Barnaby Joyce (Queensland, National Party, Shadow Minister for Finance and Debt Reduction) Share this | Link to this | Hansard source

I rise today to speak on the Tax Laws Amendment (2010 Measures No. 1) Bill 2010. The bill establishes a free superannuation clearing house for small services businesses with fewer than 20 employees. In addition, it makes changes to the tax treatment of managed investment schemes, managed investment trusts, the entrepreneurs’ tax offset and consolidations. Schedule 6 makes a number of housekeeping amendments.

The coalition supports the amendments contained in the schedules 2 to 6 of this bill. Many of these amendments will enhance investor certainty about the tax status of investments and, hence, should encourage additional investment. In particular, the changes to protect investors and managed investment schemes are a worthwhile response to the high-profile collapse of a number of these schemes. Under current arrangements investors can claim immediate deductions as long as a capital gains tax event does not occur within four years after the end of the income year in which the amount is first paid. These changes will protect the returns of investors from unanticipated, uncontrollable changes which cause schemes to collapse before the four-year rule is satisfied. Recently, the insolvency of several managed investment schemes has had a devastating and unexpected effect on investor funds. The Australian Taxation Office has not had the scope to provide relief to investors in these circumstances. This bill will change that and allow investors to keep their deductions where a capital gains tax event occurs because of factors outside the control of investors. Importantly, these amendments will apply retrospectively from 1 July 2007 providing some welcome relief to those affected by the recent collapses of some managed investment schemes. This bill also amends the tax law to allow managed investment trusts to make an irrevocable election to apply capital gains tax on the disposal of certain assets, such as shares and real property. Again, these provisions will provide greater certainty.

Schedule 4 introduces an income test for the entrepreneurs’ tax offset. The entrepreneurs’ tax offset was introduced by the former coalition government and took effect from 1 July 2005. Its aim was to provide greater incentives for very small businesses in the early stages of their development. This bill limits access to this concession by applying thresholds to taxable income over $70,000 for single individuals and $120,000 for families. Currently, eligibility for the entrepreneurs’ tax offset is not restricted by sources of income other than those derived from the small business. The coalition is concerned that these amendments will deter some from starting a business. This bill also makes some changes to the consolidation regime from a tax perspective. This regime has been continuously improved and the changes presented here stem from proposals of the former coalition government in 2007. Finally, schedule 6 contains a number of housekeeping amendments. It makes a number of minor changes to the existing tax law to ensure they operate as intended.

I turn now to schedule 1 of this bill, which introduces a superannuation clearing house. The coalition supports a superannuation clearing house for small businesses. The clearing house will provide small businesses with free access to services which allow them to pay their superannuation guarantee contributions in a block to an approved clearing house. Small businesses are then relieved of the need to split contributions into individual payments according to each employee’s respective superannuation fund. A clearing house provides scope to achieve economies of scale and reduces the overall costs of Australians saving for their retirement. This will reduce red tape for small business while maintaining choice for individuals to choose their own superannuation fund. Lower costs will improve the ability of small businesses to compete and will increase productivity and, ultimately, the wages of Australian workers.

The government likes to talk about slashing red tape and increasing productivity but has been slow to act in these instances. The government originally promised to establish the clearing house by 1 July 2009. Senator Sherry released a discussion paper in November 2008, but then over 12 months went by with no further news from the government. The deadline passed without a murmur. The superannuation industry was left doubting whether the reforms were progressing. There are private operators which already provide clearing house type services to businesses. How could they invest with any certainty while the government sat on changes that would affect the industry substantially? We should not be surprised by the government ignoring these effects. This government does not understand business. Few of its members have ever run one. As in so many other areas, the government put a high priority on discussion and consultation but less on actually delivering results. It appears that an election year has finally woken the government from its slumber.

Notwithstanding the coalition’s broad support for these changes, the specific proposals that are in front of us here are different from those that the government initially proposed. We do not think that many of these changes have been adequately explained. Originally the government proposed to tender the operation of the clearing house to the private sector. The Prime Minister made this promise in his original 2007 proposal. At the time, Senator Sherry claimed that the government’s proposal would not create a new bureaucracy, because the government would leverage off existing private sector providers. The discussion paper in late 2008 continued to support a tendering process, yet in November last year something changed. Suddenly the government announced that Medicare would operate the clearing house; no consideration was given to the private sector operators. On top of the uncertainty the government generated by inexplicably delaying the establishment of the clearing house, it then took away the option for private sector operators to provide these services as promised. What changed in the 12 months after the government released its discussion paper? No-one knows, and the government has provided no explanation. As one company payment adviser said:

We did not hear from Treasury or anyone associated with the Government after putting in our submission. We worked to develop this solution and a few other people looked at what they could do to provide a solution to small business. And it was quite a shock late last year for a press release to say that the Government was going to give it to Medicare.

The coalition has two major concerns with this surprise decision. First, it would appear that the government is again rushing the implementation of a new program without doing sensible due diligence beforehand. Second, the special advantages that this bill provides to Medicare could have harmful effects on competition in this sector and ultimately push up the costs for businesses with more than 20 employees. The Senate inquiry on this bill has revealed that Medicare is worryingly unprepared to deliver these services to small business. It might be easier if I simply listed all the things that Medicare has not done.

Medicare has no estimates on the cost of providing free clearing house services. How much will costs be affected by the ultimate take-up by small businesses? We do not know. The government has allocated $16.1 million over four years, but we have no certainty of whether this is enough. Second, Medicare has not finalised its data-processing system or the types of payments that are to be accepted. Third, Medicare has not developed key performance indicators for the scheme. It cannot say how it will deal with any of the errors that arise. Fourth, Medicare has no targets for business take-up or time lines for getting the system up and running by the due date, nor has it committed to any time lines for remitting contributions to personal accounts. Medicare told the Senate inquiry that it could not commit to a time, because it did not know if there would be ‘issues with matching and some requirements for us to do follow-up work’. Funds that are not quickly transferred to the relevant accounts can have adverse effects on investor returns. We would have seen that lately. Medicare has not revealed how it will deal with the massive quarterly peaks in workloads when payments arrive. Sixth, we have not been assured that Medicare will establish a sufficient database to protect the life insurance and other entitlements of members.

