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Wednesday, 21 June 2000
Page: 15284


Senator COOK (Deputy Leader of the Opposition in the Senate) (10:14 AM) —We are dealing with the New Business Tax System (Alienation of Per-sonal Services Income) Bill 2000, the New Business Tax System (Alienated Per-sonal Services Income) Tax Imposition Bill (No. 1) 2000, and the New Business Tax Sys-tem (Alienated Personal Services Income) Tax Imposition Bill (No. 2) 2000. These are the bills that, taken together, are regarded as the business tax reform bills of the government.

Before I turn my attention to the bills, I want to remark on what the Manager of Opposition Business has just mentioned. There was before the Senate the Indirect Tax Legislation Amendment Bill 2000, and we were drawing to the end of the list of speakers in the second reading debate. My understanding is that the Australian Democrats have requested that the matter not proceed and, as a consequence, the government has sought to adjourn the debate and now that bill has been adjourned. As our manager said, we were in a position to proceed and we see no reason why that could not have been the case. However, we do acknowledge that, if the Australian Democrats are not in a position to debate the bill at this point, courtesy would suggest that one should be gracious and give them sufficient time to do so; and so, obviously, we have done that.

What is clear about that bill is that it touches on the imposition of the GST on caravan and boarding house rents. It is a bill that touches, as well, on the fact that the government has concealed a report and claims to have no knowledge of it. What is obvious to us is that there are rushed meetings now between the Democrats and the government to try to paper over a major and irresponsible lapse in attention by the Australian Democrats in order to deliver on the Prime Minister's promise. It is the case that, as the bill stands, rents for boarding houses and caravan sites will rise beyond what the Prime Minister says. Now we are seeing a last-minute, desperate effort to see if the Prime Minister can be brought into line and made to honour the promises that he made. When the Democrats come back and put their views, we will join in that debate, but I cite for the record now that the Labor Party are not going to be moved on this. We are opposed—and I underline `opposed'—to the GST and we are opposed to the increase in rents in boarding houses and on caravan sites because of the GST. If some half-baked measure comes back to lower the impact but still retain the principle that rents will rise, we will be opposed to that, too.

The bills before us, as I have said, relate to that package of legislation that is described as the government's business tax reform package. This is a package of legislation that the Labor Party have agreed to accept and will be voting for. We agreed to accept it, following an extended inquiry by the Senate economics committee into the impact of this legislation. There are many measures among the group of measures involved here that we certainly have concerns about and, in some cases, quite serious issues to raise. But, rather than de-aggregate the package, we have decided to support the package, based on what our examination in the Senate committee found was the revenue neutrality of the total package. By making these changes to business tax, the package meant that you did not subsidise business taxation by personal taxation on individual wage earners and that the measures stacked up within the business tax framework as being revenue neutral.

What we have in this legislation now is a major reversal. We now have outright deceit by the Treasurer, and an outright failure to honour an undertaking that he put into the Hansard, that the government would in fact stamp out business tax avoidance in the way in which the Ralph report—the report that the government itself had commissioned into business tax—had recommended that business tax avoidance be stamped out. The government has not kept its word. It has broken an explicit undertaking in the Hansard. The Treasurer has backed down, in order to protect tax avoidance—and, what is worse, he has backed down, knowing that in the House of Representatives and in this chamber he would have had the numbers had he had the courage to put the legislation that he had promised to put forward in the first place. The Labor Party would have supported him and, if he had just faced down the opposition within his own ranks, the principle of tax avoidance that we were keen to stamp out would have been stamped out.

The loss to revenue by not proceeding down that course is calculated at about $400 million. The revenue measure, overall, is calculated at $700 million. He has gone only part of the way and not all of the way, and the loss to revenue is $400 million plus. That $400 million has an eerie similarity to the $430 million GST Unchain My Heart advertising campaign that the government has embarked upon to try to dupe Australians into believing that the so-called tax reform measures that it is proposing are good for them. As well as the expending of that money, there is now a shortfall because tax avoidance has not been properly approached in the manner recommended in the Ralph independent inquiry that the government itself set up. It has not been properly approached, because the Treasurer has broken his explicit word and has engaged in deceitful conduct in terms of his dealings with the Labor Party. They are strong words but they are words substantiated at every point of the way by reference to the public record and to the Hansard. We have a Treasurer in Australia who talks tough but acts weak when it comes to tax avoidance.

