Chris Ellison (WA, Liberal Party, Minister for Justice and Customs) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

This bill amends various taxation laws to implement a range of changes and improvements to Australia’s taxation system.

Schedule 1 exempts temporary residents from Australian tax on most foreign source income, including capital gains. The exemption is confined to foreign source income and does not apply to their Australian source income, or generally to salary and wages. These amendments will also exempt temporary residents from interest withholding tax obligations associated with overseas liabilities and with some record-keeping obligations. This measure does not favour temporary residents over Australian citizens when deciding who to employ.

This exemption was introduced into the parliament twice in 2002 and was defeated twice by the opposition in the Senate. As a result the government withdrew the measure prior to the 2004 election.

In the 2005 budget, the government committed to pursue the measure again, recognising it would reduce the costs to Australian business of employing highly mobile skilled labour, as currently the extra tax costs are often passed on to employers. In addition, by making it easier to relocate key staff to Australia, these changes will facilitate Australia’s growth as a regional centre.

Several beneficial changes have been made to the previously introduced measure. First, to reduce complexity there are no longer any arbitrary time limits. Second, temporary residents will be treated like non-residents for capital gains tax purposes. Finally, the rules for capital gains made on employee shares or rights have been made more explicit. Overall, these changes will simplify the rules for most temporary residents.

An internationally competitive basis for taxation of mobile talent is an issue not only for small- and medium-sized businesses but also for large businesses alike.

The amendments will apply from 1 July 2006, except for the interest withholding tax exemption, which will apply from the day of royal assent.

Schedule 2 introduces a systematic treatment of business black-hole expenditures. It provides a five-year write-off for business capital expenditures incurred on or after 1 July 2005. This includes pre- and post-business expenses. As part of the systematic treatment, some black-hole expenditures will be recognised by amending the capital gains tax regime and the elements of cost for depreciating assets.

This schedule also introduces a new five-year write-off for payments to terminate a lease or licence. This applies where these are a business expense.

The new five-year write-off for business capital expenditures will be a provision of last resort. This means that it will apply only where business capital expenditures are not already taken into account and are not denied a deduction for the purposes of the income tax law.

This fulfils the government’s commitment to provide such a regime as detailed in last year’s budget.

Schedule 3 amends the law to introduce a civil penalty regime to deter the promotion of tax avoidance and tax evasion schemes.

There are currently scheme penalty provisions that apply to taxpayers who participate in tax avoidance and evasion schemes. This bill will provide for greater symmetry in risk by ensuring that promoters are at risk of penalty when they expose their clients to scheme penalties.

This bill also provides for injunctions and voluntary undertakings. These remedies can be used by the Commissioner of Taxation to stop the promotion of schemes before taxpayers are put at undue risk. For an injunction or penalty to apply, a promoter will have to:

• market a scheme or encourage growth or interest in it; and
• receive consideration for that conduct; and
• have a substantial role with respect to marketing and encouragement.

Implementers are only affected if they implement a scheme, promoted on the basis of conforming to a product ruling, in a materially different way.

Schedule 4 amends the A New Tax System (Goods and Services Tax) Act 1999 to clarify that prepaid phone card products are ‘eligible vouchers’ for the purpose of division 100 of the GST act. This confirms the policy intent that GST applies to these products when they are used and not when they are sold. As the amendment confirms the industry’s existing treatment of these products, it applies retrospectively from 1 July 2000.

This schedule also clarifies that from 11 May 2005 GST is to be paid on the face value of a voucher. This ensures that for vouchers sold at less than their face value through a distribution chain, any value-added is subject to GST. In addition, the measure provides a simplified accounting arrangement for ‘eligible vouchers’ supplied through a distribution chain, which will apply from the date of royal assent.

Full details of the measures in this bill are contained in the explanatory memorandum. I commend this bill.