It is almost unbelievable that the government had not worked through these issues before committing to use Medicare as its approved clearing house. If it had made a request for proposals from the private sector for these services, the government could have asked for all this information in bid documents. We would then be in a position to undertake proper due diligence, review the capacity of different providers and use pressure on different competitors to sharpen their pencils and provide the best deal for taxpayers. Instead the government has chosen a provider without any of this information being available. We are in the dark, and Medicare itself appears to be in the dark on its ability to deliver.

The government and Treasury have claimed that Medicare has been chosen for risk management reasons, but when the chosen provider cannot inform us of the kinds of details that normally would be contained in a bid document, how rigorous can that risk management process be? As Craig Osborne, Managing Director of MicrOpay, commented:

Medicare is not looking at the full detail that needs to be achieved when there are adequate private enterprise solutions out there ... To run with a government agency that doesn’t have a track record in collecting this information and collecting these sorts of funds, and doing the disbursements and matching and cross-checking that’s needed to ensure the system is efficient, has not been addressed or even contemplated.

The Senate inquiry had a number of existing private providers which could provide clearing house services. These providers already have road-tested systems to process transactions. They know how much each transaction costs and they could implement the government’s policies quickly. Indeed, many of these providers would likely perform clearing house functions for much less than the estimated $16 million cost to Medicare. One private clearing house operator has already begun free services to small businesses without any government inducements. But overpaying for things has become a very bad habit for the Labor Party.

We have further reasons to be sceptical of the government’s decision to ignore these private providers and their reasons for it. A failure to manage risk is becoming a pattern. We have seen them ignore the risks highlighted to them on the pink batts program, with tragic consequences. We have seen them ignore the risks of rorting the solar hot water rebates. We have seen them ignore the risks of cost blow-outs in school halls. Once again here, we see a government that is being reactive, waiting for the risks to materialise before acting. We need a government that proactively identifies and mitigates risks in accordance with the best due diligence practices.

This whole delayed and incomplete process is reflective of the inherent paradoxes at the heart of the Labor government. They are slow to act but then hasty to decide. They spend years asking questions but then ignore the experts. They are busy creating announcements but do not follow them through to implementation. In summary, they are incompetent. They are managers of public policy—not necessarily a do-nothing government but an achieve-nothing government. The coalition believes that the government should return to their original plan. We believe that a competitive tendering process would provide the strongest guarantee for the transition to a clearing house which provides free and seamless service to small business while providing no interruption to the services and returns that members expect from superannuation funds.

But in addition to the process of establishing a clearing house there is also the actual impact that these arrangements will have on the existing providers in the sector. In particular, this bill delivers the approved clearing house a number of special advantages over its competitors. First, this bill provides that employers will be able to discharge their superannuation guarantee obligations by making a bulk payment to the approved clearing house on the 28th day of the month in each quarter when the payment is required. But current private clearing houses must themselves process the payments by the 28th day of the month in which the payments are due, which means that employers must make payments in advance of that date. Under these conditions, why would any employer not choose Medicare as its clearing house? Obviously there is a cash advantage in the cash management capacity of sending to a clearing house that has a later date of real acceptance.

Second, at the moment the Australian Securities and Investments Commission requires clearing houses, as financial service providers, to issue product disclosure statements which must detail the conditions of the facility, the fees and charges, how transactions are to be made and authorised, and any risks associated with the facility. So Medicare will have a lower compliance burden than private operators, and small businesses could end up with less information on the terms and conditions of their facility.

One of the last acts of the Keating government was to introduce principles of competitive neutrality in the delivery of government services. In simple terms, this requires governments to ensure that their own enterprises compete on a level playing field with private competitors. This bill contains elements that contradict the principles of competitive neutrality. Medicare will have a clear advantage over private sector clearing houses. The coalition view is that there is a simple way of correcting this issue. There is a real opportunity to create a more efficient superannuation clearing house market by extending the definition of ‘approved clearing house’ to privately operating clearing houses holding an AFS licence and subject to prudential requirements—a change of the term to include privately operating clearing houses. This will create a more level playing field and allow employers to make their superannuation guarantee payments to a number of clearing houses with the same deadlines. The government should also select a government subsidised clearing house following a competitive tendering process. The coalition’s changes would increase competition and could be expected to lower fees in the sector.

As I stated earlier, the coalition supports the broad changes in this bill. We support the changes to give investors greater certainty about the operation of the tax system. We support the principle of establishing a superannuation clearing house to lower compliance costs for small businesses. However, we do not support achieving this by giving a government entity an unfair advantage over private suppliers and private businesses and the aspirations of other Australians to participate in this market if they so choose. The coalition’s proposed amendments will maintain a level playing field among clearing house suppliers. Competition is the best way to ensure that these services are delivered at a lower cost—and the government on budget day should be more focused on lowering costs than at any other time during the year—and, more importantly, that these services are delivered in a way that guarantees no interruption to the timeliness of superannuation payments and accordingly protects members’ benefits.

Annette Hurley (SA, Australian Labor Party) Share this | Link to this | Hansard source

On the Tax Laws Amendment (2010 Measures No. 1) Bill 2010, which I think is generally supported except for some issues about the Medicare clearing house, I will deal with just the issues that the Senate Economics Legislation Committee was asked to look at, and they were whether the legislation will have unintended consequences for the superannuation market, whether it is anticompetitive in relation to privately operated clearing houses and whether Medicare is an appropriate agency to operate the clearing house.

Superannuation is very important to Labor governments and to our constituency. It is the basis of the savings pool of Australia and is particularly important for the retirement incomes of ordinary Australians, because they do not have the ability to increase their money through private savings that other people do. Therefore, superannuation and the administrative requirements around it are clearly of great priority for Labor governments. That is why this bill in relation to superannuation has been particularly well considered and is a good solution to the problem. The problem, as was outlined, is that many small businesses, with the choice of funds which was introduced in July 2005, have some administrative difficulties in sending off the superannuation guarantee payments to a variety of funds under a variety of different data arrangements. So the government promise before the election was to create a clearing house for small businesses such that they could simply send the superannuation guarantee fund to that clearing house. As soon as the clearing house received it, those small businesses would be in compliance with their obligations under the superannuation guarantee system.

