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Thursday, 25 September 2014
Page: 7137


Senator LEYONHJELM (New South Wales) (13:05): It is telling that Labor and the coalition deem this dog of a bill to be non-controversial, to be waved into law over lunch with no divisions. The Tax and Superannuation Laws Amendment (2014 Measures No. 4) bill is an example of the unceasing churn in tax law, based on the forlorn hope of the ATO that they can keep up with the tax-minimising taxpayer, causing ever greater complication of the already impregnable tax law and causing a groundhog day of transition costs for business and bureaucracy alike.

The bill seeks to dictate how businesses do business and is littered with retrospective and adverse provisions. Schedule 1 ramps up the pressure on businesses to fund their activities through foreign equity injections rather than through foreign borrowing. For instance, the government in its wisdom is decreeing that—where, previously, 75 per cent of foreign injections could come in the form of foreign borrowing without a tax penalty—now only 60 per cent of foreign injections can come in the form of foreign borrowing. The motivation for these 'thin capitalisation' rules is that the government has decided to tax the returns on foreign equity injections at a higher rate than the returns on foreign borrowing—that is, the government taxes dividend payments flowing overseas more heavily than interest payments flowing overseas.

The Henry tax review recognised the madness of differential tax rates, and the madness of attempts to control the debt/equity decisions of businesses as a consequence. Stepping back, the greater madness is the idea that income tax can and should continue to generate $250 billion each year. The costs of eking out the last drops of this tax revenue are extremely high and far outstrip the benefits achieved when government spends these last drops. The costs consist of administration costs, compliance costs, and the cost of people changing their behaviour—which means giving up on what they most wanted to do. With income being an increasingly mobile concept, every tax official in town would agree that the costs of income tax are rising rapidly. Both the past and current governments have ignored the Henry tax review recommendations in this area, have ignored that ongoing reliance on income tax is delusional, and have chosen instead to re-arrange deckchairs on the Titanic. To top it off, schedule 1 involves retrospective provisions that are adverse to taxpayers.

Schedule 2 contains fiddly provisions necessary to maintain the odd system where returns on foreign equity investment are taxed differently depending on whether the investment is made by one big investor or lots of little investors.

After reading schedule 3, I thought, 'Surely it wasn't Treasury that drafted this bill but Franz Kafka.' Schedule 3 fiddles with the capital gains tax system. Part 1 of schedule 3 applies from 14 May 2013 for some taxpayers and from 13 May 2014 for other taxpayers. When I read that, I thought that it must be a typo. The same provision starts on 14 May 2013 for some, and on 13 May 2014 for others. I ask the Assistant Treasurer, or perhaps the parliamentary secretary, to please inquire as to whether some Treasury official is about to succeed in getting a joke entered into tax law. The only thing consistent about these two dates is that they occur in the past. Maybe this schedule wasn't inspired by Franz Kafka but by Marty McFly.

The explanatory memorandum's explanation for this retrospectivity is as follows:

The retrospectivity … is warranted as the amendments correct a defect in the operation of the Principal Asset Test that would otherwise prevent it from operating as intended.

So: adverse retrospective legislation is warranted whenever the Treasury screws up. If they intended for people to pay more tax, it does not matter that it was not the law of the land; the tax shall be paid.

Another part of Schedule 3, which changes the definition of taxable Australian property, commences from 12 December 2006. The EM claims that this extreme retrospectivity does not adversely affect taxpayers. To do this, the EM seems to draw inspiration from either George Orwell or George Lucas, with a gall reminiscent of Obi-Wan Kenobi saying: 'These are not the droids you are looking for; move along.' The EM reads:

These changes … do not negatively affect any taxpayer because the scope of the definition of taxable Australian property aligns with the intention of the original provisions.

So: what was once your money under the law of the land will no longer be your money under the law of the land, but you are not negatively affected because it was never intended to be your money.

Schedule 4 of the bill will require the ATO to tell you a story about how your tax dollar is spent, which would be fine if it told low income earners that every tax dollar they paid miraculously came back as more than a dollar of welfare, and if it told high income earners that every tax dollar they paid went almost entirely to other people who consider them to be evil. However, that is not the story that the ATO will tell taxpayers.

Schedule 5 wraps up the bill with some incomprehensible 'miscellaneous' matters, which I am sure no-one, and I mean no-one, has read. So, as a pop quiz to our parliamentary secretary, could I ask him to educate us with a brief explanation of just one of these 'miscellaneous' matters when he speaks again on the bill, just to assure us that someone, somewhere, has opened the pages of that schedule.

All in all, what we have here is a standard tax and superannuation laws amendment bill. In fact, this bill is called 'No. 4' because we have already had three others this year. And yes, just like an episode of Thunderbirds, there is a No. 5 waiting in the wings. I can't wait.

To our Hansard colleagues: what I am about to say is not a typo.

I condemn this bill to the Senate.