Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

I table a revised explanatory memorandum relating to the bill, and move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

Today, I introduce a bill that amends various taxation and superannuation laws to implement a range of improvements to modernise Australia's tax system. This bill also furthers the Government's commitment to update and continuously improve the Australian tax and superannuation systems.

The bill will also remove uncertainty from our tax and superannuation laws and remove laws that are ineffective and outdated. And it will make our laws more relevant and provide incentives for investment so that Australia is well-placed to compete on the global stage.

This Government, with the release of the Tax White Paper on 30 March 2015, is demonstrating its ongoing commitment to Australians to modernise our tax laws and making genuine reforms.

The amendments today are a step towards that.

Schedule 1 to this bill will abolish the first home saver accounts scheme.

When first home saver accounts were introduced by the previous Government, they were expected to hold around $6.5 billion in total combined savings after four years. At the beginning of last year, more than five years after the scheme was introduced, fewer than 50,000 accounts were open, and containing total combined savings of only $540 million. This is less than 10 per cent of the previous Government's prediction.

The scheme is being abolished using a phased approach.

New accounts opened from the 2014-15 Budget night will not be eligible for any concessions. For existing account holders, the Government co-contribution and the tax and social security concessions will be phased out and abolished from 1 July 2015.

This Government recognises that home ownership is an important goal for many Australians; for many it will be the most significant financial investment they make. We recognise that rising housing costs are a concern, especially for young Australians and families.

However, it is clear that first home saver accounts have not helped address rising housing costs in Australia. If we are to help young Australian families realise the dream of owning their own home, then we need to address the real issues faced by families looking to enter the property market.

The supply of housing is not keeping pace with recent growth in demand. To improve housing supply, regulatory barriers relating to state and local governments' planning, land use and housing infrastructure policies must be removed.

While housing supply is primarily the responsibility of state and territory governments, we are working together to reduce the red tape that holds up the supply of housing and construction and to increase land release for new homes. This will improve housing affordability, and will allow more Australian families to realise the goal of home ownership.

Abolishing the first home saver accounts scheme will save more than $130 million over five years.

Schedule 2 to this bill will also abolish the Dependent Spouse Tax Offset with effect from 1 July 2014, as announced in last year's Budget.

We want to make sure that the tax system is equitable for all Australians. That means making sure concessions in the personal tax system are well targeted, including tax offsets. At their core, concessions need to assist the people they're designed to help, and provide support where it is most needed.

When the Dependent Spouse Tax Offset was introduced many decades ago, its purpose was to provide a concession to taxpayers who 'maintained' a dependent spouse. It was introduced at a time when the welfare system was in its infancy. With changes in our society and our economy, this offset is obviously outdated.

Maintaining concessions that have outlived their purpose is simply not sustainable — particularly in view of other assistance available through the welfare system that is more targeted and appropriate and the need to promote workforce participation as our population ages.

This measure is not about undermining our strong social safety net. Rather, it is about future-proofing it. That's why the Dependant (Invalid and Carer) Tax Offset, introduced in 2012, will still be available. It's already constructed in a way that takes account of current arrangements in the welfare system. It is an offset for those taxpayers supporting a dependant who is genuinely unable to work due to carer obligations or disability.

Abolishing the Dependent Spouse Tax Offset completes phasing out the offset, which the former Government had already commenced. For most taxpayers, eligibility for this offset is currently restricted to taxpayers with a spouse born before 1 July 1952. Its abolition is expected to return $320 million to the budget over the years to 2017-18.

This is an important step towards repairing the budget, because it means maintaining Australians' living standards well into the future.

Schedule 3 to this bill amends the taxation law to modernise and improve the integrity of the Offshore Banking Unit regime.

In January 2014 the Government announced that it would delay the start date for this measure to ensure that this concession was better targeted and also to address integrity issues. The changes we have proposed include key recommendations arising from the 2009 report Australia as a Financial Centre, known as the Johnson Report, to promote Australia as a regional financial services hub. One of the key focus areas of that report was to improve the international competitiveness and efficiency of the Australian financial services sector.

