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Thursday, 16 May 2013
Page: 2835


Senator WONG (South AustraliaDeputy Leader of the Government in the Senate and Minister for Finance and Deregulation) (15:44): I table revised explanatory memoranda relating to the Agricultural and Veterinary Chemicals Legislation Amendment Bill 2013 and the Superannuation Legislation Amendment (Service Providers and Other Governance Measures) Bill 2013 and move:

That these 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—

AGRICULTURAL AND VETERINARY CHEMICALS LEGISLATION AMENDMENT BILL 2013

As part of building a seamless national economy, the Australian Government is committed to reform of the regulation of agricultural chemicals and veterinary medicines (or agvet chemicals). A single national regulator, supported by state and Northern Territory laws, has been in place since 1993. However, it is evident that its effectiveness is hampered by the legislative framework it must implement.

Access to a full range of safe agvet chemicals is essential for the wellbeing of the economy. Agvet chemicals are needed to control disease and to protect people, companion animals, infrastructure and the environment. They are necessary tools for our export focussed agriculture sector and for future food security. They allow safe and efficient food and fibre production.

It was the foresight of the Hawke and Keating Governments, working in partnership with their state and territory counterparts, that put in place Australia's first national regulator for agvet chemicals. It is now almost 20 years since this system began, and it has served the community well over this period. But as with all legislated systems, they can fall behind best practice.

Human understanding of the natural and chemical world changes every single day. For this reason, we must have a dynamic regulator, with a systematic, risk-based approach to protecting human health and the environment. At the same time, the regulator must take into account the views of the community.

It is clear that the community expects a rigorous scientific approach to agvet chemical assessments. But it also expects that these assessments will occur on a regular basis so they remain up-to-date. This is something the current system has failed to do.We must recognise that many agvet chemicals are designed to kill pests and that they may be dangerous. This is the reason we have a product approval system in place to protect the community and the environment, those who use the chemicals, and those industries that rely on the use of these chemicals.

It is vital for these industries that the community retains its confidence in the methods used to produce food in Australia and to protect the environment. And for this reason it is vital that Australia has a strong, predictable regulatory system.

The Agricultural and Veterinary Chemicals Legislation Amendment Bill 2012 confirms that protecting human health and the environment is Australia's first priority in regulating agvet chemicals. The Bill amends the suite of agvet chemical legislation to further modernise, and improve the effectiveness of, the current system. It will provide better protection for human health and the environment, thus maintaining community confidence in our food and fibre production.

The Australian Pesticide and Veterinary Medicines Authority, known as the APVMA, is the regulator of agvet chemicals in Australia. The Bill amends the legislation administered by the APVMA to improve its effectiveness and responsiveness in regulating these chemicals. These amendments allow the APVMA to maintain its status with the community as a trusted regulator.

The Bill will modernise the APVMA's administration. Perhaps more importantly, the Bill will require the APVMA to provide greater clarity around its requirements. The APVMA will develop and publish its principles and processes for regulating agricultural chemicals and veterinary medicines to complement these legislative amendments. This work has already begun within the APVMA and will continue into the future. The work to develop a risk framework, together with powers to reject poor quality applications, will encourage industry to make good quality applications. This in turn will allow the APVMA to do its job more efficiently and with greater predictability.

The amendments in the Bill enhance the consistency and transparency of assessments of agricultural chemicals and veterinary medicines. Legislative amendments enable the APVMA to align regulatory effort with chemical risk. The reforms implemented by the Bill will result in a more straightforward assessment process that is easier to understand, more cost effective to administer, and provide greater certainty to the community that agvet chemicals used in Australia are safe.

The Bill includes measures that implement an election commitment to ensure the ongoing safety of agricultural chemicals and veterinary medicines and improve the current chemical review arrangements. Introduction of a mandatory re-approval and re-registration scheme brings Australia into line with other countries which have similar schemes such as the United States and Europe. The scheme has been designed to complement the specific characteristics of the Australian agvet market, so it delivers the desired outcomes without unnecessarily resulting in withdrawal of safe and useful chemicals. This measure responds to community concerns by ensuring that approved or registered chemicals continue to meet appropriate health and safety standards.

