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Tax Laws Amendment (2012 Measures No. 2) Bill 2012, Pay As You Go Withholding Non-compliance Tax Bill 2012
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Cormann, Sen Mathias
Tax Laws Amendment (2012 Measures No. 2) Bill 2012, Pay As You Go Withholding Non-compliance Tax Bill 2012
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- Start of Business
- PARLIAMENTARY OFFICE HOLDERS
- Paid Parental Leave and Other Legislation Amendment (Dad and Partner Pay and Other Measures) Bill 2012
- Passenger Movement Charge Amendment Bill 2012
- Tax Laws Amendment (2012 Measures No. 2) Bill 2012, Pay As You Go Withholding Non-compliance Tax Bill 2012
- Financial Framework Legislation Amendment Bill (No. 3) 2012
- MINISTERIAL ARRANGEMENTS
QUESTIONS WITHOUT NOTICE
(Ronaldson, Sen Michael, Carr, Sen Bob)
Vocational Education and Training
(Marshall, Sen Gavin, Evans, Sen Christopher)
(Birmingham, Sen Simon, Wong, Sen Penny)
(Milne, Sen Christine, Lundy, Sen Kate)
(Williams, Sen John, Wong, Sen Penny)
Agriculture, Fisheries and Forestry
(Moore, Sen Claire, Ludwig, Sen Joe)
(Nash, Sen Fiona, Wong, Sen Penny)
(Madigan, Sen John, Wong, Sen Penny)
- Carbon Pricing
- QUESTIONS WITHOUT NOTICE: ADDITIONAL ANSWERS
- QUESTIONS WITHOUT NOTICE: TAKE NOTE OF ANSWERS
- PERSONAL EXPLANATIONS
- MATTERS OF PUBLIC IMPORTANCE
- FIRST SPEECH
- AUDITOR-GENERAL'S REPORTS
- Legislative Instruments Amendment (Sunsetting Measures) Bill 2012
- Higher Education Support Amendment (Student Contribution Amounts and Other Measures) Bill 2012, Statute Stocktake (Appropriations) Bill (No. 1) 2012, Tax Laws Amendment (Investment Manager Regime) Bill 2012
- National Broadcasting Legislation Amendment Bill 2010
- QUESTIONS ON NOTICE
Wednesday, 27 June 2012
Senator CORMANN (Western Australia) (11:00): The Tax Laws Amendment (2012 Measures No. 2) Bill is yet another demonstration of the complete incompetence and the complete dysfunction of this high-spending, high-taxing Labor administration. This government does not know whether they are Arthur or Martha. They do not know where they are going; they do not know whether to go left or right or straight ahead. They are spending so much money that they are always casting around for more cash. They are always looking for another opportunity to tax somebody. When Mr Rudd was Prime Minister and Mr Bowen was looking after this particular portfolio responsibility, they decided to reduce the withholding tax on managed investment trusts. When Prime Minister Gillard and Minister Shorten come in, they decide to double the withholding tax on managed investment trusts, but they did not have the support in the parliament for that particular tax grab. They did not have their alliance partner, the Greens, on board, so what did they do? In a rush, in complete chaos, they quickly scramble to take that part of this bill and reintroduce it as part of a separate bill. This government is all over the place. In their desperate rush for more cash, their processes are in an absolute shambles. This government has completely lost the plot.
Here we have another tax laws amendment bill before us, which contains a whole series of tax grabs—including, I might add, some retrospective tax grabs, which are there to fix up some of Labor's past stuff-ups. Remember back in 2010 when Labor was trying to make some changes to the consolidation scheme arrangements and we said to them at the time, 'What you are doing is wrong. The way you are doing it is going to cause you some issues.' And sure enough, it has caused issues. Here they are in a mad scramble trying to fix it, but—guess what?—they say it is going to be retrospective. They are going to take it all the way back to 2010, when they made the original stuff-up.
Let me say that tax law changes that impose adverse consequences on taxpayers should not be retrospective. How can a taxpayer be expected to have complied with a law that he or she did not know existed at the time? The reason we have these sorts of chaotic, incompetent, dysfunctional changes to our tax laws, proposed by this incompetent and dysfunctional government, is that, under the leadership of Prime Minister Gillard and Treasurer Swan, our public finances have got into a complete mess. This is the government that inherited from the coalition a strong fiscal position-a budget position with no government net debt, with a $22 billion surplus and with $70 billion invested in the Future Fund. We actually left the Labor Party a situation where the government was collecting net interest payments, rather than having to pay net interest to service the debt that they have accumulated. What has this government done? In four and a half years they have delivered $174 billion worth of accumulated deficit. They have taken us from no government net debt to a situation where we are now heading for a $145 billion worth of government net debt. They are planning to spend about $30 billion over the forward estimates in net interest payments to service the debt that Labor and the Greens have accumulated over the last four and a half years. That is why we get the sorts of chaotic tax law changes that are before the chamber today.