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

We are dealing with the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 a little earlier than the Labor opposition and I anticipated. We have to some extent debated the circumstances of us dealing with this a little earlier than we anticipated, but I want to strongly reject the comments made by Senator Bob Brown and the implications of some of his comments in his contribution a few moments ago. He referred to the Labor Party as being compliant. I have already outlined the circumstances in which we believe it is reasonable that we now move to this piece of legislation. It is not a matter of compliance on the part of the Labor opposition. Senator Brown used the word ‘compliance’ and that implies unreasonable acceptance. It is not unreasonable in the circumstances we are faced with in dealing with the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 and in dealing with the other legislation when it comes along once the running sheet has been dealt with. Senator Brown accuses the Labor opposition of shrugging its shoulders and complying with the Prime Minister’s wishes. That is not the case. No-one has fought harder to hold this Liberal Howard government accountable on a whole range of fronts, particularly since the government gained a majority in the Senate, than the Labor opposition has.

Once again, we saw the pique of Senator Brown on display earlier when he advanced an unfair and unreasonable argument. That is what we usually see from Senator Brown. He is the centre of the world, he is the one holding the government to account and no-one else is doing their job. That is totally wrong, and I reject that on behalf of the Australian Labor Party. I would have thought Senator Brown would have learned a lesson from the election last Saturday. I would have thought he would have learned a lesson in graciousness and manners in terms of politics. Unfortunately, he is not here in the chamber, and I do not want to unnecessarily prolong the debate tonight.

However, when a senator has to go to hospital and is ill and is vitally interested in a piece of legislation, it is not unreasonable to defer that legislation. What would Senator Brown have us do if he were ill and had to go to hospital and he wanted to make a contribution on a piece of legislation? I certainly believe the Labor Party would give that reasonable consideration and agree to deferring a piece of legislation that he was vitally interested in. That is why we have had the flow-on consequences and have had to defer the earlier legislation and move on to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006.

Let me move to the bill. Firstly, Labor will be moving an amendment to this legislation in the committee stage. I want to deal very briefly with the amendment in principle that I will be dealing with in detail in the committee stage. Labor has chosen the Tax Laws Amendment (2006 Measures No. 1) Bill to move an amendment designed to close a loophole in the tax law that might permit an AWB type kickback payment to receive a tax concession. We have had a massive scandal in recent months. It would have to be the most significant bribery case, I think, in the history of Australia. The very fact that kickbacks of such significance have taken place at all is extremely embarrassing for this Liberal government. Funding the former Iraqi regime while Australian troops were deployed against it through bribes for guns, effectively, is absurd and is an extremely serious matter.

What has come to the light in the Cole inquiry is that the AWB claimed its $300 million kickback as a tax deduction. This is absolutely outrageous in any moral or ethical terms, as the payments made were clearly bribes in the ordinary, commonly understood sense of the word. But what is even more concerning is that this payment is attracting a tax deduction. We spent some time on this issue at the recent Senate estimates. The payments made were claimed as an expense. Although the Taxation Office could not go into the detail of the specific case, we spent some time at estimates examining this issue in principle—and I think Senator Murray, who is in the chamber, was there at the time. The AWB over a number of years would have claimed these payments that are effectively bribes as a tax deduction, deductible against a number of their years of annual tax returns.

I note from that evidence that the tax office sent an official to spend some days, I think, sitting in on the Cole inquiry. I can only presume that is to get first-hand some of the evidence being presented to establish prima facie that, once the Cole inquiry is completed, whatever those findings may be, the tax office will be required to take further action and certainly, I hope, readjust the tax claims for the relevant years in which bribes were paid and collect the tax owing on behalf of the Australian people. Including the penalty, that will be a very significant sum of money.

Australia is a signatory to the OECD anti-bribery convention of 1997, which calls on bribes to be made illegal; therefore, of course they are not tax deductible. The convention raises significant criticisms of so-called facilitation payments. The words used in the convention are that such payments are a ‘corrosive phenomenon’. Such payments are effectively small bribes used to smooth the wheels of government. When the government gave effect to the anti-bribery convention and made amendments to the Criminal Code and the tax law in 2000, it permitted a facilitation payment to be a defence against the criminal charge of bribery, sufficient to make such an expense deductible.

