Thursday, 28 June 2012
Tax Laws Amendment (Managed Investment Trust Withholding Tax) Bill 2012, Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012; Second Reading
That these bills be now read a second time.
I seek leave to have the second reading speeches incorporated in Hansard.
The speeches read as follows—
Tax Laws Amendment (Managed Investment Trust Withholding Tax) Bill 2012
This bill makes consequential amendments to the Tax Administration Act 1953 to give effect to changes to the managed investment trust final withholding rate.
The Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012 (currently before the House of Representatives) amends the Income Tax (Managed Investment Trust Withholding Tax) Act 2008 to increase the managed investment trust final withholding tax rate to 15 per cent to fund payments. The changes will apply to income years commencing on or after 1 July 2012.
Fund payments made by a managed investment trust to non-resident investors, subject to certain conditions, are currently subject to the managed investment trust withholding tax of 7.5 per cent.
The 15 per cent withholding tax for managed investment trusts is still competitive with rates applying in other countries.
It is consistent with the Government's original commitment prior to the 2007 election.
And it is significantly lower than the 30 per cent non-final withholding tax that applied under the previous Government.
Increasing the managed investment trust final withholding tax from 7.5 per cent to 15 per cent better balances the need for Australia to be an attractive destination for foreign investment with ensuring Australia receives a fair return on profits to be made in Australia.
I commend the bill to the Senate.
Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012
This bill amends the Income Tax (Managed Investment Trust Withholding Tax) Act 2008 to increase the managed investment trust (MIT) final withholding tax rate to 15 per cent to fund payments made in relation to income years commencing on or after 1 July 2012.
Fund payments made by a managed investment trust to non resident investors, subject to certain conditions, are currently subject to a managed investment trust withholding tax of 7.5 per cent.
Increasing the final withholding tax on managed investment trust distributions from 7.5 per cent to 15 per cent better balances the need for Australia to be an attractive destination for foreign investment whilst still ensuring Australia receives a fair return on profits generated in Australia.
The 15 per cent withholding tax for managed investment trusts is still competitive with rates in other countries, consistent with the Government's original 2007 election commitment, and significantly lower than the 30 per cent non-final withholding tax that applied under the previous Government.
I rise to speak on these bills: the Tax Laws Amendment (Managed Investment Trust Withholding Tax) Bill 22012 and the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012. I move the following amendment to the second reading motion:
At the end of the motion, add:
and that these bills be referred to the Economics Legislation Committee for inquiry and report by 14 August 2012.
The coalition strongly opposes this legislation. On budget night Labor announced that final withholding tax on managed investment trusts would double, to 15 per cent. It is important here to remember that it was only two years ago that the government reduced this tax to 7.5 per cent. The measure was withdrawn from the Tax Laws Amendment (2012 Measures No. 2) Bill 2012 last Wednesday. The government, through the Minister for Finance and Deregulation, Senator Wong, told the Senate in question time last week that that was under pressure from the Greens. The government later back-flipped again and the measure was reintroduced in the form of this bill, as a single bill.
The coalition has consistently called on the government to scrap this tax increase altogether. The reason we have done this is that the measures in the bill put billions of dollars in investment in critical infrastructure at risk; they increase Australia's sovereign risk profile, yet again; they undermine our positioning of ourselves as a financial services hub in the Asia-Pacific; and they will not raise the revenue claimed by the government.
Unfortunately, Labor now appears to have been able to do a last-minute deal with the Greens, which, based on what was published about that deal in the press release last night by the Assistant Treasurer, David Bradbury, will make this new tax grab more complex and even more confusing. The deal is not part of this bill, mind you. All we know about the deal is what was in the Assistant Treasurer's press release last night. But we were told that the government will implement that deal in some legislation at some point in the future. What the government is really saying is, 'Trust us, we are from the government and we are going to do this.' But if you look at the government's track record on so many issues—the carbon tax, for example—they have demonstrated again and again that they cannot be trusted. The Prime Minister personally has demonstrated again and again that she cannot be trusted. And of course this incompetent and dysfunctional Labor government has demonstrated again and again that it cannot be trusted.
