Wednesday, 20 June 2012
Tax Laws Amendment (2012 Measures No. 2) Bill 2012, Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012, Pay As You Go Withholding Non-compliance Tax Bill 2012; Second Reading
This package of bills before the House deals with a range of measures. Schedule 1 of the Tax Laws Amendment (2012 Measures No. 2) Bill 2012 and Pay As You Go Withholding Non-compliance Tax Bill 2012 seek to make directors personally liable for unpaid superannuation. Directors' penalties cannot be discharged by placing the company into administration and directors and associates are liable for PAYG withholding non-compliance tax where a company has failed to pay.
Schedule 2 of the tax laws amendment bill seeks to retrospectively legislate changes to the taxation financial arrangement scheme, which includes related changes to consolidation tax cost-settings arrangements outlined in schedule 3 of the bill. Finally, schedule 4 of the tax laws amendment bill and the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill seeks to double the final withholding tax on managed investment trusts from 7½ per cent to 15 per cent. I can state at the outset that the coalition will not be supporting the passage of this legislation through the House.
Firstly, I want to deal with schedule 1 of the Tax Laws Amendment (2012 Measures No. 2) Bill and Pay as You Go Withholding Non-compliance Tax Bill 2012. As I outline the coalition case for opposition to this package of bills, I will do so sequentially, starting with schedule 1 of the tax law amendment bill and the related pay as you go bill, which contain provisions dealing with director penalties and phoenixing activities. The changes being put forward in relation to director liability and phoenixing activities seek to (1) expand the application of the director penalty regime to unpaid superannuation guarantee charges—and this is what I said before, (2) ensure that directors cannot discharge their director penalties by placing their company into administration or liquidation when PAYG withholding or superannuation guarantee remains unpaid and unreported three months after the due date and (3) in some instances makes directors and their associates liable for PAYG withholding non-compliance tax where the company has failed to pay amounts withheld to the commissioner.
This is the second time that the government has moved to legislate this issue. The first was in November last year, when the government moved an amendment to excise the provisions from TLAB 8 and the associated Pay As You Go Withholding Non-compliance Tax Bill. This was after a House Standing Committee on Economics inquiry noted concerns from the business community that these bills could apply to all directors, whether engaged in phoenix activity or not. The committee made a bipartisan recommendation that the government should seek to tighten the provisions in those bills to better target actual phoenix activity.
The House economics committee has now inquired into the provisions of the government's second legislative attempt. The coalition have noted in our dissenting report to the House economics committee that this legislation still fails to appropriately target phoenix activity. When is the government going to get it right? We have expressed concerns that 'liability would apply indiscriminately to all directors, including those of charities and not-for-profits that are limited by guarantee'. This is a classic example of further red-tape burdens on business and now further red-tape burdens on charities, and the coalition still views this as a considerable impediment to getting on with the job of life.
The coalition condemns the practice of phoenixing—we always have—which involves a company intentionally accumulating debts to improve cash flows or wealth and then liquidating to avoid repaying the debt. As I have noted to the House previously, phoenix activities are actions by directors to strip out assets to a new company with the intention of liquidating the old company, which is left with net debts. The directors use the corporate veil to protect themselves against any personal liability for the old company's debts. The directors then run the old business through the new company. The old operation rises up from the ashes. The coalition is concerned about the effects of this activity and we recognise the need for legislative safeguards in order to prevent it from occurring.
However, just as the government failed to address our concerns last time, this bill fails to implement protective action that is directed and focused on phoenix activity. The coalition still views these reforms as sweeping changes to deal with a relatively small number of criminally minded individuals. The possibility is very real that innocent directors will be caught in the net. As I said before, I say again: when will the government and ASIC properly use and explain the existing powers and where the existing powers have failed rather than introducing more red tape, more regulation, more legislation? It is smashing a nut with a sledgehammer.
Schedules 2 and 3 of the Tax Laws Amendment (2012 Measures No. 2) Bill 2012 retrospectively deal with changes to the taxation of financial arrangements, TOFA, and consolidation tax cost setting arrangements. Schedule 2 of the bill deals with the taxation of financial arrangements in the context of tax consolidation. The TOFA legislation which commenced on 26 August 2009 contains tax-timing rules applying to accruals and realisations relating to financial arrangements. The TOFA provisions generally apply to financial arrangements that a TOFA taxpayer entered into during income years commencing on or after 1 July 2010 unless the taxpayer elected to have the TOFA provisions apply early. The amendments in schedule 2 are to be applied retrospectively to 26 March 2009.
The background appears to be the May 2011 Board of Taxation report to the Assistant Treasurer, Review of the consolidation rights to future income and residual tax cost setting rules, which examined the issue of liabilities in the tax consolidation regime. The Board of Taxation noted that there may be some circumstances in which it would be appropriate for a future tax deduction to be denied for the amount of a liability of a joining entity. Schedule 2 will affect the taxation treatment applying to TOFA liabilities that are assumed by a head company, or a lead company, when it acquires another entity joining the consolidated group. The effect of the amendment will be to deny a deduction to the head company when the liability is eventually discharged.
What makes this retrospective change worse is the fact that it will have an even greater impact on one set of consolidated groups in respect of their pre-TOFA acquisitions. Those most disadvantaged are those consolidated groups that made an election to apply TOFA rules to corporate acquisitions of joining entities they had effected before the TOFA legislation started. This is referred to as ungrandfathering. Taxpayers, advisors and professional bodies are aggrieved at the retrospective nature of these amendments. There will be some corporate groups who have made important investment decisions based on the law as it stood when TOFA commenced. There will be some that made the important election whether to apply TOFA to their existing financial arrangements based on the law as it then stood.
Again, in the wake, in the last 24 hours, of the government's retrospective amendments to transfer pricing, here is legislation that is dealing with retrospectivity, further creating sovereign risk. The submission by Deloitte to the exposure draft on the proposed changes to the consolidation regime noted that it was unfair to deny deduction in the circumstances. It said:
The retrospective application of the proposed changes to TOFA and consolidation interaction provisions 26 March 2009 is unfair to taxpayers who relied on the existing tax legislation when making significant business decisions on acquisitions or deciding whether or not to make a transitional election to apply the TOFA rules to their existing financial arrangements. These taxpayers would have acted on the belief that they would be entitled to certain deductions which will not be available if the proposed changes apply retrospectively.
In this place last night we had divisions because the government was going back seven years to change the law in relation to transfer pricing. Here we have businesses that entered into agreements in good faith relating to transfer-pricing arrangements and the government says, 'Look, even though the law didn't exist at the time, we're going to retrospectively change the law to make things that you thought complied with the law unlawful, even though that law did not exist at the time.'!
Now, within 24 hours, here we are again—Groundhog Day!—retrospective tax legislation, in this case going back to 26 March 2009—and in this case, even after the tax office had given private rulings approving of transactions. Even now the government are saying: 'Look, we're going back. We are changing the rules. We can't claim enough tax from people going forward; we're gonna claim tax off people going backwards.'! This government just can't get enough tax out of you. So they are not only going to claim more tax out of you for all you do tomorrow; the government are going to claim more tax out of you for what you did yesterday, because what they are getting today just isn't enough to meet their wasteful ways.
Then they say to us, 'You guys are responsible for negativity out there.' That is what they say to us. They blame us for negative consumer sentiment. They blame us for negative business sentiment. It is all our fault. It's all Tony Abbott's fault; it's all Joe Hockey's fault—as if we write the speeches for Ivan Glasenberg in London when he says, 'We are getting greater business certainty out of Congo than we are getting out of Australia.' Or Marius Kloppers or Jac Nasser at BHP when they warn of uncertain business times in Australia. As I said yesterday, we do not write the press releases for Gerry Harvey, John Singleton or John Symond. We do not write those releases, they do, because they have to deal with this type of legislation—retrospective tax legislation. They have to deal with it. How can anyone have confidence about the future when there is a government that is changing today's laws tomorrow? Why would you take a risk? Why would you go out and borrow money to buy a new house? Why would you do that in this environment? Fewer and fewer people are doing it, because they are nervous about the government.
There is a sovereign risk, and before the House for the second day in a row we have retrospective tax legislation. No wonder people are afraid to take a risk. How do you price-risk when a government says, 'We're going to change yesterday's laws'? How do you do that? And where are the accountable people in the Treasury or in the Australian Taxation Office? Who are the people that are going to be held accountable for what is deemed to be original drafting errors? Where are they? What heads have rolled? Because, if you are writing retrospective tax legislation that involves billions of dollars of back taxes being claimed at a time when there were legitimate business investments, someone is going to be sacked out there. People are going to lose their jobs. Of course they are. Where billions of dollars are transferred from the private sector to the public sector, someone is going to have to pay. Of course there will be job losses. There will be investments that will stall. Who is accountable in the government? If it occurred under a previous coalition government and now it occurs under the Labor Party, who are the public servants that were responsible for these drafting errors? Is the minister going to answer that? This is serious stuff. It involves billions of dollars, as I understand it, and yet there is no accountability. They think: 'Oh well, we'll just shuffle it through the House of Reps and the Senate. It'll be okay.'
But out there real people will lose their jobs. They have to, so who is going to be accountable here? This is what kills confidence. The government kills confidence. It kills confidence when it changes the laws that applied yesterday, but also it kills confidence when it changes the laws as they stand. We have seen it in relation to company tax, carbon tax, mining tax, superannuation tax, taxation of employee share schemes and now it seems there is an endless list of retrospective taxes. The mountain that we have to climb if there is a change of government is just getting bigger and bigger every day.
Schedule 3 is another complex amendment to the tax consolidation legislation. At Senate estimates last month in response to coalition question, Treasury advised that the amendments in schedule 3 addressed issues that arose out of amendments to the tax legislation enacted on 3 June 2010. Treasury's advice was that there had been extensive public consultation over a number of years prior to the 2010 amendments being passed. Despite that, the Board of Taxation noted in its report I referred to earlier that in 2011 the ATO were aware of claims and potential claims by consolidated groups for deductions of over $30 billion in respect to the 2010 amendments. This amount did not include interest or the revenue associated with transactions that have taken place since 30 June 2010.
The Treasury is to be commended for carrying out an internal examination of why the revenue risk associated with the amendments was not recognised prior to passage. But there are questions that remain. The fact that the amendments took effect from the commencement of the consolidation regime on 1 July 2002 only partly explains the quantum of the claims. Evidence given by Treasury at estimates was that the information given to Treasury through the consultation process did not fully draw out the downside risks with the legislation.
Quality control in relation to taxation legislation is crucial. This is even more so where transactions are large and involve considerable commercial complexity. Tax consolidation legislation is almost a category of its own. Quality control starts with competent and capable personnel. It involves appropriate supervision and monitoring of compliance with the department's standards, having regard to the huge sum of revenue associated with the claimed deductions. There must be careful oversight by Treasury into the quality and risk processes associated with developing tax policy, drafting the requisite legislation, and ensuring that consultation is open and frank, including the participation of the ATO.
