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

I rise to speak on the Tax Laws Amendment (2006 Measures No. 2) Bill 2006. This bill amends various sections of the Income Tax Assessment Act 1997 and has six schedules. Before turning to the bill, I would like to make some comments with regard to the taxation aspects of the budget. Labor is concerned that the extraordinary budget spending spree has been financed by Treasury projections of company tax revenue, which itself has had to be revised upwards by $40 billion since December. This government has revenue exceeding a quarter of GDP. The Treasurer can now gloat that he is the highest taxing treasurer in the history of the Commonwealth. This enormous tax take is based on the assumption that corporate tax revenue will grow greater than company profit. Concerns have been raised that the accelerator is not sustainable. Access Economics has argued:

Funding a Budget on such a speculative assumption is an enormous policy gamble.

Last year in the budget, company tax was $40 billion. However, for this year it is estimated at $50 billion, increasing to $6l billion over the forward estimates. The $40 billion parameter revision in the last four months is quite extraordinary. It shows that there is enormous scope for error in these estimates. If there is scope for error on the upside, why not on the downside when commodity prices fall as the Treasurer accepts that they will?

There is a real risk that company tax revenue will collapse and the current tax cuts and family tax measures will have to be continually financed from a rapidly eroding tax base. It was not responsible of the government to engage in this sort of extraordinary spending when there is still considerable uncertainty in relation to the company tax revenue projections. The same uncertainties also apply to the petroleum rent resource tax, which is now predicted to blow out to $4 billion in 2009-10. Labor does, however, support many of the tax measures in the bill and will not oppose any measure, subject to the caveat that the relevant legislation adequately represents the policy intent.

I now turn to the schedules to the bill. Schedule 1 will see ex gratia lump sum payments of either $40,000 or $10,000 made to aircraft maintenance personnel working on F111 fuel storage upgrades. These one-off payments are being made to certain personnel who experienced a unique working environment in the maintenance of F111 aircraft fuel tanks. This measure follows concerns about adverse health effects of the aircraft maintenance personnel working on those F111 fuel storage upgrades. The government does not accept liability, but seeks to legislate to create certainty that any payments received will be tax-free in the hands of the beneficiaries. As capital items, they should not be assessable but could potentially be deemed as income in kind, as they relate to employment under section 26(e). While such special interest group legislation tends to add to the complexity of the tax laws, the opposition supports this measure.

Schedule 2 will add two organisations as deductible gift recipients, thus allowing donations to be tax deductible. The first recipient is Playgroup Victoria Inc., an organisation that offers valuable support to parents. Playgroups facilitate positive learning and social experiences for children, families and carers. The St Michael’s Church restoration fund is the other recipient. St Michael’s Uniting Church in Melbourne is raising money for urgent restoration and critical repair work required to preserve the church building.

Schedule 3 will ensure the cost base for capital gains tax is extended to correct a previous error. The Tax Law Improvement Project was the government’s notoriously unsuccessful attempt to simplify the tax act. In what has become a familiar story under the Howard government, it actually resulted in a much larger act. The government is now seeking to correct an anomaly that was created as part of this process. The cost base for capital gains tax was adjusted in the 1997 act to include options for the disposal of assets and issuing of shares. However, it has now come to light that this has excluded certain types of options, most commonly those related to the issue of options in a unit trust. These options, and any payment to exercise them, are to be included in the capital gains tax cost base.

Do the government read legislation before it is introduced, or are they content to catch the errors after they have hurt small businesses? The number of mistakes this government have been forced to correct suggests that they are asleep at the wheel. Unfortunately, it appears that Minister Dutton is following the worst traditions of his predecessor, Mr Brough, who was notorious for the number of ‘Brough-ups’ in the tax legislation that he introduced. Those errors or corrections came to an impressive list. The current total is approximately 14 in the last 12 months or so.

Schedule 4 of the bill retrospectively allows capital gains tax rollover relief where assets are compulsorily acquired. When an asset is disposed of post May 1985, capital gains tax applies even if the asset is acquired as a result of Commonwealth law. In some cases, where an asset must be disposed of, this means that the pre 1985 GST free treatment is lost. This change ensures that rollover relief is provided where acquisition is compulsory. That means that the GST free treatment will transfer to the new owner if the asset was purchased before the CGT regime applied, and post 1985 assets will not incur capital gains tax until sold. This provision appears to be necessary to ensure compulsory acquisitions occur on just terms. The explanatory memorandum of the bill does not make it clear exactly what type of contracts and acquisitions the bill is intended to cover. It would certainly help the debate if the government disclosed its intentions.