In a mad last-minute rush last week the government actually had to remove Schedule 4 from this bill—Schedule 4 which was supposed to be the doubling of the withholding tax on managed investment trusts. That was an extraordinary measure. The chaotic approaches to tax administration and to tax policy from this government have already had a very significant impact on our sovereign risk profile. We need a government that spends less so that we can tax less. We need a government that is committed to a more stable approach to tax policy and tax administration, because we need to focus on being internationally competitive and on being an attractive destination for investment. We need to focus on these things, so that we can grow our economy more strongly. The one thing that senators on this side of the chamber understand, and which Labor senators clearly do not understand, is that an economy that grows more strongly not only delivers increased economic prosperity for all Australians, but it also delivers increased revenue for government without the need for all these new and ad hoc Labor Party tax grabs—all this constant chopping and changing of tax arrangements. As I have mentioned, it was Prime Minister Rudd and Minister Bowen who reduced the withholding tax on managed investment trusts to 7½ per cent, only for Prime Minister Gillard and Mr Shorten to turn around and double it. It is only since 2010-11 that this tax has been at 7½ per cent. The parliament was expected to turn around and say, 'Okay, in 2010-11 the tax rate was 7½ per cent, but we will be complicit in turning around, making yet another change and doubling this rate, which will have significant implications for our capacity to attract investment, particularly for critical infrastructure.' Yet again, the government has not done its homework. It introduced this Tax Laws Amendment (2012 Measures No. 2) Bill without having checked the numbers, without having made sure that it had support on the floor of the parliament. There is one reason, and one reason only, why the government removed schedule 4 from this bill in the House of Representatives last week: the government knew that it did not have the confidence of the House of Representatives to pass that tax increase. That is why the government, in a mad rush, removed that schedule from this bill. In order to save face it then scrambled to reintroduce it as a stand-alone measure, which it is now attempting to ram through the parliament. I only hope that the Greens will remain strong and impose proper parliamentary processes and proper parliamentary scrutiny on what is yet another ad hoc Labour Party tax grab, which will have bad consequences, including for investment, dare I say, in important environmentally friendly green infrastructure.
This bill includes a number of proposed changes in relation to the taxation of financial arrangements provisions and the consolidation tax cost settings, in particular. It is proposed that the changes to the consolidation tax cost settings be retrospective to 2010 in order to fix, as I have mentioned, a problem of the government's own making. It is to fix yet another Labor Party stuff-up. These bills make changes to the taxation of financial arrangements and link changes to the consolidation regime provisions. The government says that this is a revenue protection measure, even though there is going to be, and the budget indicates that there will be, a revenue gain over the forward estimates. A consolidation regime treats a group of wholly owned or majority owned companies and other associated entities, such as trusts and partnerships, as a single entity for tax purposes. This means that the head entity of the group is responsible for all or most of the group's tax obligations, including the lodgement of tax returns and the payment of tax obligations. The explanatory memorandum to the bill highlights how this bill operates to reverse retrospectively the changes to consolidation regime is made in 2010. It says:
For corporate acquisitions that … took place before 12 May 2010, the changes prevent the retrospective operation of unintended effect—
that is what the government says—
of, and perceived weaknesses in, amendments to the law that were made in 2010. These changes are necessary to protect a significant amount of revenue that would otherwise be at risk.
That is what the government says in its explanatory memorandum. My office contacted the Assistant Treasurer's office to ask how much revenue is at risk, because we were told that the fiscal impact of this bill was nil. We asked what the impact of not passing this bill would be. The Assistant Treasurer's office was not able to tell us—it did not have a clue. It was only later, during the inquiry by the House Standing Committee on Economics into this bill, that Treasury revealed that there could be a negative $6 billion impact on government revenue.
The government was warned before the 2010 changes were introduced that it had got things wrong, but it refused to listen, as is so often the case with this incompetent, dysfunctional Labor government. During the consultation on the exposure draft for the 2010 legislation, industry clearly warned Treasury and the government that they had got their costings wrong and that the proposed changes would lead to much higher deductions being claimed, which would lead to a reduction in revenue. The government did make some changes while we were debating these changes in the Senate in 2010 but it still did not address the key issues that had been clearly identified during the consultation process, especially the issues around the costing of the measures.
When the 2010 legislation came into force, industry predictions came true. Companies did take advantage of the higher deductions permitted by the government's flawed legislation, exactly as had been predicted, and there was a collapse in anticipated revenue. When the ATO informed Treasury and the government of this collapse in anticipated revenue the government asked the Board of Taxation to look into these issues. The board's inquiry confirmed what everybody but the government knew before it made these changes back in 2010—that is, that higher deductions would lead to a lower associated taxation revenue.