This process would not have been helped by the fact that the government has had no less than five Assistant Treasurers since coming to office only 4½ years ago—five Assistant Treasurers in 4½ years! The pick-up and put-down of legislative priorities for this particular portfolio by the various ministers wandering through the revolving door of the Labor ministry seems to have negatively impacted the consultation processes, reviews, stakeholder feedback and deadlines for taxation legislation. Quite simply, this is not the way to run a country. It is not the way to run a taxation system.
In summary, the changes contained in schedule 3 seek to modify the consolidation tax cost setting arrangements and rights to future income rules so that tax outcomes for consolidated groups are more consistent, in the view of the government, with the tax outcomes that arise when assets are required outside of the consolidation regime.
This raises a number of concerns, given that the government is retrospectively amending the consolidation tax cost setting arrangements according to the time when the corporate acquisition took place. The changes within the bill will impact acquisitions that took place on various dates. The first period is prior to 12 May 2010, being the date when the amending legislation was passed by both houses of parliament, when what are referred to as the 'pre rules' will apply. The second time period is after 30 March 2011, being the date the Board of Taxation was asked to review the 2010 amendments, and referred to as the 'prospective rules'. The final period is the intervening period, known as the 'interim rules'. Did you hear that? And this is a government committed to simplification! Given that the changes passed on 12 May 2010 relates to amendments that date back to 2002, some of the amendments related to consolidation within this bill will have effect from 2002—that is, 10 years of retrospectivity. They are cheering out there in business land. Ten years of retrospectivity!
Entities affected by the proposed changes in schedule 3 will be adversely impacted by the retrospective changes, in particular, those changes editing the acquired rights to future income. This is because, for tax purposes, many of these rights will now have a cost base of zero, as opposed to those entities outside the consolidation's regime with a cost base equal to that of the purchase price. The resetting of the cost base to nil for entities of the consolidation regime, combined with its retrospective application, will disadvantage taxpayers that have elected to be in the consolidation regime.
The coalition opposes retrospective application. That is a position that we on this side of the House uphold. In its submission to the House Standing Committee on Economics, the Tax Institute referred to a number of factors that weigh against the retrospective amendments proposed in schedule 3. Another relevant point, made by CPA Australia, that it is inequitable that a taxpayer who has lodged a ruling or amendment request prior to 31 March 2011 receives a different treatment simply because it is not actioned by the relevant cut-off time, which at the time of the lodgement was not a factor. They said:
Taxpayers should not receive differing treatment in circumstances where they have no control over the outcome.
It is because of their retrospective application that the coalition will not support the measures contained in schedules 2 and 3.
Schedule 4 of the Tax Laws Amendment (2012 Measures No. 2) Bill, along with the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012, seeks to double the final withholding tax on management investment trusts from 7½ to 15 per cent from 1 July 2012. The coalition understands the minister is going to be moving an amendment to excise schedule 4 of the tax law amendment bill and the related managed investment trust withholding tax bill. How about that? After announcing it in the budget, the government rushes in the legislation and now are they going to excise it! I am sorry, is this meant to be a key budget initiative?
This is the third backflip from the government and the financial year has not even started! It seems like yesterday that the Treasurer delivered the budget—now we have got the third major amendment to the budget. The first is that they were dumping the company tax cuts, but now they are back on the table—those tax cuts that were only recently dumped in the budget are an article of faith, according to the Prime Minister. The second one is the passenger movement charge, remember that? The government has now dumped the CPI increases that they said were a part of the budget. The CPI increases have now gone. Now, there is the third factor—three strikes. The third one is that they are now dumping their determination to increase the withholding tax on managed investment trusts from 7½ per cent to 15 per cent.
You wonder why people are uncertain and why business is confused. Look no further than the actions at the hands of the government over the last three weeks alone. We had already announced that we would be opposing the measure after the Labor government previously reducing interest on withholding tax—which we praised. They reduced it and now they want to double it. What does that say to investors? The government make a decision—it is the same political party; it is the same Treasurer—and they reduce the interest withholding tax and then they wake up one day and decide, 'We are going to double it'. And you wonder why people like Ivan Glasenberg are giving speeches in London, saying that it is easier to deal with the Congo than it is to deal with the Australian government. Well, there is the evidence.
In this era of fiscal restraint and additional direct and indirect taxes, we are becoming increasingly concerned that some risks associated with ownership of infrastructure are expanding. For instance, it is easy to envision the regulatory rate setting process becoming politicized instead of objective and fair. The same could occur with taxes—in fact, Australia’s budget that was tabled last week effectively doubled the tax burden on our real estate and infrastructure holdings in that country.
If we conclude that these kinds of risks within any country become significant enough to call into question the predictability and stability of cash flows that are at the heart of the investment rationale for infrastructure, our response will be very quick and rational—we will simply stop investing there.
That was the head of the Canada Pension Plan Investment Board. He is saying it is too hard to do business. I did not write that speech. Tony Abbott did not write that speech. These are international investors that are saying, 'Hang on; this sort of sovereign risk in Australia is becoming just too hard. We will stop investing in infrastructure.'
The chopping and changing of the MIT withholding tax has yet again reduced our predictability, our stability and our certainty in the eyes of international investors when they want to come here. They want to come here. They want a stable place to invest for the long term, and Australia as a net importer of capital needs that. But they have a government that keep screwing it up. In 2008 they reduced the interest withholding tax from 30 per cent to 7½ per cent, and now they want to double it, as they announced in the budget: 'Sorry, we've changed our minds; now we're taking it out'. Why? Why can't the government hold a policy position? Forget four years, three years or two years; why can't they hold a policy position for three weeks? Why can't they hold a policy position for two months?
I know the minister at the table is one who frets about this. He was sent out into the coalface and told to sell a carbon tax package that the Labor Party promised they would never deliver—but, of course, they have. And they wonder why there is uncertainty. The coalition does not support the doubling of final withholding tax on managed investment trusts from 7½ per cent to 15 per cent. We are going to ask the minister at the table, who is responsible when this amendment is being moved by the government, to explain himself. Why can't the government hold a tax policy together? Why does the government now go deep into retrospective tax legislation in order to try and fund its budget?
As I stated earlier, the coalition will not be supporting the passage of this package of bills through the parliament. We believe on many fronts that the government has failed to listen to the community. We believe that the government gives lip service to consultation with stakeholders. We keep getting this feedback, saying, 'Oh, the Treasury, the Australian Taxation Office and the government have consulted with the business community.' The business community is over that feigned, pretend consultation. It does not seem to move the government during what is meant to be a fair dinkum consultation process. No, the government is so determined to proceed that it then goes and announces initiatives in the budget, goes and introduces legislation into the parliament, and then changes its mind.
What a dysfunctional rabble we have running the place in Canberra. This is tax policy. This is not tens of millions of dollars or a program here and a program there; it is billions and billions of dollars. It involves international confidence in our nation. The more the Treasurer and the Prime Minister talk about Australia and the Australian way, the more they are ridiculed by their actions—their actions in having retrospective tax legislation yesterday going back seven years, in having retrospective tax legislation today going back 10 years, in announcing policy in relation to interest withholding tax and then changing their mind a few weeks later, in the passenger movement charge and in the company tax cuts. This is a government that cannot be trusted. It is an embarrassment, and the Minister for Resources and Energy knows how embarrassing it is to be a part of a government that cannot keep its promises or make up its mind. (Time expired)
I speak in support of the Tax Laws Amendment (2012 Measures No. 2) Bill 2012, the Pay As You Go Withholding Non-compliance Tax Bill 2012 and the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012. There we saw a pitiful and pathetic attempt by the shadow Treasurer to oppose these bills. Gough Whitlam, the former Labor Prime Minister, once said that only the impotent are pure. Well, I tell you what, there is not much purity on the other side when it comes to retrospectivity, as the Assistant Treasurer outlined yesterday in this place, with example after example of those opposite bringing in retrospective taxation legislation. So do not come into this place and lecture us about this, when we are fixing up a problem that has operated in one of these respects, on the shadow Treasurer's admission, since 2002. Who was in power in 2002, 2003, 2004, 2005, 2006 and for most of 2007? Those opposite were in power, and they did nothing about fixing up the problems, as we are doing here.
The shadow Treasurer said in relation to the passage of these particular bills that it involved billions and billions of dollars of taxpayers' funds. Have a look at the financial impact that the Tax Laws Amendment (2012 Measures No. 2) Bill is going to have. The revenue impact this year of schedule 1 of the bill will be $32.5 million; the impact of schedule 2 will be $66 million; the impact of schedule 3 will be nil; and the impact of schedule 4 will be $65 million. So it will not be the billions and billions of dollars the shadow Treasurer referred to time and time again in his speech. He made exaggerated claim after exaggerated claim, and the same thing is happening all the time.
The shadow Treasurer talked about sovereign risk and said that the passage of these bills and the operation of this government present a sovereign risk to this country. He spoke as if there has been a great exodus of investment from this country, when in fact half a trillion dollars has been invested in the mining sector—in iron ore and in coal. You can see Australian ships carrying iron ore and coal lined up one after another in places such as the Pohang steelworks in South Korea. People came into this country and made massive investments notwithstanding the GFC. In 2009 and 2010 we saw massive foreign investment in this country. In 2009, there was an 11.1 per cent increase in foreign direct investment in Australia. This was followed by a 7.5 per cent increase—a total of $474 billion—in 2010. Are all the foreign investors coming to this country stupid? No, they are not. Do they have economic idiocy running through their brains? No, they do not. But to believe the jeremiads from the shadow Treasurer about these bills is to believe that all these barons of capitalism and captains of industry—these mining companies and these superannuation funds trustees—are all dills. Why, if you believed a word that those opposite have said, would they invest in Australia? Why would all these shadow ministers and opposition backbenchers invest in these companies—as we have seen them do time and time again—if you believed a word of what the shadow Treasurer said was true? He is like a profit of doom. He is like some sort of Old Testament prophet—woe is me! I half expected sackcloth and ashes to be thrown around the chamber during the shadow Treasurer's speech! It was nonsense.
He said not a word about how schedule 1 of the bill protects the superannuation entitlements of workers and therefore the revenue base of this country by making directors liable to pay superannuation and preventing them getting credits through collapsing their companies and not paying the PAYG withholding obligations. There has been not a word from the architects and the apostles of Work Choices over there about protecting workers. There has not been a word about that from them, but that is what schedule 1 of the bill is all about—making sure that workers' superannuation entitlements and government revenue are protected. The shadow Treasurer is not worried about workers or the revenue base of the country. Those opposite are not interested in either putting in place deterrents to phoenix operations or strengthening and extending the director penalty regime—the DPR—to cover superannuation obligations. It currently only applies to PAYG withholding obligations. The shadow Treasurer said nothing about that—and just waxed on, way off beam.
