Senator COOK (11:56 AM) —The Taxation Laws Amendment Bill (No. 3) 1998 is a bill which contains a large number of unrelated but nonetheless significant tax matters. It includes the introduction of the new government dissavings rebate scheme, together with the major proposed change to the superannuation system, known as the `choice regime'. This debate takes place against the background of the so-called tax reform debate taking place in Australia at the moment. I say `so-called' because there is no debate really taking place and that is for the reason that the government—specifically the Prime Minister, Mr Howard, and the Treasurer, Mr Costello—refuse to participate in a debate.

It is a fair question as to why the government will not come clean on this issue. Why has the promised discussion paper on the taxation of trusts been suppressed, for example? Is it because so many coalition frontbenchers—19 in all—have trusts, the most notorious being the trust arrangements of Senator Parer? Is it because so many coalition backbenchers have trusts and this government is more interested in protecting the financial interests of its members—exemplified by Senator Parer—than it is about doing something effective about tax avoidance in this area?

We have the ludicrous situation where these two leaders of the government—the Prime Minister and the Treasurer—are constantly denigrating Australia's tax system generally through false claims and wild exaggerations of the scale of particular problems, yet they absolutely refuse to tell us what they are planning to do. There is no doubt there is an electoral ambush in the making.

What they are engaged in is a concerted effort to falsely worry Australian business people and families into thinking that the Australian taxation system is broken. We know, and we have certainly argued, that that is patently untrue. The truth of the matter is that the tax system is in very much better shape than it was when Labor came into power in the early 1980s. Then it was fair to say that the tax system really was broken, and it was broken because of the negligent stewardship of the then Treasurer, the current Prime Minister. It was broken because paying tax was made optional for those with access to specialist taxation advice. The then Treasurer, Mr Howard, refused to act for years on the taxation advice provided by Taxation Commissioner O'Reilly. He was deliberately protecting a small minority of the community, as is demonstrated by the protection and total support he has now given to Senator Parer.

Looking at the specific provisions of the bill, I wish to focus on superannuation choice provisions, the savings rebate provisions, dividend streaming and the changes to private company shareholder loans. Schedule 5 of the bill implements the government's policy on choice of superannuation fund. The introduction of this policy is arguably one of the most significant changes to superannuation since Labor introduced the superannuation guarantee in 1992 and will change the entire nature of the superannuation industry.

Public debate on choice of superannuation funds has highlighted the unsatisfactory attempts by other countries to introduce choice of superannuation fund, particularly the United Kingdom and Chile, and the impact which the failure of choice of fund has had on the retirement incomes of people in those countries. In the United Kingdom, for example, some 570,000 people were sold inappropriate retirement income products as a result of the introduction of the Thatcher government's superannuation choice model, which this government has adopted. The compensation bill for those people is currently $10 billion and climbing. If that were to happen in Australia, it would be the end of superannuation.

What those experiences of other countries suggest is that any choice of fund proposal should be carefully scrutinised by the parliament before it is introduced. To that end, Labor supports a Senate inquiry into the choice of fund, with Labor and Democrat senators recommending that the government's bill not be passed without substantial amendment. The government has got it wrong on the choice of fund issue.

The government claims that its choice model will benefit consumers through increased competition in the superannuation industry, leading to lower fees and charges and thus resulting in better retirement incomes. However, the evidence suggests otherwise. A recent survey of 354 superannuation funds by Sedgwick Noble Lowndes reported that the government's choice of fund model will lead to increased costs to fund members. The survey stated that 87 per cent of funds believe that choice of fund will increase fund administration costs, with the cost increasing by some 10 per cent.

Alarmingly, around 10 per cent of the funds surveyed believed that costs would increase by up to 50 per cent. A cost increase of that order would have a disastrous effect on the retirement incomes of thousands of Australians. And that is before anyone has even made a choice of fund that could see uninformed people end up in inappropriate funds with high fees and charges and comparatively low returns.

In addition, the government's choice of fund proposal is certain to disadvantage employers through increased administrative costs of up to $21 million initially and recurrent costs of up to $15 million per year. These figures are provided by the government in the explanatory memorandum to the bill that introduces its choice model—the Taxation Laws Amendment Bill (No. 7) 1997.