Other measures in the Bill provide for greater transparency and predictability about reconsiderations. The measures in the Bill achieve this by, for the first time, providing for timeframes for reconsiderations and prescribing timeframes for when information is provided to the APVMA for reconsideration.

The amendments in the Bill remove any remaining trace of an impediment to the APVMA's use of overseas assessments and data. This is on the proviso that the assessments are conducted by agencies that are comparable to the APVMA, and that overseas data are relevant to Australian conditions, agricultural practices and animal husbandry.

Other measures in the Bill improve the ability of the APVMA to enforce compliance with its regulatory decisions by providing the APVMA with a graduated range of compliance and enforcement powers. This will improve the ability of the APVMA to efficiently administer its regulatory decisions to protect public health and safety and the environment. Not only will this allow industry to take greater responsibility for ensuring compliance, but it will not reduce the APVMA's ability to take strong regulatory action where this is necessary to protect the community, animals and the environment. Often, the only option currently available to the APVMA is to take a person to court, a process that is not appropriate for many behaviours. The APVMA needs to be able to ensure that registrants and companies comply with all elements of the law. Therefore, the sanctions cannot be such that they can merely be factored in as a cost of doing business. The additional measures are similar to those available to other regulators under Commonwealth laws and ensure that contemporary safeguards are in place for regulated entities.

The existing legislation compensates intellectual property owners for the impact of the product approval system by protecting submitted data in a number of situations. The current data protection provisions are improved by the Bill. The Bill also removes disincentives for business to invest in chemical product development and extends data protection eligibility to a wider range of data and increases the time that the data is protected. These measures ensure that innovators can obtain a fair return on their research investment.

The APVMA currently obtains the majority of its income from a levy it collects, based on the value of sales of registered agvet chemical products. While this arrangement is not unusual, it may lead to a perception of a conflict of interest. Therefore, the Bill provides for an agency other than the APVMA to collect the levy. However, in making any decision to change the way this levy is collected, the Government will consider issues of cost-effectiveness and efficiency.

The Bill modernises and updates the suite of Commonwealth legislation for agricultural chemicals and veterinary medicines. Recognising the scope of the changes, the Bill includes a requirement for a review to be conducted of measures in the Bill in five years, and all Commonwealth legislation for agricultural chemicals and veterinary medicines every ten tears. This will ensure that legislative measures operate as intended and remain appropriate.

Current agvet legislation is criticised as being an impenetrable maze of complexity. This complexity not only makes it difficult to administer, it makes it hard for companies that need to engage with the regulator. In response, and consistent with its wider role of improving the clarity and accessibility of Commonwealth legislation, the government has done extensive revisions to the agricultural chemicals and veterinary medicines legislation to bring it up to contemporary standards for legislative drafting. The improvements in comprehension and utility delivered by these revisions are significant, with benefits particularly for improved efficiency in complying with and administering the legislation.

At any one time, the APVMA has several thousand applications in process. It also has a register of nearly 10 000 chemical products. The Bill includes appropriate transitional measures to allow processing to continue for those in the system.

Overall, the Bill will increase community confidence in the regulation of agvet chemicals, while reducing the unnecessary impost on business. The reforms to agvet chemicals legislation in the Bill will ensure that agricultural productivity can continue to improve and keep Australia at the forefront of innovative food and fibre production.

EXPORT FINANCE AND INSURANCE CORPORATION AMENDMENT (NEW MANDATE AND OTHER MEASURES) BILL 2013

The Export Finance and Insurance Corporation Amendment (New Mandate and Other Measures) Bill 2013 implements the Government's response to the 2012 Productivity Commission Report on Australia's Export Credit Arrangements.

