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

The Tax Laws Amendment (2007 Measures No. 4) Bill 2007 and associated bills and the Tax Laws Amendment (2007 Measures No. 5) Bill 2007 have been listed together for debate. I intend to limit my contribution to only some of the schedules due to the combination of the two tax bills and the time constraints in dealing with what are two relatively large tax measures.

Schedule 1 of the Tax Laws Amendment (2007 Measures No. 4) Bill 2007 repeals existing foreign loss and foreign tax credit quarantining rules and replaces them with new simplified foreign income tax offset rules. The main measure is the abolition of foreign loss and foreign tax credit quarantining and the rewriting of the remaining complex foreign tax credit rules as part of the 1977 tax act. The rewritten tax offset rules also reduce compliance and administration costs through the removal of the foreign tax credit as a remedy for the double taxation for transferring pricing adjustment in another country, the inclusion of a $1,000 de minimus cap and the removal of attributed tax accounts. The amendment means that taxpayers will no longer be required to quarantine assessable foreign income accounts into four separate classes. Excess foreign income deductions or foreign losses will no longer be quarantined for domestic assessable income. Therefore, in utilising deductions, no distinction is made in respect of the source of the assessable foreign or domestic income, which will reduce compliance costs.

The bill also allows taxpayers with a minority interest in foreign companies to choose to calculate attributable income using the CFC branch-equivalent rules rather than the foreign investment fund—FIF—rules. This should reduce compliance costs for taxpayers and financial institutions that have to deal with the notoriously complex FIF rules and will allow Australian investors to take advantage of the existing exemptions and concessions of the CFC measures.

These amendments go some way to making Australia’s international tax rules more competitive. However, there is so much more that this tired, out-of-touch, stale government could do. They have been sitting on their hands when it comes to ensuring Australia’s financial services sector can grow and become a financial hub within Asia. Labor will reform division 6C and replace it with a specified specific tax regime for managed funds and listed property trusts. This announcement is in addition to Labor leader Kevin Rudd’s announcement in the May budget reply to reduce the withholding tax rate that applies to non-resident investors to a flat and final rate of 15 per cent. These measures, proposals and policies of Labor demonstrate our commitment to Australia’s economic future. They are sensible tax changes that value-add and are welcomed by the financial services sector.

I also note that these changes in schedule 1 were announced in the 2005 budget. It has taken far too long—over two years—to legislate this, which I think again leads to a question mark being put over the government’s general translation of budget announcements into legislation in a timely manner.

Schedule 3 of this bill contains amendments to the Superannuation Industry (Supervision) Act, commonly known as the SI(S) Act, to provide an exemption from the borrowing prohibition to allow superannuation funds to invest in instalment warrants so long as certain borrowing criteria are met. The in-house asset rules contained in the SI(S) Act are also amended to allow for the purchase of an interest in a related trust forming part of the instalment warrant, if certain conditions are met. This measure overcomes the tax office’s and the Australian Prudential Regulatory Authority’s view that instalment warrant arrangements constituted a form of borrowing and that an investment by a self-managed superannuation fund in an instalment warrant is an in-house asset and therefore breaches the borrowing provisions and in-house asset rules of the SI(S) Act. Labor believes that this proposal assists superannuation funds to grow their assets to support Australians in their retirement, and as a result supports the measure.

Schedule 4 amends the Income Tax Assessment Act 1936 so that the trustees of closely held trusts are no longer required to report to the Commissioner of Taxation details of the trust’s ultimate beneficiaries. Instead, trustees of closely held trusts are now only required to report details of the trust’s trustee beneficiaries. The ultimate beneficiary rules were introduced by this government in 1999 as an anti-avoidance measure aimed at preventing complex chains of trusts being used to avoid or indefinitely defer tax. The measure in this bill goes back on the government’s own closely held unit trust integrity measures of 1999. The amendments will reduce the costs of complying with the ultimate beneficiary rules but may be at the cost of the integrity of the tax system. Labor support this proposal to reduce the compliance burden and the compliance costs but will monitor the operation of this to ensure it does not open up possibilities of tax avoidance.

Schedule 5 amends various acts to assist in the smooth transition to the—I was going to say ‘simplified superannuation’ regime, but I have noticed of late that the government is no longer describing it as ‘simplified superannuation’. It seems to have morphed into what is called ‘better superannuation’. I wonder what focus group polling has been driving that quite significant change in title description. I have to say that everyone I have met has not particularly seen the ‘better super’ package, as it is now being dubbed by the government, as an exercise in simplification. Schedule 5 makes the following minor amendments to the superannuation rules: it limits strategies which could circumvent the minimum drawdown requirements for accounts based pensions; facilitates the provision of tax file numbers to superannuation retirement savings accounts; changes the treatment of a non-TFN contributions income under the pay-as-you-go—PAYG—regime; and revises the application of the small business capital gains tax relief amendments.

On the issue of tax file numbers, what I do not think is generally known in terms of the Better Superannuation package is that a penalty tax will be payable by the member on their contribution of 42.5 per cent rather than 15 per cent. I do not think most Australians are aware that they will be subject to a higher tax on contributions when their employer fails to provide their TFN.

In questioning the tax office closely during estimates about this, I must say that the tax office were more forthcoming with information than Treasury were. We are looking at perhaps five to eight per cent of the just over 10 million contributors to the system being penalised by this higher tax. These people will be in for a rude shock when they get their fund statement—conveniently after the election, of course. From 1 July next year, hundreds of thousands of people will suddenly discover they have been subject to higher tax, not lower tax. If Labor are in government, I indicate this is an area where we will be keeping a very close eye on the outcomes. Frankly, if we are in government, and if I am privileged to be a minister, I do not want to be sitting next to Treasury and Tax officials and having to defend the position whereby hundreds of thousands of Australians have had an increase in their contributions tax.

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

I think you’re pretty safe!

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

We will see. For the hundreds of thousands of people facing the prospect of higher tax, it is not particularly safe—as they will discover—no matter who is in government. I certainly believe the tax office, on all the evidence to date, are doing their very best to minimise this problem, but it is going to be a significant issue. That is my prediction.

The amendments also improve the readability of provisions rewritten as part of the simplified superannuation reforms and clarify the intended operations of the reforms. These are important changes around the edges of the new regime. The current superannuation regime is built on Labor’s superannuation policy of compulsion, which we introduced back in 1987, starting at three per cent and rising to nine per cent through the SG. The measures that we are presented with are sensible, and Labor support them.

