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Economics Legislation Committee
Department of the Treasury

Department of the Treasury

CHAIR: We are back in session and I welcome the minister, the Hon. Scott Ryan, to preside over proceedings from here on out.

Senator KETTER: Mr Heferen, at the last estimates session in October I asked a question about modelling of negative gearing. The response that came back on notice was that in the last two years Treasury has not done any substantive analysis of options to direct or limit negative gearing to new residential housing. Is that still the case? Have you done any modelling subsequent to that?

Mr Heferen : When you say modelling—

Senator KETTER: Or substantive analysis.

Mr Heferen : Post the supplementary estimates, the Treasurer was pretty clear—he used the phrase 'discovery process', I think. Through fora such as COAG and the Council on Federal Financial Relations—the Treasurer with his state and territory colleagues—the Treasurer wanted information and advice on a whole range of tax issues to assist him in what he termed the discovery process. As part of that, as you would expect, we provided advice to the Treasurer on a range of issues as requested.

Senator KETTER: Does that involve modelling different options?

Mr Heferen : Modelling is used in any number of ways, at least in the Treasury context. When we think of modelling, we think about the macroeconomic modelling which the secretary, Mr Ray, took the committee through this morning, which is really based around this: given a range of changes—in this case, to the tax system—what is the effect on either growth in GDP or a new level in GDP, at the new equilibrium, out of the general equilibrium model? That requires a big change to the tax system. So, as to changes that are flagged where there are large cuts to personal tax or large cuts to corporate income tax, you would anticipate a flow-on effect in the overall macro economy. When we are talking much smaller changes, we probably would not. But modelling is also used for just trying to work out the cost of a change—so, if a change is made, what effect that might have on the budget bottom line. Of course, as to changes large and small, we can attempt to cost those. Then, finally, there is modelling that is often used just in the tax world to see, after a change in tax, what the effect is on the disposable income of a range of families. People often refer to that as distributional analysis. As to, say, a change to how much of a tax deduction can be claimed for the interest expense, I would not expect that to have much of an impact on aggregate output. So, as to modelling for that level, I am pretty sure we have not done any in respect of that. But I can take that on notice.

Senator KETTER: Let me be a little more specific. As to the option of, say, limiting negative gearing to new residential housing, is that one of the options you have looked at?

Mr Heferen : We would provide advice to the Treasurer on a range of issues, as he requests. I think we have always followed the practice that we will take that on notice and see what the Treasurer would want to release to the committee.

Senator KETTER: I do not quite understand. Have you looked at that issue or not?

Mr Heferen : We regard advice to the Treasurer as something confidential between us and the Treasurer.

Senator KETTER: I am not asking what your advice is. I am just asking: have you done work in that area?

Mr Heferen : Saying whether or not we had done it would say what was in the advice.

Senator KETTER: No. I am not asking you what you actually advised the Treasurer. I am asking whether you have done work; I think that is a completely different issue.

Mr Heferen : Is the question: have we done any work on changes to negative gearing?

Senator KETTER: Yes.

Mr Heferen : The answer is yes.

Senator KETTER: And that includes the issue of limiting negative gearing to new residential properties?

Mr Heferen : That I would have to take on notice.

CHAIR: So it would not be unusual for you to look at negative gearing in the context of any government policy, tax mix or tax changes over the years, Mr Heferen?

Mr Heferen : We tend not to. The times where we tend to look at the system and advise on changes are: where there are particular issues that the Treasurer of the day or any of our ministers are interested in; where a problem in the system is identified, largely through consultation with taxpayers—and, more often than not, the tax office; or where we feel there is a change that ought to be made that would contribute to improved economic growth. So, as to changes that do not go to the broader question of economic growth and do not go to the question of the integrity of the system, we tend to limit work on those to those which are requested by one of our ministers. As you are aware, many things will be requested but few things will ever be acted on, because it is part of the process to try to determine what is out there and what might be useful to take forward.

Senator KETTER: Your response to my question was that Treasury had not done any substantive analysis of options to direct or limit negative gearing to new residential housing.

Mr Heferen : That is correct.

Senator KETTER: As to that same two-year period, have you done substantive analysis or modelling of any options to reform negative gearing in the past two years?

Mr Heferen : So when you asked that question, I think at the September or October—

Senator KETTER: October.

Mr Heferen : So we are talking about the past two years from that date?

Senator KETTER: Yes.

Mr Heferen : I am assuming now you are asking me as to the past two years from the current date?

Senator KETTER: Yes, from the—

Mr Heferen : Because, if it was the past two years from the past date, the answer would be the same. So, just to be clear, the question I am taking on notice is: have we done any substantive work on limiting negative gearing to new houses?

Senator KETTER: My previous question and the response you gave me was quite specific to the issue of new residential housing. I am now seeking to clarify whether there has been any work done on any changes to negative gearing in the previous two year period.

Mr Heferen : From today?

Senator KETTER: From today, yes. And you are taking that on notice. Has Treasurer Morrison, since he has been appointed, sought any advice on options to reform negative gearing?

Mr Heferen : I am pretty sure that in the House today he was quite clear about being interested in examining issues. I cannot recall the words he specifically used, but I did see some comment. What the Treasurer has put on public record is probably the safest thing about what the Treasurer has asked for. I do not mean to be difficult. The Treasurer said something in question time today in response to a question and that would be the clearest indication of what the Treasurer has asked for.

Senator KETTER: It is whatever the Treasurer said today. Prior to that, you are telling me that he has not sought any advice on options to reform negative gearing prior to today.

Mr Heferen : The Treasurer, in the current debate, has asked for advice on a whole range of issues and negative gearing is one of them. When I say 'negative gearing', I mean the capacity to be able to deduct interest expenses off other income.

Senator KETTER: Can you tell us when that advice was sought?

Mr Heferen : I would have to take that on notice.

Senator KETTER: I wanted to turn to the issue of work related deductions, just to ask: has Treasury been asked by government to do work on the issue of limiting or scaling back work related deductions?

Mr Heferen : There was a House of Representatives committee—the House of Representatives economics committee—and that was given a reference by the Treasurer to look at issues of deductibility, both for individuals and also deductibility of interest for firms. They sought submissions and Treasury provided a submission, and in that we outlined, as far as work related expenses goes, the situation in Australia and some broadly comparable countries, and I am reasonably confident that we also had estimates of how much is claimed under different categories.

Senator KETTER: Is there a policy rationale for capping work related deductions?

Mr Heferen : It is a pretty tricky question. As you are probably aware, what the income tax attempts to do is to identify taxable income and then tax the taxable income. The taxable income is typically the assessable income minus the allowable deductions and then at the end whatever offsets might be eligible. But, in getting at that taxable income, the proposition is that expenses that you incur in deriving that income ought to be deductable. With work related expenses, and there is a fairly broad span of work related expenses, some would be necessarily incurred, but it is fair to say that, when a range of people go to their tax accountant and the tax accountant says, 'Well, actually, you can claim these work place deductions,' they would be quite surprised at the extent of things they can claim. There is an issue there about whether that is actually incurred in earning assessable income. The tricky thing with capping is that, as with any cap, it is a fairly blunt instrument. So there will be some occupations where a lot of money comes out of a person's pocket in order for them to earn their income; there will be others with less so. If a cap that was indifferent to the occupation was put in place, it would be a relatively blunt instrument. Having said that, our friends in New Zealand have capped their system at zero. So there is no capacity to claim work-related expenses there. That was done in the big tax changes back in the mid-eighties, I think, when they had a system that they had difficulty with. They broadened bases, lowered rates and brought in their goods and services tax. But as part of a trade-off to assist financing the reducing of the personal tax scales, they abolished work-related expenses—or capped it at zero.

I think it is fair to say that, if you talk to New Zealanders about their system, they regard it as a reasonable system. I do not know what the scale of deductions claimed were prior to that. Whether it would fit the Australian system goes to a policy matter, which, of course, is a matter for ministers, not public servants.

Senator KETTER: How would capping deductions impact small businesses?

Mr Heferen : Again, it would depend which ones would be capped and the kind of small business. If we are talking about not a small company—

Senator KETTER: It is not incorporated.

Mr Heferen : but a small business—a sole trader or a partnership—the income is flowed through and taxed at the owner's marginal rates. Again, if it was a small business that had a lot of travel expenses, a lot of protective clothing or a lot of tools of trade, a cap, depending on how big the cap was and where it happened to bind, could have the effect of increasing their overall effective tax rate. But that would then be done on the judgement of, if something was going to happen, presumably—like the New Zealand experience, where they got rid of work-related expenses in return for reducing rates. That is a pretty longwinded way of saying: it would depend a lot on the small business.

Senator KETTER: Okay. I am going to move on to superannuation tax concessions. Referring to the Tax Expenditure Statement, which shows that those tax concessions cost the budget approximately $30 billion a year, what options have you modelled since September last year on changing, or scaling back, these concessions?

Mr Heferen : One thing with superannuation—I am not sure if the secretary put this to the committee earlier today: retirement incomes, as an issue within the Treasury, used to be mixed between Revenue Group and Markets Group. So the taxation of retirement income was in Revenue Group and the regulation of retirement incomes, or of super funds, was in Markets Group. Last year, we had an organisational restructure. We now have a Retirement Income Policy Division that, just to confuse you, sits in Fiscal Group—which, I think, is the next group. So the retirement income policy issues ought to be directed to them. This is a fairly new change. I did agree with Mr Brennan, the deputy, and Ms Wilkinson, the division head, that if questions came I would have to try to be reasonable, and I would do the easy ones and pass the hard ones to them.

Senator KETTER: Where does this one fit?

Mr Heferen : I think it is pretty hard. Just on the Tax Expenditure Statement to start with, we need to be careful about what the Tax Expenditure Statement is saying—and it is not saying that the tax concessions cost the budget $30 billion. The Tax Expenditure Statement, which is a feature of the Charter of Budget Honesty—so, obviously, it needs to be produced—seems to cause more difficulty than assistance in the public policy debate. We try to make it clear in the tax expenditure statement that all it attempts to do is measure the difference between particular tax treatments and a theoretical benchmark and the level of utilisation. The theoretical benchmark is something that, unfortunately, we choose and with superannuation there is a long and contested debate about whether the right benchmark is the comprehensive nominal income tax benchmark or the expenditure tax benchmark. Many people would argue, quite cogently, that it should be the expenditure tax benchmark—that is similar to the unoccupied house. You pay for something out of after-tax income and you are never taxed afterwards. We happen to do it on the comprehensive income benchmark, which basically means you look at the treatment and compare the tax outcome to what would happen if the money came into the individual's hands and was taxed at the relevant marginal rate. Hence, you get very large tax expenditures on the contributions tax because the contributions tax is taxed at 15 per cent. If your marginal tax rate is below 15 per cent, it is a negative expenditure—that is, it is a more punitive tax. If your marginal tax rate is above 15, which is the bulk of the working population, it is a tax expenditure and the earnings in the fund are taxed at 15 per cent. We would treat the earnings in the fund as being the earnings attached to the individual taxpayer and the same questions arise. If we did it on the basis of an expenditure tax benchmark, which a lot of people argue is possibly a better benchmark, there would be very different results—extremely different results.

Senator BUSHBY: Much more, I presume.

Mr Heferen : Yes, much more. The contributions tax would still be higher because the sensible benchmark there is personal tax scales. In fact, it would be negative tax expenditure because you are taxing it more than you would—for example, the family home would be the standard way of thinking about.

Senator BUSHBY: Part of the reason is it does not take into account—in layman's terms—that people would make different decisions if the tax treatment that currently exists was not in place.

Mr Heferen : Yes.

Senator BUSHBY: So you would not necessarily be putting money into superannuation. You would put it into the next most tax-effective option, so it would still not be taxed at the full marginal rate. Theoretically, the money that the tax expenditure statement shows as being raised would not actually be raised.

Mr Heferen : That is right. We had a crack at trying to do the revenue gain estimate, because most are done on a revenue forgone basis with just a measure that departs from the benchmark and the level of utilisation. We did have a go because I think the ANAO, the audit office, has had a look at it and thought, 'Yep, you should actually have a go at the revenue gain ones.' We do that, but we do qualify it by saying that this is pretty spurious. The idea of trying to get an estimate of what people might do if that huge tax break was taken away—the dislocation of the system is too hard to imagine. People would probably negatively gear share portfolios. So we do it on the basis that we are asked to do it, and it is a recommendation that we try to stay true to, but it is a very approximate thing.

Senator KETTER: I am really sorry that I mentioned the tax expenditure statement because the purpose of my question was more about whether you have modelled any options for changing or scaling back these concessions?