When the Government announced its formal response to the Productivity Commission's report back in January it emphasized that Australian small and medium-sized enterprises will be the big winners following these reforms.

This bill will deliver for Australian small and medium-sized enterprises.

The response announced a number of changes to the operations of the Export Finance and Insurance Corporation (EFIC) that will help it to play an even more valuable role in the provision of export finance.

This bill will ensure that more of EFIC's resources are devoted to Australian small and medium-sized enterprises that face genuine barriers to accessing finance.

Supporting our small and medium-sized enterprises looking to expand their activities overseas will help demonstrate to the private sector that it is commercially viable to fund these exporters.

EFIC will also be given a limited expansion of its guarantee powers so it can better support Australian businesses integrate into global value chains, particularly in the Asian region.

Increasing participation in regional value chains will result in increased specialisation and productivity as Australian businesses focus more on high value-added activities.

The White Paper on Australia in the Asian Century recommended that EFIC's mandate be revised to ensure more of its resources are devoted to addressing market failures that impede Australian companies, particularly in emerging and frontier markets.

This bill helps deliver on our White Paper objectives.

While the Productivity Commission Report found that market failures are most likely to affect small and medium-sized enterprises with limited export experience, EFIC's new mandate will not preclude it from supporting larger firms where they too face market failures, particularly when doing business in emerging and frontier markets.

To ensure that EFIC does not have a competitive advantage over other businesses in the private sector, the Government also accepted the Productivity Commission's recommendation that EFIC should be subjected to the Government's Competitive Neutrality principles.

Consistent with the recommendation of the Productivity Commission and the 2003 Uhrig Review, the bill will also remove the requirement to have a Government Member on EFIC's Board of Directors, increasing the Board's independence from Government.

In conclusion, the amendments in this bill will provide EFIC with a new mandate that reflects the changing international trading environment and resulting challenges for Australian exporters.

It will benefit Australian small and medium-sized businesses in particular, recognising their increasing importance and prevalence in global and regional value chains.

Importantly, the bill will help us take a further step in delivering on our Asian Century White Paper objectives, improving support to Australian businesses so they can take advantage of the changes and opportunities occurring in our region.

MILITARY JUSTICE (INTERIM MEASURES) AMENDMENT BILL 2013

In 2006 the Parliament enacted legislation amending the Defence Force Discipline Act 1982 to establish the Australian Military Court by passing the Defence Legislation Amendment Bill 2006. The Australian Military Court commenced its work in 2007.

In August 2009, in Lane v Morrison, the High Court decided that the legislation was unconstitutional as it sought to confer on the Court jurisdiction to exercise judicial powers of the Commonwealth, without the Court conforming to Chapter III of the Constitution. The provisions were declared invalid.

To ensure continuity of Australia's military justice system, the Military Justice (Interim Measures) Act (No. 1) 2009 was passed in September of that year. That Act amended the Defence Force Discipline Act 1982 to provide an interim response to the High Court decision in Lane v Morrison by returning to the service tribunal system that existed before the creation of the Australian Military Court.

The reinstatement of the pre-2007 military justice system was to allow for the consideration and development of options for a permanent military justice system which would meet the requirements of Chapter III of the Constitution and therefore be constitutional.

The Military Justice (Interim Measures) Act (No. 1) 2009 provided a tenure of up to two years for the Chief Judge Advocate and the Judge Advocates. This was extended for a further two years by the Military Justice (Interim Measures) Amendment Act 2011, which is due to expire in September 2013.

Legislation to establish a constitutionally sound Military Court of Australia was introduced into the 42nd Parliament, but lapsed when that Parliament was prorogued for the 2010 election.

On 21 June 2012, the Attorney-General introduced the Military Court of Australia Bill 2012, which would establish the Military Court of Australia under Chapter III of the Constitution and provide for, among other things, the structure, jurisdiction, practice and procedure of the Court.

