.

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

Let me remind Senator Kemp, as a former Assistant Treasurer, of the comments of Mr Brough, who was recently promoted to cabinet. His comments about the suggestion of his own colleague Senator Minchin, the finance minister, to abolish the 15 per cent contributions tax on super in one hit was to label such an idea as a tax cut for the rich and unaffordable. So we had the then Assistant Treasurer, Mr Brough, bagging his own finance minister, Senator Minchin, about his idea to do away with the 15 per cent contributions tax on superannuation in one hit.

Of course, on this tax debate, we have had the input of the National Party. We had Mr Vaile—and this was at the time when Senator McGauran defected from the National Party to the Liberal Party—coming out publicly saying, ‘The National Party is going to have a very clear and different tax policy from the Liberal Party.’ We have not seen it yet. In fact, I do not think we have ever seen one. It has been 10 long years in opposition for us, but it is has been 20 or 30 long years since we have seen a tax policy from the National Party. But even the National Party has attempted to buy into this tax debate.

With this tax debate raging all around the Treasurer, what could the Treasurer do? He needed to short-circuit the public debate until the budget. The way he has chosen to short-circuit the public debate is by announcing this review into international tax comparisons. That is what the Treasurer has announced. What I find interesting about this is that you do not need to have a new review or inquiry into international tax comparisons. All you have to do is to go to the website of the OECD—the Organisation for Economic Cooperation and Development—and pull off a number of their reports. All the data, all the information and all the study material that you need with respect to international tax comparison is currently on the OECD website. So what we have is the Treasurer, Mr Costello, buying time through to the next budget by announcing a comparison which will come up with tables of international tax levels. It is all there on the OECD website. We do not need a special study in order to access that information. It is there.

As I said, it is just cover for the Treasurer, Mr Costello, to short-circuit the current debate. He knows he has looked a bit tardy and tatty and largely irrelevant in the context of the current tax debate. He has even been outflanked by Senator Minchin with that very grand call by Senator Minchin to abolish the 15 per cent super contributions tax in one hit. I referred earlier to the comments by then Assistant Treasurer Mr Brough.

Rod Kemp (Victoria, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

Madam Acting Deputy President, I rise on a point of order. I think I may have missed something in this speech. I was just wondering whether Senator Sherry could clarify what his and the Labor Party’s position on the super tax is.

Judith Troeth (Victoria, Liberal Party) Share this | Link to this | Hansard source

That is not a point of order. However, Senator Sherry, I will ask you to confine your remarks to the matter under discussion.

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

Thank you. We are discussing tax laws amendment, so I think a contribution from me about tax policy is very relevant in the context of the bill we are discussing here today.

Rod Kemp (Victoria, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

I’m still waiting, Nick!

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

Actually, I will take up Senator Kemp’s challenge, although it is disorderly and via interjection, in a moment. I also want to point out that, when we had this grand declaration from Senator Minchin about getting rid of the 15 per cent contributions tax in one hit, not only was he subject to abuse and criticism from his own then Assistant Treasurer, Mr Brough, which I found incredible—but it highlights the degree of disunity in the government on this issue—but also the following Wednesday the Treasurer himself, Mr Costello, did not think much of this idea, and went on talkback radio on a number of programs and comprehensively bagged his own Minister for Finance and Administration by attempting to argue that Senator Minchin had not in fact argued that the 15 per cent superannuation contributions tax was to be abolished. I think Mr Costello said words to the effect of, ‘I don’t think he said that,’ in reference to Senator Minchin’s tax proposals. But, if you look at the transcript of Senator Minchin’s speech and, indeed, his press release of Sunday, 22 January, you will see that the finance minister made it very clear that he wants the 15 per cent superannuation tax abolished in one hit.

The Prime Minister did not think much of that either. He was out there in the media, in the week following that speech, rapidly trying to water down the position of Senator Minchin, the finance minister. I must say I was disappointed because the day after giving that speech on the 22nd—and it was not just a speech but also a press release arguing for the abolition of the 15 per cent tax on contributions to superannuation—the finance minister himself, Senator Minchin, in what must have been one of his most embarrassing backdowns since he has been in the ministry, put out a clarifying press release explaining that it was only aspirational, only a goal and could only occur over the long term. There was no mention of aspiration or goal or getting rid of the super tax over the long term in the speech he had given the day before. The reality is that he had been stomped on by the Treasurer, Mr Costello; the Prime Minister, Mr Howard; and, indeed, then Assistant Treasurer Mr Brough.

I actually thought that the comments by Senator Watson, a Liberal senator from Tasmania, were spot-on. The esteemed Senator Watson—I do not know why the government does not take more notice of him as a political opponent—was spot-on when he said in the Financial Review on I think the Wednesday that Senator Minchin had effectively been stomped on, although they were not his words, or countermanded and overruled by Mr Costello. That is the truth of the matter. We had a week of utter chaos in the government on the issue of the 15 per cent contributions tax on superannuation.