So initially, as the opposition outlined, the government did indeed envisage that the clearing house would be put out to tender. But, despite Senator Joyce’s diatribe on risk and the evaluation of risk, he did not once in his speech mention the key piece of advice which persuaded the government to change that original proposal to have private companies do it. That key advice was that if a clearing house is put out to tender there is a risk that a private company, in the event of incompetence, fraud or outright failure, could potentially affect employee entitlements of all employers using the clearing house. In other words, if there were some problem within the private clearing house, employees who expected that their superannuation was going to their fund might suddenly find out that, as a result of fraud or some other failure in the private clearing house, their superannuation had not been going for years into the fund but had disappeared into a clearing house.

This is the situation we have occasionally seen in the United States with private funds. It would mean that employees, ordinary Australians, would suddenly find that they did not have the superannuation that they thought they had. This is clearly a huge risk for ordinary Australians and it would mean that the Australian government would therefore have a contingent liability—and I have certainly heard Senator Joyce wax long and lyrical about the dangers of contingent liabilities. So, rather than ignore it, the government dealt with the risk proposed by that, and the way they did it was to provide a government agency to deal with this. Rather than set up a bureaucracy to oversee, regulate and deal with the possibility of a failure of a private company—and then not even have that guaranteed to work—they decided that it would be more prudent and less risky on many levels to set up a government agency.

Fortunately, there is a government agency used to dealing with money coming in from small groups in small amounts, and dealing with it quickly and efficiently, and that agency is Medicare. Medicare are already doing this kind of work. In their evidence to our committee, Medicare were very confident of their ability to perform this additional responsibility well and efficiently, and they were very clear about this. Senator Joyce talked about KPIs and various other things and said that Medicare admitted that they did not have these procedures in place. But this was a gross misrepresentation of Medicare’s evidence. Medicare have set up a working group with involved parties to deliver a flexible, responsive and appropriate set of guidelines. They are confident that they will have those in place by the time this is up and running and they are confident that they can do it within the budget required.

Small businesses were happy with that response. Indeed, AustralianSuper very concisely illustrated that. As they said in the Senate Economics Legislation Committee report:

Australian Super also did not agree that allowing existing clearance houses to participate would be a more efficient way of processing superannuation for small business:

If the government were to offer subsidies to existing clearing house providers to focus a service on this segment of the market, they probably could have done it, but it would have to have been in conjunction with legislation introduced as we have seen Medicare looking at—mandatory electronic data, mandatory data standards, licensing, a guarantee on floats, and service standards on how long a clearing house can hold onto the money and send it to the funds. If your question is, ‘Could private clearing houses provide this service with the subsidy going to them?’ the answer is: yes, they could have, but it would not have been as effective as the model that we are looking at now, unless it were in conjunction with a whole list of additional criteria.

AustralianSuper raised in there another point—that Medicare now has the ability to organise the data standards and the arrangements so that they are uniform across the sector, making it even easier for small business to provide the correct data in a uniform manner that will enable further efficiencies in the sector.

As for the private sector being cut out of this sector, they are able now—and they will continue to be able—to provide a clearing house service if they wish. But the committee took evidence that, of the two million small businesses in Australia, only around two per cent are currently being provided with clearing house services by SuperChoice, the largest private provider. The private providers have not been especially active in seeking this business and, if they have, they have clearly not been very successful, because only two per cent of those small businesses are operating with them. We have to remember that this is only for small businesses employing 20 or fewer people. Private clearing houses are still able to get business from any small to medium enterprise that has 20 or more players. It is not as if the market is being taken away from them; they are still free to complete in that market.

Speaking of 20 or more employees, the one area of the bill that the committee did make some recommendation on was the limit of 20 being monitored to make sure that businesses that had spikes in employment were adequately catered for. We were assured that there would be some flexibility in there, but we would like to make sure that those businesses that might employ 10 or 15 and have a seasonal spike and put on another six, seven or 10 employees, will not be disadvantaged by the system and have to leave it temporarily.

It is quite clear from our evidence that the government were presented with an unacceptable risk in dealing with the issue of tendering out to private services for this clearing house. They dealt with the risk in a pragmatic and responsible way. I was very pleased to see that that then got industry support from a broad range of sources. Industry was very pleased that this happened—both small businesses and the superannuation industry. It is a rational and reasonable response and I would urge the chamber to support this bill.

Alan Eggleston (WA, Liberal Party) Share this | Link to this | Hansard source

We believe this bill, the Tax Laws Amendment (2010 Measures No. 1) Bill 2010, providing for Medicare to be the clearing house for superannuation for small companies, will significantly disadvantage private organisations already in the field. It is interesting that during the 2007 election Kevin Rudd promised that the Labor government would establish a superannuation clearing house by 1 July 2009. Labor, of course, have failed to meet this promise. Prime Minister Rudd also promised that the clearing house would be contracted to the private sector. The discussion paper on the legislation issued in November 2008 also stated that the government would contract the clearing house to the private sector. However, in November 2009 the Minister for Financial Services, Superannuation and Corporate Law, Mr Bowen, announced that Medicare would be awarded the contract. In other words, there was not to be any competition. The fact that there were private companies already providing this service was ignored. The government decided that Medicare, which had no experience at all in dealing with superannuation, would be awarded the contract to provide this clearing house service.

We find that very hard to accept and understand because the private clearing houses not only have a lot of experience in this area but are obviously going to be competitively disadvantaged by Medicare coming into this market. Treasury has not been able to explain why Medicare was awarded the contract by the government. We on the coalition side feel that the government should be getting best value for money, and yet no competitive tender was issued. We find that quite hard to understand. Witnesses to the Senate inquiry on the legislation, which I was involved in, indicated that Medicare has no experience in the superannuation field and does not know what it is getting itself into. It is inadequately prepared and it has not developed a business plan to provide this service.