Schedule 8 claims to provide more flexibility to family trusts by allowing family trust election to be varied or revoked in a broad range of circumstances, and expands the definition of a family to include lineal descendants. Also, distributions to former spouses, widows, widowers and former stepchildren will be exempt from family distribution tax. These measures come at a cost to revenue of $8 million per annum.

Schedule 8 reflects an out-of-touch government with a strange idea of priorities in tax reform. The measures simply make the family trust rules more generous. It is hard to see how it benefits the average taxpayer or the economy as a whole. I find it particularly hard to see how the lineal descendants of nieces and nephews can be appropriately described as family members for taxation purposes. The shadow Assistant Treasurer, Mr Bowen, moved an amendment in the House of Representatives which sought to remove schedule 8 from the bill. I will not be moving such an amendment in the Senate this afternoon. Time does not permit this to happen; we are under enormous time constraints. But Labor believes that the $8 million per annum that this schedule will cost taxpayers could be better spent on other projects.

Labor supports the measures contained in the Tax Laws Amendment (2007 Measures No. 5) Bill. I will turn first to schedule 1 of the bill, which reforms sections 51AD and division 16D of the 1936 tax act. It is reform which is vital in facilitating private sector investment in infrastructure, and it is long overdue. It has been a long wait—seven years, in fact—since reforms to these provisions to encourage infrastructure investment were first recommended by the Ralph review. We have seen three different Assistant Treasurers in that time. Gosh, doesn’t time fly when you’re having fun in opposition—three different Assistant Treasurers! And each of them successively has promised to introduce this legislation.

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

You should try being on the crossbenches, mate!

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

Yes. But seven years on, we have finally got the measures. I am not having a shot at the tax office or the tax advice from Treasury; it is a shot at the incompetence of this government. We well know the burden and overload on Treasury and the tax office in terms of implementation. I think this extraordinary seven-year waiting period is a product of the churn of Assistant Treasurers and of the government taking its eye off the ball. It is out of touch and a bit stale, and just has not given it the priority it should have been given.

Section 51AD and division 16D in the Income Tax Assessment Act 1936 are replaced with a new division 250 in the Income Tax Assessment Act 1997. If division 250 applies to an arrangement, capital allowance deductions will be denied and the arrangement will be treated as a deemed loan that is taxed as a financial arrangement on a compounding accrual basis. The changes could do with some finetuning. However, Labor will not be opposing these changes. Generally, the sooner they are implemented, the better.

The history of this measure demonstrates a level of failure on the part of this government. The review of business tax, the Ralph review, recommended in 1999 that section 51AD be abolished. In response, the then Minister for Revenue and Assistant Treasurer, Senator Coonan, stated on 14 May 2002:

Further consultation on these issues will be undertaken through the course of 2002-03 and it is expected that legislation would be introduced in the Autumn 2003 sittings.

I repeat: ‘Autumn 2003 sittings.’ And here we are, in spring 2007. With respect to the 2003 draft exposure legislation that was released for comment by interested stakeholders, on 26 June 2003 Senator Coonan stated:

These provisions are in urgent need of reform ... The Government ... is committed to its early introduction into Parliament in the spring sittings, 2003.

Now, here we are, in spring 2007, with the legislation before the parliament. It is anyone’s guess as to how much investment in infrastructure has been lost because of the delay that has been caused and as a result of the four years it has taken to get what was described by the then minister, Senator Coonan, as urgent legislation.

It is simply not good enough that, at a time of capacity constraints—we all know the pressures on infrastructure in the economy—this government has delayed the reform of tax rules to encourage investment in infrastructure. This is yet another example of this government’s stale, short-sighted, out-of-touch approach and its lack of vision. However, better late than never—and Labor will support the proposal.

Schedule 6 of the bill removes the $100 million total income cap on the same business test. The schedule is particularly pleasing as it implements Labor policy and amendments from 2005. It represents another backflip by a government which would benefit from listening to business and Labor in developing tax policy. The same business test, the $100 million cap, was introduced by the government in 2005. I can recall Senator Murray’s contribution to the debate at that time—both Senator Murray and I have long memories! Both Labor and Senator Murray, on behalf of the Democrats, opposed it in the Senate in 2005. Labor consistently called for the removal of the cap, which had stood in the way of major investments in infrastructure projects, mining and venture capital. How right Senator Murray was and how right the Labor opposition was. Here we are in 2007 and the government is reversing a measure it introduced in 2005.

This approach by the government sends very bad investment signals to industry. The government is dragging its feet on key reforms which will build and assist productivity growth in this country. The measure removes the cap and it was strongly supported by submissions to the inquiry. This cap should never have been introduced in the first place. The Minerals Council, in its submission to the Senate inquiry, stated:

This arbitrary cap was denying legitimate capital allowance business deductions—which ultimately were factored into rate of return assessments, and potentially, discouraging expansion. This at a time when there is a significant need for investment in infrastructure projects in Australia.

The government claims to be pro-business and it introduced this cap, but here we are, two years later, removing it. I am glad the government has recognised the error of its ways and has adopted Labor policy—and, for that matter, Democrats policy.

Schedule 8 provides a CGT rollover for investors in a stapled group where there has been an interposition of a unit trust between the investors in the stapled group and the stapled entities. This will allow certain stapled entities such as Australian listed property trusts to restructure with an interposed head trust without any CGT consequences. There will also be a consequential amendment to division 6C of the Income Tax Assessment Act 1936 to ensure that the restructures do not result in the interposed trust being taxed as if it were a company. The measures will reduce the barriers for Australian listed property trusts to expand overseas, particularly in the US. However, the amendments only go a small part of the way to ensuring that Australian listed property trusts remain world leaders. The Property Council, in its submission, stated:

The Property Council views these reforms as the first stage of a now widely recognised need to comprehensively reform Division 6 …

Labor could not agree more. As I have already said, Labor has announced that it is committed to reforming division 6C and reducing the withholding tax rate to 15 per cent. Labor is strongly committed to making Australia the managed funds hub within the Asian region by increasing the competitiveness of what is a truly massive and world-class financial sector not just in terms of funds under management—it is the fourth largest, by volume, in the world—but also in terms of the quality and the skill of the employees. I think there are over 300,000 staff working in the financial services sector. It is world class in terms of the provision of the platforms and IT. It is a world-class industry which needs further encouragement to enhance its export potential. Labor supports this schedule; it makes a small step in the right direction. Labor also supports the government’s minor amendment to the schedule, which deals with the technical point raised in the Property Council submission.