The tax act and Criminal Code mirror each other identically except for two points. This could prove crucial in any reassessment of AWB. The two points are that the Criminal Code requires that the payment be minor in value and records be kept. The tax act has the same definition in it but no monetary restriction or record-keeping references. This has been noted by the OECD. It has not just been noted by the Labor opposition. The issue of record keeping is something that the ATO has been specifically asked to address by the OECD. This is not an amendment that the Labor Party is arguing for without supporting evidence. It is the OECD—a very credible and authoritative organisation that we hear much of and that is quoted from time to time by the current government—that has drawn Australia’s attention to what on the face of it are quite small differences between the Criminal Code and the tax act.

The OECD has indicated there is no reason why the tax act would not include ‘minor in value’ in the definition of facilitation payments. This language is present in the convention, and failure to replicate it in Australian law places Australia in technical breach of the convention. What is more concerning is the obvious point as to why anyone would oppose the clear argument that for such kickbacks not to be deemed bribes they must be minor in value. Without this a $300 million AWB type payment could possibly be deductible. This is of great concern to the Labor opposition.

We know the government will not agree to this. They rejected Labor’s amendment in the other place earlier this evening. They have decided that facilitation payments need not be minor in value for the tax act but must be minor in value for the Criminal Code. This is a strange asymmetry that simply creates confusion and uncertainty which does not exist in comparable jurisdictions like the United Kingdom. The government have rejected Labor’s amendment in the House to align the codes. They say they do not support AWB’s behaviour, but this appears to the Labor opposition to be no more than hollow rhetoric. We have seen a lot of that from the government in respect of AWB over the last few months. Labor will be strongly pressing its amendment in respect of this issue later when we get to the committee stage.

The Minister for Revenue and Assistant Treasurer, Mr Dutton, in the House indicated that the tax commissioner believes that the language ‘routine in nature’ in the tax act is enough to restrict the issue to payments that are minor in value. This is a strange point. Something can clearly be minor in nature, like a port fee, but high in value, like $300 million. The UK tax act does not have a specific and different definition for facilitation but only uses the definition in the crimes act. This is clearly the better model.

I will deal briefly with the schedules in this legislation. The first schedule in the bill seeks to remove the harsh penalties and permits for, and give additional concessions to, nonresidents working in Australia in relation to their foreign source income. Australia currently imposes punitive measures on nonresidents or temporary residents who work in Australia but have significant foreign source income. These tough provisions have had a negative impact on foreign sourced executives and some high-skilled professionals. Under the current provisions a resident who becomes a nonresident triggers a capital gains tax event and deemed disposal rules apply. Unrealised gains on assets without a connection to Australia are deemed to be realised and capital gains tax applies.

An exemption applies for short-term residents of less than five of the last 10 years. Tax can be deferred until realisation with subsequent gains assessable. Under the UK and US double tax treaties such gains subsequent to a residency change are not assessable. In the Taxation Laws Amendment Bill (No. 4) 2002 the government introduced an exemption for temporary residents from Australian tax on foreign source income, including interest withholding and capital gains, for four years. The relevant schedule was removed from the bill in the Senate and the amendment bill passed in the House.

The rationale for the government’s proposal was that the high marginal tax rate in Australia meant that the Australian tax on foreign source income was higher than the tax the expatriate would pay overseas on the same income. This could undermine attempts to attract key personnel from offshore, something which many businesses have been forced to do because of the government’s inaction in respect of local skills shortages. If we cannot get local labour then we must look overseas, but the tax penalties, certainly for some occupations, make it extremely difficult to do this.

