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Wednesday, 20 June 2012
Page: 7205

Mr BALDWIN (Paterson) (11:27): I rise to speak on the Tax Laws Amendment (2012 Measures No. 2) Bill 2012 and the Income Tax (Managed Investment Trust Withholding Tax) Amendment Bill 2012. I rise to speak on these budget measures, which are of huge significance to the tourism industry and our ability to ensure the infrastructure pipeline. I have to say that I have never seen a government more out of touch with the tourism industry, one that has so breached trust with the tourism and one that has so failed in basic communication between ministers. I say that because on 2 May this year the government announced a tourism investment guide to market Australian tourism investment to potential foreign investors in Shanghai.

It is true that this government needs to lift their game to attract these investors. For example, they need to restore the Survey of Tourist Accommodation and a comprehensive way to deliver a complete industry-wide performance model. They need to reduce government borrowing, which competes with tourism accommodation providers when they seek finance to improve their properties. They need to set KPIs for Austrade officials around the world to find inward investment, and they need to reduce red tape that currently makes residential property development more attractive than developing tourism accommodation stock.

Despite this, I welcomed the initiative that day and I commended the minister, saying, 'It is a good first step towards improving Australia's accommodation stock.' Depending on which model we assume to be true, we will need to provide somewhere between 30,000 new beds and 70,000 new beds to reach the Tourism 2020 targets. The opposition would help the sector help itself, by properly restoring the Survey of Tourist Accommodation. Under Labor the requirement for small boutique accommodation providers to report guest numbers was scrapped. Hotels and motels offering fewer than 15 beds are not required to report on occupancy.

While this saves the ABS less than $1 million, it means Australia no longer has reliable data on occupancy and no way for bank managers to determine returns on investment sought by providers. Work has begun within the Department of Resources, Energy and Tourism to restore reporting, with an online system to replace its expensive and slow phone interview based system. However, important parts of the sector have been dismayed by the lack of industry-wide consultation, by the extended delays in this project and by the government's long-term commitment to the project itself. The exclusion of small accommodation providers from the data capture represents a lost opportunity to establish complete research platforms upon which to base important tourism decisions. The government's prospectus was a totally powerful measure so long as it was part of the broader policy to deal with underinvestment. I was dismayed therefore to learn that, six days after launching its prospectus, the government doubled the tax on international hotel investors. The increase to managed investment trust withholding tax is one of the measures announced in the budget which have set the tourism industry into an absolute spin.

In this budget, the government has directly attack the tourism industry. For example (1) there is no carbon tax compensation for tourism, and this stands to destroy 6,400 jobs, mostly in regional and rural Australia and cut 10 per cent from industry profits; (2) the budget for Tourism Australia has been reduced by 6.2 per cent, which is $8 million in real terms; (3) the passenger movement charge has been increased from $47 to $55 per passenger, and a desire has been expressed to index it by the CPI; (4) $118.1 million in costs for AFP security at airports has been passed on, and these will be passed on to airlines, who will pass them on to tourists; (5) there have been 90 headcount cuts to Customs staff, so increasing tourist waiting times at airports; (6) duty-free concessions have been reduced; (7) the visa label charge will increase by $10; (8) there is a $7 million investment in SmartGates at the same time as the government is cutting $10 million from elsewhere in Customs' budget, and this will take the form of further staffing cuts; and (9) there are tax-loss carrybacks only for companies, and these are limited to two years. Australian Federation of Travel Agents CEO Jayson Westbury says:

If the Government has a budget black hole, it is not reasonable to hit the one industry that provides long term and career based jobs to everyday Australians, who already contribute significantly more than their fair share of taxes.

Mr Bradbury: Madam Deputy Speaker, on a point of order: the matters to which the member is referring have no relevance to the bills that are being debated.

The DEPUTY SPEAKER ( Ms Grierson ): Thank you, Minister. I have been listening to the member for Paterson, who has strayed quite a few times from the legislation before us. I would ask him to come back to the legislation.

