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

The bills we are discussing cognately are the Tax Laws Amendment (2007 Measures No. 3) Bill 2007 and the Tax Laws Amendment (Small Business) Bill 2007. I want to use the opportunity of the committee stage to address the small business bill. This bill implements changes to various tax acts to standardise the primary eligibility criteria for small business tax concessions. These changes will reduce the compliance costs for many Australian small businesses. They substantially simplify the tax law to make it easier for small business to determine eligibility for a number of concessions.

The object of the bill is to implement recommendations of the Taskforce on Reducing the Regulatory Burden on Business to make it simpler for small business to determine eligibility for some 12 small business tax concessions. It does this by establishing a single definition of a small business entity in schedule 1. The bill also implements several budget announcements.

Schedule 2 increases the goods and services tax accounting threshold applicable to small business tax obligations. Schedule 3 redefines the simplified tax system to include small business entities. Schedule 4 increases the capital gains tax asset threshold for small businesses. Schedule 5 extends the fringe benefits tax car parking exemption to small business entities. Schedule 6 extends the base assessment instalment income threshold for full self-assessment STS taxpayers from $1 million to $2 million. Schedule 7 extends the rollover relief available under the uniform capital allowance system.

The cost to revenue over the forward estimates years is $295 million. This bill implements the government’s new small business framework for small business entities, and makes the necessary amendments to various pieces of taxation legislation to implement the policy of the new small business framework. Fundamentally, this bill ensures that small business has one definition that applies across all taxation legislation.

Schedule 1 amends the Income Tax Assessment Act 1997 to provide a more specific definition of small business entities, annual turnover, aggregated turnover and other related concepts. Schedule 2 amends the GST act relating to various GST turnover thresholds to enable a small business entity to access GST concessions of accounting for GST on a cash basis, annual apportionment of input tax credits for acquisitions and importations that are partly creditable, and paying GST by quarterly instalments and making consequential amendments.

Schedule 3 makes amendments to establish the new small business framework, replacing the term ‘STS taxpayers’ with ‘small business entities’. The tax concessions that are available to simplified tax system taxpayers under current law—namely, the simplified depreciation regime, the simplified trading stock regime and the immediate full deduction for prepaid expenses—are retained in the concessions under the small business framework.

Schedule 4 amends the RTAA 1997 to increase from $5 million to $6 million the capital gains maximum net assets threshold for an SBE to access CGT concessions. Schedule 5 amends the Fringe Benefits Tax Assessment Act 1986 to enable an employer to get the FBT car parking exemption if the employer is either an SBE or has ordinary and statutory income of less than $10 million.

Schedule 6 amends the Taxation Administration Act 1953 so that, for full assessment taxpayers, the base assessment income threshold is increased from $1 million to $2 million for entitlements to make quarterly PAYG instalments on the basis of GDP-adjusted notional tax. Schedule 7 extends the rollover relief available under the uniform capital allowance system to small business entities which choose to deduct amounts for depreciating assets under subdivision 328-D, and schedule 8 includes consequential amendments to tax law which arise from changes from the STS system to the small business framework.

This bill, like the taxation laws amendment bill No. 3, was referred to the Senate Standing Committee on Economics, but only one submission was received—from the Small Business Development Corporation of Western Australia. The SBDC is a very able body and it is located in my home state. It is a vibrant organisation which contributes to discussions on areas which impact on small business. It also keeps a watchful eye on newspapers and websites so that it knows when matters relating to small business are being discussed at a federal level. That is just as well, because there was only a five-day window between the advertising of this committee investigation and the closing date for submissions. The government is to be condemned for the consistent shortness of those processes. As I said in relation to the tax laws amendment bill No. 3, that time frame excludes those with limited resources or those with a lot on their plate from examining legislation and making a considered submission on it. The SBDC made it clear that they welcomed the changes proposed by the legislation, as it streamlined the taxation treatment for small business and defined exactly what constituted a small business entity.

