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Monday, 6 December 1999
Page: 12858

Mr EMERSON (6:00 PM) —Labor fully supports this amendment because it, in fact, reflects accurately one of the three requirements that the opposition applied in relation to its support for the passage of the government's business tax legislation. This particular requirement is one that the government must accept. It is an anti-avoidance amendment specifically directed at the possibility of contrived schemes being entered into to falsely convert income into capital gains and, thereby, for those entering those schemes, to avail themselves of the discount capital gains tax rate, which is a halving of the ordinary personal income tax rate.

Labor is very concerned about any prospect of tax avoidance. It is for that reason that we insisted on this particular amendment because, when that gap between the income tax rate and capital gains tax is opened up, as it is under the business tax legislation, then there must be some potential for avoidance. The issue of the potential for avoidance was the subject of a lot of debate at the Senate inquiry, and no consensus was reached. We were concerned that the projected leakage from what is called either `conversion' or, to use Treasury terminology, `arbitrage', was really dramatically increasing over time to the point where it reached $180 million after the fifth year.

As the member for Fraser has pointed out, there was a range of experts who regarded that estimate of leakage as very low. So it was critically important that Labor initiate an action which resulted in an anti-avoidance provision relating specifically to the capital gains tax. That provision was drafted by former Taxation Commissioner Trevor Boucher working with me and the deputy opposition leader. The Treasurer pointed out that he believed there were some minor amendments to that which would make it operative and more effective. We accepted those minor amendments, and they are now reflected in the amendments that have come from the Senate.

It is interesting that, when we asked the tax office officials in this inquiry whether in fact the general anti-avoidance rules that were in place and, more specifically, the ones that were proposed and contained in a one-page statement, related to the capital gains tax, they replied that it was unclear. That was really quite a worry for us because it is not clear what the government's new general anti-avoidance rules will contain. Basically, there is a precis in a one-page document, but it is absolutely unclear to us as to what it will actually do. We do, however, accept in good faith the government's word that it will be bringing forward tougher anti-avoidance rules in legislation next year.

After all, that is absolutely critical because the criterion that we applied in relation to our acceptance of the passage of this legislation is that the whole package be revenue neutral. The government said it would, in fact, bring forward the stage 2 measures and implement those. Again, we have accepted the government's word on that. If this tax package is not revenue neutral, then the heat will come on to education and health in subsequent budgets. We do not want to see that happen, and that is why we are insisting on this amendment and fully support it.