Rod Kemp (Victoria, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

What’s the Labor Party position?

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

Senator Kemp, I shall take up the challenge. What I found interesting about Senator Minchin’s speech on the Sunday was that it followed some comments that I made to the media on the previous Monday about exactly the same issue. I had publicly advocated a phased and fiscally responsible reduction in the 15 per cent contributions tax, targeted at middle Australia.

Rod Kemp (Victoria, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

Is that Labor Party policy?

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

Those comments are on the public record, Senator Kemp. I was very pleased to see Senator Minchin, the finance minister, on the following Sunday not only pick up my ideas and suggestions but also expand on them and advocate the total abolition of the 15 per cent contributions tax on super. We will see what is delivered in the budget in May. We will see whether in fact the Treasurer, Mr Costello, and the Prime Minister are interested in delivering a tax cut to low- and middle-income Australians in respect of their superannuation. They have not had one cent of a tax cut on their superannuation to date from this government. Higher income earners have had a tax reduction on their superannuation. Those earning more than approximately $100,000 a year have had a tax cut on their superannuation. However, low- and middle-income Australians have had not one cent of a tax cut on their superannuation. I agree with the point that Senator Minchin made. He may have been agreeing with me, actually, because we were making very similar observations.

Rod Kemp (Victoria, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

Senator Kemp interjecting—

The Acting Deputy President:

Senator Kemp, I must ask you to stop interjecting. This is not a free-for-all. Senator Sherry is making a speech.

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

It is a very rowdy contribution via interjection from the former failed Assistant Treasurer, Senator Kemp.

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

And in defiance of the chair!

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

Yes, exactly—ongoing defiance of the chair. We are used to these heavy-handed attempts by the government. They have the numbers in the Senate. They are in full arrogance mode. It has been 10 years; they have been partying and celebrating all of this week. We are used to this sort of creeping arrogance that we have had over the last nine or 10 months since they have had control in the Senate. We are used to that.

Arrogance in terms of public policy is not a good approach, Senator Kemp. Your record as Assistant Treasurer is hardly one that would inspire the Australian public. Senator Murray, from the Democrats, who is in the chamber, is, although I do not always agree with him, a well-informed observer of the tax debate. He would well remember Senator Kemp’s last appearance in public, on The 7.30 Report, as Assistant Treasurer, when he had to defend the introduction of the GST and the exemption being given to high-rollers in casinos. That appearance on The 7.30 Report was infamous.

Rod Kemp (Victoria, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

Senator Kemp interjecting—

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

Senator Kemp is groaning because he well remembers that star appearance. The next day the word went out from the Treasurer and the Prime Minister, and Senator Kemp was never to appear on The 7.30 Report again. I digress, but only as a consequence of the unruly interjections from Senator Kemp. He is now the minister for sport and culture and, I am sure, thoroughly enjoying it.

The Tax Laws Amendment (2005 Measures No. 6) Bill 2005, which the Senate is considering today, contains five schedules for consideration. The first section of amendments relate to a very important issue, and one that is rightly preoccupying public debate at the present time. It relates to the convention that obliges Australia to make bribery an offence and to eliminate the tax deduction for bribery. You could not have a more important tax amendment before the Senate, given the current public debate about the activities of the Australian Wheat Board. You could not have a more appropriate context in which to be considering this particular amendment.

These legislative changes were undertaken with the Labor opposition’s support in 2000. However, in the process of the changes being made a major anomaly occurred. The OECD convention does allow for facilitation payments to occur. Such a payment is effectively a minor bribe to expedite routine and minor government decisions. The OECD convention describes these payments as a corrosive phenomenon and has called on governments world wide to seek to reduce them by developing much tougher corporate responsibility and governance environs. The convention requires that they be minor in value. Those restrictions found their way into the changes to the Criminal Code in 2000 but are not fully in the current tax act. The tax act does not require that facilitation payments be minor in value, although they should pertain to minor decisions. Also, the tax act does not require record keeping in the same way as the Criminal Code. This disparity has led the OECD to suggest that it is possible that facilitation payments may be abused. In the current context of the wheat scandal, we have not seen minor abuse; we have seen absolutely massive and major abuses, which would have to constitute bribes.

