Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Economics Legislation Committee
Australian Taxation Office

Australian Taxation Office

CHAIR: The committee will come to order. I welcome officials from the Revenue Group and ATO within Treasury and also Mr D'Ascenzo from the Australian Tax Office and officials.

Senator CORMANN: Starting off with the changes to the private health insurance rebate, Mr D'Ascenzo, we had a conversation about this back in June 2009. At the time, when I asked you about how it would all work in practice, you said to me that you had not even seen the legislation yet so you did not know. Given events of recent days, can you now talk us through how the means testing of the private health insurance rebate will work in practice at the ATO end? How will people with private health insurance know whether they are in one of the income brackets where they are eligible for reduced private health insurance rebate? How is it going to be administered from a frontend point of view?

Mr D'Ascenzo : I think others might be better placed in terms of the practical details, but it all turns on what the definition of 'income' is. That will require a matching system, on our part, to match information of taxpayers' income—for the purposes of this legislation—that would work out whether or not people have a refund or not. Others can provide even more detail perhaps.

Mr Quigley : I think that really does encapsulate it. There will be a definition in the legislation—if it is passed—and then we will match the income that is in the returns and look for that taxable income.

Senator CORMANN: This is supposed to come into effect from 1 July 2012, right?

Mr Quigley : Correct.

Senator CORMANN: That is not that far away.

Ms Granger : Obviously detailed plans for communication strategies cannot be put in place until we have the legislation passed, but potentially we may do a mail-out. We are certainly also thinking about whether we can do some kind of calculator for our website so that people can work through that, but it is a little bit premature. Those are typically the kinds of things we think about to try to help with this.

Senator CORMANN: Sure you will do a mail-out, but my impression is that you do not really know yet with much programmatic specificity how that is going to work.

Ms Granger : Naturally, in terms of content, we need to have legislation passed for the final details.

Senator CORMANN: Have you given any thought to whether a person would have to inform their private health insurance of their income for the coming year for the health insurer to make changes? Is the means testing something that is going to be processed after the event? How will somebody know, before they know how much they are going to earn in a particular year, whether they fall into one or other of the three tiers?

Ms Granger : I am not sure if we have that level of detail amongst us here today.

Senator CORMANN: But you would have to administer that, right?

Ms Granger : Yes. Can we take that on notice and we will get you more detail?

Senator CORMANN: Sure. The health department in the estimates hearings on community affairs described the income tiers for the purposes of the private health insurance rebate as based on taxable income. Is that correct?

Mr Quigley : It is a taxable income calculation, so it would be the sum of the taxable income—including the net amount on which family trust distribution tax is being paid—exempt foreign employment income, reportable fringe benefits—that is as reported on your payment summary—total net investment losses—which include both net financial investment losses and rental property losses—and reportable super contributions. There is then a further calculation if you are aged between 55 and 59, which will be any taxed element of a superannuation lump sum. There are some exceptions around death benefits that do not exceed the low-rate cap.

Senator CORMANN: What you have just described is not taxable income. What you have just described to me is incomes for surcharge purposes.

Mr Quigley : Correct.

Senator CORMANN: But that is not the same. What you are saying is that when the health department said that the income tiers would be based on taxable income, that is in fact not correct, is it?

Mr Quigley : My understanding is that what you are saying is correct—that is, for levy surcharge purposes.

Senator CORMANN: So it will be based on income for surcharge purposes which includes taxable income, reportable fringe benefits, reportable superannuation contributions, total net investment loss for the income year less all of the other things you have mentioned. That is what we are talking about, right?

Mr Quigley : That is our understanding.

Senator CORMANN: Will the savings from this measure contribute to consolidated revenue or has the funding already been designated for another purpose? That might be a question for Mr Heferen.

Mr Heferen : The fact that the tax rebate will not be paid out will contribute to consolidated revenue.

Senator CORMANN: It will go into consolidated revenue?

Mr Heferen : It actually will not be paid out as either a rebate or refund.

Senator CORMANN: So when the treasurer said that it could offset the cost of the pension increase, or Minister Roxon said that it would fund the ehealth, new medicines, preventative medicines and hospital beds, it has actually not been earmarked for either, has it?

Mr Heferen : If the question is, has it been specifically hypotheticated—a sort of legislative hypothetication—I am fairly sure the answer to that is no. If the question is more about what the intention of the government is in respect of when it has an increased amount of revenue to think about as outlays, I suspect that is what the ministers are commenting on.

