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

I rise to speak on behalf of the Labor opposition in respect of the Tax Laws Amendment (2006 Measures No. 5) Bill 2006. This bill has been brought on at the last moment. We received notification approximately two hours ago that we would be dealing with this bill after having been informed as late as mid-morning that we would be dealing with the broadcasting amendment bills. Of course the government is not ready to proceed with that legislation. It is a sign of the times—the ongoing shambles in this government—that the government has had to pull back legislation that has been listed on the program for some weeks and that until a few hours ago was listed to proceed. It reflects the disorganisation and disarray in the government, particularly from the National Party, as we understand it, which is not prepared to support the legislation that we came here to debate. This is another sign of a government internally divided and in a shambolic condition. On top of that, we have had more shambles with the Telstra privatisation and the prospectus having to be pulled at the last minute. But we will be saying much more about those other issues at a later time.

The tax laws amendment bill we are now considering involves a first attempt by the Liberal government to deal with the enormous problem of red tape. Business has taken a very proactive stance on the ever-increasing compliance burden of regulation. We have seen that from the Business Council of Australia and from small business groups like COSBOA. We have seen the ever-increasing burden of red tape and regulation that this government—in office for more than 10 long years—pledged, prior to being elected in 1996, it would cut in half. What has been the result after 10 long years of Liberal government? The amount of red tape has doubled. In fact, in many areas it has more than doubled. I will come to some of that in detail a little later.

Labor has noted the concerns of business and it does agree with business in its call for a major public policy effort to reduce the regulatory red tape burden. The issue has reached chronic proportions. Small business is spending at least 40 hours a month in clearing the desk of government paperwork. This presents a real economic cost to business. The enormous compliance burden that has been growing year by year under this Liberal government saps business of a great deal of time. It has a great cost and it is distracting business from its primary focus, which is to ensure that business prospers. The private sector creates wealth and jobs for Australians and is the engine of the prosperity that drives Australia’s growing economy and living standards. Excessive regulatory burden hinders this activity and creates issues of major distraction for entrepreneurs and business operators in the running of their businesses in the private sector.

The government, notwithstanding its rhetoric, has simply not been delivering in this area of reducing red tape. As I said earlier, it has been adding to it over the last 10 years. It is a fundamentally good thing for the parliament to do whatever it can to reasonably reduce the compliance and administrative burdens encountered by the Australian business community. In the face of major business anger over the compliance burden, the Treasurer, Mr Costello, was forced to call upon Mr Gary Banks and establish a task force—or more correctly the Prime Minister established the task force—to examine government regulation and make it less burdensome, complex and costly and also to remove any redundant provisions or duplication with other jurisdictions. The Prime Minister effectively overruled the Treasurer, Mr Costello, in this area by requiring the establishment of the Banks committee and the subsequent report of the task force on reducing the regulatory burdens on business, Rethinking regulation.

The bill we are dealing with is a first attempt to deal with some of the more pressing issues in this area, and Labor welcomes the measures. But this bill, in itself, is not enough. Business is straining to understand and comply with the enormous and increasingly complex and costly regulatory activity of this Liberal government.

Look at the massive expansion of the tax act. Recent moves to remove inoperative provisions were a rather half-baked response from the Treasurer, Mr Costello. The Treasurer’s solution to regulatory compliance and the growth thereof was to signal the removal of sections of the tax act which are no longer operative and no longer particularly relevant to business. That was his initial response, but real regulatory reform should be not just about removing provisions that no longer apply but about engaging in real regulatory reforms in the tax area that ensure the operative provisions work to reduce the cost to business.

Another example is the WorkChoices debacle: an absolutely massive act combined with voluminous regulation—thousands of pages of regulation—being imposed on business. According to the recent MYOB survey, small business does not really support it, with only eight per cent of respondents to the survey supporting this approach.

The measures in this bill, whilst welcome, are only dealing around the edges with the central issue of overregulation. The government needs to embrace the real spirit of the Banks committee recommendations and make regulatory reform a centrepiece of its business policy. Labor has heard this message. Firstly, in June this year the Leader of the Opposition, Kim Beazley, delivered Labor’s five-point plan for small business in this area. This involved providing small businesses with a $200 skills credit. A small business using the credit for eligible courses will receive the first $100 of training for free and receive matching dollar-for-dollar assistance for the next $100 spent on any one course of their choice.