Schedule 10 of the bill reforms the taxation concessions for Australian films. It introduces a new producer offset, which provides an offset of 40 per cent for film and 20 per cent for other media and increases the location offset from 12.5 per cent to 15 per cent. There are some other changes that are useful for the industry. The offsets are designed to support and develop the Australian screen media industry. They replace the current package of tax incentives, which have not been particularly effective in recent times. The independent producer sector has expressed concerns about the new producer offset, because commercial broadcasters will be able to access the 20 per cent producer offset for the television series, documentaries and other programs they produce. Labor notes these concerns. Labor will monitor the effect and the impact on the independent film industry.

The remainder of the schedules to this bill enjoy the Labor Party’s support.

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

We are dealing with four bills cognately. I think that is wise, given the pressure we are under to complete our consideration of a large number of bills this week—although I would have preferred that TLAB 5 be dealt with separately, it is appropriate that it is dealt with cognately here. Dealing first with the Tax Laws Amendment (2007 Measures No. 4) Bill 2007, it is an omnibus bill containing eight schedules. It is accompanied by the Taxation (Trustee Beneficiary Non-disclosure Tax) Bill (No. 1) 2007 and the Taxation (Trustee Beneficiary Non-disclosure Tax) Bill (No. 2) 2007, which introduce amendments to complement the proposed changes in schedule 4 of what I will describe as TLAB 4 by providing mechanisms to introduce a 46½ per cent nondisclosure tax on certain income.

Schedule 1 of TLAB 4 introduces new income tax offset rules. The income tax law will be amended to abolish foreign loss and foreign tax credit quarantining and to streamline the remaining foreign tax credit rules. This is achieved by repealing the existing foreign loss and foreign tax credit quarantining rules and replacing them with new simplified foreign income tax offset rules. These rules also allow taxpayers to claim relief for foreign income taxes paid on an amount included in their assessable income. Transitional rules for the treatment of existing quarantined foreign losses and credits are also included. Such an amendment provides a mechanism to allow the Commissioner of Taxation to give effect to Australia’s tax treaty obligations to provide relief from economic double taxation arising from transfer pricing adjustments. These changes will commence on 1 July 2008, following royal assent. The cost to revenue of this measure is expected to be $40 million per annum over the forward estimates period.

Changes to the foreign income tax offset rules in schedule 1 of this bill are reflective of systemic changes to the taxation system that have removed the original stimulus for the present foreign income tax provisions. The ultimate purpose of these changes is to prevent double taxation for Australian income tax payers, both individuals and corporations, who may earn foreign income. Thus, the changes are equitable and to be supported. I also agree with the government’s view that these changes will reduce compliance and administration costs and increase Australia’s attractiveness as a source of capital investment and as a viable home base for international and regional organisations with both Australian and foreign income streams.

It should be noted that the nature of the offset only enables Australian taxpayers to reduce their income tax liability to zero. There is no mechanism to enable tax rebates through this system. If that had happened, it would have been a concern. In a submission to the Senate Standing Committee on Economics inquiry into this bill, the Australian Bankers Association highlighted a number of inconsistencies with the way double taxation is relieved in respect of offshore banking and non-offshore banking income, a view supported by the Australian Financial Markets Association. In the committee’s view, the bill adequately deals with the ABA’s concerns related to the schedule. I support the committee’s view that trusts with such potential inconsistencies shall be monitored by Treasury with a view to correction should any matters of significance arise.

Schedule 2 proposes capital gains tax rollover relief for medical defence organisations, or MDOs, with proposed amendments to the Income Tax Assessment Act 1997. The rollover will generally be available when a membership interest in an MDO is replaced with a similar membership interest in another MDO and both MDOs have companies limited by guarantee. These amendments apply to capital gains tax events that happen on or after 14 February 2007. There are no forecast costs associated with these changes. This rollover aims to provide a better allocation of the nation’s capital resources by removing capital gains tax as an impediment to mergers and takeovers in MDOs to help facilitate consolidation in the industry where required and/or desired. Those who have followed my career as the tax portfolio spokesperson for the Democrats know that I have tried to assist mergers and acquisitions improvements at every opportunity, because I think a highly flexible market is in the interests of Australia.

Schedule 3 enables investment in instalment warrants by superannuation funds. The amendment as proposed removes a borrowing restriction contained in the Superannuation Industry (Supervision) Act 1993 to allow superannuation funds to invest in instalment warrants of a limited recourse nature over any asset the fund would be permitted to invest in directly. The in-house asset rules contained in the Superannuation Industry (Supervision) Act 1993 are also amended to provide that an investment and related trust forming part of an eligible instalment warrant arrangement will only be an in-house asset where the underlying asset itself would be an in-house asset of the fund if it were held directly. These amendments will apply from the day the bill receives royal assent and are forecast to be a considerable cost to revenue of $350 million over the forecast estimates period, with these costs expected to escalate each year after that. Notwithstanding the cost, the Democrats support them.

Strict rules naturally apply to the operation of superannuation funds to minimise the financial risks such funds are able to undertake. Superannuation has historically been viewed and regulated as a lower risk investment because of the importance of protecting individuals’ life savings and retirement funds. One such risk that has been consistently and justly prohibited is any form of leverage—that is, superannuation funds are prohibited or restricted from borrowing money to invest. This schedule proposes widening a form of asset superannuation funds are able to invest in by including limited recourse warrants within the basket of available assets. Warrants are a form of derivative security which derives its value from an exercisable option on an underlying asset. Some instalment warrants incorporate a borrowing and thus have not been allowed under current restrictions. The AFMA, which I mentioned earlier, welcome the change, and in the aforementioned committee report, they assert that regulatory standards are not eroded by the proposed changes. But I note that they said:

It seems strange that instalment arrangements that feature a borrowing enjoy a broader exception than those which do not. Accordingly we recommend the subsection 10(1) definition be expanded.

Such a proposal seems common sense to me, and the amendments suggested by the AFMA, despite Treasury comments to the contrary, are worthy of future consideration.

