Mr COX (10:35 AM) —The Labor Party will be supporting the Taxation Laws Amendment Bill (No. 3) 2002. It contains amendments in the following areas: it clarifies the GST treatment of certain transactions involving a government body during land development; it allows special GST credits for car rental companies in respect of certain vehicles; it removes GST from transfer of tax losses, net capital losses and foreign tax credits between grouped companies; it clarifies the amount of deduction allowed by general insurance companies in respect of future claims; and it widens the eligibility for intercorporate dividend rebate.

I will briefly discuss the changes proposed in each of these areas, starting with land development. Labor supports the amendments to the GST act so that GST does not apply to either a supply made in return for a supply by an Australian government agency of a right to develop land or the corresponding supply of the right to develop land. The principle here in relation to real estate development is that where a developer provides infrastructure that is transferred to public ownership that transfer should not attract GST.

The second issue addressed by the bill relates to GST on rental cars. The GST Transition Act is amended to provide a special one-off input tax credit to businesses that held rental cars on 1 July 2000. The amendment will allow rental car companies to claim a special input tax credit for cars that were held at the start of 1 July 2000 and disposed of before 1 July 2002. The amount of special input tax credit will be equal to the amount of GST paid by the purchaser on the sale of the car after 1 July 2000.

Generally a business is entitled to an input tax credit for GST paid on items used in the course of carrying on a business. The input tax credits are then offset against the total GST collected by the business to work out the total GST owed to the government. Here, as a transitional arrangement, rental car companies are given a special input tax credit in lieu of the credit on wholesale sales tax paid on the initial purchase of the rental car. It is compensation to rental car companies for wholesale sales tax paid on cars purchased prior to 1 July 2000 and disposed of before 1 July 2002. This will effectively compensate the rental car companies for the detriment they suffered at the GST transition, having their vehicles treated as capital and not trading stock, which was the reason that they were not eligible for a transitional wholesale sales tax credit. These amendments are reasonable in light of the transitional issues associated with the GST.

It has been reported in the Financial Review that lobbying by rental car companies and motor industry groups was originally rejected by the Treasurer's office; however, the government has now accepted their legitimate concerns. This does have a cost of $36 million over two years—a cost which up until now has been borne by the rental car companies. I understand that motorhome companies face a very similar situation to rental car companies but have not been assisted. Peter Costello, in his ignorance, originally told the rental car companies to either keep their cars longer or put their rates up—not recognising how important trading in cars is for a rental car company's profitability.

The government's whole approach to the GST transition arrangements for the car industry has been a total debacle. Great damage was done to the Australian car makers because the government withheld access to input credits in an attempt to maintain revenue and discourage fleet buyers from delaying the purchase of vehicles in the period before the GST.

Dr Southcott —What rubbish!

Mr COX —This was a failure and resulted in a fleet buyers' strike. It compounded the private buyers' strike. Together, the loss of these sales brought the local car makers to their knees. I am absolutely appalled by the member for Boothby's suggestion that this was not a problem. He does have the Mitsubishi assembly plant in his electorate and he would well recall that Mitsubishi had losses of $182 million which were caused by those buyers' strikes, and it had to be recapitalised to that extent by the parent company. It is absolutely appalling that he is pretending that the government's callousness and incompetence in this area did not contribute to those losses and the requirement for that recapitalisation. The Treasurer was eventually forced to back down and allow access to input credits, but not before great damage was done to the car industry. More than two years later, this bill is cleaning up another aspect of the debacle of the GST transitional arrangements for the car industry.

The third area of the bill relates to income tax related transactions. Labor supports the amendments in part 3 of schedule 1 of the bill which allow companies to transfer tax losses, net capital losses and excess foreign tax credits without attracting GST. These transactions are not the type of transactions that should attract GST. However, we note that we received amendments to this bill earlier today. The tax law is so complex that the government cannot even get its own amendments right to fix the original problem. Schedule 1, item 11, is one of the provisions that was amended. The amendments to item 11 remove the requirement, as stated in the original bill, that the transfer of tax losses, net capital losses and excess foreign tax credits relate to the 2001-02 income year or a later income year. I also note that item 19 has been amended such that the amendments are taken to have applied in relation to net amounts for tax periods starting on or after 1 July 2000—that is, when the GST commenced.

It has now been 2½ years since the GST commenced, and here we are in September 2002 still trying to make the system work. When the GST was brought in, the government made a promise that our tax system would be simplified. The tax laws have gone from 3,000 pages to 8,500 pages. The reality is that complexity has increased, large tracts of the new tax system are unworkable and the cost to business and individuals to manage their tax affairs has skyrocketed. In addition, the government has consistently ignored the community's calls for a better tax system. To get any response, the usually conservative professional organisations of chartered accountants and tax agents had to stage a revolt to get the government's attention. Their ultimatum appears to have worked—at least in getting the government to notice the serious issue of tax administration faced by everybody in this country.

Senator Coonan's idea that the Inspector-General of Taxation, with a budget of $2 million, will be able to solve the current crisis is total fantasy. It reads like a fairytale: Dorothy—Senator Coonan—knew she had a crisis on her hands following the debacle over the mass marketed tax schemes. She knew she could not fix it by clicking her heels, so she grovelled to the wicked witch of the west for a spare $2 million so she could set up a new office with a new name and pretend to the munchkins that she was actually making an attempt to fix the crisis in tax administration. Improved tax administration by the Howard government is a fairytale that only children would believe.

The fourth area of the bill relates to the treatment of general insurance companies. Item 9 of schedule 2 of the bill inserts a new schedule 2J into the Income Tax Assessment Act 1936. The amendments ensure that the provision for outstanding claims is worked out on a present value basis; gross premium income is included in assessable income in the year it is received or receivable; and net premium income that relates to risk exposure in subsequent years is appropriately deferred. These amendments have arisen as a result of the Federal Court's decision in Commissioner of Taxation v. Mercantile Mutual Insurance (Workers Compensation) Ltd [1999] FCA 351. That decision effectively overturned taxation ruling IT 2663. Following the High Court's refusal to grant leave to appeal the decision, the government announced that the law would be amended to maintain the effect of IT 2663 and that the amendments would apply from the 1991-92 income year when IT 2663 first came into effect. This amendment ensures that contingent liabilities of insurance companies will be deductible at their net present value. The court has ruled that they were deductible at their face value, which would provide a significant tax concession.

Finally, the changes in relation to the intercorporate dividend rebate maintain the effectiveness of the provision without hindering the efficient disposal of subsidiary companies by holding companies. Labor supports the bill.