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Monday, 20 August 2012
Page: 5746

Senator CORMANN (Western Australia) (12:41): This Labor government is a high-spending, high-taxing, high debt and deficit government which, over less than five short years in government, has lost complete control of our public finances, having inherited a position of no government net debt, a $22 billion surplus and $70 billion of net Commonwealth assets. This fiscally reckless, irresponsible and very wasteful government has turned that situation around very quickly. We find ourselves in a circumstance now where we have $174 billion worth of accumulated deficits over the last four budgets. We are heading again for $145 billion worth of government net debt and this government is planning to spend nearly $30 billion just to pay the interest on the debts that it has accumulated so far over the last 4½ years.

You have to contrast this with the situation in the final year of the Howard government when it received more than $1 billion in interest payments, given that there was no government net debt and that there were $70 billion worth of Commonwealth net assets which had been invested prudently by the former coalition government through the Future Fund.

People across Australia know that whenever Labor are in government for a period of time they stuff things up when it comes to the budget. Labor do not know how to handle money and after a period of Labor in government it always comes down to the coalition to come back and fix up Labor's fiscal mess. The reason we end up with bills like the one before us—the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2012—is that Labor are always casting around for more cash. They do not care how reckless and how bad it is for our reputation as an investment destination when they come up with, for example, legislation like this, which imposes a tax burden retrospectively.

That is exactly what this bill seeks to do. This bill seeks to make changes retrospectively to cross-border transfer pricing arrangements. The reason it is bad for governments to make changes to tax laws retrospectively is, firstly, that it is fundamentally unfair. Retrospective changes to tax legislation also significantly damage our reputation as a safe destination for investment. I put this question: how can anyone be expected to have complied with tax laws back in 2004, 2005, 2006 or 2007 that did not exist at the time? How can anyone across Australia have been expected to comply with tax laws back to 2004 that we are only just debating in the parliament now? This is very bad practice and the only reason we are having these sorts of debates in this parliament now is because this government are so desperate to put their hands on some more cash to plug the hole that they have created in less than five years of bad and irresponsible government.

The coalition cannot support this bill in its current form. It is a large retrospective tax change which the coalition is opposed to in principle. The coalition will seek to amend the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2012 in order to give prospective effect to this bill. If this amendment is unsuccessful, the bill will be opposed by the coalition as the government has not made a strong enough public justification for the retrospective application of these changes. Transfer pricing rules exist to ensure that taxation is collected on the contribution of profits from Australian operations to multinational companies and to ensure that profits are not shifted between related parties across borders without appropriate taxation. Transfer pricing rules are contained within division 13 of the Income Tax Assessment Act 1936 and Australia has also incorporated various international tax treaties into Australian law.

The Commissioner of Taxation has historically considered these treaty transfer pricing rules contained in treaties as an alternative basis for transfer pricing adjustment in parallel with the relevant provisions of the Income Tax Assessment 1936. However, in 2011 the Full Federal Court cast doubt on the second basis for transfer pricing adjustments in Commissioner for Taxation v SNF Australia Pty Ltd. Whilst this case was argued only on the basis of division 13, the government now believes that as a result of this case division 13 does not always adequately reflect the contributions of profits from Australian operations to multinational groups and, as such, in some cases treaty transfer pricing rules may produce a higher level of taxation. This government essentially want to be able to pick and choose whether they are going to use Australian law or whether they are going to use the relevant treaty provisions, depending on what delivers a higher taxation outcome.

At the end of the day, if the law is as the taxation commissioner may have thought in past then there is no need to change it. If it is not the way the tax commissioner thought it was and has interpreted it to be then of course this is a massive change to tax laws retrospectively. The tax commissioner does not write laws. The tax commissioner implements, administers and executes the laws passed by this parliament. If the tax commissioner's interpretation of those tax laws is found to be inconsistent with the laws passed by this parliament, it is not right to then change the legislation retrospectively in order to bring the legislation in line with the tax commissioner's interpretation. What would be right is for the tax commissioner to change his interpretation to make it consistent with the laws passed by this parliament until such time as the parliament has decided to change those laws, and of course those changes ought to apply prospectively only.

