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Thursday, 13 September 2018
Page: 6301


Senator STOKER (Queensland) (11:25): I rise to speak in support of the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018. A black economy is one that seeks to avoid the obligation to contribute to the welfare of our society, and it penalises Australians in all walks of life. Its defining feature is an intent by individuals and businesses to avoid making a fair contribution to the operation of this country. It's a problem, and at times it can be looked upon by those who participate in the black economy as their being clever in their efforts to avoid the taxman. The consequence of that deprivation, though, is that we have less available for us as a society to invest in health, education and the range of other essential services that are provided by government. It means that the people who are honest in their financial dealings are penalised by having to carry a greater impost or a greater share of what's necessary to run this country.

What are the features of a black economy? It can be as innocuous as paying the tradie cash to get a lower quote for some work around the house or accepting cash wages off the books. It can be welfare fraud, moonlighting, undeclared income or phoenixing. More worrying is its link to crime and criminal activity. The laundering of money is a major feature of the black economy—or, as it's sometimes called, the cash economy or the underground economy. It's easy to think of this as a victimless crime, but it's not. The victims are those people who do the right thing, the individuals and families who contribute fairly to the tax system, the small businesses who do the right thing but suffer because their competitor isn't operating on the same level playing field.

Another invidious feature is the potential that gaming the system will become endemic, putting increasing pressure on those people and businesses that are doing the right thing. We hear Labor banging on all the time in this place about inequality. Well, here's a classic example of inequality whereby many people are doing the right thing while another group are not. Any growth in the black economy becomes even more disconcerting, given the recent economic observation that 40 per cent of taxpayers are net contributors to the budget while 60 per cent are net consumers from the budget. With the ratio of people who are working to those who are not working in decline as the population ages, the dollars that aren't collected will exacerbate the problem of funding the core operations of a government.

As an aside, while talking about people and organisations carrying their fair share of tax contribution, it's difficult not to query why trade unions and the quite enormous enterprises that many of them run also escape the tax system. When organisations like the CFMMEU have assets in excess of $350 million, quite substantial commercial business operations and an annual income of over $130 million that comes through it but pay no tax, it's a distortion. I'd have to say that that's a classic example of inequality. While the black economy can be traced back to the time that taxes were first collected, its sophistication has increased with the advent of technology and changes in business models. The sharing economy and the ability, through computer coding, to be clever bring new challenges to the tax system.

How big is the black economy and what are its dynamics? Unfortunately, it seems that the black economy is growing at a rapid rate. The Black Economy Taskforce has estimated that the black economy is worth three per cent of GDP, or approximately $50 billion per year. This is 50 per cent larger than the figures estimated by the Australian Bureau of Statistics in 2012. That's an acceleration that is not sustainable. What's just as concerning is that cash wages and unstated business income make up only half of the black economy. For instance, $16 billion is lost to money laundering, $7 billion to $10 billion is lost to illegal drug activity, $3 billion is lost to phoenixing and $2 billion is lost to identity fraud.

This $50 billion burden on the Australian economy hinders the government's ability to fund essential services for those who really need them, to provide the basics of a secure Australia, to provide, quite importantly, tax relief and to pay off the debt and deficit left to us by the Labor Party. And $50 billion could pay for a lot of things. It could pay down an awful lot of debt. It could pay for the construction of 100 new high schools, 22 new hospitals, 12 new submarines or even 15 coal-fired power stations. I am pleased that the government has recognised the problems of the black economy and responded to the Black Economy Taskforce's final report as part of the 2017-18 budget.

Proactively, the government has announced these measures to address the growing economic and social problems that arise from the black economy: banning the manufacture, distribution, possession, sale and use of sales suppression technology, which allows businesses to conceal their income, and extending the taxable payments reporting system to two industries that currently present tax compliance risks, the cleaning and the courier industry, to ensure that payments made by businesses to contractors in these industries are reported as they should be to the Australian Taxation Office.

The bill delivers on the 2017-18 budget decisions. The measures in this bill form one part of a much broader suite of reforms that the government is implementing through its response to the Black Economy Taskforce's final report. In schedule 1 of the bill, the government addresses electronic sales suppression tools. One of these is a device, program or other tool capable of manipulating or destroying records that an entity is legally bound to keep or make. The primary function of sales suppression software is to facilitate the understatement of a business's income to facilitate tax evasion. I can't see a legitimate use for this kind of technology. It's there for the purposes of avoiding an audit trail. Currently, penalties are only imposed on the taxpayer for evading tax or not keeping proper records in the first instance, but they don't, at present, explicitly penalise any part of the supply chain for the possession or use of this kind of software. The new offences target each stage of the software supply chain, including manufacture, production and sale.

The schedule creates new offences for the manufacture, distribution, possession, sale and use of electronic sales suppression tools for the purposes of not disclosing business income. There is no legitimate reason for having these tools. They remove transactions from electronic record keeping systems. They change transactions to reduce the amount of each sale made. They can modify GST taxable sales into being GST non-taxable sales for the purposes of those records. In all instances, no audit trail of the process of making those changes is kept. The government is introducing offences that are subject to strict liability and heavy penalties to deter the use of such technology right across the software supply chain. This technology is used solely for the purposes of tax evasion, and the purpose of these offences is to ensure that there is integrity in the tax system.

Recent reports from the Organisation for Economic Co-operation and Development, the OECD, have highlighted that this software is spreading globally. Its use has been identified in a number of jurisdictions, including Canada, the United States of America, Germany and Sweden. Many of those have also implemented measures to address this risk. The ATO has uncovered concrete examples of the use of this software in Australia. It was recently reported in the US that sales suppression software was allegedly used to collect $20 million in fraudulent sales from the restaurant industry that was sent to Hezbollah, the terrorist group in Lebanon. In Sweden, an undercover documentary team identified 100 companies that were using the software. In Norway, the Norwegian Hospitality Association estimates that between 10 and 20 per cent of sales in the restaurant industry are fraudulent because of the use of tools like this. And sales suppression in Canadian restaurants is estimated to cost Can$2.4 billion per year.

Schedule 2 of the bill deals with third party reporting. From 1 July 2018, it would require businesses in the courier and cleaning industries to give an annual report to the ATO regarding the payments they make to businesses for the provision of courier or cleaning services. Those reporting obligations would apply from the 2018-19 income year, and reports would be required by 28 August 2019. The measure is estimated to result in the inclusion in the ordinary tax system of $132 million in taxes over the forward estimates period. Business-to-business payments for courier and cleaning services are within this scope. The implementation of taxable payments reporting systems in the building and construction industry resulted in improved contractor tax compliance and the reporting of income. This is an extension of that policy—that approach—to other industries that are regarded as high risk for black-economy-type activity.

The ATO has prepared guidance material designed to assist businesses that operate in the courier and cleaning industries to transition to compliance with these reporting requirements, to try and ease the process of compliance with these measures. The information that's reported to the ATO is used for the pre-filling of tax returns or activity statements which should, in fact, ultimately make it easier for contractors to be able to lodge their income tax returns and allow for data matching to ensure that contractors are complying with their tax obligations, such as correctly lodging their income tax returns and complying with business activity statement obligations.

These are all welcome measures to address the black economy and they need to be considered in light of the wider reforms the government has undertaken in changing tax arrangements. This government is getting on with the job of building a strong and fair economy and creating jobs—all within the fairness of a tax system that works for all businesses and for all Australians. I support this bill.