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Wednesday, 3 October 1984
Page: 1150


Senator RYAN (Minister for Education and Youth Affairs)(6.46) —I move:

That the Bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows-

Income Deposits Legislation

Income Deposits Legislation

LOAN (INCOME EQUALIZATION DEPOSITS) AMENDMENT BILL 1984 [No. 2]

The Government is resubmitting to the Parliament two Bills, which were not passed by the Senate during the autumn sittings, to give legislative effect to changes to the Income Equalization Deposits Scheme. These changes had been previously announced in ministerial statements. The two Bills are the Loan ( Income Equalization Deposits) Amendment Bill 1984 and the Income Tax Assessment Amendment (Income Equalization Deposits) Bill 1984.

The Government is also introducing, for the first time, the Income Equalization Deposits (Interest Adjustment) Bill 1984.

I need not dwell on the provisions of the two Bills which have been previously submitted to the Senate. Details were given in the second reading speeches at that time and were also described in the explanatory memoranda then circulated. The provisions of the Bills the Government is now introducing are identical to the earlier Bills.

In essence, the aim of the income equalization deposits scheme is to encourage primary producers to deposit monies in years when their incomes are high, so as to provide funds which can be drawn upon when incomes are lower.

The scheme, as amended, will have no taxation consequences other than the normal taxation of interest on deposits as income. The new tax averaging arrangements generally remove the inequity, which would otherwise be experienced by primary producer taxpayers with fluctuating incomes, without the need for income equalization deposits. The averaging provisions have the effect that tax in both high and low income years will be calculated at the average rate corresponding to average income. Over a run of years that gives a comparable result to taxpayers who have similar, but not fluctuating, incomes.

While the removal of the in-out option under the various averaging provisions removed much of the possible manipulation associated with the interaction of the former IED and averaging schemes, continuation of the former IED arrangements would still have allowed the possible manipulation of provisional tax payments. The old arrangements also provided the greatest benefits to primary producers with the highest marginal tax rates. Hence depositors in the IED scheme with the highest incomes benefited most.

All primary producers using the new scheme are eligible to receive similar benefits. The incentive to make deposits will be 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 the former arrangements.

Only primary producers are eligible for the higher rate. Deposits up to a limit of $250,000 deposit stock will be eligible for the concessional interest rate. Any deposits made above $250,000 would be paid interest at a rate of three percentage points below the short term bond rate.

A primary producer may make in any income year new deposits eligible for the higher rate of interest, up to an amount equivalent to the lesser of:

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

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

An eligible deposit made at the higher rate will continue to attract interest paid on that basis as long as the depositor continues in the business of primary production.

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 twelve months on grounds of financial hardship.

The Income Tax Assessment Amendment (Income Equalization Deposits) Bill 1984 which I shall introduce shortly provides for amendments to the Income Tax Assessment Act so as to remove the provision that income equalization deposits made by eligible primary producers attracted income tax deductions.

As a result of that Bill, deposits made after 1 September, 1983 will attract no special income tax consequences and in particular the income tax deduction previously allowable for eligible deposits will be withdrawn.

I have outlined the provisions contained in the Bill on a previous occasion. I again point out that the Bill will enable depositors under the former income equalization deposits arrangements or the previous drought bonds scheme to convert those instruments to the new scheme so as to take advantage of the special rate of interest payable.

Further explanations of the features of the Bill are contained in the explanatory memorandum that was made available to honourable members when the previous Bill was introduced on 10 June, 1984.

When the Senate failed to pass these two Bills, to which I have now referred, the Treasurer announced on 29 June, 1984 that the Government intended to maintain its policy on the scheme-as had been announced in 1983 and as had been operating since September 1983.

Because of the failure of the Senate to pass the Government's legislation however, primary producers, in the absence of any action by the Government, could have gained unintended benefits. That is, deposits lodged since 1 September, 1983 would have remained tax deductible and would also have earned the higher, concessional interest rate intended to apply under the revised scheme.

Having regard to the unintended benefits, the Government lowered the rate of interest applying on or after 29 June, 1984 to deposits made since 1 September, 1983. The rate was lowered to 7.5 per cent per annum, to apply pending reconsideration by the Parliament of the legislation which is now being resubmitted.

Thus, the purpose of the Income Equalization Deposits (Interest Adjustment) Bill 1984 is to provide for backpayment of interest in respect of income equalization deposits made since 1 September, 1983.

The backpayments will relate to the period between 29 June, 1984 and the commencement of this Bill and will be calculated as the difference between the interest actually paid during that period at the rate of 7.5 per cent and the interest which otherwise would have been paid had the Senate passed the IED Bills when they were presented to it.

If the legislation as resubmitted by the Government is agreed to on this occasion, eligible deposits will receive the higher interest rate as if the Loan Amendment Bill had been passed in the first instance.

As for the revenue costs of the new incentive arrangements; they are not expected to be very different to the cost of the former scheme-but the benefits will be spread more equitably.

In conclusion, I remind the Senate that the new IED scheme has been designed to allow primary producers to deposit funds with the Commonwealth at interest rates higher, and on conditions more favourable, than those on Commonwealth securities offered to the general public.

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

I commend the Loan (Income Equalization Deposits) Amendment Bill 1984 to the Senate.

INCOME TAX ASSESSMENT AMENDMENT (INCOME EQUALIZATION DEPOSITS) BILL 1984 [No. 2]

In introducing the Loan (Income Equalization Deposits) Amendment Bill 1984, I outlined the general purpose of this Bill.

Its detailed provisions were described when it was previously introduced to the Senate and those provisions remain unaltered.

I commend the Bill to the Senate.

INCOME EQUALIZATION DEPOSITS (INTEREST ADJUSTMENT) BILL 1984

In the second reading speech on the Loan (Income Equalization Deposits) Amendment Bill 1984, I described the purpose of this Bill and its relationship to the Loan Amendment Bill and the Income Tax Assessment (Income Equalization Deposits) Amendment Bill.

I commend the Bill to the Senate.

Debate (on motion by Senator Reid) adjourned.