Mr Heferen : We have where people come up with options. I think Deloitte has an option about how the tax system could change. I am pretty sure, in saying that, that they have gone down the route of a different tax treatment for contributions. At the moment, when contributions are put into a superfund and the contributions come out of before-tax income, they are only taxed at 15 per cent. Deloitte has proposed a model whereby instead of being taxed at 15 per cent—so that is 15 per cent irrespective of whether the marginal rate is zero or whether the marginal rate is the current 49 per cent—they will be taxed at your marginal rate minus a particular amount. The idea is to have a progressive scale in the contributions tax. Obviously that is a matter of great interest and, hopefully, it would not surprise you that the Treasurer is interested in our view of doing the numbers that Deloitte ended up with. Do we concur with that order of magnitude.

Senator KETTER: Are you able to tell us what the revenue gain would be associated with those options?

Mr Heferen : I think the Deloitte one—I know it is on the public record and I am sure that they have estimates there. They are a pretty good outfit in this respect. So that gives, probably, a broad order of magnitude.

Senator KETTER: So this is modelling that Deloitte has done?

Mr Heferen : When I say 'modelling', these are estimates of how much extra tax revenue might be collected if the contributions tax is changed—yes.

Senator KETTER: My question was: what modelling have you done internally? Has anything been done?

Mr Heferen : We have certainly looked at the Deloitte model.

Senator KETTER: Under those models—and you may not be able to answer this question at this point—how many Australians would pay more tax on their super under these scenarios?

Mr Heferen : Under the Deloitte model?

Senator KETTER: The marginal tax rate minus, say, the 15 per cent.

Mr Heferen : A lot would depend on what that rebate was. I think with the Deloitte one, before I get myself into trouble, I better take it on notice. Otherwise, I could potentially mislead. I must confess, I know the work has been done, but I cannot recall specifically what their rebate amount is. Then, of course, the other tricky thing in this is that would be compared to the current marginal rates system. Obviously, if the proposal from Deloitte, as I am sure, was geared toward saying, 'If that tax treatment was changed, here is extra revenue', then the question is what you would do with that extra revenue. One logical place is we would use that extra revenue to change the personal tax system. Once you change the personal tax system, then whether someone is worse off or better off is a function of how that money is churned back through the personal tax system changes, and the net result there.

Senator KETTER: I am just talking about purely when you have a system where the tax being paid is the marginal tax rate less the 15 per cent, and not talking about what you might do with what that generates.

Mr Heferen : Okay. That, by definition, raises money. Absent any other change, a lot of people would be worse off—if you take not having a high rate of tax applied to your super as being worse of, if there was no other change. But I would have to go back and check the work that Deloitte did, but I am sure that they would be arguing, 'Make this change and don't do any other.' That would seem to be a little self-defeating.

Senator KETTER: Under this scenario, how many Australians earning less than $150,000 a year would pay more tax on their super?

Mr Heferen : I would have to take that on notice.

Senator KETTER: When you have a system where different rates of tax apply to superannuation contributions, who is responsible for calculating the right amount of tax and remitting it to the tax office?

Mr Heferen : That would depend on the design detail. I must confess, I do not recall, in reading the Deloitte work, how much attention they put on that. But, logically, that could be resolved by the ATO, because the super funds report to the ATO and the ATO would have all the TFNs of the relevant account holders. It could potentially be resolved by the superannuation funds. I guess that would be trickier because they would not necessarily know if this individual had other superannuation funds, which, of course, the ATO does—or, at least in principle, it can because the information is reported. But, again, I would have to take it on notice to check to see what they did.

Senator KETTER: What about employers?

Mr Heferen : That would be quite tricky because, firstly, the employer might not know how many other jobs the employee has. The other thing is: while the employer have their withholding schedules to withhold tax, and in principle that might be able to be adjusted, the employer needs to then provide the—so if it is to reform the contributions tax itself, it is the contributions tax that is paid by the superannuation fund and not by the employer. I am not sure if the Deloitte paper covered this; but, conceptually, if it were done that way, it would be moving it out of the notion of a contributions tax into a notion of a personal income tax and done through the withholding system. That would be quite a shift, and I suspect they would not have gone down that path.

Senator KETTER: Would you expect that there would be an increase in compliance costs if you moved to a variable rate of contributions tax, particularly for small and medium businesses?

Mr Heferen : I would have to take that on notice. A lot would depend on how Deloitte has thought about the administration of it in their analysis. I cannot recall. Once superannuation has moved from my responsibility, I try to tip it all out of my head. Mr Brennan or Ms Wilkinson might have a better feel for that, but in any case I will take that on notice and get back to you.

Senator KETTER: Okay.

Senator LEYONHJELM: I have some questions about estimates of tobacco clearance data and the use of that data by the health department. At the estimates in October last year I asked for some calculations based on publicly available tobacco clearance data. I only received your response this morning, which worries me a bit. When had anyone in the Treasury done the calculations?

Mr Heferen : I might need some assistance there from my colleague Ms Horvat.

Ms Horvat : I would have to take on notice the date that we actually did those calculations.

Senator LEYONHJELM: All right. You may have to take this on notice too, but maybe not. Between then and now—from October to February—what were the stages that took up so much time? What were the steps that you had to go through that occupied so much time?

Mr Heferen : In doing a question on notice?

Senator LEYONHJELM: No, I am coming to the question on notice, because that also only got answered this morning and I am not going to ask the same questions about it. I am interested in knowing why it took until this morning to get an answer and what was involved in it.

Mr Heferen : There are essentially two ports of call. One is that, when we take the question on notice, given that we are here—not now—in a capacity representing the minister, we first do the work internally and are comfortable that it answers the questions that have been asked. Then we have to provide it to the relevant minister to have that forwarded to the committee. So there are two places where it could be delayed. One, of course, is in the department, and one is for the minister to turn his or her mind to it to have it released. I am afraid I do not know the time line on this one.

Ms Horvat : The only thing I would add is that your question involved questions that were partly for the Department of Health. The numbers you were referring to were matters for the Department of Health, so in answering your question we also consulted with the Department of Health. That also added time to the process.

Senator LEYONHJELM: You consulted the department, did you?

Mr Heferen : And I think the Department of Immigration and Border Protection—

Ms Horvat : Correct.

Mr Heferen : for all the customs clearances that are done through there. When we go to other departments, that takes time.

Senator LEYONHJELM: Understood. Was there anybody else you consulted?

Ms Horvat : That is all I am aware of.

Senator LEYONHJELM: In your answer you confirmed that, from the year prior to the full implementation of plain packaging to the year after, tobacco clearances fell 0.8 per cent excluding the tobacco refund scheme. That is the same calculation that we came to. The health department website still includes a paragraph that refers to the introduction of plain packaging in 2012 and refers to a 3.4 per cent fall from 2012 to 2013 instead of this 0.8 per cent fall. They state that the 3.4 per cent fall is Treasury's advice. Have you advised the health department that that 3.4 per cent fall is not your best advice about tobacco clearances before and after the full implementation of plain packaging?

Ms Horvat : All I can say is we discussed your questions on notice with the Department of Health, so they are aware of your concerns.

Senator LEYONHJELM: Okay. I also got a reply to my written question about whether the 3.4 per cent fall or 0.8 per cent fall is a more defensible indicator of the change in tobacco consumption from the year prior to plain packaging to the year after plain packaging. As I said, I got your reply this morning. You did not give a direct answer but you noted the lags between tobacco clearances and tobacco consumption. I think your response seems to suggest that you agree that 0.8 per cent is a more accurate reflection given the other data that led to the 3.4 per cent calculation. Is that accurate?

Ms Horvat : I guess this might come to the timing of those refunds.

Senator LEYONHJELM: You said to leave out the refunds, so I am not bringing them into the discussion. The point about it is that plain packaging commenced 1 December 2012 and, if you took in the calendar year 2012, that would include one year of plain packaging. If you then compared it to the calendar year 2013, in December 2013 there was an excise increase. If you are actually comparing calendar year to calendar year, it gives you a result of 3.4 per cent but it is not a perfect comparison.

Ms Horvat : I think you will note in our response that the reason we used calendar year was that initially the purpose of Treasury providing data was to respond to an article published in The Australian on 6 June. That is the basis on which we did our calculation.

Senator LEYONHJELM: In which year?

Ms Horvat : 2014.

Senator LEYONHJELM: All right. I understand your response to mean that, if you remove those contaminating effects of December 2012—you count 12 months prior to the introduction of plain packaging and then compare that to the subsequent 12 months—the reduction in tobacco clearances is in fact 0.8 per cent. Would that be an accurate interpretation?

Ms Horvat : I cannot directly respond to your question. I do not feel confident enough. I am happy to take the wording of that question on notice.

Senator LEYONHJELM: All right. There is no other interpretation I can place on it but that the implementation of plain packaging in December 2012 and then the increase in excise in December 2013 were both contaminating factors in comparing the prior 12 months to the subsequent 12 months of the implementation of plain packaging. If you do compare those two periods without those two contaminating factors, the change is 0.8 per cent. That is the question on notice. Could you please confirm that I have not made some egregious error?

Ms Horvat : Certainly.

Senator LEYONHJELM: All right. I am also going to quote something to you. You published a document entitled Issues in tobacco taxation on 7 July 2011. In it you stated that tobacco 'revenue would be maximised with an excise rate of 51 cents per stick'. This sounded to me as if you were essentially citing the Laffer curve. It sounded quite reasonable. The thing is that the current excise per stick is 53c. Do you stand by your 51c-per-stick calculation as being the peak of the Laffer curve? If not, what is the current revenue-maximising excise rate?

Mr Heferen : Clearly we do not stand by the 51c anymore; we would have to adjust for inflation. With regard to the publication, when you said 'you' did you mean—

Senator LEYONHJELM: Treasury.

Mr Heferen : Ah, that is all right. I thought that meant 'you' as in me personally. I did not recall that one. As I hope you were expecting, can we please take that one on notice?

Senator LEYONHJELM: Absolutely. I am happy to have you take that on notice. I would ask, though: it would be curious if the peak in the Laffer curve were applied retrospectively, so please consider that.

Mr Heferen : We will have to check that carefully because it is peculiar that we would actually put something out that attempted to have a revenue-maximising number. I cannot absolve myself of responsibility, because I am pretty sure that then I was in the job I currently hold, so I cannot blame anyone else. But we will take that on notice.

Senator LEYONHJELM: On notice is fine. Thank you.

Senator McALLISTER: We were talking earlier this morning—it does seem a long time ago—about the different responsibilities within Treasury for modelling and analysis. In your evidence this afternoon you explained to my colleague Senator Ketter that there are three bundles of questions generally being looked at: macroeconomic questions, revenue questions and distributional questions.

Mr Heferen : Correct.

Senator McALLISTER: I apologise if you answered this this morning, but could you explain to me which capabilities of those three kinds of analysis sit in your division of Treasury?

Mr Heferen : The latter two. Macroeconomic modelling is dealt with in Macroeconomic Group, costings of tax changes are done within Revenue Group and the distributional analysis—it is the attempt to say the effect on various households if a particular change were to occur—is also done within Revenue Group. Both are in Tax Analysis Division—Ms Horvat's division.

Senator McALLISTER: Okay. I understand I may not ask you about the content of any of the work you have been doing, but, from a process perspective, you have been responsible for any analysis associated with costs or distribution for the tax modelling that is being undertaken for the COAG review of taxation.

Mr Heferen : That is correct. It is not to say that numbers that go into the public domain necessarily come from the Treasury. The stand-out one is the costing. I am sure material was taken on notice this morning about precise dates and what was asked for when, but there was a process where Premier Baird in particular was advocating for a change in the GST. It is pretty straightforward for anyone to estimate what a 15 per cent GST on the current base will do: you take what is in the midyear economic update, which is a 10 per cent rate, and you halve it and add it together. That gives you the 15 per cent rate. Likewise, to estimate what would be raised at 10 per cent if the base were broadened to include something which is exempt, that is an area where the tax expenditure statement can be a source of use, because people can look at it, say, 'What's the tax exemption for water?' or whatever it is, take that number and put it in. Then, if they want to do a different base, they can simply do the same arithmetic I proposed before. So there will be a number of people who will put out information about the order of magnitude of the revenue gain we got from changes to the GST. It is basically very easy. Anyone who can divide by two and add up can do that. It is not surprising that a lot of those numbers have gone into the public domain.

Senator McALLISTER: But it is the permutations and combinations that are more interesting, as you have alluded to in your earlier evidence.

Mr Heferen : Yes. And the one where it is much more difficult for others to do is, say, if the GST were changed, as in what Premier Baird was proposing, what is the effect on households? That is an extraordinary modelling adventure, for which we are very fortunate to have people in the Treasury, in Ms Horvat's division, who are particularly good economic modellers and mathematical modellers who can take a range of ABS data and produce estimates of how it will affect households. That is something the Treasury has done for the carbon price and for previous changes to tax.

Senator McALLISTER: Looking at the distributional impacts, it is a model that is able to deal with the permutations and combinations—I am referring to Mr Fraser's comments—if there is some sort of compensation package or some sort of transfer. Your model is able to feed that in and examine the distributional impacts of other kinds of compensation mechanisms?