Schedule 5 of the bill narrows the scope of the franking deficits tax. Under the simplified imputation system, a company’s tax transactions operate though a franking account. Payment of tax is a credit, and the franking of a dividend creates a debit to the franking account. To ensure against excessive dividend franking, a franking deficit tax applies if, at the end of the year, the franking account is in deficit. The tax is equal to the deficit. As the deficit tax is simply a bringing forward of a future tax liability, the tax can be offset against future tax liabilities under what is called the ‘franking deficits tax offset’. But this offset could also be a mechanism for excessive franking. To protect against this, where the franking deficit tax liability is greater than 10 per cent of franking credit in a year, the deficit tax offset is reduced by 30 per cent. This can be a harsh provision where the variation in the franking deficit occurs due to something outside the control of the company. The bill narrows the scope under which this reduction in the offset occurs so that, if the deficit is outside the company’s control, the offset is not reduced. The commissioner is given a new discretion to remit a reduction in this offset.

While on the surface this provision appears reasonable, the explanatory memorandum does not outline the cases in which it is expected to occur. There is some reference in the explanatory memorandum that this measure is required in the case of a reduction in PAYE instalments due to some downturn in profit. Again, I call on the minister to provide further explanation of when this provision will apply and to indicate that its introduction has no relation to the extreme industrial relations laws introduced by the Howard government.

Schedule 6 overrides the requirement for a superannuation guarantee contribution to be made to a state fund if an employee nominates another fund. The superannuation choice regime allows an employee to nominate the fund where their superannuation guarantee payments are to be made. However, superannuation guarantee contributions to certain funds are mandated under state law. This schedule overrides such state legislation to specify that, if an employee specifies a fund, no obligation exists upon the employer to make the superannuation guarantee payments mandated under state law.

Labor does not seek to oppose this schedule, as it is necessary for the introduction of the super choice regime. However, Labor must register its concern surrounding the criminal penalties and the compliance burden imposed on small business by this super choice regime. A two-year jail sentence for a discussion with an employee about which fund to choose certainly does not seem fair. These compliance costs hurt small business owners, both in the hip pocket and with the time it takes to complete this government’s red tape.

A further schedule corrects anomalies and errors in previous tax bills.

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

Mr Acting Deputy President Hutchins, I was just speaking to one of your colleagues about how much she enjoys listening to tax debates—

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

Especially from you!

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

and she hopes that in the future she can participate more in tax debates.

Ruth Webber (WA, Australian Labor Party) Share this | Link to this | Hansard source

She has always been a fan of yours, Senator Murray.

Steve Hutchins (NSW, Australian Labor Party) Share this | Link to this | Hansard source

We will see what we can do!

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

The purpose of the Tax Laws Amendment (2006 Measures No. 2) Bill 2006 is to implement a number of disparate legislative taxation measures to achieve a range of government policy outcomes. The bill is arranged into seven unrelated schedules with key amendments pertaining to the Income Tax Assessment Act 1997, the Income Tax (Transitional Provisions) Act 1997 and the Superannuation Guarantee (Administration) Act 1992. A number of minor technical amendments are also proposed which address a large number of other acts.

Schedule 1 seeks the passage of the government’s ex gratia lump sum payment to maintenance workers involved in the F111 deseal-reseal program. The bill ensures that lump sum payments to Defence Force maintenance workers exposed to chemicals whilst working on F111 fuel tanks are exempt from taxation. This might not otherwise be the case without a specific legislative directive. The payments are valued at either $10,000 or $40,000, depending on the circumstances of each affected employee. According to the government, the payment recognises the difficulties eligible personnel suffered, regardless of whether there are any adverse health impacts.

Schedule 2 adds a further two specific gift recipients to the deductible gift recipient list of the Income Tax Assessment Act 1997. The two additional recipients include Playgroup Victoria Inc. from 24 February 2006 and the St Michaels Church Restoration Fund from 24 February 2006.

Schedule 3 clarifies the capital gains tax treatment of options. This amendment is necessary as there were a number of unintended legislative consequences arising from the rewrite of the capital gains tax provisions of the Income Tax Assessment Act 1997 as part of the Tax Law Improvement Project. That is, incidentally, a reminder that these acts are so complicated that, even when the experts draft the changes, some years later problems and difficulties can be discovered. The measures in schedule 3 essentially reinstate the position in the Income Tax Assessment Act 1936 in relation to options exercised on or after 27 May 2005, the date of the announcement of this amendment.

Schedule 4 amends the tax laws pertaining to compulsory acquisition. Specifically, the bill seeks to amend subdivision 12B of the Income Tax Assessment Act 1997 to extend the circumstances in which a taxpayer may choose to obtain a CGT rollover when an asset is compulsorily acquired. Corresponding changes are made for balancing adjustment offsets under the uniform capital allowance provisions. Notably, the financial impact of schedule 4 is uncertain but is estimated to be at a cost to revenue of approximately $5 million over the forward estimates period.

Schedule 5 amends the Income Tax Assessment Act 1997 to limit the circumstances in which the franking deficit tax offset is reduced. This measure has retrospective effect as of 1 July 2002, the start of the simplified imputation system.