The Australian Democrats support this legislation and the speed with which the government has dealt with industry concerns. However, it brings me back to a point I have made several times before: if the government can move swiftly on taxation reform which deals with small business, why can’t it move with just as much haste on reform of the Trade Practices Act for small business? I think it is because big business does not care about the former, but does care about the latter—and you are listening to them far too much on these matters.

It is now more than three years since the then Senate Economics References Committee produced its report entitled The effectiveness of the Trade Practices Act 1974 in protecting small business. In its response, the government did not accept that there was a need to amend section 46 of the Trade Practices Act in the way that small business advocates and as the majority of the committee recommended—and, tellingly, as the minority of Liberal senators themselves recommended. However, the Liberal senators’ minority report showed that there are sections of the coalition which do support amendments to the Trade Practices Act, and a number of those recommendations were accepted in the government’s response. I will point out again, as I have previously pointed out, that the author of the Liberal senators’ minority report is Senator George Brandis, who is an expert in the area of trade practices and who, as a legal practitioner, was heavily engaged in that field.

Over three years later, here we are still waiting—with only Senator Joyce on the coalition side showing any real concern. No wonder people are getting tired of this government’s slow response in this area. The Trade Practices Act should protect all business from anticompetitive conduct. The Democrats have never sought to protect competitors from competitive conduct. The Democrats and the small business sector, however, have been pointing out that anticompetitive conduct requires reforms. This has been a long campaign. Perhaps, at last, the government will follow up and adopt as good policy the recommendations in the report of the Senate economics committee, produced in March 2004, entitled The effectiveness of the Trade Practices Act 1974 in protecting small business. However, I see nothing in the legislation listed for these two weeks that would indicate that the necessary reforms will be brought forward.

In their minority report, the Liberal senators said that they were persuaded of the need for legislative reform of section 46. They pointed out the disproportionately high number of unsuccessful cases that were prosecuted under section 46. And, since then, everyone knows that the ACCC have shown a real reluctance to pursue section 46 litigation because of their lack of success in the past and because of an inadequate law. But the coalition has continued to sit on its hands. Academic and small business experts complain that this section, which relates to predatory pricing, is weak. They are right. In section 46 cases such as Melway, Boral and Rural Press, the courts have made it clear that this key part of competition law is poorly worded, does not achieve its aim and is ineffective.

If the government would implement even the minority recommendations of the Senate economics committee, it would strengthen section 46 by defining what ‘a substantial degree of power in a market’ means and it would also clarify the elements of ‘take advantage’. The courts would then also be able to consider the recoupment of losses in determining whether there has been predatory pricing. This is one key to ensuring that consumers, particularly those in regional and vulnerable communities, are protected from larger corporations pricing themselves to destroy small competitors and then ramping up prices as soon as the competition has been removed or, alternatively, holding a pricing regime which in itself acts as a barrier to the entry of new competitors. In that respect, I was interested to hear Alan Jones, on Channel 9 this morning, again pointing out the dangers of the pricing behaviour of some major retail corporations.

So while the Prime Minister is banging on about giving the ACCC the powers it needs to combat price gouging by petrol companies, he should also turn his mind to this important issue which will have an impact on petrol pricing and which has a broader effect to the advantage of small business. While I am on petrol prices, I point out that the Prime Minister was blindsided by a somewhat headstrong Senator Brandis, who, as the coalition chair of the Senate committee reporting on petrol prices, decided to run the committee rather than chair it. He would not accept the caution that Senator O’Brien and I were urging—that petrol prices deserved a different look and that the ACCC perhaps needed stronger enforcement or investigative powers. Neither would he accept that the ACCC had insufficient means to get behind the corporate veil on petrol pricing. That is a very different tune from the tune the Prime Minister and other members of the coalition are now singing. With respect to competition law and any regulatory powers, it is important to get behind the corporate veil and to examine these matters at the coalface.