Mr Heferen : It will be very hard for that to pick up, for argument's sake, a cut in the corporate tax. Many people would argue that if the corporate tax were reduced, one of the responses there would see a higher inflow of foreign capital because the hurdle rate for investment is lowered; and as more foreign capital comes in a capital deepening occurs, workers are more productive because they have better stuff to work with and therefore wages go up. That happens over an extraordinarily long period of time. To feed that into a model is extraordinarily difficult.

Senator McALLISTER: I am thinking about the tax and transfer system more specifically.

Mr Heferen : As Mr Fraser was saying, with the combinations and permutations, we often think about what that means for the macro-economic model. That has to think about the taxes on labour and what it will do to workforce participation and the taxes on capital and what that will do for capital deepening. That is extraordinarily sophisticated. When we look at the distributional analysis, it tends to be more about, as you say, the direct tax system and the indirect tax system that goes directly to households.

Senator McALLISTER: I assume then your division has been engaged in the COAG work looking at both the costs and also the distributional impacts of tax increases. I understand that you cannot tell me the results.

Mr Heferen : As the secretary said this morning, it is probably more under the direction of the Council of Federal Financial Relations, the Treasurer's group. It is more normal for the detail to be passed through the treasurers to consider. Ands with the Commonwealth Treasurer being the chair of that group, obviously when he wants work done we will provide it in that context.

Senator McALLISTER: So they have been providing direction about the modelling generally and specifically for your group about revenue and distributional questions?

Mr Heferen : Yes.

Senator McALLISTER: Given that that capacity is there to look at the whole range of government decisions that might impact on household income, I assume that there has been some thought given to compensation packages that might come not simply through tax cuts but by other means, or indeed through tax cuts, in some of the options that have been publicly reported for consideration.

Mr Heferen : The question of what tax change will occur, and then the question of what amount of compensation is required and to what sort of households, is fundamentally a policy issue. So before one embarks on that you have got to handle what sort of change of interest. The one that Premier Baird advocated was obviously the one that had the most traction at COAG and it was the one that CFFR would say we need to do some work on.

Senator McALLISTER: So they have directed you guys to have a look at that?

Mr Heferen : COAG requests, it does not direct.

Senator McALLISTER: Sorry, they have requested it—and then the Treasurer has directed you to take a look at that.

Mr Heferen : And the Treasurer, going through what he has termed a very thorough discovery process, is interested in a range of changes in the taxation system.

Senator McALLISTER: And that is a process that has continued after the last round of intergovernmental meetings in December. There is a very specific public statement that the first ministers would like that to continue and the examination of options to be deepened.

Mr Heferen : Out of the 11 December CFFR meeting, treasurers agreed they would examine the proposal put forward by Premier Weatherill and Treasurer Koutsantonis in South Australia, which involved an increase in the GST and a sharing of the personal tax space between the Commonwealth and states. There was a program of work done on that.

Senator McALLISTER: And that is the only additional option that has been considered other than those that were already been dealt with prior to the meeting?

Mr Heferen : I think that is true.

Senator McALLISTER: So the Treasurer has requested that be examined, and that was commenced some time after 11 December?

Mr Heferen : The Treasurer agreed that that be looked at, yes. Premier Weatherill had put that to his counterparts and, to facilitate the ongoing discussion, the Treasurer agreed that that be examined.

Senator McALLISTER: You probably will not be able to tell me the specifics, but what are the key levers in addition to income tax and consumption tax pass-through that your model is able to consider when it is looking at the way these things would flow through to households? What are the other big government policy levers to pull if you are designing a tax package of this kind and you are looking to have a fair outcome for the community?

Mr Heferen : Do you mean as far as the payment system goes?

Senator McALLISTER: Yes.

Mr Heferen : It would be the main income transfer payments as well as other payments that may be needed to get at particular sectors of the community who might not be in receipt of payment but would nonetheless require assistance to deal with the wealth shock that another tax change might have.

Senator McALLISTER: So those things are being rolled up in any of the work that is being done around tax reform?

Mr Heferen : The question of who you would like the price affecters to be muted for is a matter for ministers to determine. From recollection, Premier Baird put a proposal about the sort of household income where he wanted to see people fully compensated. But I cannot recall it off the top of my head.

Senator McALLISTER: Perhaps you could take that on notice. You are correct that we are hopeful they are policy decisions made with the best available data—about the implications of all the choices—and I think that is why we are so interested in the bundle of choices that are being modelled. I might go now to work that is being done about the distributional impacts of changes to child care. Has Treasury been involved in modelling or preparing any information about how families would be affected by the changes to the child care arrangements?

Mr Heferen : I think that would be best directed to the Department of Social Services.

Senator McALLISTER: Either Treasury was involved in doing it or you were not.

Mr Heferen : I do not know. I am reminded that Fiscal Group are on next, and they would be the perfect people to ask.

Senator McALLISTER: I am happy to do it there. I want to ask you about the instant asset write-off, and we discussed it a little bit with Commissioner Jordan. In the 2015 tax expenditure statement it seems that there is a quite significant increase in the cost of the instant asset write-off. The budget seems to indicate that it would have cost $1.8 billion over the forward estimates but the tax expenditure statement indicates that it will cost almost $3 billion. Are you able to talk us through the change in that cost estimate.

Mr Heferen : Sure. In that is not just the budget change. The tax expenditure statement will measure the departure from the benchmark that is taxed uniformly and just depreciated over the economic life. It has already got the $1,000 one in there. In fact, we hade a situation where there was a $6½ thousand one. That came off, so there would have been a negative tax expenditure. But then it all goes back to the $1,000 one. So the budget measure tax it from $1,000 up to $20,000.

Senator McALLISTER: Yes, which is a big jump.

Mr Heferen : Also what is there in the TES goes from what it would be over its effective life to the $20,000. So, if you like, the TES has more things in there and it also has the effect of the pooling arrangements. I have seen the commentary where people are concerned that the budget estimate has blown out. In fact, the TES is measuring a different thing. It is measuring the budget change plus other things that are already in the system. So the number in the TES is obviously larger, but that is the reason. I think as Mr Olsen was saying—

Senator McALLISTER: We are yet to have the data about the cost.

Mr Heferen : there is nothing that we would have seen that suggests that the budget estimate should be changed.

Senator McALLISTER: This might seem like a question I should already know the answer to. I assume that you will at some point be in a position to examine the actual outcomes associated with this budget measure and assess whether the costings in the 2015-16 budget were accurate or not. I accept your argument that the tax expenditure statement is not the mechanism by which to do that. But you do have a mechanism to test it?

Mr Heferen : Particularly with significant changes. We rely on the tax office. They get their returns in—they understand the collections—and they will provide advice to say if something was put in place whether the cost to revenue seems a lot larger or a lot smaller than we had thought. We tend not to keep going back to do re-costing because it is too resource intensive. But where there is something where the take-up is far larger or far smaller, and it might mean some parameter variation to the revenue estimates, we will certainly do that.

Senator McALLISTER: I imagine you will need to have some sort of estimation for the 2016-17 budget. Do you expect that you will be able to incorporate any of the information from the tax office for the budget process?

Mr Heferen : To be honest, I do not know. What we will have are the revenue estimates. What matters for the budget is too think not about particular measures but about the revenue estimate for the head of revenue that we are concerned about—and here, of course, it would be both corporate income tax and personal income tax.

Senator KETTER: I have a couple of follow-up questions to refine my questions which I think you agreed to take on notice. I want to go back to the negative gearing issue and look at the last six-month period. Hopefully, this is uppermost in your mind. As head of Revenue Group, in that six-month period have you signed off on any policy briefings from your group that canvass changes to negative gearing?

Senator Ryan: I am not entirely sure whether the breadth of that question is appropriate given that briefs from the department can go to various places which are not always explored at estimates committees.

Senator KETTER: I am asking a question about—

Senator Ryan: I will take it on notice on behalf of the minister because I do not think it is appropriate. There are some matters that are not explored at estimates committees, and that is well established. So I will take that on notice on behalf of the minister, who will be back later tonight.

Senator KETTER: I will confine the question to policy briefs to the minister.

Senator Ryan: Okay, I will take it on notice on behalf of the minister.

Senator KETTER: With respect, I think—

Senator Ryan: Well, you have asked for a number too. I will take it on notice and the minister and the official—I doubt he has a number of specific briefs handy. It is a very broad question, and not all policy briefs—

Senator KETTER: No, it is a fairly specific question on a policy brief in relation to changes to negative briefing in the past six months. I am prepared to confine that to a policy briefing to the minster.

Senator Ryan: And if he does not have the number handy—and I would ask the committee to take into account that you are asking an official to be specific about a number—

Senator KETTER: I am not asking for a number—

Senator Ryan: You are asking for a number of briefs though. It might not be information that is always held handy, or it might be something that is corrected in the future.

Senator KETTER: I have asked if there were any policy briefings.

Senator Ryan: The point I am making is that, if you are asking me in my other responsibilities how many briefings I had received, I could be off by a little bit or—

Senator KETTER: Perhaps I can make it easy. Has there been at least one policy briefing to the minister which canvasses the issue of changes to negative gearing?

Mr Heferen : A policy briefing?

Senator KETTER: Yes, in the past six months.

Mr Heferen : No. Just so I am clear: a policy briefing is where we send something and say, 'Here is an issue where we recommend you make a particular change.' There has been nothing of that nature.

Senator KETTER: In that same period of time have you seen a policy brief that goes directly to the issue of negative gearing on new homes?

Mr Heferen : No. Just so I am not running the risk of misleading anyone, I have said what I take to be a policy briefing—

CHAIR: No, I understand. It is very clear. Senator Bushby.

Senator BUSHBY: Would amending the thin capitalisation rules to limit deductions by assessing them on the debt to equity ratio of a company's entire global operations have any potential negative effects in Australia, particularly on jobs and things like that?

Mr Heferen : In principle, any amendment that increases taxes—and taxes on production, which a corporate tax certainly is—would have that. This subject has gone from the policy realm into political discourse. I know that there has been debate among shadow ministers and ministers about the issue, so I feel a little comfortable in—

Senator BUSHBY: So it impacts on the cost of capital?

Mr Heferen : Anything that would increase taxes on corporates, assuming not all of that increase fell onto genuine economic rent, in principle will have the effect of reducing investment that would otherwise occur. I think everyone would agree with that. The question would be about just how much it does that. If we take our current thin capitalisation rules, particularly where there is the arm's length test, a firm can borrow money and can claim the deduction for the interest that it pays back, and provided that is on genuine arm's length terms—even if it is a related party—they can borrow as much as they like. If one were to go to worldwide gearing and take out the arm's length, then there would be a range of firms who are operating in that manner—assuming they were not grandfathered and assuming the arm's length test was not going to be put in place, and these are all very big assumptions—by definition, that has to have an effect. The debate which I probably should not get into is how big that effect is.

Senator BUSHBY: A related but slightly different question: based on publicly available information, is it possible to accurately estimate the revenue that could be raised by such a change?

Mr Heferen : Referring to the work done by the Parliamentary Budget Office, we have not, because that is not an issue that the Treasurer has asked us to pursue, therefore—

Senator BUSHBY: So you have not costed it?

Mr Heferen : We have not costed it.

Senator BUSHBY: On the information that is available in the public, is it possible to quantify it?

Mr Heferen : We would find it very difficult.

Senator BUSHBY: You would find it difficult?

Mr Heferen : In fact, I would say very difficult; we would find it—

Senator BUSHBY: If you would find it difficult, presumably so would others.

Mr Heferen : Everyone would find it difficult. You would have to have a range of assumptions about what the worldwide gearing for a range of firms are and how many firms would be caught up by it. And, of course, different people have different levels of comfort about how far they stretch those assumptions.

Senator BUSHBY: It would not necessarily accurately represent reality.

Mr Heferen : To a certain extent. It is pretty high threshold if you are going to represent reality.

Senator BUSHBY: I remember having a big discussion with Ken Henry about this at one point.

Mr Heferen : It is a different sort of reality. It is our kind of reality. But the—

Senator BUSHBY: In terms of being able to accurately estimate basically how long is a piece of string et cetera—

Mr Heferen : They are extremely difficult things to accurately estimate.

Senator BUSHBY: Are there alternative options for dealing with profit shifting by multinational companies that would have a greater potential to address the issue than fiddling with the thin capitalisation rules?

Mr Heferen : It would depend upon the activity that is trying to be targeted, because clearly the thin capitalisation rules go to the question of interest deductibility, so the standard case where a firm would inflate how much debt it uses for its operations. There are a range of other tax avoidance practices that have been highlighted through the Senate committee on multinational tax avoidance. In fact, the focus there is probably more on the absent parent establishment model that was established at both Google and Microsoft. So the expression the commissioner had, 'do something here but bill offshore,' goes to that issue. The other one is transfer pricing the profit so inflating the amount that the Australian subsidiary—so that is one where you do stuff onshore but then bill offshore and pretend not much activity happened here, which the multinational anti-avoidance law gets at.

