Mr KELVIN THOMSON (8:20 PM) —This legislation, the Taxation Laws Amendment Bill (No. 7) 1999 , is essentially in two parts. The first part relates to the company law review, and various consequential anti-avoidance amendments to the tax laws were made as a result of major changes made to the Corporations Law by the Company Law Review Act 1998. Amongst other things, that act abolished the concept of par value for shares and the associated terms of share premium, as well as making it easier for companies to return capital to shareholders. What is known as the tainting rule prevents companies disguising a profit distribution as a tax preferred capital distribution from the share capital account by first transferring profits into that account and then distributing from it.

A similar rule applied to share premium accounts before their abolition on 1 July last year because of the Company Law Review Act. In cases where the share premium account contained amounts other than share premiums, or the tainted share premium accounts, the share premium account was also treated as a profit account for taxation purposes. This bill amends the Income Tax Assessment Act 1936 and associated tax laws to ensure that the share capital tainting provisions are not triggered in inappropriate cir cumstances. Broadly speaking, this is achieved by ensuring that: first, the share capital account does not become tainted by the merger of tainted share premiums with share capital unless the share capital account ceases to be more than the total of the tainted share premium account immediately before the merger; second, all debt for equity swap arrangements which should qualify for the exception to the tainting rule do so; and, third, the delayed crediting of share capital to the share capital account does not trigger the share tainting rule.

These amendments restrict the original anti-avoidance provisions to their intended scope. In effect, they are cleaning up unintended consequences which could have arisen from the original provisions where non-tax avoidance transactions would have been unfairly caught by the anti-avoidance provisions. The amendments are backdated to 1 July 1998, which is when the review act changes commenced. In addition, technical amendments are proposed to ensure that a technical defect in the commencement provisions for the original anti-avoidance legislation is remedied so that it does apply from 1 July last year as intended. Labor is supportive of this proposal.

The second part of the legislation relates to managed investment schemes. In order to provide better investor protection and more efficient management and regulation of collective investment schemes, the parliament passed the Managed Investments Act 1998 to regulate the industry, and Labor was supportive of that happening. The Managed Investments Act allows for a two-year transitional period from 1 July 1998 during which certain collective investment schemes in existence on that date must change to the new structure. Schemes which commence after 1 July 1998 are required to operate under the new rules and are not eligible for relief.

In addition to the change in a scheme structure, the Managed Investments Act requires substantial amendment of a scheme's trust deed. Without specific provisions in the law, schemes restructuring under the Managed Investments Act to comply with the new single responsible entity structure will incur a capital gains tax liability on all of the unrealised gains contained within their asset portfolios. In addition, other unintended and unfair taxation liabilities would arise. The combination of these makes it undesirable for entities to restructure into the single responsible entity form, and this is said to be frustrating the aim of the Managed Investments Act.

The measures proposed in the bill will grant taxation relief where schemes make the necessary structural and operational changes in order to comply with the Managed Investments Act, thereby avoiding unintended taxation consequences arising, provided that the scheme, as administered, is the same kind of entity immediately before and immediately after making the changes, that the changes are made during the transitional period between 1 July 1998 and 30 June 2000 and that the scheme is registered in accordance with the Managed Investments Act.

Relief will also be granted in respect of changes to a trust deed not strictly required by the Managed Investments Act providing that the relevant criteria are met and that, in comparing the situation before and immediately after the changes, the changes do not create shifts in value between members or classes of members, the market value of members rights is not reduced and there has been no change in the membership of the scheme. There is no revenue consequence for these amendments as they simply remove windfall gains that would otherwise accrue to the Commonwealth. Once again, Labor is supportive of this aspect of the legislation.

I do want, however, to make a number of observations about the way in which the second part—the managed investments section—of the legislation operates. I have had the benefit of correspondence from Kerrie Kelly, the National Director of the Trustee Corporations Association of Australia, who has pointed out in correspondence to the opposition a number of points concerning the scope of the capital gains tax relief provided in the bill, which I think are worth drawing to the attention of the House and to the attention of the government.

The Trustee Corporations Association have advised the opposition, as I am sure they have advised the government, that the bill does not extend capital gains tax relief to wholly owned trusts of an entity that will be involved in transition under the provisions contained in the Managed Investments Act—for example, subtrusts of head property trusts. They point out that this will have significant implications for Australian investors in property trusts as it is common for property trusts to use wholly owned subtrusts for the ownership of properties.

They point out that many fund managers are taking the opportunity provided by the legislative requirement for affected schemes to transition to a managed investments structure to simplify outdated trustee structures and remove outmoded business practices. Should the bill not be amended then, either Australian investors will personally incur the capital gains tax liability on their investment or they will be denied the benefits that could be obtained from their scheme restructuring.