Mr BALDWIN: Madam Deputy Speaker, I am exactly on the legislation. Like many on this side of the chamber, I followed proceedings in the House of Representatives Standing Committee on Economics and the questioning by the member for Wright. As that committee learned through testimony and from its publication a week ago of the report by the Allen Consulting Group, the net effect of the MIT bill will be that by 2016 there will be less money for government to spend—$172 million less, in fact—and that there will be reductions of $533 million in household consumption. In short, the tax will wipe out a large proportion of the household discretionary spending that tourism relies on for financial stability.

I am aware of a range of tourism investments threatened by the MIT bill, but I will not add to the pressure already put on developers by disclosing commercially sensitive information and citing individual cases. The Allen Consulting Group report made known to the House economics committee indicates the following: a one per cent increase in the rate of tax reduces the level of investment activity by three per cent; there will be a $1 billion decline in foreign capital results by financial year 2016; there will be a net overall reduction in federal tax revenue—that is, a substantial decline in economic activity will wipe out the entire estimated revenue rise; there will be a $172 million reduction in government spending capacity; 4,640 jobs will be lost; and there will be a reduction in household consumption of $533 million and in GDP of $580 million. The Allen Consulting Group concludes that an increase in withholding tax will be self-defeating. The Property Council of Australia and the Financial Services Council have evidence that the $1 billion decline has already occurred.

In advance of this debate many members will have been sent a copy of the Business Council of Australia's study into Australia's capital project investment pipeline called Pipeline or pipe dream? Securing Australia's investment future. As Business Council of Australia CEO Jennifer Westacott said when launching the study:

The study provides for the first time a total picture of how capital investment is driving the economy, and underlines why policy priorities for a stronger economy must help focus on the delivery of Australia's investment pipeline.

The study highlights how important the effective delivery of major projects will be to the future shape and health of the economy and living standards. The $921 billion pipeline is not assured, and we are becoming a high-cost place to invest.

The government's changes to the managed investment trust taxation, which fly in the face of the week-old Shanghai launch, are prime examples of the ways in which this government is making Australia a poor choice for investors. The BCA launched their report at the Prime Minister's Economic Forum last week. As reported in the media, the Tourism and Transport Forum opted not to attend that event—and they were wise not to do so. The last time they attended a similar event, their Deputy Chair, Ann Sherry, appeared at the future tax summit to advocate accelerated depreciation of assets to drive investment in the sector. The outcome was a budget plan scotched at the last minute to do just the opposite for aircraft. When the Prime Minister was quizzed on the TTF's nonattendance her pat response was to say Labor has been meeting with the tourism sector—and especially the cruise sector—and talking about their needs. Labor has lost all credibility with the cruise sector over two recent decisions. Firstly, where is the Prime Minister's decision to allow Carnival Corporation and P&O Cruises access to Garden Island as an overflow facility? Secondly, Labor completely disregarded Orion Expedition Cruise's very reasonable expectations, which were put to Labor through the shipping reform bills process.

Instead of attending the Prime Minister's Economic Forum, TTF CEO John Lee came to my electorate along with others, including Jayson Westbury, the CEO of the Australian Federation of Travel Agents, and John Hart, CEO of Restaurant Catering Australia, to meet with our shadow Treasurer. They and the others who came to speak with the shadow Treasurer about managed investment trust withholding tax and the passenger movement charge know that the coalition will both listen to and act on their concerns. They were reassured by the shadow Treasurer's comments on the need for a stable, predictable and sensible approach to policy. They have seen him respond by arguing the case on managed investment trust withholding tax and the passenger movement charge. These are the two key concerns facing tourism and hospitality out of this year's budget.

With these bills today, the government proposes to add to the cost of hotel management where a property is owned by a managed investment trust. According to Tourism Accommodation Australia, most MIT hotel investment in Australia is from Singapore and Malaysia and feedback from these investors is not good. According to John Lee, CEO of the TTF, the new tax impost in these bills will create instability and uncertainty for specific transactions. He says:

It is bewildering that such a long-considered policy, we understand developed over 2½ to three years, would be changed overnight without consultation or regard for the potential ramifications for the hotel and investment industry.

