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Tuesday, 8 February 2005
Page: 16


Senator SHERRY (1:21 PM) —Today the Senate is debating the Tax Laws Amendment (Long-term Non-reviewable Contracts) Bill 2004 and three related bills. The Senate is debating a number of bills to correct a hangover—and a mighty hangover it is—of the implementation nightmare of the GST. Five years after the implementation of the GST, here we are dealing with four bills to correct the hangover. It is now five years since the introduction of the GST!


Senator Kemp —Move on!


Senator SHERRY —Senator Kemp, in his usual form, interjects and suggests that I move on, but we are dealing with Liberal government legislation to fix up the GST, which should have been fixed five years ago. Senator Kemp and the Liberal government moved on without fixing up the issues relating to the GST. Here we are, five years on, still trying to fix up the problems. If memory serves me correctly, this is about the 1,650th amendment to the GST since it was introduced five years ago.

One of the numerous difficult issues that arose at the time of the introduction of the GST was how to deal with long-term contracts entered into before the GST regime was introduced and for which no review opportunity has occurred. An example of such a contract would be a long-term lease by a bank over a branch office. If the GST had been applied immediately to these contract suppliers, they would have had to remit the GST on their supplies, but, because there is an existing contractual obligation, the contract price could not be changed to reflect the introduction of the GST. The recipient would have received the input tax credit without, so to speak, paying for it as a GST augmented price. In response, the Liberal government provided for a transitional regime that deferred the imposition of the GST on these contracts—and that effectively deferred the solution to the problem—until an opportunity occurred for the contracts to be reviewed. That transition period ends on 30 June 2005.

As I have said, the Liberal government has had five years to indicate in detail how it was going to fix this problem. Here we are at the eleventh hour and it has produced a set of bills. This is happening frequently at the moment. We are seeing tax bills, urgent bills, emerging from the government to deal with pressing concerns that should have been fixed five years ago. A problem with this approach is that it is attempting to railroad the Senate and the affected parties into a decision without an opportunity to have an input. The Labor Party, unlike this government, actually wanted to listen to the concerns that were being raised by parties particularly in the property industry about this last-minute solution to the issues that have been raised. It is just so typical of the arrogant approach of this Liberal government that we see emerging more and more. It is an approach that is arrogant, dismissive and uncaring, and it fails to listen to others.

The situation in relation to these bills could not, sadly, better reflect this arrogant approach of the Liberal government, particularly since their re-election. The Liberal government asked the Labor opposition in the last session to have the bill introduced into parliament, pushed straight through the Senate and passed on the same day. This is five years after the GST was implemented. Labor rightly called for a Treasury briefing in order to satisfy ourselves that the bill overall was an appropriate solution and mechanism to deal with the imposition of the GST on these contracts and also to consult with the affected parties. But the Liberal government refused to allow the Labor opposition to remove a copy of the bill from the briefing room, and we also had not seen an explanatory memorandum. In light of this, the Labor opposition allowed the bill to enter the House but insisted that a little more time, other than just the one day and the one sighting, was needed for the bill to be considered. Labor have listened to the representations from the sectors that are affected by the implementation regime. We have fully considered the legislation and consulted with the property sector, and Labor will be moving two amendments to the legislation when we enter into the committee debate on the bills. These are positive and fair suggestions that have been advanced by parties in the property sector who have been affected.

Before I touch on the amendments, the legislation we are speaking to as a whole seeks to provide a transitional phase for businesses engaged in long-term contracts which will be subject to the GST from 1 July 2005. A long-term agreement which was entered into prior to the commencement of the GST had no GST component negotiated in the contract. If suppliers under these long-term, non-reviewable contracts are unable to negotiate a change in the consideration to take account of the GST, they will have a GST liability from 1 July 2005, without the ability to recover the GST from their recipients. This has created the opportunity for major lessees of property to hold out, or at least to try to hold out, on renegotiating the contracts until after 1 July 2005 to avoid a price rise. The Liberal government has introduced this bill to try to ‘encourage’ such lessees to renegotiate the lease or end up paying the GST themselves. This is not an unexpected problem. It was a problem that was raised five years ago, when the GST was introduced. I would be interested to hear from Senator Murray what the Democrats—the party that teamed up with the Liberal government to allow the passage of the GST—thought about this particular problem at the time. I would be interested to know what the Democrats thought about this and why we are dealing with this mess five years on. Hopefully, Senator Murray can throw some light on that.