There is also a strong likelihood that employers may be legally liable under its choice model in a number of ways, despite attempts to legislate away employers' potential legal liability in clause 32V of the same bill. The Senate Select Committee on Superannuation received evidence suggesting that it is impossible to legislate away the common law duty of care that employers must exercise towards their employees. Higher fees and charges and uninformed choices will result in lower returns to fund members and lower retirement income to Australians, which is inconsistent with broader retirement income policy.

Unfortunately, time does not allow me to further highlight the failures of the government's choice model, but I am sure that other speakers on my side of the parliament will do that. Needless to say, I will pursue this matter in more detail in the committee stage of this debate.

I now turn to Labor's model. Labor believes we need a phased two-stage model which educates employers and employees about investment options and offers genuine employee choice. Stage 1 would be investment choice. Stage 1 requires superannuation funds with more than 50 fund members to offer a minimum of three investment choice options to fund members—that is, choice within existing funds. It would not be compulsory for members in a fund to exercise an investment choice if they chose not to do so, but a default fund arrangement could apply based on age-risk profiles. Due to their unique nature, defined benefit funds would be exempt from having to offer investment choice.

We recommend member investment choice as a first step forward for several reasons. Firstly, the option for funds to offer choice of investment already exists. It is set out in subsection 52(4) of the SIS Act. Secondly, investment choice within funds is a good way to begin to educate fund members about their retirement income options and control of their superannuation savings.

Thirdly, investment choice provides real options for choice as opposed to the government's model which could see consumers faced with identical choice options, just from different service providers. The clear example here is that we now have three commercial television channels in Australia. I remember when we had only two. We thought the addition of a third one would offer more choice. We have a third commercial television channel, but the programs are essentially all the same. Finally, an added feature of investment choice is a default investment option based on age-risk profiles. This would ensure that fund members do not find themselves in inappropriate investment products which are not suitable to maximising fund members' final retirement income.

Stage 2 of Labor's proposal concerns genuine employee choice of fund. Stage 2 of our proposal offers choice to those who should exercise it—employees. It would begin only after an extensive education and consumer protection campaign. I will now outline the key features of our genuine employee choice model. If an industrial award requires an employer to pay superannuation contributions to a specified superannuation fund on behalf of an employee, employees can nominate and, if employers agree, have superannuation contributions paid into a complying fund other than that set out in an industrial award. The nomination must be made in writing and must be signed by the employee. Employers and employees who negotiate a certified agreement or an Australian workplace agreement would be taken to have exercised choice.

Regulations would be drafted governing standard disclosure provisions applying to key feature statements offered by funds directly to employees, particularly to enable simple comparison of fees, charges and fund earnings—a most important issue. In the event of a dispute between employer and employee, the Industrial Relations Commission would act as the independent arbitrator. Finally, where a workplace is not covered by an industrial award or agreement, the default fund would be that to which the majority of employees at that workplace belong. In the event of a new business which is not covered by an industrial award or agreement, the fund specified in the designated award would apply.

Labor believes that this offers genuine choice of fund to employees. It more accurately reflects the demand for choice of superannuation fund from workers, rather than choice driven by government or by vested interests. It is simple to administer and avoids the complications of the government's model. It is broadly consistent with the choice of fund models which presently operate in the New South Wales and Queensland state jurisdictions, therefore leading to less confusion and creating greater national consistency between state and federal choice of fund models.

Employers and employees would have the protection of the Australian Industrial Relations Commission in settling disputes. It limits employer liability compared with what the government is putting forward, it would avoid the default fund problems that the government model has, and it would also avoid some of the transitional problems in the two models that the government's bill contains.

If unsuccessful, Labor proposes to move a range of amendments on the choice legislation in the Senate. Briefly, they include: exemption of funds which already offer member investment choice within funds; excision of clause 32U, which overrides federal award provisions and inclusion of award contributions; an intention to ban or severely limit the sale of products where a financial adviser derives income through the use of trailing commissions—this was a major problem with the UK choice fiasco; minimum standards for default funds, including insurance and investment options based on age-risk profiles; a redefinition of industry based funds to exclude funds with high fees and charges; inclusion of third-line forcing provisions which prevent employers from gaining a financial benefit at the expense of their employees; and an amendment which may require funds to be year 2000 compliant before they can accept superannuation guarantee contributions under the new choice arrangements.