The current bill has three impacts: (a) it removes the deemed disposal rules for temporary residents for assets without a concession to Australia without the five of 10 year rule outlined above, (b) foreign source income from temporary residents is excluded for income taxation indefinitely, and (c) temporary residents do not pay tax on interest income received overseas. These measures have the strong support of the business community. The Labor Party has considered them on their merits and likewise believes they should be supported. Moreover, their implementation will ease the current skills crisis we are facing as a nation. There are also economic benefits associated with reducing impediments to skilled foreign employees taking up positions in Australia. This will in some measure boost labour productivity in important sectors.

The second schedule targets black hole expenditures, which are expenses of a capital nature usually excluded from deductibility but for which a special case for deductibility can be made. The bill really extends deductibility for expenses associated with setting up a now defunct or changed entity. This measure is not about loss carry-forward provisions but about deductibility of expenses for an entity that is now nonexistent. The expenses do not meet the loss carry-forward provisions. Some tests still need to be met to claim the deductions. Labor believes the bill has been written with James Hardie in mind to provide that the James Hardie payments to the compensation fund for asbestos victims will be eligible for a tax deduction. Labor supports this because it clarifies a significant uncertainty in tax law.

The third schedule is about tax promoter penalties. It is the measure to empower the Commissioner of Taxation to impose penalties on promoters of tax minimisation schemes. At the moment the commissioner cannot do this but can only hit the victims of such schemes after the event. This has led to the debacle of mass-marketed tax schemes and employee benefit arrangements, where thousands of taxpayers have been victims of exploitation from aggressive tax minimisation strategies with penalties attached. The bill now empowers the tax commissioner to seek significant fines from the actual marketeers of the schemes and to get an injunction from the Federal Court to stop the schemes being promoted. This gives no relief to previous victims and the 60,000 taxpayers who have been adversely affected by schemes. It comes some five years too late.

The major problem with the current measure is the uncertainty it creates. Advisers who advocate legitimate tax reduction arrangements will now be forced to seek a tax ruling to ensure that they are not covered by the arrangements and slip from being an adviser to a promoter. This will significantly increase ATO costs. The current estimate of an extra $7 million per year in costs could prove to be conservative. Labor would like some indication about whether there is sufficient funding to ensure the rulings sought could be dealt with expeditiously.

While I am on this matter, it is about time the tax office paid greater attention to self-managed superannuation funds. I know it is a different issue, but we have recently had the appalling scandal of Westpoint, where a number of promoters—planners—encouraged individuals, through self-managed superannuation funds, to invest in Westpoint entities. Some hundreds of people were, I think, very poorly advised—and that is a mild description—and the tax office to date has not bothered to check one of those self-managed superannuation funds to see if they complied with the current law in respect of Westpoint. This is a very serious issue indeed. There has been significant comment about it in the media and it will continue due to what is, I think, poor oversight across the board, including by the tax office.

The fourth schedule is about the GST on prepaid phones. Prepaid mobile phones often provide a myriad conditional benefits, such as free SMS, discounts or cash-back deals. This has created some uncertainty as to how to levy the GST on these products, which are essentially vouchers to make a certain number of calls at varying rates and at varying times. The easy way to deal with this is to simply specify that the stated value of the voucher is the GST taxable supply.

In conclusion, Labor supports this bill. It makes necessary clarification and it will increase GST revenue by about $10 million a year. Senator Murray may be able to help me because he is an expert on the GST. We are up to about 1,693 amendments to the GST. Senator Murray, we could have had fewer if you had been on the ball when you agreed to the GST. Nevertheless, we continue to clean up that mess all these years later. Labor will be supporting the bill and we will be arguing for our amendment in the committee stage. I think Senator Murray is moving an amendment and I will comment on that in the committee stage as well.

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

The Tax Laws Amendment (2006 Measures No. 1) Bill 2006 contains four disparate schedules amending the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997, the Fringe Benefits Tax Assessment Act 1986, the Taxation Administration Act 1953, the A New Tax System (Goods and Services Tax) Act 1999 and the Income Tax (Transitional Provisions) Act 1997. Schedule 1 amends the legislation governing foreign source income exemption provisions for temporary residents, schedule 2 amends business related costs, schedule 3 deters the promotion of tax exploitation schemes and schedule 4 updates GST mechanisms for prepaid phone products.