Schedule 4 introduces new trustee beneficiary reporting rules by proposing amendments to the Income Tax Assessment Act 1936 so that trustees of closely held trusts are not required to report to the Commissioner of Taxation the details of the ultimate beneficiaries of trust income. Instead, trustees of closely held trusts may be required to report the details of trustee beneficiaries that are presently entitled to certain income of the trust and tax preferred amounts. These amendments will apply to the first income year starting on or after the day in which this bill receives royal assent and in later income years. The financial costs are unknown. Schedule 4, in effect, substitutes the reporting requirements for closely held trusts from the requirement to report ultimate beneficiaries to a trustee beneficiary statement. This clarifies and simplifies the reporting requirements for applicable trusts by ensuring that all trustees entitled to a share of the trust net income and tax preferred amounts are reported. I am always wary of anything that conceals the identity of ultimate beneficiaries where there are just a few key persons. That always means that there is a desire to be hidden from scrutiny, and the question is: why? What is there to be hidden? Obviously, that is not the case when trustees represent a great number of people or represent minors. Then it is appropriate that the ultimate beneficiaries are not exposed. Notwithstanding the clarification in legislation, such trust vehicles still represent a significant tax avoidance tool, which the Democrats have consistently opposed. I remain wary of this area of tax law.

Schedule 5 introduces a number of legislative updates to the new simplified superannuation system. The bill amends various acts to assist in the smooth transition to the simplified superannuation regime. This schedule limits strategies which could circumvent the minimum draw-down requirements for account based pensions, facilitates the provision of tax file numbers to superannuation and retirement savings account providers, and revises the application provision for small business capital gains tax relief under the regime. ‘Well done’ is what I say. The readability of provisions rewritten as part of the reforms has also further improved to ensure the policy intent underpinning the provisions is clear. The simplified superannuation regime commenced on 1 July 2007. However, an individual’s tax file number is taken to have been quoted by the individual for notices given to superannuation and RSA providers by the Commissioner of Taxation from 1 June 2007. The amendments to prevent individuals circumventing the minimum draw-down requirements for account based pensions will result in a revenue gain of $20 million over the forward estimates. These amendments clarify the operation of draw-down limits to ensure that the concessional nature of the new simplified superannuation system tax-free status only applies to income stream assets and not assets quarantined for investment purposes. This is a desirable clarification that closes a potential loophole in superannuation law.

The retrospective application of capital gains tax exemptions for small business sale profits invested into super is likewise an equitable and worthwhile amendment. My remarks now are directed to the government advisers so that they can take note of this. I have discovered that people writing to superannuation funds giving their tax file number and signing the letter with their proper signature have not had that advice accepted until such time as they fill in a form which is designated by the superannuation company. I think that is a dangerous practice because if people have taken the trouble to write in with their TFN and their signature, that is prima facie compliance with the law and I would ask you to be aware of that.

Schedule 6 to this bill amends the Income Tax Assessment Act 1997 to update the list of deductible gift recipients to include the Australian Peacekeeping Memorial Project incorporated from 30 April 2007 until 31 December 2008 and Social Ventures Australia Ltd from 4 May 2007 with a forecast cost to revenue of $9.82 million over the forecast estimates period.

Schedule 7 makes technical corrections and other minor amendments to the taxation laws. Schedule 8 increases flexibility for family trusts by amending the trust loss regime in schedule 2F to the Income Tax Assessment Act 1936 to allow family trust elections and interposed entity elections to be revoked or varied in certain limited circumstances. These amendments also broaden the definition of ‘family’ in section 272-90(5) in schedule 2F to the ITAA 1936 to include lineal descendants of family members. In addition, spouses, former widows, widowers and former stepchildren are exempted from the family trust distribution tax by including them in the definition of family group in section 272-90 in schedule 2F to the ITAA 1936. Changes take effect from the start of the income year in which the bill receives royal assent and is forecast to cost $24 million over the estimates period. While these changes to improve the legislation governing such provisions have the Democrats’ support, the Democrats remain opposed to the use of family trusts to avoid or unjustly minimise tax obligations.

I want to turn to my committee stage amendments and to discuss them briefly in my speech to the second reading motion. My amendments, circulated to the chamber, aim to implement the Human Rights and Equal Opportunities Commission’s report Same-sex: same entitlements recommendations. My amendments are drafted in the absence of government initiatives to address those recommendations. This is the first tax bill that I could amend following the HREOC report. I say to the government that I would be delighted were the government to substitute their own amendments for mine, but there is no sign of that moral courage as yet. I move these today because this issue is urgent and this unwarranted discrimination is overdue for correction. Fifty-eight federal laws were identified by HREOC as needing similar amendments. Specifically, I propose to implement the HREOC de facto relationship definition. Those amendments are in line with HREOC’s preferred approach, wherein a dual system of acknowledgement is able to operate—in this case in tax law—one which recognises heterosexual and marital relationships as one set and one which recognises homosexual non-marital relationships as a parallel set.

HREOC has identified 58 acts as needing amendment to end this unjust discrimination. The Democrats agree with this and have followed HREOC’s suggested form as closely as we can. My amendment proposes to remove this discrimination. If the government decides not to support the Democrats amendments, it will be because it does not support the removal of clauses in taxation legislation that discriminate on the basis of sexual preference. That will mean the coalition will be continuing to uphold homophobic laws. Given the strong cross-party support for ending unjust discrimination, including from a great many members of the cabinet and the coalition, I remain optimistic that the government will recognise the strength of these arguments. At this moment I see no cause for delay whatsoever.

The tax portfolio holder we are dealing with here is the Treasurer. I do not know where the Treasurer stands on these matters. I do not know whether he supports official homophobic policy or not. I do know that if he really insisted that this unjust taxation discrimination should end, it would end. He is, after all, the most senior minister in the government and the deputy leader of the Liberal Party.

I am told by insiders that most Liberal ministers favour ending this unjust discrimination, so the buck stops with the Prime Minister. And the finger will be pointed at him if the coalition policy of homophobia continues after that damning HREOC report, because that HREOC report has said there is no justification for the discrimination that occurs in tax superannuation and other laws. The flip side of tolerance is hatred. Extremists of many religions and many religious and political sects hate homosexuals. Such extremists undoubtedly support the present coalition policy of inequity in tax matters like these. The coalition and the Treasurer will be keeping terrible company if they keep homophobic tax laws on their books, and I do hope they will have the courage to accept my amendment or to offer amendments of their own.

