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Thursday, 10 May 1984
Page: 1886


Senator GRIMES (Minister for Social Security)(10.06) —I move:

That the Bills be now read a second time.

I seek leave to incorporate the second reading speeches in Hansard.

Leave granted.

The speeches read as follows-

LOAN (INCOME EQUALIZATION DEPOSITS) AMENDMENT BILL 1984

The purpose of this Bill is to give legislative effect to changes to the income equalization deposits scheme, first announced in the Treasurer's economic statement to the Parliament of 19 May, 1983. Further ministerial announcements on 16 June, 1983 and on 23 August, 1983 expanded upon the proposed nature of those changes.

The Income Equalization Deposits Scheme, as amended, will have no taxation consequences other than the taxation of interest as income. The Government decided to remove the scheme from the tax system to prevent the possibility of its use for tax avoidance and so as to make the benefits accruing from the scheme more evenly available to all primary producers. The old arrangements had a degree of inequity, in that producers on the highest marginal tax rate, that is, on the highest incomes, benefitted most.

As the provisions of the new scheme have been well publicized already, and as the details of the Loan (Income Equalization Deposits) Amendment Bill 1984 are explained in detail in a memorandum which I have arranged to be circulated, I shall confine my comments to outlining the broad features of the amended scheme.

The aim of the scheme is to encourage primary producers to deposit moneys, in years when their incomes are high, so as to provide funds which can be drawn when incomes are lower.

The incentive to make such deposits is an attractive interest rate, set quarterly at two percentage points above the short term Commonwealth Treasury Bond rate.

The eligibility criteria which determine whether this high rate is received on deposits will be broadly the same as under former arrangements.

All primary producers, but only primary producers, are eligible for the higher rate.

Deposits can be made up to a limit of a $250,000 deposit stock. Above that, they will not be eligible for the higher rate.

In respect of any income year a primary producer may make new deposits which receive the higher rate of interest, up to an amount equivalent to the lesser of :

sixty per cent of gross receipts from primary production in respect of that year; and

taxable income, other than income derived from property, in respect of that year.

A deposit made at the higher rate will continue to receive that rate subject to the Taxation Commissioner's confirmation of eligibility estimates and as long as the depositor continues in the business of primary production.

The determination of eligibility will be a two step procedure. The first step will be taken by the primary producer, self estimating the eligible deposit level for his or her current income year. This allows primary producers to take advantage of a current high income year to make deposits at the attractive interest rates.

Interest payments in respect of new deposits will be based essentially on this self-estimation process. Provision is also being made, however, for the Commissioner of Taxation to provide an accurate assessment of the income of depositors and to provide that assessment to the Administrator of the scheme, who is to be known as the authorized person. The authorized person will only need to make an adjustment to the interest entitlement of the depositor if the commissioner's assessment effectively lowers the depositors' eligibility for interest payments at the high interest rate below the level which would otherwise be payable in respect of deposits actually made. Provision is being included to recoup any overpayments of interest which arise from overestimation by the depositor. Unwitting overestimation of income and deposit amounts will not be penalized, other than by recoupment. Furthermore, deposits made as a result of overestimates by primary producers will be able to be withdrawn without penalty immediately the Commissioner of Taxation's Determination is known.

However, overestimation and deposit with intent to defraud is an offence under the Bill.

The Bill provides for primary producer depositors to retain their ongoing entitlement to the high interest rate if they move in and out of primary production, or change primary production endeavours so long as they are not absent from primary production for a period exceeding 120 days. Of course new deposits may be made after resumption of primary production beyond that period and they would receive the higher interest rate if the eligibility criteria were then satisfied.

The Amendment Bill provides that a depositor is required to notify the authorized person of the cessation of primary production business.

Withdrawals from the scheme will be possible on a similar basis as in the past. That is, deposits may be withdrawn at any time after 12 months, or within that time on grounds of financial hardship. Hardship will initially be judged by the authorised person. If the depositor who is claiming hardship is dissatisfied with the initial judgement, he or she may approach the Administrative Appeals Tribunal for a ruling.

The impact of the new arrangements on the future levels of deposits and withdrawals is very difficult to project with any degree of accuracy. Deposits have been continuing to ease since 1982. There may have been some natural pause in deposit intake toward the end of, and immediately following, the drought and also during the period of transition between the new scheme coming into effect on 1 September, 1983 and the application of this amending legislation. It will be necessary to observe the deposit performance over some period before accurate projections can be made about the longer term trend of deposits.

The level of interest payments will depend on the level of deposits and so they are also very difficult to project accurately. The interest rates applying to the new scheme have been higher than those offered under former arrangements. However unrecouped income tax deductions will be brought to account at the time of conversions and this will offset the cost of the Budget of the higher interest rate.

Furthermore, the new scheme has none of the characteristics which enabled depositors to avoid tax under former arrangements.

The difference in administrative cost caused by the changed arrangements is expected to be small.

The new IED scheme has been designed to allow primary producers to deposit funds with the Commonwealth at interest rates higher, and conditions more favourable, than those on Commonwealth Securities offered to the general public.

This subsidy is intended to motivate primary producers to prepare for lean years but does not enable the wealthy to benefit more per dollar deposited, as did the former scheme. As such, this scheme should be particularly welcomed by smaller primary producers and those concerned with equity in our community.

I commend the Bill to the Senate.

INCOME TAX ASSESSMENT AMENDMENT (INCOME EQUALISATION DEPOSITS) BILL 1984

This Bill is complementary to the Loan (Income Equalization Deposits) Amendment Bill 1984 which I have just introduced.

In introducing that Bill I outlined the features of the new Income Equalization Deposits Scheme which has been developed by the Government and which will operate with effect from 1 September 1983.

The new arrangements are far more equitable than the ones they replace and will better serve to encourage primary producers to make due provision for adverse seasons.

The provisions of this Bill are consequential upon amendments of the Loan ( Income Equalization Deposits) Act 1976 proposed by the earlier Bill.

Their main purpose is to amend the income tax law to make changes to the taxation treatment of income equalization deposits in harmony with the decision to replace the former tax incentive basis of the scheme with one based on the payment of attractive interest rates on deposits.

Accordingly, deposits made after 1 September 1983 will carry no special tax consequences.

In particular, the income tax deduction previously allowable for eligible deposits made within specified limits is to be terminated.

In outlining the provisions of the earlier Bill, I made it clear that, under the new arrangements, drought bonds and deposits made before 1 September 1983 may be transferred to the new scheme to enable depositors to take advantage of the special rate of interest payable under that scheme.

Consistently with the basis on which income tax deductions were allowed under the former arrangements, where drought bonds or pre-1 September 1983 deposits are converted to the new scheme the amount so converted will be included in the depositor's assessable income of the year of income in which the conversion takes place.

Depositors who apply to convert to the new arrangements within 60 days after the Bill receives Royal Assent will, for these purposes, be taken to have done so on 1 September 1983.

Of course, no amount will be required to be included in assessable income in respect of drought bonds or income equalization deposits that did not qualify for deduction.

The Bill will also permit the Commissioner of Taxation and his officers to furnish relevant information contained in tax returns to authorized persons involved in the administration of the new IED scheme.

This is necessary because eligibility criteria applying to depositors under the new scheme will continue to be based on tax-related factors.

A technical explanation of the Bill is contained in the explanatory memorandum that is being made available to honourable senators.

I commend this Bill to the Senate.

Debate (on motion by Senator Chaney) adjourned.