Let me turn to the purposes of these bills with respect to the alienation of personal services income. These bills propose to introduce new rules for the income tax treatment of certain personal services income. Personal services income is generally paid to an individual who provides the services, or to a company, partnership or trust—that is, an interposed entity—through which the services are provided by an individual. The measures in this legislation are aimed to apply where an individual or interposed entity is conducting personal services business and affect the legal status of an interposed entity or deem an individual to be an employee for the purposes of any Australian law or instrument.

What that means in lay terms is that, because of an ideologically driven conviction of the government, there is growing haemorrhaging of the Australian tax base in the work force by virtue of workers being pushed into individual work contracts and/or then being pushed further—being encouraged to set up a company or claim to be a company and claiming, therefore, not to pay personal income tax at the personal income tax rates but paying company tax at the lower company tax rates. These people are actually workers. They have been in contrived situations in which they are made to appear as businesses, and the reason for moving in that direction is obviously to avoid income tax that they would have to have paid as salaried employees and to claim the advantages of being a business, when in fact they are not a business. This contrivance is spreading. It is endemic in the building and transport industries and it is endemic in a number of other industries. It is an area on which the Commissioner of Taxation has reported in the past that the revenue is being haemorrhaged. It reflects the ideological obsession of the government: workers are bad, business is good, and everyone should be in business rather than be a worker. It reflects the ideologically driven, but obviously untrue and totally misleading, concept that somehow an individual negotiating with a company can negotiate on equal terms and without unfair use of market power by the company and that, therefore, the individual work contract is a superior mechanism for determining remuneration than might be the case with a properly negotiated collective agreement or award covering a workplace. But, because of this obsession, workers are being driven down this path.

What did the government do? In the Ralph inquiry it was found that it was indeed—as the Commissioner of Taxation expressed—a major cause for concern that the revenue to the Commonwealth is being significantly reduced and that workers in these artificial devices are in fact workers; they are not actually companies. The Ralph review recommended that this be terminated, and the Treasurer promised that he would do so. The Treasurer has a long history of not honouring his promises when it comes to tax reform. Let me go back to 1994-95 when he opposed root and branch Labor's attempts to stamp out tax avoidance share schemes used by wealthy individuals that continued to flourish after 1996. In government Labor was trying to stop those schemes. What did the now Treasurer do? He opposed those attempts. Those schemes involved at least $1.5 billion in losses to revenue, and he decided that, from the position of opposition, he would use whatever influence he could to prevent that money being collected and to encourage, by resisting change, the avoidance to continue. Of course he knew that what we were trying to do back then was proper. We have his submission to the shadow ministry at the time. What did he say to the shadow ministry when he was advising them on what should happen? It was a confidential submission to the Liberal Party shadow ministry. With respect to that legislation, it stated:

The government's decision to impose the fringe benefits tax on employee share acquisition schemes is motivated by the desire to stamp out potential abuse of such schemes.

That was his formal advice. That was his identification of what our legislation was about. But he then described the potential abuses of the system and, with breathtaking opportunism, recommended that the coalition `vote against the entire bill'. So even though he saw that we as the government were trying to do the right thing, he could not bring himself to support that on that occasion. In the 1996 budget he dropped our bill on alienation and junked our commitment to ongoing work on this in this area, stating that `the government has decided not to proceed with either of these proposals'.