Schedule 1 amendments pertain to the Income Tax Assessment Act 1997, with consequential amendments to the Income Tax Assessment Act 1936 and the Fringe Benefits Tax Assessment Act 1986. This schedule seeks to implement part of the government’s new business tax system reforms by achieving the following two key objectives: firstly, to attract internationally mobile skilled labour to Australia; and, secondly, to assist in the promotion of Australia as a business location by reducing the costs to Australian business of bringing skilled expatriates to work in Australia. The amendment provides exemptions from Australian tax on non-Australian source income for individuals who are temporarily residents of Australia for tax purposes. Interest withholding tax obligations of temporary residents are also removed.

The main thrust of this schedule is the introduction of tax concessions for temporary residents at a cost to taxpayers of approximately $75 million over the forward estimates period. The government asserts that this is the best means of attracting highly skilled labour to our shores. Never mind the lucrative salaries; ignore our status as one of the most sought-after destinations on the planet: they are not enough. We also need to provide more generous tax incentives for our would-be expatriate workforce.

The government’s grand plan will provide exemptions from Australian tax on non-Australian source income for individuals who are temporarily residents of Australia for tax purposes. The bill defines who is considered to be a temporary resident and necessitates that the individual concerned: (1) be a holder of a temporary visa; (2) has not previously been an Australian resident within the meaning of the Social Security Act 1991; and (3) is not married to an Australian resident.

Notably, temporary residents who are involved in a de facto relationship with an Australian resident will still benefit from tax exemptions. So you are excluded if you are married to an Australian resident, but if you are shacked up with one you are not excluded. This is an unacceptable inconsistency since it does not even fit within the government’s own intention as stated in a note to the relevant paragraph which reads as follows:

The tests in paragraphs (b) and (c) are applied to ensure that holders of temporary visas who nonetheless have a significant connection with Australia are not treated as temporary residents for the purposes of this Act.

The government must be stuck in the past if it considers that a ‘significant connection’ to Australia in the context of one’s partnership is limited to marriage alone. Everyone—I am sure even including the very straitlaced people in the tax office—is surely aware that in Australia in 2006, from a taxation point of view, a de facto relationship is equivalent to marriage. For this reason, I will be moving to amend the spousal definition by replacing it with the interdependency relationship definition that is more comprehensive and better designed to achieve the government’s intention than that which I have previously described. The shadow minister indicated that this measure has been defeated twice in the Senate previously.

The measures contained in schedule 1 effectively seek to lower the labour market entry hurdle for the expatriate workforce. Historically, highly skilled foreign workers—and, presumably, reasonably affluent foreign workers since they must have a foreign passive income stream to be affected by the tax provisions in question—have supposedly been deterred from taking up employment in Australia because of the potential for foreign source income to be doubly or excessively taxed. But does anyone really think that our present taxation rules have meant a lack of high-paid foreign executives in our companies or of well-paid guest workers? In my opinion this measure is an unnecessary gift to foreign temporary residents. There are a thousand better uses for the money so wasted.

However, in fairness, I should indicate that those supporting these changes argue that removing these disincentives will make Australia a more attractive base for employment for affected individuals and corporations that desire such individuals in their workforce. Freeing up and globalising domestic labour markets is a natural step in the modern economic rationalisation process. If Australia is to become—and it must—a knowledge and information based economy, a critical requirement is the ability to attract and retain skilled labour. On a net basis, the upside of these provisions is greater labour productivity, technology, information transfer et cetera, which far outweigh the projected cost to revenue and the potential increase in foreign competition for domestic labour, and thus should be supported. Those arguments are all very well but the premise is unsound. The premise is that we lack the incentives for guest workers or for foreign executives, and we do not.