The Offshore Banking Unit reforms will better target the Offshore Banking Unit tax concession by updating the list of eligible activities which will attract additional mobile financial services activity to Australia. These changes will improve our competitiveness and better position Australia as a leading financial services centre. Alongside these changes, we will also improve the integrity of the regime to ensure that this concession is not subject to abuse. The Government believes that the Schedule strikes an appropriate balance between encouraging Offshore Banking Unit activity and maintaining the integrity of the tax system.

Schedule 4 adds the Global Infrastructure Hub to the list of named income tax exempt entities in Division 50 of the Income Tax Assessment Act 1997.

The Global Infrastructure Hub was established to implement G20's multi-year infrastructure agenda. The Australian Government along with several other countries have pledged financial contributions to the Global Infrastructure Hub. Without the amendment to the act, the contributions made to the Global Infrastructure Hub would be assessable and taxable accordingly. It would be inappropriate for the Australian Government to tax assistance provided to the Hub under an arrangement agreed to as part of Australia's G20 presidency.

Schedule 5 extends the specific listings of two entities as deductible gift recipients for a further three years: Australian Peacekeeping Memorial Project and National Boer War Memorial Association.

Both Australian Peacekeeping Memorial Project and National Boer War Memorial Association have fallen short of their fundraising targets. This extension of their deductible gift recipient status will help these organisations attract public financial support for their activities, as taxpayers can claim an income tax deduction for certain gifts to deductible gift recipients.

Schedule 6 makes a number of amendments across the tax and super law to provide certainty for taxpayers. These amendments make sure that the law operates as intended by correcting technical or drafting defects, removing anomalies, and addressing unintended outcomes.

This furthers the Government's commitment to restore simplicity and fairness to the Australian tax system. It also demonstrates the Government's commitment to the care and maintenance of the tax law. By clarifying the law and repealing unnecessary provisions, these amendments also further the Government's deregulation agenda.

A number of the amendments relate to issues lodged on the Tax Issues Entry System, a platform for members of the community to raise issues regarding the care and maintenance of the Australian Government's tax and superannuation systems.

These include:

Ensuring that life insurance companies are not inappropriately liable for franking deficit tax; and

Correcting inconsistent wording in the definition of in-house residual fringe benefits;

Additional amendments fix a defect in the law preventing the Commissioner of Taxation from revoking access to certain tax concessions for past non-compliance by the entity seeking to rely on the concessions.

Schedule 7 to this bill amends the income tax laws to implement the final stage of the investment manager regime.

The establishment of an investment manager regime was another key recommendation of the Johnson Report which I referred to earlier.

The investment manager regime reforms are aimed at encouraging greater foreign investment into Australia, and promoting Australia as a financial services centre. It does this by removing the uncertainties in the application of Australia's tax laws as they apply to widely held foreign funds and foreign investors. In particular, the investment manager regime clarifies the income tax treatment of gains made by these foreign funds and made by foreign investors investing through Australian fund managers.

The Government believes that the bill strikes an appropriate balance between encouraging foreign investment and maintaining the integrity of the tax system.

In conclusion, this bill is very much a part of the Government's overall plan to update and modernise our tax system. Our tax system has to be adaptive to the changes both domestically and beyond our borders. These changes today lay the groundwork for our continued efforts to ensure our tax system is efficient, modern and well targeted.

That is why we are talking to the Australian people and having an open dialogue through the Tax White Paper process to hear what is important to all Australians. We want to listen so we can truly improve and modernise our tax systems.

An effective and relevant tax system is the foundation to any healthy working economy and we are investing resources to make sure that we get it right.