Senator CORMANN: Just going back to the tax office, I might just go through a series of questions on how this is going to work in practice. The things you know you can tell me; the things you do not know, just take on notice. You do not yet know whether it is going to be up to the person to inform their private health fund of the income for the next year. That is right, is it not?

Mr D'Ascenzo : I think the requirement is for members to notify their health funds about the levels of rebate that they would want. So there is a requirement for members to notify the health fund.

Senator CORMANN: Okay, so the way is would work is this. A member has to go to the health fund and say that this is what I would want you to charge me; the premium minus 10, 20 or 30 per cent or none. At the end of the tax year then that gets consolidated, does it? Is that the way it will work?

Mr D'Ascenzo : That is our preliminary understanding. It is early days. We have only had the opportunity of seeing the legislation recently and as Ms Granger has said, we will provide the committee with our plans of implementation in more full detail as questions on notice.

Senator CORMANN: Sure. As I say, it is not far away and changing your systems does take a little bit of time as I understand it. What is the default position for someone who does not provide income details to their health fund? Would they continue to have a 30 per cent rebate and then that gets reconciled at the end of the tax year?

Mr D'Ascenzo : That is my understanding.

Senator CORMANN: If they choose to reconcile at the end, are there any penalties attached to this? Is it the same whether they advise the health fund and say, 'I just want zero per cent because I think my income is going to be too high'? Is it going to be the same whatever way they pitch it or is there going to be some consequence if you get it wrong as an individual taxpayer with health insurance?

Mr D'Ascenzo : I do not know the detail of that.

Mr Quigley : I do not know either. I do not know whether there are any penalties. Certainly there will be what I suppose you would call a wash up on the lodgement of the 2012-2013 return. If a taxpayer has claimed too much rebate throughout the year then there will certainly be a private health insurance liability. What I do not know offhand is whether there will actually be any penalty to that.

Senator CORMANN: Will it be a private health insurer's liability or would it be the liability by the privately insured?

Mr Quigley : No, I said a private health insurance liability to the individual. Sorry, I was not clear enough on that.

Senator CORMANN: Presumably, if the individual can just deal with it in the wash up, every individual will want to deal with it in the wash up unless there is some sort of consequence if you defer it.

Mr Quigley : As I say, I do not know offhand whether there are any consequences other than if you have claimed too much rebate throughout the year then there is that liability.

Senator CORMANN: Given that it starts from 1 July, when would people be expected to inform their insurers of their anticipated income for 2012-2013?

Mr Quigley : That will be up to the individual to advise their private health insurer. It is really up to them. It is really an arrangement between the private health insurer and the individual.

Senator CORMANN: Would there be a requirement for insurers to provide that information to the ATO?

Mr Quigley : We certainly would get that information, I would think. I would like to take that on notice as to what arrangements there are for that.

Mr D'Ascenzo : At the end of the day we would be seeking reporting from the health funds to the ATO of information that we need to make that reconciliation.

Senator CORMANN: So you would expect to get that information at the end of the day so you can reconcile the information you get from the individual taxpayer with the data?

Mr D'Ascenzo : That would be my understanding.

Senator CORMANN: Who is going to cover the cost of all of that? All of that would probably require additional systems development by insurers.

Mr Quigley : We get that information from the private health funds now.

Senator CORMANN: You do get that information?

Mr Quigley : We get similar information under the current legislation. We get information relating to an individual or a family's contributions et cetera, and that is matched with what they put in their returns. Indeed, the individual gets a statement from the private fund now.

Senator CORMANN: If that is the case, can you tell us how many people who lodged individual income tax returns in the last two financial years had private health insurance?

Mr Quigley : I have some statistics here, but I have not got numbers. I have some percentages of taxpayers who claim the rebate as a reduction in the amount of premium paid to their health insurer during the year, which is 98 per cent—two per cent claimed it in their tax

Senator CORMANN: So 98 per cent take it is a rebate during the year and two per cent reconcile at the end. I suspect that those percentages are going to flip over in relation to those who are impacted by the change. Do you know what the median taxable income was of those with private health insurance? You would have that data, wouldn't you?

Ms Granger : We would have to take that on notice.

Senator CORMANN: You are happy that you would have that data, given you get that information?