In its current form and even with the ascribed arguments proposed by the government, I do not feel that schedule 1 of this bill is worthy of support. There are not equity, efficiency or productivity grounds or even supply and demand grounds that lend support to such a tax concession for temporary residents. Skilled temporary residents already benefit from lucrative salary deals. They reside in Australia temporarily and therefore they are not overly exposed to any detrimental tax effects for any significant period of time. Australia is already attracting a significant number of skilled temporary residents to take up employment under existing taxation measures. In short, I do not believe that there is a case for changing the status quo.

Schedule 2 seeks to amend the Income Tax Assessment Act 1997 to increase the scope for tax deductions for business related capital expenses that are not otherwise recognised and which are not denied a deduction elsewhere in legislation. The provisions contained in the schedule will have a retrospective effect for all expenditures incurred on or after 1 July 2005. That retrospective effect will be beneficial to those receiving the concession. These business expenditures I refer to are better known as black hole expenditures, which can include pre and post business ownership capital expenses or capital expenses not included in the cost base of an asset that induces a capital gains tax event. Nor are they included in the cost of a depreciating asset. Consequential amendments are also made to the cost base for capital gains tax assets and cost rules for uniform capital allowances assets.

The projected cost to revenue of the amendments contained in schedule 2 is significant at approximately $219 million over four years. The quantum of this figure concerns me principally because of the fact that the legislation as proposed is, I think, decidedly vague. I find this perplexing since the government’s mind-set appears to be: if the problem is vague, let us address it with a vague solution. It does not take a team of taxation advisers to know that the best means of addressing a vague problem is to try to nail it down with a liberal dose of clarity.

Despite the vagueness of the wording of the proposed legislation and the limited explanation provided in the explanatory memorandum, I acknowledge that this is a longstanding and legitimate business tax concern that was the subject of the Ralph review and does need to be addressed as an equity and efficiency measure. The danger is that the lack of clarity in the proposed measures may leave the door open to undesired or unexpected tax avoidance by unscrupulous corporations. My problem is not with those who deal with this amendment in a legitimate manner but those who might seek to deal with it an illegitimate manner. This is a concern and I note that the member in the lower house Joel Fitzgibbon, the shadow minister, in his speech in the second reading debate, indicated that he would seek assurances from the government that the wording of schedule 2 was not too loose. Schedule 2 as a business equity and efficiency measure that costs $219 million over four years does need careful monitoring to ensure no abuse or unintended consequences, and I hope that the Treasury officials responsible for monitoring that area keep an eye on it.

The Democrats strongly support schedule 3. It is a long overdue measure which seeks to help deter the promotion of tax exploitation schemes and is a long awaited measure that addresses the awful experiences of the tens of thousands of unsophisticated Australian investors who were caught up in a number of failed or illegal mass-marketed tax exploitation schemes. The schedule amends the Taxation Administration Act 1953 and the Income Tax Assessment Act 1997 to introduce a new civil penalty regime for promoters of tax exploitation schemes or schemes based on a taxation product ruling that is promoted in a materially different way from the context of the ruling. It is a pity in some ways that it is just a civil penalty regime; some of them deserve to go to jail, in my view.

The powers of the Commissioner of Taxation are further strengthened to enable the commissioner to enforce a voluntary undertaking given by a promoter and to apply to the courts for an injunction to stop the promotion of the tax avoidance or tax evasion scheme. Businesses involved in high-risk but legitimate tax effective schemes can avoid these proposed measures by seeking a tax ruling from the commissioner, which seems very sensible. This is a two-pronged attack on the illegitimate promotion of tax avoidance measures as the new legislation encompasses new taxation schemes that are considered to be illegal as well as taxation schemes that are based on existing taxation rulings by the ATO but which do not comply with the measures and intent of the ruling. Businesses involved in high-risk but legitimate tax effective schemes should be able to get a ruling from the commissioner at a negligible expense. These measures are expected to be revenue positive with an estimate of approximately $75 million over the forward estimates period. That figure alone, which is very low compared to the billions previously at risk, shows how successful the many years of ATO crackdowns on mass-marketed tax effective schemes have been.