It's no secret that, globally, many economies are doing it tough. We are not isolated and cannot ignore what is happening around us. Our commerce and industries are more connected internationally today than ever. We need to be cognisant of the work currently being undertaken internationally by the Organisation for Economic Co-operation and Development and explore ways we can improve our laws to address multinational tax avoidance, such as through the G20's work on Base Erosion and Profit Shifting. And we must confront new business models, such as the increase in internet and business operations, which are increasingly borderless.

It is clear that our tax system must evolve to stay current. We must continue to adapt to our changing environment.

That's why we are discontinuing some things.

And that's why we are building and improving those things that are working.

Full details of all these measures are contained in the explanatory memorandum.

Jacinta Collins (Victoria, Australian Labor Party, Shadow Cabinet Secretary) Share this | Link to this | Hansard source

I rise to support the Tax and Superannuation Laws Amendment (2015 Measures No. 1) Bill 2015. The bill repeals the legislation providing for the First Home Saver Accounts scheme, including the related tax concessions. It amends the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 to abolish the dependent spouse tax offset; to expand the dependent invalid and carer tax offset by removing the exclusion in relation to spouses previously covered by the dependent spouse tax offset; and to remove an entitlement to the dependent spouse tax offset where it is made available as a component of another tax offset, and replaces that component with a component made up of the dependent invalid and carer tax offset. It will rewrite the notional tax offsets covering children, students and sole parents that are available as components of other tax offsets, and make a number of reforms to modernise the offshore banking scheme regime. It amends the Income Tax Assessment Act 1997 to exempt the Global Infrastructure Hub Ltd from liability to pay income tax on ordinary income and statutory income. It amends the Income Tax Assessment Act 1997 to update the list of specifically listed deductible gift recipients. It implements the third and final element of the investment manager regime reforms.

As I said at the outset, Labor will be supporting this bill. But I want to go into more detail about three of the measures: first home savers accounts, the dependent spouse tax offset and the offshore banking unit changes.

Firstly, with respect to the first home saver accounts, the context of this debate provides an opportunity to consider some of the issues raised within this bill that go to: the cessation of the first home saver accounts scheme and the government's commitment to housing affordability; the abolition of the dependent spouse tax offset, and the government's somewhat inconsistent view on this scheme; and offshore banking units and the government's frankly lacklustre approach to tackling multinational profit shifting.

On the issue of housing affordability, we have seen a great deal of talk from this government, but unfortunately much of that talk has managed to put much of Australia offside. We are familiar with the comments of the Treasurer, Mr Hockey, betraying his lack of concern—and, frankly, his lack of empathy—for those Australians who have good jobs and are struggling to purchase a house in current conditions, especially in our largest capital cities. I remind the Senate of the clear statements from the Secretary to Treasury, John Fraser, who said:

When you look at the housing price bubble evidence, it's unequivocally the case in Sydney.

He could not be more clear. The Governor of the of the Reserve Bank of Australia, Glenn Stevens, said:

What is happening in housing in Sydney I find acutely concerning for a host of reasons …

Going further still, he said:

Yes I am very concerned about Sydney. I think some of what is happening is crazy …

When central bank governors use words like 'crazy', sensible policymakers sit up and take notice. But the only response from the Treasurer to these statements from his chief economic adviser and from the head of the Reserve Bank was to say that Australians should go out and 'get a good job that pays good money'. When the opposition asked the Prime Minister how he would respond to the Treasury secretary's concerns about the housing price bubble, his first thought was the price of his own house. Australians want more than a Prime Minister whose response on housing affordability is simply to talk about his own home.

We need a serious debate about housing affordability. That is why Labor, through work being carried out by shadow Treasurer Mr Bowen and shadow minister for housing Senator McLucas have been engaging with the experts. That is why we have been looking at questions of infill development, making sure that greenfields development is affordable. That is why we believe that urban public transport really does matter. It is why we are deeply proud that the Rudd and Gillard governments invested more in urban public transport than every other federal government, going back to Federation, put together. Where you have serious investment in urban public transport, you are able to have those medium-density developments which foster housing affordability. All this government has done on housing affordability is abolish the first home saver accounts and blame the states—the government's plan for housing affordability so far is to abolish the first home saver account.