In addition to tougher record keeping, the OECD report seeks to encourage Australia to reduce the disparity between the Criminal Code and the tax act. The government should now accept this finding of the OECD report and be doing much more about this particular issue. Labor believes that the loophole that exists at the present time, the absence of the words ‘minor in value’ from the tax act, is a problem. That was explored extensively with the Taxation Office at the recent estimates. Theoretically, it would permit AWB type payments, which are essentially bribes, to be facilitation payments and thus tax deductible. As I have said, we have the enormous scandal of the Australian Wheat Board at the present time. Although we cannot get the details from the tax office because there are secrecy provisions, I do not have any doubt that AWB was claiming the transport costs, which were effectively bribes, as tax deductions as facilitation payments. They were claiming kickbacks as tax deductions. I have no doubt that that is what the Wheat Board was doing. As a consequence, it will be necessary, I believe, for the tax office to go back over the Wheat Board’s tax statements, over the years since those payments started occurring, and make corrective assessments. Indeed, it was useful to note that the tax office had sent an officer down to the royal commission hearings, at least for the first few days, to keep an eye on the evidence. As I have said, it is covered by secrecy provisions, but I have no doubt the tax office will carry out a reassessment of the Wheat Board’s financial statements. With penalties, I suspect that it will be a very substantial sum of money indeed that the AWB will be required to pay in back tax. But that will come publicly to light in the fullness of time.

Schedule 1 of the bill recognises the losses for merging companies based on the proportion of the company’s market value. When companies merge the issue of the carrying forward of losses is vital. If the new company is less than half a per cent of the total group value then the losses cannot be recouped. This is the 12th amendment to the consolidation rules in two years. It has been a very messy process. It has been complex. The government has created uncertainty by failing to deal with the consolidation measures in a single and comprehensive bill.

The second schedule is vital for the survival of the clubs industry. It retrospectively restores the tax-free status of clubs and other not-for-profit groups, which was taken away by a recent court decision. Up until that Federal Court decision, which is spelt—

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

Coleambally.

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

Thank you very much. Not being from New South Wales, I was not familiar with the pronunciation. Whereas previously a proportion of club income from poker machines, bar takings and dining which related to members was tax free, the Coleambally decision ruled that that should only apply where members’ funds are distributed to members when an entity is being wound up. This bill clarifies that decision by establishing that the tax-free status of clubs is not determined by that restriction on winding up. So that particular legitimate concern of the club industry is being dealt with.

The third schedule ensures the new activity test for the child-care benefit. It does not restrict eligibility for the new child-care tax offset. The government has made changes to the activity test, requiring a work test or study-training test of 15 hours a week. As Labor pointed out at the time, this would restrict eligibility for the new child-care tax offset, which the government has accepted. The bill also amends the medical expenses offset so that purely cosmetic dental expenses are ineligible medical expenses and cannot be claimed under the MEO. Therefore, expenses which are cosmetic in nature and do not attract a Medicare benefit are considered ineligible medical expenses. Schedule 5 of the bill proposes that new organisations be added to the list of deductible gift recipients. Could I just inquire as to whether a second reading amendment has been circulated in the chamber?

Judith Troeth (Victoria, Liberal Party) Share this | Link to this | Hansard source

Yes, it has been.

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

The opposition second reading amendment goes to the issues and concerns I have outlined in my contribution. I move:

At the end of the motion, add “but the Senate:

     (a)     calls on the Government to bring forward a separate bill on consolidation measures for greater certainty for business;

     (b)     condemns the Government for unnecessary delays in bringing forward key changes to defend the mutuality principle, leading to great uncertainty for the clubs industry;

     (c)     recognises problems of coverage, delays and other major policy flaws such as the child care tax offset;

     (d)     rejects the Government’s mismanagement of health policy which has seen 1 million Australians miss out under cuts by the Minister for Health and Ageing (Mr Abbott) to the extended Medicare safety net notwithstanding ‘ironclad’ guarantees from the Minister and the failure to deliver a Commonwealth dental program;

     (e)     condemns the Government for refusing to agree to align the definition of facilitation payments in the criminal and tax codes, providing scope for Australian Wheat Board-type kickback payments to be tax deductible; and

      (f)     condemns the Government for failing to advance meaningful tax reform.”

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

The Tax Laws Amendment (2005 Measures No. 6) Bill 2005 is a conglomeration of amendments that pertain to the 1936 and 1997 income tax assessment acts. The Democrats support this bill. Arranged into five schedules, the bill deals with amendments to loss utilisation, the mutuality principle for not-for-profit entities, changes to child-care tax offset provisions, an update to the medical expense offset and changes to the status of deductible gift recipients.

Schedule 1 amends the legislation governing loss utilisation. Specifically, the amendment seeks to clarify the rounding method to be used for the available fraction method of loss utilisation for amalgamating and consolidating corporate entities. I must admit to being surprised to note that the seemingly innocuous clarification of assigning a three decimal place rule and standard rounding provisions can lead to a cost to revenue of $7 million over three years. Indeed, this figure is a reminder of the scale of potential losses that companies seek to utilise for taxation purposes. For, if a simple amendment to the third and fourth decimal places of the rate at which the head company of a consolidated group can recoup adjoining entities’ losses can lead to a $7 million cost to revenue over three years, one can only speculate on the dollar value of significant changes to this rate.