Ms Granger : I am not sure what analysis has been done. We will take it on notice and see what we can do.

Senator CORMANN: I would be interested to know what the median taxable income is of those with private health insurance. What percentage of people lodging individual returns, with a taxable income of over half a million dollars and a taxable income over $1 million, had private health insurance? Will you have to take that on notice too?

Ms Granger : Yes.

Senator CORMANN: What is the average amount of income tax and Medicare levy that is paid for those with a taxable income over those two amounts: half a million dollars and $1 million? And can you clarify the average value of the rebate that is provided to all of those that have claimed the rebate over the last two financial years. Also, given that you seem still to be very much in the preliminary thinking stage, can you provide on notice an update of the implementation operation compliance costs for government of these changes. If that could be broken down by department and agency it would be brilliant.

Just going back: would the requirements for self-employed people be the same? Presumably, from what you are saying, people just report to their insurer. I assume it is the same, or are their different requirements that envisage different reporting requirements for self-employed people?

Mr Quigley : My understanding is that it is based on whether you are an individual or a family contributor.

Senator CORMANN: How do you anticipate someone who is self-employed would be able to predict accurately for their next financial year?

Mr Quigley : I haven't got an answer to that.

Senator CORMANN: What happens? If a self-employed person's circumstances changed in a particular year—and I am thinking particularly about self-employed people—would there be any negative consequences for that person if they thought they would be eligible for the rebate, but then turned out not to be because their income was higher than they expected it to be.

Mr Quigley : The answer to that is the same as the answer I gave earlier—

Senator CORMANN: You do not know.

Mr Quigley : No. I do not know off hand.

Senator CORMANN: Are you involved in the $11.5 million public awareness campaign or is that something that is run through the health department? Are you responsible for that?

Ms Granger : I would have thought that is Health.

Mr D'Ascenzo : The Department of Health and Ageing is the lead agency.

Senator CORMANN: I might move on from the private health insurance issue. I have one simple question on new tax systems for managed investment trusts. The commencement date has been deferred to 1 July 2013 due to ongoing consultation with industry. What is the revenue impact of the deferral?

Mr Heferen : Sorry, we are just having a little difficulty tracking it down.

Senator CORMANN: If you can look for that, I have got a couple of similar little issues. The Tax expenditures statement 2011 lists the rebate for broadcasting licence fees at page 175, item F5, and it shows a rise in expenditure from 2013-14 to 2014-15 of $12 million. Can you explain the reason for that change?

Mr Heferen : I think questions on broadcast licence fees should be put to Department of Broadband, Communications and the Digital Economy.

Senator CORMANN: It is not a revenue issue?

Mr Heferen : I think in that case it is just a tax expenditure, but the policy behind the tax expenditure would be a question for communications policy.

Senator CORMANN: You do not know what causes the variation?

Mr Heferen : I think it would be best put to the other department or, if necessary, we could take it on notice.

Senator CORMANN: On the $50,000 superannuation cap for those over 50 years of age with less than $500,000, which is one of the measures attached to the mining tax package, has Treasury considered any alternatives to the announced measure?

Mr Heferen : Sorry, which measure was that?

Senator CORMANN: The $50,000 superannuation cap for those over 50 years of age with less than $500,000. It is not means testing but asset testing of the restoration of the superannuation cap for some people back to $50,000. Have you considered any alternatives to the announced measure?

Mr Murray : The government has announced that measure and is still intending to proceed with that. It did announce as part of its superannuation round table that it would discuss further with industry the administration issues they have raised with that measure.

Senator CORMANN: What was your assessment of the cost of administration of increasing the concessional contribution cap to $50,000 for people over 50 with less than $500,000 in super?

Mr Murray : The cost of administration to the tax office or to superannuation funds?

Senator CORMANN: To the government.

Mr Murray : There was an allocation of money to the Taxation Office to administer the measure in the budget proposal. I can get back to you with those numbers if you like.

Senator CORMANN: The allocation is one thing. I am interested in what the cost is now that you have done some more work on it. All the feedback I am getting from everywhere is that it is a rather an inefficient way of going about it. In fact, I have had feedback that Treasury themselves have come to the view that it was an inefficient way of going about things and that you could lift the concessional contribution cap more cheaply for everyone without having to waste all this additional money in this fashion. You are not aware of the sorts of conversations?