Secondly, the Leader of the Opposition, Mr Beazley, announced that the Labor Party will be establishing a clearing house to deal with the new costly and complex requirements that the government has imposed on business—in this case small business—with respect to the superannuation choice regime. The single clearing house administered by the ATO will remove the costly form-filling exercise that has been imposed on business—an additional imposition with respect to red tape and meeting superannuation compliance.

Thirdly, a Labor government would establish a red tape reduction fund. The fund would provide an incentive across the Commonwealth government and agencies to cut red tape. It would be extended to the states and territories after consultation. Fourthly, the small business plan would improve small business cash flow by making sure government and large corporate debtors pay their bills on time.

Federal Labor is committed to a national fibre-to-the-node broadband network. To the IT business people, that is a six megabit per second broadband network. I am not an IT person, so from my perspective that means a really fast system that will reduce business costs. This is just the first instalment of the policy reform that would assist business with the onerous compliance and regulatory regime that this government has imposed on them.

Turning to schedule 1 of the bill, the first measure is an increase in the threshold for minor benefits exemption as it applies to fringe benefits tax. The proposal is that the threshold exemption rise from less than $100 to less than $300. The measure is targeted at small businesses and means that an item under $300 that an employer provides for an employee is FBT exempt. The amendment is simple and useful and will reduce the compliance costs for small business.

The second measure associated with schedule 1 involves increasing the threshold for which fringe benefits are disregarded for the purposes of reporting. Currently, employers are expected to record and report on the taxable value of the fringe benefits which they provide to their employees where the value of these benefits exceeds $1,000. The amendment sees the threshold rise from $1,000 to $2,000. This was a further recommendation of the Banks committee report. The measure is most relevant for the calculation of family tax benefits. Nevertheless, it also reduces compliance costs for business and makes the family tax benefit system marginally less complex.

The third measure associated with schedule 1 involves an extra concession for eligible in-house benefits and airline transport fringe benefits, and it raises the concession from $500 to $1,000 per annum. It means that if an employer offers in-house benefits like free meals or discount goods to employees, then up to $1,000 does not have to be reported for fringe benefits. Further, if an employer such as Qantas or Virgin Blue offers discounted air travel to their employees then an aggregate value of $1,000 per annum is not required to be reported under FBT. The measure is of particular benefit also to shop assistants and retail employees who receive discounts as a result of their employment.

The last measure associated with schedule 1 involves a change to the definition of the term ‘remote’ as it applies to fringe benefit tax concessions. The amendment introduces a new formula for calculating the distance between a tested location and an eligible urban area. Basically, travel by water will now be included in the calculation to determine whether a location is deemed to be remote. The kilometres travelled by water will be assessed as double those travelled by land and if the distance calculated is determined to be 100 kilometres or more then the location will be defined as remote.

We have asked the government for more details in relation to this measure. The staff of the Assistant Treasurer, Minister Dutton, who briefed my shadow in the other place, Mr Fitzgibbon, indicated they would provide further details but we are still waiting on those. It may be the case that individuals on islands are not receiving benefits from remote location treatment like FBT exemption for housing costs. This is reasonable, but the Labor opposition is seeking an assurance from the government as to who will benefit from this change.

Turning to schedule 2, the amendment seeks to make a consequential amendment to GST law by making a personal vehicle and pharmaceuticals GST free under the Military Rehabilitation and Compensation Act 2004. The amendment seeks to make these items GST free for those receiving a special rate disability pension under part 6 of chapter 4 or section 199 of the Military Rehabilitation and Compensation Act 2004. As many colleagues would be aware, the tragic Black Hawk disaster in June 1996 led to the review of the military compensation scheme in March 1999, commonly known as the Tanzer report. The Tanzer report recommended a new military and veterans compensation scheme, which led to the Military Rehabilitation and Compensation Act 2004. For some unknown reason, it has taken some two years for the government to get around to incorporating these significant entitlements into the appropriate legislation.

Regarding schedule 3, the amendment seeks to remove the part-year tax-free threshold for taxpayers who have ceased to be full-time students. This will allow taxpayers who have ceased to be full-time students to gain the full $6,000 tax-free threshold. Currently, the tax-free threshold is only received for that part of the year that a student first enters the paid workforce. However, most students now end up in the labour force in some capacity before the completion of their full-time studies. In other words, the current law is frankly redundant.