If this deal is eventually passed by the parliament in the form that was outlined in the Assistant Treasurer's press release late last night, it would mean Australia would have a two-tiered tax system for final withholding tax on managed investment trusts. We would be the only country in the world that would not have a single tax rate for these sorts of investments that is settled and understood. This dodgy last-minute deal will continue Labor's efforts to make Australia the world champions in red tape, inefficiency, increased taxes and increased sovereign risk, and it will further discourage international investment in critical infrastructure.
A two-tiered system will distort investment decisions and have counterproductive effects by actively discouraging investment in higher-taxed infrastructure projects, including many positive environmental projects that will not qualify for the lower rate. This last-minute deal does nothing to improve what is a deeply flawed piece of legislation that introduces just another desperate grab for cash by a Labor government that is always casting around for more cash to feed its spending addiction.
The full impact of this bill on overseas investment in Australia has never been adequately explained by the government or by Treasury. The deal with the Greens adds further complexity and uncertainty. This is why I have moved the coalition amendment to the second reading motion. The amendment refers the bills to the Economics Legislation Committee for inquiry and report by 14 August 2012, which is the first day we are due to come back after the winter break. As I said at the outset and as the coalition has argued since budget night, this latest ad hoc tax grab by the Labor Party on managed investment trusts is placing billions of dollars in investment in critical infrastructure at risk and is yet again increasing Australia's sovereign risk profile. Labor cannot escape the fact that since the government moved to double the final withholding tax on managed investment trusts from 7.5 per cent to 15 per cent in the May budget, billions of dollars of planned investment has already been put on hold. Even the Greens initially recognised that this tax would threaten critical new investment in infrastructure and in particular investment in highly energy efficient new buildings. The government was left red faced when it was forced to withdraw its new tax from legislation in parliament last week due to a lack of support, before hastily reintroducing it in a separate bill in order to save some face.
Now it has become clear that the only way that Labor can get this bill through the parliament is by doing yet another hastily, rushed and ill-considered deal with the Greens. Labor should stop its constant chopping and changing of our tax arrangements. It sends a terrible message to the global investment community. Former Prime Minister Kevin Rudd and the former minister in this area, Chris Bowen, reduced this tax to 7.5 per cent from 2010-11 onwards. That is only two years ago. They reduced it two years ago only for the Prime Minister, Julia Gillard, Minister Shorten and Assistant Treasurer David Bradbury to now try to double it.
Labor should have cut its losses and scrapped this misguided and ill-thought out anti-infrastructure investment tax. The coalition is committed to lower taxes to help attract investment in critical infrastructure, develop our position as a regional financial services hub and strengthen our economy. Our focus should be on encouraging more investment through internationally competitive taxation arrangements so that we can grow our economy more strongly. The coalition understands that stronger economic growth will deliver increased revenue to government without the need for all these new and increased Labor Party taxes. In contrast, Labor's many new or increased taxes over the last 4½ years have already undermined our international competitiveness and reduced our economic growth potential into the future.
The chaotic approaches to tax policy and tax administration of this government have already had a very significant impact on our sovereign risk profile. Australia needs a government that spends less so that it can tax less. Australia needs a government that is committed to a more stable, predictable and certain approach to tax policy and administration. We desperately need to focus on being internationally competitive and on being an attractive destination for investment. This is more true now than ever. We need to focus on these things so that we can grow our economy more strongly. We need to ensure that future governments return to this focus that past administrations of both political persuasions have persistently pursued in the national interest.
Industry expectations are that this measure will put billions of dollars of infrastructure investment at risk. Some of the critical infrastructure that would be affected by this tax increase include investments in: hospitals; major roads; electricity generation; office buildings, including energy efficient green buildings; tourism infrastructure, including hotels; logistics infrastructure such as multinodal transport hubs; convention centres; Defence Force housing; and bioscience research centres. And the list goes on.