Another part of this bill scraps the dependent spouse tax offset. Labor in office phased back the dependent spouse tax offset, initially restricting its operation to those born before 1972 and then, in a further measure, restricting its operation to those born before 1952. It is important to note that those decisions had an impact on workforce participation because those born in the cohorts to which I have referred were of prime working age. The change in this bill is not one which can be defended in terms of labour force participation, because those affected—born before 1952—are of course aged 63 and over.

It is timely to go back to statements made by the coalition when Labor made the decision to phase back the dependent spouse tax offset. In a speech on 23 November 2012, Mr Hockey described Labor's decision to restrict the dependent spouse tax offset as a 'tax grab'—the now Treasurer referred to phasing it back as a 'tax grab'—yet in his own budget he has now brought forward the complete repeal of this measure. The inconsistency here is laughable. It is hard to see how this is consistent with statements such as that from the Prime Minister in August 2013:

Taxes will always be lower under a Coalition government.

He also said:

… there will be no overall increase in the tax burden whatsoever.

No wonder people question the integrity there. If you look at the government's own budget papers, it is absolutely clear that the tax-to-GDP ratio in this year's budget is higher than in any year under Labor.

In this bill, there are some tentative steps to address the issue of multinational profit shifting. When the coalition were in opposition, they voted against Labor's sensible measures to get multinationals to pay their fair share; they voted against transparency measures; and, when they came to office, they refused to follow through on enacting Labor's multinational tax package, effectively giving $1.1 billion back to multinationals and losing access to that revenue.

Some of the measures that the government failed to proceed with were around offshore banking units. Offshore banking unit changes are timely in ensuring that multinationals cannot take advantage of tax concessions that are not available to small businesses. This government claims to be a friend of small business; but, in order to stand up for small business, it is necessary to stand up to multinationals and make sure they pay their fair share—because an Australia in which multinationals are able to access tax loopholes not available to small businesses is an Australia without a level playing field. Labor's multinational tax package, which would raise $7 billion over a decade, is a pro-small-business measure because it acts to level that playing field. The measures on offshore banking units in the bill before us raise $41.8 million. That is less than half the amount that would be raised under the package on multinational tax avoidance brought forward by Labor.

Pursuant to the resolution of the Senate on 13 May this year, the provisions of this bill were referred to the Senate Economics Legislation Committee for inquiry and report in time for the bill to be debated this week. The committee received seven submissions dealing with schedules 1 to 3 and 7 of the bill. In addition to recommending passage of the bill, the committee recommended a revised explanatory memorandum be issued to take into account changes to schedule 7, as a result of requests for clarification by stakeholders. I note that a revised explanatory memorandum was issued, dealing with the amendments to schedule 7—which relate to investment manager regime reforms—and that government amendments to schedule 7 were agreed to in the other place.

Labor continues to hold grave concerns about the way in which this government is approaching key challenges in the economy that affect the lives of a majority of Australians, such as the core issue of housing affordability. Our ability to address these challenges is compromised by the government's failure to properly address issues such as multinational profit shifting. By contrast, Labor is taking a methodical approach and has proposed sensible policy alternatives. I urge the government to work more constructively with the opposition on these matters and make them a greater priority. However, with respect to the provisions in this bill, Labor supports these steps so far.

Scott Ludlam (WA, Australian Greens) Share this | Link to this | Hansard source

I will speak fairly briefly on the particular clauses of the Tax and Superannuation Laws Amendment (2015 Measures No. 1) Bill 2015 that go to the abolition of the First Home Saver Accounts, and I will have a bit more to say when we get to the committee stage. Senators, you will probably be aware by now that I have circulated an amendment which would have the effect of preserving First Home Saver Accounts. I am hoping Senator Cormann can do a better job than Senator Collins just did, because if you did it, Senator Collins, I missed it.

