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Tax Laws Amendment (2012 Measures No. 2) Bill 2012, Pay As You Go Withholding Non-compliance Tax Bill 2012
- Parl No.
Bernardi, Sen Cory
Collins, Sen Jacinta
Bilyk, Sen Catryna
Boyce, Sen Sue (The ACTING DEPUTY PRESIDENT)
ACTING DEPUTY PRESIDENT, The
Cormann, Sen Mathias
- Question No.
Sinodinos, Sen Arthur
- System Id
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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 SINODINOS (New South Wales) (11:57): Thank you for that powerful speech, Senator Edwards. You stole all my best lines! That having been said, there is so much in this government's approach to taxation policy that even I can make a contribution to this debate. The first point I would like to make is that I am surprised that the Tax Laws Amendment (2012 Measures No. 2) Bill 2012 contains a number of measures which, I suppose, taken together almost exemplify this government's approach to taxation policy generally. We are looking at a series of measures which impose retrospective elements and a series of measures which impose onerous new obligations. Thankfully, we have been saved one measure which was withdrawn in the House of Representatives regarding withholding tax on managed investment trusts. This goes to the heart of the way that this government does taxation policy and people in the community and people who are out there listening to this debate should be very concerned about the approach that the government takes to these matters.
I turn to the Pay As You Go Withholding Non-compliance Tax Bill 2012 and schedule 1 of the Tax Laws Amendment (2012 Measures No. 2) Bill 2012, which makes directors personally liable for unpaid superannuation, stops director penalties being discharged by placing a company into administration and makes directors and associates liable for PAYG withholding non-compliance tax where a company has failed to pay. Ostensibly, these measures are directed at phoenix like activities. Those of us on this side of the house fully support efforts to stop companies being put into administration in such a way so as to remove them from their lawful obligations. We do not like phoenix activity. People such as Senator Fierravanti-Wells, in a previous profession as a solicitor, including during the time she spent with the tax office, was very much involved in trying to unearth examples of that sort of activity and combating it. No-one has an argument with that, but here we have a bill which is a sledgehammer to crack a nut. The reason I say that is that we are putting further onerous obligations on directors and I think this is where there is an element of unrealism in the approach of the government.
The reason I say that is that, as part of my role as Chairman of the Coalition Deregulation Taskforce, I have been talking to companies across the country, to top company directors and also to people who might be said to be a bit more objective about the role and responsibilities of company directors. They are saying that company directors today face so many obligations that there is a concern about attempts to keep increasing those obligations, particularly in circumstances where a director may have no direct control over the matter that is of concern.
The Australian Institute of Company Directors have identified 700 separate pieces of legislation or regulation that they believe imposes obligations on company directors. So things are getting to a stage where many people are hesitating to become directors because of the obligations they are being asked to take on. That is not necessarily a reaction to the specific points being made here but it is like all these things: if you add further regulation or layers of regulation on top of what is, if you like, an iceberg of regulation, they can be the straw that breaks the camel's back. Many directors give us that feedback. So often with this government, with all respect to my colleagues on the other side, there seems to be this lack of understanding of how the corporate sector works.
We saw an important example of that when this government rushed through measures to do with employee share ownership, which were the subject of considerable brouhaha after they were introduced as part of one of the budgets a few years ago, were considerably unrealistic and did not seem to understand the underpinnings of these schemes. I think they had to be substantially redrawn and modified. That was a concern, because that betrayed a mindset of not understanding the way some of these schemes work in the private sector. We as a parliament and as, if you like, stewards of the public interest have an obligation to ensure that private operators, private interests do not in some way subvert the public interest or get an undue tax advantage. But the way that those bills were structured and the way those schemes were attacked showed a lack of understanding of how the corporate sector works. Again, I think there has been a lack of understanding here about the obligations already being put on directors. As I said, we on this side of the house support targeting phoenix type activities.
One issue with the bill, as I see it, is that we keep having ad hoc piecemeal measures introduced to deal with phoenix activity, but we have yet to see a comprehensive definition of 'phoenix activity'. The government stands accused of having continually failed to target measures applying to directors of phoenix companies, without imposing onerous and new obligations on directors of the vast majority of companies that continue to comply with their legal obligations. This is all a matter of perspective and proportionality. This idea that the business sector out there is spending its whole time trying to find ways to get around the laws of the land is not right. In every section of society there are bad apples and we should go after them. But in business you have to build trust with your customers, suppliers, employees and others. In building trust you have to show that you will meet your obligations.
Every parliament and every government have an obligation to understand the broader role that trust plays, particularly in a market type society. That is why, as I say, there is a lack of proportion, a lack of perspective in some of these measures. The coalition will continue to strongly oppose fraudulent phoenix activity and we will support all appropriate measures to stamp out this practice. However, this bill imposes too many obligations on too many good people who are trying to do the right thing.
