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Tuesday, 26 June 2012
Page: 7914

Mr FLETCHER (Bradfield) (09:17): I am very pleased to rise to speak on the Tax Laws Amendment (Managed Investment Trust Withholding Tax) Bill 2012. This bill is the next stage in what has been an inglorious saga of prevarication and changing position by this government over many years. As I cast around for a term which would most accurately describe what has happened, I was reminded of my experiences as an eight-year-old boy with one of those electronics starter kits that you were given—in my case by an engineer father hoping to encourage his son in the same direction. Sadly, I turned out to be a great disappointment and became a lawyer, but I do remember one thing from this particular set. There was an exercise in building what was described, as I recollect, as a 'multivibrator flip-flop'. A multivibrator flip-flop is apparently some kind of electric circuit—that is as much as I recollect. But it struck me as really quite an appropriate term for what we have seen from the Treasurer in his conduct of withholding tax rates. This has really been a multivibrator flip-flop exercise, Madam Deputy Speaker. You would recollect, I am sure, the glowing terms in which the Treasurer announced to the world in 2008 the policy approach that he was going to take in this area. He had this to say. His words rang out through the chamber:

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, by reducing the current interim rate of 30 per cent to a final rate of 7.5 per cent for most nonresident investors.

We then had in the budget announcement in May of this year the announcement, to the great surprise of the financial services industry, that the rate was to increase from 7.5 per cent to 15 per cent. This came with very little warning. It emerged out of the need of the Treasurer and the government to desperately cast around for revenue to plug the massive hole that they had created through sustained fiscal mismanagement over several years and to deliver, for political reasons, on the promise of having a surplus for the 2012-13 year. With very little foreshadowing and very little announcement, it was disclosed that a decision had been taken to increase this rate—the reduction of which had been foreshadowed and announced so proudly only a few years before. With no notice, the financial services sector was told that the rate was going to increase from 7.5 per cent to 15 per cent.

That in itself was unsettling and disturbing enough, but last week we had a truly remarkable development, because last week the parliament was considering the Tax Laws Amendment (2012 Measures No. 2) Bill. The bill included within schedule 4 a set of provisions under which the rate was to move from 7.5 per cent to 15 per cent. That is to say that the bill was, it appeared, intended to give effect to the announcement made by the Treasurer in the budget speech only a few weeks before. We had the extraordinary saga of the Assistant Treasurer coming into this place and moving an amendment to remove the provision in the bill which was intended to give effect to the announcement which had been made only a few weeks before. This was a truly mystifying development, and no light was cast on the mystery by any explanation from the Assistant Treasurer. He sat mute at the table, giving no enlightenment to the chamber at all as to why the government was now reversing a policy which it had announced only a month before—a policy which in turn reversed the policy which the government had announced with such fanfare in 2008. So at that point observers were, to say the least, puzzled—the rate had gone from 30 to 7.5, and it was then announced it was going to go from 7.5 to 15, and the government then moved an amendment on its own bill to reduce the rate from 15 back to 7.5.

But the flip-flop activities of the Treasurer and the Gillard government in this area have not ceased, because in the bill the House is now considering the flip-flop continues. We are now told that indeed the rate will increase from 7.5 to 15 per cent, and we find in schedule 1 of the bill a set of provisions which is identical in every regard to the provisions which were contained in another bill put before the House last week and were then excised by the government in its own amendment. The word 'curious' does not begin to describe what is going on here. I reiterate that the only term that I can find that I think best describes the conduct of the Treasurer and the Gillard government on this front is the term that I have dredged up from my own memory as a small boy, playing with an electronic starter kit: the multivibrator flip-flop.

It is easy to castigate this government for its flip-flopping, but let us turn to the serious consequences of this kind of conduct. Let us turn to what it actually means for business confidence—not just in Australia but, very importantly, business confidence on the part of international investors who are considering putting money into an Australian investment. Let us recollect that international capital is highly mobile. Let us recollect that Australia is competing to attract investment capital against many other destinations. Let us recollect that Australia is a nation which, every year, imports capital—and, were we not to do that, we would leave investment opportunities not taken up and we would find ourselves less prosperous than we would otherwise be. So the question of creating a climate of confidence, in which international investment can be attracted, is a question of first importance for any responsible Australian government as it considers its economic policy. Unfortunately, we have had a government through this sorry saga over the last few years—including the extraordinary mismanagement of the last few weeks—which has done a remarkable amount to erode investor confidence, including the confidence of foreign investors.

What foreign investors now understand to be the position of the Australian government is that high-minded sentiments expressed one year can be abandoned in a great hurry the next year to fill a short-term budget hole. We have a government which is desperately casting around to try and find extra sources of money to deal with the fact that it has engaged in profligate, irresponsible, uncontrolled spending year after year, a government which is prepared to trash policy commitments it had made only a few short years prior and a government which is prepared to demonstrate extraordinary political incompetence and mismanagement in the basic task of giving effect to the legislative changes it has announced. It is just an extraordinary piece of mismanagement, and it leaves foreign investors wondering whether any policy commitment by this government is one that will be honoured for any period of time at all, because the risk that they must face and that they must factor into any investment decision they are contemplating is that for short-term domestic exigencies, because of the desperate need to manage short-term financial pressures, a policy setting which had supposedly been a substantial and reliable commitment of the government is just abandoned without any warning whatsoever.

One of the things that business requires more than anything else is certainty. What is important for business and for investors is to understand the ground rules as they are contemplating making investments in Australia. Businesses manage their affairs over a significant time frame; businesses engage in long-term planning. Major investment decisions require a long lead time and need to go through internal approval processes. Many businesses will be planning not just for next year with an operating plan but will have a forward plan which may extend two, three, four, five or even 10 years out. As they go through that planning process, businesses will assess the investment conditions that they face, and they are much more likely to come to a favourable investment decision in respect of an investment in Australia or anywhere else if they have confidence about the certainty of the regulatory environment into which they are proposing to make an investment.

The term 'sovereign risk' gets used extensively, but it is not exaggeration to say that capricious, short-term, random changes in significant tax parameters, inconsistent with the previously stated policy of the government, erode investor confidence and erode perceptions of a stable, well-managed jurisdiction that is not characterised by sovereign risk. Australia does have a good international reputation, built up over many decades of careful custody and careful stewardship. Australia does have a good international reputation as a jurisdiction where the rule of law prevails and which welcomes foreign investment. It is of the highest importance that we preserve, maintain and strengthen that reputation, particularly in view of the fact that we are a nation which is an importer of capital and has more investment opportunities than can be funded domestically—and, if we do not attract foreign capital, we will be less prosperous as a nation than if we do attract foreign capital. Against that backdrop, the House ought rightly be alarmed at the consistent inconsistency which has been displayed by this government when it comes to the treatment of the withholding tax rate for managed investment trusts. This has been an extremely unfortunate episode and a demonstration of extremely poor management. It sends a very bad signal to international investors, and everybody in Australia who is concerned about our international investment reputation and concerned about sound economic management ought to be very troubled at the way the government has managed this particular episode.