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Wednesday, 20 June 2012
Page: 7202

Mr VAN MANEN (Forde) (11:12): Once again we stand in this House, less than 24 hours since I last spoke on another piece of legislation that contains retrospectivity and lacks clarity and detail. As the member for Casey has so well pointed out, it adds to the level of uncertainty in our business community about the future direction of tax policy in this country. I will go through this package of bills, the Tax Laws Amendment (2012 Measures No. 2) Bill 2012 and related bills, one by one and have a look at the various schedules.

We fully support some of the ideas contained in this legislation. We have always supported the notion that phoenixing activity should be minimised as quickly as possible because it has lots of deleterious effects on confidence, particularly in the construction industry. I saw that firsthand on many occasions when my father worked as a ceramic tiler. Building companies would close for business on Friday and reopen as a new company on Monday; they would ring him up to work on new projects but had not paid him for the old ones that he was working on in the weeks prior.

We will start with a look at schedule 1. It refers to the Pay As You Go Withholding Non-compliance Tax Bill 2012, which makes directors personally liable for unpaid super. It means directors' penalties cannot be discharged by placing a company into administration and looks to make directors and associates liable for PAYG withholding noncompliance tax where a company has failed to pay. It seeks to expand the application of the director penalty regime and ensure that directors are held to account for their activities. What is important in this legislation is that it is not just about phoenix activities. Once again, we see a failure to clearly articulate what phoenixing activity actually is. The changes are justified in the explanatory memorandum as being part of an attempt to combat phoenix activities. This is the second attempt by the government to make these types of changes. The first attempt was made in the Tax Laws Amendment (2011 Measures No. 8) Bill 2011 and the associated Pay As You Go Withholding Non-compliance Tax Bill 2011. An inquiry into these bills by the House Standing Committee on Economics made a bipartisan finding that the provisions in the bills did not add to existing requirements but instead applied a more effective penalty regime to phoenix operators who were abusing the law to obtain an unfair competitive advantage. I do not think there is anyone in this House that would disagree with that notion to achieve that outcome.

However, the committee noted concerns from the business community and its representatives that the bills would potentially apply to a broad range of directors, whether they were engaged in phoenix activity or not. This is the crux of the matter. The committee unanimously recommended that the government should investigate whether it would be possible to tighten the provisions of the bills to better target phoenix activity. After the House economics committee tabled its report, the government withdrew the relevant provisions from those bills, including withdrawing the Pay As You Go Withholding Non-compliance Tax Bill.

The House economics committee has now inquired into the provisions of the package of bills currently before the House. The coalition members of the committee have again found that the measures proposed by the government are not properly directed to or focused on phoenix activity. The coalition members found that the measures were, instead, 'broad based and not targeted' and would impose such onerous obligations that company directors would become more focused on compliance, rather than on performance and running the business.

A particular concern expressed to the committee was the liability that these provisions would apply to board members of charities and other non-profit organisations, and that this liability would act as a disincentive to undertake those roles. When we consider the time and effort that these people put into volunteering their skills and their talents to important charitable institutions in our community, this would be of grave concern. It is a point I would particularly like to emphasise, because in my electorate the not-for-profit community organisations and their volunteers are one of the key pillars of strength. I have no doubt that that would be reflected in many other electorates around Australia, if not all.

The government continues to introduce ad hoc and piecemeal measures to deal with phoenix activity. However, as I have touched on previously, the government has yet to provide a comprehensive definition of what phoenix activity is. It has continually failed to target the measures so that they apply to directors of phoenix companies without imposing onerous new obligations on directors of the vast majority of companies that continue to comply with their legal obligations.

Within the current regulations—within ASIC, within the Corporations Act and within the tax act—there are more than sufficient provisions to prevent those directors from being able to be issued with tax file numbers or re-registered as directors of new companies. As I have touched on previously in this House, it is a matter of enforcing the regulations that are already there—not seeking to impose new levels of regulation because our regulators failed to apply the laws that are already in existence.

I reiterate that the coalition is strongly opposed to fraudulent phoenix activity—and I have already given a personal example of that—and supports all appropriate measures to stamp out this practice. As I said last year in debate on the Corporations Amendment (Phoenixing and Other Measures Bill), phoenixing is a cancer that is eating away at the foundation of trust upon which our business community and the broader community are built. It sours relationships and creates a distrust that means people can no longer rely on those they do business with. We remain concerned that the government's approach to this important public policy matter is again confused, ad hoc, piecemeal and not appropriately targeted.