In relation to a second set of measures, the changes to the taxation of financial arrangements provisions, let me first make the point that TOFA, as it is known in the vernacular, was a long time coming and very complex in the way it was put together. That is not a reflection on the people who put it together. We are talking here about an inherently very complex set of arrangements. No-one on this side of the chamber underestimates the difficulty of framing measures dealing with aspects of the taxation of financial arrangements. But that said, what we are dealing with here is a very clear, if you like, abrogation of the government's duty in that they are introducing changes which are retrospective to the existing tax law. These are being done both as a revenue protection measure and as a revenue gain over the forward estimates. They relate to a consolidation regime which 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 so that the head of the entity 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.
This bill operates to retrospectively reverse the changes made to the consolidation regime in 2010:
For corporate acquisitions that … took place before 12 May 2010—
which, I think, was budget day—
the changes prevent the retrospective operation of unintended effects 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.
In other words, this is a retrospective tax increase to correct legislative errors the government now accepts that it made when changing the consolidation tax cost-setting arrangements in 2010—clearly a mistake of the government's own making. The government had been warned before the 2010 changes were introduced that it had got this wrong, but it refused to listen. This is of a pattern where consultations occur with the private sector but where, essentially, you sometimes wonder whether it is for form's sake or for going through the motions or for ticking the box, as opposed to having a genuine dialogue and listening to each other. There is nothing worse than having some sort of dialogue of the deaf when it comes to consultation between government and stakeholders.
Sometimes, unfortunately, I find that governments can bring the attitude to the table that the people on the other side, because they are in the private sector, are potentially tax evaders, tax dodgers and the rest and therefore they should be treated as being guilty and have to prove their innocence.
Senator Bernardi: That was Graham Richardson. He was a tax evader, a tax dodger.
Senator SINODINOS: Thank you, Senator Bernardi. On the money, as usual.
During the consultations with industry on the exposure draft of 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. What has happened? It has come about that these people in the private sector, speaking sincerely in the context of consultations, made the government aware of the potential for significant deductions. The government did make some changes in the Senate in 2010, I do not know at whose behest, but they still did not address the key issues that had clearly been identified during the consultation process, particularly around the costings of the measures, so these predictions have come true.
They remind me very much of what happened with the mining tax, where, in a windowless room in Treasury or somewhere else, the gang of four—Gillard, Swan, Tanner and Rudd—sat down and worked out the resource super profits tax with a small group from Treasury. They did the modelling, and then what happened is that when they took it out there—
Senator Jacinta Collins: Was Godwin there?
Senator Bilyk: Was Godwin there?
Senator SINODINOS: Comrades, I will explain it to you if you are only happy to listen—through the chair.
The ACTING DEPUTY PRESIDENT ( Senator Boyce ): Senator Sinodinos, please ignore the interjections.
Senator SINODINOS: I am sorry. No, what happened is that they put it out there, and guess what? The mining industry took a nanosecond to look at this and to see that the government was going to accrue vastly greater revenue than its model was suggesting, so they saw that this would have a much more swingeing impact on the mining sector than the Treasury had assumed, because the Treasury did not understand the mining sector in regard to the modelling of the impacts of the resource super profits tax.
Senator Jacinta Collins: Is swingeing a technical term?
Senator SINODINOS: Swingeing means a particularly sharp increase or cut in something.
Senator Bilyk: Did you make it up or is it a real word?
Senator SINODINOS: No, it is a real word.
The ACTING DEPUTY PRESIDENT: Thank you, Senator Sinodinos, for the lesson, but could you please ignore the interjections. There are dictionaries available.
Senator SINODINOS: Sorry, Madam Acting Deputy President. As usual, you are right, and I will proceed. It reminds me very much of the mining tax exercise, where either the consultations with the private sector did not occur or the private sector was not listened to. You get the situation where the government has to hurry back to the parliament and has to put together these measures in order to protect this revenue and protect a revenue gain in the forward estimates.
When the 2010 legislation came into force, the 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. The Board of Taxation looked into the matter and confirmed everything that the government had previously been told about the higher deductions and the associated lower tax revenue. So there we have it: another botched consultation; another botched listening exercise.