Schedule 6 extends the super choice legislation provisions to employees currently governed under state law that conflicts with enabling employees to choose their own superannuation fund. The schedule amends the Superannuation Guarantee (Administration) Act 1992 by ensuring that employers that are constitutional corporations and who make super guarantee contributions to a fund nominated in a state law do not have to make these contributions to that fund if an employee chooses an alternative fund.

Schedule 7 is the final schedule in this bill and aims to address a number of technical corrections and improvements to taxation legislation. These corrections should improve the useability of the taxation laws in a minor way by fixing errors such as duplications of definitions, missing asterisks from defined terms and incorrect numbering and referencing.

What is the price that can be placed on an individual’s quality of life? As repulsive as this question may be, it forms the basis of schedule 1 of this bill. According to the government, a one-off ex gratia payment of either $10,000 or $40,000 is a fair price to pay. I think that the government is getting a bargain, and I am not alone. According to F111 Deseal/Reseal Support Group president Ian Fraser, ‘Forty thousand dollars for a ruined life is simply not enough.’ Clearly there is no price that can be placed on one’s health and wellbeing. Whilst I appreciate, to an extent, the government’s attempt to address the harm caused to a number of Department of Defence employees in the course of their duty, I must also condemn their corporate style ‘admit no liability’ approach to this matter. Advice from the F111 Deseal/Reseal Support Group indicates that the amounts in question are insufficient to help people battling illnesses due to chemical exposure.

Undoubtedly, Australian government employees deserve better. They deserve more than a one-off payment that, according to the government, is being made regardless of whether there is evidence of an adverse health impact. If there were not an adverse health impact, it is a generous gift. If there is an adverse health impact, the amount is probably far too low. Otherwise stated, the payment does not in any way imply negligence or fault on the part of the government.

Surely Defence personnel who are government employees and are exposed to chemicals that may lead to adverse health effects should receive the best long-term care and support the government can afford. With examples of maltreatment such as this, it comes as no surprise that the Defence Force is battling to achieve its recruitment targets. Its reputation is atrocious on matters like this. If you return dead or injured or if you are injured in the normal course of your work, such as in these cases, the general sense in the community is that you are going to be undercompensated or ‘under cared for’. That is not a good way to encourage recruitment. Whilst I will always support cases that will alleviate some degree of harm caused, the government is capable of far better and the employees in question deserve far better.

Turning to schedule 4: this is a highly technical revision to the timing of balancing adjustment offsets for the uniform capital allowances provisions for compulsory acquisitions. The change enables the deferment of recognising capital gains and is beneficial to affected taxpayers. This is an equitable change, since compulsory acquisitions largely remove control from asset owners, who therefore cannot control the timing and impact of their capital gains tax event.

Schedule 5 is the schedule which affects the franking deficit tax offset. It reduces the number of instances where companies are penalised by way of a reduction in the size of the tax offset they can claim for franking deficit tax to ensure that it only applies in income years where a company has made, directly or indirectly, a franked distribution. This change is in line with the intention behind the reduction in tax offset for excessive franking deficits for companies and ensures that companies that book an excessive franking deficit balance due to the imposition of a penalty or through circumstances outside of the companies’ control are not penalised. While these changes may be seen as a concession to poorly managed companies, they do better restate the intention behind the underlying law and as such should be supported.

The Democrats were key negotiators with the government for the outcomes of the superannuation choice legislation that came into effect last year. This is the topic for schedule 6 of this bill, which extends the choice of superannuation plan option to several groups of employees who, until now, have faced legislative uncertainty over whether they are able to access the benefits of the new federal laws.

Whilst choice of super fund laws have already been enacted, it has been recognised that a number of funds are potentially exempted from these provisions due to monopolistic protections under state law. This includes employees whose superannuation is governed under the following legislation: the New South Wales Coal and Oil Shale Mine Workers (Superannuation) Act 1941, the Queensland Coal and Oil Shale Mine Workers Superannuation Act 1989 and the Western Australian Coal Industry Superannuation Act 1989. The changes proposed in this bill amend the Superannuation Guarantee (Administration) Act 1992 to effectively override these state powers, and, whilst this may be viewed as yet another example of centralism by the government, they are consistent with the policies and decisions that we support and that were instrumental in establishing super choice. They ensure consistency and have the support of the Democrats. The Democrats support the bill as a whole.

Richard Colbeck (Tasmania, Liberal Party, Parliamentary Secretary to the Minister for Finance and Administration) Share this | Link to this | Hansard source

I would like to thank Senator Stephens and Senator Murray for their comments concerning this non-controversial legislation. Senator Stephens raised a couple of technical questions, and I undertake that she will be provided with answers to those as soon as possible.

This legislation implements a variety of changes and improvements to the tax laws to provide tax exemptions for the F111 ex gratia lump sum payments, improvements to capital gains tax rules and simplified imputation system changes. This legislation also provides for the specific listing for two funds as deductible gift recipients and makes changes to superannuation rules. I commend this bill to the Senate.

Question agreed to.

Bill read a second time.