The government asserts that this measure will raise $260 million over the next four years. However, analysis conducted by the Allen Consulting Group for the Property Council cast serious doubt over those revenue forecasts. The analysis found that the proposed increase in the final withholding tax revenue from MITs would have a profound adverse impact on the economy without raising the expected revenue. It also found that, if there was a one billion drop in investment as a result of the increased tax, the net tax revenue in 2015-16 would be $35 million, which is $40 million than the $75 million predicted by Treasury. The Allen Consulting Group also found that by 2015-16 the increased tax would reduce our GDP by $580 million and cost more than 4,600 jobs a year.
The government, in a pretty clumsy and incompetent way, has sought to rebut the analysis done by the Allen Consulting Group by referencing Treasury analysis. But the government is yet to release any of the supposed Treasury analysis that has taken place. Nobody has been able to put their eyes on any Treasury modelling or assessment of this measure. The government has kept that secret. Senator Boswell and I have been chasing the government day in and day out and trying to force them to release the modelling in relation to the carbon tax. Some of those secret modelling assumptions they are hiding to this day. It is the same again here. The government is out there making these assertions and saying, 'Our modelling shows this and our modelling shows that.' But nobody can tell; nobody knows. We are again expected to just take the government on trust.
If you want to have a proper conversation about these things, put your modelling on the table. Then we can have a look at all the different methodologies and assumptions, put them next to each other and make some judgments about what is the most appropriate one to use in the circumstances. That is a job that the Senate Economics Legislation Committee could do very well over the winter break. It could scrutinise this piece of legislation and look at the implications and the potential unintended consequences of the deal that Labor did with the Greens late last night. This legislation is, of course, now likely to pass through the Senate—although, who knows, hopefully the Greens will consider the contribution I am making on behalf of the coalition. It is likely this legislation will pass through the Senate in its current form, although it should not—it should be sent for scrutiny to the Senate Economics Legislation Committee for inquiry. But, if this is to go through the parliament, it is important to note that it would not make any significant improvements at all. This deal is really quite a bad deal, which was cobbled together by a government that was desperate to save face in the context of a budget measure that was clearly not supported by the Greens in its original form. It is an extremely limited deal with a very limited focus. We still do not have the full details of the deal reached by Labor and the Greens. There is no legislation available, so there will be continued confusion about what rules will apply, when they will apply and how they will apply.
From the limited information in the Assistant Treasurer's hastily-put-together press release it appears that the deal is limited only to trusts that hold newly constructed buildings that meet certain energy efficiency standards. This extremely narrow focus will distort investment decisions based on a new and confusing two-tiered tax rate. This two-tiered system is unique in the world, as I have mentioned earlier, and its complexity will increase compliance costs and red tape. Once again this government is making Australia a world leader in red tape.
The requirement to hold only newly constructed buildings within a fund to qualify for the lower rate flies in the face of commercial reality, where many managed investment trusts are established to invest in multiple infrastructure projects and are not just limited to new buildings. If existing funds try to restructure to take advantage of the lower tax rate, they could potentially face huge capital gains tax and stamp duty costs. This means in practice that very few existing funds will be able to restructure in this way.
This deal will also have significant unintended and counterproductive consequences, especially for potential investments in other forms of energy efficient infrastructure. It does not apply to investments that would retrofit existing buildings to bring them up to the highest possible modern environmental standards. There would be little incentive for overseas investors to invest in upgrading all the buildings, so those buildings would remain less energy efficient for longer—which of course is a concern.
The deal would also not apply to other forms of investment in other forms of renewable and energy efficient infrastructure. For instance, this deal would not apply to green-friendly projects such as renewable energy light rail projects or even wind farms, let alone critical infrastructure such as hospitals, major roads and ports. Did the Greens really agree to such a limited and counterproductive deal, knowing that it would limit investment in such infrastructure that they usually demand we should have more of? Or were they hoodwinked by a sneaky, arrogant government, desperate to save this bad budget measure from being defeated on the floor of the Senate? The original tax-grab was bad enough. This dodgy deal, with its counterproductive consequences, is even worse and it should be rejected.