The government has awarded $16.1 million to Medicare to operate the clearing house over a four-year period. However, many experts in the private sector have said that the costs will inevitably blow out and that Medicare will not be able to provide the service within this budget. Private sector companies have provided these services in the market for years and have designed and implemented innovative technology to deliver low-cost services to employers and superannuation funds. We find it very hard to understand, as I said, why the private sector has not been offered the opportunity to participate in the provision of this service.

At the inquiry, the Superannuation Information Centre submitted that the decision to send the clearing house to Medicare means that there is serious potential for large-scale economic waste. They pointed out that it is not clear if Medicare will be subject to the same professional indemnity insurance that private clearing houses are required to hold. Senator Hurley has said that there was concern that the private sector might default in some way and that employees would find that their funds for superannuation had not been passed on to the superannuation funds. But, of course, if these private sector companies have indemnity insurance then that is not a matter of concern. It seems that Medicare does not have private sector indemnity insurance and it may be that the real concern is whether or not Medicare will be the defaulter and whether employees may be at greater risk if Medicare is handling this service. If in some way there is a problem meeting deadlines and so on, employees may not be covered in the way they would be were the service provided by the private sector. These are very serious concerns that we in the coalition have with this legislation and we certainly believe that more consideration should be given to it.

But basically we are really concerned about why the government has not explained the reason for breaking its commitment to tender the service to the private sector, that Medicare has not publicly made a business case for establishing the clearing house and that many operators in the superannuation sector have expressed concern about the anticompetitive nature of this decision by the government.

We really do believe that there is a very strong case for private sector superannuation clearing houses to be given the opportunity to compete for this market. The sector’s largest clearing house, SuperChoice, told the Senate inquiry that currently it is processing around 20 million contributions on behalf of 50,000 employers, 40,000 of whom are employers with fewer than 20 employees. They account for two million-odd employees. SuperChoice said: ‘Overall we project about $7.2 billion will be cleared through our service. We estimate that it is around 20 per cent of the entire clearing market.’

The superannuation fund contracts the clearing house transactions to companies like SuperChoice who provide their services to the employers free of charge through their chosen super fund. We in the coalition believe that if the government goes ahead and introduces its own clearing house operator and enforces preferential regulations on that operator when compared to the currently operating clearing houses, the legislation has the potential to seriously impact upon the business of those privately operated clearing houses. In other words, giving this contract to Medicare may well so adversely affect some of these privately operating clearing houses that their businesses will be made non-viable.

At the inquiry which the Senate Economics Legislation Committee held, Westpac made the following comment in its submission on the different superannuation guarantee requirements:

This important difference means that private sector clearing houses, such as Westpac’s QuickSuper, will be forced to compete in a market distorted by the change and no longer uniform or equitable from public and private sector participants. This will have negative consequences for small business who choose to continue to use private sector clearing houses.

Westpac recommended that the legislation be amended to ensure clearing house standards are the same across both the private and public sectors.

While the intentions of Medicare may be to provide a superannuation clearing house to those employers who cannot currently access a free service, the legislation and regulations will allow absolutely any business with fewer than 20 employees access to a free service, and that is where the threat to the viability of the private superannuation clearing houses comes in. For example, the 40,000 employers who use the SuperChoice clearing house service will have an overwhelming incentive to switch to the free Medicare clearing house due to the far less stringent requirements for discharge of super guarantee payments through Medicare.

The government has recently said that the way superannuation can be strengthened is to drive efficiencies, reduce administrative costs and thus increase returns, and this is the exact opposite of what the superannuation sector will achieve by this bill in its current form if it is passed. As IFSA stated in their submission:

If the Item 3 amendment is passed as drafted, we would be concerned about the erosion of the “level playing field” in the provision of clearing house services.

IFSA has long maintained that competition is the key to an efficient and cost-effective superannuation system and that this should occur on a level playing field. Quite obviously, if Medicare is allowed to be the sole provider and it is providing its services free of charge, there will no longer be a level playing field.

AFSA, another superannuation provider, suggested that the legislation could be improved by amending it so as to provide a path forward whereby private sector organisations could achieve approved clearing house status and that that would provide a level playing field. They said:

The path forward could include the establishment of operating standards combined with regulatory oversight, as envisioned by the government’s original statement. Importantly, this would ensure clearing houses meet certain minimum requirements and provide a wider range of employers with the opportunity to meet their SG obligation by contributing through a clearing house.

We in the coalition are very disappointed that the government has broken its original commitment to put this clearing house service out to tender and can only say that it is typical of the 1930s socialist approach of the Rudd government. The government has to do everything and yet out there in the community we have these very efficient private sector superannuation clearing house operations. There is absolutely no reason why these organisations should not be given the opportunity to participate in providing superannuation clearing house services to these companies which are the target of this legislation.

Quite worryingly, Medicare’s evidence to the inquiry demonstrated that the agency has not completed a business plan to a level which would have been required in a competitive tender process, and in the course of their evidence Medicare made the following comments to the hearing. Firstly, they said:

We do not have any targets at this point in terms of the number of businesses which are going to use the system.

In other words, they have no idea how many businesses are going to use their system. Therefore one has to ask: how are they going to gear up to provide the service?

They said that they did not go and cost an alternative provider. They said: ‘We are considering options to accept employer payments. We have looked at the alternatives. We have not reached any firm decision on that and we are still talking with the industry about that.’ Medicare said:

We have a wide range of KPIs … I cannot imagine we would deviate from the normal Medicare ones. We have payment cycles of 14 days for some things as well as other time frames.

This may mean that they miss the deadlines for the payment of super into the super funds if they stick to their existing 14-day time frames for payments.

Then there is the question of upfront validation. Medicare said:

We do not check with the fund at that point to ensure the member details match up when the employer sends us a payment. … At this stage we are not planning to do that sort of validation.

