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Thursday, 17 February 2005
Page: 39


Mr MURPHY (11:38 AM) —I rise to support the Bankruptcy and Family Law Legislation Amendment Bill 2005 in principle but also to strongly support the comments that have been made by the shadow Attorney-General, Ms Nicola Roxon. I support her observation that, while we accept these provisions—provisions which were introduced last year—it is unacceptable and inexplicable that the government should not be able to provide the opposition with reasonable notice of its intentions, especially when the bill itself has been around for such a long time. I am bound again, as I have done so often in this House over the past six years, to remind members of the government of their constitutional conventional obligations as prescribed from page 103 onwards in House of Representatives Practice,third edition. It is simply not possible for the opposition to perform its effective role in one of the key prescribed functions of the opposition as we have here today—namely:

scrutiny of, criticism of, and suggestion of improvements to, legislation and financial proposals;

As the member for Gellibrand noted, the government informed the opposition of its intention to move these amendments only on the day that the amendments were moved. This is yet another example in a long line of examples where the government has flagrantly breached its constitutional conventional obligations to afford the opposition reasonable time in which to consider motions and bills before the House. This is certainly a pretty complex area of tax law.

I raise this point in light of the shadow Attorney-General identifying key omissions in this legislation which are critical causes of this bill coming into contemplation in the first place. A key failure of this bill, as identified by my colleague, is the issue of high-income professionals using bankruptcy as a means of avoiding their taxation and other obligations, often by the manner in which they order their family affairs. I am sure you would be aware of the work I have done in this House over the last three years, Mr Deputy Speaker Lindsay, and I will come to that towards the end of my speech.

I would like to refer members today to the table of schedules found on pages 3 and 4 of the Department of the Parliamentary Library's Bills Digest No. 52, dated 29 November last year. The table shows how certain recommendations in the report in 2002 of the joint taskforce on the use of bankruptcy and family law schemes to avoid payment of tax are addressed in this bill. As the reader can see, these recommendations are dealt with in the various schedules of the bill.

It is timely to bring a real example of the facts this bill ought to address. A notorious example is the use of family trust arrangements as reported in the Sydney Morning Herald on Saturday, 16 June 2001 in a news review article entitled `The Wife's Tale'. Members of the House will recall that this is the story of the former One.Tel director Jodee Rich and his wife Maxine Rich. I will quote inter alia:

Most of the 38-year-old (Maxine) Rich's portfolio career as a lawyer, university law lecturer, and company director (Neverfail Springwater, T-Corp, Federal Airports Corporation) was forged under the maiden name of Brenner ... The hurried family law agreement that sparked the Australian Securities and Investments Commission court order freezing the Riches' possessions when Jodee assigned $9 million of assets to Maxine two days after the One.Tel collapse has stunned friends and associates.

Australian taxpayers have seen more than their fair share of corporate collapses. At the core of this issue, I believe, is the ethics or lack thereof in the minds of the `brat pack' generation of high-flyers who seek to act outside the taxation system, thinking that they are higher than the law and unaccountable to it. In bankruptcy proceedings it is very often the Australian Taxation Office that is the sole or principal creditor that has an equitable interest in the trustee in bankruptcy's trust assets—what little is left of them. We hear of residual distributions of half a cent in the dollar or one cent in the dollar. This is an insult to those creditors, usually the Australian taxpayers, who receive the crumbs of these `captains of industry' who, long before their well-orchestrated demise, have stripped their assets so as to place those assets out of the reach of their creditors.

We must never forget who is paying the real price for these impostors. It is the Australian taxpayer who is subsidising and paying for these criminals who take the money—money that is not theirs but debts that are due to the Australian Taxation Office—and run. How often have we heard of these `high rollers' who are truly admired? I quote again from the Sydney Morning Heraldreporting on the disbelief of friends and business associates of Maxine, who described Maxine as `unmaterialistic' and `philanthropic' and said it is `so un-Maxine, it just doesn't gel'.

Does it just not gel with other charlatans, such as former high-flying barristers I have identified over the last three years? Does it not gel with the likes of the notorious HIH collapse—which I notice is in the news today—and the carnage this collapse has caused with the ruin of those long-suffering, premium-paying Australian taxpayers who relied on the trust and leadership of the company directors? And what does this bill provide for dealing with the thoroughly discredited captains of industry in that field?

The point I make is that this bill is just one in a long line of tail-chasing; it is `patch quilt' legislation that seeks to shut the gate after the horse has bolted. Greed is a powerful driver. What is clear with this bill is that there is little to prevent high-rolling taxpayers from finding ever new and innovative means of defrauding the Commonwealth of its rightful revenue. The proposals in this bill intend to create a new supervised account regime; however, I question the intelligence of this option.