These bills are important because we do not want people to fail in their obligations to workers, as has happened in the past. I am sure that as members of parliament all of us have had people come up to us at street stalls, at mobile offices and at electorate offices and have talked to us about fraudulent phoenix activity. I am sure that there is not a member of this chamber who has not had someone come and say to them: 'I'm working for a business, and that business has failed. It's unable to pay its debts. I had superannuation, and they didn't pay the superannuation guarantee. They didn't meet their taxation obligations.'
We are making sure that these directors are more accountable for what they fail to do. We are making sure that there is a deterrent in place to prevent directors doing just this sort of thing. We are making sure make sure that they fulfil their obligations. We do not want taxation liabilities left unpaid, and that is why these bills are before this chamber. We do not want outstanding debts, and we want to make sure that these directors are liable. If the company is unable to meet its withholding amounts to the commissioner, the directors must place the company into voluntary administration or liquidation. Currently the Commissioner of Taxation has the ability to penalise the directors an amount equal to any PAYG withholding that has fallen overdue, but the director penalty regime in the Tax Laws Amendment (2012 Measures No. 2) Bill makes them personally liable.
We want to expand the responsibility and the scope of liability of the directors to cover unpaid superannuation guarantees to employees; remedy any possible escape from liability by preventing the discharge of the director's penalties when a company is placed in liquidation and PAYG or superannuation obligations remain outstanding; and impose obligations on directors and their associates to pay PAYG withholding non-compliance tax on withheld PAYG amounts that have not been paid to the commissioner and so forth. I did not hear much from the shadow Treasurer about those measures, which, in my view, are the principal reasons for bills such as those that are before the House.
We are committed to making sure that we protect workers' entitlements. This Labor government has a proud record of getting rid of pernicious and arbitrary legislation imposed on Australian workers by those opposite and of standing up to protect the revenue base of this country when those opposite set themselves against government on taxation issues, as they always seem to do. Schedule 2 of the Tax Laws Amendment (2012 Measures No. 2) Bill deals with problems that have been around for a while. It amends the taxation of financial arrangements—consolidation interaction provisions—in the Income Tax Assessment Act and balances these adjustments with other legislation to make sure that the tax treatment of financial arrangements is part of assets and liabilities in a merger or takeover, that it is consistent with the TOFA tax timing rules and that it takes into account changes in the value of financial arrangements or liabilities. This is important legislation. It amends legislation to make sure that our provisions are consistent, it makes sure that we have a good arrangement protecting the taxation bases. It ensures that taxation treatment of financial arrangements is consistent with the rules we have put in place in terms of timing and I support that.
Schedule 3 amends the Income Tax Assessment Act, modifying consolidation of tax cost setting rules so that the tax outcomes for consolidated groups are more consistent with the tax outcomes that arise when assets are acquired outside the consolidation arrangement. We amended the regime in relation to consolidation in 2010 as clarification. For some assets this reset tax costs from the original tax costs, in the case of consolidation of corporate arrangements. We want to make sure that it is used as a taxing point when it later arises for the purpose of the assets.
Shortly after that some unintended consequences arose. We have taken steps about that. The opposition say they are not supportive of what we are saying, but the Board of Taxation was asked to look at these arrangements and recommended that we conduct the kind of legislative amendments that are necessary. The board concluded the scope of the new rules was broader than was originally intended at the time of the announcement in 2005—when we were not in power—and could allow some consolidating groups to access deductions that were not available to other taxpayers outside the consolidation regime. So it is a longstanding problem that operated before we came into power. This is fixing up a mess that happened on the watch of the previous government as well.
I will let the minister talk about schedule 4 but I want to make a point about criticisms made of us that we reduced the withholding tax rate paid from managed investment trusts. We reduced the MIT payments to foreign residents from the rate of 30 per cent to 15 per cent. We did that as part of our election commitment back in 2007 when we went to the polls. That is consistent with other countries. The United States and the United Kingdom have 15 per cent. It was 30 per cent under the previous coalition government.
We are a government that is interested in foreign investment. We welcome foreign investment in this country. We think it is important. We do not have sufficient population or dollars and cents to develop our country—vast continent that it is—without foreign investment. We are a country that has grown by virtue of immigration and having people come to this place. They come as employees and employers. We welcome them when they come to the rural, manufacturing and the mining sectors. We, on this side of the chamber, are people who believe both in free trade and fair trade and believe that the criticism of our support of foreign investment is unjustified and exaggerated. We saw that well and truly on display by the shadow Treasurer whose words were nonsensical and alarmist in this regard, once again so much like some sort of Old Testament prophet going around saying, 'We are all doomed and no-one should have any confidence,' and then having the temerity to criticise us when we say that they are putting a dampener on consumer and business confidence in this country. I support the legislation.
It is always fascinating to follow the member for Blair. He seems to have one theme, no matter what he is talking about. It is always contradictory when you sit and listen. He stands up and, in the most virulent manner, accuses the opposition of endless negativity and then proceeds for the length of his 15-minute contribution—or whatever it may be—with endless negativity. The government seem to be obsessed with abusing this side of politics and the member for Blair is a classic example of that. I think it reflects the fact that, even though they are the government and should have plenty to say because they are responsible for introducing measures and legislation and defending that legislation, they have nothing to say really. The member for Blair read what is contained in the bill and in essence gave no argument of any consequence in support of those measures.
The bill has been in the public arena now for some weeks. There have been some very trenchant concerns and frustrations about some of these provisions. There have been statements made not only by the opposition—let us put us aside—but by the people in the businesses and investors who will be affected by the changes that are proposed. At the very least the lead speaker for the government on this bill should provide some critique of the concerns that have been raised by important members of the community, people who are creating thousands of jobs, looking to promote billions of dollars of investment, looking for certainty, looking for the absence of sovereign risk.
You would think that the member for Blair would address some of these concerns that have been listed over several weeks very prominently in the newspapers and elsewhere, yet he went on an exercise of simply reading out what is in the legislation in between all these histrionic attacks on the opposition and inflammatory language about the way in which we have expressed our concerns over the legislation. I must say it is a pathetic contribution and it adds nothing to this debate. It does reflect the morale that we see on the other side and the concern by the adults on the other side that this government is one of the most inept, if not the most inept, governments in our lifetime. It is a government which has lost any sense of direction, if it ever had any. It is a government that is confusing people all over this economy and, externally, with investors in foreign markets. It is a government that has, at its root—because of its incompetence, inconsistency, flip-flopping and lack of direction—very materially created a crisis of confidence amongst households in this country. They have been saving disposable income at a rate of 12 per cent over the last year because they are afraid to spend. They are building up reserves and paying off the mortgage because of their fear. They are worried about their jobs. There is a crisis of confidence. They have pulled $90 billion of discretionary income out of the marketplace.
No wonder our retail sector is on its knees. It is because of the lack of confidence. It is because they are waking up at 2.30 in the morning worried about whether they are going to have a job. We see endlessly, each week, reports of companies that are going to the wall and putting off thousands of people. Sure, we are blessed with what is going on with the mining boom in the west and in Queensland. Put that aside, and the rest of the country has stopped. The investors, major companies, have got serious money on their balances sheets that they are not investing because there is a crisis of confidence not only amongst households but also amongst businesses.
This sort of legislation is another classic example, another symbol, of the deep sense of confusion and lack of confidence and uncertainty that is now riddled through our economy—at a time when we are blessed with the mining boom. It is a boom that has been going for 10 years and has been wasted by this government. Every dollar of the $800 cheques that are going out is still being borrowed. Can you believe it! After 10 years of a boom and the highest terms of trade in our history—monumentally higher than anything we ever had before—we still have $800 going out to households, every dollar being borrowed. And then there is the flip-flopping that is represented in this bill.
We will not be supporting this set of bills, as my colleague the shadow Treasurer announced, because it adds to the great uncertainty and concern about consistency, flip-flopping and the litany of sovereign risk issues that now confront investors who may be looking to put their money in Australia—or investors in Australia looking to take a risk and invest in and create jobs. The changes proposed under the Tax Laws Amendment (2012 Measures No. 2) Bill 2012and the Pay As You Go Withholding Non-compliance Tax Bill 2011 do not appropriately target phoenix activity. The government has failed to argue a strong enough public justification for the retrospective application of proposed changes contained in schedules 2 and 3 of the tax laws amendment bill. This is in relation to consolidation tax cost-setting arrangements and related changes to taxation and financial arrangements.
My colleague the shadow Treasurer went through in some detail—and with great clarity—the way in which schedules 2 and 3 are a lazy attempt to plug some spending holes that this government has. It is a lazy attempt to use retrospective legislation to grab some tax from years ago. The retrospective application of these changes heightens our sovereign risk profile.
As an opposition we have very strong in-principle opposition to retrospective tax changes and if anything were ever to be done it would need enormous justification. The reasons this government has put forward are very shallow. In fact, if you listened to the member for Blair he gave no justification of any consequence for the retrospection. All he did was criticise and defame the shadow Treasurer and others on this side of the House. Our opposition stems from the fact that retrospective tax changes can change the substance of bargains struck between taxpayers who made every effort to comply with laws prevailing at the time the agreement was entered into. People who acted lawfully are now going to be slugged, potentially some years later, with an unexpected and in some cases highly significant tax grab by this government.
We are opposed to retrospective changes because they can expose taxpayers to penalties in circumstances where taxpayers could not possibly have taken steps, at the earlier time, to mitigate the potential for penalties. We oppose retrospective changes because they may change taxpayers' tax profiles. This, in turn, can materially impact on the financial viability of investment decisions and the pricing of those decisions—years after they were taken, years after people acted in good faith and made a case based on the prevailing legislation. They did their ROI assessments and deals with other companies and took risks based on the prevailing legislation. Now they find they will be lumped with an unexpected, highly material and in some cases debilitating tax bill. It will also leave a mark on their reputation. For many if not all who have acted within the law they will feel they have been unjustly labelled as tax cheats. In some cases, businesses will go to the wall because they took decisions at the time based on the prevailing law. We are opposed to retrospective tax changes because they could increase Australia's level of perceived sovereign risk. Added to these changes is the litany of sovereign risk issues from the introduction of a carbon tax, which was promised never to be introduced, and from the introduction of the mining tax, which exists nowhere else in the world, and, again, the incompetent way in which that has been dealt with over the last 18 months or nearly two years. Then there is the way in which they handled the live cattle job. They have actually created a long-term poisoned pill in the middle of our relationship with Indonesia—our closest neighbour, with a population of nearly 300 million, and a big part of our future, and yet our trade with that country is smaller than with New Zealand and its four million people. Can you believe it? And yet this government has gone out of its way to compromise and frustrate and demean that nation by, overnight, with absolutely no forewarning, announcing, via email, that we were going to cut off 40 per cent of their imported protein, indefinitely, because of a television program three nights before in Australia. Can you believe it? This is the sign of a government which is just amateur hour, and people see all of these things. Now we have a whole raft of changes which have retrospective elements to them.