The Australian Democrats are supporting the Tax Laws Amendment (Small Business) Bill 2007, which makes tax planning a little easier for small business. But far more important is trade practices reform. The coalition should either get on with it or, instead, let the next government do the job. In conclusion, with those introductory remarks, my question, through the chair, to the parliamentary secretary, who is on duty today, is: when will the government do something about reforming the Trade Practices Act for small business? What is your agenda? What is your timetable and will that timetable be overtaken by an early election?

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

Before the minister concludes, I want to respond, in part with some further comments on the withholding tax issue, to the unexpected late intervention of Senator Ronaldson last evening and his so-called contribution on this particular matter concerning the Senate economics committee. A number of aspects concern me in terms of the accuracy and lack of analysis presented by Senator Ronaldson, which I will come to shortly. One of the good aspects, at least, of his intervention and the debate that occurred yesterday was that there actually was a genuine debate around an alternative Labor policy, as presented in the second reading amendment.

Michael Ronaldson (Victoria, Liberal Party) Share this | Link to this | Hansard source

It is a rare occurrence!

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

It is a relatively rare occurrence. It is relatively rare that senators actually come in, having listened to contributions, and respond from different perspectives and analyse the issues to some extent, rather than by way of a set piece contribution to the debate. To that extent, it was welcome. Senator Watson, in his contribution, at least conceded that the Labor policy, on his initial analysis, had some appeal and some attraction. Labor’s policy is to reduce the withholding tax treatment of 30 per cent down to 15 per cent to make Australia more attractive in terms of funds management. But Senator Watson went on to criticise Labor’s proposal and its policy, after being initially attracted to it. I am not quoting him here, but the basis of his argument was that there should be equitable tax treatment of the different forms of investment. If we were to adopt Senator Watson’s premise, we would not have the concessional tax treatment of superannuation, for example. If we were to adopt the logic of his argument against Labor’s proposal on the withholding tax, you would tax everything at the same rate with no concessionality at all. That is an interesting theory from Senator Watson, but in practice it would totally cut across the views on the tax concessional treatment of superannuation that he has so rightly expressed. So I would suggest that, whilst Senator Watson’s contribution in opposition to Labor’s proposal is an interesting economic theory, in reality and in practice tax concessional treatment is used in a whole range of areas in Australia to provide a range of incentives in public policy areas to address what are identified as weaknesses.

I thought the intervention from Senator Ronaldson was the more interesting—and indeed the less accurately analysed piece of disinformation, which is frankly how I would describe it. He referred to the specific example of Japan given by the Labor leader Mr Rudd. I will not say that he did this deliberately—far be it from me to allege that he deliberately misconstrued the example of Japan. The example of Japan was presented by Kevin Rudd in the context of Japan’s treatment of these sort of investments.

Michael Ronaldson (Victoria, Liberal Party) Share this | Link to this | Hansard source

Methinks you protesteth too much, Senator

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

That is seven per cent, Senator Ronaldson. The point the Labor leader was making was that Japan’s tax treatment of seven per cent is considerably below Australia’s treatment of 30 per cent and, therefore, there is obviously a great incentive to use Japan, rather than Australia, as a financial centre for the purposes of this form of investment. Labor policy is supported by IFSA, Investment and Financial Services Association Limited, and the property management association. This is not a policy dreamt up by Labor in isolation; it is a policy that has been actively encouraged by a range of experts in the funds management area. We have to narrow the difference in the tax treatment. Labor agrees with that policy. Indeed, as the Treasurer said, ‘This is nothing more than rewarding foreigners with the hard-earned tax dollars of Australians.’ Labor’s costing is $30 million, and I will get to the costing in a moment. I will also get to Mr Costello’s contribution on the costing in a moment—a view which, presumably, Senator Ronaldson shares.