Schedule 2 clarifies the application of the mutuality principle for not-for-profit entities. The mutuality principle provides that, where a number of persons contribute to a common fund that is created and managed as a common interest, any excess earnings that are generated from the use of the fund are not to be considered income for the purposes of taxation. The mutuality principle recognises that amounts are not derived for income tax purposes unless they are received from an external source—that is, amounts contributed by associate members of a not-for-profit entity should be tax exempt.

The legislative amendments in schedule 2 stem from the outcome of the Coleambally Irrigation Mutual Cooperative Ltd v Commissioner of Taxation case—otherwise known as the ‘collywobbles’ case; no, it’s not! In this case, it was ruled that Coleambally could not rely on the mutuality principle to reduce their assessable income derived from sinking fund contributions. According to the findings of the Federal Court:

... where there was a lack of identity between the contributors and participants in the co-operative the mutuality principle did not apply, and the sinking fund levy contributions were assessable income …

This lack of identity between contributors and participants resulted from the use of an intermediary NFP—not-for-profit—organis-ation between the members and the Coleambally cooperative. According to the government, this is in direct conflict with the intent behind the mutuality principle to provide tax relief for mutual type transactions made by not-for-profit organisations. In this particular case, while that may be so—and I have an open mind on whether it is so—the concern that I and the Democrats wish to raise is the increased potential for rorting that the loosening of the definition for distributing surplus funds may create. What the court was saying, in fact, is that the mutuality principles are too loose—and I agree. According to the explanatory memorandum to the bill:

These amendments ensure that not-for-profit entities are not subject to income tax on ordinary income from their members solely because they are prohibited from distributing surplus funds to members. Ordinary income of a not-for-profit entity from members that, but for clauses prohibiting distribution of funds to members, would have been mutual receipts is non-assessable non-exempt income.

It is extremely dangerous territory when you start to see mutuality principles allowing for surplus funds to go to members, because that is a means of providing tax exempt income. I think this is a very dangerous concept.

A core feature of the efficient and virtuous functioning of mutuality is the prevention of distributing surplus funds to members. Those funds should in fact remain within the entity unless the entity is closed down. By creating a loophole in the law to allow for an exemption to this core feature of mutuality, the government is unnecessarily risking further abuse of the system. Despite its problems, the Democrats and I do consider the provisions of the mutuality principle to be a necessary and beneficial tax concession for thousands of community based organisations, and we do support that tax concession continuing, but to my mind it is these small community based organisations for which the application of the mutuality principle was originally intended. However, we also believe that it is a very costly tax abuse in the hands of otherwise very large commercial business enterprises.

For over eight years, I and the Democrats have been campaigning for tax reform in this area. I draw the attention of the chamber to previous adjournment and other speeches I have made on this matter and the prospect of a recovery of probably between $200 million and $350 million to revenue if the mutuality principle were tightened up. And if the Super League and other enterprises operating effectively as businesses were taxed as the private sector is taxed, as they should be taxed, then we would have a saving and a tighter regime. The Democrats have got nowhere with this campaign because this government does not have the courage to address a system which is being rorted. I consider it to be an inequitable abuse of a necessary tax concession which should apply to ordinary not-for-profit entities.

The mutuality principle needs to be defined and administered much more tightly, not relaxed and opened up to yet more abuse and misapplication. The net effect is that, because this government supports a continuation of a tax concession abuse, even though it is legal—an abuse of the spirit and intention of the mutuality principle—the rest of Australia ends up paying more tax than they should or not having the revenue available to spend on more services.

I encourage the Labor Party to have a much deeper and closer look at how the mutuality principle operates in effect. There is no reason in my mind why clubs and others that have multistorey hotels, shops, businesses and offices all over the world and that generate huge incomes should be benefiting from the mutuality principle, which in my mind is available to help junior soccer clubs and that sort of activity.

Schedule 3 proposes a concession to the recently introduced child-care tax offset. Eligibility for the child-care tax offset is dependent on contemporaneously meeting the eligibility test for child-care benefit as updated by the Family and Community Services Legislation Amendment (Welfare to Work) Bill 2005. Before I give a brief analysis of the schedule, I must digress to highlight the fact that we are here today reviewing two pieces of legislation that were passed by the coalition government through this place no less than four months ago. ‘As you sow, so shall you reap’ is an apt phrase for ‘if you push through legislation without proper review’, because we are again in the process of fixing up legislation which in some respects was poorly constructed. It did not benefit from a strong Senate review process, and it is a piece of legislation that does require amending because the government has disdain for due process in this place and is determined to have its way without regard to the very effective and beneficial mechanisms of a full Senate review. That is a waste of resources, it is an inefficient mechanism and it does cause angst among affected members of the business community and ordinary communities who unnecessarily suffer when confusion and corrections result from what I would describe as a policy of unilateralism. It is not a credit to the Howard government that that is occurring.