Another theme I have raised in debate on several bills in the House over the years is that the government has had a terrible habit of writing what I have described as `patch quilt' remedies. There is nothing new in this approach. This government and those of the 38th, 39th and 40th parliaments have routinely engaged in passing bills which have simply patched an apparent inconsistency between conflicts of law in order to put a bandaid on an existing problem. High-income earners can and do employ the best lawyers and accountants in a bid to find ever new and innovative ways of defrauding the Commonwealth. There is no apparent comprehensive strategy for dealing with the problem of defrauding the Commonwealth and looking after the interests of the honest Australian taxpayer.

Principally, this bill is flawed as it simply does what other bills have done. As with the Skase amendments and other taxation and administrative law amendments, bills are introduced with the intention of patching some identified legal matter which requires redress. Never do we see the work needed to comprehensively address the issue of defrauding the Commonwealth of its revenue. Members of this House will be aware of the specific provisions of Commonwealth criminal law, taxation, superannuation, family law, bankruptcy, insolvency, equity and trust laws. For all the sophistication apparent in bills such as the one before us, it is foolishness not to undertake this work. This bill is just one in a long line of bills that have attempted retrospectively to patch a discovered anomaly.

It is now painfully apparent that the innovativeness of greed will not be met by `patch quilt' remedies. The Commonwealth legislative history is replete with examples of how mutually exclusive legislative regimes have been allowed to surface independently of other legislative regimes. In this case we see an attempted patch between bankruptcy and family law. However, the bill does not attempt an integration with taxation, criminal or other laws that will have parallel legislative impacts.

To fair-minded citizens of good fame and character—that is, those who pay their fair share of taxes and do not defraud the Commonwealth of its revenue—legislative instruments are seen as licit instruments to be used for proper purposes. However, so-called captains of industry and high-income earners see these legal instruments, including family trusts, family law property orders, debtors petitions in bankruptcy law and other licit instruments, as simply an opportunity to be used for an illicit or illegitimate end. To these people, such instruments are simply more toys to play with, more opportunities to exploit the Australian taxpayer, for the benefit of keeping assets out of the reach of the Australian Taxation Office. Hence, it is profit by lies and deception. Society is bent on worshipping them as gods for their business and professional acumen, whilst all along they are nothing more than cheats and defrauders with criminal intent. For these reasons I support the amendments put forward by the opposition in the Senate on the rebuttable presumption of insolvency on the issue of failure by a bankrupt person to keep an adequate record of their transfer of property.

These amendments will greatly reinforce those debtors who abuse licit instruments, such as debtors petitions for an illicit end—that is, to defraud the Commonwealth of its revenue and place those assets out of the reach of the Australian Taxation Office. The rebuttable presumption test is sophisticated; it shifts the evidentiary burden onto the defendant bankrupt, who must prove that the asset transfer was not with the sole or substantial intent of placing the asset out of the reach of the Australian Taxation Office. Thus, the evidentiary burden on the trustee in bankruptcy is lessened and makes for better justice. It is also a valid application of the principle of double effect, in that the act of wrongly using a licit instrument such as a debtors petition with the good intention of having that petition available to the public as a means of settling debt is not abused in the future.

The days where a government endlessly chases its tail in a litany of `patch quilt' legislation must cease. Ethical considerations and a holistic approach to legislative drafting in all relevant areas of taxation, bankruptcy, insolvency, family, criminal, equity, administrative and other relevant laws must be undertaken, otherwise I fear this parliament will simply be introducing more and more interim bills like this one before the House today.

As sure as we sit here considering this bill today, there will be other high-flying people who are already finding ways to avoid the provisions of this legislation. For this reason it is necessary for the House to keep one step ahead and draft bills which are holistic and comprehensive. The government must address the problem of high-income earners using bankruptcy and family law to avoid paying tax debts while continuing to enjoy a lavish lifestyle made possible through the build-up of assets, usually in the name of their spouse.

Sadly, the bill is silent on the key bankruptcy controversy we have been pursuing—namely, the issue of high-income professionals using bankruptcy as a means of avoiding their taxation and other obligations. The opposition has exposed that hundreds of legal practitioners are not up to date with their tax returns. One QC had not lodged a taxation return for 45 years; one person had worked for the tax office for eight years and had not lodged a return; and another individual paid no income tax by declaring themself bankrupt on 12 occasions. I ask: how could this happen?