On 1 November 2011 the government announced a review into the relevant division of the Income Tax Assessment Act 1936 and said it would legislate to clarify the transfer pricing rules in tax treaties and valid transfer pricing adjustments independent of the ITAA 1936. This change is to be retrospective from 1 July 2004. I have made the point, and I hope that the chamber is very clear on the fact, that the coalition has been opposing and continues to oppose retrospective tax changes which provide adverse consequences for taxpayers as a matter of principle. Retrospective changes that are beneficial to taxpayers are one thing, but retrospective tax changes which impose an adverse consequence on taxpayers and a beneficial outcome for government are not an appropriate way to legislate in the tax area.

The reasons the coalition is opposed to retrospective tax changes that are detrimental to the taxpayer as a matter of principle are that they can change the substance of bargains struck between taxpayers who have made every effort to comply with the prevailing law as at the time the agreement was entered into; they can expose taxpayers to penalties in circumstances where taxpayers could not possibly have taken steps at the earlier time to mitigate the potential for penalties to be imposed; they may change a taxpayer's tax profile, which in turn can materially impact the financial viability of investment decisions and the pricing of those decisions, which were made in the context of the tax laws as they existed at the time; and they can increase Australia's level of perceived sovereign risk. In fact, that has already happened.

It is impossible for somebody in 2004 to have complied with a law that is yet to be passed by the parliament in 2012. That seems to be pretty obvious. How can anyone be expected to have complied with a law back in 2004 that the Senate is here now discussing on 20 August 2012? It is completely unreasonable and it exposes taxpayers to a completely unreasonable level of sovereign risk when tax laws and tax arrangements can be changed going back by eight years. Of course, a lot of investment and other decisions would have been made on what the understanding of the laws was at the time, and just because the tax commissioner takes one view and participants out in the economy take another view, it does not mean necessarily that the tax commissioner always gets it right. Of course, the proof is in the pudding; he does not always get it right.

On occasion, taxpayers contest the tax commissioner's views and interpretations before the courts because they believe that the law says something different from what the tax commissioner says. Here there is a very bad trend where this government, whenever it comes to the tax commissioner having been found to have applied the tax laws in an inappropriate way, rather than ensuring that the tax commissioner applies the law the way it was intended to be applied, turns around and says, 'Well, let's make sure that for all of the years that the tax commissioner has interpreted the law in a way that is inconsistent with the way the law was passed we will just change the law to make it retrospectively consistent with the tax commissioner's interpretation.' It will do this rather than force the tax commissioner to apply and comply with the laws passed by this parliament. It is the wrong way round. The reason the government are going the wrong way round on these things is because they are always so desperate for more cash given their absolute incapacity to handle money.

If the relevant treaty article, the associated enterprises article contained in Australia's existing double taxation agreements, operates to provide a separate taxing power, the question then becomes why the bill needs to have retrospective application. That is the proposition that has been put for the last however many years. However, if the associated enterprises article does not operate to provide a separate taxing power, can it be said that the proposed amendment is merely clarifying the law? If not, then it is surely the case that taxpayers who have complied in the past with the law as enacted are now retrospectively exposed to a new tax. In evidence to the Economics Legislation Committee on 26 July 2012, Mr Peter Collins, partner in PricewaterhouseCoopers, made a very concise exposition on this point in these terms:

… if the law is as clear as has been suggested in a lot of the debate today when we have been hearing about the tax office's point of view on this, then there is no case for change. Why do we need to change the law if it is so clear?