The bill provides for one of three outcomes. Firstly, the parties renegotiate the contract price, either voluntarily or through arbitration. The supplier can make an initial offer to adjust a price, which may be accepted by the recipient. If not accepted, the supplier can make an arbitrated offer to adjust the consideration. If accepted, the supplier remits one-eleventh of the renegotiated contract price, and the recipient receives input tax credits according to their usual entitlement. Secondly, if the recipient of the service under the contract rejects the offer of the supplier, the GST becomes payable by the recipient. Thirdly, the recipient of the supplies may make an irrevocable written election to pay the GST. Once an offer has been made by the supplier, the recipient has 28 days to accept it. Once an arbiter has ruled, the recipient has 21 days to accept the arbitration. A recipient who does not respond is liable for the GST.

Some problems with the approach in this bill have been raised with the Labor Party by the principal industry association for suppliers in this sector, the Property Council of Australia. They requested Labor consider moving amendments to the bill in two areas: firstly, to place a 28-day cap on the arbitration period and, secondly, to deal with the absence of regulations. We have not seen the regulations yet. Here we are, expected to pass a bill in one day because it is urgent, yet we have not got the regulations. It is another example of the arrogant approach of this government to the legislative process. The basic problem is that, without the amendments that Labor will be moving, the arbitration period could drag out. When does the arbitration period come to a conclusion? There is an incentive for the lessor to do this until after 1 July 2005, when the supplier will have to pay the GST. The lessor can then get the input tax credit without paying the GST. So a cap on the arbitration period is called for.

There is also a problem with regard to the qualifications of an arbitrator. The bill specifies that this will be determined by regulation, but we understand that the regulations have not been prepared. The minister may care to give us an update. These would normally be subject to disallowance within 14 days of the sitting period. But this is impractical from a Senate process point of view, because it would mean that there would be insufficient time to begin arbitration. So Labor is proposing to amend the bill to specify that, until the regulations are gazetted, the qualification of an arbitrator will be membership of CPA Australia or the Institute of Chartered Accountants.

The Property Council also asked Labor to specify that the costs of the arbitration process be split between both parties. That is an important issue, because it could be an expensive exercise. Labor do not propose to move a specific amendment to the bill in this area to deal with what we consider to be a very legitimate concern. I would ask that the minister indicate in her response, either in her contribution to the second reading debate or in the committee stage, how the government proposes to deal with the question of sharing the costs of the arbitration process. Labor call on the government to propose a solution to what is potentially a significant problem.

Labor’s interest in presenting the amendments and raising the problems that have been communicated to us demonstrates that we have attempted a fairness of approach when considering this very difficult issue. We have listened to business concerns, and Labor will continue to be proactive in dealing with legitimate issues that business raises. In terms of general taxation reform, Labor’s approach to these issues is to listen to business, to listen to its concerns—unlike the Liberal government on this bill—underpinned by a fairness to all approach.

It has to be said that in relation to this bill the performance of the Minister for Revenue and Assistant Treasurer, Mr Brough, has been appalling. After he expected us to pass the bill in the House and the Senate in one day, sight unseen, he arrogantly tried to stop Labor members debating the bill in the House. He even attempted to speak in the place of the member for Oxley when that member had been given the call. Fortunately, the deputy speaker asked the minister to resume his seat and to stop interrupting the debate. It is another example of the arrogance of this government’s approach. Labor approached the government to discuss the proposed amendments. However, the Liberal government cancelled the meeting with little over an hour’s notice. That is another example of the arrogant approach that is becoming all too symptomatic of this government, particularly since its re-election.

I ask the minister and all the senators to support the two amendments that I have foreshadowed when we get to the committee stage. The Labor Party are also asking the government to support the amendments in the other chamber when the time comes for consideration, if they are passed in this place. In concluding, let me repeat that it has taken not weeks, not months but years—in fact, five years—to draft this bill to deal with GST hangover issues. It is legislation which the government knew needed to be introduced before the transition period expired on 1 July 2005. The delays in presenting this bill to the parliament are not exceptional. As I said, they are signs of arrogance and a level of incompetence displayed by Minister Brough in the other place and another example of the government’s mismanagement of the legislative process. We will be supporting the bill, but we will be moving two amendments when we get to the committee stage.