Minister Ferguson attended the National Tourism Alliance post-budget wrap-up with me the day after the budget was handed down. During the Q&A session he would have heard Rodger Powell of the Tourism Accommodation Association refer to advice from lawyers Baker & McKenzie recommending:

… non-residents holding Australian assets through MIT structures consider whether a MIT remains the appropriate structure for their investments in light of the government's decision.

I received a letter from Mr Powell earlier this week, in which he advises:

MITs are the vehicle through with much of the investment in Australian accommodation occurs. The Government's inconsistency in doubling the tax on MITs at a time when Tourism Australia is broadening its remit by actively seeking foreign investment in the Australian tourism industry is alarming.

You are, of course, well aware of the need for new investment in accommodation to ensure Australia is able to offer the travel experiences being demanded by our key tourist markets. The only way this can happen is by offering an attracting investment climate.

Mr Powell goes on to further advise that increasing the MIT withholding tax will:

1.Threaten existing projects and deter new investment in accommodation

2. Reduce tax revenue;

3. Damages Australia's reputation amongst foreign investors;

4. Increases Australia's reliance on foreign debt;

5. Undermines Australia's ability to serve as a regional financial hub; and

6. Scare off investors committed to long-term investments.

Of course, Labor will highlight that the rate was 30 per cent under the coalition. However, the Howard government brought down a range of taxes relevant to tourism, whilst creating Tourism Australia and lifting its funding to its highest level.

As my colleague Senator Cormann said on 29 May:

Labor's zig-zag approach to withholding tax on Managed Investment Trusts has also yet again increased Australia's sovereign risk profile.

The Gillard government has yet again managed to reduce the confidence of international investors in the stability and predictability of our taxation arrangements.

More important than the rate per se is the paramount importance that we give to hotel investor confidence in their 10-year investment plans that they will not change on a whim.

Howard had a plan to pay off Keating's $96 billion debt and provide assistance to business and individuals through easing tax pressures. Labor talks good when it comes to help meeting our Tourism 2020 targets which include boosting accommodation growth stock so that we can meet potential growth from China. As former Minister for Tourism Nick Sherry was quoted in a leading tourism industry publication Travel Weekly:

Unlike other sectors of the economy, investment in the broad tourism industry has "not been particularly good. Tourism Research Australia says investment growth in tourism is lagging behind the rest of the economy," Sherry said. "It's been a struggle to reach investment growth of 2% a year which is insufficient. The stark reality is that there has been no meaningful addition to Australia's accommodation supply for a decade or more.

Sherry was further quoted as saying:

The sad fact is that much of Australia's accommodation is outmoded and outdated and Chinese visitors in particular ... are used to very modern facilities in their own country. There is a great challenge in tourism to invest in the modernisation of facilities.

I urge the House—and particularly those members on the crossbenches to whom the tourism and hospitality industry looks for support—to consider the following facts: tourism's contribution to the Australian gross domestic product was $73.3 billion, or a 5.2 per cent share of the Australian economy. Total gross value added tourism was $69.1 billion, representing a 5.3 per cent share of the Australian economy. In Australia, tourism directly and indirectly employs 907,100 persons, representing 7.9 per cent of total Australian employment, and shrinking. Australians spent 130 million nights abroad in the year 2010. During its peak under the Howard government, Australian tourism made a profit of $3.584 billion. Next year the sector will stand to make a net loss of $8.7 billion. Since 2008, Australia has slipped from fourth to 13th place in the World Economic Forum Travel and Tourism Competitiveness Index rankings.

Let us look past the nonsense of this tax. I encourage the government to back down on this, as they are doing on the CPI aspect of the passenger movement charge. They need to understand the industry. They need to work with the industry. You actually create growth and investment by reducing taxes, not increasing taxes, on individuals and companies. That is why this part of the budget is an absolute farce and the Assistant Treasurer sitting opposite should recognise these facts.