Mr SLIPPER (12:31 PM) —in reply—I thank all participants in the debate on the Taxation Laws Amendment Bill (No. 8) 1999. It certainly will not come as any surprise to members of the House that as a government we reject the ALP's second reading amendment. This bill makes some very substantive changes to the tax law to reflect some major and not so major policy developments and it also contains some highly technical amendments. Firstly, schedule 1 of the bill will address anomalies which give rise to avoidance opportunities in the interaction between the controlled foreign company laws and the capital gains tax laws. To correct the anomalies, capital gains tax arising on the deemed disposal of assets of foreign controlled companies, where the companies have previously taken advantage of rollover relief under the capital gains tax provisions, will be subject to tax in Australia as a result of this bill. This is what would have happened if the whole transaction had taken place in Australia.

It was always the intention that income of controlled foreign companies would be treated the same as income of Australian residents. In addition, there will be amendments to enable the tainted capital gains to be taken into account when applying the active income test and to prevent taxpayers from using schemes or arrangements to dilute their attribution percentage in the foreign controlled company holding the relevant development assets.

Secondly, with effect from the 1992-1993 income year, post-judgment interest payable in personal injury compensation cases will be exempt from income tax. This is the interest which accrues from the time a judgment debt arises until the time the matter is finally settled. The exemption reverses the effect of a decision in the Federal Court in Whitaker v. The Federal Commissioner of Taxation which held that post-judgment interest is taxable. The honourable member for Cook in his speech mentioned the plight of the Whitakers. I acknowledge the efforts of Mr and Mrs Whitaker in bringing about this change to the law, which has the result that those who have suffered personal injuries do not bear the added burden of income tax on interest payable as a result of time elapsing in finalising the case while the court process is followed.

Thirdly, there will be a number of amendments to the franking credit and dividend streaming rules to ensure that they operate as intended. Again, these amendments have a strong anti-avoidance flavour. They will reflect the 45-day rule, the limiting the source rule, and general anti-avoidance and antistreaming rules.

Next, in accordance with the recommendation of the OECD, deductions for bribes paid to foreign officials will be disallowed unless the payment falls within the category of facilitation payment. It might help the House if I outline the difference between a bribe and a facilitation payment. A payment is a bribe to a foreign public official if it has been paid to provide a benefit to someone that they are not legally entitled to in order to influence the official to obtain or retain business or obtain an advantage in the conduct of business that is not legitimately due. However, a payment will not be a bribe if it is a facilitation payment, which is a payment incurred to expedite routine government action of a minor nature such as issuing a work permit or visa or installing a telephone, et cetera. I was particularly pleased to see the honourable member for Wills indicate that the opposition is supporting this measure.

In a separate measure, the government has introduced amendments to the criminal code to make it an offence to pay bribes to foreign officials. Schedule 5 includes major initiatives designed to encourage personal and corporate philanthropy in Australia. There are three main elements to these measures: increased incentives for gifts of property to eligible bodies, tax deductibility for gifts to suitable charitable private funds, and a provision to allow the apportionment of deductions for gifts made under the cultural gifts program over a period of five years.

It was interesting to listen to the honourable member for Werriwa, who always makes a thoughtful contribution to debate, suggest that asset-poor universities, such as the University of Western Sydney, should gain some additional advantages over other institutions. I assure the House that the government is treating all tertiary institutions equally. Most honourable members would believe that this is the appropriate way for the government to proceed.

Schedule 5 gives effect to the government's response to the report on philanthropy in Australia by the business and community partnerships working group on taxation reform. It is a recognition of the valuable philanthropic work of business in Australia and will make it easier for business and individuals to contribute more to their communities. I was absolutely astounded by the suggestion made by the honourable member for Werriwa, and supported by the honourable member for Canberra, that it was in some way wrong for corporate Australia to write a large cheque to benefit charities. There seems to be some criticism of the body because it may not personally have a hands-on approach to carrying out the charitable work. Quite frankly, the purpose of this legislation is to encourage philanthropic donations and, of course, those donations would be handled by appropriate management bodies and there would be very substantial benefits to the entire community as a result of those donations. The actual company does not necessarily have the hands-on situation for the money to do the job.

Schedule 6 will ensure that the rate of tax on friendly societies remains at 33 per cent rather than be increased to 39 per cent as previously scheduled for the 1999-2000 income year. The government has previously indicated that the scheduled increase will be deferred pending the outcome of the review of business taxation.

The explanatory memorandum indicates that, subject to the review recommendations with respect to business taxation, this rate will be changed to the company tax rate for the 2000-01 income year. Honourable members will be aware that the review of business taxation has, in fact, recommended that the company tax rate be reduced from the current rate of 36 per cent to 34 per cent in the year 2000-01 and 30 per cent in the 2001-02 income year. To avoid undue disruption to friendly society policy holders, the review has recommended that the rate of tax on the life insurance business of friendly societies be retained at 33 per cent in the 2000-01 income year and be reduced to the 30 per cent company tax rate in the 2001-02 income year.