The final element of these bills is the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012. We hear rumours now that it is going to be withdrawn and possibly some grubby deal is to be done with the Greens. Maybe we will see it introduced, who knows? Nothing will surprise us. Nothing will surprise the rest of business. It will only confirm the judgment they are making: 'Let's not invest. There's too much uncertainty. This government's got no idea.' They have already made a change, yesterday, in the CPI matter, for the passenger movement charge—only a lazy $140 million! But they have withdrawn that. Now, today, we hear that they may well have withdrawn this bill, which increases the withholding tax on foreign investment from 7½ per cent to 15 per cent—just another lazy $265 million! It is the only reason they introduced it in the first place. It was a measure that they introduced some four years ago and received great commendation, including from ourselves. It was an inspired move, to reduce the withholding tax to 7½ per cent. And it has had a material effect. There have been literally billions of dollars, especially coming into the housing and construction sector. We were starting to see billions of dollars being invested in infrastructure through this mechanism. Now all of that will be put on hold. We are literally sacrificing billions and billions of dollars of investment, and a decision, which got commendation around the world and certainly within this country, has now been turned on its head for a miserable $264 million. We even have a situation where research subsequently conducted by Allen Consulting Group is saying that, for every billion-dollar drop in investment—and there will be billions, many billions—from the increased tax, it will raise $40 million less in revenue from the tax increase in 2015-16, than the $75 million predicted by the government. So it is not even going to raise the money they expected. So they have taken this step which has again materially affected our sovereign risk for no good reason.
So we have a $400 million hole in the budget. And today we see the Reserve Bank has indicated that the forecast sharp swing to budget surplus next financial year mostly reflects shuffling of spending that will limit the scope for further interest rate rises. The RBA has just confirmed that the budget surplus is a hoax—it is a con. It is a fiction. What we have been saying all along—and what businesses suspects, and what everyone suspects, everyone knows—is that the one-and-a-half-billion-dollar surplus is a con. It is never going to happen. Again, it is a sovereign risk issue now.
All of these things are adding up—adding up to a point where this is very dangerous for the country. We are opposed to these bills. This government is out of control. It is all over the place. It must be stopped. The only way this will happen is with an election. (Time expired)
I rise to support the Tax Laws Amendment (2012 Measures No. 2) Bill 2012, the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012 and the Pay As You Go Withholding Non-compliance Tax Bill 2012.
I want to address a couple of points that the member for Goldstein made in his contribution. The first thing I want to say to the House is: I am not opposed to retrospective legislation in certain circumstances. That has been a feature of legislative reform over the years—obviously, not in every single case, but it is warranted in a number of cases. Indeed, it is warranted sometimes in the criminal law. Indeed, when we had the war crimes legislation under the Hawke government, it produced retrospective legislation against abhorrent conduct that occurred at the time of the Second World War. That legislation was supported, and it made criminal acts that should have been criminal at the time. So you just cannot rule it out.
Today we see on the front pages of the newspapers a shyster, a solicitor, who was overcharging his clients and who, some 12 months ago in New South Wales, transferred to his wife millions of dollars worth of assets, be it his share of the family home for a dollar, or his share of a farm for a dollar. It is said that his assets can be recovered. That is what is being said in the papers. But I say to you, Madam Deputy Speaker D'Ath: if that shyster's assets cannot be recovered then the New South Wales government should introduce legislation and it should be retrospective legislation that enables it to recover his assets, because he was under investigation and during the period of that investigation has transferred his assets, for a dollar, in some instances, where the value was much more. What are we supposed to do as legislators—do what the coalition does in a number of instances: be like moo cows, watching the passing traffic? No, in my opinion, you come in and you legislate, and a retrospective feature is warranted—not in all circumstances but in some circumstances.
The reason I rise to support this particular legislation has to do with features of it in terms of phoenix activity. I go to the explanatory memorandum, which says:
Schedule 1 to this Bill strengthens directors’ obligations to cause their company to comply with its existing Pay As You Go (PAYG) withholding and superannuation guarantee requirements. These amendments reduce the scope for companies to engage in fraudulent phoenix activity or escape liabilities and payments of employee entitlements by:
• extending the director penalty regime to make directors personally liable for their company’s unpaid superannuation guarantee amounts;
• ensuring that directors cannot discharge their director penalties by placing their company into administration or liquidation when PAYG withholding or superannuation guarantee remains unpaid and unreported three months after the due date; and
• in some instances, making directors and their associates liable to PAYG withholding non-compliance tax where the company has failed to pay amounts withheld to the Commissioner of Taxation (Commissioner).
The explanatory memorandum goes on to summarise regulation impact statements and explain other aspects of the bills. In particular, it says at paragraph 1.7:
The director penalty regime makes directors of companies that fail to comply with their obligation to pay amounts withheld under the PAYG withholding regime to the Commissioner (or fail to pay an estimate of their PAYG withholding liability) personally liable for the amount that the company should have paid, through imposition of a penalty.
It continues in paragraph 1.11:
Phoenix activity poses a significant threat to employee entitlements, government revenue and the economy as a whole. In its most basic form, a fraudulent phoenix company is used to intentionally accumulate debts and then is placed into voluntary administration or liquidation to avoid paying those debts. The business then ‘re emerges’ as another corporate entity, controlled by the same person or group, but free of debts. However, some aspects of the director penalty regime limit its efficacy in ensuring that directors cause their companies to comply with their obligations, including in phoenix cases.
Some evidence was put before the Standing Committee on Economics on 27 October 2011 by Mr Grant Darmanin, a senior director and the Phoenix Risk Manager of the Australian Taxation Office, that is worth mentioning. On page 29 of the committee report, he says:
Our best estimate is that at any given time there are around 6,000 phoenix companies operating in Australia, and we estimate that, given that not all of them have a single director—some have two directors—somewhere between 7½ thousand and 9,000 company directors could be exposed in particular to this legislation. These are fraudulent phoenix operators; they are not just people making business decisions.
That is what he says in evidence. Then on page 31 he says:
Fraudulent phoenix operators, almost to a person, do not report, they do not lodge and they do not pay. We have to go out and identify them and quantify the liability, sometimes using forensic-style investigative or audit techniques.
I think it is important to put on the record that on page 32, Mr Darmanin says:
There are, but phoenix operators, particularly the fraudulent ones, are very adept at flying under the radar, so to speak. When they come back into the ATO's systems, they will quite often use as the director someone who is not directly related to the former group. It might be someone that they engage, pay or hire or a name they pick from the telephone book. When we profile that individual when it comes through, quite often the direct links to that former business are not obvious. I take your point, though, that if we ask them questions we may get some answers, but phoenix operators do not like telling the truth.
Then on page 33, the chair says:
Okay. So there are 6,000 to 7,000 that you know about. Do you have an estimate of how many you might not know about and how many new ones come in every year?
Mr Darmanin responded:
No, we do not. There have been various studies done over the years, not so much by the ATO but by other committees and organisations, that have made various assessments of the impact of phoenix activity on the Australian economy. The most recent one was a 2004 parliamentary joint committee inquiry into corporations and financial services. That put the impact on the Australian economy at that time—2004—as being between $1 billion and $2.4 billion per annum. That is the most recent hard data we have to work with. Since that time, all the ATO's experience is that fraudulent phoenix activity has continued to increase not decrease, despite the ATO having a targeted approach to try to address this behaviour since the late nineties.
The chair then asked:
How much is it increasing every year?
Mr Darmanin responded:
It is hard to be definitive around that. When I say 'increasing', the indicators that we look at are the number of complaints being lodged by individuals whose entitlements have not been paid and we look at those companies and find that they are involved in repeat phoenix behaviour. We have incidents of companies incurring repeat liabilities—companies who are given an income tax adjustment the first time who choose to liquidate and continue their business through a new company rather than pay those assessments, for example. We have break-outs in different parts of our business, as I talked about before. A lot of phoenix activity in previous years used to be at the lower end of the SME market; now it is across the whole of the SME market. It is active in the micromarket as well. Originally, it used to be PAYE and prescribed payments, when we had that system; now it is in the superannuation, GST and income tax.
The member for Goldstein talks about sovereign risk. What I see here is risk to the ordinary taxpayer—to the ordinary hardworking individual—from shonks. The parliament should go after the shonks and set a legislative framework, even if it requires retrospectivity, that puts these people on notice that they will be personally liable and that we will come after them if they engage in this sort of behaviour. And we should not apologise for it. Recently we saw a situation where the High Court came down in terms of directors' liabilities and duties to do with a particular company dealing with asbestos. I welcome that unanimous decision of the High Court, because what it says is, 'If you want to be a director, don't bother just picking up your director's cheque. You actually have to do your homework. You have to read your papers. You have to read the press releases before they go out.' What it means is that directors have to take responsibility as directors, not just occupy those positions for the sake of an honorarium or some remuneration, and that they can themselves be liable. What we had in the James Hardie case, I think, was the High Court being spot-on in terms of the liability of those directors—those that tried to hide behind the claim, 'Well, I didn't read the press release, so I'm not liable.'
In relation to phoenix companies, which are much worse, we should not apologise for the action that we are taking, even involving a level of retrospectivity in this legislation. When the member for Goldstein talks about sovereign risk, I think he is using an expanded definition of 'sovereign risk' to bring this sort of activity that the government is involved in into the definition of 'sovereign risk'. I am concerned about sovereign risk, as we all are, but I am also concerned about employees' entitlements, because time and again we have seen under this government and the former government companies going belly-up and employee entitlements going out the window. Here we are talking about activity that is despicable activity, deliberately setting up companies to do the wrong thing, maximising the money to certain individuals and minimising any liability.
So I have no hesitation in standing up in the House today and supporting this legislation, notwithstanding the fact that there are elements of retrospectivity in the legislation, because what I would say is that it should not cause concern if the conduct that we are talking about is captured retrospectively. It is not outside the bounds. This notion of 'retrospectivity never at any cost' is rubbish. I believe in retrospectivity in appropriate cases. When it comes to phoenix activity or dishonourable behaviour, you can legislate retrospectively to pick it up, because the threat of that retrospectivity of itself is a powerful deterrent to the shonks. It says to them, 'You're not going to be able to get away with it.'