Finally, I wish to add some comments about the debacle of the changes to loss recoupment. The Liberal government botched this crucial bill, which would have altered the rules by which losses are allowed to be brought forward by businesses, especially those involved in infrastructure, venture capital and mining. The reforms to the continuity of ownership rules were welcomed, but changes to the same-business test imposed a $100 million cap. The result is that non-listed companies, not widely held, might fail both tests and lose the benefit of those losses.

On the same day the Liberal government rejected Labor’s amendments on this measure, they called for a review which was to report in January, but it is now eight months late. The minister recently informed the House of Representatives in response to a question on notice that there is some $50 billion in losses outstanding. The minister and the government need to deal with this matter urgently to give certainty to business, and I would call on the government to indicate what is happening with respect to this review. With those remarks, I indicate on behalf of the Labor opposition that we will be supporting the bill before the Senate.

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

The Tax Laws Amendment (2006 Measures No. 5) Bill 2006 amends the Fringe Benefits Tax Assessment Act 1986 in schedule 1 to increase the minor benefits exemption threshold from less than $100 to less than $300. It increases the reportable fringe benefits amount threshold from more than $1,000 to more than $2,000. It increases the reduction of taxable value that applies to in-house fringe benefits and airline transport benefits from $500 to $1,000 and it widens the definition of ‘remote’ for the purposes of fringe benefits tax concessions where the shortest practical route involves water travel. According to the explanatory memorandum, the financial impact of the schedule 1 amendments will be $43.2 million over the four years from 2006-07 to 2009-10. The explanatory memorandum states that compliance costs and hence regulatory burdens on businesses will be reduced, and obviously the benefit to those recipients of these tax concessions will be increased to the value of that cost that has been estimated in the explanatory memorandum.

Schedule 2 of the bill amends the A New Tax System (Goods and Services Tax) Act 1999 in relation to the goods and services tax status of pharmaceuticals and cars for Defence Force veterans. Supplies of drugs, medicines and other pharmaceutical items will be GST free when they are supplied as pharmaceutical benefits under the Military Rehabilitation and Compensation Act 2004. The GST-free car concession will also now be extended and will be available to a wider range of injured veterans, providing that they receive or are eligible to receive a special rate disability pension under part 6 of chapter 4 of the Military Rehabilitation and Compensation Act 2004. According to the explanatory memorandum, both the financial and compliance cost impact will be negligible.

Schedule 3 of the bill amends the Income Tax Rates Act 1986 and replaces the pro rata tax-free threshold for taxpayers ceasing full-time education for the first time with the full $6,000 tax-free threshold. According to the explanatory memorandum, the financial cost will be nil in the 2006-07 financial year and then $2 million per year from 2007-08 onwards. The explanatory memorandum also expects there to be a reduction in compliance costs for those taxpayers who are beneficially affected by these changes.

Schedule 1 implements the recommendations made in the report of the task force on reducing the regulatory burdens on businesses, Rethinking regulation, which was the end result of a task force established by the Prime Minister and the Treasurer to identify options for alleviating the regulatory burden on small businesses. It also implements proposals announced in the 2006-07 budget. The cost of complying with the regulatory regime, including the tax regime, is a major burden for small business holders and its simplification would be a welcome relief for many. With lower compliance costs comes greater administrative efficiency.

Schedule 2 seems fairly non-controversial. However, in his speech on the second reading a member of the House of Representatives, Mr Alan Cadman, did raise the question of such a move paving the way for further concessional demands in the future that we should be alert to and watch out for.

Schedule 3 could be viewed as a step in the direction of equity. Students and people of this sort normally have other costs associated with the transition from study to the workforce. It seems unfair that they should have borne an additional tax liability. This is a useful area to have remedied and reformed.

According to the Bills Digest, the Institute of Chartered Accountants support an overhaul of Australia’s fringe benefits tax regime. The Bills Digest itself raised the issue of whether or not the bill goes far enough in reforming the fringe benefits tax regime and noted that Mark Fenton-James, writing in the Australian Financial Review, has commented that, whilst the changes are welcomed, they do not go far enough and the whole system needs a revamp.

Of course, the fringe benefits tax regime as a whole is resisted and resented by a large number of businesspeople in Australia. At some stage the government has to accept that it can never satisfy those who oppose the FBT regime. The government’s role, in my view, is simply to ensure that the regime is fair and equitable and delivers the policy outcome that is necessary. To reform FBT so that it is simplified, fairer and more practical is a good idea, but to erode the very policy on which fringe benefits taxation is predicated is unwise. I am not suggesting that the government has done that in this bill, but there is that climate out there where reform in this area will never be enough. You will never ever satisfy those people who essentially resent this regime and resist it. I think we have to restrict reform in this area very tightly to those areas that need addressing from an equity, practicality and simplification point of view.