Schedule 2 makes changes to the taxation of financial arrangements provisions, both as a revenue protection measure and as a revenue gain over the forward estimates. These changes apply to consolidated groups and work together with provisions of schedule 3 that have a retrospective impact. It also changes the consolidation tax cost setting arrangements—that is the retrospective component.

As I mentioned last night in the debate on the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2011, the coalition is opposed to retrospective taxation changes as a matter of principle. We are opposed to these changes for a number of reasons. Firstly, the proposed changes can change the substance of bargains struck between taxpayers who have made every effort to comply with the prevailing law at the time the agreement was entered into. They can expose taxpayers to penalties in circumstances where taxpayers could not possibly have taken steps at an earlier time to mitigate those potential penalties. Secondly, they may change the tax profile of taxpayers, which in turn can materially impact the financial viability of investment decisions and the pricing of those decisions. Thirdly, they can increase Australia's level of perceived foreign risk. I again make the point that the perception of sovereign risk these days with this government is no longer perceived or real and actual. How can taxpayers be expected to have complied with laws they did not know existed at the time they were supposedly expected to have complied with them?

Earlier today I received an email from a constituent who made the following remarks in relation to the retrospective effect of the proposed cross-border transfer pricing amendment bills debated last night. He said:

The retrospective effect of this legislation is particularly abhorrent because it goes back much longer than tax records are required to be retained.

My understanding of the bill before us today is that the retrospectivity actually goes back 10 years rather than the eight we were discussing last night. He goes on to make the point:

The whole tenor of the bill is predicated on the fact that the courts have ruled on the effect of the law as it is written and have dared not to support a 'policy' position taken by the Commissioner of Taxation. The law is now absolutely clear and the government should accept the ruling of the courts like all other citizens are required to do, or appeal if it thinks it has good grounds.

If these proposed changes were made prospective from the date of announcement, which in the case of the transfer pricing was 25 November 2011, then we would be inclined to support these measures.

Schedule 4 in the outlined bill is proposed to double the withholding tax on managed investment trusts from 7½ per cent to 15 per cent. We heard this morning that the government will now make changes to this schedule, and we wait with bated breath to hear what they actually are. At the end of the day, we still call on the government to scrap its ad hoc, piecemeal approach to double the tax on managed investment trusts. Our focus should be on encouraging further investment from our foreign counterparts through internationally competitive taxation arrangements so we can grow our economy more strongly.

As all of us in this House well know, we are a nation and an economy that relies on foreign capital to grow and build our economy and our wealth. The first example that springs to mind here is how destructive the world's biggest carbon tax is going to be for competition in this sense. I have spoken with an export business in my electorate that is considering shutting down operations for periods during the year, forcing staff onto annual leave or leave without pay in an effort to stay below the 25,000-tonne threshold for the carbon tax. This is in order to keep them competitive in their export markets against other countries that they compete with, such as the USA.

Getting back to the proposed changes to the managed investment trust withholding tax, as they stand, they would double the managed investment trust withholding tax for foreign investment from 7½ per cent to 15 per cent. I will continue on this, despite the fact that the government is proposing changes which none of us have seen. Again, they would be retrospective in that they would apply to all income distributions made after 1 July 2012, irrespective of when the original investment decision was made. In 2008, when the government reduced the rate of withholding tax progressively from 30 per cent to 7½ per cent, the coalition did not oppose that; we actively supported it.

However, at the time, we did express concerns that the reduction was not a genuine reduction for international taxpayers because, through the operation of the double taxation agreements, any reduction in taxation paid in Australia might simply lead to higher taxes being paid in other jurisdictions. At the time, the coalition also expressed concerns that the bill had not been subject to proper scrutiny as the government had not allowed the bill to be considered by the Senate Economics Committee, that Labor's costings of the measure may have been underestimated and that the government had delivered a tax cut to foreigners but had not delivered a tax cut for Australian taxpayers.

It is the government's constant chopping and changing in relation to the withholding tax that is yet again reducing our predictability in the eyes of international investors. If passed, this legislation will undermine Australia's objective of becoming a regional financial services hub in the Asia Pacific. Attracting more foreign investment is as important as ever to achieve stronger economic growth for our future. (Time expired)