Then the second large category is where you are a subsidiary here, you pay tax here but you reduce the amount of tax paid because you say, 'For that particular thing I am selling'—or whatever—'I have to pay a very large licence fee.' And then the debate is: is that too much? The third one is conceptually the same as the interest but there the interest cost is being paid back as opposed to the royalty, a licence fee or whatever it may be. Of course, that is a set of activities that other multinationals in the whole process have been accused of doing. So to attack those latter two, changing interest deductibility would do very little. You have to actually get to the transfer pricing issues, which is, if you like, the next stage of the rollout of the OECD action items that the government is pursuing.

Senator BUSHBY: Where do you see the greatest scope for success here—in the latter two, or the first one?

Mr Heferen : I think that is entirely a function of the sort of tax avoidance activities that are going on, and listening to the commissioner's comments earlier this afternoon, I take it as being very clear that he would regard the settings of the legislation at the moment to be appropriate. I think he is saying that, given those settings, he is now going to be more forceful in—

Senator BUSHBY: Let's get into it and see how successful they are and if they need to be tweaked—look at that basis of experience and findings—

Mr Heferen : Yes. There will be a range of things that will come forward as they look closely. Possibly through direct administrators, and more regularly through us, we will have discussions and they will say, 'Look, what we are seeing is these things emerge.' With thin capitalisation, he did mention that it is probably not so much the debt leverage but more to do with people revaluing their assets—the debt to asset ratio. If your assets are much higher, then, obviously, you can have more debt. If you can look at your assets and say, 'Well, we thought that was only $1 billion, now we're saying it's $2 billion,' that means more debt is possible. That is within the current rules, but then looking tightly at—

Senator BUSHBY: But it is how you actually apply and enforce?

Mr Heferen : Yes.

CHAIR: Thank you, Revenue Group. I welcome Fiscal Group.

Senator KETTER: Are there any changes to the government's fiscal strategy at MYEFO?

Mr Brennan : I will hand over to Mr Crooke to elaborate on that matter, but, yes, there were a couple of changes to the fiscal strategy that you may have noted between the 2015-16 budget and the 2015-16 MYEFO. There were a couple of relatively minor wording changes, but probably two changes worth mentioning that go to a bit more substance. One was the fact that the fiscal strategy at the time of the 2015-16 budget referred to the ambition of returning to an underlying cash balance of one per cent of GDP at a specified date, or in a specified year, whereas the MYEFO fiscal strategy refers to simply achieving that goal as soon as possible.

The second substantive change is that the reference to an objective in relation to gross debt, which was enshrined in the fiscal strategy in the 2015-16 budget, was modified to refer to a reference to net debt. So although the MYEFO continues to talk about both gross and net debt—so it has substantial information about gross borrowings, for example—the government made a determination that they would prefer to focus on net debt as the key balance sheet measure for the purpose of the fiscal strategy. I might just hand to Mr Crooke to elaborate.

Mr Crooke : As Mr Brennan was saying, previously the fiscal strategy had set the objective of returning to surplus of one per cent of GDP by 2023-24. So the strategy, as it reads in the midyear update, is now to say 'as soon as possible'. And then, as Mr Brennan pointed out, the other substantive change there was the reference to net debt. The net debt is a broader measure, if you like, but by no means the only measure of the government's debt position. It tends to be the favoured measure for international comparison purposes, and so there are also several other places within the publication where gross debt is given prominence, particularly in terms of our medium-term projections.

Senator KETTER: So the change, in respect of the budget surplus in particular—was that decision taken by the Treasurer or by the finance minister?

Mr Brennan : Those are decisions that are a little broader than that. They are government decisions. Without going into the detail of what gets discussed in ERC or cabinet, the fiscal strategy has generally been the province of discussion at the Expenditure Review Committee.

Senator KETTER: So that is the final decision-making body?

Mr Brennan : The cabinet is the ultimate decision-making body. ERC decisions essentially percolate up to cabinet for cabinet endorsement.

Senator KETTER: Did Treasury provide formal advice to ministers regarding the sustainability or otherwise of the government's former fiscal strategy?

Mr Brennan : We certainly provided advice on the fiscal strategy. So, with a new Prime Minister and a new Treasurer, there was obviously going to be a degree of interest in whether the pre-existing fiscal strategy would stay completely unchanged or be the subject of modifications. It was certainly the subject of some advice from us.

Senator KETTER: Did the final decision to change the fiscal strategy occur via the minister's reviewing of formal briefings and signing off on the change or was it a more informal process?

Mr Brennan : I would have to check on the nature of the advice that we provided. I generally would not go to the detail of that, but it was, as I say, in the context of an Expenditure Review Committee discussion. I cannot recall, to be honest, what degree of formality there was around the advice we provided.

Mr Crooke : Just to add one point, the Charter of Budget Honesty Act, when it refers to the fiscal strategy, really just nominates that this is something that would be done in the context of a budget or a budget update. So the process for changing the strategy is the Treasurer publicly releasing it—whatever changes may be made—as part of that update.

Senator KETTER: What does Treasury see as the key impact of the change in the fiscal strategy and this removal of a commitment to budget surplus?

Mr Brennan : I will just refer back to the answer that Mr Crooke gave. There are essentially those two substantive changes to the fiscal strategy. One removes the specificity of the year in which a one per cent of GDP surplus is aimed to be achieved. I think that is consistent with public commentary, on the part of the Treasurer, that he does not want to link the return to surplus to a particular year or surpluses of a specified level to a particular year. In relation to net debt, as Mr Crooke mentioned, it is essentially a broader balance sheet measure than gross debt, in two respects, one that the net debt figure takes into account both assets and liabilities, so it is essentially measuring your borrowings but measuring them up against cash, other investments and the like, and also that net debt has the advantage of being measured on a fair value rather than a historic value or a face value—

Senator KETTER: I would have thought that, at the very least, the budgeting process is made more challenging if you remove a specific commitment for a specific year.

Mr Brennan : The strategy still advocates a return to a surplus of one per cent of GDP as soon as possible.

Senator KETTER: How do you define 'as soon as possible'?

Mr Brennan : I think it reflects the view of the Treasurer that he finds that a preferable element of the strategy than pinning it to a particular year.

Senator KETTER: If the government runs a deficit in 2023-24, will that be a breach of the new fiscal strategy?

Mr Crooke : Do you want me to jump in?

Mr Brennan : Yes.

Mr Crooke : The current projections that were published in MYEFO are in fact for a return to surplus in 2021 and the underlying cash balance remaining in surplus for the rest of the medium-term projection period. That is consistent with the overall fiscal strategy of returning the budget to surplus and maintaining a surplus on average over the course of the cycle. I think you would have heard evidence earlier in the proceedings about the parameter-driven impacts on the budget from revenue write-downs, and the fiscal strategy also talks about being flexible in the face of economic circumstances.

Senator KETTER: Do you believe that this change to the fiscal strategy allows the government to run budget deficits beyond 2023-24 and still comply with the new strategy?

Mr Brennan : What I query is the nomenclature of compliance or breach. The strategy is essentially setting out what the government aims to do. Whether it is meaningful to talk about breaching the strategy or complying with the strategy—I do not perceive, in the changes made to the strategy, any easing of the ambition to return the budget to surplus, but, given the extent of the circumstances that can arise in a budgetary context that are beyond the government's control, including significant revenue write-downs, I think to a large extent that has informed the Treasurer's view that he prefers not to have particular numerical measures that are linked to particular years.

Senator RYAN: If I could add, Senator Ketter, I suppose you may seek to think of the question in another way too, which is, during the substantial changes to the fiscal strategy between 2008 and 2013—which I recall involved surpluses initially appearing I think in 2012 and then way off beyond the forward estimates—whether or not you would consider those to have been a breach at that particular time.

Senator KETTER: I have some other questions on the PEFO versus the MYEFO, but I will put those on notice as well as questions on the childcare package. I want to turn will to the changes to school funding. You have provided a breakdown of the impact on the government's lower level of school indexation over a 10-year period. I am referring to table BET 41 from budget estimates in 2014. Would you have access to that?

Mr Brennan : I do not have it with me, Senator, sorry.

Senator KETTER: I am looking for an update on that table, so that it reflects the impact to changes to the school funding indexation rate out to a 10-year projection from the current financial year.

Mr Brennan : If I can take that on notice, then I can make sure I have got the relevant table.

Senator KETTER: Also, if you could take it on notice to give us a breakdown on how the savings would be apportioned between the states and between the government and non-government school sectors.

Mr Brennan : We will see what we can do.

CHAIR: With that we will suspend until 7:30. Actually, we will reconvene so we can let the Fiscal Group go home.

Senator Ryan: You are smiling, Senator McLucas, in the back.

Senator McLUCAS: There is no other way to approach this process but by smiling.

Senator BUSHBY: I understand the industry funds are looking at developing an industry code on superfund board governance. Do you know whether what they are looking to develop is a mandatory or voluntary code?

Mr Brennan : I am unaware, but I will refer that to Ms Wilkinson and Mr Beckett who are heading up our new Retirement Income Policy Division.

Ms J Wilkinson : My understanding is that the proposal is a mandatory code, but it would not be enforceable by APRA.

Senator BUSHBY: Nor by any other government agency or regulator.

Ms J Wilkinson : There are lots of industry associations who have codes that they apply to—

Senator BUSHBY: So it would be mandatory for their members?

Ms J Wilkinson : For their members, that is correct.

Senator BUSHBY: So only funds that are members of the relevant industry association would be bound by that mandatory code?

Ms J Wilkinson : That is my understanding; correct.

Senator BUSHBY: In the absence of any legislation there would not be any requirements on funds that are not members of industry bodies to have independent directors on their boards.

Ms J Wilkinson : That is correct.

Senator BUSHBY: And do you know what proportion of superfunds overall are not members of industry bodies? Particularly, of industry bodies that are likely to have a code that deals with superannuation governance.

Ms J Wilkinson : My understanding is that if you look across the whole of the superannuation industries—not just industry funds, but across all of the superannuation industry—about a bit under 50 per cent, around mid-40 per cent, of superannuation funds are not members of industry bodies. There are a number of different industry bodies that they could be members of.

Senator BUSHBY: If this proposal goes ahead, not all of those industry bodies would have a mandatory code for superannuation governance.

Ms J Wilkinson : My understanding is that the process which is being explored at the moment would develop an industry code that would be applied to members of the ISA, the Industry Super Australia, and AIST.

Senator BUSHBY: Does the FSC already have a code that applies to its members?

Ms J Wilkinson : They do. Correct.

Senator BUSHBY: But then the rest, who are not subject to any of those three, would not necessarily, at this stage, have a mandatory code that applies to superannuation governance.

Ms J Wilkinson : That is correct.

Senator BUSHBY: I understand that ISA has also commissioned—or in conjunction with them—Bernie Fraser to conduct a review of superannuation governance which is in conjunction with that, I believe. Has Treasury made a submission to that review?

Ms J Wilkinson : No, we have not.

Senator BUSHBY: Will you?

Ms J Wilkinson : We have not yet considered whether we will make a submission to that review. No decision has been taken.

Senator BUSHBY: Do you think that the Bernie Fraser review effectively covers what Treasury has already done during its consultation on super fund governance legislation during 2014-15, and before that through the Cooper review? Is there significant overlap in terms of what the Bernie Fraser review is looking at and what has already been done through what you did over the last couple of years and what was done under the Cooper review?

Ms J Wilkinson : I think it is hard to make those sorts of judgements. I think that you are absolutely right: there has been a considerable amount of work that has been done, through both the Cooper review and the Murray inquiry, and then through the process of consulting on the draft legislation in relation to governance matters. We have obviously been involved in many of those, and that has canvassed lots of issues. All of those processes have canvassed issues to do with governance within the superannuation sector. To be perfectly frank, I have not done a side-by-side comparison of exactly what is covered in one review compared with others and what the terms of reference for the Bernie Fraser review have proposed.

Senator BUSHBY: You are not sure whether you will put in a submission, but presumably you may. Regardless of whether you do, I presume that you would have a pretty good look at whatever that Bernie Fraser review comes up with, with a view to seeing how that fits in with other aims that the government has, or other intentions that the government has.

Ms J Wilkinson : We would review a report that came out of that review in the same way that we would review reports that come out of other processes which were undertaken within the superannuation industry.

Senator BUSHBY: Yes, that is right. I will leave it at that in the interest of letting everybody go, particularly the members of Fiscal Group, who have been waiting all afternoon.

Proceedings suspended from 18:36 to 19:41

CHAIR: We welcome officers of the Department of the Treasury and specifically the Markets Group. Mr Lonsdale, do you have an opening statement or would you like to go to questions?

Mr Lonsdale : No, Senator. I am happy to go to questions.

Senator McLUCAS: Could I go to northern Australia insurance questions, please, as you would have expected? Ms Quinn, you agreed that the report would be available next month when we last met at October estimates. We have not seen the final report of the task force yet. Can you give the committee an update of that?

Ms Quinn : Can I just clarify, Senator: you are talking about the Northern Australia Insurance Premiums Taskforce report?