I now turn to the Tax Laws Amendment (2007 Measures No. 5) Bill 2007. It has 12 schedules. Schedule 1 covers asset financing for public-private partnerships. Schedules 2 and 3 deal with thin capitalisation. Schedules 4, 7 and 8 are capital gains tax rollover changes. Schedule 5 deals with income tax and the Prime Minister’s prize. Schedule 6 is the same business test cap removal. Schedule 9 covers gift recipients clauses. Schedule 10 covers film production offsets, schedule 11 covers the 175 per cent R&D tax deduction extension and schedule 12 covers Innovation Australia.

I must compliment the government on its reaction to the report of the inquiry of the Senate Standing Committee on Economics into this legislation. I note that there are a number of amendments which directly address matters which were raised in that inquiry. I think the government is very wise to have moved rapidly to address issues which were of concern to a number of the witnesses. Obviously, the government has recognised that it was legitimate concern. So another ‘well done’ for you.

The Tax Laws Amendment (2007 Measures No. 5) Bill 2007 has a big price tag—in excess of $640 million over the forward estimates. The two big-ticket items are a comprehensive rewrite of the current tax subsidies and incentives for Australian film production and the removal of the same business test cap. Schedule 1 amends the income tax law to modify the taxation treatment of leasing and similar arrangements between taxpayers and tax preferred end users, such as tax-exempt entities and nonresidents, for the financing and provision of infrastructure and other assets.

The principal application of the law is intended for what are known as PPPs—the public-private partnerships. These changes to tax laws, which are aimed at encouraging investment in Australian infrastructure, must be considered in the context of some high-profile failures in public-private partnership infrastructure investments. In some ways I think it is hard to criticise governments on public-private partnership arrangements because they have had to learn on the job. But what they have had to learn, I think, is to be extremely careful of some of the actions and activities of some private operators who have had somewhat of a lend of the public sector. Whether or not such past failures affect the future of these schemes I do not know, but I am convinced that there is still a place for purely public sector activity and for public-private sector cooperation and activity.

Schedules 2 and 3 relate to the thin capitalisation rules and their anti-avoidance mechanism, which continues to be of importance. This amending legislation corrects this discrepancy and upholds the original intention of the law. It is supported by the Democrats. I notice my time is up. I wish I could talk much more about tax, Madam Acting Deputy President, but I will have to leave it there.

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

I am pleased, as Chair of the Senate Standing Committee on Economics, to follow my friend and committee colleague Senator Murray in talking to the Tax Laws Amendment (2007 Measures No. 4) Bill 2007 and related bills. I would like to follow on from some of his comments in relation to schedule 10 of the Tax Laws Amendment (2007 Measures No. 5) Bill 2007, which I will refer to as TLAB5.

Schedule 10, which deals with film production offsets, follows on from a 2007 budget announcement by this government which, quite rightly, received enormous praise from those in the industry. I would like to briefly quote some of the commentary following the budget. I quote from the Australian on 10 May:

Talk to people in the film industry and the Australian Screen Production Incentives, announced as part of a $282.9 million film package, seem poised to pave a yellow brick road back to Oz, luring home creative talent that has drifted off-shore.

“I would like to think that within two or three years the amount of production will lead to an increase of 25 per cent [in] television drama feature films,” says Brian Rosen, chief executive of the Film Finance Corporation.

“The industry got everything it wanted: it’s the biggest change since 10BA was introduced by the Fraser government 25 years ago, which created the strong talent base. Now it’s about creating the businesses to drive the industry. Successful Australian international directors will come back and make more films here.”

In the Sydney Morning Herald on 9 May this year, in the arts section, John Garnaut wrote:

The Arts Minister, George Brandis, gave the film industry almost everything it wanted last night, with a $280 million funding injection over four years.

He continued:

The changes are considered the most important for the industry in more than a decade.

Minister Brandis, I do congratulate you on this extraordinary initiative which will make a huge difference to the arts in this country. In the Sydney Morning Herald on 10 May, in the arts and entertainment section, in an article headed ‘Luhrmann hails budget boost for film “stunning”‘, Gary Maddox wrote:

From the set of his epic film Australia, director Baz Luhrmann described the boost for the film industry in the budget as extraordinary.

Driving back from meetings with film-makers, the Village Roadshow managing director Graham Burke said it was “much bigger” than the Division 10BA tax incentives that fuelled an Australian film-making boom in the 1980s.

All round the industry there was marvelling at the scale of the Federal Government’s support—

that is, at the meeting he was at. The article quotes Mr Luhrmann as saying:

“It’s an extraordinary result really and probably a very historical moment,” he said. “The one big idea that they responded to and have completely embraced is that around the globe, we’re in an extraordinary and unique situation when it comes to the cinematic arts ...”

The article continues:

Graham Burke, who is involved in production both through Village Roadshow and the Warner-Roadshow joint venture, said it was “a wonderful moment” in the history of the Australian film industry”.

“Australia has a natural skill in this area and for the Government to be encouraging that in a way that is commercial, because it will cause private investment to sit beside the government money, is just stunning.”

There were many more quotes following on from that marvellous initiative.

My colleagues and I on the committee met in relation to all these matters. We took a lot of evidence. I would like to thank colleagues from the government and from the Labor Party, and Senator Murray, for their assistance. We heard some initial issues in relation to the Tax Laws Amendment (2007 Measures No. 5) Bill 2007. Basically they revolved around the following matters. I quote from paragraph 11.9 of the report:

• the potential effect of the bill on the allocation of resources between in-house and independent producers in the television production sector;
• the accessibility of the production offset to animators;
• the depreciation of low value capital assets used in film production …

In relation to the first of those, the allocation of resources between in-house and independent producers, there were two quite separate schools of thought. The Screen Producers Association of Australia raised concerns ‘over the possibility of Australian commercial television networks exploiting the 20 per cent producer rebate at the expense of the independent television production sector’. Free TV—and I refer now to 11.16 in the report—representing the free-to-air commercial networks, rejected the notion that the legislation should discriminate against in-house producers by limiting their access to the rebate. Free TV also repudiated the claim that commercial networks’ access to the rebate would shift production from the independent sector in-house. It argued that generating quality television content will always take precedence over maximising available tax rebates.