What it is about is greed, so you have to attack the greed and the loot that they are looking for with, in some instances, the threat of retrospectivity, which might stop certain behaviour. That is the only way. When you talk about deterrent effects, I say to you: when it comes to money and when it comes to this sort of behaviour, deterrence does have an impact in the corporate sector for some of these shonks. If they think they can transfer assets to their partners, their relatives or whatever with immunity and it is not going to be captured or picked up if they are caught out, they will do it. I am not arguing for retrospectivity in every instance—I am not saying that—but what I am saying to you is that in some instances it is warranted. In this instance, to me, it is certainly within the realm and within the principles. It has been, I think, pointed out by other speakers that there has been retrospective legislation in the life of the former government. So they did it—not as a regular occurrence, but on a number of occasions it was done. So let us not be too precious in relation to that. I commend the bills to the House.
What an interesting group of bills: the Tax Laws Amendment (2012 Measures No. 2) Bill 2012; the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012, which has the retrospectivity linked to it; and the Pay As You Go Withholding Non-compliance Tax Bill 2012. It is quite a complex group of bills. However, I rise today to speak about the Tax Laws Amendment (2012 Measures No. 2) Bill, the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill and the Pay As You Go Withholding Non-compliance Tax Bill.
I express my concerns in relation to these bills because I believe they are inadequate in their process and assessment and they fail to pay consideration to a number of associated issues and recommendations. In particular, the government has not adequately addressed the bipartisan concerns of the House of Representatives Standing Committee on Economics inquiry into the government's previous attempts at legislating these measures. A prospective undue increase in taxation and proposed retrospective measures without proper justification to raise automatic and indiscriminate liabilities to directors add pressure on investments and are not acceptable. The potential automatic increase in the liability of directors under the PAYG bill raises concerns about the preservation of natural justice and the considerable burden to business.
Before I go on, I just want to start with a very basic point. Let us get a determination on what a company director is. When you think of a company director, depending on your background, does your mind go to someone who is maybe taking a board position on one of the major banks or an influential organisation and who could be paid enormous amounts of remuneration, or does your mind go to your local mechanic or butcher, who could have a net household income of around 100 grand a year and who could have taken advice from their accountant that, because they are around that $100,000 level, it is more advantageous for them from a tax perspective as a small family business to set up a company structure as opposed to a partnership? This bill captures the mechanic. It captures the butcher. It captures the bloke in the main street. I have not heard anyone from the other side stand in this House to defend the rights of the common man and the worker. This bill is doing them over. I want you to take your mind to a place where when you hear the word company director during the debate on this bill you think of the mechanic, the bloke who has grease up his arms. Do not think of the bloke in the suit in Collins Street on a million bucks a year—or a million bucks a month in some cases. Making directors personally liable for the failure of someone else will only add more red tape to the business and will add more bureaucracy, and would most definitely cause most potential directors to run a mile in the other direction. What will happen to the future of Australian business and thus the economy?
Phoenixing is a terrible practice. We do not support phoenixing in any capacity whatsoever. For those of you that may not totally understand what phoenixing is, it is a horrible practice where a business bloke might see that he is getting into trouble and is going to go out the back door, so he transfers the assets out of his business with the distinct intention of avoiding paying super and other liabilities that his staff are entitled to. We will not have a bar of that. We will crack down on phoenixing and assist in whatever capacity we can because we do not support that. Phoenixing is corrupt and there is enough corruption going on in this nation as it is.
The previous speaker spoke about evidence the Taxation Office gave to the House of Representatives Standing Committee on Economics. I happen to sit on that committee. This bill seeks to give the Taxation Office enormous, overreaching powers. The tax office claims this will give it the capacity to stop phoenixing. But guess what? These powers reach to every single business in the nation. The evidence was there are only 6,000 cases of phoenixing. But this bill allows the Taxation Office, under the auspices of investigating phoenixing, to go into your business, to tear the place apart, find whatever other anomalies that may be happening in your business and go after it. This is just a trigger to get through the front door of your business to try and grab more cash.
The bill was conceived to target phoenix operators. The regulatory impact statement prepared in June 2011 in respect of the bill only addresses the measures the context of phoenix activity. There have been some minor amendments to that regulatory statement as we understand it; however, the premise of the bill and the way it is constructed is basically still targeting or based on phoenix activity. Even if you accept the ATO figures which have been put forward, less than half a per cent of directors may be engaged in phoenix activity and yet the bill potentially imposes liability on the whole 2.2 million. That is a very big and damaging net to catch a few fish, we would contend.
If you are serious about wanting to shut down phoenixing then why, when a business shuts down one day, do you give a tax file number to directors to open up the next day? Would it not just be easier to not give them another tax file number? Where did that idea come from, out of the blue? Do not let them start up again. Your mechanism is so big and so clumsy you do not know who they are. There are not enough rigorous checks. The ACCC has powers already that can prohibit it but they are not exercised. The Taxation Office has powers that can stop this type of practice but it is not exercising them. What does this government do? It continually says the answer is: 'More red tape, more bureaucracy! We'll fix it and we'll go and affect every other small business in the nation.' I say that is wrong because I stand on this side of the House as a small businessman who believes in less government, less interaction, less bureaucracy. Let the punter on the street, the bloke who is trying to drive the prosperity of this nation have a go.
I am not going to support anything that goes towards fraudulent activity where staff liabilities are in question, but please let common sense prevail on phoenixing. You have provisions that already exist to stop phoenixing in its tracks by not giving directors a tax file the very next day when they go to transfer. You are going to affect the lives of 2.2 million businesses, company directors and mechanics; that is the link. Do not think we are chasing the end of top end of town. This affects everyone. It is a bad bill.
This bill would impose liability to all directors, including those of charities and not-for-profit organisations. They are limited by guarantee, as many directors are. Many of these organisations are the lifeblood of the community and should not be placed under unnecessary stress and inconvenience. Overall these bills will punish taxpayers who, in good faith, abide by prevailing laws. This bill is nothing more than a blatant tax grab, an attempt to remedy Labor's erosion of the Australian fiscal position.
The bill represents a number of issues each of which has been examined at length by the House Standing Committee on Economics. The first issue I raised today was in relation to making directors personally liable for unpaid superannuation guarantee amounts to their company employees. I raised the question as to whether directors of companies may be liable for these measures if they join the board after the fact. The government cannot answer this question about if an existing board is in place. Now we are back at the top end of town, and the organisation has been going for 15 or 20 years.
I go on and take a position on that board and, because of my diligence and my strong governance procedures, I instigate investigations to make sure that we have contingent liabilities for staff entitlements. As a result of those investigations, I find that the company that I have just joined may be negligent in that and I want to remedy it. As a result of this, I am in the tin for the 20 years of liability.
So what is my motivation then as a company director? What is the actual intent of this legislation? It is encouraging me not to say anything, because I am going to be liable for it. Why aren't we promoting good faith for directors to come out and be transparent? Who knows? One of the most important aspects that has been omitted from these bills is that phoenixing activity, and I could go on all day about that.
According to the Australian Institute of Company Directors, there are some 11,700 companies in Australia that are limited by guarantee. We are talking about charity organisations, grower groups, and businesses that serve the Australian people. As John Colvin from the Australian Institute of Company Directors mentioned in his speech to the parliamentary estimates committee, it targets almost all of Australia's 2.2 million directors including those who volunteer their time to work with charities and community organisations. Mr Coleman also pointed out that following submissions to the parliamentary estimates committee in 2011, the committee recommended the government investigate whether it was possible to amend the bills to better target phoenix activity. Yet the government has made virtually no attempt to target phoenix activity in revising the bill.
But it has not just been to the economics committee, it has been to a Senate committee. They raised concerns about this part of the bill, and still there is no amendment. It is just typical of Labor's attempt to burden the directors of those companies, even where there was no illegitimate activity, with undue liability. And why, I ask: because the Labor government has no interest in the successful operations of business in Australia.
These bills also look at amending the taxation of financial arrangements provisions, TOFA, to ensure that the tax treatment of financial arrangements that are part of a consolidation event is consistent with the TOFA tax-timing rules. This is both a revenue protection measure and a revenue gain over the forward estimates. These amendments are said to protect a significant amount of revenue over the forward estimates and generate a revenue gain of $253 million over that period.
The consolidation tax cost-setting arrangements and related taxation of financial arrangements are in simple terms retrospective tax changes. The government have failed to justify the retrospective aspect of this legislation. The government describe this measure as 'revenue protection', but have not quantified the amount of tax revenue which would be lost if the tax measure was not passed. That is important—a lot of this stuff is important. The government describe this measure in the bill as 'revenue protection', but have not quantified the amount of tax revenue that would be lost if the measure were opposed. So they are saying that it is not going to have any impact on budget if it goes through, but if it does not go through we are going to have to find some money. I just do not get that part of it.
Retrospective measures can expose taxpayers to penalties when taxpayers could not possibly have taken steps to mitigate the potential for penalties to be imposed. As an opposition and as a coalition, we fundamentally oppose retrospectivity. When you pay your tax bill on 30 June each year, it is fundamentally the security of your business to know that you are clear. What a horrible day it is when you wake up the next day and find that you have got an eight-year tax bill, knowing that in good faith you had paid your tax. This bill is bad for the country. It is bad for business confidence, confidence that is lacking in our market at the moment. Thank you.
In speaking on the Tax Laws Amendment (2012 Measures No. 2) Bill 2012 and the package of bills before the House, let me also join with my colleagues, the shadow Treasurer, the shadow minister for finance and those others from this side of the House, who spoke in this debate in reiterating our opposition to these bills. The shadow Treasurer outlined in great detail, schedule by schedule, the deficiencies with this legislation.
In my contribution today I particularly want to focus on one aspect of the legislation that is before the House, which has received some debate this morning and that of course is the schedule that deals with the managed investment trusts withholding tax for foreign investments. The shadow Treasurer this morning outlined some of the government's history on this legislation. He also indicated that the government has tabled an amendment to delete these very schedules this day, so it appears that we are witnessing, apparently—not that the government has said anything discernible at this point—a U-turn in slow motion on this issue. Let us focus on this issue because it says so much about this government's approach to taxation.
In the budget the government announced that it would double from 7½ per cent to 15 per cent the withholding tax for foreign investments for managed investment trusts, and the shadow Treasurer and the shadow minister for finance have outlined the great damage that announcement has done already and the flawed nature of that announcement. They have also outlined in great detail how this is completely contrary to earlier actions and statements by the government.
I just said the government 'announced' this in the budget. That is being too generous to the Treasurer. In my cursory look at his budget speech just now, before beginning my contribution to this debate, I could not find any mention of it. On a closer reading maybe there is a word or two there, but I suspect not. I start from the position with this Treasurer that if there is some bad news to announce it will not be in his budget speech. He has got great history on this, of course. This is the Treasurer who refused to name the debt or deficit figures in his budget speech in 2009.