Mr Murray : There have been concerns expressed by industry over the administration costs, and, as I mentioned, the government has advised that it will consult further with industry on those administration costs.

Senator CORMANN: Sorry, I cannot really—

Mr Murray : The government has advised that it will consult further with industry on the administration costs and understands their concerns. But at this stage it has announced that it is continuing with that policy.

Senator CORMANN: Has Treasury ever expressed a view that Treasury agree that doing it this way would be administratively inefficient?

Mr Murray : There was a discussion paper put out last year which did raise the issue of administration costs and noted that different administration options would have different costs. Consultation took place on that measure.

Senator CORMANN: Mr Brake, have you found the other issue?

Mr Heferen : We have located it in last year's mid-year update. The deferral results in a small gain in revenue: $50 million in 2013-14, $20 million in 2014-15. That was the result of the deferral because the initial measure would have been cost to revenue.

Senator CORMANN: That is the most current estimate—the Mid-year Economic and Fiscal Outlook for 2010-11. Is that what you are saying?

Mr Heferen : No, the MYEFO for 2011-12. They will always be the most up-to-date revenue numbers.

Senator CORMANN: The government announced two elements of the investment manager regime in December 2010 and January 2011. The December 2010 changes had immediate effect, and the January 2011 changes to the income tax treatment of investment income of foreign funds were to commence from the 2010-11 income year. Draft legislation was released by Treasury for public consultation in August 2011 for a short, two-week exposure period. To date, no legislation has been introduced into the parliament.

Can Treasury explain why there was only a very short, two-week consultation period for an important piece of detailed legislation, and still no legislation has in fact been introduced? Couldn't you have consulted a bit longer, given that you were obviously not in a hurry?

Mr Heferen : There may be someone who would be able to assist, but I would make the point that the time frames for the decision-making are not time frames that the department usually—

Senator CORMANN: So you are saying is that it is a matter for the minister?

Mr Heferen : No, I am not leaping to that straight away. Hopefully, there will be someone who will be able to shed some light on the issue. But maybe not!

Senator CORMANN: I see that you are looking behind yourself, and there is not much backup coming!

Mr Heferen : I think the change of personnel involved in that measure must mean that we will need to take on notice the detail that you are going to.

Senator CORMANN: So the changes were announced in December 2010 and January 2011, there is no legislation yet, and there was a short consultation. Can you shed any light on what has caused the delay?

Mr Heferen : I could speculate, but I do not think that that would be particularly useful for the committee. I think it may be more useful if we take it on notice so that we can come back with a concrete answer.

Senator CORMANN: Sure. Is Treasury aware of whether or not foreign funds are increasing their use of Australian-based fund managers based on the announcement alone, or are they all waiting for the legislation?

Mr Heferen : I am not aware. We will have to take that on notice.

Senator CORMANN: So you have had no feedback on the impact of the delay of the legislation in terms of attracting Australian-based fund managers from international operations?

Mr Heferen : Not specifically, no.

Senator CORMANN: So nobody has ever—

Mr Heferen : Not to me.

Senator CORMANN: Or to the responsible people in your area?

Mr Heferen : It may be the case. I will certainly take that on notice.

Senator CORMANN: But the announced changes would actually be providing benefits in terms of making Australian an international financial services hub, right?

Mr Heferen : These recommendations were, as I recall—

Senator CORMANN: Johnson.

Mr Heferen : part of the ones that came out a review done by Mark Johnson. There were a number of recommendations which the government considered. I guess one of the tricky things in working through those recommendations is that, at least insofar as they relate to the tax system, they will typically involve some sort of tax expenditure, some sort of concession and some sort of reduction in the business tax base. When the Johnson report was originally commissioned, the revenue constraints might not have been as important as they have become in recent times. As now doubt you would be aware, the volume and number of measures that relate to tax expenditures is much more closely monitored.

Senator CORMANN: What I am hearing you say is potentially—and I just wanted to make sure I am understanding you correctly—that the government is reconsidering the administration of these proposed measures?

Mr Hefren : I will take on notice the precise reasons; I am just making the observation that where there are costs to revenue, obviously, those have to be very carefully considered. As far as I am aware, we have not got to the stage of the right information going to the Treasurer for him to make that decision about how to proceed.

Senator CORMANN: The announcement in itself did not actually deliver any changes. The change is only going to come, if and when the legislation is introduced and passed by the parliament—right?