The Military Court of Australia Bill 2012, and its companion Bill providing transitional arrangements and making amendments consequential to the creation of the Military Court of Australia, are still being considered by the Parliament. The Bills were the subject of an Inquiry by the Senate Standing Committee on Legal and Constitutional Affairs, which reported on the Bills in October 2012. The Committee recommended the Bills be passed.

A Minority Report recommended two amendments:

Australian Defence Force (ADF) members be given the right to trial by jury for services offences punishable by a term of imprisonment exceeding 12 months; and

ADF Reservists and standby Reservists be permitted to sit as Judges on the Military Court to the extent permitted by Chapter III of the Constitution.

These dissenting recommendations are the subject of discussion between the Government and relevant Senators.

While the Military Court Bills remain before the Parliament, it is prudent to introduce the Military Justice (Interim Measures) Amendment Bill 2013 to continue the appointment, remuneration and entitlement arrangements for the Chief Judge Advocate and the full-time Judge Advocate for an additional two years or until the Minister for Defence declares, by legislative instrument, a specified day to be a termination day, whichever is sooner.

This will ensure the continuity of these key military justice appointments until legislation establishing the Military Court of Australia commences and is fully operational.

I commend the Bill.

SUPERANNUATION LEGISLATION AMENDMENT (SERVICE PROVIDERS AND OTHER GOVERNANCE MEASURES) BILL 2012

The Superannuation Legislation Amendment (Service Providers and Other Governance Measures) Bill 2012 represents the final tranche of legislation implementing the MySuper and governance elements of the Government's Stronger Super reforms.

Stronger Super is the Government's response to the Review into the Governance, Efficiency, Structure and Operation of Australia's Superannuation System - the Cooper Review.

Together with other tranches of legislation already introduced, this Bill continues the Government's commitment to enhancing the governance and integrity of Australia's superannuation system.

The Bill amends the Superannuation Industry (Supervision) Act 1993, the Corporations Act 2001, the Superannuation (Resolution of Complaints) Act 1993 and the First Home Saver Accounts Act 2008.

The Bill implements a key recommendation of the Cooper Review to override any provisions in a fund's governing rules that stipulate that the trustee must use specified service providers or only invest in or through specified entities.

Where provisions like this are included in a fund's governing rules, superannuation fund trustees are prevented from selecting other service providers, insurance companies or investment vehicles, even where it would be in the best interests of fund members to do so.

A recent report by APRA found that situations where a trust deed required trustees to use a related insurance provider resulted in higher-cost insurance products provided to members.

The Bill will ensure a trustee is obliged to enter into arrangements which are in the best interests of members.

The Bill also implements the Cooper Review recommendation to give APRA the power to impose infringement notices as an alternative to criminal prosecution. This will allow APRA to impose a more appropriate and flexible range of penalties for minor breaches of the SIS Act.

The Bill will improve individuals' rights in relation to access to reasons for decisions from trustees. Currently, when members and beneficiaries make complaints to trustees, trustees are not required to provide reasons for their decisions. This Bill will ensure people have a right to obtain information from trustees in relation to decisions that affect them.

Requiring trustees to provide reasons for decisions in relation to death benefit complaints is particularly important given the statistics from the Superannuation Complaints Tribunal Annual Report for 2011 12 which show that death benefit complaints account for almost a third of all written complaints received by the Tribunal each year.

The Bill also provides more time for members and beneficiaries to lodge complaints with the Tribunal in respect of total and permanent disability claims. The increased time to lodge complaints aligns the treatment as closely as possible with the courts and the Financial Ombudsman Service.

Another Cooper Review recommendation being implemented by this Bill is enhanced requirements for entities that are responsible for both superannuation funds and managed schemes - so-called dual regulated entities.

Currently, these entities only have to meet resource and risk management requirements, administered by APRA, that are focussed on the entity's superannuation business. This left a regulatory gap in respect of the entity's non-superannuation business.

The Bill will close this gap and these entities will need to also meet resource and risk management requirements, administered by ASIC, that seek to protect the interests of investors in the non-superannuation schemes they manage.