It is moral bankruptcy for a person to employ family and bankruptcy laws to put one's assets out of the reach of one's creditors. In most cases the only creditor, as I have said, is the taxation commissioner. Such avoidance is outrageous and it means that long-suffering taxpayers support tax rorters who continue to enjoy their life of luxury because their spouse owns all the family assets. As I have said before, these parasites on our taxation system enjoy all the benefits of the community—for example, they have a Medicare card, doubtlessly—and all at the expense of honest taxpayers like the 130,000 constituents whom I represent. My interest in this matter arose some three years ago.


Mr Ruddock —Only three?


Mr MURPHY —The Attorney says, `Only three.' I am glad you interject. In 2000-01 the taxation commissioner identified the rorting by members of the legal profession, and today I want to pay tribute to those members of the legal profession project at the Australian Taxation Office who identified, if memory serves me, about 771 barristers who were not even up to date with their tax returns. Somewhere in the order of 60 barristers had been employing family law and bankruptcy law to put their assets out of reach of their creditors—of course, we know the creditor was always the taxation commissioner—to avoid paying their tax.

The thing that disturbed me when I became aware of this—and at the time it was written about extensively in the Sydney Morning Herald by Paul Barry—was that the following year the taxation commissioner deleted reference to the work of the legal profession project from the tax office annual report. The Attorney asks why I have only been on it for three years. The Taxation Office had a very professional team that identified the problem, but, once it identified the scandalous behaviour of the very people in our community that you would expect to be paying their tax, for some reason the Commissioner of Taxation—I suggest from pressure from the government—deleted the work of the legal profession project, because the next year there was nothing. I invite the Attorney-General to look at the tax office annual report for 2001-02. He will find that there was no mention of that very good work done by the legal profession project. I do not think we would be standing here today in this House but for the work of that dedicated group of people in the tax office who identified the shocking behaviour of members of the legal profession.

I put a question on the Notice Paper three years ago and it took 12 months, Attorney, for the Treasurer to answer it. It was a simple question about the percentage of barristers and solicitors who paid the top marginal rate of tax. Twelve months later I got an answer which confirmed that less than 50 per cent of members of the legal profession paid the top marginal rate. But that reply was very clouded, because it cited the industry codes that the Taxation Office uses to identify those groups and the tax they pay or do not pay. Members of the legal profession go under code 78410, which apart from barristers and solicitors includes advocates and people employed in conveyancing and legal aid—not necessarily people with legal qualifications. So it is probably fair to say that a significantly higher proportion than 50 per cent of the legal profession is not paying the top marginal rate of tax. I am sure that would come as a surprise to many people.

I was surprised that the Treasurer took so long to answer that question, but I know the occupation he was in before he entered the parliament. I also pursued the then Attorney-General, Mr Daryl Williams, and I know what occupation he had before he entered parliament. And I pursued the Prime Minister, and I know what occupation he was in before he came into this House. I say that in response to the earlier interjection by the Attorney, because I felt that the government was embarrassed—particularly as the government is replete with members of the legal profession, including the Prime Minister and others on the frontbench—into protecting members of the legal profession. I thought it was sending a very poor message to most law-abiding taxpayers that somehow or other the work of the legal profession project had to be buried because it was so embarrassing that, of all people, members of the legal profession were not paying their tax.

I want to give credit to Michael Carmody and to Bret Walker, who was president of the New South Wales Bar Association. Mr Walker came to see me. He was terribly embarrassed and very concerned about the behaviour of some members of the legal profession. We are talking about 770 barristers who were not even up to date with their tax returns, and a significant proportion of them were using bankruptcy and family law to put their assets out of reach of their creditors. The only creditor of note, of course, as we have said, was the taxation commissioner. The commissioner was very alarmed about that and wanted to do everything to try and help get a resolution to this, so I pay tribute to him as well.

I asked stacks of questions of the Treasurer and I was just given the sailor's farewell on most occasions, but a very interesting issue was raised around section 16 of the Income Tax Assessment Act 1936, relating to secrecy provisions. Bret Walker did not agree with the taxation commissioner that the commissioner could not write to a peak professional body like the Law Society—it could be the AMA—and say, `This person has been bankrupt six times.' We did have a case of someone, not a member of the legal profession, who had been bankrupt 12 times. How could this happen? That made a nonsense of the secrecy provisions. Nothing has been done about that to date, and I believe—and Bret Walker, who is a pretty learned senior counsel, has made it quite clear—that section 16 of the act allows the taxation commissioner to let these peak professional bodies know if people are rorting the taxation system, so they can be struck off and not continue this dishonest practice. (Time expired)