In the context of a tax incentive, $30 million is very modest indeed when compared to a whole range of other tax incentives that we have in our system. Labor argues that it is well worth paying this price if it adds to the attractiveness, particularly in Asia, of building Australia as a centre for financial services. It is a particularly modest price in the context of these outrageous advertising propaganda campaigns that we are currently seeing. In the context of the government’s so-called advertising of industrial relations or superannuation changes, $30 million pales in comparison. So $30 million is a modest price for Australian taxpayers to pay to change the withholding tax regime to make Australia more internationally competitive in this very important area and to build on Australia’s future as a financial funds management centre.

I turn now to the issue of the costing. The night that the Labor leader, Mr Rudd, gave his budget in reply speech and announced this Labor policy, the Treasurer was obviously listening. He gave a doorstop interview immediately afterwards. He said that Mr Rudd had got his costing of $30 million wrong and that in fact the costing was $100 million. How on earth could the Treasurer, having stayed until the end of Mr Rudd’s speech, get a costing on a Labor policy which he had only just heard announced? That is if indeed he got any costing done at all. I suspect he got no costing. I suspect the Treasurer made up a figure when he went out to do his doorstop, because there simply was not time for him to get an accurate figure in that five minutes when he walked from the House of Representatives chamber to do the doorstop. As it turns out, we understand that he had a costing—but it was a costing based on zero tax, not 15 per cent. He gave an inaccurate costing based on a false analysis of Labor’s policy commitment. It is Mr Costello who should fess up to misleading the Australian people with the inaccurate costing he gave. So not only was Senator Ronaldson incorrect last night in his critique but, even worse, the Treasurer, Mr Costello, gave an inaccurate costing shortly after Mr Rudd announced the policy.

To conclude my remarks on this issue, in the debate yesterday I did refer to the impressive level of savings in funds management in Australia. I indicated that, in terms of total assets under management, Australia, with a shade over $1 trillion under management, was fourth largest behind the USA, Luxembourg and France. That is particularly impressive if you compare us to other significant economies—for example, the UK has about $950 billion, Hong Kong has about $760 billion and Japan has a shade over $700 billion. If you look at those levels of savings, Australia does very well. It punches above its weight in terms of funds management.

As I indicated earlier, Labor was supported in its policy approach by both IFSA and the property association—and for good reason. With the figures that I have given, Australia should be proud of its funds management financial services sector. It is substantially underpinned by compulsory superannuation, which the current Prime Minister described as ‘silly’ when he opposed it back in the late 1980s. Given the way the Treasurer, Mr Costello, carries on about compulsory super, you would think he had actually introduced it. But he actually opposed it as well, and he used a much rougher description than ‘silly’. Anyway, that is the historical context.

We should be proud of our funds management financial services sector in Australia. There is a need to encourage Australia to export more of those services and, with such a significant funds management sector, to be at the very least a regional centre in Asia—if not because we have the fourth largest funds management sector in the world by volume then because flowing from that are a range of other services that can be exported as part of a total package. These include asset management; investment consulting; platform delivery; custodial services; financial services; IT and software; actuarial services; legal and accounting services; compliance and risk monitoring; investment performance; research and reporting; education and training services; portfolio administration services; and advice distribution. Australia leads the world in many of these areas. Labor’s vision is one of greater encouragement to these sectors of our financial services sector, exporting into Asia in particular, and the expertise that we have in these areas off the back of the sheer size of our fund management system and off the back of Labor’s introduction of compulsory superannuation—and we see it as a good thing. We have a vision of people working in wealth management and its various aspects, where incomes are higher than average and where there is real jobs growth over time. We should be proud of it and be encouraging its export.

As I have mentioned, the advantages with Asia are obvious. We have a shared time zone and, at the moment, we are the largest funds management centre in the Asian region. But there is also significant economic growth in China and India, for example, and significant reform in terms of their legal financial services sector. They will need the sorts of services that I have just referred to in which Australia has ample expertise. My final point is that most of the Asian countries have redesigned or are in the process of redesigning their pension funds systems and, here again, Australia has an obvious advantage.