Schedule 7 amends the tax law to ensure that share premiums are included within the ambit of capital streaming and dividend substitution rules and makes minor technical changes so that the provisions will operate as intended. Schedule 8 makes further technical corrections to the provisions governing excess tax offsets. Schedules 9 and 10 provide for the concessional tracing rules to companies. The measures will largely benefit family companies owned by discretionary trusts, including discretionary family trusts.

I now want to move to the pious second reading amendment moved by the honourable member for Wills. He is critical in that second reading amendment of the position taken by the government in a number of areas. I want to place on record that the government has taken substantial action to combat tax minimisation and avoidance and significant reform has already been implemented. For instance, we have closed the abuse of the research and development concession, and we are stopping abuse on luxury car leasing, closing down the infrastructure borrowing scheme, addressing tax avoidance through overseas charitable trusts, extending the general anti-avoidance provisions, preventing the trafficking of trust losses, taxing distributions disguised as loans from private companies, and preventing franking credit trading and denial of artificially created losses. They relate to point (a) of his pious amendment.

With respect to points (b) and (c), the reforms will take Australia into the next century with a modern, competitive and fair taxation system. They will create the environment for achieving higher economic growth. When one looks at the newspaper editorials around the country today, there is very strong support for the government's approach. Also, more jobs will be created and there will be improved savings—and providing a sustainable revenue base means that the government can continue to deliver services to the community.

Opposition members suggested that we were going to cut social spending, that indeed we were not interested in providing a social safety net. This government is very proud of the fact that we do provide services to the community, and our ministers and the government generally will continue to do this.

It should also be noted that changes proposed under the tax proposals include the lowering of the company tax rate from 36 per cent to 30 per cent, and we will have an internationally competitive capital gains tax regime. Small businesses are big winners with the introduction of a simplified tax system—despite the erroneous comments made by the honourable member for Rankin. The government is committed to introducing an entity tax arrangement to address concerns raised by those opposite in relation to trusts. As well, a substantial number of measures will reinforce the tax system's integrity. For instance, the 13-month prepayment rule is being tightened. We are preventing loss duplication and value shifting. We address the taxation of lease assignments and also the matter of treating non-commercial loans from members to closely held trusts. Those non-commercial loans are, in fact, treated as equity. So the government certainly rejects any suggestion made by the opposition that we are taking an inappropriate course of action.

The government wants to encourage philanthropy. The Prime Minister has made it very clear that we are trying to create a new culture in Australia. I believe this is supported strongly by the Australian community, and we are certainly not going to back away from that.

The fourth element, though, of the pious amendment referred to the Victorian election. I can understand my colleague opposite, the member for Wills, likes to talk about the Victorian election. I felt a bit sorry for him because he frittered away an enormous proportion of his time indulging his vendetta against Premier Kennett and the Victorian government.

The honourable member for Wills also asked how the government could explain the $14 million cost to the revenue in the 1999-2000 year of income with respect to post-judgment interest arrangements. I want to assure the honourable member that the $14 million cost to the revenue reflects the taxpayers who have paid tax on post-judgment interest since the 1992-93 year of income and who will, upon passage of the bill, be able to have this tax refunded. This represents an estimated $2 million revenue cost in each of the prior income years.

The honourable member for Perth and the honourable member for Wills both referred to suggestions that the philanthropy measures increased the tax deductibility of donations to political parties from $1,500 to $5,000. This statement is incorrect. If the Taxation Laws Amendment (Political Donations) Bill 1999 passes, this bill will ensure that donations will only be deductible up to $1,500. If the Taxation Laws Amendment (Political Donations) Bill 1999 does not pass, this bill will not change the amount which is tax deductible for party political donations.

The honourable member for Wills also suggested that the government was being soft on the taxation of trusts. We reject that. An article by Tim Boreham in today's Australian, with the headline `Personal trust havens disappear', states:

By accepting the Ralph committee's proposal to tax personal trusts in the same way as companies, the Government has spelt the end of trusts as a tax minimisation tool.

Labor party members opposite huff and puff and make a lot of noise about the government's perceived lack of integrity in this matter, but the facts simply speak for themselves. The honourable member for Rankin also made a suggestion which I consider bizarre. He suggested that small business is going to be hurt by this bill, which is not the case at all. Again, I refer to a comment in the Sydney Morning Herald today in an article by Anthony Hughes, who states:

Small business owners have emerged as one of the biggest winners from the overhaul of business taxation through special treatment on capital gains tax and reduced paperwork.

Mr Entsch —Hear, hear!

Mr SLIPPER —I thank the member for Leichhardt for his support in that area. It is about time that the Labor Party were honest in this place. It is tragic when they come in and just say whatever comes into their minds with a view to impugning the motives and, indeed, the very fine record of the government.

The government is very pleased with the legislation currently before the chamber. We support it. At this stage I want to foreshadow some government amendments which we will be moving in the consideration in detail stage, and I understand that the member for Wills might have some amendments. We have not yet seen those, but we will look at them when we receive them. I commend the bill to the House.

Amendment negatived.

Original question resolved in the affirmative.

Bill read a second time.