The committee listened very carefully to the Screen Producers Association of Australia, and particularly to the presentation from Mr Geoffrey Brown. Recommendation 3 of the report reads:

The committee recommends that the Govern-ment review the implementation of the producer offset scheme in twelve months to ensure it is not being misused to mitigate the intention of facili-tating a sustainable Australian film production sector, including a vibrant independent sector.

I am very pleased that the government has actually gone further than that. The amendment that will be moved will make it quite clear that the minister must indeed, before the end of 12 months after the commencement of the division, initiate a review of the effect of the division in relation to levels of production by the Australian independent production sector compared to levels of production by Australian television broadcasters. What this means is that in 12 months time we will know exactly what the situation is in relation to any potential swing between outsourced, independent production and in-house production.

We have evidence from Free TV and their representatives that there will not be such a move back to in-house production. There are the legitimate concerns of the independent sector that this will occur. It was the committee’s view that it was a matter that was better dealt with in 12 months time by way of review than, if you like, by the committee picking winners on information that quite frankly we could not judge until it had been put—

Opposition Senators:

Opposition senators interjecting—

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

I will take the interjections, because I was actually referring to the committee—and the committee believed that it was appropriate to do so.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Industry) Share this | Link to this | Hansard source

Another review!

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

We could have 500 reviews and we still would not get within a bull’s roar of what the Australian Labor Party has nominated. But this is a debate about the film production sector and I will not be drawn in by these inappropriate interjections. I will turn back to this very important report.

Claire Moore (Queensland, Australian Labor Party) Share this | Link to this | Hansard source

That is very wise, Senator.

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

I am sure the other members of the committee would very much agree with the government’s amendment in relation to strengthening our recommendations.

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

It was unanimous.

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

Yes, indeed; it was unanimous. And you agreed wholeheartedly; thank you, Senator Murray. The other matter is the accessibility of the production offset to animators. The committee was very concerned about this matter. We believed the evidence that was given to us was quite legitimate. There were legitimate concerns and we made recommendations in relation to them in recommendation 4. I am very pleased, and I am sure my colleagues on the committee will be equally pleased, that the government has addressed those matters with a further amendment. On behalf of the committee, I thank the government for doing that so rapidly.

The third matter is the depreciation of low-value capital assets used in film production. This is a more difficult issue. We received evidence from Louise Houston, Tax Manager of Warner Bros Entertainment Australia, in relation to this matter. I will not take up the time of the chamber in relation to all the matters detailed by Ms Houston, but I will briefly quote from a letter.

The proposal to include the balancing adjustment of the capital asset in the calculation of qualifying production expenditure for the film production offsets is welcome.

It then goes on to talk about the EM, in paragraph 10.72:

However, it appears that subsection 376-125(7) may not apply to a balancing adjustment for a depreciating asset required to be allocated to a low value pool. This would unfairly disadvantage a production company which for example is a member of a tax consolidated group which has previously elected to allocate assets to a low value pool. This is because such an election is irrevocable and applies to all companies within the tax consolidated group, irrespective of whether they were even in existence at the time the original election was made.

The government believes that work is required to properly investigate their concerns; that, if an amendment were warranted, there would not be sufficient time for it to be drafted; and that it would not be appropriate, in the government’s view, to delay passage of the bill to accommodate that investigation. I can say, however, to those with a concern in this area that the government will look further at the matter and give it appropriate consideration after the passage of the bill—which, in normal circumstances, is entirely appropriate.

I will not take up any further time. This is a very important initiative. The committee—I am sure I can speak on behalf of the committee—thanks the government for moving very quickly in relation to these two matters of great importance to the sector.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Industry) Share this | Link to this | Hansard source

I would like to speak to the Tax Laws Amendment (2007 Measures No. 5) Bill 2007 and, in particular, to schedules 11 and 12—that is, those matters that amend the research and development taxation arrangements, and the establishment of an entity known as Innovation Australia. Senator Sherry drew to my attention a moment ago that this is yet another government body. We have heard already more reviews—

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

How many is that?

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Industry) Share this | Link to this | Hansard source

I do not think these people know how to open their mouths without initiating yet another review or establishing another government body. I would like to take the issue of the schedules in order. I will start with schedule 11, which implements the changes to the 175 per cent premium tax concession to give access to international firms that hold their intellectual property offshore. I have argued for some time that there is merit in opening up the R&D tax concession to international firms, on the basis that most of the spillover benefits from the R&D conducted in Australia still flow if the IP is held by a multinational’s head office overseas. That is why Labor welcomed the Howard government’s decision, in its May industry statement, to expand eligibility for the premium concession and to remove the beneficial ownership test. We had campaigned on this issue for some time.

It should be noted, however, that that measure alone accounted for some $500 million of the government’s so-called $1.4 billion industry statement—except that this figure of $500 million is made up of a remarkable calculation, which is that a figure of $50 million was flatlined across 10 years. We have a measure here which has had an arbitrary figure of $50 million put in, flatlined for 10 years. So I will be very interested to see just how the actual costings come out over time, given the Howard government’s absolutely appalling record when it comes to the question of costing changes to the tax concession. I do not think there has been a year in which the costings have been accurate—not one year.

I give the officials due notice here that I would like to ask some questions during the committee stage of this bill about how this figure was settled upon. How was it that a figure of $50 million was calculated? And how was it that it was calculated on the basis that it would be the same figure for 10 years—irrespective of the behavioural changes that might occur in the take-up rates for this particular measure? So, given the absolutely appalling answers that I received on these issues in the budget estimates, I think it is appropriate, given that we have officers here today, that they enlighten us. I think they should be able to enlighten us as to how it was that Treasury came up with these particular costings.

I repeat that Labor welcomed the belated initiative by the Howard government as an attempt, albeit in a limited way, to internationalise Australia’s innovation system. However, this bill makes it clear that the government is simply introducing an even higher level of complexity into the R&D concession scheme. At the time of the announcement, Labor pointed out that the 175 scheme is a bureaucratic nightmare. Yet this bill actually introduces further complexities and red tape.

For a start, the definition of research and development for the purposes of the new regime is different from the rules that apply to companies holding their IP offshore. This was not announced. While it may be done for the benefit of administrative practice, nonetheless it results in companies that are eligible for both types of tax concession having to categorise their R&D spending in two different ways. The bottom line is that this legislation has been described by stakeholders as complex, confusing and bureaucratic.