One has to wonder what sorts of standards private Medicare will have in acting as a clearing house for superannuation and whether the slack approach, the apparently vague approach, demonstrated by these statements of Medicare—that indicate they have not really come to grips with the requirements of providing superannuation by time deadlines—is going to mean that the employees are going to be disadvantaged by the vagueness of the Medicare operation.

Private clearing houses also have raised concern about Medicare being awarded this contract, on exactly these grounds. SuperChoice said:

… a significant underestimation of the costs to build and operate an effective clearing house, particularly in the time frame that Medicare has been given—

is a matter of concern. They continued that there will be:

… likely poor employer experiences as a result of rushing into operation of a functionality based service offering, which will lead to growing employer complaints and an increase in red tape for employers; relatively low benefits for super funds, which will be offset by the cost to access the clearing house; an inequitable landscape, where 85,000 employers who employ 7.7 million employees are not offered the same level of benefits that SME employers will access through Medicare; and ultimately a missed opportunity to support the industry to advance its e-commerce aspirations.

The Superannuation Information Centre submitted that the decision to send the clearing house to Medicare means there is a serious potential for large-scale economic waste.

In conclusion, I say that, given the evidence available, Medicare and Treasury have not been able to prove that Medicare can handle the scheme at the budget provided without risk to employee superannuation payments. Many in this industry have legitimate concerns about how Medicare will operate the scheme. I think that leads to the conclusion that this is bad legislation which needs to be amended to provide choice to employers rather than forcing them to use the Medicare system.

Michaelia Cash (WA, Liberal Party) Share this | Link to this | Hansard source

I welcome the opportunity to speak on the Tax Laws Amendment (2010 Measures No. 1) Bill 2010. As many speakers have alluded to on this side, the bill introduces a number of measures, the majority of which are supported by the coalition. However, as has become a hallmark of the Rudd Labor government, as history since Rudd Labor have been in power now dictates, everything that this government does you need to look very carefully at. You need to carefully review the details of their legislation. In reviewing the detail of this legislation, we find incorporated quietly into the provisions of this bill, in the hope no-one will see them, provisions that are of real concern to the coalition. These provisions relate to the government’s policy to implement a superannuation clearing house for small business. Surprise, surprise: the provisions that are of concern to the coalition relate to yet another broken promise by the Rudd Labor government. But nothing is new in that regard. Those on the other side continue to mismanage and waste taxpayers’ money. They are chronically incapable of delivering sound government to the Australian people. And we are going to see in question time today the shaking and the quivering when they are made to answer questions in relation to their proposed super tax.

Kevin Rudd Labor is all talk and no action. This is yet another broken promise. The government promised to protect our borders; they failed on that. They have monumentally and tragically failed on the Home Insulation Program. They have failed to deliver value for money to taxpayers with the so-called Building the Education Revolution. They have failed in relation to the creation of their GP superclinics. The list goes on and on. The question that the Australian people are entitled to be asking this government is: what exactly does Mr Rudd stand for? The only thing on this side we can see him standing for is short-term political opportunism. Everything he does ends up in a policy backflip, a backdown or a disaster. The only thing Kevin Rudd is prepared to fight for is himself, especially in light of the rumours circulating regarding the new Labor leadership team—and the bad news for Mr Rudd is that his name is not on it. Julia Gillard and Craig Emerson must be very happy at the moment. What do we have with this legislation? Yet another broken promise by the Australian Labor Party.

Why do we say it is a broken promise? During the 2007 election the Labor Party promised to the people of Australia that they would establish a superannuation clearing house by 1 July 2009. The question that we now need to consider is: did the Labor Party deliver on that promise? The answer is a resounding no. The Labor Party failed to deliver on an election commitment to the Australian people. However, there was of course, in typical Labor style, a flurry of action in relation to this now broken promise. What did the Labor Party do? An amount of $16 million was allocated to the clearing house in the 2008-09 federal budget to form what the government called an election promise to reduce the superannuation red-tape burden on employers. What did they then do? They issued a discussion paper for the clearing house, which was released in November 2008, seeking submissions by 19 December 2008. Then what happened? Absolutely nothing. There was a deafening silence from the Rudd Labor government. We did not hear one word from them, which may be okay for those sitting on the other side, but the industry was left guessing as to what may happen in relation to the potential changes to its regulatory environment. But, again, as is the history of the government, you expect nothing more and nothing less.

I said that this legislation represented two broken promises by the Rudd Labor government, the first being their blatant failure to actually deliver on a commitment that they gave to the people of Australia prior to the 2007 election. What was the second? On 26 November 2009, after they had failed to deliver on their election commitment and realised that they had to do something because the industry were saying, ‘We’re up in arms. What are we going to do? We actually don’t know what is going on,’ they released an exposure draft on the superannuation clearing house legislation. What did they quietly do through the exposure draft? They announced that the Labor government would not tender the clearing house to the private sector and had decided to fund Medicare to deliver the service rather than the private sector. What do we have by that announcement? Another broken promise by Rudd Labor because, in 2007, when Mr Rudd was the opposition leader, he issued a media release. On 10 May 2007, Mr Rudd stated very clearly that the clearing house would be contracted to none other than—no, not Medicare—the private sector. Mr Rudd, as a potential leader of this country, said to the people of Australia, ‘If I am elected, the clearing house will be tendered to the private sector.’ One has to ask: did Mr Rudd ever have any desire to actually deliver on that promise? It is a blatant election breach, so the answer to that is a clear and resounding no.

What do we now have? We have the legislation before us, which represents part of a broken promise to the Australian people. But, in November last year, without any warning, without any explanation, the Minister for Superannuation and Corporate Law announced that the clearing house would be awarded to Medicare. One has to ask: where did that decision come from? How can the minister go from, in 2007, a pre-election commitment that the clearing house would be awarded to the private sector to, in 2009, saying, ‘We’ve awarded the superannuation clearing house to Medicare’?