As I have already stated, the amendment proposed by this bill seeks to introduce a concession to the eligibility requirements for the child-care tax offset by way of exempting families who would have been eligible for the offset but for the introduction of the more onerous eligibility test introduced by the Welfare to Work bill. Otherwise stated, the government now acknowledge the harshness of the new eligibility regime that they themselves introduced, and they are seeking to dilute its effect. At least they have had the good grace to recognise the problem and address it.

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

They have not said so publicly.

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

No, they have not said so publicly. Schedule 4 of this bill is an outstanding amendment to the medical expenses tax offset which excludes purely cosmetic procedures, both medical and dental, from the tax offset for medical expenses incurred over $1,500 in an income year. This is a just exclusion from a beneficial tax provision that operates under the premise of providing tax relief for health rather than image related medical procedures. It is shameful to think that some Australians have been able to claim beneficial tax treatment for expensive cosmetic surgery while at the same time there is an alarming number of Australians unable to access necessary medical treatment due to issues of affordability or waiting lists. This is yet another instance of a divide in this country between the rich and the poor.

No single issue so much defines the advantages that the haves have over the have-nots than the access to dental care that many of us take for granted. The government provides millions of dollars and subsidies to those on higher incomes to help with dental care costs, but Australians on lower incomes receive nothing. An immediate injection of leadership and money is needed for disastrously long waiting lists for basic dental services, for the relief of pain and the repair and replacement of defective teeth. Tooth decay is the most common health condition in Australia, and tooth loss and gum disease are amongst the top problems. Diet, particularly of poor people, is very material to the development of tooth decay.

It is true that Australian children are relatively lucky in their access to affordable dental care, primarily through state provided services, and this is reflected in figures of good rates of oral health in those states. But it is a very different story for adults. Australia now has the second worst adult oral health of all the OECD nations, which I think number 30 now. Yet the government continues to do nothing about it. Ninety per cent of dental services are provided through the private sector with the patient paying a fee—and often a considerable fee in my experience—for each visit. Dental services are expensive. Many people on lower incomes do not have private health insurance and cannot afford private dentist fees. Those people miss out.

The government is spending more than $320 million a year subsidising dental care for people with private health insurance, but all it has done for those who cannot afford private cover is to cut the Commonwealth dental health program established by Labor. I do hope restoring that is in Labor’s program when they campaign to be the next government. When the Howard government abolished the program in 1996 there were 380,000 Australians waiting for public dental care, according to the statistics. According to those statistics there are now more than 600,000. The longer people wait, the more damage is done to their oral and general health. Poor dental health impacts on other medical conditions, including heart disease, diabetes, arthritis, respiratory ailments and cancer.

Of course, the government is continuing to ignore the lack of a workforce program to provide oral health care. There are too few dentists to meet the potential demand. Estimates have suggested that increases in population and in demand will mean Australia will face a shortfall of 1,500 dentists. I have no way of knowing whether that is accurate but there is general consensus that there are too few dentists for the need. I assume that if there were more dentists available fees would fall, because there would be more competition. That is another thing to think about.

The lack of federal funding for public dental health services is creating an ever-increasing gap between those who can afford dental health care and those who cannot. There are no funds for emergency dental treatment, let alone the preventative dental treatment that saves money in the long run. There is not even a means test basis on which you can enter into the dental queue. The changes to Medicare that the government has put in place, while a small step in the right direction in this bill, only apply to patients with chronic health problems that are made worse by poor oral health, and they only cover limited procedures. Treatment relies on a doctor’s referral, if you can get in to see one, and only refunds up to $220—although that is not in this bill; it is already established as a government program. This is unlikely to cover the normal fees charged by dentists. It is time that we had a long-term national oral health strategy and the funding that went with it. We do need leadership as well as money to bring about real reform of the dental care system. Redirecting any savings that result from the removal of the tax offset for cosmetic procedures to public dental services will not solve the problem, but it will at least direct some money to where it is most needed. My second reading amendment seeks to draw attention to this issue, and I will formally move it before concluding my remarks.

Judith Troeth (Victoria, Liberal Party) Share this | Link to this | Hansard source

You can only foreshadow your amendment at present. After Senator Sherry’s amendment has been moved and put, you will then be able to formally move your amendment.

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

Thank you for your guidance, and I will so do. I am aware that there are members of the National and Liberal parties who are as concerned as we are about the dental health problems, and I urge them in the new vigour and new strength of debate in those backbench committees and in their party room to raise this issue. It is affordable. It is possible for us to make a good start to attend to the most serious needs in this area.

The final schedule contained in this bill, schedule 5, updates the list of deductible gift recipients. This is in line with the policy and legislation as it exists, and there is nothing contentious or worthy of debate in any of those proposed changes other than to say that they have our support, as do the rest of the amendments.

