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Monday, 25 June 2012
Page: 7730

Mr BUCHHOLZ (Wright) (19:14): I rise to speak on the Tax Laws Amendment (Managed Investment Trust Withholding Tax) Bill 2012 and the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012. This bill epitomises the performance of this government in this parliament. This bill has had more starts than Black Caviar. It is like going to the tennis. I watched the women's tennis semi-final at Rafter Stadium last year. Watching this bill come in, go out, come in, go out, come in, go out is nothing short of a tennis match. I know deep in my heart that members opposite, members of this government, are embarrassed about the way this bill has been managed through this House—they must be, because there are a lot of things to be embarrassed about. Not only are we embarrassed by the way the government has conducted the transition of this bill through the House; when we speak in this House it is not just a local audience but a national and global audience. When a bill comes before the House that speaks to managed investment trusts and the imposition of tax on companies choosing to invest in this nation, it is a matter of national importance and a matter of sovereign risk.

The Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012 amends the managed investment trust final withholding tax from 7.5 per cent to 15 per cent on payments made in relation to income years commencing after 1 July 2012. There is one thing we can be thankful for: there is not an element of retrospectivity associated with this bill, as there are for many other pieces of legislation that come before this house. We can at least be thankful for that.

Schedule 1 to the Tax Laws Amendment (Managed Investment Trust Withholding Tax) Bill 2012 makes consequential amendments to the Taxation Administration Act 1953 to give effect to the increase in the consequential MIT final withholding tax rate imposed by the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012. According to the budget, it is expected to generate approximately $260 million in revenue over the forward estimates. I suspect that the only reason we are having this debate is because of the $260 million this bill is forecasted to bring in.

During this debate I will bring evidence from the financial sector of this nation that says this government is prepared to blow-off $1 billion in lost revenue—flighted international revenue that would have come to this nation—to pick up $260 million. How does that work? The government are starting to make financial decisions because their political survival is so thinly strung that we have a forecasted $1.5 billion surplus. Their political decisions are built around that figure. This $260 million helps in generating that revenue, but in order to do it they are prepared to sacrifice $1 billion worth of revenue—and I will tell you who said that.

The MIT final withholding tax rate of 15 per cent will apply to fund payments made in relation to income years commencing on or after 1 July 2012. That seems like a special memorial date for this government. As we all know, the world's largest carbon tax kicks off on that date. We have the start of the investment withdrawal in Australia and yet another tax that will have a snowballing effect on investment and increase our exposure to sovereign risk. We have a two-tiered economy at the moment: we have the resources sector, which is considerably strong, and we have another sector of the community, including the electorate of Wright, which has no linkages into the resources sector. Economics 101 tells us that when you are trying to stimulate an economy there are two things that you do: decrease tax and increase government spending. We have got the increased government spending; we can go through the myriad wasteful spending activities that this government has participated in. We were supposed to see a reduction in a tax rate, and I believe that was the reduction in the company tax rate from 30 per cent to 29 per cent. That is like going to the tennis semifinals as well: it is in and out and in again and out again depending on where the polls are at the moment.

We recently had the Prime Minister up in Queensland telling business leaders they should be out there talking up the economy and saying how well things are going. When you walk up and down the streets of Beaudesert, when you walk up and down the streets of Gatton, which is predominantly a farming and rural precinct, or when you get up into the tourism sector of Mount Tamborine in my electorate, these people are doing it extremely tough. I forecast tonight that we are going to see double-digit figures of businesses exiting the market. If you want to get into a booming business at the moment, go and get yourself some shares in some receivables businesses or some administrators because they will be going gangbusters as result of some of this government's policies.

In 2008, when Labor previously reduced the withholding tax progressively from 30 per cent to 7.5 per cent the coalition did not oppose the relevant bill. We did not oppose it because it was done in an orderly fashion. We sent messages to the market in an orderly fashion and said that it would be staged down. We have this wake-up-and-get-out-of-bed type haphazard approach of saying: 'Today we might just double the withholding tax rate; that is a good idea, because we have run out of ideas.' As a government, they have run out of ideas. However, at the time, we did express concern that it was not a genuine reduction for international taxpayers because of the operational double taxation agreements, and any reduction in taxation paid in Australia may simply have led to higher taxes being paid to other jurisdictions.

At the time, the coalition also expressed concerns that the bill had not been subject to proper scrutiny as Labor had not allowed the bill to be considered by the Senate Economics Committee, that Labor's costings of the measures would be dubious and that Labor had delivered a tax cut to foreigners in the 2008 budget but had not delivered a tax cut to Australian citizens and taxpayers. When will this Labor government realise that continual changes to our international taxation arrangements, coupled with Labor's recent retrospective tax grabs, reduce international investor confidence and elevate concerns about Australia's sovereign risk profile?