In the 1996 and 1997 budgets, he watered down Labor's trafficking in trust losses anti-avoidance measures and ever since has deferred cracking down on trusts. We then saw, in May 1999, a special GST exemption for casino high rollers, and in April this year he walked away from a commitment to closing off abuses of the tax system in relation to tax shelters, at a cost to the Australian taxpayer of $700 million. This has to be understood in the context of the Treasurer imposing a 10 per cent GST on almost everything—a GST which will yield $30 billion a year—and who is spending $430 million to advertise this as some sort of advantage to the Australian community. These two things do not mesh: soft on tax avoiders; hard on the rest of the community. The punters pay, and those who are in a position to afford to achieve tax avoidance escape the burden.

When these bills came forward to the Labor Party, we decided that we would support the entire package. We did so on the principle that it is important to give business long, strong, firm signals about the framework of the tax circumstances in which they will operate. Because many in the business community believe that Labor would return to the treasury bench sometime in the near future, they sought from us an undertaking that we would not tinker with the tax system if we did so. We gave this a lot of thought. As I said earlier, we thought some of the measures here were questionable, some of them require qualification and some of them we perhaps might not have supported on a good day. But in order to give certainty for business investment, we made those commitments.

What has been the outcome of that? The Ralph committee examined the reduction of the tax base from personal income and recommended that it be stamped out. That was its recommendation. In the context of those commitments and the fact that the legislation would be revenue neutral, we thought that the Treasurer should agree to do that. We asked him to formally announce his position with respect to the recommendations made by the Ralph committee. In his press release No. 74 on 11 November 1999, the Treasurer said in response to that request:

The increasing avoidance of tax through the alienation of personal services income poses a growing threat to the income tax base. The use of interposed entities to avoid or defer income tax raises issues of equity between those that can take advantage of these arrangements and other providers of personal services, including wage and salary earners, who pay the correct amount of tax.

That was on page 2 of attachment B of press release No. 74 on 11 November. The Treasurer announced that he was supporting the measures that the Ralph committee proposed. He made a commitment to stop the reduction of the tax base. We wanted to be absolutely certain that he was going to pursue this course, so the shadow Treasurer, Mr Simon Crean, in the other place asked him to put that commitment in writing and read it into Hansard. Mr Crean asked for `an absolute and public guarantee that these measures, when the details are known, will be implemented in full'. What did the government say? In answer to that request, the government said:

The government will introduce all the business tax changes in full.

`In full' is in this case the operative term. Then, on 24 November, in order to make sure that this was in fact the firm position of the government, Mr Crean made this statement:

... I welcome your personal guarantee that the government will deliver in full all the business tax changes announced, recognising that any slippage on these measures in the future could expose the government in terms of its commitment to maintaining the integrity of the tax system.

What have we seen now that this legislation has come out? We have seen that the government are not going to implement these measures in full; they are going to implement these measures in part. They are therefore, by not going the full distance, breaking the undertaking that they made. By not going the full distance, they are not going to recover the revenue that potentially existed to be recovered. By breaking their undertaking, they are just showing up the government for being soft on tax avoidance and, in the context of the other things they are doing in taxation, hard on everyone else. The Treasurer talks tough but does not act that way.

The loss of revenue could of course have met proper community concerns and demands for other services. It is worth putting on the record that the extra $440 million—that is not the $440 million from the ads but the $440 million that could have been re-cov-ered in revenue—could have purchased 1,800 primary and secondary school teachers for over four years, or 120 new primary schools could have been built. Almost 1,500 extra hospital beds in public hospitals could have been provided for four years, or treatment could have been provided for around 140,000 extra hospital patients. Almost 110,000 extra apprenticeships over the four years could have been provided. Over 1,600 extra police could have been provided to guarantee the personal security and safety of Australians in some of the major cities, where there is a high incidence of crime. Those things could have been provided for over four years. I move, in respect of the New Business Tax System (Alienation of Personal Services Income) Bill 2000, the opposition's second reading amendment:

At the end of the motion, add “and that the Senate condemns the Treasurer for his continued soft treatment of tax avoiders, specifically by failing to:

(a) fully implement the announced policies which he publicly committed to introduce; and

(b) reach the revenue projections promised in his announcements, thusbreach-ing his commitment to revenue neutrality for the business tax package”.

(Time expired)