Now the government proposes to punish taxpayers for its incompetence. It proposes to punish taxpayers for its own error, even though it had been warned about the error and refused to listen to that advice. The government should not punish taxpayers retrospectively for its own incompetence, for its own mistakes and for its refusal to listen to the advice that it was provided in good faith at the time. Importantly, the government should also let the parliament and the Australian public know what new procedures if any it has put in place to make sure that such errors, with such enormous financial consequences, will not be made again. People across Australia have lost confidence in this government's capacity to manage anything competently. People across Australia concluded long ago that this is an incompetent, dysfunctional government which deserves to be thrown out of the next election. I do hope that in the bowels of the Public Service some serious work is being done to review the processes that led to the lack of adequate consideration as these bills were put together back in 2010. The consolidation tax cost setting arrangements and changes in taxation of financial arrangements are, as I have mentioned, retrospective tax changes. The coalition is opposed to retrospective tax changes as a matter of principle. I put that on the record very clearly. We do not believe that taxpayers should be adversely affected through retrospective changes imposing tax laws on people when people did not know these existed at the time they made certain decisions that were relevant to the taxes being proposed now.
The reasons the coalition is opposed to retrospective tax changes are, among others, that they can change the substance of bargains struck between taxpayers who have made every effort to comply with the prevailing law at the time a particular agreement or decision was made; they can expose taxpayers to penalties when taxpayers could not possibly have taken steps at the earlier time to mitigate the potential for penalties to be imposed; they may change a taxpayer's tax profile which in turn can materially impact the financial viability of investment decisions and the pricing of those decisions; and they can increase Australia's level of perceived sovereign risk.
I ask the question again, and this is really the crux of the issue: how can taxpayers be expected to have complied with laws that they did not know existed at the time they were supposedly expected to have complied with them? I really would like the government to provide an answer to that question as it sums up this debate. That really goes to the crux of this issue. The government has not made a compelling enough case publicly to justify the retrospective application of this legislation. The government has not explained why a taxpayer should have to pay the price for the Labor Party's dysfunctional incompetence over the last 4½ years in government but, in particular, in relation to the tax changes that were passed through the parliament by the government back in 2010. This is just a belated attempt by Labor to amend the consequences of its mistakes made in 2010. Taxpayers should not be expected to pay for the consequences of Labor's incompetence and mismanagement through retrospective tax changes.
Incidentally—and I make this position very clear—if the changes that are on the table now were made to be prospective from the date of announcement, 25 November 2011, then we would be inclined to support those changes. But the reason we will vote against this bill is the retrospective nature of its provisions. That is why the coalition cannot support those changes in the current form.
Commenting on the proposed changes in schedule 1, through schedule 1 the government proposes that it wants to target, yet again, phoenixing activity. This is the government's second attempt at this. It has previously tried to move similar amendments as part of its previous bill. These changes propose to make directors personally liable for unpaid superannuation, stop director penalties being discharged by placing a company into administration and make directors and associates liable to pay out PAYG withholding non-compliance tax when a company has failed to pay. These changes were previously the subject of a parliamentary economics committee inquiry and, in a bipartisan fashion—that is, Labor members and coalition members—that committee said the government got it wrong. They sent the government back to the drawing board. They said to the government, 'These measures are not appropriately targeted to focus on phoenixing activity'. Phoenixing activity is not even defined in this legislation. The House economics committee, in a unanimous fashion, told the government, 'Go back to the drawing board; go and do your homework'. Even Labor members on that committee were embarrassed by what the government had put forward.
Now, a couple of months later, the government turns around and says, 'Here, we are bringing it in again'. Do you know what, Mr Acting Deputy President? It is not good enough. We do not believe that the government has addressed the concerns that the House economics committee in a bipartisan fashion expressed earlier this year, which is why, in their current form, we will not be able to support those provisions either. We take phoenixing activity very seriously. We do need effective action against phoenixing activity, activity where people try to avoid paying debts that they have incurred by shifting funds from one company to another when they have an interest in both companies.
People who want to avoid paying their debts should have the book thrown at them but you have to make sure that the measures that you put forward properly target that activity and do not just catch everyone. That is our concern with the provisions in this bill. This is far too broad a brush. It is not adequately targeted and it is just yet another demonstration that this government—even after its own members told them that they needed to have another look—is not able to do a job professionally and competently.
I finish where I started. This is the most incompetent, the most dysfunctional government since Federation. Even Labor voters across Australia are embarrassed by the incompetence of this high-spending, high-taxing government. This bill is another demonstration of a government that has lost the plot, that is completely chaotic, that does not know what it is doing, that does not know whether it is Arthur or Martha. One day it says we need to reduce a particular tax and then it wants us to double it. One day it is in the bill then it is out of the bill. It has not got a clue. (Time expired)