This creates a second problem, and that is the risk that the policy intent will be undermined by a perception that the new scheme is difficult to access. Not only will international firms have to look at the rate of support they will receive for the R? they will also have to take into account the complexity of the system. And it would be hard to imagine a system more complex than that which has been created by this government.

Labor will continue to seek feedback from business about the effectiveness of the premium concession and of this measure in particular. But the fact is that this policy, like the whole industry statement, reflects a half-hearted approach from this government. The last time I had occasion to speak on a bill relating to the R&D tax concession, I made the point that even the Productivity Commission realises that the eligibility criteria for the R&D tax offset provides perverse incentives for small, high-tech businesses to actually limit their R&D spending. But the government has made no attempt to amend the threshold arrangements. One can only assume that, since they have not done it in the industry statement, they had no intention of fixing this particular problem. Beyond that, of course, there is serious potential to improve the R&D concession arrangements overall. However, broadly speaking, there is a serious need to improve Australia’s business R&D performance, and this was yet another missed opportunity to do just that.

With regard to our performance, some disturbing facts about Australia’s R&D have increasingly come to light. The ABS noted in its release of its 2005-06 figures that, at 1.04 per cent of GDP, Australia’s rate of business R&D expenditure ‘remains below the OECD average of 1.53 per cent’. The fact is that Australia’s businesses are still recovering from the savaging of the R&D concession by the Howard government in 1996. In 1996, Mr Howard said that his government would ‘improve Australia’s international ranking in terms of expenditure on business R&D, as a share of GDP’. Instead, he slashed the tax concession in half and sat on his hands while business R&D growth stayed in negative territory for four years—yet another example of a broken promise under this government.

One of the most obvious characteristics of this government is its capacity to fail to implement promises. Of course, this was not a position that we were ever exposed to in the election through which this government came to office. They now have the opportunity to come before the Australian people again, and I look forward to this government coming clean on these issues in this forthcoming election. I look forward to this government changing its course, going out to Yarralumla and declaring that it is time for the election. Given that this is the longest parliamentary term we have had for some years in the Commonwealth, it is appropriate that the Prime Minister acknowledges that this government is way out of time and that this is the sort of issue that ought to be discussed in the forthcoming election. This is an issue on which the government ought to acknowledge that it has failed.

Four years after that initial savaging of the system in 2000, the government commissioned a report confirming there had been both an absolute and a relative decline in Australia’s business research and development performance since the mid-1990s. Over that same period, 20 of the 28 other OECD countries for which there is data experienced a notable increase in their business R&D to GDP ratio. Over the full 11 years of the Howard government, the overall result is that the real average annual growth rate in business research and development has been a woeful 5.7 per cent, compared to 14.5 per cent for the period when Labor was in office. It is not a bad achievement to cut it by a third, is it? If Australia had maintained the same growth rate in business R&D under the Howard government that it achieved under Labor, investment would now be double today’s figures. Instead of seeing strong growth over the last couple of years, we are only now starting to catch up to the record of achievement in business R&D back in the nineties.

I contrast this with our competitors. You can see quite clearly what is happening. China, for instance, is committed to lifting its overall research and development spending as a percentage of GDP to 2.5 per cent by 2050, up from 0.6 per cent in 1995 and 1.2 per cent in 2002. China is doubling its R&D effort every seven years. The Chinese have in fact overtaken Japan as the second biggest spender on research and development behind the United States, with spending growth of over 20 per cent during the previous year. The Howard government ministers who would like to tell us about selling minerals to China and buying back cheap, low-tech goods do not seem to understand just how far and how fast the Chinese are transforming their economy. They do not seem to get the fundamental principle: China is moving up the value chain at a rapid rate. The only way we can stay ahead of the game is to play much smarter than we are now.

The last schedule of this bill, schedule 12, moves to combine the Industry Research and Development Board with the Venture Capital Registration Board to form a new entity known as Innovation Australia. Labor supports this amalgamation. It makes sense. It is a very small step towards streamlining a national innovation scheme that is now characterised by massive gaps, duplication and red tape. This proposal, though, sends two clear messages about what this government is seeking to do when it comes to innovation. The first message is very clear: the government is half-hearted. When the system needs a fundamental overhaul, we get Minister Macfarlane combining two administrative boards. Where better coordination is needed between the government and the states, the Howard government actually refuses to participate. While we are sorely in need of measures to bridge the cultural divide between the research sector and business, the Howard government has nothing to offer. The second message is that in Innovation Australia we have a clear case of mutton dressed up as lamb. Anyone hearing that name would expect a genuinely new body to drive the revitalisation of a national innovation system. If they think that, they will be sorely disappointed by this government’s inaction. While it is easy to support the amalgamation of two bodies, we need a much more fundamental policy response if we are to convince anyone that we are actually serious about innovation in this country.

This bill gives us an opportunity to reflect upon the importance of innovation to the future of the Australian economy. It gives us an opportunity to reflect upon the pretty ordinary performance of this government when it comes to innovation. It also gives us an opportunity to look again at what the world’s experts are saying: innovation will drive productivity and prosperity in the 21st century. It makes it crystal clear yet again that the current government is ill prepared to secure Australia’s prosperity for the future because it simply does not understand the fundamental importance of innovation in meeting the challenges ahead.

George Brandis (Queensland, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

I thank honourable senators for their contributions to the debate on the Tax Laws Amendment (2007 Measures No. 4) Bill 2007, the associated imposition bills and the Tax Laws Amendment (2007 Measures No. 5) Bill 2007.

Turning first to TLAB4, schedule 1 will abolish foreign loss and foreign tax credit quarantining and streamline the remaining foreign tax credit rules. It also contains transitional rules for the treatment of existing foreign losses and credits. By reducing compliance costs and complexity in the law, these changes will assist businesses operating or seeking to grow internationally. Schedule 2 provides a capital gains tax rollover for membership interests in companies limited by guarantee that are also medical defence organisations. Schedule 3 will allow superannuation funds to continue to invest in instalment warrants, consistent with longstanding practice. Such warrants must be of a limited recourse nature and can be held over any asset a fund is permitted to invest in directly.