That is a completely appropriate question. The reason we are having this debate is because the tax commissioner's interpretation of the law went beyond what the law actually said. The reason we are here clarifying things is because this government wants to lock in significant additional cash. The retrospectivity of this bill will remove a taxpayer's accrued right to dispute an amended assessment for income years as far back as 2004-05 where the Australian tax office has raised the amendment in reliance on the treaty transfer pricing powers. That is surely unfair. The opposition does not accept that the government has made its case that the retrospective legislation is appropriate or required. No detail of the size of the retrospective tax impost is currently available. The government claims that this has no impact on the budget at all as it is a revenue protection measure. In fact, despite repeated requests, the Assistant Treasurer's office has been unable to fully quantify the cost of not passing this bill.

The coalition, as I mentioned at the outset, will be moving an amendment making the bill prospective rather than retrospective. This will ensure that the taxpayers are not forced to retrospectively comply with a tax regime they did not know existed at the time when they made business and investment decisions. This latest change comes on top of previous retrospective tax changes to the consolidation regime. It comes on top of the mining tax, the carbon tax and more than 20 other new or increased ad hoc Labor Party tax grabs. They have all got one thing in common: that they are driven by a desperate need for more cash in order to try to fill the holes. So far this government has been particularly unsuccessful in filling those holes. This government has been so unsuccessful in filling those holes but we were told initially that last year the deficit was going to be about $10 billion by the Treasurer when he was trying to make us believe that the government was on a return path to a fiscal surplus. Back in August 2010 the Treasurer, just before the last election, told us the deficit in the last financial year was expected to be $10 billion. When the budget came out a few months ago, we found that the deficit was $44.4 billion, a blowout in the deficit under this government of $34.4 billion in just one year. In the last financial year the government's deficit more than quadrupled compared to what the Australian people had been told before the last election. The government is running around and casting around for more cash because they cannot live within their means. Because they cannot live within the confines of the record revenues that the government has been collecting in recent years, the government is not able to live within its means so they are out there casting around for more cash by increased borrowings and increased levels of debt, and they are also casting around by coming up with new or increased taxes. They are even casting around by making retrospective changes to existing tax laws to force people to pay more tax than they were required to pay under the laws as they existed all the way back to 2004. This is a government that clearly has lost control of its finances. That is why they have to go ahead with these sorts of bills which have a very bad impact on our reputation internationally and a very bad impact on our economy domestically.

There is a better way. What we need is a government that is more prudent with taxpayers' money. We need a government that spends less. We need a government that is able to live within its means. We need a government that, because they live within their means, can tax less. We need a government that is focused on international competitiveness, a government that is focused on implications bills like this have on the preparedness of investors from around the world to invest their money here in Australia so that we can continue to grow our economy more strongly. If we had a government which spent less, which was less reckless with taxpayers' money so we could tax less, so we could focus on our international competitiveness moving forward, a government that was focused on driving productivity improvements, a government that was focused on growing our economy more strongly, what would happen in that circumstance is that by growing our economy more strongly not only would we improve and enhance our economic prosperity as a nation but we would actually deliver increased revenue to government without the need for all these new and increased Labor Party taxes. If you are a government that encourages stronger economic growth on the back of being more predictable, on the back of delivering lower taxes, productivity improvement and so on, as the economy grows then the revenue to government will also grow without having to impose all these new taxes.

Over the last four or so budgets, billions and billions in additional tax revenue have been collected on the back of all these new and increased Labor Party taxes. But despite all these billions in additional revenue the government is still not able to balance the books. Despite having benefited in recent years from the best terms of trade in 140 years—terms of trade which are now coming off and look as if they might continue to moderate—this government has imposed more than 20 new or increased taxes over the last four or so years. They have borrowed about $145 billion—they have taken net debt to about $145 billion on the back of $174 billion of accumulated deficits. In these sorts of circumstances, it is not surprising that this government is recklessly exposing our international reputation as a safe destination to invest with bills like this. Unless this bill is amended in the terms I have indicated, the coalition will not be in a position to support it.