In making a few remarks on this matter, I encourage the government to return to the plea of the Ralph Review of Business Taxation for the reform of motor vehicle fringe benefits to occur. That report came out in July 1999. I turned to the executive summary to remind myself exactly what the Ralph review had said. They said that, without further adjustment to the fringe benefits regime, they urged the present treatment of car fringe benefits be reformed. They thought it was unsatisfactory in a number of respects and strongly concessional. I make the point that reforming or simplifying the fringe benefits tax regime does not necessarily mean lowering the tax impost. It can mean increasing the tax impost, which is exactly what the Ralph review recommended. They thought the fringe benefits regime for cars was too concessional—it was strongly concessional.

I make the point to the government that, now that you have reformed the income tax rates, schedules and thresholds in the way that you have, there is no longer quite such pressure to compensate, as it were, higher income earners—who benefit most from motor vehicle fringe benefits tax—for a high tax regime as there used to be. In my view the motor vehicle fringe benefits situation is still too concessional. I think Mr Ralph’s view on these matters still needs to be heeded. In his report he recommended that the current statutory formula for valuing car fringe benefits be replaced with a schedular approach, and he essentially recommended that the actual degree of private use be more tightly examined.

I recall that, when I looked at this matter in some detail in 2004, the fringe benefits tax concession, which encourages the use of cars, was at an estimated revenue cost then of about $900 million. It would be well over $1 billion now—I have not had a look at the tax expenditures statement to confirm that. I urge the government, in reviewing and reforming the fringe benefits tax regime, to consider returning to the Ralph business tax review consideration of this issue and to think about tightening up a concession that is unwarranted for many higher income earners.

Having said that, I recognise the commentary from within the Bills Digest and from the community at large for further reform and simplification in this area. The Democrats are not unsympathetic to that, and we do in fact support this bill.

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

I thank those senators who have taken part in the debate on the Tax Laws Amendment (2006 Measures No. 5) Bill 2006. It is an important bill that makes a number of changes to tax law and which will reduce compliance costs for Australian taxpayers. That is always important. These changes are in keeping with the government’s commitment to remove unnecessary regulation of business.

Schedule 1 implements a number of fringe benefits tax changes. These have been touched on by senators who have contributed to the debate. It gives effect to two fringe benefits tax, FBT, recommendations from the report of the task force on reducing the regulatory burdens on business: Rethinking regulation. The first change increases the minor benefits exemption threshold from less than $100 to less than $300. This change will lower compliance and record-keeping costs for businesses that provide low-value benefits to employees infrequently.

The bill raises the reportable fringe benefits threshold from more than $1,000 to more than $2,000. This will reduce compliance and record-keeping costs by removing the need for businesses to report fringe benefits for employees who receive no more than $2,000 worth of benefits. Schedule 1 also increases from $500 to $1,000 the FBT-free threshold for in-house fringe benefits and airline transport fringe benefits. In addition, this schedule extends the definition of ‘remote’ for the purposes of the fringe benefits tax concessions where the shortest practicable route involves travel by water. This is in recognition of the special circumstances of employees who work in locations isolated from populated areas by a body of water.

The bill also provides GST concessions to recipients of the government’s new military compensation scheme. Schedule 2 will ensure that supplies of drugs, medicines and other pharmaceutical items are GST free when supplied as pharmaceutical benefits under the military compensation scheme. In addition, the GST-free car concession is extended to include people whose service in the Defence Force or in any other armed force of Her Majesty has resulted in them receiving, or being eligible to receive, a special rate disability pension under the military compensation scheme.

Schedule 3 represents another instalment of the government’s continuing reform of the personal income tax system. It removes the part-year tax-free threshold for taxpayers who cease to be engaged in full-time education for the first time. Under the current law, taxpayers who cease full-time education for the first time are not eligible for their full tax-free threshold of $6,000. Rather, they are entitled to a reduced tax-free threshold that depends on the number of months they are not studying as well as their income during the time they are studying. This measure extends the full tax-free threshold of $6,000 to these taxpayers. The amendments simplify the law and reduce compliance costs. Again, I thank those senators who have participated in the debate. I commend the bill to the Senate.

Question agreed to.

Bill read a second time.