Mr Hefren : Typically that would be the case. The fact an announcement has been made may leave some people to change behaviour in general but, in this case, I am not sure.

Senator CORMANN: It has taken more than a year already and, from what you are saying, it could well be that the government is going to reconsider this, given the fiscal position.

Mr Hefren : It would not be appropriate for me as an adviser to put words in ministers' mouths about what they might or might not do but, clearly, because the legislation has not been, as far as I am aware, been put in place, it is still under consideration.

Senator CORMANN: Just a couple of questions on the mining tax—I am sure you would have been surprised if I had not asked any questions about the mining tax. Did Treasury have any discussions with larger mining companies asking them about how much they would expect to pay under the MRRT?

Senator CAMERON: They are not paying enough of a fair share to this country. I hope that is what they said.

Mr Hefren : I am not aware of any discussions I have had with taxpayers about what their tax liability will be.

Senator CORMANN: So there have not been any discussions with larger mining companies who were asked to commit to a minimum payment under the MRRT?

Mr Hefren : That Treasury has had?

Senator CORMANN: Yes.

Mr Hefren : Not that I am aware of.

Senator CORMANN: You might want to take that on notice.

Mr O'Toole : There have been no discussions with large mining companies and Treasury.

Senator CORMANN: No discussions along those lines.

Mr O'Toole : What with Treasury, no.

Senator CORMANN: Does Treasury know what the company tax cut that is attached to the mining tax would cost the budget in 2014-15?

Mr Hefren : As you would no doubt be aware, we talked about a question on notice last time and the minister on behalf of the Treasury tabled a document that has the information. As you see, the 2014-15 revised company tax cut is not included . It has not yet been included in a budget update or a MYEFO update.

Senator CORMANN: Why is that? Presumably there will be a cost. Given that the government expects an increase in receipts from company tax in that period, presumably the cost would be going up from 2014-15. If the receipts are going up, then a tax cut, given that it is a proportion of that, would have to go up as well. How can you not have that as part of your forward estimates?

Mr Heferen : I recall traversing this one pretty well last time.

Senator CORMANN: I did not get an answer then and you took it on notice. Now three months later I still do not have an answer.

Mr Heferen : We took it on notice. We took it to the Treasurer. The Treasurer has provided these figures. I can take it on notice again and take it to the Treasurer.

Senator CORMANN: We are just going round and round in circles. Why is it that you are able to tell us what the small business instant asset write-off and simplified pooling are going to cost the budget in 2014-15 but you are not able to tell us what the revised company tax cut or the early starters company tax rate cut for small business or the superannuation contribution caps operation of the higher caps for the over-50s are going to cost in 2004-15? Are you saying that these costs are not yet part of your forward estimates?

Mr Heferen : No. All the announced measures will become part of the forward estimates. As the senator might or might not be aware when measures are done on the tax side and the costs to revenue are for the particular year and the three years after—so it is in MYEFO that year and then in three years subsequent or in the budget, the budget year and the three years following—they will be published. As you can see with some of those measures, where there has been an adjustment in MYEFO such as in that table and the 50 per cent discount for interest income, the deferral was announced in MYEFO. It means that now a number is put in for 2014-15, because that is the third year.

Where a bill is introduced, the requirement is that that bill would have the cost of the current year plus the next three. In the case of the small business instant asset write-off and the simplified pooling, it has been included in the bill introduced into parliament; so that will be included. In respect of the ones that you have noted with the asterisk, which is where a bill neither has been introduced nor been updated in MYEFO, those figures are not put on the public record.

Senator CORMANN: These figures are not put on the public record, but do you know what they are?

Mr Heferen : Someone may.

Senator CORMANN: Does the revenue group in Treasury know what these figures are?