Following feedback from industry, these new requirements will commence a year later, from 1 July 2015. APRA and ASIC will work together and with industry on how the respective resource requirements will apply in practice.

The Bill also addresses concerns that have been raised about the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Act 2012 in relation to director liability.

This Bill inserts a requirement for persons seeking to take legal action against a director for a breach of their duties to first seek leave from the Court.

The Bill also extends the availability of a defence for directors and trustees if their breach was due to reasonable mistake. The defence will now cover breaches of MySuper duties.

In response to concerns raised in consultation, a further change is being made to the defences in relation to investment and management of reserves. The changes will clarify that each defence is available where a trustee or director can establish compliance with all of the covenants and MySuper obligations that are relevant to the particular loss or damage suffered.

These changes have been developed in consultation with industry and will better balance the rights of super fund members and the protection of directors and trustees against frivolous or vexatious litigation.

The Bill also makes consequential amendments to ensure the effective operation of the first three tranches of MySuper and governance legislation. In particular, the amendments recognise that various provisions in the existing legislation will in future be dealt with in APRA's prudential standards.

Full details of the amendments are contained in the Explanatory Memorandum.

I commend the Bill to the House.

TAX LAWS AMENDMENT (COUNTERING TAX AVOIDANCE AND MULTINATIONAL PROFIT SHIFTING) BILL 2013

This Bill amends the income tax law to protect the integrity of Australia’s income tax system. These reforms come forward at a time of unprecedented global recognition that base erosion and profit shifting must be addressed.

Last night, the OECD released its latest report on Addressing Base Erosion and Profit Shifting, which identified modern transfer pricing rules and effective anti avoidance rules as two of the key weapons in the fight against base erosion and profit shifting.

As the OECD report says, ‘What is at stake is the integrity of the corporate income tax.’

The Government is committed to taking steps where necessary to ensure the integrity and sustainability of the tax system.

Without these amendments, significant amounts of revenue that should be available for the benefit of all Australians would be at risk of not being collected.

Schedule 1 amends Part IVA of the Income Tax Assessment Act 1936 which is the income tax law’s general anti-avoidance rule. The amendments ensure that Part IVA continues to counter schemes that comply with the technical requirements of the tax law but which, when viewed objectively, are conducted in a particular way mainly to avoid tax. Without this, there would be significant scope for taxpayers to plan their way around the law’s intended operation and undermine the revenue base.

Part IVA applies when three elements exist. There must be a scheme; there must be a tax benefit obtained in connection with the scheme; and it must be reasonable to conclude that someone entered into the scheme for the sole or dominant purpose of obtaining a tax benefit in connection with the scheme.

Some recent cases have focused on the ‘tax benefit’ element of Part IVA’s operation. A tax benefit exists if a scheme produces a tax advantage (for example, reduced assessable income or increased deductions) being an advantage that would not have been obtained, or might reasonably be expected not to have been obtained, if the scheme had not been entered into.

There are two limbs to ‘tax benefit’. The first limb — concerning tax advantages that ‘would’ not have been obtained without the scheme — deals appropriately with cases where simply removing the scheme reveals a coherent taxable situation consistent with the substance of what happened.

The second limb — concerning tax advantages that ‘might reasonably be expected’ not to have been obtained absent the scheme — deals with cases where what is left after simply removing the scheme would not make sense or would be inconsistent with the taxpayer’s actual commercial objectives and instead requires a prediction about alternative ways that the substance of what happened might reasonably have been achieved.

The amendments reinforce the view that the two limbs of the tax benefit element of Part IVA are alternative tests; that there is not just one test that merely spans a spectrum of likelihood.

The amendments also ensure, in deciding whether an alternative to the scheme is reasonable, that regard is had both to the substance of the scheme and to the non tax results or consequences for the taxpayer that the scheme achieved. In making that decision, the tax consequences of the alternative are ignored.