Schedule 4 introduces simplified trustee beneficiary reporting rules. These rules will target arrangements where complex chains of trusts are used to obscure the ultimate beneficiary of the assessable trust income. These changes demonstrate the government’s ongoing commitment to reducing red tape and regulatory burdens. Schedule 5 will assist in the smooth transition to the simplified superannuation regime known as Better Super and clarify the policy intent. Schedule 6 amends the list of deductible gift recipients in the Income Tax Assessment Act 1997. Deductible gift recipient status will assist the listed organisations to attract public support for their worthy activities. Schedule 7 implements various minor technical amendments and makes general improvements to the law that will improve the quality of the tax laws and reduce complexity. Finally, schedule 8 amends the trust loss rules which apply to family trusts. The amendments allow family trust elections to be varied or revoked in a broader range of circumstances and also expand the definition of ‘family’.

I now turn to the Tax Laws Amendment (2007 Measures No. 5) Bill 2007. Schedule 1 to this bill significantly improves the tax treatment of leasing and similar arrangements between taxable entities and tax exempt entities, including foreign residents, for the financing and provision of infrastructure and other assets. These changes streamline the existing harsh rules and reduce the compliance costs of Australian businesses. Schedule 2 amends the thin capitalisation rules to ensure that they operate as intended by changing the definition of excluded equity interest. Schedule 3 will allow groups that consolidate for tax purposes to apply the thin capitalisation rules as if the group did not contain an authorised deposit-taking institution where the only authorised deposit-taking institutions in the group are specialist credit card institutions. Schedule 4 will provide a capital gains tax rollover upon marriage breakdown to ensure that capital gains tax need not be an impediment to separating spouses wanting to achieve a clean break from each other in terms of superannuation.

Schedule 5 to the bill exempts from income tax the Prime Minister’s prizes for Australian history and science to the extent that the prizes would otherwise be assessable income. Schedule 6 removes the $100 million total income cap on the same business test in the company loss recoupment rules. When determining of prior year losses can be deducted against future income, all companies will have access to the same test. Schedule 7 extends capital gains tax rollover relief for statutory licences. The rollover will apply where a statutory licence ends and is replaced by one or more new licences that authorise substantially similar activity to the activity authorised by the original licence or licences. The measure also provides a partial rollover where a statutory licence ends and is replaced by a new licence or licences and other capital proceeds are also received.

Schedule 8 allows a stapled group of entities to restructure with an interposed head trust without triggering certain tax consequences. Under the measure, a restructure that involves interposing a head trust over a public unit trust that is stapled to a company will not result in the interposed head trust being taxed as a company under division 6C of the Income Tax Assessment Act 1936. These amendments will particularly enhance the international competitiveness of Australian listed property trusts. Schedule 9 updates the list of deductible gift recipients and extends the period for which deductions are allowed for gifts to a fund that has time limited status.

Schedule 10 introduces a package of incentives that will reform and strengthen the Australian film industry, which was announced in the 2007-08 budget. I will return to schedule 10 and make some additional remarks in a moment. Schedule 11 extends the premium 175 per cent research and development—R&D—tax concession to Australian research and development activities undertaken on behalf of multinational companies. Finally, schedule 12 establishes a new board called Innovation Australia to administer and oversee the industry portfolios innovation and venture capital programs.

I would like to say a few additional words about schedule 10 of TLAB5, which implements the film package. As Senator Ronaldson pointed out in his contribution, that has been rapturously received by the film industry.

Kim Carr (Victoria, Australian Labor Party, Shadow Minister for Industry) Share this | Link to this | Hansard source

Rapturously!

George Brandis (Queensland, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

Yes, it has been received rapturously, Senator Carr. It is the greatest set of innovations of support to the Australian film industry since the Fraser government introduced sections 10B and 10BA in the 1970s.

I want to take the opportunity to place on record the debt of gratitude which we owe my predecessor in the portfolio, Senator the Hon. Rod Kemp. Although I followed Senator Kemp into the portfolio on 30 January, by the time I became the responsible minister most of the work in relation to the film industry package had been done by him and by officials under his instruction. I particularly thank James Cameron and Peter Young from the department for the extremely high standard of work that they undertook both in the preparation and, currently, in the implementation phase of the film package.

As I said before, this is a package that has been very well received. However, when it was reviewed by the Senate Standing Committee on Economics in its hearings on TLAB5, there were a small number of outstanding issues raised which the government, as Senator Ronaldson foreshadowed, will address. Probably the most vexed of the issues concerned the question of access to the producer rebate. A concern was raised on behalf of the bodies representing independent producers that the accessibility of the rebate to broadcasters that might produce products in-house could have a deleterious effect upon independent producers. In the end, the committee recommended, as Senator Ronaldson foreshadowed, in recommendation 3 that there be a review of the operation of the producer offset scheme in 12 months to ensure that it is not being misused to mitigate the facilitation of a sustainable Australian film production sector, including a vibrant independent sector. In the government amendments that will be moved in committee there will be an amendment moved to mandate that review on a statutory basis.

I take this opportunity to affirm on the part of the government its intention that the independent sector should be beneficiaries of the producer rebate. It has not been the view of the government that eligibility for the rebate should be quarantined only to the independent sector, but it is certainly the view of the government that independent producers should be beneficiaries of the producer rebate. Were it to be the case that in the early months of the operation of the scheme independent producers were missing out, it would be the intention of the government to re-look at the matter. In that regard, might I adopt the language of paragraph 11.47 of the report of the Senate Standing Committee on Economics, which says:

It would be the committee’s expectation that were the availability of the scheme for in-house production to have a detrimental effect on the independent sector then the Government on the basis of that evidence should legislate to restrict the producer offset scheme to independent producers.

That is the intention of the government, and if the empirical evidence suggested that that was the effect then that would be our intention; however, we are not persuaded that the scheme, as devised, will have that effect.

Secondly, the Senate Standing Committee on Economics recommended that there be some amendments to change the definition of a qualifying series for the purpose of animated features, and the government has adopted that recommendation and an amendment to that effect will be moved in the committee stage. Finally, the committee recommended that the current restriction on the Film Finance Corporation co-investing in projects produced in-house continue to apply to funding provided by the new body, the Australian Screen Authority—or, as it will be called after 1 July 2008, Screen Australia. I also indicate that that would be my intention.

With those remarks, I once again thank honourable senators for their contributions to the second reading debate. In particular, I thank those who have been the prime movers in this revolutionary, once-in-a-generation reform of the Australian film industry. I commend the bills to the Senate.

Question agreed to.

Bills read a second time.