Mr COX (11:44 AM) —I would like to place on record my thanks to the member for Mitchell, the previous speaker, for his kind accommodation in speaking before me while I finished my meeting with the Tax Commissioner. The Taxation Laws Amendment Bill (No. 7) 2002 has five distinct purposes. Schedule 1 provides various tax exemptions for foreign expatriates. Labor will move an amendment to delete this schedule. Schedule 2 provides a tax exemption for compensation for the loss of defence remuneration. Labor will support this schedule. Schedule 3 will allow retrospective adjustment of previous tax assessments where income has to be repaid in later years. Labor will support this schedule. Schedule 4 increases the threshold for the medical expense tax offset from $1,250 to $1,500 per annum. Labor will support that schedule. Also, I have written to the revenue minister providing her with an amendment that would have henceforth annually indexed the threshold. I advised her that Labor would support an amendment of similar effect if she agreed to move one.

Schedule 5 provides an income tax exemption for the Commonwealth Games Federation for the 2006 Melbourne Commonwealth Games. Labor will support this schedule. Labor will also move a second reading amendment. The second reading amendment is critical of the Howard government's fiscal policy and its spending priorities. It calls on the Howard government to provide annual indexation of the medical expense rebate. It also calls on the government to provide tax deductibility to volunteer firefighters for out-of-pocket expenses. Schedule 1 provides tax exemptions for foreign expatriates.

Mr Cadman —Mr Deputy Speaker, I rise on a point of order. I knew I should not have spoken first; I do not have the advantage of speaking to the amendment!

The DEPUTY SPEAKER (Hon. B.C. Scott)—Order! The honourable member for Kingston has the call.

Mr COX —Similar provisions have been proposed previously by the government and failed to pass the Senate. They were contained in the Taxation Laws Amendment Bill (No. 4) 2002. This is the Taxation Laws Amendment Bill (No. 7) 2002, so the government has been very enthusiastic—overly enthusiastic, in my view—about getting this measure up. Aside from some minor changes, the provisions in the bill are identical to those that were previously debated. The current bill provides tax exemptions to temporary residents. Temporary residents are people who have not been residents of Australia in the previous 10 years. They cease to be temporary residents if they are resident in Australia for more than four years. The schedule exempts all foreign-source income and capital gains not associated with Australian employment or service for a maximum period of four years and interest withholding tax obligations for a maximum period of four years. The bill also removes the current time limit of four years on exemptions from the foreign investment fund rules for all holders of temporary visas. This measure applies not only to temporary residents but also to others who enter Australia on certain visa classes.

The Ralph review recommended tax exemptions for expatriates to apply in relation to pre-residence assets and liabilities. This bill extends that exemption to apply to foreign source income and interest withholding tax obligations regardless of whether they were acquired before or after residency in Australia. The cost of these measures is estimated at $40 million to $50 million per year. Labor opposed this measure last year and will oppose it now. In August last year, the Treasurer released a consultation paper on options to improve the competitiveness of Australia's international tax regime. Chapter 5 of the paper refers to measures to reduce taxation for expatriates. In August last year, the Treasurer issued a press release, which stated:

It is extraordinary in the light of that statement that the government revisited this issue before the tax board reported. The tax board has now reported, but the government has not made the report public. The government should consider any changes to Australia's international tax regime as part of a package. I had a discussion about this with the revenue minister last night and, contrary to every expectation one might have had from reading the Treasurer's press release and the consultation paper, she told me that the Review of International Taxation Arrangements actually presumed that this measure would pass in this bill. I know that the Democrats in the other place voted with us against this measure last time, and I am optimistic that they may vote against it again on this occasion.

The problem is not so much that this measure is completely obnoxious or would not be beneficial to some companies; it is more the case that the government is in a tight fiscal position and $40 million to $50 million is a significant amount of money. We must remember that the whole of the budget surplus this year, on every official measure—whether fiscal, underlying cash or headline cash—would be a deficit if it were not for the extra revenue that the government is collecting because of bracket creep. So $40 million or $50 million, which seems to many Australian companies to be not very much money when it comes from the Commonwealth purse and of significant benefit to them, would be effectively a tax expenditure at the expense of Australian taxpayers and the current government's capacity to provide meaningful tax relief to ordinary Australian taxpayers. That is the trade-off.

Schedule 2 provides a tax exemption for the loss of Defence Force remuneration. This is extremely topical in the present environment. It aligns the taxation treatment of the deployment allowance—which would be being received by all of our service personnel in the gulf war—with the compensation allowance received by members of the ADF. The deployment allowance is lost where the member sustains an injury overseas—and, thankfully, that has not happened yet but we certainly cannot rule out the likelihood of it—and is repatriated to Australia. In this situation, the member receives a compensation payment for the loss of the deployment allowance for the period that they would have been serving overseas. Currently, the deployment allowance is treated as tax exempt income. However, compensation for the loss of the deployment allowance is currently not exempt from income tax.

