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Wednesday, 20 June 2012
Page: 7199

Mr TONY SMITH (Casey) (10:56): In speaking on the Tax Laws Amendment (2012 Measures No. 2) Bill 2012 and the package of bills before the House, let me also join with my colleagues, the shadow Treasurer, the shadow minister for finance and those others from this side of the House, who spoke in this debate in reiterating our opposition to these bills. The shadow Treasurer outlined in great detail, schedule by schedule, the deficiencies with this legislation.

In my contribution today I particularly want to focus on one aspect of the legislation that is before the House, which has received some debate this morning and that of course is the schedule that deals with the managed investment trusts withholding tax for foreign investments. The shadow Treasurer this morning outlined some of the government's history on this legislation. He also indicated that the government has tabled an amendment to delete these very schedules this day, so it appears that we are witnessing, apparently—not that the government has said anything discernible at this point—a U-turn in slow motion on this issue. Let us focus on this issue because it says so much about this government's approach to taxation.

In the budget the government announced that it would double from 7½ per cent to 15 per cent the withholding tax for foreign investments for managed investment trusts, and the shadow Treasurer and the shadow minister for finance have outlined the great damage that announcement has done already and the flawed nature of that announcement. They have also outlined in great detail how this is completely contrary to earlier actions and statements by the government.

I just said the government 'announced' this in the budget. That is being too generous to the Treasurer. In my cursory look at his budget speech just now, before beginning my contribution to this debate, I could not find any mention of it. On a closer reading maybe there is a word or two there, but I suspect not. I start from the position with this Treasurer that if there is some bad news to announce it will not be in his budget speech. He has got great history on this, of course. This is the Treasurer who refused to name the debt or deficit figures in his budget speech in 2009.

I will take the House through the history of this because it exposes so much: not only the incompetence of those opposite but their complete lack of understanding on matters of taxation. If you go back to the Treasurer's budget speech of 2008, he very clearly outlined the government's plan to cut this particular tax. He said:

Our nation has the potential to be a financial services hub in the Asia-Pacific Region—the fastest growing region in the world. To support this ambition, the Budget begins the process of significantly reducing the withholding tax—

et cetera, et cetera—

to a final rate of 7.5 per cent …

He was quite happy to make great fanfare of it in his speech. That 7½ per cent rate was to be doubled in this year's budget. There is no parallel statement, and it must flow that if the government thought the 7½ per cent rate was so necessary for what they wanted to achieve, a doubling of that rate indicates a change of policy; and if what they said was so important and so beneficial, a doubling of that rate must therefore be detrimental.

Look to the statements of some of those who have spoken in the debate—it is a wonderful thing Hansard, Madam Deputy Speaker, as you know. We have had in this House today a number of those opposite trying to defend the indefensible. My friend the shadow Treasurer was a bit harsh on the member for Blair, who speaks on all of these tax law amendment bills. My friend the shadow Treasurer rightly pointed out that he had not addressed the substance of this issue. I can tell you why: the member for Blair is a good bloke with a bad brief. What this Treasurer has asked those opposite to do is to vote to cut this particular tax to 7½ per cent and then in his budget to double it. They will be able to go around Australia saying, 'We've supported a cut and an increase in the same tax.'

I have said this before in this House and I cannot be sure that every member will know what I am talking about here, but I know the minister at the table will because he has a great understanding of Australian history and a great understanding of sporting history.

Mr Crean: I do know what I'm talking about.

Mr TONY SMITH: Many years ago when I was a mere kid, and the minister at the table was probably in his 30s, there was an Australian opening batsmen called Graeme Wood. No-one wanted to bat with him because he was famous for saying, 'Go, stop, wait, no, go back!'—and you would always end up standing next to him at one end of the pitch. You see that on tax policy with those opposite.

