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Wednesday, 11 March 1998
Page: 1040


Mr ROCHER (7:30 PM) —I want to urge the government with all the sincerity I can to clarify an issue involving tax deductible expenditure, with all the energy and speed they can muster. The issue was raised by me by way of a question without notice to the Treasurer (Mr Costello) on Monday. Members may recall that I asked a two-barrelled question which reads:

Can the Treasurer advise if his government will allow as tax deductible expenditure the costs of businesses converting systems to cope with the so-called millennium bug? Will the decision be taken by the government or by the Australian Taxation Office?

In his answer, the Treasurer quite properly pointed out that the tax treatment to be meted out will depend on the threshold question as to whether the costs incurred by businesses are deemed either to be operational or in the nature of capital expenditure. While I am no longer sure under modern accounting practices, running or operational costs used to qualify as allowable expenses before a taxable profit was arrived at in the accounts of all businesses. Hopefully, that is still the case. If it is not, or if by some strange quirk of logic the costs of conversions required to cope with the millennium bug are deemed capital expenditure, a great injustice will be perpetrated.

My immediate interest was spurred by press reports that indicated that the tax treatment of such costs was to be determined by the Australian Taxation Office, the ATO, acting alone. My relief knew no bounds when the Treasurer, in answer to the second barrel of my question, said in part:

. . . I think it is proper that the government does take the decision on this. The honourable member for Curtin will know that the government has established a very high powered committee, and ministerial responsibility for that is with the Minister for Finance and Administration and the Minister for Industry, Science and Tourism. One of the terms of reference of that committee is to look at the taxation consequences and make recommendations to the government, which I will be very happy to receive.

In other words, the ATO will not have the last say on this matter. That is very much to be welcomed. It is part of an important opening gambit.

My expression of support carries with it a natural assumption that the ministerial committee will consult both urgently and widely with a view to reporting to the Treasurer at the very earliest practical date. In turn, I urge the Treasurer to make known the government's intentions, as a matter of urgency, to ensure confidence and certainty in the private sector. The fact that the government has organised a ministerial committee to investigate the taxation consequences of the deductibility of the cost of conversion is certainly a step in the right direction but, with 1 January 2000 deadline now less than two years away, business expects a rapid response from the government and not, of course, endless meetings.

It is of interest to note that the Australian Bureau of Statistics estimates that, as at June 1994, more than 210,000 Australian small businesses relied on personal computers to improve the efficiency of their enterprises. Unless the government decides to allow as a tax deduction the costs of converting computer systems to avoid the Y2K bug, every one of these small businesses will be hit by an additional impost of serious proportions. Of course, it is not only small businesses which will be smitten; businesses small and large, private and public, will all be affected.

I have a feeling of trepidation about this, notwithstanding my remarks so far. Because the costs to industry are potentially huge, depending on which prediction one listens to from time to time, my fear is that the decision will be taken on the detrimental effect on business tax revenues rather than on accepted accounting practices, and that that decision will prevail. If that fear is realised, the burden of the cost of the actual conversions will be compounded by disallowance of expenditure in the tax year in which it is incurred. If it comes to fruition, that will be the worst of all worlds for Australian industry at a time when it is or should be gearing up to compete on its merits for exports and against imports. (Time expired)