As I mentioned, I have moved a second reading amendment on behalf of the coalition that 'these bills be referred to the Economics Legislation Committee for inquiry and report by 14 August 2012.' The reason the coalition are moving this amendment is that we believe the full impact of this bill on the flow of overseas investment into critical infrastructure in Australia has not been properly explained by the government or by Treasury and we believe it needs to be properly scrutinised. We think it is important for the implications, and any unintended consequences of this last minute deal between Labor and the Greens, to be properly scrutinised so that we can all make a judgment on this legislation with our eyes wide open.
That is the job of the Senate: to take legislation that was moved very rapidly through the House of Representatives, put it under a more intensive spotlight, make sure that all of the questions that have remained unanswered are answered and make an informed judgment. There are a number of important questions that need to be answered before the parliament can properly consider the full impact of this bill. What will be the real impact of this tax increase on investment in infrastructure in Australia? What will be the impact on revenue over the forward estimates of the proposed new tiered system, given the questions that have been raised by analysts and industry experts about the actual revenue, which is likely to be much lower than the government has said? What types of buildings would actually be considered to be newly constructed, energy efficient commercial buildings? Would the definition include hospitals or not? Why is it appropriate to provide a lower tax rate to green buildings than the tax rate that would apply to critical infrastructure such as hospitals, roads and ports? In particular, we would be interested in Treasury's view on this point.
Would the lower rate apply to trusts that hold newly constructed buildings that were built before 1 July 2012, or only to those that have been constructed after that date? Would the lower rate apply to buildings that were partly constructed on 1 July 2012? Would the proposed lower rate still apply if a building was altered after construction so that it no longer complied with its higher energy efficient rating? How would ongoing compliance be measured in these circumstances? What would be the capital gains tax and stamp duty implications for existing funds that choose to restructure so that they can qualify for the proposed lower tax rate? How would the two-tiered rate distort capital flows and investment in new infrastructure in Australia? What would be the additional costs of administration of the tax system if investors and the ATO need to administer a two-tiered system rather than a system with one stable and predictable rate? Does the ATO have the technical capacity and resources to administer this two-tiered system or does it require further resources? And what is the status of existing buildings that need to attract investment to make retrofitting arrangements to ensure they are brought up to the highest modern environmental and energy efficiency standards?
It is important that these and other questions are properly answered so that the full impact of this bill and the deal between Labor and the Greens can be properly examined by the Senate Economics Legislation Committee. Ideally, this inquiry would also examine the draft legislation needed to implement that deal, so that the Senate can consider this matter in full when it returns after the winter recess. On behalf of the coalition I urge all senators, especially the Greens, to recognise that this legislation should not be passed in its current form and to support the coalition's second reading amendment to refer this to the Senate Economics Legislation Committee for inquiry, with a reporting date of 14 August 2012.
I rise today to respond to the Tax Laws Amendment (Managed Investment Trust Withholding Tax) Bill 2012 and the related bill and to indicate to the Senate that the Greens did have concerns about the effect of the increase in the withholding tax from 7.5 per cent to 15 per cent, because we believed it would have a detrimental impact on investment in Australia, particularly in green buildings—and by green building I mean buildings that meet higher standards of energy efficiency and performance. These concerns were especially in light of the fact that the government abandoned in the budget this year the tax breaks proposal for green buildings, which by the time the budget came around was not actually put forward as tax breaks but as a grants proposal. That was particularly disappointing to the Green Building Council and the Property Council, for example, because they had actually forgone the tax cuts in the budget the year before in order to try to get a better program.