A similar situation arises when a member of the Reserve resigns as a result of an injury sustained during Reserve service. The schedule provides an income tax exemption for compensation paid for the loss of the warlike service deployment allowance—in this case, we are not talking about warlike service; we are talking about service in war—or Reserve pay and allowances where they are not being paid because the individual has sustained an injury during the course of their Reserve service. Labor will be very pleased to support that schedule.

Schedule 3 excludes repaid amounts from assessable income. It allows retrospective adjustment of earlier tax assessments, where some of the original income has to be repaid in later years. The amendments will allow the retrospective adjustment. That will be a significant benefit because, previously, those individuals had paid tax on money that they had received but, when they had to repay it, it was not a deduction against their assessable income in the year that they repaid it. It is obviously a benefit if they can have their tax assessments adjusted over the course of a number of years, as if they had received less income in the years that they had had to repay and been taxed according to what their real income was in those years.

Schedule 4 increases the threshold for the medical expenses offset. Currently, Australian residents can claim a tax rebate equal to 20 per cent of net medical expenses above $1,250 in an income year. The bill proposes to increase the threshold to $1,500, so that taxpayers will need to incur $1,500 in net medical expenses before the 20 per cent rebate applies. For the benefit of people who might be listening to the broadcast, I would point out that this is for medical expenses, such as paying your doctor's bills and paying for pharmaceuticals. It does not relate to the private health insurance rebate, which is a separate tax measure. The government estimates that this will result in savings of over $54 million over the next three financial years, or about $18 million per annum. Decisions in relation to changes as to who bears the cost of medical services are always difficult. However, it should be noted that a simple indexation of the current offset to September 2002, just before this bill was introduced, almost reaches the new threshold proposed. We are going to support this measure. Later, I will be talking a little bit more about my correspondence with the revenue minister in relation to the situation where we believe it should have been indexed on a regular basis.

Schedule 5 provides tax exempt status for the Commonwealth Games Federation for the 2006 Melbourne Commonwealth Games. The Commonwealth Games Federation is an unincorporated association based in the UK with a tax exemption in that jurisdiction for the purpose of organising and promoting the staging of the Commonwealth Games. The exemption provided by this bill relates to both income tax and withholding taxes from the period 1 January 2000 to 30 June 2007. According to the explanatory memorandum, the principal purpose of this amendment is to give the federation a tax break on the sale of the television broadcasting rights in relation to the 2006 Melbourne Commonwealth Games.

The organising committee makes payments to the federation for those television broadcasting rights. However, the bill itself does not limit the tax exemption to this purpose or to income the federation receives from the organising committee for the 2006 Commonwealth Games. It is a blanket exemption for income received by the Commonwealth Games Federation. The revenue minister's office has advised that the $1 million cost to revenue of this measure is based on the 10 per cent withholding tax on the royalties paid to the federation. This exemption is particularly unusual, given that the federation is not an Australian resident. However, since the federation's purpose is organising Commonwealth Games, it is appropriate to support this tax exemption.

The presence of schedule 1 and 4 in the bill caused me on 10 February to write to the revenue minister in the following terms:

The amendment I attached uses the March quarter all groups consumer price index weighted average for the eight capital cities to index the threshold on 1 July each year, rounded to the nearest multiple of $10, starting from a base of $1,500. This is a pretty standard approach to indexation.

The reason I cannot move this amendment is that it would have the effect of changing the incidence of taxation. Under standing order 293, only a minister can move an amendment that changes the incidence of taxation. Standing order 293 protects the principle of the financial initiative of the Crown. According to House of Representatives Practice, this prohibition extends not only to taxation rates incidence but also to proposals which would increase or alleviate the sum of tax payable. There is a certain lack of symmetry in the way standing order 293 operates. It does not stop a private member moving an amendment to a government bill that would reduce a tax rate or burden, provided it is not done as a bill. It only prevents a private member from moving amendments to a bill to increase or extend the incidence of the charge, unless the charge is increased or the incidence of the charge so extended does not exceed that already existing by virtue of any act. It is an unusual event for an opposition to confront this problem, but on this occasion I would have the House note that the opposition is being somewhat more fiscally responsible than the government. Yesterday I received a reply to my letter from the revenue minister.

Mr Stephen Smith —Yesterday?

