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Tuesday, 16 September 2003
Page: 20181


Mr SLIPPER (Parliamentary Secretary to the Minister for Finance and Administration) (5:52 PM) —The government wishes to express its thanks to those honourable members who have spoken on the International Tax Agreements Amendment Bill 2003—even the member for Lowe, who perhaps was not entirely aware of the contents of this particular bill. In respect of the point made by the member for Lowe, this government has clamped down on tax evasion and tax avoidance. We are very proud of our record in that area. Also, you will notice that the gentlemen referred to by the member for Lowe are suffering as far as their professional standing is concerned. Some are being struck off; certainly they are ceasing to be Queen's Counsels, so they are paying a price for breaching the laws of this nation.

The International Tax Agreements Amendment Bill 2003 represents a significant step in the facilitation of a competitive and modern tax treaty network for Australia. The bill provides domestic legislative authority for two comprehensive double tax treaties: a replacement for the existing Australia-United Kingdom double taxation agreement and a new Australia-Mexico double taxation agreement. These two new double tax treaties will improve Australia's international relations with the United Kingdom and the United Mexican States. They will facilitate cross-border activities in trade, investment, transport and employment. In addition, the integrity of the tax system and our revenue base is protected by combating fiscal evasion through improvements to the exchange of information framework between revenue authorities. Madam Deputy Speaker, you will be interested to know that both treaties will produce significant positive economic outcomes for Australia by contributing to a larger, faster growing and more dynamic Australian economy with flow-on effects for employment, trade and investment.

I will deal with the two agreements separately. Initially I would like to refer to the 2003 United Kingdom convention. The new tax treaty with the United Kingdom, signed on 21 August 2003, demonstrates the commitment of the government to modernising Australia's tax treaty network. It will replace the existing double tax agreement with the United Kingdom, signed in 1967—quite a long time ago, Madam Deputy Speaker—and last modified in 1980. The importance of modernising the treaty is underscored by the international economic significance of the United Kingdom. It is actually the fourth largest economy in the world. The size of Australia-United Kingdom investment and trade relationships—(Quorum formed)

That really is a misuse of the parliament. As I was saying before I was rudely interrupted by the call for a quorum, the importance of modernising the treaty is underscored by the international economic significance of the United Kingdom, which has the fourth largest economy in the world; the size of Australia-United Kingdom investment and trade relationships; and the gateway relationship that the United Kingdom has with Europe and that Australia has with Asia. The treaty continues Australia's moves towards a more residence based treaty policy. It is part of the government's commitment to the Ralph report recommendations to update our ageing treaties with major trading partners and is consistent with the direction agreed in the recent protocol to our tax treaty with the United States.

The new treaty achieves a balance of outcomes that will provide Australia with a competitive tax framework for international trade and investment while ensuring the Australian revenue base is sustainable and suitably protected. The new treaty ensures Australia can effectively apply its taxing rights to Australian sourced business profits, the exploitation of our natural resources and the sale of significant Australian assets. The new treaty will substantially reduce withholding taxes on certain dividend, interest and royalty payments, in line with outcomes achieved with the United States. This will provide long-term benefits for business, making it cheaper for Australian based business to obtain intellectual property, equity and finance for expansion.

The interest withholding tax changes will reduce the cost of obtaining funds from UK financial institutions and will also remove obstacles for Australian banks lending offshore, thereby improving Australia's standing as a global financial centre. The reduction in the royalty withholding tax limit will make Australia a more attractive destination for overseas investment in research and development and will reduce the cost to Australian businesses using intellectual property that is owned offshore. It also provides certainty for business on capital gains taxation and emerging treaty issues, such as dual listed companies and employee share options. The new treaty also delivers on the Australian government's decision to agree to non-discrimination articles in tax treaties.

With respect to the Mexican agreement signed on 9 September last year, honourable members will be interested to know that the agreement will, broadly speaking, allocate taxing rights along the same lines as Australia's double tax treaties with other countries, including Russia and Argentina. The Australia-Mexico double taxation agreement will complete Australia's tax treaty network with the North American Free Trade Area—that is, NAFTA—countries and represents an important addition to Australia's existing double tax treaty network. For Australia, the major impact of the agreement will be on Australian enterprises trading with and investing in Mexico. Australia's trade and investment relationship with Mexico is the largest Australia has with any Latin-American country. In addition, the size of the Mexican economy, which is the ninth largest in the world, and its growth prospects emphasise the strategic importance of this agreement. The government looks forward to the strengthening of trade and investment and wider relationships between Australia and Mexico that the successful conclusion of this agreement will bring.