What we do know, though, is that there are leaked Treasury minutes from the working group on the issue that indicate that Treasury consider that clearing house operations under Medicare will lack functionality when compared to that offered by the private sector and, in particular, that BPAY is to be the only payment method supported, not direct credit or direct debit—something that people often use—and that industry standard data formats will not be used. How is that for efficiency? But I tell you what: based on the government’s reputation, I would prefer the evidence from the leaked Treasury documents as opposed to believing any statement from those opposite. The government is clearly vulnerable in deciding to award the clearing house contract to Medicare and, in so doing, it refuses to answer the question: why did the government award the contract to Medicare? It is a very simple question.

Treasury, during a recent estimates sitting, refused to answer any questions. In the explanatory memorandum on this bill the decision is mentioned only once. Then we had Medicare claiming that they had completed costings on this proposal but then they refused to publicly release what those costings were. I would have thought that the public are entitled to know just how much this funding of Medicare will cost them. Medicare have also admitted that they have not finalised their system for data processing and the types of payments to be accepted. That is in stark contrast to what could have been occurring in the private sector. Contrast Medicare’s situation to that of Australia’s largest superannuation clearing house, SuperChoice. They made a detailed submission to the government. They stated in their submission that they would be able to implement the government’s policy at a fraction of the government’s anticipated cost of $16 million. I thought Mr Rudd was all about savings. That is all the spin that he gives to the Australian people, but what is the substance? It is absolutely lacking. SuperChoice’s submission refers to $1.57 million in start-up costs, $200,000 per month in operating costs and between a $15 and $60 per month cost for each employer using the scheme, depending on the take-up. That is a stark difference to the $16 million under Medicare, which has been quoted by Rudd Labor.

So what do we have again, in contrast? SuperChoice and other private providers have detailed computer systems already in place and could easily incorporate additional employers under the government’s plan. Instead, what do the government do? They say: ‘No, no, no. Forget about functionality, forget about operational efficiency, Medicare can do it even if they are required to create and implement a processing system from scratch.’ Talk about reinventing the wheel at taxpayers’ expense! There has been no justification provided by the Rudd Labor government as to why it awarded the contract to Medicare. If I were a member of the Australian public—and I am—I would be very, very worried. I would have thought it more appropriate for Medicare to be discharging its core responsibility of delivering services to the Australian public than designing a computer system from scratch and doing something that, quite frankly, it should not be doing. The questions the Australian public should be asking—and which those on the other side should be answering—are: how will Medicare deal with the quarterly massive peaks in workload created by the operation of the clearing house? How are they going to staff this? Are there going to be additional staff provided to Medicare—again, at additional cost to the Australian public? The public are entitled to know the answers to these questions. Medicare’s preparation to operate the clearing house is an example of a government agency getting involved in a sector where private companies have been operating efficiently for many, many years. Giving any government—let alone a Labor government—control over millions of dollars of superannuation payments is a very, very dangerous thing.

So what have the coalition done? The coalition have proposed an amendment to the legislation. That is right, the coalition want to assist the government in meeting its 2007 election commitment. We support the superannuation clearing house for small business. We believe it will lower compliance costs associated with the SuperChoice system. However, the coalition have a responsibility to hold the Rudd Labor government to account in relation to its political waste and management of taxpayers’ money. Our amendment to this legislation is therefore a very, very simple one. The amendment will merely force the government to have Medicare compete for the private tender. That is it. It is all about choice—nothing more and nothing less—which is something those on the other side are fundamentally opposed to. The amendment does not actually tell the government how it will achieve this choice; it simply requests that the decision to name Medicare as the operator over private sector clearing houses be made transparently and with good reason.

‘Transparently’—isn’t that a word that Mr Rudd used prior to the 2007 election? Has Mr Rudd come clean with the Australian people on the issue of transparency? This legislation continues to affirm that he has not. Unlike Medicare, private superannuation clearing houses have already invested millions and millions of dollars in designing efficient systems that process millions of transactions every year. Why is the government so insistent upon reinventing the wheel? Our amendment does not give the project to the private sector; it merely ensures that the private sector has a chance to compete for it. What we want the government to do is to ensure that it chooses the most effective and most efficient option for delivering clearing houses to small business. The question I ask those on the other side is: given the very, very clear election promise that Mr Rudd made to the people of Australia in 2007, are those on the other side going to stand here today and vote down the coalition’s amendment, which effectively means they will be voting against their own election commitment? This is the commitment Mr Rudd made prior to the November 2007 election.

As I said at the beginning of my contribution, the opposition support many elements of this bill. However, we have major reservations about the impact of the proposed government clearing house. This part of the legislation is nothing more and nothing less than a backward step by the Rudd Labor government. To depart from a very, very clear and explicit election promise to have a service that is provided on a contestable basis is a failure by the Rudd Labor government. In his speech on this legislation my esteemed colleague Luke Hartsuyker, the member for Cowper, said:

We have no problem with the allocation of the job of the government funded clearing house to Medicare if Medicare is able to compete with private sector operators and put in a bid that is price and service competitive and offers the same degree of amenity or better amenity than is being offered by private operators. But there is a very distinct possibility that we are going to squander large amounts of government money and see a more expensive solution and a less customer orientated outcome.

It is the Australian taxpayers who will lose out in the end if this legislation goes through in its current form. It is their money that is going to be squandered by the Rudd Labor government. To ensure that taxpayers are getting value for money, to ensure that private businesses do not suffer, to ensure that life insurance is protected and to ensure that this exercise does not turn into yet another of the bungled Rudd Labor government’s exercises, I urge those on the other side to support the coalition’s amendment.

Christine Milne (Tasmania, Australian Greens) Share this | Link to this | Hansard source

I rise today to make some remarks on theTax Laws Amendment (2010 Measures No. 1) Bill 2010. I particularly want to comment on the forestry managed investment schemes part of the legislation, and to note that what this particular amendment is doing is protecting the right of a taxpayer to claim and retain a deduction for investment in forestry managed investment schemes where the four-year holding rule is breached for reasons outside the taxpayer’s control.

Clearly, this is being brought in because of the failure of a whole range of managed investment schemes—in particular, Great Southern, Forest Enterprises Australia Ltd, Timbercorp, Environinvest, Radiata Plantations Ltd, and on and on the list goes. We all know that, because of the recklessness of the managed investment scheme product, we have a situation where investors got an upfront tax deduction. The government moved to bring in an integrity measure saying that you had to hold that investment for four years so that people did not just move in, take on the investment, get the tax deduction and move out.