I will take the House through the history of this because it exposes so much: not only the incompetence of those opposite but their complete lack of understanding on matters of taxation. If you go back to the Treasurer's budget speech of 2008, he very clearly outlined the government's plan to cut this particular tax. He said:
Our nation has the potential to be a financial services hub in the Asia-Pacific Region—the fastest growing region in the world. To support this ambition, the Budget begins the process of significantly reducing the withholding tax—
et cetera, et cetera—
to a final rate of 7.5 per cent …
He was quite happy to make great fanfare of it in his speech. That 7½ per cent rate was to be doubled in this year's budget. There is no parallel statement, and it must flow that if the government thought the 7½ per cent rate was so necessary for what they wanted to achieve, a doubling of that rate indicates a change of policy; and if what they said was so important and so beneficial, a doubling of that rate must therefore be detrimental.
Look to the statements of some of those who have spoken in the debate—it is a wonderful thing Hansard, Madam Deputy Speaker, as you know. We have had in this House today a number of those opposite trying to defend the indefensible. My friend the shadow Treasurer was a bit harsh on the member for Blair, who speaks on all of these tax law amendment bills. My friend the shadow Treasurer rightly pointed out that he had not addressed the substance of this issue. I can tell you why: the member for Blair is a good bloke with a bad brief. What this Treasurer has asked those opposite to do is to vote to cut this particular tax to 7½ per cent and then in his budget to double it. They will be able to go around Australia saying, 'We've supported a cut and an increase in the same tax.'
I have said this before in this House and I cannot be sure that every member will know what I am talking about here, but I know the minister at the table will because he has a great understanding of Australian history and a great understanding of sporting history.
Many years ago when I was a mere kid, and the minister at the table was probably in his 30s, there was an Australian opening batsmen called Graeme Wood. No-one wanted to bat with him because he was famous for saying, 'Go, stop, wait, no, go back!'—and you would always end up standing next to him at one end of the pitch. You see that on tax policy with those opposite.
Let us remind them of their words. The Assistant Treasurer introduced these bills on 24 May announcing the increase in this tax rate, the doubling of it. Let us look at what he said almost four years ago to the day. On Wednesday, 18 June 2008, here is what the now Assistant Treasurer said as a backbencher in the newly minted government who were going to create a financial services hub here in Australia. Talking about the cut to 7½ per cent, he said:
That will be a very clear signal, a marker to global capital that this is the place to invest—that Australia is a country where you are able to invest and you are able to get a reasonable rate of return without being slugged with excessive levels of tax, as may be the case in other jurisdictions.
I regret to inform members opposite that the Assistant Treasurer at the time went further. In introducing the legislation, the member for Prospect and then Assistant Treasurer, now the Minister for Immigration and Citizenship, had this to say, again on 18 June 2008, on why the government was cutting the rate to 7½ per cent:
Why did we do that?
Get ready for this. He said:
Because you do not create a financial services hub with tinkering.
What did they do in this year's budget if they didn't cut the rate to 7½ per cent, and they announced they're increasing it to 15, if that's not tinkering, if that's not a doubling, if that's not change? Right back then you had this new government, this new band of brothers, and they were going to cut the rate to 7½ per cent. Now they are doubling it to 15 per cent, and no mention can be found in the Treasurer's speech. I will go on and continue to quote the then Assistant Treasurer:
You do not create a major policy reform by working around the edges. We took the view that if we could give Australia the lowest withholding tax rate in the world this would be a major advance in making Australia the financial services hub of Asia. We took the view that a withholding tax rate of 7½ per cent was an appropriate way to promote Australia as a financial services hub.
Well, you do not have that view now. In the budget it was doubled. It says so much about this government that their approach on these issues creates uncertainty, leverages risk and sends out the message to international investors that this is a government that chops and changes.
Think about what the effect of that budget night announcement was on international investors. They got the message from the new government in 2008: 'Come here because we have a 7½ per cent rate'—and, as the shadow Treasurer said, they invested on that basis. If they were listening to the Treasurer's speech on budget night that would not have mattered but once they digested the detail they discovered that the rate was to be doubled. What impression about tax policy in Australia does that leave in international quarters? Let me be very blunt: it shouts out the message that the government cannot be trusted on tax. It shouts out the message of uncertainty—and uncertainty is toxic in the world environment. It says, 'Whatever this government says, you're at great risk of that tax rate being changed on you retrospectively.'
You do not have to take my word for it; you can take the word of so many commentators. That would take up a lot of time in this House but I do want to quote one because this gives a real world view to those opposite about the effect the government's conduct has created. The shadow Treasurer quite rightly quoted David Denison this morning. David Denison, president and CEO of the Canada Pension Plan Investment Board addressed it directly:
In this era of fiscal restraint and additional direct and indirect taxes, we are becoming increasingly concerned that some risks associated with ownership of infrastructure are expanding. For instance, it is easy to envision the regulatory rate setting process becoming politicized instead of objective and fair. The same could occur with taxes—in fact, Australia’s budget that was tabled last week effectively doubled the tax burden on our real estate and infrastructure holdings in that country.
If we conclude that these kinds of risks within any country become significant enough to call into question the predictability and stability of cash flows that are at the heart of the investment rationale for infrastructure, our response will be very quick and rational—we will simply stop investing there.
The shadow finance minister made the point that the member for Blair did not have a lot to say—he had got word that the amendment I mentioned earlier was being tabled. The member for Blair, who speaks on all of these bills, was elected in 2007; he sat there in 2008 and hailed the reduction to 7½ per cent. He voted for it and then on budget night discovered that the 7½ per cent rate was doubled. Those opposite understand—at least the member for Blair does—the impact of this but they have a Treasurer and an Assistant Treasurer who have no idea on these matters.
That does damage. My friend at the table said, 'Incompetence personified'. That raises a very important point: lack of competence in Canberra creates a lack of confidence outside Canberra. (Time expired)
Once again we stand in this House, less than 24 hours since I last spoke on another piece of legislation that contains retrospectivity and lacks clarity and detail. As the member for Casey has so well pointed out, it adds to the level of uncertainty in our business community about the future direction of tax policy in this country. I will go through this package of bills, the Tax Laws Amendment (2012 Measures No. 2) Bill 2012 and related bills, one by one and have a look at the various schedules.
We fully support some of the ideas contained in this legislation. We have always supported the notion that phoenixing activity should be minimised as quickly as possible because it has lots of deleterious effects on confidence, particularly in the construction industry. I saw that firsthand on many occasions when my father worked as a ceramic tiler. Building companies would close for business on Friday and reopen as a new company on Monday; they would ring him up to work on new projects but had not paid him for the old ones that he was working on in the weeks prior.
We will start with a look at schedule 1. It refers to the Pay As You Go Withholding Non-compliance Tax Bill 2012, which makes directors personally liable for unpaid super. It means directors' penalties cannot be discharged by placing a company into administration and looks to make directors and associates liable for PAYG withholding noncompliance tax where a company has failed to pay. It seeks to expand the application of the director penalty regime and ensure that directors are held to account for their activities. What is important in this legislation is that it is not just about phoenix activities. Once again, we see a failure to clearly articulate what phoenixing activity actually is. The changes are justified in the explanatory memorandum as being part of an attempt to combat phoenix activities. This is the second attempt by the government to make these types of changes. The first attempt was made in the Tax Laws Amendment (2011 Measures No. 8) Bill 2011 and the associated Pay As You Go Withholding Non-compliance Tax Bill 2011. An inquiry into these bills by the House Standing Committee on Economics made a bipartisan finding that the provisions in the bills did not add to existing requirements but instead applied a more effective penalty regime to phoenix operators who were abusing the law to obtain an unfair competitive advantage. I do not think there is anyone in this House that would disagree with that notion to achieve that outcome.
However, the committee noted concerns from the business community and its representatives that the bills would potentially apply to a broad range of directors, whether they were engaged in phoenix activity or not. This is the crux of the matter. The committee unanimously recommended that the government should investigate whether it would be possible to tighten the provisions of the bills to better target phoenix activity. After the House economics committee tabled its report, the government withdrew the relevant provisions from those bills, including withdrawing the Pay As You Go Withholding Non-compliance Tax Bill.
The House economics committee has now inquired into the provisions of the package of bills currently before the House. The coalition members of the committee have again found that the measures proposed by the government are not properly directed to or focused on phoenix activity. The coalition members found that the measures were, instead, 'broad based and not targeted' and would impose such onerous obligations that company directors would become more focused on compliance, rather than on performance and running the business.
A particular concern expressed to the committee was the liability that these provisions would apply to board members of charities and other non-profit organisations, and that this liability would act as a disincentive to undertake those roles. When we consider the time and effort that these people put into volunteering their skills and their talents to important charitable institutions in our community, this would be of grave concern. It is a point I would particularly like to emphasise, because in my electorate the not-for-profit community organisations and their volunteers are one of the key pillars of strength. I have no doubt that that would be reflected in many other electorates around Australia, if not all.
The government continues to introduce ad hoc and piecemeal measures to deal with phoenix activity. However, as I have touched on previously, the government has yet to provide a comprehensive definition of what phoenix activity is. It has continually failed to target the measures so that they apply to directors of phoenix companies without imposing onerous new obligations on directors of the vast majority of companies that continue to comply with their legal obligations.
Within the current regulations—within ASIC, within the Corporations Act and within the tax act—there are more than sufficient provisions to prevent those directors from being able to be issued with tax file numbers or re-registered as directors of new companies. As I have touched on previously in this House, it is a matter of enforcing the regulations that are already there—not seeking to impose new levels of regulation because our regulators failed to apply the laws that are already in existence.
I reiterate that the coalition is strongly opposed to fraudulent phoenix activity—and I have already given a personal example of that—and supports all appropriate measures to stamp out this practice. As I said last year in debate on the Corporations Amendment (Phoenixing and Other Measures Bill), phoenixing is a cancer that is eating away at the foundation of trust upon which our business community and the broader community are built. It sours relationships and creates a distrust that means people can no longer rely on those they do business with. We remain concerned that the government's approach to this important public policy matter is again confused, ad hoc, piecemeal and not appropriately targeted.
Schedule 2 makes changes to the taxation of financial arrangements provisions, both as a revenue protection measure and as a revenue gain over the forward estimates. These changes apply to consolidated groups and work together with provisions of schedule 3 that have a retrospective impact. It also changes the consolidation tax cost setting arrangements—that is the retrospective component.