I sit on the House of Representatives Standing Committee on Economics, and it was interesting to hear from industry and the private sector about their concerns with the proposed legislative changes. Treasury indicated it expected little negative influence on investment flows from the increase. This position was vigorously rejected by industry, and I will quote from the Hansard transcript of the inquiry.

But before I do that, how often do we see that happen, where we have Treasury come out with a position or a forecast and industry vigorously rejecting or opposing it? We do not have to look too much further than last year's forecast of what this deficit was going to be. Back before the last budget I think we had a forecast for this budget in the vicinity of $10 billion. Six months later and we are looking at a figure of $22.7 billion! This is from the same department—virtually double within a six-month period. And when the recent MYEFO documents came out it bounced out to $37 billion. This is Treasury, contrasting, again, with industry, which goes to the credibility of all forecasting. Of course, who knows what the budget deficit is going to end up at? I think it is going to be in the vicinity of $44 billion, but with this government cooking the books and trying to bring expenditure back from next year into this, who knows?

I opened my comments by saying that this bill was similar to Makybe Diva. I wouldn't be putting a punt on whichever figure—

Mr Snowdon: You've changed horses!

Mr BUCHHOLZ: I have changed horses. Before I digressed, I was looking at conflicting views between Treasury and the industry. This is an exchange between Anthony McDonald of Treasury and Peter Verwer, Chief Executive, Property Council of Australia:

Mr McDonald: I am not aware; there probably would be. But in this instance, to the extent that we would have allowed for any reduction in this sector as a result of the budget measure, it would be fairly minimal.

Fairly minimal? For a $260 million pick-up in tax revenue? I ask you: how do you quantify what is 'fairly minimal'? He went on to say:

That I know might sound strange to those directly involved in the sector because we are looking at the net impact across the economy rather than just the impact in the sector.

So, don't look at it across the sector; look at it across the whole GDP. It is similar to what the government does with reference to rationalising its debt ratio and saying, 'It's only seven per cent or only 10 per cent of GDP.' If you take this as a rational comparison against not a number that should have been used as a common denominator but the whole economy, of course it is only minimal. This is the logic that they are using to try to rationalise the irrational. He went on to say:

Again, if we are looking at financial flows there would be a greater reduction in the flows that occur through managed investment trusts but what we are interested in is what happens to the aggregate base and that is a different thing.

Mr Verwer: The question was: where would that extra money come from in order to ensure that the aggregate basis remained in alignment? We are still waiting for the answer.

Mr McDonald: That is part of what being a small, open economy that is engaged in international capital markets with a freely floating exchange rate does.

There were some other comments from Mr Verwer:

In fact, these foreign investors have said to us quite clearly that some of them had already pulled out because we no longer meet their hurdle rate—it did not take long to do the sums; others said that they have frozen the negotiations.

To support those comments I draw your attention to the Hansard of the Economics Committee and questioning of Mr Martin Codina from the Financial Services Council. The member for Throsby asked him:

Is there any evidence for that flight of capital occurring?

That is, as a result of this legislation. This is where the $1 billion comes in. Mr Codina said:

There is absolute evidence of that. Collectively we have quantified in excess of $1 billion, some of which has been made public and some of which is highly sensitive, because of the nature of the foreign investors. In some cases you have sovereign funds—in other words, it would be akin to a foreign government being critical of the Australian government as a consequence of the change.

Why am I only hearing about this in Economics Committee hearings where the Financial Services Council of Australia is giving evidence? Why weren't these opinions sought in the consultation process? Why weren't these people consulted? When you talk to Treasury they always open up with, 'We've consulted with the industry; we've consulted with everyone; we've consulted this to death.' Mr Codina later went on to say:

Let me put it this way. We were disappointed that we were not consulted prior to the announcement being made on budget night. Since this government came into office in 2007, we have issued something like 10 media releases which were supportive of subsequent changes that have been made, either to our tax system or regulatory-wise, that essentially had their origins in the Johnson review. We were one of the leading participants in the Johnson review, involved in much of the work that was conducted there. So I guess all I can say is it did come as a surprise, as an organisation that is actively involved in assisting the government in this area, that the announcement was made without any prior consultation.

Why would a government not consult with major stakeholders on such a sensitive bill that has the capacity to generate $1 billion of flight in capital from this nation? I will tell you why. To save the budget bottom line—I can think of no other reason—of a measly $260 million.

The government's constant chopping and changing in relation to the MIT withholding tax has yet again reduced our predictability in the eyes of international investors. If passed, this bill would undermine Australia's objective of becoming a regional financial services hub in the Asia-Pacific region. Attracting more foreign investment is important to achieve stronger economic growth which would lead to increased government revenue without the need for many new or increased taxes. Industry was barely consulted; the Australian people are rarely consulted; and the coalition remains opposed to this bill. (Time expired)