Labor is proud of the policy it has presented to encourage the development of Australia as a funds management centre in the Asian region and to encourage exports. That is what its policy on withholding tax is designed to do. It is a modest cost—certainly not the cost the Treasurer has claimed—in the context of other tax concessions in our system. It is well worth that cost because of the long-term benefits it will bring to this expanding and very important sector of the Australian economy.

Michael Ronaldson (Victoria, Liberal Party) Share this | Link to this | Hansard source

I am very grateful that Senator Sherry been requested by his leader to come in here today and defend his untenable position of overnight. It is always nice to get positive reinforcement of the fact that you are actually making the appropriate comments. Senator Sherry may or may not be aware—I would be a bit surprised if he is not—that his esteemed leader addressed the IFSA national conference in August 2006. I do not know whether you are aware of that, Senator Sherry. You are not responding, so I assume you were not aware of that.

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

I am coughing.

Michael Ronaldson (Victoria, Liberal Party) Share this | Link to this | Hansard source

I would be coughing, too. You have obviously read this again. I would be coughing—in fact, I would be gagging—at your leader’s total incompetence. In that speech to IFSA in August last year, the opposition leader ran the industry line. He talked about lower rates and he talked about Japan, and he indicated the lines that were run by the industry. So do you think it would realistically be any surprise to the Treasurer, after the budget in reply speech, not to have the sorts of costings that had been floated by the industry, which had clearly written parts of the opposition leader’s speech? This was not some new announcement in the budget in reply. This was not the Treasurer, having heard the budget in reply, walking out and making some comments on it. In August 2006, the opposition leader had floated this and had talked about lower rates, so of course the Treasurer would have had some costings for these matters well before the budget in reply. Senator Sherry’s leader had floated this and some potential outcomes, so of course it was common knowledge what some of the options were and, therefore, it would be common knowledge what the costings would be at various rates—this was 2006.

I will go back to this and pose this question, through you, Madam Temporary Chairman: if greater fund inflows are going to lead to an expanded market, why is Japan lifting its rate from seven per cent to 15 per cent? Why would this be? I pose that question because this is the premise that underpinned the Leader of the Opposition’s argument in relation to this matter. I will read part of his speech again. You have got to have a look at it, Senator Sherry. This is a very important stuff.

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

I’m going to respond to this.

Michael Ronaldson (Victoria, Liberal Party) Share this | Link to this | Hansard source

I will read it again. This is in the context of a reduced rate. It says:

• greater investment would also flow into Australia for Australian funds managers to invest globally. For example, a Japanese resident could place their funds for management with an Australian funds manager for investment in an appropriate third country market; ...

As we discussed last night, there is no witholding tax associated with that sort of investment, so how the Leader of the Opposition could be so badly advised as to underpin his argument with a false premise is beyond me. As I said last night, I am prepared to accept that he had not sought Senator Sherry’s advice. I am prepared to accept that Senator Sherry, given his level of experience in this area, could not possibly have advised the Leader of the Opposition in relation to that speech, because it is only in relation to Australian sourced income. Senator Murray knows that, Senator Webber knows that and I am sure that Senator Sherry does as well.

The other acknowledgement that we have had today—finally—is that the Labor Party proposal is a tax cut for foreigners without any ability, because it is an across-the-board proposal, for Australia to negotiate appropriate circumstances that would be in our national interests. Senator Sherry knows full well why this is potentially a tax cut for foreigners: because if they are taxed at a rate higher than that 15 per cent we are effectively subsidising them. So we have the Leader of the Opposition playing Father Christmas to foreign treasuries with the hard-earned dollars of the working men and women of Australia without any ability at all to have those negotiated on the basis of mutual benefit for us if appropriate—because this is an across-the-board flat rate with no ability for us to utilise this for our mutual benefit. It is nothing else but a tax cut for foreigners, from which we are unable to extract any potential benefit. I want to read out paragraph 3.27 of the report:

... Treasury representatives also questioned whether the 30 per cent rate is uncompetitive against international rates, stating that a number of other countries had rates that were similar, although rates may be lower where a double tax treaty is in place:—

So that is where we have negotiated a double tax treaty for the benefit of Australians, as opposed to a flat rate on which there is no potential negotiation in our national interest. I quote a Treasury official:

Just commenting on the international comparisons, I think what has been quoted this morning is 15 per cent. Looking at different structures overseas, you are not always comparing like with like. We have different organisational structures, different regulatory structures. When we look at the withholding tax arrangements we find that in Canada there is a 25 per cent withholding tax on foreign distributions but it is reduced in double tax treaties, generally down to 15 per cent. In the United States there is a 30 per cent withholding tax on distributions from estate investment trusts but it is reduced to 15 per cent for portfolio investments under its double tax treaties; so they start off much higher. Similarly, in Korea there is a 27.5 per cent withholding tax but they reduce it down in their double tax treaties. Japan has a seven per cent rate but it is scheduled to increase to 15 per cent after 1 April 2008. It only applies to listed property trusts. For unlisted property trusts it is 20 per cent. In Singapore, listed REIT is subject to 10 per cent, but this is temporary; it is scheduled to return to 20 per cent on 18 February 2010. So I think we have to be careful of these international comparisons.

Further on, in a reference to Japan, there is this:

On 1 April 2007 it was only a temporary seven per cent. It is going to 15 per cent on 1 April 2008. As I say, it only applies to listed property trusts. For unlisted trusts it is 20 per cent. Like all things, in the case of Japan if a foreign investor owns more than five per cent of a listed REIT then any capital gain is subject to Japanese tax at 30 per cent.

So all of these examples, whether it is Canada or elsewhere, are talking about reductions in the context of double tax treaties. They are negotiations on behalf of the Australian taxpayer, so there is some mutual benefit. But the Australian Labor Party’s response to this is to have an across-the-board totally non-negotiable rate. This is where Senator Sherry and the Labor Party have confused priorities, and you have regrettably jumped and taken the bait from industry in relation to this matter without thinking twice about it. You have taken the bait to the extent that the Leader of the Opposition, the would-be Prime Minister of this country, does not understand the basics of this issue. It is all very well to run TV ads and have a multitude of focus groups talking about your fiscal conservatism, and at the first hurdle in relation to something as basic as this you do not even understand the principles of it. This is not an economically conservative Leader of the Opposition. This is a man who has again shown his utter inexperience and inability to understand basic economic concepts. He has shown his inability to make sure that when he makes a comment, particularly in relation to something as important as this where we are effectively giving away taxpayers’ dollars subsidising international treasuries, he has done the work required to substantiate a policy position.

We saw a classic example of this again last week where he rushed out and made announcements in relation to further troops into Afghanistan. If you want to be the Prime Minister of this country and if you hold yourself out to be the alternative Prime Minister of this country, then you are required to have the policy integrity that enables you to make policy decisions and policy comments on the basis of fact and not fiction. If the Australian Labor Party wants to run their program between now and the next election relying on focus groups and grabs from Sky News, then so be it. But you should have no expectation at all that you will be supported by the Australian people if that is the way you choose to conduct yourselves between now and the federal election. The Australian people will quite rightly say that if you are not prepared to do the hard work now, if you are prepared to rely on focus groups, then you do not deserve the opportunity that may be presented to you. If you are not prepared to do the hard work now, why would anyone have any confidence at all that you are prepared to do the hard work in government? Why would they have any confidence in that at all? Senator Sherry will probably jump up and say, ‘Well, this was just a minor aberration.’ Senator Sherry’s leader now has a litany of so-called minor aberrations, and this has gone from a number of small creeks to a large river of incompetence—a large river of incompetence from someone who is not prepared to do the hard yards and who is not prepared to ensure that those underneath him are doing the hard yards. And, for that, he stands condemned.