Retrospective legislation is pernicious. If people are moving ahead on the basis of what they believe to be a set of settled arrangements, there is nothing more unsettling and more a breach of trust than to suddenly find themselves liable for something that they had had peace of mind that they were not going to be liable for. I remember that John Howard was burnt considerably in the early eighties when he introduced some retrospective tax legislation to do with the waterfront, to do with some of the bottom-of-the-harbour schemes that were uncovered as a result of the Royal Commission on the Activities of the Federated Ship Painters and Dockers Union. He paid a high price for years, particularly in Western Australia, where they are great federalists and great believers in following the principles of tax law. People should have learnt from that exercise that retrospectivity in the tax law, as in other parts of the law, does not serve the interests of the government or the governed. It is a breach of an important trust between taxpayers and the government. Breaching that principle alone, I think, should condemn this particular bill.
I turn now to the managed investment trusts which were withdrawn from this bill in the House of Representatives, I gather at the behest of the Greens. It is very interesting how the Greens, on occasion, can be greater economic rationalists than the government—sorry, yes, they are the government. The Greens had acknowledged, had recognised, that if the measure went ahead to increase the withholding tax rate—
Senator Cormann: Double it.
Senator SINODINOS: to double it from 7½ to 15 per cent, that would have a chilling effect on investment, particularly in areas—they were concerned—around renewable energy but more broadly around investment in critical infrastructure in Australia. This is after only a couple of years. The late lamented Kevin Rudd and the talented Chris Bowen reduced this tax to 7½ per cent as of 2010-11, only for Julia Gillard, Bill Shorten and David Bradbury to try and double it two years later.
One of the important things as a principle in tax policy and economic policy generally is certainty and stability. Continuity, consistency and credibility are what the Organisation of Economic Co-operation and Development used to talk about, and that is important in policy settings. If you are sending a message, as my colleague Senator Edwards said, that you want Australia to be a financial centre, you cannot chop and change on these measures. The government has chopped and changed on these measures in this budget because it needed revenue for other things, just as it transmogrified a company tax cut—
Senator Jacinta Collins: Transmogrified!
Senator Bilyk: Oh, you're just showing off now!
Senator SINODINOS: No, I am not. It is the word that came to mind.
The ACTING DEPUTY PRESIDENT: Senator Sinodinos, please ignore the interjections.
Senator SINODINOS: Madam Acting Deputy President, I entirely agree with you. It transmogrified a company tax cut into further cash payments to households in order to shore up its support ahead of the introduction of the carbon tax on 1 July. You cannot make tax policy on that short-term a basis.
Yes, governments have to have flexibility, a capacity to change policy settings over time in response to changing circumstances, but we are talking here about a measure that was trumpeted as part of our efforts to promote Australia as an international financial centre. Lamentably, our efforts to do so have gone backwards in recent years. Singapore is growing as an international financial centre. Hong Kong is growing as an international financial centre. Shanghai is growing as a financial centre. Some of that growth is inevitable. As more and more of the axis or centre of gravity of world economic activity shifts towards East Asia, it will be centralised in places like Shanghai and Hong Kong. But the fact of the matter is that, with our highly educated workforce, our experience in the financial services sector, our first-class lifestyle, our IT base, our advantage in time zones and all the rest of it, we are in a good position to be an international financial centre, but we are losing that to Singapore, just as in a number of areas in recent years we have been losing our competitive edge. Our costs are going up relative to our competitors and today our competitors are not the US, the UK or Europe. That is not who we benchmark ourselves against in terms of economic competition. Today it is very much Asia, Africa and Latin America. Places in Africa which are getting their governance systems right and are promoting more favourable regimes for foreign investment are starting to attract, for example, big mining investment. If you are a miner in Western Australia you will look seriously at the costs and benefits of doing work in Africa as opposed to do further work in our own region, including within Australia.
The issue of competing against areas in our own backyard in industries like financial services is critical. Anything that sends the signal that policy settings are volatile, are easily changed and are at the whim of government is not good enough. We have to have certainty, stability and continuity going forward. These particular measures were held up by the Greens in the lower house and I commend them for that. They saw the economic implications of this in a nanosecond and said, 'We have to have a further look at all of this.' Again I say I commend them for it. We encourage the government to rethink these sorts of measures and to create greater certainty and stability for our investment regime.
Let me say something about the mining tax. Over the last couple of days we have had revelations by UBS, through the work of a very respected mining analyst, that they expect this tax to raise less than half what is projected in the government's forward estimates. This is a concern because there are obligations for increased government spending which are linked to the revenue generated by the mining tax. We have this volatile, cyclically-sensitive tax revenue source which is tied to relatively certain future government spending obligations. That is increasing the vulnerability of the budget to the economic cycle. It is creating a further budgetary headache down the track and will come on top of the budgetary headache created by the carbon tax. Not only will we have fixed spending associated with the carbon tax but also we will have the danger that the price—once we go to a floating carbon tax when it becomes a carbon price—will fall and will reduce revenue available to governments. These are budgetary issues which are looming on the tax front and this discussion is an opportunity to raise those points.