Senator McLUCAS: Yes, the final report.

Ms Quinn : The final report has been provided to the government and they are considering it. You are correct: it has not been released at this stage.

Senator McLUCAS: Was it provided by the end of November as expected?

Ms Quinn : It did progress on the timetable that was anticipated and it was handed to the government before the end of the year.

Senator McLUCAS: When you say 'handwritten to the government', so I can be very clear about what that means, was that to the department or to the minister's office?

Ms Quinn : To the minister.

Senator McLUCAS: Which minister are we talking about?

Ms Quinn : It was provided to the portfolio ministers.

Senator McLUCAS: Generally?

Ms Quinn : Yes. It is the small business minister and Assistant Treasurer who have prime carriage as portfolio ministers.

Senator McLUCAS: To then Minister Billson?

Ms Quinn : No, it was Ms O'Dwyer.

Senator McLUCAS: Ms O'Dwyer as the Assistant Treasurer, and she has carriage of small business now. Sorry, I am just catching up. That was by 30 November?

Mr Lonsdale : It was handed to the government on 24 November.

Senator McLUCAS: From the task force's point of view, your job was done in the right time frame?

Ms Quinn : That is right.

Mr Lonsdale : The broad process is that you have the task force preparing the report. There was a reference committee with that. The report is finalised and it is presented to government, as Ms Quinn said, to Minister O'Dwyer, and the process then would be that the government would consider its response to the report, and that is what is happening now.

Senator McLUCAS: Can you provide us any indication about why that seems to have taken a lot of time? I do not know whether the department can answer this question, frankly, but that was 24 November and here we are in February. Can anyone give me any indication of why there has not been a publication of the report or something further?

Mr Lonsdale : It is not unusual that when a report is presented to government they carefully consider what is in the report before either releasing the report itself or the report and the response. That is not unusual.

Senator McLUCAS: Given the pressing nature of this issue—from the government's point of view, frankly, and my point of view too—it has now been all of December, all of January and half of February. It is nearly three months since the government received this report. Minister, maybe you could provide us an indication of why we have not had a government response to this point in time.

Senator McGrath: I will take that on notice, actually.

Senator McLUCAS: Are there things we need to consider that have not been in the public arena?

Senator McGrath: Not that I am aware of.

Senator McLUCAS: When you presented the report to Minister O'Dwyer, was it provided to other ministers as well?

Ms Quinn : We service the Treasury minister, and what the minister does with it within government is a matter for the minister.

Senator McLUCAS: So it may very well have been provided to other ministers as well. Was it provided to the Prime Minister, do you know?

Ms Quinn : The process of consultation within government I cannot confirm or deny—

Senator McLUCAS: Once you have handed it over to the political arm you have done your job and it is theirs?

Ms Quinn : Yes. And on occasions there are follow-up questions, further work and considerations et cetera, which would be part of our ongoing policy advice role, and sometimes we are involved in some of those characterisations and sometimes not.

Senator McLUCAS: So you are not sure whether it has been provided to backbench members with an interest?

Mr Lonsdale : No, Senator, we are not sure. The report has been handed to the government, it was handed to the minister, and the usual process would be that the government would now consider the release of the report and the response that came with that. Ordinarily that would involve consultation within government, but we are not in a position to say which ministers have the report.

Senator McLUCAS: Certainly. Can you advise the committee whether or not there has been a cabinet submission process associated with the report and the government response?

Mr Lonsdale : I do not think we are in a position to indicate that, other than to say the government is considering the report carefully and the release of the report that would go with that.

Senator McLUCAS: I am not asking you, as you know, what the contents of any cabinet submission might be, but I think I am allowed to ask you whether or not there has been a cabinet submission process associated with the report. I think that is in order.

Mr Lonsdale : This might be something that the chair might help me with, but if it goes to cabinet's decision making process—

CHAIR: If it goes there and it is there, you cannot ask about it—simple as that. Is it there?

Mr Lonsdale : Where it is at the moment—

CHAIR: With cabinet?

Mr Lonsdale : Government is considering—

CHAIR: Cannot ask.

Mr Lonsdale : Government is considering the report and the release of the report.

Senator McLUCAS: I am going to take the chair's advice here, because the chair advised me that if it was—do you want to say what you said again, Chair?

CHAIR: If it is under the consideration of cabinet, it is under the consideration of cabinet and you cannot ask the officers because it is not with them.

Senator McLUCAS: It is a process question that I am asking. Has there been a preparation of the submission to go to cabinet, not what is in the submission to cabinet?

CHAIR: But is it with cabinet? Yes, it is with cabinet. I am not even sure—sorry, what you are talking—

Senator McLUCAS: No, I think Mr Lonsdale—do you understand the nuance of what I am trying to investigate?

Mr Lonsdale : Yes. So it is not with cabinet, as we speak, but government is considering the report and the release of the report.

Senator McLUCAS: So it has been to cabinet?

Mr Lonsdale : No decision has been taken yet.

Senator KETTER: In which case it would not be subject to public immunity?

CHAIR: But it is being considered by government, right?

Senator McLUCAS: Yes, I understand that. I am just trying ascertain whether there has been a cab sub and we are leading up to it or there has been a cab sub and there is yet to be an announcement. I am trying to find out where we are in that time line.

Mr Lonsdale : So where we are with government: government has the report. No decision has been taken yet on the report and the release of the report.

Senator McLUCAS: And there may or may not have been a cabinet submission associated with that?

Mr Lonsdale : That is correct.

CHAIR: That is correct, because there may or may not have been a cabinet submission.

Senator McLUCAS: So the reference group—have they seen the final report as a group?

Mr Lonsdale : Who?

Senator McLUCAS: The reference group. There was a task force and a reference group associated with that. Has that reference group seen the final copy of the report?

Ms Quinn : I am happy to take that on notice. I would have to ask the actual task force what their finalisation process was. So I am happy to take that on notice.

Senator McLUCAS: Just to be clear, my question is: has the reference group to the task force as a group received a copy of the final report or any individual members?

Ms Quinn : Okay.

Senator McLUCAS: Thank you. When do you expect there to be some announcement—I know this is with government, but there must be some time line or something somewhere that says we are going to have an announcement at certain time.

Ms Quinn : Just to repeat what Mr Lonsdale said: government is considering but they have not made any public announcement about timing of the consideration.

Senator McLUCAS: Have you been involved in any deliberations about an appropriate time to announce the governments' response?

Ms Quinn : So your question is going to the content of advice provided to governments?

Senator McLUCAS: More about time lines.

Mr Lonsdale : We are providing advice on the report.

Senator McLUCAS: Sure, and the time line of releasing a government response?

CHAIR: If I can help out—otherwise we are going to do circle work. The government is considering the report. The officers are dealing with it, whatever it is, but the government is considering it. It is a matter for government, so we might just want to move on.

Senator McLUCAS: So not this Sunday?

Mr Lonsdale : It is a matter for the government.

Senator McLUCAS: We will see, won't we? Thank you very much—I know that was tedious but I would like to—

CHAIR: It was good crack.

Senator McLUCAS: It has been quite some time that this has been a very pressing issue for northern Australia and here we are six months out from an election, if we go full term, and I cannot see that anything has happened yet. And we still do not have a report of the final—anyway, that is fine.

CHAIR: We have got a Northern Australia task force and a minister—anyway.

Senator McLUCAS: But nothing has happened. There is a lot of talk—anyway, that is fine; that is a political point. In the interim report, there was reference to modelling that was undertaken of the risk to the Commonwealth Bank balance sheet from options that were being considered and two major options were being considered. Was that modelling done in-house or did we buy that in from somebody?

Ms Quinn : The task force drew on external consultants for detailed analysis across a range of different areas. That work was undertaken by consultants.

Senator McLUCAS: Do you expect that will be published? That could potentially be a very useful piece of information for people in North Queensland.

Ms Quinn : Once again, what is released is a matter for government.

Senator McLUCAS: Senator McGrath, would you take that on notice and ask if we could see the modelling that was undertaken around the risk to the Commonwealth balance sheet?

Senator McGrath: I will take on notice whether that is possible.

Senator McLUCAS: Thank you. I think it is a useful thing. The interim report talks about the need for greater understanding by North Queenslanders of the risks and how insurance works. I think that modelling might be useful to have in the public arena. Did the task force commission any other modelling, other than what was identified in the interim report?

Ms Quinn : The task force undertook quite a lot of detailed analysis on different types of options and quantitative analyses across a range of different questions identified in the interim report and in response to submissions. I am happy to take it on notice and provide you with the contract information that is available in different forms.

Senator McLUCAS: That would be great—thank you. Page 16 of the interim report talks about the levels of underinsurance and non-insurance in the market of North Queensland. I am sure you are aware that there is a commonly held view in North Queensland that we are terribly underinsured or non-insured. The data on page 17 of the interim report, to my recollection, does not support that view. Is it still the generally held view in Treasury that that is an accurate assessment of the circumstances?

Mr Lonsdale : Could I just clarify? To be clear, the figures that you are quoting from have come from the task force report?

Senator McLUCAS: That is right, yes.

Mr Lonsdale : Not from Treasury but the task force that has been set up?

Senator McLUCAS: Let me ask the question in a different way. The task force has reported levels of non-insurance lower than what we believe is the case in North Queensland, in a relative sense, but in terms of underinsurance they come to a view that it is hard to identify levels of underinsurance. The general view in the community is that we are terribly underinsured or terribly non-insured. The task force interim report does not support that view. So my question to Treasury is: what have you done to come to your own view about the level of insurance in North Queensland, if anything?

Ms Quinn : As you know, data is data. The data you are referring to, on table 2 on page 17 of the interim report, is the official Australian Bureau of Statistics data looking at the share of owner-occupied households with no weekly expenditure on insurance. The evaluation of that, as you said, is that Northern Queensland has 8.1 per cent with no weekly expenditure, compared to other regions like New South Wales, where it is 14.6 per cent. That is a subset of total households. It is owner-occupied households, as opposed to renters and all the rest. So that piece of data does suggest that Northern Queensland is slightly below the national average in people who do not have insurance, which is counter to the idea that there is significant underinsurance.

Senator McLUCAS: But you would agree that that is the view in North Queensland—that we have this level of underinsurance and non-insurance? So have you tested those figures from Treasury's perspective?

Ms Quinn : I am happy to look into it a little bit more. I am personally not sure about the additional work done around this, except I do know that the task force rigorously interrogated all different data sources as part of their investigations.

Senator McLUCAS: I suppose I am using Treasury as a test of the data from the task force, which is probably a bit rude.

Ms Quinn : I have full confidence in the members of the task force, who reached out to other parts of the Public Service and parts of the private sector to verify the data. So I have no reason to doubt the veracity of the ABS information or the processes, but I am happy to take any extra information on notice.

Senator McLUCAS: I am not asking Treasury to undertake a large piece of work. You have probably answered the question by saying data is data. But, given the view in my community, I think there is a piece of work that we should do to help inform people. Finally, what are the costs of the task force? My recollection was that $2 million was allocated to analyse the two options that were in the terms of reference. Tell me about how much has been spent to date, please.

Ms Quinn : The task force was provided with $2.1 million in funding over different years. It used that money to procure modelling services, as we have already talked about, and other specialist skills that were needed to analyse information. The external consultancy services and contractors came to a total of $621,559. Employee expenses and secondments, where we employed people directly rather than employing their services through contractors, were $295,875. Other operating expenses were $13,025. That does not include the cost of employees that were seconded from either the private sector or the public sector. That is purely the expenditure that—

Senator McLUCAS: Is that built into departmental costs?

Ms Quinn : That is right. That was not funded out of the $2.1 million.

Senator McLUCAS: So it has not all been spent?

Ms Quinn : No. That is right.

Senator McLUCAS: So what happens to what is left over?

Ms Quinn : What is left over either comes back into departmental expenses or, depending on the outcome of the task force, may be used in that process.

Senator McLUCAS: Any moneys that are left over could in fact be used to fund recommendations from the task force?

Ms Quinn : Possibly, yes.

Senator McLUCAS: That is about $1 million. That is great—thank you. Can I quickly go to the strata title engineering assessments that were recommended in the 2014 budget. Thank you for your answer to the question on notice from the last estimates. I asked you this question last time: what is the status of the $12.5 million allocated to the measure?

Ms Quinn : We are still in discussions with the Queensland government about the implementation of that measure.

Senator McLUCAS: I really am troubled that we are going to rewrite the Hansard of the last estimates, but let's go on. Has any of that $12.5 million been spent to date?

Ms Quinn : Not to date, no.

Senator McLUCAS: Has any money been transferred to the Queensland government?

Ms Quinn : Not to date, no.

Senator McLUCAS: You answered my question last time by indicating that the $3.1 million from the 2014-15 year has been added on to the 2016-17 year. Is that still the status quo?

Ms Quinn : That is a matter for the government.

Senator McLUCAS: That will be part of the budget process?

Ms Quinn : Yes.