Jacinta Collins (Victoria, Australian Labor Party, Shadow Cabinet Secretary) Share this | Link to this | Hansard source

You missed it!

Scott Ludlam (WA, Australian Greens) Share this | Link to this | Hansard source

As to the justification for why you are supporting at least that element of the bill and why we are knocking over First Home Saver Accounts, if it was—

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Maybe I can explain.

Scott Ludlam (WA, Australian Greens) Share this | Link to this | Hansard source

I am sure Senator Cormann will have a crack. But Senator Collins did not appear to. You spoke about the framework and the parameters of First Home Saver Accounts but not why you are consenting to it being taken out of the system.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

I will explain it to you.

Scott Ludlam (WA, Australian Greens) Share this | Link to this | Hansard source

Senator Cormann, you will get your turn shortly. I am only going to speak fairly briefly.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

Well, you did ask me.

Scott Ludlam (WA, Australian Greens) Share this | Link to this | Hansard source

I did. And I am really looking forward to your contribution. I will speak in a bit more depth when we get to the committee stage as to the purpose of these amendments. This was something, I believe, that was supported unanimously—certainly when it was introduced by the Rudd government. I went back to look at the comments that I made and that some other senators made in 2008 when this measure was introduced. The situation for first home buyers is worse than it was when this measure was introduced.

I want to make a very careful distinction here between the First Home Saver Accounts and the first home buyer grants, which are largely issued by the states. I am not sure that there is any Commonwealth tax expenditure left in first home buyer grants, but they have a direct inflationary impact on house prices. You simply give people money, and that inflates property prices by roughly the same amount. And, actually, it does not help overall housing affordability. Whereas this is arguably a bit of a blunt instrument as well, and I understand that it is not perfect. But incentivising and encouraging first home buyers to save the deposit when—and, frequently, they will be paying as much of their wages on a mortgage as rent—the hurdle is getting the deposit in the bank. We do not want to be encouraging banks and lending institutions to lower the amount of deposits that are required. In fact, in a very low interest rate environment and under conditions of substantial overheating in our housing market, I would argue that having people come up with a substantial deposit is a good idea. But incentivising it, as this scheme did, would appear to me to be the right way to go.

For $134 million over five years—which is what, I understand, Treasury has estimated over the forward estimates will be saved by the abolition of this scheme—is the size of the tax expenditures and the concessions that we hand over to property investors through negative gearing and capital gains tax exemptions every six days. That is the scale of the incentives that we are talking about here. While still propping up property investors and quite heavily tilting the table in favour of investors against people in public housing, people in the broader private rental market, first home buyers and people who are struggling with the experience of homelessness, what we are doing is pulling one more prop out of the system—one small incentive that was there.

Maybe, Senator Cormann, one limb of your argument will be that it simply was not taken up enough, that enough people were not taking advantage of it, but for—

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

That is one element.

Scott Ludlam (WA, Australian Greens) Share this | Link to this | Hansard source

That is one limb of the argument. All right. I will put some questions to you more formally when we get to the committee stage. But I would have thought that an incentive, no matter how imperfect, that has not been demonstrated to be inflationary, that does incentivise and encourage people to save and makes it easier for first home buyers to get into their first home, I find the rationale for knocking this over with mute support by the Labor Party absolutely mystifying. I will have a bit more to say, as I have indicated, when we get to the committee stage. In the very short time that we have left, I encourage the government—and, failing that, the opposition—to reverse its strange decision to knock this incentive out of the system.

Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Link to this | Hansard source

I thank Senator Collins and Senator Ludlam for their contributions to this debate. This bill will modernise our tax and superannuation laws and remove laws that are no longer working or appropriate. Indeed, our laws need to be relevant and need to provide for effective and targeted rules to ensure that our laws are current and adapt to rapidly changing global economic conditions. The updating of our tax rules is very much at the forefront of this government's agenda. This is why we are having a dialogue with the Australian public through the tax white paper process to explore opportunities to reform and improve our tax system.

