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Wednesday, 9 February 2005
Page: 17

Senator MURRAY (10:36 AM) —Before I proceed, has the Labor Party circulated those amendments?

Senator Moore —We are onto that now.

Senator MURRAY —Thank you. The Bankruptcy and Family Law Legislation Amendment Bill 2004 [2005] has three main objectives. Firstly, it provides a more effective means of collecting income contributions from bankrupts who do not receive their income as a salary or wage. Secondly, it prevents the misuse of financial arrangements as a means of avoiding payment to creditors. Finally, it addresses longstanding issues concerning the interaction between family law and bankruptcy. The arrival of this bill and its debate and, I am sure, its passage today are to be welcomed.

As the Democrat spokesperson for finance, taxation and corporate affairs, I have previously dealt with bankruptcy legislation and actively participated in Senate and joint parliamentary inquiries into insolvency laws. In that respect, I draw the minister’s attention to the excellent report by the Joint Standing Committee on Corporations and Financial Services—a unanimous report—which we hope the government will respond to speedily. Change in the area of insolvency is much needed and should be fairly rapidly introduced.

There is a distinction between bankruptcy and insolvency, with the former referring to individuals and the latter referring to entities. Prior to 1990, there were fewer than 10,000 bankruptcies a year. However, in the financial years from 1997 to 2004 there were more than 20,000 bankruptcies per year. This is despite the strong economic conditions and the growth in personal wealth statistics that Australia currently enjoys. Back in 2002, when examining another bankruptcy bill, I noted the comments of Terry Gallagher, the Inspector-General in Bankruptcy, who said:

While it is no easier to go bankrupt now than it has been for many years, it is likely that excessive borrowing prompted by ready credit availability, perceptions of attainable living standards and a lessening of the stigma of bankruptcy have contributed to this increase.

Those remarks are as apposite now as they were then.

There are much freer banking practices, particularly with regard to the ability of people to use home equity for current consumption and particularly with regard to credit card access and availability. I am sure every member of the chamber, both parliamentarians and advisers, experiences what my family do; that is, constant unsolicited approaches by credit card companies to take one out, to raise your limits and all that sort of thing. Frankly, that sort of marketing to the wrong people and in certain circumstances is a contributor to people getting into difficulty.

Like previous legislation, this bill proposes to address bankruptcy law. Regrettably, it certainly does not and certainly cannot sufficiently address the root causes of bankruptcy. One of the things it is not able to address is our society’s problem with gambling and the delinquent approach of many states—thankfully not Western Australia—on the excessive availability of pokies and gambling outlets. It also does nothing and can do nothing to deal with unsolicited increases in credit card limits and the irresponsible promotion of consumer expenditure to people who cannot reasonably afford it. Members of the chamber would be aware that many of the charitable agencies are active in this field. One of the key areas they have to pay attention to is trying to encourage people to conduct proper family budgets and to restrain unwise expenditure.

In recent years, there has been a substantial increase in the number of bankruptcies. The government is attempting to encourage people to consider alternatives to bankruptcy and to clamp down on those who abuse the bankruptcy system. I urge the department, the government and the inspector-general to continue to be very proactive in this area.

Turning to bad examples, what is particularly offensive are revelations of people who use bankruptcy processes improperly as a means of tax evasion. I am referring, of course, to the many Sydney barristers—who unfortunately have not been named and shamed, which they should have been—who do this. The often arrogant pursuit of law and assumption of high morality in our courts of those particular people are not reflected in the way that they conduct their private affairs. They impugn the reputation, credibility and good faith of the vast bulk of barristers and lawyers who, I am sure—and so we are advised by the tax office—do conduct their tax affairs appropriately. Those revelations have highlighted the need to ensure the integrity of the bankruptcy system. When leading lights in our society behave in such a way it is hardly a good example to other Australians.

It was pleasing to note in the most recent annual report by the Inspector-General in Bankruptcy on the operation of the Bankruptcy Act that only 47 of the insolvent debtors were classified as legal professionals. It is a number that seems to be falling as a result of the publicity and as a result of the actions of some of the law associations, which deserve our full support in getting rid of those practices. However, my disappointment in some recalcitrant members of the legal fraternity was reinforced when I saw the front page of last Monday’s Australian. The newspaper reported that 30 per cent of barristers and half of all lawyers declared a taxable income under the top marginal rate of $62,500 in the 2002-03 financial year. They then had some spokesperson say, ‘Not as many of us as you’d expect earn that amount.’ Yeah, right! They think we are mugs. They deserve to be thoroughly audited as a result.