The honourable member for Moncrieff in his speech referred to ALP concern over the timing of the legislation—before the Joint Standing Committee on Treaties reports. He pointed out that this is a feigned concern and represents the Australian Labor Party's obsession with form over substance. The member for Moncrieff is completely right. Back in the days of the Keating government there was no treaties committee. Treaties were entered into in the dead of night by the Executive Council, without reference to any kind of parliamentary scrutiny. A more appropriate treaty-making procedure was one of the pledges of the Howard government and was implemented upon our election to office in 1996.

The member for Kingston has moved, as he often does, a second reading amendment which seeks to condemn the government for breaching the requirements we set for scrutiny of treaties and calls on the government to defer a vote on this bill until November, when the treaties committee is due to report. The member for Kingston would understand that the government simply cannot accept the amendment he has moved. We do not accept that it has any validity or veracity. The treaties process that we now have is infinitely better than the treaties process that was in place prior to our election to office. But, for the benefit of the member for Kingston, I would like to outline the circumstances of this particular matter.

Double taxation treaties can only enter into force once both nations have completed their required domestic processes to enable a treaty to have effect at law. A delay by either country will prevent a treaty from taking effect in both countries. The governments of Australia, the United Kingdom and Mexico have all undertaken to bring the relevant treaties into effect at the earliest possible date, recognising the benefits that will flow to each nation from these treaties taking effect. Both the United Kingdom and Mexico intend to implement the respective treaties in domestic law by the end of 2003. The dates from which these treaties take effect are governed by the respective entry into force articles in each treaty.

For the new treaty with Mexico to take effect in 2004 for all Australian and Mexican taxes covered by its terms, both countries need to complete their domestic processes by 31 December this year. For the new treaty with the United Kingdom to take effect in 2004 for all Australian and United Kingdom taxes covered by its terms—(Quorum formed) If I do not get sufficient time to finish responding to remarks made by honourable members then obviously it will be the fault of the opposition. When summing up bills I always endeavour to respond to the points raised by the member for Kingston and his colleagues—I think they deserve that respect—but if we run out of time then certainly it will not be possible.

I was referring to two dates with respect to the treaties. If these dates are not met, the dates from which these treaties will take effect will be delayed by up to one year. Although it was originally hoped that the text of the new UK treaty would be settled earlier this year, its final text was only agreed at the level of officials shortly before its formal signing on 21 August this year. Once the UK treaty text was settled, the Department of the Treasury wrote to the committee explaining the time constraints and offering to assist in providing the committee with the most time possible to conclude their deliberations prior to debate on the enabling legislation. This resulted in the hearing being conducted on 8 September and the national interest analysis and associated documentation being tabled on 9 September.

While it is regrettable that the committee was not able to be given more time for its deliberations, in the interests of the time constraints confronting the government we believe the right balance was struck between having these treaties take effect at the earliest possible date and ensuring that they are appropriately reviewed. So we certainly oppose the second reading amendment moved by the member for Kingston. He said that the opposition would be seeking to refer the bill to the Senate Economics Legislation Committee for an analysis of the costs of the bill and its second-round effects.

In the time I have available to me I want to point out that the new treaty package will produce a positive economic outcome for Australia. The governments of the countries involved have undertaken to reduce taxes that inhibit investment, growth and employment. This will involve a cost to revenue in the form of reduced withholding taxes building to $100 million per year in 2006-07. However, this is expected to be more than offset by the future tax revenues flowing from a larger, faster-growing and more dynamic Australian economy. This, of course, is referring to the UK agreement. The treaty will provide long-term benefits for business, making it cheaper for Australian based business to obtain intellectual property, equity and finance for expansion. It will also remove obstacles currently inhibiting Australian corporate expansion offshore. Providing these benefits will have flow-on effects throughout the economy, and not just to big business.

As stated, the cost of this treaty will be more than offset by the future tax revenues, and this should reassure my friend the member for Kingston. These revenues will flow from the new treaty's contribution towards promoting increased investment, contributing to a larger and faster-growing Australian economy—with flow-on benefits for trade and employment throughout the economy—lowering the costs of business inputs through lower withholding taxes, making business more profitable and increasing future tax revenues as a result, and reducing claims for foreign tax credits as a result of reductions in UK withholding tax rates imposed on flows to Australia.

With the UK treaty, the government has achieved a policy position that reduces costs on inputs and encourages direct investment while at the same time exercising an appropriate level of source country taxation. The new treaty achieves a balance of outcomes that will provide Australia with a competitive tax framework for international trade and investment while ensuring the Australian revenue base is sustainable and suitably protected. The new treaty ensures Australia can effectively apply its taxing rights in respect of Australian source business profits, the exploitation of its natural resources and the sale of significant Australian assets. I commend this bill to the House, and I urge the chamber to reject the second reading amendment.

Question put:

That the words proposed to be omitted (Mr Cox's amendment) stand part of the question.