The proper role for the tax benefit test is to compare the tax consequences of what the taxpayer actually did with the tax consequences of a reasonable alternative that achieves substantively the same thing. It makes little sense in an anti-avoidance provision to allow the tax consequences of what the taxpayer has achieved to act as a shield against the operation of Part IVA.

These amendments ensure that a taxpayer who, having achieved something from a scheme (tax results aside), cannot say they did not obtain a tax benefit by arguing that, absent the scheme, they would have pursued completely different objectives, or done nothing at all.

These amendments have been through an extensive consultation process. In addition to the Government’s usual public consultation on draft legislation, the design process included a lengthy series of consultations with a roundtable of academic, legal and tax experts, and advice from a number of senior counsel. As a result, the Government is confident that these amendments will ensure that Part IVA properly protects the integrity of the tax law without unnecessarily interfering with taxpayers’ normal commercial activities.

Schedule 2 to this Bill modernises Australia’s transfer pricing rules in accordance with the Government’s announcement in November 2011. It provides a new, comprehensive and robust transfer pricing regime that is aligned with internationally accepted principles.

The transfer pricing rules are critical to the integrity of the tax system. They ensure that an appropriate return for the contribution of Australian operations of a multinational group is taxable in Australia for the benefit of the broader community.

The transfer pricing rules do not depend on the existence of a tax avoidance purpose. Transfer pricing rules ensure an arm’s length tax outcome is achieved for non-arm’s length arrangements or transactions, even where those arrangements or transactions have a legitimate commercial purpose.

A key feature of the new rules is their alignment with international best practice as set out by the OECD. Alignment with international norms improves the integrity and efficiency of the tax system, and reduces compliance costs and uncertainty for taxpayers.

The OECD’s Transfer Pricing Guidelines are widely used by tax administrations and multinational enterprises globally. The amendments provide a clear legal pathway to the use of OECD guidance material to assist in applying the arm’s length principle.

As well as alignment with the OECD guidance material, several design features of the new rules will further promote efficiency and certainty.

The new rules operate on a self-assessment basis, bringing the transfer pricing rules in line with the overall design of the Australian tax system. In contrast to the old rules, which relied upon the Commissioner making a determination, taxpayers will now be able to self-assess their Australian tax position in accordance with the arm’s length principle.

Specific rules linking voluntary documentation with a reduction in administrative penalties are included under the new rules. This approach balances compliance costs for taxpayers with incentives to adequately document issues relevant to transfer pricing matters. It allows taxpayers to risk assess matters that could be the subject of administrative penalties and prepare documentation accordingly.

The new rules also introduce a time limit in which the Commissioner may amend a taxpayer’s assessment to give effect to a transfer pricing adjustment. Under the previous rules, the Commissioner had an unlimited period in which to amend an assessment. These rules reduce this period to seven years. Given that transfer pricing audits often require information from other jurisdictions and involve complex arrangements spanning several income years, this time limit strikes an appropriate balance between providing the Commissioner with the time required to conduct an audit, and providing taxpayers with increased certainty as to their tax affairs.

The new rules also maintain the existing interaction between the transfer pricing and thin capitalisation rules that were developed in close consultation with industry during amendments to the transfer pricing rules last year.

The Government has engaged extensively with industry, corporate, and community representatives over the course of the reforms to Australia’s transfer pricing rules. The Bill has benefited significantly as a result of the consultation process. I would like to acknowledge these important contributions to the policy design process.

The measures contained in this Bill are vital for maintaining the integrity of the Australian income tax system.

Robust and properly functioning integrity rules are critical to maintaining a healthy tax system so that the Government can continue to deliver the public goods and services that Australians expect and require, like world class health and education systems, a strong social safety net and public infrastructure.

Full details of the amendments in this Bill are contained in the explanatory memorandum.

Debate adjourned.

Ordered that the bills be listed on the Notice Paper as separate orders of the day.

Ordered that further consideration of the second reading of these bills be adjourned to 17 June 2013, in accordance with standing order 111.