When the Australian Taxation Office announced that it had broadly accepted the settlement concessions for mass-marketed tax effective schemes—as spelt out in the September 2001 second report of the Senate Economic References Committee—I commended the taxation commissioner, Mr Michael Carmody, for his decision to accept that victims of unscrupulous promoters should be granted relief from tax penalties and interest. I also supported his confirmation that he was going to go hard after the promoters and advisers who contrived these disallowed schemes. And those who tried to come to my office pleading on that count—I have to confirm that I have given them short shrift.

The commissioner had accepted that there was a difference between unscrupulous promoters, who deserve the full and strong application of the law, and the thousands of victims who were duped into losing their hard-earned savings. Senators Gibson, Murphy and Murray negotiated that investor victims be entitled to a deduction for actual cash outlaid, to full remission of penalties and interest, and to a two-year interest-free period in which to pay the scheme debt. In the interests of protecting revenue I continue to strongly support the ATO in its efforts to end tax system rorting via mass-marketed tax effective schemes.

As a member of the Senate committee negotiating team I worked hard to convince the ATO that most participants in tax effective schemes were not tax cheats. Most were honest people, and it was rewarding to see that the ATO offered a mostly fair solution to this complex and painful tax crisis. I say ‘mostly fair’ because there were still some hard luck cases and there are some outstanding cases that deserve to have a lenient eye cast over them. But putting that cost—$75 million over four years—in this bill into perspective, on that negotiation by Senators Gibson, Murray and Murphy alone the Senate had won an estimated $900 million for approximately 40,000 Australians, which was an unprecedented and, I regret to say, largely unacknowledged achievement. The mass-marketed tax effective schemes problem is not what it was, thanks to ATO action, however slow they were originally to get off the mark.

The provisions contained in schedule 3 of the bill will go some way towards tightening up the regulations governing mass-marketed tax schemes that can target unwary investors. These measures are long overdue and they do have the Democrats’ full support. Schedule 4, the final schedule in the bill, is a technical clarifying amendment that concerns the mechanics of the GST in relation to prepaid phone products. The amendment confirms that GST is to be paid on redemption of the prepaid expense and not at the time of prepurchase, as per the provisions contained in division 100 of the GST act 1999. As these measures clarify the intent behind the operation of the GST, they have my support.

I noted the remarks of the shadow minister concerning the GST and the fact that I think, by his calculation, there have been over 1,600 amendments to the GST since it came into action in 2000. I am not at all surprised, frankly, because if you have a measure that delivers over $30 billion worth of revenue and is a complicated piece of tax machinery it will need periodic amendment, and I do not personally think that is a problem. I want to put on the record yet again my continuing strong support for the GST and my surprise that the Labor Party in the federal sphere continues to argue negatively about it when it is the single best thing that ever happened to the Labor premiers who now govern the eight governments of the states and territories, and is probably largely responsible for them remaining in power as they do at present.

I am always astonished by those on the progressive or the left or the centre side of politics who argue that the conservatives were wrong to introduce it when those on the progressive or central left side of politics argue for more expenditure for police, for roads, for schools, for health, for environment and for state services when it is money they needed—a secure amount of money—and that is what they get. It is no accident that the states and territories are better off financially they have ever been, although I obviously recognise they still have lots to do.

Whilst I am on the subject of the GST, there have been some remarks about the circumstances the Democrats find themselves in currently, with low public support, and the indication from some people that this is the consequence of Senator Lees and the majority of her colleagues negotiating the GST. I will remind the chamber—because people do have a short memory on these matters—that the Democrats went to the 1998 election saying we would support the GST in certain circumstances. We negotiated in 1999—we did not get everything we wanted; you never do in a negotiation. The GST was introduced in 2000. In 1998, saying we would support the GST under certain circumstances, we got four senators elected. In 2001, the year directly after we had introduced the GST, we got four senators elected. So those who think the GST is responsible for the demise of the Democrats are wrong. I freely admit it impacted on our support, our unity, our sense of coherence and so on, but I do get annoyed when people trot out a myth without regard to the facts.