Senator McLUCAS: At the moment in this current year we have $6.3 million and four months to run, and there is $6.2 million for next year. What is the stumbling block? What is the problem with coming to an agreement with Queensland? Last time it was because of the change of government, which is true, but now that has moved on. What is the point of disagreement?

Ms Quinn : We have been in discussions with the Queensland government and at this stage we are waiting for further information from the Queensland government.

Senator McLUCAS: There has been a submission from Queensland, I understand.

Ms Quinn : We have had conversations with the Queensland government. They did put a submission in to the Northern Australia Insurance Premiums Taskforce.

Senator McLUCAS: No, I am talking about the $12.5 million for the strata title engineering assessment. My understanding is that Queensland has submitted a proposal for that money. Is that correct?

Ms Quinn : I am happy to take it on notice, to the extent that I can share. There have been discussions back and forwards, but there is no agreement at this stage.

Senator McLUCAS: So there is no resolution to this point in time. Let me go back in time. This is a measure that was announced in the 2014-15 budget. Its intent was to provide engineering assessments to strata title blocks of flats and units that would allow them to say to their insurers, 'You can decrease my insurance cost because I have this engineering assessment.'

Ms Quinn : Yes, to provide information about a building's sustainability and susceptibility to different weather damage and ways to make the property more resilient, which has the potential for altering insurance premiums.

Senator McLUCAS: In the lead-up to the 2014-15 budget, what negotiations did you have with the then Queensland government about questions like: is $12.5 million enough; how many assessments will that fund; is this the right measure to do the intent of this policy? Tell me what happened prior to the 2014-15 budget in terms of negotiations with the state government around designing the policy?

Ms Quinn : I am happy to take that on notice. There were a series of reports with the James Cook University in particular, which we have talked about previously at estimates, looking at the design of the scheme and how that would work. In that process, there was consultation with a range of stakeholders, including the insurance industry and building contractors and the rest. So there was analysis in that process. I am happy to take on notice information between the Queensland government. I have not got that available with me here.

Senator McLUCAS: I do not know what the stumbling block is. I am happy to hear what it is. I am trying to work out whether we did the work to predict that we would not hit this stumbling block prior to the 2014-15 budget.

CHAIR: If you could wrap up, Senator.

Senator McLUCAS: Will the program still conclude at the end of 2016-17?

Ms Quinn : That is a matter for the budget process and the Queensland government.

Senator CANAVAN: I have some questions about the government's reforms to professional standards for financial advisers. Can you give us an update on where those reforms are act? Are they all implemented at this stage?

Ms Quinn : They are not implemented at this stage. The government did release draft legislation for consultation just before Christmas and submissions have been received on that draft legislation, and the government is considering them.

Senator CANAVAN: Has the industry itself adapted some of these changes already or are they waiting themselves for this legislation to go through?

Ms Quinn : The draft legislation looks at increasing the professional qualifications, issues around passing an exam, having a degree, professional year requirements, undertaking continuous professional development and a code of ethics. So there are quite a few different elements to the draft legislation. It is the case that there is variability across the industry with some licensees having internal requirements that people have these qualifications and have continuous development and the like, but there is variability across the industry. It is the case that some licensees have standards that would be compliant with that envisaged in the draft legislation.

Senator CANAVAN: Okay. For those are not compliant right now, does the legislation envisage grandfathering of any kind or would they be required to bring themselves up to these new standards by going back and getting qualifications or whatever they need to do?

Ms Quinn : The draft legislation has transition arrangements in place so that existing advisers would transition to the new standards. But the draft legislation does envisage that all financial planners providing advice to retail clients would need to meet the new standards, over time adopting the transition arrangements.

Senator CANAVAN: These are presumably being put in place to try to stop some of the high-profile rogues in the industry, as have occurred in the last few years. Is that the intention?

Ms Quinn : The evolution of the legislation has a few different elements. There was the Parliamentary Joint Committee on Corporations and Financial Services inquiry which recommended an improvement of professional standards. The financial system inquiry also recommended improvement of professional standards. And there have been previous Senate inquiries that have drawn attention to professional standards in the industry and also, for example, that drew attention to the register of financial advisers, which was legislated earlier. So there has been quite a lot of discussion around the need and the industry itself is on the record about the need to improve professional standards. There is very strong industry support publicly in their submissions for the need to lift standards.

Senator CANAVAN: Does the Markets Group have any involvement with the Harper review process?

Mr Lonsdale : Yes.

Senator CANAVAN: My understanding is some consultation is occurring in particular on the proposed change to section 46 of the Competition and Consumer Act.

Mr Lonsdale : That is correct.

Senator CANAVAN: Can you let us know what consultations have occurred and what might be in the plans?

Mr Lonsdale : Consultation is happening at the moment on the discussion paper. My understanding is that the deadline for consultations closing is this Friday, the 12th. Then I would expect that government will be considering the submissions that come in and then charting the next course.

Senator CANAVAN: Are some round tables being conducted or some visits to different areas—that is my understanding? I do not know how you have conducted them? Is that correct?

Mr Lonsdale : Mr Dolman can talk about the consultation arrangements.

Senator CANAVAN: Where have they taken place?

Mr Dolman : That is correct. The Minister for Small Business and Assistant Treasurer chaired two round tables in relation to the misuse of market power provision. One was held in Melbourne on 27 January and the other one was held in Tamworth on 29 January. The department has also met with a small number of stakeholders during the period.

Senator CANAVAN: Who was at those round tables?

Mr Dolman : Attending the round table in Melbourne were representatives from the Law Council of Australia SME committee, the Australian Industry Group, Choice, RBB Economics, Australian Dairy Farmers, Foxtel, Australian Newsagents' Federation, Insurance Australia Group, AUSVEG, Retail Council and Independent Contractors Australia.

In Tamworth, representatives were present from the Council of Small Business of Australia, Law Council of Australia competition and consumer committee, the Australian Chamber of Commerce and Industry, the Business Council of Australia, National Farmers' Federation, Wesfarmers, Master Grocers, Telstra, Spear Consulting Legal, Woolworths and MinterEllison.

Senator CANAVAN: There wasn't a preference or a restriction to just representative groups by the sound of that list?

Mr Dolman : It was a combination of representative groups and individual corporations and individual lawyers.

Senator CANAVAN: In terms of the split though, those groups that are not representative organisations were seemingly exclusively bigger companies—is that correct? Were there any actual small businesses at these forums apart from small business representative bodies?

Mr Dolman : I do not believe there was a small-business person at one of the round tables. There obviously was representation of small business interests with ACCI, COSBOA—

Senator CANAVAN: Yes, and NFF. Was it invite only or had people expressed an interest through submissions or some such?

Mr Dolman : It was by invitation.

Senator CANAVAN: Has Treasury commissioned any third-party advice on these changes or tendered for any contracts or advice?

Mr Dolman : Sorry—third-party advice in relation to—

Senator CANAVAN: Economics agency, or the legal firm et cetera? In terms of providing advice to the government, is there any third-party advice being conducted? Or is it only internal to the government?

Mr Dolman : We have not sought advice from outside the government.

Senator CANAVAN: So, the consultation process concludes this Friday. What are the steps after that?

Mr Dolman : The government has announced that it intends to respond to the Harper review's recommendations on misuse of market power provision by the end of March.

Senator CANAVAN: At those round tables, was the discussion only around the options that were outlined in the discussion paper? I think there might have been six options or so outlined in the discussion paper. Or was it wide ranging?

Mr Dolman : The format that was used for the round tables was that each of the attendees was invited to make a short, five-minute opening statement on their views on the Harper recommendations, and then Russell Miller AM was asked to facilitate a discussion, which stepped through some of the elements that were also covered in the discussion paper.

Senator CANAVAN: Is Treasury looking at any other elements of the competition provisions of the Competition and Consumer Act as part of this process and/or issues surrounding access to justice, if you like—the costs of taking action to enforce the competition provisions? Or is the consultation and consideration only covering the section 46 proposed changes?

Mr Dolman : This consultation is just in relation to the misuse of market power provision. There are a range of other processes, as outlined in the government response to the review that was released in November. For example, in relation to a range of other recommendations of the panel to make amendments to the competition law, there is a process underway to draft those laws, and there will be a process of consultation and draft legislation in time.

Senator CANAVAN: Specifically on the access to justice issue—I cannot quite recall; I am not sure whether Harper came to many concrete conclusions there, but is there any consideration of the costs of taking action and enforcing these provisions?

Mr Dolman : I think it is fair to say that it is a difficult issue. Small businesses face a lot of challenges, and many of the challenges they face are outside of the competition law. Indeed, elements of contract law and the consumer law issues are often relevant to them. This is an area where we have ongoing consideration of what can be done in terms of improving small businesses' access to remedies. You will be aware that the government is establishing the Australian Small Business and Family Enterprise Ombudsman shortly, and they will have a role to play in that as well.

Senator CANAVAN: The ACCC is not on this list of people coming along. Were they excluded for a reason?

Mr Dolman : The ACCC attended as observers.

Senator CANAVAN: And RBB Economics: who are they?

Mr Dolman : That is a private economics institution.

Senator CANAVAN: On what grounds were they invited?

Mr Dolman : They have expressed interest in the law in the past. My recollection is that they made submissions during the Harper process, and they offered a perspective from an economic point of view, which complemented the legal discussion that was presented by some of the other attendees.

Senator KETTER: We were talking about the Harper competition review, and Senator Canavan has already asked you about what the government is doing on the effects test, section 46. Putting that to one side, can you tell us what work Treasury has been doing in implementing the 44 of the 56 recommendations that the government has supported coming out of the Harper competition review? I am not sure who—

Mr Lonsdale : Why don't I lead off, and then I am sure Mr Dolman will assist me. As you know, the Harper review was a landmark report last year. It was released in March. The government responded on 24 November. There were 56 recommendations. The government supported the vast bulk, around 39. The report itself made recommendations on a broad ranging set of issues—on land, on human services, on parallel imports and a whole range of things. A lot of those issues are in the domain of the states, so we are working with the states on a range of those issues. And some other issues are within the domain of the Commonwealth, and we were talking about one just then. So, there is a suite of things going on.

Senator KETTER: I thought there were 44 recommendations the government said they were supporting, and another 12 that they were open to.

Mr Lonsdale : I might have misled you: 39, support, and a further five, in-principle support—so, that is the 44. And then they are remaining open to 12 recommendations.

Senator KETTER: In terms of the 44 recommendations, where there is support in principle, can you give us an indication as to how many of those you have started consultation with stakeholders on?

Mr Lonsdale : I might ask Mr Dolman. There is a whole range there.

Mr Dolman : In terms of where processes are up to, I mentioned in response to Senator Canavan's question that there is a process to take forward the amendments to the competition law. There will be a drafting process, and then there will be a consultation once we have a product drafted that we can seek feedback on. There are also recommendations in relation to competition neutrality, which the government has committed to consult on, and that process will be taken forward in time. There are a range of issues, as Mr Lonsdale outlined, that relate to state and territory areas of responsibility, and there have been discussions through heads of treasuries and through the Council on Federal Financial relations on that issue. COAG in December last year committed to develop a competition and productivity reform agreement, and those discussions have been going on with states and territories.

Senator KETTER: What dealings has the department had with the Treasurer or the Assistant Treasurer's office in terms of process and making these recommendations happen?

Mr Lonsdale : The involvement is integral. In formulating the government's response to the Harper review we were involved in providing the advice, working through what the implementation arrangements would be and now, once the government's response has been issued, as we mentioned, working through those issues in a measured way, on time lines, on each one.

Senator KETTER: When are we likely to see more progress on these recommendations? It has been two years since the government announced the review of competition policy. When will we start to see some of these things coming to fruition?

Mr Lonsdale : I think they are happening now. The government's response was issued in November last year. We had a major independent inquiry. The government responded in November. Since November there has been a lot of work both at the Commonwealth and at the state level, working through what the priority areas are and how the implementation will go.

Senator KETTER: Recommendation 48 of the Harper review, related to competition payments—and this is one where the government has indicated its support: can you tell me what work the department has done in relation to this recommendation?

Mr Lonsdale : As you mentioned, the government has indicated that it is open to that. We have been examining different mechanisms and talking to the states about those.

Senator KETTER: What about other departments or agencies?

Mr Lonsdale : Absolutely.

Senator KETTER: Can you tell us which ones?

Mr Lonsdale : As part of thinking through the competition recommendations, we would ordinarily consult the coordinating department—PM&C, for example. I will check to see whether there are others.

Mr Dolman : There are a range of recommendations in the state and territory space. We have also been consulting with line agencies. For example, we have had conversations with the department of infrastructure in relation to road regulation. So, there have been a number of discussions with departments.

Senator KETTER: The report recommended that the benefits of policy change would be modelled. Have you made any progress on that front?

Mr Lonsdale : Modelling the package?

Senator KETTER: Yes.

Mr Lonsdale : My understanding is that to date we have not done modelling on the package.

Senator KETTER: Do you intend to do some modelling?

Mr Lonsdale : Not at this stage.