As I mentioned last night in the debate on the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2011, the coalition is opposed to retrospective taxation changes as a matter of principle. We are opposed to these changes for a number of reasons. Firstly, the proposed changes can change the substance of bargains struck between taxpayers who have made every effort to comply with the prevailing law at the time the agreement was entered into. They can expose taxpayers to penalties in circumstances where taxpayers could not possibly have taken steps at an earlier time to mitigate those potential penalties. Secondly, they may change the tax profile of taxpayers, which in turn can materially impact the financial viability of investment decisions and the pricing of those decisions. Thirdly, they can increase Australia's level of perceived foreign risk. I again make the point that the perception of sovereign risk these days with this government is no longer perceived or real and actual. How can taxpayers be expected to have complied with laws they did not know existed at the time they were supposedly expected to have complied with them?
Earlier today I received an email from a constituent who made the following remarks in relation to the retrospective effect of the proposed cross-border transfer pricing amendment bills debated last night. He said:
The retrospective effect of this legislation is particularly abhorrent because it goes back much longer than tax records are required to be retained.
My understanding of the bill before us today is that the retrospectivity actually goes back 10 years rather than the eight we were discussing last night. He goes on to make the point:
The whole tenor of the bill is predicated on the fact that the courts have ruled on the effect of the law as it is written and have dared not to support a 'policy' position taken by the Commissioner of Taxation. The law is now absolutely clear and the government should accept the ruling of the courts like all other citizens are required to do, or appeal if it thinks it has good grounds.
If these proposed changes were made prospective from the date of announcement, which in the case of the transfer pricing was 25 November 2011, then we would be inclined to support these measures.
Schedule 4 in the outlined bill is proposed to double the withholding tax on managed investment trusts from 7½ per cent to 15 per cent. We heard this morning that the government will now make changes to this schedule, and we wait with bated breath to hear what they actually are. At the end of the day, we still call on the government to scrap its ad hoc, piecemeal approach to double the tax on managed investment trusts. Our focus should be on encouraging further investment from our foreign counterparts through internationally competitive taxation arrangements so we can grow our economy more strongly.
As all of us in this House well know, we are a nation and an economy that relies on foreign capital to grow and build our economy and our wealth. The first example that springs to mind here is how destructive the world's biggest carbon tax is going to be for competition in this sense. I have spoken with an export business in my electorate that is considering shutting down operations for periods during the year, forcing staff onto annual leave or leave without pay in an effort to stay below the 25,000-tonne threshold for the carbon tax. This is in order to keep them competitive in their export markets against other countries that they compete with, such as the USA.
Getting back to the proposed changes to the managed investment trust withholding tax, as they stand, they would double the managed investment trust withholding tax for foreign investment from 7½ per cent to 15 per cent. I will continue on this, despite the fact that the government is proposing changes which none of us have seen. Again, they would be retrospective in that they would apply to all income distributions made after 1 July 2012, irrespective of when the original investment decision was made. In 2008, when the government reduced the rate of withholding tax progressively from 30 per cent to 7½ per cent, the coalition did not oppose that; we actively supported it.
However, at the time, we did express concerns that the reduction was not a genuine reduction for international taxpayers because, through the operation of the double taxation agreements, any reduction in taxation paid in Australia might simply lead to higher taxes being paid in other jurisdictions. At the time, the coalition also expressed concerns that the bill had not been subject to proper scrutiny as the government had not allowed the bill to be considered by the Senate Economics Committee, that Labor's costings of the measure may have been underestimated and that the government had delivered a tax cut to foreigners but had not delivered a tax cut for Australian taxpayers.
It is the government's constant chopping and changing in relation to the withholding tax that is yet again reducing our predictability in the eyes of international investors. If passed, this legislation will undermine Australia's objective of becoming a regional financial services hub in the Asia Pacific. Attracting more foreign investment is as important as ever to achieve stronger economic growth for our future. (Time expired)
I rise to speak on the Tax Laws Amendment (2012 Measures No. 2) Bill 2012 and the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012. I rise to speak on these budget measures, which are of huge significance to the tourism industry and our ability to ensure the infrastructure pipeline. I have to say that I have never seen a government more out of touch with the tourism industry, one that has so breached trust with the tourism and one that has so failed in basic communication between ministers. I say that because on 2 May this year the government announced a tourism investment guide to market Australian tourism investment to potential foreign investors in Shanghai.
It is true that this government needs to lift their game to attract these investors. For example, they need to restore the Survey of Tourist Accommodation and a comprehensive way to deliver a complete industry-wide performance model. They need to reduce government borrowing, which competes with tourism accommodation providers when they seek finance to improve their properties. They need to set KPIs for Austrade officials around the world to find inward investment, and they need to reduce red tape that currently makes residential property development more attractive than developing tourism accommodation stock.
Despite this, I welcomed the initiative that day and I commended the minister, saying, 'It is a good first step towards improving Australia's accommodation stock.' Depending on which model we assume to be true, we will need to provide somewhere between 30,000 new beds and 70,000 new beds to reach the Tourism 2020 targets. The opposition would help the sector help itself, by properly restoring the Survey of Tourist Accommodation. Under Labor the requirement for small boutique accommodation providers to report guest numbers was scrapped. Hotels and motels offering fewer than 15 beds are not required to report on occupancy.
While this saves the ABS less than $1 million, it means Australia no longer has reliable data on occupancy and no way for bank managers to determine returns on investment sought by providers. Work has begun within the Department of Resources, Energy and Tourism to restore reporting, with an online system to replace its expensive and slow phone interview based system. However, important parts of the sector have been dismayed by the lack of industry-wide consultation, by the extended delays in this project and by the government's long-term commitment to the project itself. The exclusion of small accommodation providers from the data capture represents a lost opportunity to establish complete research platforms upon which to base important tourism decisions. The government's prospectus was a totally powerful measure so long as it was part of the broader policy to deal with underinvestment. I was dismayed therefore to learn that, six days after launching its prospectus, the government doubled the tax on international hotel investors. The increase to managed investment trust withholding tax is one of the measures announced in the budget which have set the tourism industry into an absolute spin.
In this budget, the government has directly attack the tourism industry. For example (1) there is no carbon tax compensation for tourism, and this stands to destroy 6,400 jobs, mostly in regional and rural Australia and cut 10 per cent from industry profits; (2) the budget for Tourism Australia has been reduced by 6.2 per cent, which is $8 million in real terms; (3) the passenger movement charge has been increased from $47 to $55 per passenger, and a desire has been expressed to index it by the CPI; (4) $118.1 million in costs for AFP security at airports has been passed on, and these will be passed on to airlines, who will pass them on to tourists; (5) there have been 90 headcount cuts to Customs staff, so increasing tourist waiting times at airports; (6) duty-free concessions have been reduced; (7) the visa label charge will increase by $10; (8) there is a $7 million investment in SmartGates at the same time as the government is cutting $10 million from elsewhere in Customs' budget, and this will take the form of further staffing cuts; and (9) there are tax-loss carrybacks only for companies, and these are limited to two years. Australian Federation of Travel Agents CEO Jayson Westbury says:
If the Government has a budget black hole, it is not reasonable to hit the one industry that provides long term and career based jobs to everyday Australians, who already contribute significantly more than their fair share of taxes.
Madam Deputy Speaker, I am exactly on the legislation. Like many on this side of the chamber, I followed proceedings in the House of Representatives Standing Committee on Economics and the questioning by the member for Wright. As that committee learned through testimony and from its publication a week ago of the report by the Allen Consulting Group, the net effect of the MIT bill will be that by 2016 there will be less money for government to spend—$172 million less, in fact—and that there will be reductions of $533 million in household consumption. In short, the tax will wipe out a large proportion of the household discretionary spending that tourism relies on for financial stability.
I am aware of a range of tourism investments threatened by the MIT bill, but I will not add to the pressure already put on developers by disclosing commercially sensitive information and citing individual cases. The Allen Consulting Group report made known to the House economics committee indicates the following: a one per cent increase in the rate of tax reduces the level of investment activity by three per cent; there will be a $1 billion decline in foreign capital results by financial year 2016; there will be a net overall reduction in federal tax revenue—that is, a substantial decline in economic activity will wipe out the entire estimated revenue rise; there will be a $172 million reduction in government spending capacity; 4,640 jobs will be lost; and there will be a reduction in household consumption of $533 million and in GDP of $580 million. The Allen Consulting Group concludes that an increase in withholding tax will be self-defeating. The Property Council of Australia and the Financial Services Council have evidence that the $1 billion decline has already occurred.
In advance of this debate many members will have been sent a copy of the Business Council of Australia's study into Australia's capital project investment pipeline called Pipeline or pipe dream? Securing Australia's investment future. As Business Council of Australia CEO Jennifer Westacott said when launching the study:
The study provides for the first time a total picture of how capital investment is driving the economy, and underlines why policy priorities for a stronger economy must help focus on the delivery of Australia's investment pipeline.
The study highlights how important the effective delivery of major projects will be to the future shape and health of the economy and living standards. The $921 billion pipeline is not assured, and we are becoming a high-cost place to invest.
The government's changes to the managed investment trust taxation, which fly in the face of the week-old Shanghai launch, are prime examples of the ways in which this government is making Australia a poor choice for investors. The BCA launched their report at the Prime Minister's Economic Forum last week. As reported in the media, the Tourism and Transport Forum opted not to attend that event—and they were wise not to do so. The last time they attended a similar event, their Deputy Chair, Ann Sherry, appeared at the future tax summit to advocate accelerated depreciation of assets to drive investment in the sector. The outcome was a budget plan scotched at the last minute to do just the opposite for aircraft. When the Prime Minister was quizzed on the TTF's nonattendance her pat response was to say Labor has been meeting with the tourism sector—and especially the cruise sector—and talking about their needs. Labor has lost all credibility with the cruise sector over two recent decisions. Firstly, where is the Prime Minister's decision to allow Carnival Corporation and P&O Cruises access to Garden Island as an overflow facility? Secondly, Labor completely disregarded Orion Expedition Cruise's very reasonable expectations, which were put to Labor through the shipping reform bills process.
Instead of attending the Prime Minister's Economic Forum, TTF CEO John Lee came to my electorate along with others, including Jayson Westbury, the CEO of the Australian Federation of Travel Agents, and John Hart, CEO of Restaurant Catering Australia, to meet with our shadow Treasurer. They and the others who came to speak with the shadow Treasurer about managed investment trust withholding tax and the passenger movement charge know that the coalition will both listen to and act on their concerns. They were reassured by the shadow Treasurer's comments on the need for a stable, predictable and sensible approach to policy. They have seen him respond by arguing the case on managed investment trust withholding tax and the passenger movement charge. These are the two key concerns facing tourism and hospitality out of this year's budget.
With these bills today, the government proposes to add to the cost of hotel management where a property is owned by a managed investment trust. According to Tourism Accommodation Australia, most MIT hotel investment in Australia is from Singapore and Malaysia and feedback from these investors is not good. According to John Lee, CEO of the TTF, the new tax impost in these bills will create instability and uncertainty for specific transactions. He says:
It is bewildering that such a long-considered policy, we understand developed over 2½ to three years, would be changed overnight without consultation or regard for the potential ramifications for the hotel and investment industry.