So, in the absence of any kind of particular incentive for energy efficiency in commercial buildings, and with neither the government nor the coalition prepared to support a white certificate scheme for commercial buildings, there is no incentive in Australia to actually build to higher standards of energy efficiency. And the problem with buildings, as we know, is the split incentive. If you own the building you are not paying the energy costs associated with its performance; that goes to the tenants to whom you let the particular space. So you have to find ways in which to make sure you are building better buildings in the first place, and you incentivise more efficient spaces. We have pushed for a long time for transparency of the energy performance data, not only transparency at the time of sale or lease but an ongoing transparency. The government has gone as far as transparency in relation to sale or lease but not ongoing disclosure. In that context, I was keen to make sure that we tried to do something that drove or incentivised construction of green buildings. To that extent, we began to look at this particular increase in the tax rate.
We listened to the concern of the Green Building Council, the Property Council and other bodies in relation to the impact on foreign investment in the Australian property market—in particular, proposed buildings and green buildings. After some discussions we reached an agreement with the government to support the bill on the basis that the government has given us a commitment to introduce legislation in the spring sitting to provide a withholding tax rate of 10 per cent for investment in buildings that achieve at least a five-star Green Star rating or a 5.5-star NABERS energy commitment. The rate of 10 per cent applying to energy efficient buildings will be for buildings that are constructed post 1 July 2012. Basically this is saying that, if money is coming into the country to build commercial buildings, if they do not meet that five-star Green Star rating or 5.5-star NABERS rating then they will pay a 15 per cent withholding tax. If they do meet the higher energy efficiency standards then they will pay the 10 per cent rate. I think this measure will encourage investment in environmentally friendly buildings. This particularly applies to many of the overseas superannuation funds, particularly teachers' and nurses' funds and the like, because they set quite high ethical standards for the way the money is disbursed, and they require that the investment meets some environmental or sustainability objective.
So I think this is going to match quite well, hopefully, with a drive in Australia to start building much more efficient buildings in the first place. This of course will lead to lower electricity bills for people who rent those spaces, and that is going to increasingly become a key element of which office spaces various sectors choose to rent. Over 50 per cent of the Green Star buildings in Australia at the moment are five-star green or above. We want to encourage investment in more of those buildings. It is good for the environment and good for the tenants.
I think it is a good outcome that government revenue raising is supported while investment in green buildings is protected. It is a win-win scenario in terms of meeting the government's revenue objectives but also driving a greater investment in green buildings. Of course we would have liked to see it extended to the retrofits. Of course we would have liked to see it extended to buildings that are under construction but not completed. Nevertheless, I think this was a major achievement for driving the push into energy efficiency in the construction sector. That is the basis of the agreement we reached with the government to support the withholding tax, and we will expect that legislation on green buildings to come through in the spring session.
I thank Senator Cormann and Senator Milne for their contribution to this debate. Schedule 1 to the Tax Laws Amendment (Managed Investment Trust Withholding Tax) Bill 2012 amends the income tax law to increase the managed investment trust final withholding rate from 7.5 per cent to 15 per cent. I think it is worth pointing out that even at 15 per cent the tax is 15 per cent lower than under the former Howard government. The 15 per cent on funds payment made in respect to income years, commences on or after 1 July 2012. Given that is the start date and we are only a few days away from that, we would like to get this legislation through the parliament this evening.
Schedule 1 to the Tax Laws Amendment (Managed Investment Trust Withholding Tax) Bill 2012 makes consequential amendments to the Taxation Administration Act of 1953, with particular effect to the increases in the MIT final withholding rate. The new rate of 15 per cent will ensure that Australia receives a fair return from foreign investments in Australian land and buildings, whilst maintaining competitive rates of tax relative to foreign jurisdictions. The new rate is still competitive with rates applying in other countries and will bring us into line with or better than the United States, Canada, Hong Kong and the United Kingdom. As I said before, it is half the rate that applied under the previous Howard government.
As Senator Milne has indicated in her contribution, the government will introduce subsequent legislation to support investment in the construction of energy efficient buildings. From 1 July 2012, managed investment trusts that only hold newly-constructed, energy-efficient commercial buildings will be eligible for a 10 per cent withholding tax rate. The government welcomes the constructive approach taken by the Greens in passing this important legislation, which stands in contrast to the opposition's position. I commend the bill to the Senate.