Mr Heferen : I guess the point here is that we can provide numbers that are in the public domain—

Senator CORMANN: With all due respect, that is not right. We have these discussions every time and eventually people have to relent and accept the fact that Senate committees cannot just ask questions about information that is already on the public record. There would be no purpose in having Senate committees scrutinise budget estimates if we could only ask questions about what is already on the public record. When the mining tax, the RSPT, was initially announced, obviously there were only measures for the two years over the forward estimates because it was the final two years of that particular cycle at the time. We now have another year in the forward estimates and, from what you are telling me, you know what the cost of the company tax cut and these other two measures are going to be in 2014-15, but the reason you are not sharing it with us is that it has not otherwise been released on the public record. Minister—

Mr Heferen : I did not say we actually knew what it was. Like the others, where a bill has been introduced, it would be the requirement for the number to be provided. We had this discussion last time and we took it on notice—

Senator CORMANN: So as not to waste too much time: why were these three measures—the company tax cut, the early starters company tax rate cut for small business and the super contribution caps operation of the higher caps for the over-50s—not part of the mining tax package of bills?

Mr Heferen : There was the substantial legislation to deliver on the mining tax, and that has been put together, drafted and passed through the House. The reality here is that there are a lot of measures and they require resources to make sure that the work is done and the relevant material is done. At this stage, those bills have not been introduced into the parliament.

Senator CORMANN: But has the bill for the company tax cut been drafted?

Mr Heferen : I am not aware.

Senator CORMANN: Is it still proposed for it to start on 1 July 2012-13?

Mr Heferen : Yes.

Senator CORMANN: So it is still proposed to start on 1 July 2012.

Mr Heferen : As you can see, the cost to revenue is $300 million for 2012-13.

Senator CORMANN: But you have not actually drafted the legislation yet. When can we expect the legislation to implement a company tax cut which was said to be part of the mining tax package?

Mr Heferen : There is the rest of the autumn sittings and the winter sittings. Clearly, that will need to be passed at least by the winter sittings to ensure it is in place by 1 July.

Senator CORMANN: When can we expect the costing of that particular measure that has been attached to the mining tax and the two other measures attached to the mining tax for 2014-15 which have not so far been publicly released?

Mr Heferen : When the legislation is introduced.

Senator CORMANN: So some time between now and 30 June. We will get there eventually.

Mr Heferen : Assuming the legislation is on track, and I have no reason to doubt that it will not be, when the bill is introduced the explanatory memorandum will make clear the cost over the year and the next three years.

Senator CORMANN: So why was the company tax cut not attached to the mining tax package when most of the other measures were attached? Is there a particular reason as to why this has been handled separately?

Mr Heferen : Not that I am aware of. There is an enormous volume of tax legislation. There is a question about what can be done over a period of time.

Senator CORMANN: It is a bit unsatisfactory from our point of view, though, because we have the mining tax package before us where there are revenue estimates. Then there is obviously, in terms of the fiscal impact, the cost of a whole series of related measures. Are you telling us that, when we are asked to make a judgment in the Senate on the mining tax, we are allowed to know what the full cost of all the related measures is going to be; we are only allowed to know that at a later stage when the government eventually decides to introduce legislation in relation to the company tax cut?

Senator Arbib: The only thing I would say is that Treasury is not operating any differently to how it operated under Mr Costello and Mr Howard. Treasury does not continually provide additional estimates or recostings for individual measures or packages. For example, we do not recost every element of the GST each year.

Senator CORMANN: This is obviously a massive new measure and a massive new tax which has attached to it massive additional expenditure. I think it is only sensible for the Senate to be aware of what the true fiscal impact is going to be, particularly given it is going to be a highly volatile revenue source which will be downward trending according to Treasury, connected to an increasing fixed cost over a long period of time, which is just a recipe for a fiscal train wreck in the making.

Senator Arbib: But there are some big winners out of this package. Small business and business are big winners out of this. I know you have been on record opposing the superannuation, but your party has overridden you on that one, and they support the increase.

Senator CORMANN: Minister, that is not right.

Senator Arbib: My understanding is that Mr Abbott supports—

Senator CORMANN: You are totally mistaken. You should be a bit more careful.

Senator Arbib: That is my understanding.

Senator CORMANN: You are wrong.

Senator Arbib: That is not the case?

Senator CORMANN: We voted against it in the House of Representatives. We will vote against it in the Senate.

Senator Arbib: But the question is: once it is in place will you repeal it?

Senator CORMANN: And that is the point. We have said—

Senator Arbib: I think that you said that you would repeal it and Mr Abbott has said that you will not repeal it.

Senator CORMANN: Just to clarify that to make sure you not under any misapprehension: if that one single measure does get up, we will oppose it. But if it does get up, even though we are opposed to it, we will not rescind it in government. That is the only measure out of the whole—

Senator Arbib: But why then would Mr Abbott rescind tax cuts to small business and a depreciation allowance to small business?