The Trustee Corporations Association also go on to propose changes to recognise the right of the Australian Securities and Investments Commission to extend the transition date of particular schemes beyond 30 June 2000. They note that their tax advisers, KPMG, had written to the Assistant Treasurer on 10 June concerning this issue seeking those amendments. At the time they wrote to the opposition, they had not received a response to their letter to the Assistant Treasurer. It is their belief that those amendments are not controversial and will benefit Australian investors in property trusts.

A significant speech was also made by Kerrie Kelly to a conference held on the issue of single responsible entities at the end of May. It makes a number of points about the operation of the single responsible entity regime, in particular the need for some legislative change. Kerrie Kelly pointed out that:

Even before the MIA was passed by Parliament, almost a year ago, we knew that CGT relief legislation was essential to providing ordinary Australian investors with certainty that they would NOT incur CGT on their restructured property and equity managed investments.

She said:

How did the Government address investors' legitimate concerns? Nearly a year later, on 12th March 1999, Assistant Treasurer Senator Rod Kemp announced by Press Release his intention to grant tax relief to funds restructuring to comply with the MIA. Legislation by Press Release clearly falls outside of Australia's legislative process! Draft legislation, finally appeared on 13th May, in the form of Taxation Laws Amendment Bill (No. 7) 1999 .

And then she says:

And what a convoluted piece of drafting it is; although it is certainly better than the year-long vacuum that preceded it! The legislation also gives little comfort to those schemes that have head and sub-trusts—those of you involved with such scheme structures, particularly property trusts, need to carefully consider this legislation as it does not give CGT relief to the sub-trusts!

She said:

With the potential amounts of capital gains tax payable by ordinary Australian investors in schemes such as property trusts, legal and taxation advisors will rightly be concerned to give careful advice to fund managers, trustees and investors until such time as the Bill is passed by the Commonwealth parliament.

The implementation of the relief legislation continues to cause my members real concern. Indeed some trustees and fund managers are saying that schemes may not be able to transition until the CGT relief legislation is actually passed .

She also pointed to stamp duty as another unresolved issue and noted:

When the MIA legislation was introduced, we were told that the States would legislate to exempt managed investments schemes.

As a result of some of the states not having yet taken action to do this, she said:

It is worth remembering that the failure of governments to efficiently resolve capital gains tax and stamp duty problems associated with the MIA's introduction have been the major reasons nominated by fund managers for not moving more quickly to comply with the new MIA regime.

Let me quote her again:

Whilst the Federal Government has worked at a snail's-pace with respect to taxation relief associated with the transition to the new managed investments regime, the regulator has not been proactive in posing and then answering relevant questions about keeping investors informed.

So there are a series of concerns which the Trustee Corporations Association has outlined, and Kerrie Kelly said:

To an undue extent, the rules are being made `as we go along'.

I hope the government, having the benefit of those observations, does take them into account as this legislation proceeds through the parliament. I now wish to move an amendment to the second reading in the following terms:

That all words after "That" be omitted with a view to substituting the following words:

"whilst not declining to give the bill a second reading,

the House notes that in relation to taxation policy:

(1) the government has not achieved real tax reform in Australia, it has merely agreed to introduce an unfair GST;

(2) the new Howard/Lees GST will involve a massive tax mix switch which will hurt ordinary families, which is directly contrary to the balloted policy of the Australian Democrats;

(3) that the Howard/Lees deal will actually increase the tax on food in Australia;

(4) that ordinary people will now face a GST on top of state indirect taxes on bank accounts;

(5) the GST will be an administrative nightmare for Australia's one and a half million small businesses; and

(6) that the amended tax package is still unfair and will also damage the environment".

In speaking to the amendment, we have had the opportunity to canvass a significant number of the implications of the GST as this debate has proceeded through the parliament, but there are a number of areas that continue to come to light, particularly in the wake of the deal struck between the Democrats and the government, which I think warrant some further attention. It is certainly my intention and that of other speakers in this debate to flesh out some of those issues and flush out some issues that have not yet received adequate public scrutiny. For example, one of the claims of the government has been that no group will be worse off under the GST. They started out by saying, `Nobody would be worse off under the GST.'

Mr Martin —Who said that?

Mr KELVIN THOMSON —Prime Minister John Howard said, `Nobody would be worse off under the GST.'

Mr Martin —He said, `Never, ever.'

Mr KELVIN THOMSON —He said that too. I think we have been able to comprehensively demonstrate that he is wrong and, as a result, recently I have noticed the rhetoric changing to, `This will be good for the nation'—

Mr Emerson —That is also wrong.