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

I want to briefly respond. I do not want to take the time that Senator Ronaldson did because I do not want to engage in the verbosity, the repetitiveness and the general deliberately muddled presentation that Senator Ronaldson gave us just now and last night. Let me make a couple of key points in response. He alleges I was coughing in angst and shock and horror over Mr Rudd’s alleged mistakes. I have got a medical condition—it had nothing to do with the contention of Senator Ronaldson. Secondly, he accuses Mr Rudd of being motivated by focus groups and Sky News and of rushing policy. Well, on Senator Ronaldson’s own presentation of his arguments, the Labor leader, Mr Rudd, has not rushed this one. He raised this issue at the IFSA conference in August 2006, from which Senator Ronaldson quotes, and then he announced the specific detail of the Labor policy in May of this year. So it is hardly an example of a rushed policy, a muddled policy, a policy that was not adequately researched or a policy that relied on focus groups. We have the general populist position of Senator Ronaldson, and I look forward to him advancing this in other tax debates. Senator Ronaldson, the Liberal government and the Treasurer, Mr Costello, are opposed to tax concessional treatment or tax cuts for foreigners. Well, I would like to see him apply that principle to all legislation that comes before the Senate, because that has not been the position of Senator Ronaldson or the government in the past.

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

Capital gains.

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

Capital gains, as Senator Murray, I am sure, is going to make the point. Senator Ronaldson came in here and voted for a capital gains tax cut for foreigners, and he is opposed to foreigners’ tax cuts. Senator Ronaldson and this government continue to support the tax concessional superannuation treatment for foreigners who come to this country and work temporarily. There are plenty of examples of tax cuts for foreigners that you and Labor have voted for because the policy presented at the time justified the cost. That is what Labor argues here. The modest cost of $30 million justifies the cost in terms of the incentive and the growth and the impact on the growth of Australia’s very important financial services sector. I have highlighted that in my previous contributions. They are the essential issues that we have continued to debate.

I am looking forward to the parliamentary secretary’s contribution because he actually allowed this debate to go on last night. He could have said, ‘We want to get the bill,’ last night, but you dashed in and gave what I consider to be a most unhelpful and inaccurate intervention to which we have had to respond.

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

I want to recap the three main propositions which we are dealing with in respect of this debate. The first is whether a flat and final rate is better than a nominal rate, the second is what the rate should be and the third is whether there is a cost or gain to revenue. The problem for the government is that it has not dealt with the fundamental proposition that a flat and final rate is more attractive to investors than a nominal rate. The reason for this is that, on the basis of a nominal rate, to get a reduced rate from the 30 per cent you have to put in tax returns and you have to structure. It could take 12 to 18 months before those matters are resolved, and there are complexity and cost consequences to that. My view is that, in these circumstances of investment in a fast-moving capital market by foreign investors and Australian investors, a flat and final rate is probably the preferable way to go. That is the first proposition. I think the government has made a mistake in staying with the nominal rate.

The second issue which Senator Ronaldson focused on—and indeed Labor focused on—is what the rate should be. The 30 per cent nominal withholding tax rate is the same in numerical terms as the 30 per cent corporate tax rate. You would ask the question automatically of whether, if there were a reduction to 15 per cent as Labor proposes, there would be a capacity for arbitrage. I asked that question at the hearing and the evidence was that there was no capacity for arbitrage. So your next question is: what is the rate that will make us most competitive? It does seem that in this is fast-moving capital market—which is adjusting—15 per cent would be at the upper end that would make us competitive. I think Labor has a valid economic and competitive case.

The third area which Senator Ronaldson quite rightly draws attention to is the matter of the cost or gain to revenue. One set of estimates is that the cost to revenue would be $30 million; the Treasury estimate is that it would be $100 million.

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

On zero.