The last area I would like to attend to before I sit down is with respect to the second reading amendment put by Labor. I have difficulty with it, I must say, because of the way in which it is expressed. Item (a) says that the Senate calls on the government to bring forward a separate bill on consolidation measures for greater certainty for business. I do not know what that means. I would have preferred the government to be asked to review the consolidation measures that are being applied to see if there is any final wrapping-up needed here. I have been a consistent and strong supporter of the consolidation measures regime, as indeed has the Labor opposition. I am mindful of the fact that it has contributed to greater flexibility, greater market responsiveness and opportunities for the corporate sector. But it is also at considerable cost. I recognise the point made by the shadow minister that it is an extremely complex area which is still causing angst. I am not sure what they mean, but I do recognise that we need to pay some attention to this area.

The second item in the second reading amendment condemns the government for unnecessary delays in bringing forward key changes to defend the mutuality principle, leading to great uncertainty for the clubs industry. To some of the clubs, I say that they can go hang, because they are operating private businesses under the shield of a tax concession which they should not be entitled to, and they really should be clamped down on. I would defend the mutuality principle in a different way by tightening it up and making sure that it applies only to those who really deserve it.

The third Labor amendment recognises that there are problems with the child-care tax offset. I outlined those problems in my own speeches on those bills earlier. There are difficulties, and I probably agree with item (c). Item (d) says that the Senate:

... rejects the Government’s mismanagement of health policy which has seen 1 million Australians miss out under cuts by the Minister for Health and Ageing (Mr Abbott) to the extended Medicare safety net notwithstanding ‘ironclad’ guarantees from the Minister and the failure to deliver a Commonwealth dental program.

I definitely agree with the failure to deliver a Commonwealth dental program and I probably agree with most of the other remarks, although I do think that Minister Abbott suffered grievously as a politician from making an ironclad guarantee and from it then being exposed. So he has probably been punished quite vigorously in the public arena.

Item (e) says that the Senate:

... condemns the Government for refusing to agree to align the definition of facilitation payments in the criminal and tax codes, providing scope for Australian Wheat Board-type kickback payments to be tax deductible.

I would have preferred that to be a request to government to review whether there was a need to align them. The reason I respond in this way is because I listened very carefully to the answers at the table from the tax office during Senate estimates and they indicated that there was absolutely no problem with those two definitions disagreeing in what they thought was not a meaningful manner. So I am not sure that they need to be aligned. I would like some expert advice from independent views as to what the differences mean. Item (f) condemns the government for failing to advance meaningful tax reform. I do not know what that means, unless it is meaningful ‘income’ tax reform, in which case I would agree. So, as you can see, I have a lot of sympathy with what you are presenting in terms of ideas in that second reading amendment, Senator Sherry, but I would have expressed them a little differently in application.

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

I want to speak briefly to the Tax Laws Amendment (2005 Measures No. 6) Bill 2005. I begin by endorsing wholeheartedly the comments that Senator Murray has made about the state of dental health care in Australia and the need for us all to focus clearly on delivering some outcomes in that area for people with needs. This tax laws amendment bill has a number of purposes. We know that it is designed to modify and update the Income Tax Act 1936 and the Income Tax Assessment Act 1997. We have heard already from several speakers about the issues that are being addressed in the bill. Basically, they are consolidation, available action for lost utilisation purposes, extension of the mutuality principle, the child-care tax offset, the medical expenses offset and the exclusion of solely cosmetic procedures, and an expansion of the deductible gifts register.

Schedule 1, as we have heard, recognises the losses from merging companies based on the proportion of the company’s market value. When companies merge, carrying forward that loss is a very critical issue and one that many businesses have raised with me as this bill has been considered. If the new company is worth less than half a per cent of the total group value then the losses cannot be recouped. Senator Murray described how important it is to take this to the third decimal point. I will not try to explain the issue any further, but it does have quite a significant impact on those companies operating, merging and trying to carry forward a loss. Senator Sherry made the important point that this is actually the 12th amendment to consolidation rules in two years. I think that the amendment moved by Senator Sherry tries to emphasise the importance of that fact and the need to have the consolidation measures in a single, comprehensive bill.

Schedule 2, which we have also heard quite a lot about but which I want to speak extensively about today, is vital to the survival of not just registered clubs but, just as importantly, not-for-profit organisations affected so recently by the court decision that has been mentioned. Up until the Federal Court decision that was known as the Coleambally case, the proportion of a club’s income which related to members was considered to be tax free. But the decision in the Coleambally case ruled that this should apply only where the members’ funds are distributed to members when the entity is being wound up and where the articles of association, or the charter of the club, indicate that that is the case.