In my view, we should have abolished managed investment schemes altogether. That is still my view. I would be very interested to know why the government maintains their support for forestry managed investment schemes when we have a glut of wood product from one end of the country to the other and one end of the world to the other. Now is the opportunity to protect our native forests if we want to have any value at all left in this wall of wood that is now in Australia. But, having said that, the situation we now have is to protect those people who made their investment in these managed investment schemes, and they are not the ones who sold out of them—rather, the company that they invested in collapsed.

In talking about these managed investment schemes, though, I think we need to go a lot further than we are here. We really need to ask: what is the role of the tax commissioner and the discretion that the tax commissioner offers in relation to these particular products? I am aware that, in 2000—and this is from a paper by Dr Judith Ajani—the government responded to the Ralph review of business tax with, amongst other things, division 35 amendments aimed at removing the practice of presenting consumption expenses for non-commercial activities as business expenses. That led to a test on division 35 rules for commerciality.

The test was that business people had to pass one of the following: that they had an assessable income from the activity of at least $20,000, or had produced a profit in three out of the past five years, or used real property or an interest in real property worth at least $500,000 on a continuing basis, or used other assets worth at least $100,000 on a continuing basis. Leaving aside very important arguments about the commerciality test’s arbitrary and inequitable nature and scope for improvement, a review of matured hardwood plantation MIS investments would probably find that most of them failed the first test, and probably no plantation MIS investor would pass the other three tests.

So what has happened is that plantation MIS investors have received dispensation from division 35, with the ATO commissioner exercising discretionary powers in specified areas. The commercial loss provisions, which are specifically addressed in product rulings, require the tax office to consider the commercial viability of plantation MISs. And, in using his discretionary powers to give plantation MIS investors the right to deduct investment costs against income earned from other activity, the commissioner must have judged that plantation MIS investments are inherently commercial by some criteria. But we have no publicly available data on the tax office’s operation of division 35.

Since 1998 we have had a series of tax commissioners. They have all used their discretion to give a product ruling, essentially, on these managed investment schemes. It is a tick for the tax concession, and therefore it is also a tick on viability—it is sending a clear message to investors that the tax commissioner has made a judgment that these must be viable financial investments to have achieved the product ruling and to have achieved the tax concession.

So I think it is really about time, as Dr Ajani points out in her paper, that we had a really good look at the tax office and the commissioner’s rulings and discretionary power, and at the reasons why that assessment of viability was made, when we have had, subsequently, collapses from Great Southern, Forest Enterprises, Timbercorp, Environinvest, et cetera. How could the tax commissioner have been giving, essentially, this nod of approval about financial viability when, clearly, that has not stood the test of time?

Dr Ajani argues:

To create the information for policy debate and policy making, evaluation and monitoring, it is recommended that:

1.

Treasury and the ATO conduct five-yearly reviews (with the first to be undertaken immediately) of the process and information used to rule on plantation MIS dispensation from Division 35 commerciality tests.

2.

The ATO, ASIC, Treasury and Productivity Commission establish a publicly accessible plantation MIS reporting and monitoring system where, at a minimum, the key variables—return on investment, wood yield and woodchip prices—are tracked over time for each project.

and that:

3.

The Productivity Commission’s ERA estimates be expanded immediately to include assistance through plantation MIS using, in the first instance, Approach 1—tax deduction for true costs only.

I think we really have got to the point where we need some explanation from the tax office and the tax commissioner as to the basis for their discretionary use or interpretation of that particular section of the tax act. I would be very interested in the division 35 rules in trying to understand what criteria were used for judging that plantation MIS investments are inherently commercial. We have never, ever seen that from the tax office, but it is about time we did because a lot of people have lost out through this process in rural and regional Australia. It has led to a complete distortion in land use. It has led to a clash between food security and wood product, and now we have what is a complete collapse in the wood products industry around Australia. This is probably one of the biggest examples of a public policy disaster that Australia has seen, and certainly as rural and regional Australia see it at the moment. When you look at the complete collapse of the timber industry and the whole of the forest products industry in Tasmania, you can sheet home a lot of the blame to a complete failure to look at the market realities of the wood products industry globally and the failure to recognise the glut and the distortional influence of managed investment schemes.

I also give notice that I will be moving an amendment to this legislation in the committee stage to abolish the tax deductibility for carbon sink forests, given what I have just said in relation to the glut of wood products around the country and because of the need to test the tax office ruling in relation to whether the upfront costs of land are incorporated in the tax deduction. I recognise that there is a statement saying that they are not, but we will wait and see what a court has to say about that, given the way that that has been packaged and the advice I have from a leading tax barrister in that field who is looking at the law. It is very clear to me that, if we are to have carbon sink forests in rural and regional Australia, they must be biodiverse and permanent, not some other dodge for yet another excuse to go in with monoculture plantations and again make some sort of profit out of that distortional influence in rural and regional Australia, particularly as it pertains to land prices and, as is coming down the line, food security.

Today we have a report on the loss of biodiversity across Australia. It is 30 per cent less than we had in 1970 and, at that rate, we will be losing all species by the end of the century. It is a pretty sobering kind of analysis of what is going on with our wildlife around Australia. What we desperately need in the face of climate change, peak oil and this species crisis are policies that lead to the restoration of ecosystems, the maintenance of existing ecosystems and the protection of existing carbon stores in terms of forests and native vegetation, not some distortional policy, such as the government has in place here, which is yet another example of having monoculture plantations to try to benefit from taxation minimisation schemes. This is something that the coalition also needs to look at very carefully in its climate change policies and to make sure that there is recognition that what we currently have in carbon sink forests legislation is totally flawed. It does not have biodiversity and it does not have permanence in its sights. It is just another one of these poorly thought-through schemes. So I indicate that, when we get to the committee stage, I will be looking at that and moving an amendment on it.