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

Never mind—on zero or whatever; I take the interjection of Senator Sherry. The point that I want to make is that Treasury has not provided the real figures to the coalition, to the crossbenches or to the official opposition. There are no costings available to us. The assumptions they have made and the costings basis they have provided are inadequate to say the least. In fact, they denied us the opportunity to get those figures. Therefore, Treasury is asking us to take on trust the cost or gain to revenue that we would look for—in this case it is a cost of $100 million. I think extremely highly of Treasury officials. The people I have met are people of great capacity, but I remind the chamber that these same Treasury officials got the surplus wrong in 10 out of 11 budgets and the average error they make on the surplus is $4.5 billion over the budget estimate. Their ability to estimate costs is not infallible, and, frankly, I will not accept that $100 million figure as valid until such time as I am able to see the assumptions, the workings and the base figures. Unfortunately, neither Senator Ronaldson, Senator Sherry nor I have got these because Treasury refuse to give them to us.

The question was raised as to whether we are subsidising foreign treasuries. Certainly, the IFSA people are not recommending subsidising anyone and nor is the property institute. The question of attracting investment does sometimes mean that you have to incur a cost. Senator Sherry was quite right in reminding the chamber that Senator Ronaldson, Senator Sherry and I have voted many times to give a cost advantage to foreigners where it is in Australia’s interest or where we conceive it to be in Australia’s interest. So that is not a very good argument. The question is: would you be reducing the rate to produce a cost unnecessarily? In other words, would you generate the level of investment that we are now generating and get the higher tax return anyway—which would be to your benefit? That is a good argument, but the evidence put to us is that the way in which the market is moving means that Australia must anticipate that it is going to lose the power to pull in investment if it retains the figure of 30 per cent. That is why the 15 per cent is considered to be a reasonable target; it is at the upper end of the competitive rates which are operating worldwide. The economic theory, as people would understand, behind the behavioural responses you are seeking in these matters is that, if you lower the tax rate, you then produce higher investment and you will get a greater tax return. It is a matter of judgment as to whether this would occur.

The last point I would make with respect to double tax treaties is this: the difficulty with the double tax treaties that are already in law is that they do not all cover this particular field. They might not cover off this field, so you might have to go back and renegotiate these elements of the tax treaty to accommodate this particular policy. I am not sure how many tax treaties cover off this field or how many prospectively do. I think we have two more tax treaties coming in. It would be interesting to establish—and perhaps the parliamentary secretary could take this on notice because he might not have it to hand—just how many of the double tax treaties that are in existence already accommodate the proposition that a lower rate for the withholding tax in investments will pertain. I suspect not all of them do, but I just do not know, and I would like to have the answer to that question.

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

I will answer the last question first, Senator Murray. My advice is that none of the Australian double tax treaties take account of a reduced rate so the rate of 30 per cent applies in all circumstances. In respect of your initial question regarding the Trade Practices Act, I will have to refer that to the Parliamentary Secretary to the Treasurer to get some advice. I do not have that information available to me at this point, particularly as we are not necessarily talking about the Trade Practices Act here this morning. But I am happy to refer that to the Parliamentary Secretary to the Treasurer to get some advice in relation to your specific question in relation to the Trade Practices Act, recognising your interest in that particular matter.

There is probably a lot that I could say in relation to the debate that has gone forward here this morning but I will not say too much. I will note that, given the comment that we are in the top four in this area in the world—and that the United States has a 30 per cent withholding rate and France has a 25 per cent withholding rate—I am not sure that the rate is necessarily one of the key drivers. I do understand that the industry puts that forward as a key argument but I think there are other factors in play and note that, in respect of the costings, there is a very wide range. I think the Labor Party’s initial costing was $15 million—that was mentioned in the budget address-in-reply—and that has now morphed to $30 million. The basis of that depends on the gearing assumptions that are placed in the calculations. I think that gives an indication that there is a fairly broad range for the basis of the calculations. I thank senators for their contributions.

Bills agreed to.

Bills reported without amendment; report adopted.