This bill clarifies that, since the decision on 1 July 2000, the tax-free status is not determined by the restriction on winding up. The schedule is important in ways that many people in this chamber might not be aware of. The Coleambally Irrigation Mutual Cooperative Ltd was established and registered as a non-trading cooperative in 2002 under the Co-operatives Act 1992 of New South Wales. Its charter is to construct, own and maintain all new irrigation infrastructure assets in the Coleambally district for the benefit of their community. It is financed by a sinking fund levy which is made up of contributions from irrigator members. When Coleambally Irrigation applied to the Australian Taxation Office for a private binding ruling in 2002 to have their sinking fund contributions recognised as non-assessable income, the application was rejected on the basis that the mutuality principle did not apply to their circumstances.

This interpretation has since been applied to other organisations, but the implications for Coleambally Irrigation were substantial, not only in terms of their annual financial liability but also because of the retrospectivity implications. The ruling created a major hurdle for thousands of clubs and not-for-profit organisations with similar non-profit winding-up clauses but without an exemption under section 23 of the Income Tax Assessment Act. These clubs include, as we have heard, registered clubs, but also workers’ clubs, a range of cooperatives, rural financial counselling services, motoring organisations, business associations, environmental groups, some child-care centres, housing cooperatives, some community libraries and other local services, and many incorporated associations, non-trading cooperatives and companies.

Under the mutuality principle, membership subscriptions and receipts from other mutual dealings with members are not usually included in taxable income. The number of not-for-profit entities that benefit from the mutuality principle is huge. Schedule 2 ensures, therefore, that not-for-profit entities are not subject to income tax on their ordinary income from their members solely because they are prohibited from distributing surplus funds to members.

The third schedule ensures that the new activity test for the child-care benefit does not restrict eligibility for the new child-care tax offset. The government has made changes to the activity test requiring a work test or study-training test of 15 hours a week. At the time that that occurred, Labor pointed out that that would actually restrict eligibility for the new child-care tax offset, which the government has now accepted. So the bill maintains the work, training and study requirements for eligibility for the child-care tax offset at the same level as they were before the introduction last year of the Welfare to Work legislation. That makes a lot of sense for us, so we will be supporting this schedule of the bill.

The fourth schedule, which Senator Murray spoke quite extensively about, amends the medical expenses offset so that purely cosmetic and dental expenses are ineligible medical expenses and cannot be claimed under the medical expenses offset. The idea that this could continue to be the case when we have escalating health care costs and huge waiting lists around the country seems to me to show that this is an amendment that makes a lot of sense. Labor supports the clarification of that schedule.

Schedule 5 proposes that new organisations be added to the list of deductible gift recipients and also extends the time for which deductions are allowed for gifts to a fund that has time limited DGR status. Organisations that will benefit from this amendment include the CEW Bean Foundation, which wants to build a memorial and develop an honour roll in tribute to war correspondents killed in conflicts since 1885. The Australian Red Cross and the Salvation Army, which set up the Hurricane Katrina appeal to help in the disaster relief effort in the aftermath of Katrina, are also included. The amendment will see the Xanana Vocational Education Trust added to the deductible gifts register. This trust develops vocational education and training in East Timor by subsidising education and awarding scholarships to young people.

I will briefly speak to the amendment moved by Senator Sherry. I consider the important aspect of the amendment to be the proposal to close the loophole that currently allows deductions for fuzzy payments being used to facilitate deals. We have heard much in the media in the last few weeks about what is going on with the AWB. But, currently, facilitation payments are loosely defined and exempt from the normal bribery provisions of the Income Tax Assessment Act. In light of the burden currently being shouldered by Australian wheat farmers, due to the many payments made by the AWB to Saddam Hussein’s regime to facilitate trade, it is a shame that that loophole was not closed years ago. Had it been closed, the AWB would not have been able to describe up to $300 million as ‘facilitation payments’ and thus be entitled to multimillion-dollar rebates, courtesy of the Australian taxpayer.

Just as the government has received many international warnings about the kickbacks made to Saddam Hussein, so has the government received international warnings about this particular loophole in our tax law. As recently as January this year, the OECD report on the application of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions found that Australia’s defence of facilitation payments was also identified for further monitoring because of concerns such as the practical effectiveness of the record-keeping requirements.

Labor’s proposed amendment would prohibit AWB style deductions. The evidence before the Cole inquiry suggests that that is a loophole that we should be fixing very quickly. We are not alone in thinking that facilitation payments should cease to enjoy tax deductibility. It is not rocket science to know that as soon as you support facilitation payments you are entering into the culture of bribery and kickbacks which has done this nation’s trading reputation extraordinary harm.

I note Senator Murray’s comments about the fact that we are amending two pieces of legislation that we passed only a short time ago and his point that we rue the day when we have to amend such poorly drafted legislation which has been drafted in such haste. I have spoken at other times in this chamber about considering both the effects and the consequences of legislation. I think what we are seeing here is some consideration of those two issues.