Senator KETTER: I am going to move on to the issue of superannuation. I am not sure who I should direct this question to, but can you tell me how many Australians have superannuation balances in excess of $1 million?

Mr Lonsdale : We have the superannuation function in Fiscal Group. If you have superannuation questions we are happy to take them on notice and provide them to Fiscal Group.

Senator KETTER: When it comes to the low-income superannuation guarantee, is it the same answer?

Mr Lonsdale : Correct.

Senator KETTER: I might turn to the Small Business and Family Enterprise Ombudsman. Who should I direct that to?

Mr Lonsdale : Mr Boneham is the expert.

Senator KETTER: I might hand over to Senator McAllister.

Senator McALLISTER: Could you step us through the process that led up to the appointment of the Small Business and Family Enterprise Ombudsman?

Mr Boneham : That was an open merit selection process. It was advertised on 11 September in national papers, and we had a recruitment firm, NGS Global, assist us in finding candidates for that position.

Senator McALLISTER: And then what happened?

Mr Boneham : An interview process was undertaken.

Senator McALLISTER: By whom?

Mr Boneham : By Treasury. There was an acting deputy secretary on that panel, the APS commissioner and a deputy commissioner from the Productivity Commission.

Senator McALLISTER: Was the interview process to select a single recommendation for the minister? Or did you select a number of recommendations.

Mr Boneham : My understanding is that the candidates were ranked, with a No.1, 2, 3 and 4, and then those names were given to the minister.

Senator McALLISTER: So, a ranking was provided to the minister, and then it was ultimately the minister's decision to appoint the ombudsman.

Mr Boneham : The minister was responsible for making the decision, and that is under the act. I will check that, though.

Senator McALLISTER: Can you tell me how many candidates applied for the position?

Mr Boneham : Can I take that on notice? I think it was in the 30s, but I do not want to mislead you.

Senator McALLISTER: Can you tell me, though, how many candidates were formally interviewed.

Mr Boneham : Four.

Senator McALLISTER: So, there was a short list of four, all were interviewed and then all four were forwarded to the minister in ranked order?

Mr Boneham : I will need to take that on notice, because I am not sure whether after the interview some names were not put forward to the minister. I would need to check that.

Senator McALLISTER: That would be good. It would be helpful then if, on notice, you could provide just confirmation of how many applied, how many were interviewed and how many options were forwarded to the minister, and a confirmation that your evidence that they were provided to the minister in ranked order was correct. Are you aware of whether the candidate that was ranked No. 1 was appointed by the minister?

Mr Boneham : I would need to confirm that. I was not on the panel, so I will need to confirm what information went up to the minister on that one.

Senator McALLISTER: So you will take that on notice?

Mr Boneham : I will take that on notice.

Senator McALLISTER: I suppose we are conscious that this was a change from the previous arrangements and there is a current Small Business Commissioner, Mr Mark Brennan. Was he interviewed for the role?

Mr Boneham : I will need to take that on notice. It was before my time.

Senator McALLISTER: Thinking about the role of the small-business ombudsman, there have been some questions raised about the support she has provided for the government's reintroduction of the ABCC at the same time as it was being debated in the House of Representatives. Do you think intervening in political debates of this kind is consistent with the mandate of this independent statutory position?

Mr Boneham : Are you seeking my personal views?

Senator McALLISTER: I am asking whether this behaviour from a departmental perspective is consistent, but the assistant minister may wish to answer the question.

Senator McGrath: Ms Carnell is well qualified for the position.

Senator McALLISTER: So you find it acceptable to be making comments, in an independent statutory role, about legislation that is on foot in the parliament?

Senator McGrath: I think it is important that she does speak out in relation to matters affecting the small business community.

Senator McALLISTER: I am interested in the department's view about the cost of finance for small business. It has become substantially more expensive in the aftermath of the GST. Is the highest spread for small-business loans the new normal from your perspective? Is this the environment small business is confronting?

Mr Lonsdale : It is something that we watch very closely. It is true that the cost of finance has increased significantly since the GFC, and a key part of that revolves around market factors like the rerating of risk, for example—there are a whole range of factors that go into that. Are we concerned? It is something that we look very closely at.

Ms Quinn : The lending rates for small business, in an absolute sense, are certainly lower than they were prior to the GFC. So the interest rate faced by lenders is a function of the cost of capital that banks have over and above the risk-free rate that the Reserve Bank sets the cash rate at. While the gap between the final loan and the cash rate has widened, the actual interest rate faced by small business today is told that it was prior to the GFC.

Senator McALLISTER: I am interested in exploring whether you are giving thought to whether peer to peer lending and innovation in the financial services sector has the potential to have an impact on small business financing costs over the medium term. Is that something you are thinking about as a policy issue?

Ms Quinn : Access to finance and the issues related to different sectors were considered as part of the Financial System Inquiry. In the government's response to the Financial System Inquiry they adopted the recommendations in this regard of the inquiry, which included crowdsource equity funding, legislation for which passed the House of Representatives today. That is one additional form of funding for small business. The government adopted the recommendation to look, then, at the next level, which is debt financing, which includes peer-to-peer but also crowdsource debt financing. It is something that is under active consideration.

Senator McALLISTER: We have some more questions around crowdsource equity funding, but I am conscience that others would like a go.

Senator LUDLAM: I have some questions on the national contact point. Can you please give me some background, because it is probably three years since I have asked questions relating to it? Can you update myself and the committee on resources, staffing and capacity, and give a very brief overview of the work of that office?

Mr Donelly : As you are aware, the National Contact Point for the OECD Guidelines for Multinational Enterprises is a role that I hold under the guidelines, which the Australian government has signed up to with the OECD, on behalf of multinational enterprises operating in the 42 countries that adhere to the OECD guidelines. That role is administered from within the Foreign Investment and Trade Policy Division. In addition to myself in the ANCP role, which is part of a range of different duties that I undertake, there are two other members of the division who service the ANCP role part-time.

Senator LUDLAM: I suspect that might be more resourcing than last time I asked, it might have stepped up a bit. Are you full-time in that role?

Mr Donelly : No, it is quite a small component of a pretty large job.

Senator LUDLAM: Is the national contact point a small component of a larger job?

Mr Donelly : Yes.

Senator LUDLAM: Is Brazil, presumably, a signed-up member?

Mr Donelly : I am not entirely sure whether Brazil is, off the top of my head. I will need to confirm that.

Senator LUDLAM: I could have found that out myself as well. I want to ask you some questions about Samarco, because that is an instance where it is possible that your office could provide a bit of assistance, depending on how that situation rolls out. Does a country have to be a signatory for people to avail themselves of your office, if the impact area is within that country?

Mr Donelly : No. In the case of that particular instance, because the multinational involved is an Australian multinational then they are subject to the guidelines.

Senator LUDLAM: Okay. Has your attention or capacity, or that of the other two staffers whom you work with, been engaged in the disaster in Brazil?

Mr Donelly : I am certainly aware of it from general reading. The guidelines require the contact point to maintain confidentiality until final decisions are made in the case where we are involved.

Senator LUDLAM: Are you going to find it difficult to tell me whether you are or are not engaged?

CHAIR: Mr Donelly, if you could just say yes or no rather than nodding because the Hansard does not pick up a nod.

Mr Donelly : Yes.

Senator LUDLAM: That is complicating. It is possible then, Senator McGrath, that I might have to put some of these through you if Mr Donelly is unable to provide information.

Senator McGrath: You can put them on notice.

Senator LUDLAM: I could put them on notice, but if Mr Donelly is unable to tell me anything I would just rather find that out now, rather than waiting six weeks.

Mr Donelly : It is fair to say that the role of the contact point is usually in a case where individuals who are affected by a particular set of circumstances are aggrieved at the progress or, more often, lack of progress in relation to actions taken by a multinational in respect of their particular circumstances.

Senator LUDLAM: I would have thought that this situation, and again I am going to be a bit careful about pushing on to specifics if you are not able to speak of them, which is one of the worst disasters of its kind that I have ever come across—it has destroyed a river, it has reached the Atlantic Ocean, it has depopulated an area, it has destroyed the regional economy.

CHAIR: There are plenty of disasters we can talk about—

Senator LUDLAM: This is one particular one that I am bringing up now. Has your office been approached by individuals impacted directly by that event?

Mr Donelly : I need to take that on notice.

Senator LUDLAM: Okay. And this is where, if it gets political, I am happy for you to take this on notice, Senator McGrath. What kind of pressure are you or your office—or anybody at the desk who cares to answer—putting on BHP, which has created this extraordinary disaster?

Mr Lonsdale : I do not think we can answer that question. It goes to whether or not we have actually had an approach. I think as Mr Donelly made clear, we cannot answer that. We are happy to take it on notice.

CHAIR: And any of the associated things that you may be able to comment on.

Senator LUDLAM: That is right. I will put a few more specific things to you and we will see how we go. I understand that you can only encourage, rather than ensure, because this is compliant within a voluntary framework, so I am reasonably aware of the framework within which you operate.

Mr Donelly : That is correct.

Senator LUDLAM: So what I am still seeking is what kind of encouragement, if we could put it that way, is the government directing toward BHP?

CHAIR: Senator, does that not fall into the same category as your last question?

Senator LUDLAM: Well, it might do.

CHAIR: Well, it does.

Senator LUDLAM: Could I put this to you, Senator McGrath—because it might be outside the range of Mr Donelly's remit. Is the Australian government doing anything at all to encourage a resolution between BHP and the Brazilian authorities?

Senator McGrath: I think it is best I take that on notice.

Senator LUDLAM: Okay. I am going to put a couple of questions through DRET tomorrow—they might be a better place to answer this—but if you have any information I would appreciate it. Are you aware of whether or not BHP is abiding by DRET's Leading Practice Sustainable Development Program for the Mining Industry?

Mr Donelly : I would need to take that on notice.

Senator LUDLAM: If you could, I would appreciate that. And again, I will follow that up tomorrow. Is it the policy of the Australian government—again, I think probably through you Senator McGrath—to support BHP funds being frozen in Brazil?

Senator McGrath: I think it is best I take that on notice.

Senator LUDLAM: Okay. And anything at all that you can ascertain for us on details of resettlement plans and the establishment of an independent monitoring mechanism?

Senator McGrath: Look, I think that should be placed on notice also.

Senator LUDLAM: As you wish.

CHAIR: I am not sure that—

Senator McGrath: I do not think we can even answer that.

Senator LUDLAM: No, this process is completely opaque. I do not think they have been able to tell me anything at all.

CHAIR: That is right, but keep going.

Senator LUDLAM: No, I am not sure there is any point. If you have been engaged—

CHAIR: No, you put them on notice. That is fine.

Senator LUDLAM: If you have been engaged by either Brazilian authorities or local residents who were local to that area, then the shutters come down and you will not be able to tell me a single thing. Is that the summary?

CHAIR: You are now telling the officers what they can and cannot do in their job.

Senator LUDLAM: No, that was a question. Can you tell me any single thing at all about what you are actually doing?

Mr Donelly : Where a complaint is made under the guidelines, there is an expectation of confidentiality on behalf of the national contact point.

Senator LUDLAM: I am not after names and addresses, but it is a bit of a waste of your time even calling you for estimates if you cannot tell us about what you do.

CHAIR: Senator, you are now belittling the officer. He has just told you that—just like the tax office—they cannot discuss anything that they have got under review. I think that is thoroughly reasonable. You put a lot of questions on notice. I am sure you will be very interested—as I will be—in the responses. All done?

Senator LUDLAM: I will not hold my breath, but thank you, Chair.

CHAIR: Okay. Thank you very much. Well, with that—

Senator McALLISTER: I am sorry.

Senator LUDLAM: We have other questions.

CHAIR: What happened?

Senator McALLISTER: No, I always had them. I was just trying to be collaborative.

CHAIR: Okay. All right. It does not pay to do that too much.

Senator McALLISTER: Obviously.

CHAIR: All right. Thanks. Senator McAllister.

Senator McALLISTER: I just wanted to ask about the Foreign Acquisitions and Takeovers Legislation Amendment Bill 2015, the two related bills at the end of last year and the associated regulations. Have we got the right people for that?

Mr Donelly : That is me, senator.

Senator McALLISTER: Excellent. Thank you. Am I right in understanding that much of what was in the regulations codified the existing regime around foreign investment which had not previously been codified? That is correct?

Mr Donelly : That is correct.

Senator McALLISTER: Can you just give us an outline about how it has all been working?

Mr Donelly : There are probably a range of measures wrapped up in the amendment bill. There was a rewrite and modernisation of the old Foreign Acquisitions and Takeovers Act which had been substantively in place since 1975.

Senator McALLISTER: For a long time. Yes.

Mr Donelly : In doing that, we took the opportunity to modernise some of the provisions—move them into line with other acts. For example, some elements of the FATA which were in some ways inconsistent with the Corporations Act were standardised so that now businesses only have to understand the one set of regulations and comply with those. The government made a series of policy announcements about changes that would be wrapped up in that. There were changes to agricultural-screening thresholds; the introduction of penalties; the introduction of a land register, which obviously had its own bill; and the introduction of fees.