Let us remind them of their words. The Assistant Treasurer introduced these bills on 24 May announcing the increase in this tax rate, the doubling of it. Let us look at what he said almost four years ago to the day. On Wednesday, 18 June 2008, here is what the now Assistant Treasurer said as a backbencher in the newly minted government who were going to create a financial services hub here in Australia. Talking about the cut to 7½ per cent, he said:

That will be a very clear signal, a marker to global capital that this is the place to invest—that Australia is a country where you are able to invest and you are able to get a reasonable rate of return without being slugged with excessive levels of tax, as may be the case in other jurisdictions.

I regret to inform members opposite that the Assistant Treasurer at the time went further. In introducing the legislation, the member for Prospect and then Assistant Treasurer, now the Minister for Immigration and Citizenship, had this to say, again on 18 June 2008, on why the government was cutting the rate to 7½ per cent:

Why did we do that?

Get ready for this. He said:

Because you do not create a financial services hub with tinkering.

What did they do in this year's budget if they didn't cut the rate to 7½ per cent, and they announced they're increasing it to 15, if that's not tinkering, if that's not a doubling, if that's not change? Right back then you had this new government, this new band of brothers, and they were going to cut the rate to 7½ per cent. Now they are doubling it to 15 per cent, and no mention can be found in the Treasurer's speech. I will go on and continue to quote the then Assistant Treasurer:

You do not create a major policy reform by working around the edges. We took the view that if we could give Australia the lowest withholding tax rate in the world this would be a major advance in making Australia the financial services hub of Asia. We took the view that a withholding tax rate of 7½ per cent was an appropriate way to promote Australia as a financial services hub.

Well, you do not have that view now. In the budget it was doubled. It says so much about this government that their approach on these issues creates uncertainty, leverages risk and sends out the message to international investors that this is a government that chops and changes.

Think about what the effect of that budget night announcement was on international investors. They got the message from the new government in 2008: 'Come here because we have a 7½ per cent rate'—and, as the shadow Treasurer said, they invested on that basis. If they were listening to the Treasurer's speech on budget night that would not have mattered but once they digested the detail they discovered that the rate was to be doubled. What impression about tax policy in Australia does that leave in international quarters? Let me be very blunt: it shouts out the message that the government cannot be trusted on tax. It shouts out the message of uncertainty—and uncertainty is toxic in the world environment. It says, 'Whatever this government says, you're at great risk of that tax rate being changed on you retrospectively.'

You do not have to take my word for it; you can take the word of so many commentators. That would take up a lot of time in this House but I do want to quote one because this gives a real world view to those opposite about the effect the government's conduct has created. The shadow Treasurer quite rightly quoted David Denison this morning. David Denison, president and CEO of the Canada Pension Plan Investment Board addressed it directly:

In this era of fiscal restraint and additional direct and indirect taxes, we are becoming increasingly concerned that some risks associated with ownership of infrastructure are expanding. For instance, it is easy to envision the regulatory rate setting process becoming politicized instead of objective and fair. The same could occur with taxes—in fact, Australia’s budget that was tabled last week effectively doubled the tax burden on our real estate and infrastructure holdings in that country.

If we conclude that these kinds of risks within any country become significant enough to call into question the predictability and stability of cash flows that are at the heart of the investment rationale for infrastructure, our response will be very quick and rational—we will simply stop investing there.

The shadow finance minister made the point that the member for Blair did not have a lot to say—he had got word that the amendment I mentioned earlier was being tabled. The member for Blair, who speaks on all of these bills, was elected in 2007; he sat there in 2008 and hailed the reduction to 7½ per cent. He voted for it and then on budget night discovered that the 7½ per cent rate was doubled. Those opposite understand—at least the member for Blair does—the impact of this but they have a Treasurer and an Assistant Treasurer who have no idea on these matters.

Mr Baldwin: Incompetence personified!

Mr TONY SMITH: That does damage. My friend at the table said, 'Incompetence personified'. That raises a very important point: lack of competence in Canberra creates a lack of confidence outside Canberra. (Time expired)