The last measure I want to attend to is the opposition’s amendment concerning bribery. I would be very interested to hear the government’s rebuttal. On the face of it the argument put by the opposition for making the tax act and the criminal act consistent seems attractive. I would draw the attention of the chamber, particularly Senator Sherry, to page 21 of the Notice Paper. You will find a set of questions from Senator Murray to the Minister representing the Treasurer and the Minister for Justice and Customs concerning bribery and corruption and Australia being well behind the ball in terms of the United States’ and the United Kingdom’s laws. I think that is a useful adjunct to the case you are making for Australia sharpening up its assault on bribery and corruption. I have asked an interesting set of questions in the Notice Paper of the ministers concerning weaknesses, inconsistencies and problems with attacking bribery and corruption. I do hope the Treasurer and the Minister for Justice and Customs will respond rapidly to what I regard as very serious questions.

John Watson (Tasmania, Liberal Party) Share this | Link to this | Hansard source

I did not intend to speak on the Tax Laws Amendment (2006 Measures No. 1) Bill 2006, but I feel compelled to answer a number of allegations raised by the ALP in relation to two matters. The first matter was the question of bribes and the second was the unfortunate attack on the Australian Taxation Office. I remind the Senate and particularly the ALP that the Westpoint problems were far wider than what the spokesman pointed out tonight. They were far wider than just mis-selling to self-managed funds. I remind the Senate that these schemes were very complex and were perpetrated to avoid the oversight of the main regulator—the Australian Securities and Investments Commission, generally referred to as ASIC.

What I found appalling and unfortunate was the attack on the ATO. As we all know, the ATO does not publicise its audit routines in respect of individual taxpayers, particularly in circumstances where they have complied with the law and are certainly not before a court. The ALP does not understand the oversighting by the Australian Taxation Office in relation to over 300,000 small superannuation funds. The tax office does not have a consumer protection role as ASIC does. That is not in its charter and it is not in the law in relation to these small funds. The responsibility of the Taxation Office, I remind the Senate, is to ensure that these small superannuation funds of less than five members comply with the law. It is not to exercise a consumer protection role. That is the responsibility of ASIC.

The other matter that I wish to remind the Senate of is the ALP amendment in relation to the allegation of bribes. What the opposition does not understand, I think, is that bribes are not and never have been tax deductible. I repeat that for Senator Sherry’s benefit: they are not deductible as such and they never have been. The matter is not as simple as the opposition tries to portray it in this debate. I think it is important to raise these matters. We have circumstances where the facilitation payments are not separated on the invoice. I would be very surprised if any such exporter actually itemised on the invoice or document for overseas sale a facilitation payment charge. So, where those facilitation payments are not separated on the invoice but are included, for example, in the price per tonne of the wheat, I would suggest that, in the absence of correspondence and other documentary evidence, it will be very difficult to prove a component is what I might call a facilitation payment, particularly where the price is agreed to by both the buyer and the seller.

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

Are you defending AWB?

John Watson (Tasmania, Liberal Party) Share this | Link to this | Hansard source

I am stating that it is a very difficult case that you are putting on the Taxation Office. It is not as simple a situation as you would make out. I am not supporting bribes. I am just pointing out the hard facts of life.

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

Senator Sherry interjecting—

John Watson (Tasmania, Liberal Party) Share this | Link to this | Hansard source

Senator Sherry, you have missed the point. The point is that these payments would not have been itemised separately. They would have been included in an overall price. In the absence of correspondence and other documentation, the tax office in any circumstances would find audit activity along the lines that you are suggesting very difficult. I think it is important to clarify these two points. The first point is that the tax office does not have a consumer role in relation to protection of the members of small superannuation funds. The second point is that bribes or facilitation payments are not and have never been tax deductible.

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

I commend the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 to the Senate.

Question agreed to.

Bill read a second time.