I also want to say that I think it demonstrates a complete lack of courtesy to the Senate for the government to have dropped in a whole swag of amendments three or four minutes before this debate. I did not see them until 25 past 12 today. I do not know whether the coalition had the opportunity of seeing and being briefed on the amendments that were dropped here just before this debate began; perhaps the coalition may wish to clarify whether they did have that opportunity. I did not and I am not prepared to proceed beyond the second reading stage until there has been the courtesy of a briefing to the various parties in this place as to what these amendments mean. I note that there appears to be a connection between managed investment schemes and managed investment trusts. I do not know what that means and I would appreciate some explanation. I note that page 19 of the Bills Digest says:

As the Explanatory Memorandum for the current Bill explains, a wholesale trust ‘is a MIS [Managed Investment Scheme] that has wholesale clients and is not required to be registered under the Corporations Act 2001’

I notice that, in one of the proposed amendments we have, ‘Proposed subdivision 275(a) extends the concept of managed investment trust to certain widely held trusts that do not otherwise meet the definition of a managed investment trust.’ I want to know whether, under some circumstances, managed investment schemes are regarded as managed investment trusts and what these amendments mean in terms of their treatment. It may be, as the minister has claimed, that this is just a technical amendment that has no significant meaning in the scheme of tax law. I am not an expert on tax law by any stretch of the imagination and do not pretend to be, but I would appreciate an explanation from the government as to the connection between the changes being proposed for managed investment trusts and managed investment schemes in terms of how the two operate and connect. If the government does want the Senate’s support for amendments, particularly in areas like tax law, which is hugely complicated, it has an obligation to circulate those amendments not with a couple of minutes to go before the debate.

To conclude, I am glad that ASIC currently has out a consultation paper regarding managed investment schemes. In my view, it is about time that ASIC took its responsibilities in relation to these schemes a little more seriously than it has in the past. When I wrote to ASIC about the fact that I regarded these managed investment schemes as no more than Ponzi schemes, I got a note back saying that it was beyond the capacity of ASIC to make judgments like that and that they had to look at the product disclosure briefs in their offerings to make sure that they adhered to certain regulatory disclosure, but no judgment could be made as to the veracity of those. In my view, that is misleading investors.

I am pretty disgusted all round with the way managed investment schemes have worked. For the life of me, I cannot understand why the government would continue with this structure of managed investment schemes when it is very clear that they have been a disaster in terms of forest policy, wood products and the price of agricultural land and now they are a disaster for a whole range of investors who went into them not because they were interested in wood products but because they were interested in minimising their tax. Once you separate the reason for the investment from the outcome, as occurs with managed investment schemes, you are setting up a disaster.

I would like to see the government get rid of managed investment schemes altogether. I think we are going to be cleaning up the mess from those schemes for a very long time to come, especially as they pertain to land use in rural and regional Australia, wood supply and the wood products industry around Australia—not to mention integrity. I am particularly keen to know from the tax commissioner the basis on which he has deemed, since 1998, for more than a decade, these managed investment schemes to be commercially viable. The community has a right to know why the tax office gave that tick of approval.

Nick Xenophon (SA, Independent) Share this | Link to this | Hansard source

I endorse wholeheartedly Senator Milne’s comments in relation to managed investment schemes. I note that Senator Milne will be moving an amendment to the Tax Laws Amendment (2010 Measures No. 1) Bill 2010, which I will be supporting, in relation to managed investment schemes. If I could add to one of the criticisms that Senator Milne made about these schemes, not only do they affect issues around wood products, agricultural use and land use, they also affect water. They distort the water market. They act to intercept water that otherwise would be going to river systems, which completely distorts both the use of agricultural land and the inflow of water into our river systems. So I will be supporting that amendment strongly, and hopefully the government will see the logic of clamping down on these schemes.

I should also foreshadow that I will be moving, in the same vein, in a sense, as Senator Milne’s amendment, an amendment to formulate a test, to be known as a ‘public benefit test’, against the aims and activities of entities, whether they be religions or charities, to receive tax-free status. My colleagues know of my position in relation to the Church of Scientology and of my moves to have an inquiry into it. We should go down the path of having a public benefit test, and this bill is as appropriate a vehicle as any other tax amendment bill to deal with these matters.

In relation to this particular bill, ask any small business owner and they will tell you that one of their biggest burdens is red tape, with administrative costs on par. It is time consuming, frustrating and confusing, and anything that reduces time and money spent on administrative duties so that they can focus on the business itself is ideal. Small business owners can have anywhere from one to 20 employees, and it is more than likely that each of these employees has a different superannuation fund, so many small businesses opt to use a clearing house service, where the provider receives a total deposit for all its employee super payments from the employer and deposits the relevant moneys and funds accordingly. The establishment of a government-run optional superannuation clearing house seems a logical step which will, most importantly, enable employers to extinguish their superannuation obligations with a single payment to the approved clearing house. This means that, once the employer has made their payment to the clearing house fund, they will not be liable for a superannuation guarantee in instances where the superannuation is, for whatever reason, not paid to the employee’s fund.

I understand the concerns of the opposition and of some stakeholders in terms of the allocation of this project to Medicare and the effect that it has on competition in the sector, and I note Senator Cash’s impassioned speech about the promises that were made at the last election, but it seems to me that the issue is about the implementation of this. The issue is about facilitating this for employers, and the clearing house is the way to go. I note that the Association of Superannuation Funds of Australia says that this measure was:

The most significant first step in lowering administration costs for employers ...

and therefore it is to be welcomed.

I will speak to the opposition’s amendments when they are moved, during the committee stage. It is important that we consider the risks involved in this going to a private fund. Given the time constraints, I think it is more appropriate to ventilate the issues in the context of amendments that will be moved by the opposition in the committee stage. I support the second-reading stage of this bill. I will listen to the arguments in relation to the opposition’s amendments; but, from what I have seen so far, this seems to be a sensible way forward in dealing with the issue. Administratively, it seems to be the cleanest and most effective way of relieving the burden on small businesses of their superannuation obligations where there are multiple funds involved.