Mr KELVIN THOMSON —Yes, that is wrong too. But it is now, `This will be good for the nation,' as opposed to, `This will be good for you.' Nevertheless, I have had some information provided to me by Mr Kevin Swann concerning the GST compensation for a particular category of superannuants. He raises the situation of a group of superannuants who will receive no compensation for the extra GST costs through the proposed change to the tax system. The people he is pointing to are the lower income levels of those who receive a pension from a taxed superannuation fund and who are therefore entitled to a tax rebate of 15 per cent. That arises from act No. 105 of 1989 section 26. As he points out, those with a higher superannuation income are not affected.

But those with an income under $21,000 with no dependants and those with an income under about $29,000 with a dependent spouse will receive no increased take-home pay whatsoever under the new tax scheme because the rebates that they are already entitled to are greater than the total tax. This means they have absolutely zero extra dollars to spend on the higher cost of living which will arise as a consequence of the GST.

Mr Swann has provided to me relevant tables showing that a single person with a $21,000 income from such a superannuation pension is presently entitled to $3,105 in total rebates. They are liable to pay tax of $3,060 presently, and $2,590 under the government's proposed income tax arrangements. But in each case, the rebates they are entitled to exceed the amount of tax they would have to pay, so they are in a situation where they do not have to pay tax on that income and, as a result, they will be getting absolutely no extra income to compensate them for the extra costs that arise from the GST.

Similarly, we see exactly the same thing being put in place for a couple with a $29,000 income from a single superannuation pension. Looking at the rebates to which they are entitled, including their spouse rebate, those rebates total in the order of $5,712—once again exceeding the tax which would be payable under either the existing regime or that proposed by the government. Therefore, they get absolutely no compensation under the revised tax scales, no extra money with which to meet the extra costs that will come with the GST.

The other area I turn to and wish to spend some time on involves the long-term impact of a tax on books. I would point out to the House that the Australian book industry has issued a joint statement—and when we are talking about the Australian book industry we are talking about the Australian Society of Authors, the Australian Booksellers Association, the Australian Publishers Association and the Printing Industries Association of Australia—saying:

. . . while the Democrats are negotiating in good faith about a short-term `compensation' package, our concerns about the long-term impact of the proposed tax have not been addressed at all.

It continues:

The Australian public should not be comforted by talk of so-called compensation. Book prices will rise no matter what short-term initiatives are pursued. The Australian public should not be misled by claims that the majority of books are going to be cheaper. This is just not true. The majority of books are purchased by individuals who will pay more for those books.

The industry has called on the Democrats to rethink their support for the tax on books. It states:

The net benefit to government of $26.4 million is nothing compared with the money that will have to be spent offsetting the long-term impact of this tax in the community, across the education sector and in the book industry. The economic arguments just don't add up.

I have here correspondence from Senator Allison, an Australian Democrat senator for Victoria—

Mr Emerson —For now.

Mr KELVIN THOMSON —For the time being at least—from someone who has written to her expressing concern about a GST on books. She says—and it may entertain the House to hear this:

We fought hard to gain an exemption from the GST on books and it was a major disappointment to us that the Government would not, in the end, agree.

It just makes you wonder who is calling the shots here. When the government is in the minority in the Senate but able to say, `We will not agree to the removal of the GST on books,' it makes you wonder who makes the decisions.

I have the benefit of the response from the educational publishers to the statements put out by the Democrats in defence of their position of support for the government's introduction of a GST on books. The points made by the educational publishers are as follows:

The effect of a manufacturing bounty on the retail price of books is likely to be significantly less than the 10% suggested. (The manufacturing component of an educational book is normally between 12% and 18% of the selling price.) The introduction of a bounty of 10% on the manufacturing cost would result in a retail price reduction of 2% at the most.

Eighty percent of educational books sold in Australia are locally originated. However, fewer than 20% of these books are printed in Australia. Because of this, the proposed reintroduction of the bounty will benefit fewer than 20% of educational titles.

The publishers also note:

Currently 41% of books are educational books. Fewer than 50% of these are purchased by educational institutions, which are eligible to claim a rebate on the GST. The majority of educational books are purchased by students and parents who will have to pay GST. Purchases by institutions will undoubtedly increase due to their favoured position compared with that of individual buyers. This will seriously reduce individual ownership of educational books and will result in fewer books being published and sold.

Individual buyers of educational books will not be able to claim back the GST. University students, TAFE students and parents of schools students will be paying 10% more than eligible institutions. Part of the $240 million package should be used to compensate individual buyers and to encourage personal ownership of text books and other educational resources. At the very least, institutions which onsell books to individual students should be GST exempt for these transactions.