It was reported that the Second Commissioner of Taxation, Mr Gregory Farr, had earlier told a parliamentary inquiry into tax avoidance and bankruptcy that barristers were the worst tax avoiders compared to other professionals. In the parliamentary inquiry that examined this bill, Labor MP John Murphy correctly noted that ‘any form of tax avoidance sends a poor message to the taxpayers of Australia’ and that barristers were the ‘high priests of society’ and the talent pool from which future judges were chosen. It is surprising and disappointing to note the reports that one of the nation’s top judges has not lodged a tax return for seven years and a further 65 were at least 12 months late. I address these remarks to the minister: I wonder if perhaps the government should consider such matters as grounds for removal from office and perhaps legislate accordingly. Let us punish people who judge others but hold themselves above the ordinary legal requirements that we all have to comply with.

More generally, in my opinion the culture of tax avoidance is encouraged by the government’s overly generous provision of tax concessions, which encourage people to enter into negative gearing and pursue capital gains and other things. The thought that you can run losses on one side of your family balance sheet and cover those by your tax concession on another side has had the effect of getting some people into trouble, and God help them if the property market ever falls.

Getting back to the legislation before us, this bill will tackle some of the avoidance practices that have been used to manipulate Australia’s bankruptcy laws. Unfortunately—and this just reflects human nature—the government’s legislation cannot and will not put an end to some of the more outrageous abuses of the bankruptcy system by a few high-income earners, but it certainly will improve the ability to lessen those practices. Australians are rightly angry to see some corporate or former corporate high-flyers and other high earners in our society claiming bankruptcy and avoiding creditors despite having obvious wealth at their disposal through some third-party entity or family member. The report on insolvency I referred to earlier from the Joint Standing Committee on Corporations and Financial Services noted that there is a practice in, for instance, the building industry whereby people set themselves up as phoenix companies, go bust and then repeat the process again and again. It is an attitude that has to be stamped out. In my state of Western Australia we have one particularly high-profile example of such a crook. He is a dreadful person who wanders the beaches of Cottesloe, swanking about his ability to have robbed ordinary Australians of their money, and now he can build mansions and claim investments all over the world. It is disgraceful that such people are able to get away with it.

I have heard the government’s and the Labor opposition’s words of condemnation of those practices, and I hope that all parties continue to bring forward measures to limit the prospects of such behaviour and to tighten the screws on people who behave like that. Such people should not be able to avoid creditors through artificial arrangements that secure their own financial wellbeing but result in great hardship to others who have entered into business arrangements with them in good faith. While it is true that the bankruptcy system must guard against abuse, care in addressing the abuses must not result in preventing access to bankruptcy by those with a genuine need to do so. We should always understand that bankruptcy laws were designed right from the very beginning as a safety net for those experiencing unfortunate circumstances in life. Most bankrupts today, probably as always, are low-income earners who owe relatively small amounts of money. Those who genuinely require recourse to bankruptcy should not face unnecessary artificial barriers or be subject to unduly punitive measures. They should be given the chance of rehabilitation, and I think the government and this legislation are conscious of that.

We have had some correspondence from people in the small business community lobbying concerning changes to the bankruptcy laws that they think will adversely impact on the sector. However, those constituents are referring to the controversial first schedule of the Bankruptcy Legislation Amendment (Anti-Avoidance and Other Measures) Bill 2004. The House of Representatives Standing Committee on Legal and Constitutional Affairs conducted an inquiry into that bill. As I understand it, the government has not yet responded to the controversial aspects of that bill, but this bill contains the non-controversial aspects. The committee recommended that the non-controversial schedules—the ones contained in this bill—be passed, and the Democrats agree with that view.

The three areas covered by this bill are based upon recommendations of the joint task force report entitled The use of bankruptcy and family law schemes to avoid payment of tax. The task force consisted of officers from the Attorney-General’s Department, the Insolvency and Trustee Service Australia, the Australian Taxation Office and the Treasury. I note that there are two minor technical differences between the original bill introduced in the last sittings and this bill, and the Democrats have no problems with those. There is also the Labor Party amendment to the bill. As I understand it, the amendment is a conversion of a recommendation of the Law Council. It creates a rebuttable presumption of insolvency if a person who is bankrupt makes a transfer of property and either has outstanding tax returns or has failed to keep proper accounts. I think that kind of tough approach to people who have a bad history has merit and seems reasonable, especially since it has been considered at length by the Law Council, but I look forward to hearing the minister’s views, and I will then see whether the Democrats should support it. But at this stage I am quite attracted to the idea put by Labor, as I understand it.