Minister Ferguson attended the National Tourism Alliance post-budget wrap-up with me the day after the budget was handed down. During the Q&A session he would have heard Rodger Powell of the Tourism Accommodation Association refer to advice from lawyers Baker & McKenzie recommending:
… non-residents holding Australian assets through MIT structures consider whether a MIT remains the appropriate structure for their investments in light of the government's decision.
I received a letter from Mr Powell earlier this week, in which he advises:
MITs are the vehicle through with much of the investment in Australian accommodation occurs. The Government's inconsistency in doubling the tax on MITs at a time when Tourism Australia is broadening its remit by actively seeking foreign investment in the Australian tourism industry is alarming.
You are, of course, well aware of the need for new investment in accommodation to ensure Australia is able to offer the travel experiences being demanded by our key tourist markets. The only way this can happen is by offering an attracting investment climate.
Mr Powell goes on to further advise that increasing the MIT withholding tax will:
1.Threaten existing projects and deter new investment in accommodation
2. Reduce tax revenue;
3. Damages Australia's reputation amongst foreign investors;
4. Increases Australia's reliance on foreign debt;
5. Undermines Australia's ability to serve as a regional financial hub; and
6. Scare off investors committed to long-term investments.
Of course, Labor will highlight that the rate was 30 per cent under the coalition. However, the Howard government brought down a range of taxes relevant to tourism, whilst creating Tourism Australia and lifting its funding to its highest level.
As my colleague Senator Cormann said on 29 May:
Labor's zig-zag approach to withholding tax on Managed Investment Trusts has also yet again increased Australia's sovereign risk profile.
The Gillard government has yet again managed to reduce the confidence of international investors in the stability and predictability of our taxation arrangements.
More important than the rate per se is the paramount importance that we give to hotel investor confidence in their 10-year investment plans that they will not change on a whim.
Howard had a plan to pay off Keating's $96 billion debt and provide assistance to business and individuals through easing tax pressures. Labor talks good when it comes to help meeting our Tourism 2020 targets which include boosting accommodation growth stock so that we can meet potential growth from China. As former Minister for Tourism Nick Sherry was quoted in a leading tourism industry publication Travel Weekly:
Unlike other sectors of the economy, investment in the broad tourism industry has "not been particularly good. Tourism Research Australia says investment growth in tourism is lagging behind the rest of the economy," Sherry said. "It's been a struggle to reach investment growth of 2% a year which is insufficient. The stark reality is that there has been no meaningful addition to Australia's accommodation supply for a decade or more.
Sherry was further quoted as saying:
The sad fact is that much of Australia's accommodation is outmoded and outdated and Chinese visitors in particular ... are used to very modern facilities in their own country. There is a great challenge in tourism to invest in the modernisation of facilities.
I urge the House—and particularly those members on the crossbenches to whom the tourism and hospitality industry looks for support—to consider the following facts: tourism's contribution to the Australian gross domestic product was $73.3 billion, or a 5.2 per cent share of the Australian economy. Total gross value added tourism was $69.1 billion, representing a 5.3 per cent share of the Australian economy. In Australia, tourism directly and indirectly employs 907,100 persons, representing 7.9 per cent of total Australian employment, and shrinking. Australians spent 130 million nights abroad in the year 2010. During its peak under the Howard government, Australian tourism made a profit of $3.584 billion. Next year the sector will stand to make a net loss of $8.7 billion. Since 2008, Australia has slipped from fourth to 13th place in the World Economic Forum Travel and Tourism Competitiveness Index rankings.
Let us look past the nonsense of this tax. I encourage the government to back down on this, as they are doing on the CPI aspect of the passenger movement charge. They need to understand the industry. They need to work with the industry. You actually create growth and investment by reducing taxes, not increasing taxes, on individuals and companies. That is why this part of the budget is an absolute farce and the Assistant Treasurer sitting opposite should recognise these facts.
Firstly I would like to thank those members who have contributed to this debate. Schedule 1 amends the tax law to better protect workers entitlements to superannuation and to strengthen the obligations of company directors to help prevent fraudulent phoenix activity. The failure to withhold tax and pay superannuation amounts impacts all aspects of the economy. These amendments aim to ensure that compliant businesses and employees are not being disadvantaged by companies that fail to meet their obligations. Those opposite will say that they oppose this bill because the director penalty regime can apply to all directors whose companies fail to meet their obligations. What they fail to recognise, and what they fail to admit, is that the existing regime has applied this way for pay-as-you-go obligations since 1993 and for the entire time that they were in government.
It is no surprise, of course, that those opposite are willing to come into this place and to vote against a bill that seeks to protect workers' entitlements. We know that they are not interested in the superannuation of hardworking Australians. They opposed superannuation when it was first introduced and the now Leader of the Opposition is on the Hansard as having said that compulsory superannuation was the biggest con job ever foisted on the Australian people. They are strong words.
The member opposite says, 'Why are we keeping it?' Well, one may well ask why they have so vociferously opposed this government's efforts to increase the superannuation entitlements of working people. Of course, we know that they have opposed and have voted against our plans to increase superannuation to 12 per cent. This for a 30-year-old worker on an average wage, under our reforms, will mean that they will retire with an extra $100,000 of retirement savings. And it should come as no surprise to any of us that, once again, we have the opposition, the member for North Sydney and his colleagues, coming into this place opposing workers' entitlements.
I note that there are some references in the Australian Financial Review today to a speech that was given by Liberal senator, Senator Sinodinos, who has indicated that changes to industrial relations are on the coalition's agenda.
The member opposite who interjects and protests so loudly was the handmaiden, the one who was left carrying the baby when it came to delivering and inflicting the pain upon the Australian working community that Work Choices ultimately delivered.
They are the party of Work Choices. They come in here and they want to vote against workers' superannuation entitlements.
Mr Deputy Speaker, I rise on a point of order. The same minister who stood up and asked me to be relevant to the debate has now strayed so far from the debate that I ask you to bring him to the point. Or does he not understand his own bills?
The bill very specifically and very clearly goes to the protection of superannuation entitlements of working people. That is what those opposite are voting against. They are voting against protections that we want to put in place that will ensure that a regime is in place that provides some accountability with respect to the provision of superannuation entitlements.
It is a shameful thing. I can understand why the member for Paterson does not want to accept the fact that that is what he is voting against. When he was talking about the bill he preferred to focus on other parts of the bill. But it is no surprise that the opposition come into this place and launch a further attack on the entitlements of working people.
Schedule 2 of the bill amends the taxation of financial arrangements, the TOFA regime, to ensure that the tax treatment of joining/consolidation events is consistent with the TOFA tax-timing rules and that financial assets and financial liabilities are treated symmetrically.
Schedule 3 amends the Income Tax Assessment Act 1997 to modify the consolidation tax cost-setting rules. The changes are necessary to take away unexpected retrospective benefits arising from amendments to the consolidation regime that were made in 2010. There is an important point to make. Amendments were made in 2010 that provided retrospective benefits. These amendments merely recognise the fact that unanticipated and unintended benefits flowed from those amendments. It is widely recognised that it is appropriate to correct it to ensure that a more balanced outcome is achieved.
These changes demonstrate the government's commitment to maintaining equity, fairness and integrity of our tax system. The changes implement recommendations made by the Board of Taxation for future consolidations and will ensure that companies inside consolidated groups do not receive tax benefits that companies outside consolidated groups are unable to receive. Following extensive consultation, the changes affecting a corporate acquisition will depend on the time when the acquisition took place.
The changes affecting corporate acquisitions that took place before 12 May 2010 are necessary to ensure deductions are claimed only when it was intended and to protect a significant amount of revenue that would otherwise be at risk. Changes for the period between 12 May 2010 and 30 March 2011 will largely protect taxpayers who made business decisions on the basis of the current law, before the Board of Taxation was asked to review the law. For corporate acquisitions after 30 March 2011, the changes will increase certainty for taxpayers and will implement the board's recommendation to apply a business acquisition approach in certain cases.
Those opposite talk about these changes to the consolidation regime, going back to the start of the regime in 2002. They say that they will oppose this bill, because taxpayers were right to act based on the law at that time. This reveals their complete ignorance about what these changes are actually doing. What they fail to understand is that under the law at the time, between 2002 and 2010, taxpayers could not claim immediate deductions for what were essentially capital items, such as goodwill. The 2010 amendments changed this position. What we are now doing is taking away the unanticipated and unintended windfall gains arising from those changes. In fact, this bill confirms that consolidated groups will still be able to claim more deductions for those years between 2002 and 2010 than they would have been able to under the law as it stood when the coalition were last in government.
Schedule 3 to this bill removes unintended windfalls from the 2010 changes that would provide consolidated groups with inappropriate tax benefits, benefits that are not available to companies and small businesses outside the consolidation regime.
Taxpayers who did act on the law at the time, between 2010 and March 2011, are largely protected. Taxpayers who have written advice from the tax office or who have already finalised their tax returns are also protected. We are acting appropriately to protect the integrity and fairness of the tax system and to remove these unintended windfall gains.
It is true that we need to backdate these changes to the start of their respective regimes. The government never takes lightly the decision to make retrospective changes but there are circumstances where retrospective legislation is justified. The Board of Taxation said that the 2010 changes went much further than was intended and the Australian parliament rightly considers each proposal for retrospective legislation on its merits. Like this case, this is generally only done where the law is operating in a manner inconsistent with the parliament's intention and where there is a significant risk of revenue loss. The revenue at risk here from these unintended windfalls is definitely significant. This bill protects over $6 billion of revenue at risk. To demonstrate the lack of credibility of the opposition on this question of retrospectivity: they seek to come into this place and, whiter than the snow, suggest that they have never supported, and they never will support, retrospective legislation, particularly in the tax context. Do not have a look at what they say; have a look at what they did when they were in government. They introduced numerous measures, many of which were backdated by up to several years, in order to go back and ensure that the original intent of a policy was actually delivered, and there were numerous examples. This particular bill also seeks to protect the rights of working people, which they are seeking to oppose. In the very same week when these matters are being debated, when they come in and say that they never support retrospective legislation, when they have done that in the past, their New South Wales Liberal colleagues are supporting retrospectively ripping away the entitlements of workers with changes to the workers compensation scheme in New South Wales. So retrospectivity is something that they say they oppose, but when they were last in government they embraced it, where it was appropriate or where they deemed it to be appropriate, and in New South Wales this week we see them retrospectively ripping away the rights of working people. Do not listen to what they say; look at what they do.
I will also be moving an amendment to remove schedule 4 to the Tax Laws Amendment (2012 Measures No. 2) Bill 2012, which will be introduced into parliament at a later date. I commend the bill to the House.