Labor's amendments will make the bill much fairer and simpler to administer, while still allowing employees the opportunity to choose a superannuation fund, not have one forced on them unnecessarily by their employer.

Turning now to the other provisions of the bill, schedule 8 deals with the problem of dividend streaming. Dividend streaming, in its simplest form, is where a company streams franked dividends to its shareholders who are best placed to take advantage of the attached franking rebate and hence minimise tax. More likely than not, such shareholders are Australian residents, as foreign shareholders or exempt bodies either have no use for or can make no use of the attached franking rebates. Hence a foreign shareholder may be paid unfranked dividends and Australian residents a disproportionate amount of franked dividends in order to maximise the tax advantage which franked dividends provide.

This schedule will introduce general anti-avoidance rules to such schemes that are used to obtain a tax advantage in relation to the imputation credits. These general anti-avoidance rules will supplement the specific provisions for anti-streaming and the announced but as yet not introduced provisions aimed at countering trading in imputation credits. The opposition supports these changes.

One would hope that these changes will also put an end to the blatant dividend streaming arrangements entered into, supervised and implemented, for example, in the tax dodging case of Senator Parer. As we know, Senator Parer has a dividend streaming arrangement through the AQRM trust which holds one H class share in Senator Parer's coal company QCMM Pty Ltd. From the writ lodged by Senator Parer's former business associate, Mr Adams, we know that the AQRM trust was established for the sole purpose of creating a pool of fully franked dividends from which bonuses to key directors and employees would be paid. Given that Senator Parer was Chairman of QCMM Pty Ltd, one would safely assume that he was a beneficiary of this blatant dividend streaming arrangement.

As we know, Senator Parer has a penchant for tax avoidance schemes, having participated in no less than three of them, including the AQRM dividend streaming trust. I would therefore ask the minister—he is not in the chamber at the moment, but when he does appear—whether he can advise on the status of Senator Parer's dividend streaming arrangements facilitated by the AQRM trust under these amendments, and whether or not it will become void. If he cannot answer that question in his second reading speech, then I put the minister on notice that we will have a very long and interesting committee stage of this debate.

Schedule 9 of the bill seeks to ensure that all forms of advances by way of loans or other credits made by private companies to shareholders are treated as assessable dividends to the extent that such payments are made out of company profits in the form of tax-free distributions. This has been a fairly common practice in order to disguise the real form of the payments being made so as to avoid tax.

Evidence before the Senate Economics Legislation Committee from the Australian Taxation Office was such that the current section 108 of the tax act has been shown to be ineffective due to relevant AAT and subsequent court cases. Consequently, a tightening up of the provisions is called for. The Labor opposition supports these changes and notes the plethora of amendments the government has subsequently introduced to clean up its original farcical drafting, which included payments such as SGC obligations under the original definition of benefit and hence were deemed to be dividends and therefore taxable.

Once again, this amendment strikes right at the heart, one would hope, of another tax avoidance scheme, no doubt masterminded and implemented in the form of Senator Parer's schemes. It is becoming a sad state of affairs, but Senator Parer seems totally unable to keep his hands out of the public till. As an artful tax dodger, it is like a child—

The ACTING DEPUTY PRESIDENT (Senator Ferguson) —Order! Senator Cook, I think you should withdraw that.

Senator COOK —I withdraw that.

The ACTING DEPUTY PRESIDENT —That is going a bit too far.

Senator COOK —Let us look at the scheme engineered by Senator Parer regarding the disguising of company dividends paid by QCMM Pty Ltd as non-taxable company loans. Once again, the writ lodged by Mr Adams is very illuminating about the operation of this scheme. According to the writ, which is available from the Queensland Supreme Court Registry, Mr Adams states in his affidavit:

There was a delay of almost two years in the issuing of the shares. During that time, payments were made to the proposed shareholders notionally on account of dividends on such shareholdings. The payments were calculated according to the approved value of the shareholdings and were processed in the books as loans.

What can be plainer than that? Notional dividends declared on shares that have not yet been issued but are disguised as non-taxable loans. And who has their hands in that arrangement? That is Senator Parer.

I am also concerned that during the committee hearings into this bill, I asked the Australian Taxation Office specifically how it could be possible to declare notional dividends on shares that do not exist and then to show them as loans in company accounts. The ATO's response was that they did not understand the concept of what notional dividends were. (Time expired)