Senator McALLISTER: I am interested in the transition from the series of announcements that the government made in May last year: the introduction of legislation and the commencement of the legislation and the regulations at the beginning of December. Can you talk me through whether there are any—and this is not a 'gotcher' question, it is a genuine question—if anything substantially changed from 1 December as a result of the new regulatory arrangements being turned on at that point?

Mr Donelly : A range of those things, which I outlined as policy changes, are substantive changes to the act. So the $55 million screening for agribusiness was not in effect prior to 1 December and now is; the increased penalties for people who contravene the act are now in place for transactions post 1 December 2015; and fees, in particular, are also in place for applications which are lodged post 1 December 2015. There are a range of what I would describe as other more 'technical' amendments, such as the alignments with the Corporations Act, which I described earlier and which also would not be in effect for applications prior to 1 December but are now operative for any new applications we receive.

Mr Lonsdale : The other significant thing that I would add is the move in the real estate function from the Treasury to the ATO, which is now screening those and enforcing those.

Senator McALLISTER: We talked about that a little with the ATO earlier today. From your perspective, has that been a smooth transition?

Mr Lonsdale : I think it has been very smooth. There are always issues as you go along the way with implementation, but it is the largest change to the foreign investment legislation we have had in about 40 years. We have moved functions between agencies. There are a lot of people to talk to and a lot of consultation has happened, so by and large the process has gone very smoothly.

Senator McALLISTER: Can I just confirm the division of responsibilities? My understanding is that the ATO looks after residential real estate but that the Foreign Investment Review Board continues to have oversight of the remainder, including investment in business and commercial real estate and the agricultural sector. Is that correct?

Mr Donelly : That is correct in terms of the administration. The FIRB also retains a policy role in relation to the policy around residential real estate, although the tax office does the administration.

Senator McALLISTER: I gather from the ATO's evidence this morning that there are also some other responsibilities where they can act on recommendations about breaches but the prosecution role sits with the FIRB rather than with the ATO. Is that correct?

Mr Donelly : Not quite. The process, if we were looking at a case which led to a prosecution, would be for the ATO to do all of the original investigative work.

Senator McALLISTER: Yes.

Mr Donelly : They would present that as a package to the FIRB, but perhaps with a recommendation that prosecution proceed. The FIRB would then consider that and make a recommendation to the Treasurer, who in most cases would be the decision-maker for that. Then in the event that the Treasurer thought that the breach was significant enough to warrant prosecution the documentation would be referred back to the ATO for them to make the referral to the Director of Public Prosecutions.

Senator McALLISTER: When an applicant is seeking to apply to engage in a foreign acquisition process, they basically go onto the website, work out which category of applicant they are and then they are directly either to the ATO or to the FIRB—is that correct?

Mr Donelly : That is correct. We have a single portal for any foreign investor through the FIRB website. Those that say they are interested in purchasing a residential property are directed to the tax office site to complete relevant forms and submit through the ATO systems.

Senator McALLISTER: The ATO this afternoon said they have—I think—50 people working on residential real estate compliance and that they had received an additional amount of funding for that.

Mr Donelly : That is correct.

Senator McALLISTER: Can you tell me how much additional funding?

Mr Donelly : That the tax office received?

Senator McALLISTER: Yes.

Mr Donelly : $47.5 million over four years.

Senator McALLISTER: How many people are working on compliance at the FIRB?

Mr Donelly : We do not have a specific role in the same way the tax office does. We have a systems and compliance unit, which—from memory—has around seven people in it, but they work across both systems and compliance.

Senator McALLISTER: So have you had to increase your staffing levels since May last year as the rollout of this new package got underway?

Mr Donelly : Yes, Senator. We were funded with—from memory—about $19.7 million over the same four-year period, and have increased staff from the mid-30s to just over 50.

Senator McALLISTER: Since 1 December when the new legislation came into place, how many investments have been subject to scrutiny? How many proposals have been received?

Mr Donelly : We received a very large number of applications in the lead-up to 30 November before the new regime came into place. In some categories there was several months worth over the course of a couple of days. Since that time—and, I think, with Christmas and other things intervening—the volume of applications has been lower than we would normally expect, but we are starting to see some signs over the last week or two that things are starting to get back to a new normal.

Senator McALLISTER: I do not imagine you have all of this with you this evening, but if you were be able to provide the number of proposals that have been received since the commencement of the legislation in December and break that down by category—agricultural land, residential real estate, commercial real estate and business acquisitions in sensitive and non-sensitive sectors—that would really help.

Mr Donelly : I can certainly take that on notice.

Senator McALLISTER: That would be great, thank you. Can I now just ask about the fees. One of the three bills in the package that passed last year was the Foreign Acquisitions and Takeovers Fees Imposition Bill 2015, and that was also accompanied by a regulation of essentially the same name—the Foreign Acquisitions and Takeovers Fees Imposition Regulation 2015. Do those regulations solely proscribe the fees for the different types of investment applications? Or is there another source document or policy document that also codifies the fees that will apply?

Mr Donelly : The fees are outlined predominantly in the bill—now the act—with the regulation determining issues like how those fees are amended and under what circumstances they might be waived.

Senator McALLISTER: So if I were attempting to understand the fees structure and the schedule of the fees that is up on the website—and it is all very transparent—I could do that exclusively with reference to the legislative instruments.

Mr Donelly : Yes, Senator, I believe that is the case. Having said that, as you have pointed out, we have a nice, simple, two-page guide on the website, so I am not sure why you would bother with that.

Senator McALLISTER: It is really not my intention to do that. I am simply seeking to explore how the schedule relates to the legislation—but I am, practically, not going to do that. Does that schedule of fees differ in any way from the fees that were announced by former Treasurer Hockey and former Prime Minister Abbott on 2 May?

Mr Lonsdale : We can come back on the precise details, but broadly, I think they are the same.

Senator McALLISTER: Thank you, Mr Lonsdale.

Mr Donelly : I need to check my memory but there was a set of fees which were the subject of public consultation over the course of April. Then a further decision was taken following that public consultation by government. It is my recollection, but we will double-check it, that the fees that were announced by the government when they made that policy announcement were the ones that were enacted.

Senator McALLISTER: If you could take that on notice and confirm that, that would be great. The ATO gave evidence this afternoon to advise that they are now responsible for the collection of fees for residential real estate. Is that their sole responsibility in relation to fee collection or do they collect the fees for the other transactions on behalf of the FIRB as well?

Mr Donelly : The ATO collects all of the fees under the foreign acquisitions and takeovers regime and advises us when fees will be charged, relevant to applications which Treasury and the FIRB would need to administer, and when they have been paid.

Senator McALLISTER: So a kind of coordination mechanism has been established to communicate that advice?

Mr Donelly : That is correct. They were already building a system for fee collection and they already administer a large amount of revenue on behalf of the Commonwealth. It seemed sensible to let them play to their strengths.

Senator McALLISTER: They also gave evidence that $5 million in fees have been collected since 1 December. Can you clarify for me, either now or later, whether that was exclusively in relation to residential real estate or for all transactions?

Mr Donelly : I cannot do that off the top of my head. I am able to answer that on notice.

Senator McALLISTER: That is great. On notice, could you provide the total amount of fees and then separate that out by residential real estate; commercial real estate; business acquisitions, in sensitive and non-sensitive sectors; and in agriculture? That would be good.

Mr Lonsdale : If I could just make one point just on the fees: the regime has been in place since 1 December. That is a very short period of time. As Mr Donelly mentioned, there is some cyclicality to it when you introduce a new measure. We will go back and check. To the extent that we can give you figures, you will need to be very cautious in terms of their use.

Senator McALLISTER: Thank you Mr Lonsdale, I will bear that in mind. I am happy to put the remainder of my questions on notice, but I just want to ask a question on a separate matter around the announcement today by the Treasurer in relation to the sale of the Kidman property. The Treasurer has issued a release welcoming the decision by the Kidman company to reopen the company's sale process for Australian parties. Can someone talk me through the events that have led up to this decision today by the company?

Mr Lonsdale : As a general rule, as we have said before, we have to be very careful in talking through cases. In this particular case, the Treasurer has issued a press release and we have actually put a submission to a Senate inquiry looking at this, which is one of three cases. So we can talk broadly through the pivotal points, if that is helpful.

Senator McALLISTER: I think I am probably more interested in the process questions. Have you been engaging directly with the company in the lead-up to this announcement today that the Treasurer is responding to?

Mr Lonsdale : As a matter of course, we would interact very closely with the applicant.

Senator McALLISTER: Have you been interacting with the applicant today?

Mr Lonsdale : I have not been interacting with the applicant today.

Senator McALLISTER: Has Treasury been interacting with the applicant?

CHAIR: He probably would not know that; he has been sitting here all day.

Senator McALLISTER: Good point.

Mr Lonsdale : I am very happy to come back to you on that. I just do not know the answer to that question.

Senator McALLISTER: Has Treasury been providing advice on these questions today to the Treasurer?

Senator McGrath: I think we would have to take that on notice.

Mr Lonsdale : As a matter of course, we would deal with the Treasurer and the Treasurer's office on a range of cases.

CHAIR: I would hope so.

Mr Lonsdale : On this particular one, were we in contact today? I am happy to come back to you on that.

CHAIR: What happened today? What did I miss?

Senator McALLISTER: In fact, the Treasurer has made a statement, where he says:

I am encouraged that my decision has led to today's development which enables Australian parties—

Australian parties—

to make a bid for S. Kidman & Co Limited.

I suppose, Assistant Minister McGrath, I question whether a decision that only allows Australian parties to participate in the sale process means we are open for business.

Senator McGrath: I do not think he is saying that at all, actually. The sale process is a commercial matter, and what the Treasurer today has said is that he is just welcoming the new opportunities for Australian buyers.

Senator BUSHBY: The Treasurer blocked the original applicant from overseas.

Senator McGrath: He did not block all overseas applicants.

Senator BUSHBY: Yes, exactly.

CHAIR: Senator McAllister, are you happy for me to let the markets group go and call the ACCC in before they all pass out through fatigue? They are robust people, of course.

Senator McALLISTER: I have a short series of questions for the markets group around competition issues. I imagine they would take less than 10 minutes. They are not complex or particularly political.

Proceedings suspended from 21:02 to 21:19

CHAIR: We are back in session, and I welcome back the assistant minister.

Senator McALLISTER: Can I confirm that the ACCC has been asked to examine whether the Sugar Industry (Real Choice in Marketing) Amendment Bill breaches the Competition and Consumer Act?

Mr Dolman : On that issue, my understanding is that a member of the Queensland government wrote to the ACCC to bring to their attention the Queensland sugar act. That notification process is required under an intergovernmental agreement, the Conduct Code Agreement from memory, which was signed in the 1990s. The reason for that notification is the bill excludes certain conduct from the operation of the Competition and Consumer Act from the competition laws, and the notification is to tell the ACCC that that conduct is not conduct that they would be able to pursue under the competition laws. The ACCC does not have a role in relation to assessing the sugar act.

Senator McALLISTER: That is very interesting. So there is no role for the ACCC in assessing whether or not the legislation is anticompetitive? It is simply the Queensland government meeting an obligation under the act in your view?

Mr Dolman : It is simply notifying the ACCC that conduct that is authorised by the Queensland act is then immune from the operation of the competition law.

Senator McALLISTER: Have you been in communication with the ACCC in relation to that matter, or has Treasury been in communication with the ACCC about this?

Mr Dolman : At an operational level, I am sure we have had discussions.

Senator McALLISTER: Has there been any correspondence between the two organisations in relation to this matter?

Mr Dolman : If you mean by that written correspondence, I do not believe so.

Senator McALLISTER: Could you undertake to check that, and if there is any perhaps you could provide that on notice?

Mr Dolman : I can take that on notice.

Senator McALLISTER: Thank you. I will follow that up with the ACCC to confirm that they have the same understanding about it. Thank you, Mr Dolman.

Senator CANAVAN: You say the Queensland state government has indicated to the ACCC that there are certain conducts covered by this act. The fact that the ACCC cannot look into it, is that enshrined in this conduct agreement signed in the 1990s? Or is it more a constitutional issue that a federal government agency cannot look into a state act?

Mr Dolman : I did not mean to say the ACCC cannot; there is not a role for them.

Senator CANAVAN: There is not a role for them under the legislation to investigate the impacts—

Mr Dolman : Or under the intergovernmental agreements.

Senator McAllister: How is that different? If that is the case, then under what head of power could they act?

Mr Dolman : I do not believe there is a specific power within the act that relates to this issue.

Senator CANAVAN: It would be pretty strange to look into a state act.

Senator McALLISTER: So they cannot act.

CHAIR: I thank the Markets Group for your attendance here, for the 2½ minutes we have been back. I will see you in the budget estimates in May. Thank you very much, Mr Lonsdale.