Helen Coonan (NSW, Liberal Party, Minister for Communications, Information Technology and the Arts) Share this | Link to this | Hansard source

I thank all senators who have taken part in the debate on the Tax Laws Amendment (2005 Measures No. 6) Bill 2005. I do not propose to go through all of the schedules, but I do want to say something about the principle of mutuality. By way of background to the second schedule, mutuality is a legal principle based on the proposition that a taxpayer cannot derive income from itself. Under the principle, if members contribute to a common fund created and controlled by them for a common purpose and those contributing members are essentially the same as those who participate in the fund, the member contributions and receipts for member dealings are not subject to tax. Under the principle, essentially all the contributions to a common fund must be entitled to participate in any surplus of the common fund.

The Australian Taxation Office’s longstanding practice has been to treat the mutuality principle as applying to not-for-profit community organisations, despite the inclusion of clauses in an entity’s constituent documents that prohibit the distribution of surplus funds to members. The decision of the Federal Court in Coleambally called this into question. As we know, the government announced on 30 May 2005 that it would amend the income tax law to ensure certain not-for-profit organisations would not be subject to tax on mutual receipts as a result of the Coleambally Federal Court decision. The court’s decision potentially affected between 200,000 and 300,000 not-for-profit entities, including clubs, professional organisations and some friendly societies. The government’s amendment today restores the longstanding benefits of the mutuality principle that applied prior to the court’s decision.

Senator Sherry has foreshadowed a couple of amendments that I will address, including item (b) of his foreshadowed amendment, which relates to unnecessary delays in bringing forward key changes to defend the mutuality principle. The government rejects the claim that there have been unnecessary delays in the government restoring the mutuality principle that led to unnecessary uncertainty for the clubs. The government recognises that many clubs and community associations make an important contribution to local communities. To that end, the government gave the clubs industry a clear commitment during the election that it would preserve mutuality benefits for clubs.

I also want to address Senator Murray’s foreshadowed amendment but, before I do so, I will mention item (e) of Senator Sherry’s second reading amendment—that being the proposal to align the definitions of facilitation payments in the tax act with the definitions in the Criminal Code. Senator Sherry had asked at Senate estimates whether, from the ATO’s perspective, slightly different definitions contained in the code and the Income Tax Assessment Act present any practical problems. Mr Monaghan, the Deputy Commissioner of the serious non-compliance area in the ATO, responded:

We do not believe so. Our view is that the policy intent is reflected in the wording. In terms of our legislation, it is about a tax deduction and whether or not that is allowable. The Crimes Act is about a criminal matter. You might expect there to be more precision in that wording. So we do not believe there is any particular issue in that.

The government, having thought about this, considers that the income tax law is sufficiently robust to ensure consistency with the Criminal Code and therefore denies deductions for bribes paid to foreign public officials. I will now briefly deal with Senator Murray’s foreshadowed second reading amendment.

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

Mr Acting Deputy President, I rise on a point of order. Is the minister going to guarantee that on the public record with respect to AWB?

Gavin Marshall (Victoria, Australian Labor Party) Share this | Link to this | Hansard source

I do not think that is a point of order, Senator Sherry.

Helen Coonan (NSW, Liberal Party, Minister for Communications, Information Technology and the Arts) Share this | Link to this | Hansard source

Before Senator Sherry’s attempted point of order, I was dealing with the second reading amendment foreshadowed to be moved by Senator Murray on behalf of the Australian Democrats. Senator Murray, with regard to your second reading amendment, governments have different and complementary roles in assisting Australians with dental health. Senator Murray made a number of important points in his contribution, but the Australian government and the states and territories have to assume a fair share for the system to work properly. States and territories are responsible for public dental services. As part of the Australian Health Care Agreement, states and territories are required to report on the number of dental services provided.

The government’s commitment to public dental health includes the Strengthening Medicare package, which provides new Medicare items for dental care for people with chronic and complex care needs. Medicare will reimburse $76.35 for each of these services, to a maximum of three services annually. In keeping with its responsibilities in the health care system, the Australian government also provides Medicare funding for a number of dental procedures for private patients receiving services in private and public hospitals, subsidised drugs that may be prescribed for oral health under the Pharmaceutical Benefits Scheme, funding for the university training of dentists and other dental service providers and funding for the dental care of war veterans and full-time and part-time members of the Australian Defence Force.

For the reasons outlined above, I commend the bill.

Question put:

That the amendment (Senator Sherry’s) be agreed to.

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

I move the second reading amendment standing in my name on the Tax Laws Amendment (2005 Measures No. 6) Bill 2005:

At the end of the motion add:

        “but the Senate:

        (a)    expresses its concern at the continuing impact of the removal of the Commonwealth dental health program; and

        (b)    recommends that any tax revenue that results from the removal of the tax offset for solely cosmetic dental procedures is directed towards meeting public dental health needs”.

Question negatived.

Original question agreed to.

Bill read a second time.