Let us turn to the comments made by the Democrats in defence of their position on a GST on books and make the following observations. They express disappointment that the government would not agree to taking the GST off books, but the real issue is: why did the Democrats agree to it? Firstly, the Democrats had no need to make this concession. After all, it is the government's task to bring forward legislation which accommodates the concerns of the electorate. The government had failed to gain a mandate to implement its own proposal; the Democrats, on the other hand, had a quite specific mandate whereby they had given the electorate clear commitments that they would not support a GST on books—and they were honour bound to keep those commitments.

Secondly, the Democrats said, `The government has given a three-year commitment to the book industry.' What on earth is the basis for the claim that the impact of the GST will last for only three years? Since when did these disincentives have a shelf life of just 36 months? Clearly, by providing this token assistance, the government and the Democrats are conceding that the GST will dampen demand for books. What guarantees can the Democrats provide that the subsidy will flow on to reduce book prices? What kinds of realistic enforcement procedures does Senator Allison envisage? Why should we believe that the proposed assistance will keep Australian made books at the current prices or slightly lower? What modelling have we seen to arrive at the figures which the government uses? What guarantee do we have that the government will honour its commitments in this regard beyond the current year let alone the life of a new parliament?

Mr Emerson —None at all.

Mr KELVIN THOMSON —Indeed, none at all. Thirdly, the Democrats claim that the price of Australian made books will fall relative to imported books. It is fascinating to ask: precisely when did this government become an advocate of protectionism and when can we expect this new policy to flow on to other endangered industries? If the government wants to impose a tariff on imported books, contrary to that commitment it provides in other circumstances to level playing fields, it ought to do that openly and up front.

What entertains me is that, any time we have a debate about bounties and industry support of a general character, the government says that these things are absolutely of no benefit. Then it comes into the House and says, `We are going to look after the book industry and protect it from a GST by putting a bounty on it.' The same thing happens with the issue of price control. The government always comes into the House and says that price controls do not work, but when it comes to the GST it says, `We are going to give the ACCC extra powers to engage in price monitoring to make sure that there is no profiteering as a result of the GST.'

The Democrats also claim that the cost of overseas books will be contained by the removal of embedded wholesale taxes. What precisely are these taxes? Australian booksellers who import books pay the wholesale price direct to the overseas distributor. Who imposes or collects a tax on that—the US government? How would the impact of the 10 per cent be reduced unless someone somewhere rebated five per cent of the retail price to the bookseller?

Are the government and the Democrats seriously asking us to believe that some overseas taxing authority which currently levies an embedded wholesale tax of unspecified proportions is going to waive that tax because the Australian government has imposed one of its own? Clearly, that is nonsense. The realistic conclusion to draw from the agreement is that the government believes that there is significant revenue to be obtained from a GST on books. The Democrats made all manner of commitments about the fact that they would stand firm on these issues. As recently as 15 May, Senator Lees said:

The government knows exactly where we stand on food, on tourism, on books, health and education. It is all there in our report after the Senate committee was finished, and Mr Costello has my number.

Again, we find Senator Allison, as recently as 17 May, urging the government to replace the $2.5 billion of GST related cuts to diesel taxes for business with a cut to payroll tax. I find it all fascinating, given the definitive nature of the Democrats' non-negotiable pre-election promises. Their policy on truth in political advertising states:

Australians deserve much better political advertising standards. The Australian Democrats believe that legislation is necessary to prevent false or misleading political advertising. This would help to restore trust in politicians and the political system.

Why Controls are needed over Political Advertising

. as elections are one of the key accountability mechanisms in our system of government, it is important that advertisements purporting to state `facts' are legally required to do so accurately;

. the private sector is already required by law not to engage in misleading or deceptive conduct by the Trade Practices Act , why should politicians be any different?

. the perception of politicians as being untrustworthy is one of the most serious threats to the legitimacy and integrity of our democracy.

That is certainly correct, but the Democrats have only added to that perception of politicians being untrustworthy by going to the election with all manner of undertakings concerning a GST and then engaging in a shabby and dishonest deal with the government in which they have comprehensively been stitched up and have come out very much the worse off.

We see that during the debate in the Senate the Democrats moved amendments in relation to education supplies, books, complementary medicine, disability services, therapeutic goods, private health insurance, spectacles, public health goods, credit unions, food, local government, inbound tourism, public transport, renewable energy and energy efficiency supplies, diesel fuel credits, fuel efficient vehicles, housing and renovations, charities—you name it, they moved an amendment to it. They then come back into the parliament and want to hold their heads up, having entered into a shabby deal as a result of which Australians will be worse off. Australians will remember only too well once the GST comes in just who it was that visited the GST on them and will respond accordingly at the ballot box next time. I urge the House to support the amendment.

Mr DEPUTY SPEAKER (Mr Hawker) —Is the amendment seconded?

Mr Emerson —I second the amendment and reserve my right to speak.

Debate (on motion by Mr Slipper) adjourned.