In responding directly to the issue raised by Senator Ludlam in relation to the First Home Saver Accounts, the First Home Saver Accounts initiative was essentially another one of these 2007 Labor policy failures. As policy failures go, it is right up there with the Swan mining tax policy failure. When Labor initiated this particular measure, they had grand objectives and they thought it was going to be incredibly successful in encouraging people wanting to buy their first home to take advantage of the First Home Saver Accounts. Back in 2008, they told us that there would be 730,000 accounts with about $6.5 billion in them. The truth is: seven years later, when they thought we would have 730,000 accounts within four years, there is fewer than 50,000 accounts with average account balance of less than $12,000 in them. First home buyers across Australia have voted with their feet by not taking up this particular measure. Indeed, the banks have stopped providing new accounts to new first home savers—aspirants, candidates—for these accounts.

The more fundamental and strategic policy issue that the government has is this: we all want to make judgements and decisions that will help improve housing affordability but we have to then be very clear on what the actual problem is. If you have a challenge where prices go up, making the purchase of a particular good or a house less affordable, what is actually causing that development? Of course, the price for anything is set by what is happening in the market, what is happening to supply and what is happening to demand. When demand exceeds supply, prices will go up. In a free market, that will mean that you are likely to get additional investment and additional supply over time, which hopefully will bring the market back into balance, and prices will stabilise. When supply exceeds demand, prices will go down. And there will be responses in the market which, over time, will stabilise prices in that market.

The problem with this policy initiative and the problem with a number of policy initiatives taken by the previous government, and other governments around Australia over time, is that they seek to further boost demand. When it comes to housing, we do not have a demand problem. Demand is strong. We have a supply problem. When you pursue initiatives and take policy steps to further boost demand in a market that is potentially already overheated or where there is upward pressure on prices, you actually make the problem worse, to the extent that there is a problem.

If we as a parliament, as a Senate, genuinely want to do something about housing affordability, we will all work very hard on two key things. We will seek to convince our colleagues in the states and territories to boost the supply of land and make sure there is a larger supply of land, and we will all work together on measures to bring down the cost of constructing a home. By international standards, the cost of building a home in Australia is extremely high. The other day people in the House of Representatives laughed at the Treasurer making an absolutely accurate assertion—that is, the current government getting rid of the carbon tax has actually brought down the cost of building a home in Australia. That is a fact. It brings down the cost of doing business and it helps to bring down the cost of building a home. It actually does help in a small way to make housing more affordable. Obviously, that is not going to be the single measure that is going to address affordability challenges when it comes to housing, but every bit helps. So, if we want to improve housing affordability we have to, firstly, boost the supply of land and, secondly, consider what measures would help to reduce the cost of building a home in Australia, which is too high.

As a direct policy response to your question, 'Why does the government believe that this measure should be removed?', firstly, it has been extraordinarily unsuccessful. The take-up is less than 10 per cent of what the government at the time thought it would be within four years. After seven years the take-up is still less than 10 per cent of what the previous government thought it would be. We have fewer than 50,000 accounts with less than $12,000 on average in those accounts. So people have expressed very clearly their lack of confidence in this measure. The previous government thought there would be $6.5 billion in 730,000 accounts after four years, and we know what the actual number is now.

The second point is that, to the extent we have a housing affordability challenge in different parts of Australia at present, this is not the way to fix it, because it attacks the problem from the wrong end. In Australia we do not have a demand problem; we have a supply problem. By boosting demand, to the extent that there is a challenge, you actually make that challenging situation worse. That is why, as part of this package of measures in this bill, the government has put forward the proposal that we have.

Question agreed to.

Bill read a second time.