Mr COX —Only yesterday; but it was kind of her to write. She wrote:

I find that extremely curious. The letter continues:

That really does not have a great deal to do with bracket creep since the last set of tax cuts, but I will deal with that a little later. The letter further states:

Indeed, we had a very constructive meeting yesterday, and the government has agreed to accept a range of amendments to the Inspector-General of Taxation Bill 2002 which will require the Inspector-General to report to parliament and which will give it some of the teeth that the bill was previously lacking. That will be dealt with in the Senate this afternoon and will no doubt come back here.

What, then, was the point of this exercise of me writing to the minister? It was to set out an approach that I intend to take to some other government bills containing measures that will have a negative effect on the budget bottom line and where the cost of those measures is not justified in the face of competing priorities. The opposition will take decisions on government measures in tax bills with a mind to preserving the budget surplus so that the government can in fact continue to have the opportunity to provide tax cuts to Australians. In this case, the bill proposes a tax increase for Australians with high medical expenses to fund a tax cut for foreign expatriates. At a wider level, the tax cut for foreign expatriates would reduce the government's capacity to fund tax cuts for Australians.

This government has an extremely poor fiscal record because it fails to control expenditure. Every budget contains forward estimates with substantial surpluses in prospect in the out years. But every year those surpluses diminish as a result of policy decisions that weaken the budget bottom line. As a result, actual surpluses become wafer-thin—last year we saw a deficit. That reduces the capacity of the government to provide tax relief to Australians. What Senator Coonan does not seem to grasp is that there are always a great many proposals for spending taxpayers' money or cutting taxes for various interest groups, but the brutal reality is that you cannot do all of them—you have to make choices.

Because the Howard and Costello government has dissipated the surplus in a period of high economic growth, the choices at the margin at the moment are between proposals like tax cuts for foreign expatriates and tax relief for Australians. I am compelled to put the facts before the House in relation to Senator Coonan's argument that the budget position is not based on bracket creep. Access Economics' calculations of fiscal drag or bracket creep were $2.3 billion in the financial year we are now in, $3.5 billion in the financial year we are about to go into, $5 billion in 2004-05 and $6.2 billion in 2005-06. If you take out Access Economics' estimates of bracket creep, you will find that the budget this year would be in deficit by about $200 million, the prospective starting point before the Iraq war is taken into account would be about a $1.4 billion surplus, and the prospective deficits in the out years would be about $800 million. This government has provided only one set of tax cuts and they were tax cuts that accompanied the introduction of the GST. The previous Labor government provided tax cuts on seven occasions, more than returning to taxpayers the proceeds of bracket creep.

We are looking at a situation where the government is going to have to get disciplined if it is to preserve enough of the surplus to give a meaningful tax cut. This budget is going to require a very disciplined approach by the Treasurer—a disciplined approach that he has not exhibited since his first budget in 1996. Every year since then, he has made policy decisions that have added to outlays. On each occasion in an election year he has made policy decisions that, over the forward estimates period, would reduce the budget bottom line by more than $20 billion. In the years, apart from 1996, in which there has been no federal election, there have been significant policy decisions that have had a detrimental effect on the budget bottom line. If the government wants to preserve the possibility of providing tax cuts, it will require some serious fiscal discipline. The government's habitual dissipation of surpluses and persistent failure to provide tax relief have resulted in total tax as a proportion of GDP rising from 23 per cent under Labor to 24.9 per cent now. This is the highest total tax take Australia has ever seen.

I move:

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:

(1) condemns the Howard Government because:

(a) it is the highest taxing government in history;

(b) without the additional revenue provided by bracket creep the budget would be in deficit this financial year and in 2005-06;

(c) it will be unable to return to taxpayers the more than $6 billion in additional tax as a result of bracket creep which it will receive in 2005-06, without going into deficit;

(d) it continues to take new policy decisions that spend the proceeds of additional taxation collections, in the case of this Bill by providing tax concessions to foreign expatriates not available to Australian taxpayers; and

(e) tax concessions to expatriates should not be paid for by reducing the medical expenses rebate for ordinary Australians; and

(2) calls on the Government to provide annual indexation of the medical expenses rebate; and

(3) calls on the Government to provide tax deductibility to volunteer firefighters for incidental expenses that are not reimbursed and are incurred in volunteer firefighting, on account of the extreme sacrifices they make for the community in time, effort and personal risk.”

Labor believes that it is time for the Australian government to give consideration to recognising the extreme sacrifices—in terms of time, effort and personal risk—made by volunteer firefighters every year, by giving them tax deductibility for expenses incurred in volunteer firefighting that are not reimbursed.

The DEPUTY SPEAKER (Hon. B.C. Scott)—Is the amendment seconded?