Senator CORMANN: You can make a lot of promises but your whole mining tax package is a fiscal train wreck in the making because the revenue will be downward trending, the costs of the related measures will continue to go up and you will be short to the tune of billions and billions and billions of dollars. It is nice to walk around the Australian community and hand out fistfuls of cash—

Senator Arbib: These are tax cuts to small business. When the modern-day Liberal Party walks away from tax cuts to small business—

Senator CORMANN: And no doubt that is why you have got $167 billion worth of accumulated deficits—because you spend money like drunken sailors in this sort of fashion. Only the Labor Party can come up with a multibillion dollar new tax that leaves the budget worse off.

Senator Arbib: Australian businesses are going to benefit out of this. I am very surprised that the Liberal Party would rescind tax benefits, tax cuts, depreciation allowances for small business.

Senator CORMANN: We are all about sound financial management because that is actually beneficial for the economy.

Senator Arbib: You have got a $70 billion budget hole. What do you mean 'sound financial management'?

Senator CORMANN: You should not start believing your own rhetoric, Minister.

Senator Arbib: It has been confirmed by Mr Robb, by Mr Hockey.

Senator CORMANN: Don't believe your own rhetoric.

Senator Arbib: It is not coming from me, it is coming from your own finance spokespeople.

Senator CORMANN: It is definitely coming from the Labor Party.

Senator Arbib: We will agree to disagree.

Senator CORMANN: Let's agree to disagree. I understand that the Treasury and the Resource Tax Implementation Group have identified errors in the way the mining tax legislation has been put together and that there has already been a consensus that further changes will have to be made to prevent significant implications for some of the taxpayers involved. Have you done some work on costing the revenue implications of that?

Mr Heferen : My understanding is that there needed to be some amendments moved and they were moved in the House. I think the relevant costs were negligible. Mr O'Toole may have some information.

Senator CORMANN: There is no need for any more amendments identified by the Resource Tax Implementation Group?

Mr O'Toole : It is part of a TLAB which has just gone out for consultation, I think on Friday last week. It deals with a number of technical amendments including some to the MRRT. In terms of costing, they are technical amendments, as I said, there is no change in policy and so the costing remains consistent with what has previously been announced.

Senator CORMANN: Why would you do it through a TLAB? The mining tax legislation is only just before the Senate. Why wouldn't you amend the substantive bills rather than do it through a separate bill?

Mr O'Toole : A TLAB technical amendments bill was available. That was the decision.

Senator CORMANN: You are wanting to amend, through a TLAB, legislation that has not even passed the parliament yet. Why wouldn't you just amend the legislation that is before the parliament?

Mr Heferen : It is a pretty standard practice to—

Senator CORMANN: I understand it is practice after legislation has passed to amend it through a TLAB; Senator Arbib and I deal with these sorts of bills all the time. Normally that would happen after legislation has passed and there is a need for some corrections. But when legislation is still before the parliament the way to fix that legislation is to fix it while it is before the parliament, rather than to have us pass it with errors in it.

Mr Heferen : As you would appreciate, with such a significant piece of legislation as this we would want to make sure that the recommendations that came out of the implementation group, which was a group of people representing the Treasury and the tax office but also the various industry representatives and accounting bodies and, I think, the Law Council—

Mr O'Toole : Yes.

Mr Heferen : If they identify corrections that need to be made I think we ought to try and do that as quickly as we can. The TLAB offered a quick path through.

Senator CORMANN: Was it a Treasury decision or a decision by the Treasurer to do it through a TLAB rather than through amendments to the substantive bill?

Mr O'Toole : The Treasurer wrote to the Minerals Council of Australia following concerns raised by the industry themselves regarding some of these technical amendments and in that the Treasurer affirmed that we would amend them in the first available TLAB.

Senator CORMANN: So to do it through a TLAB was a decision by the Treasurer rather than by the Treasury?

Mr O'Toole : Yes.

Senator CORMANN: Have you assessed the cost of the upfront tax deduction that is available to mining companies subject to the MRRT who choose to use the market value method as a starting base?

Mr Heferen : Do you mean costed that in isolation?

Senator CORMANN: When the heads of agreement was signed and there was obviously a change—in the past it was based on book value—there was the additional inclusion of the market valuation method—

Mr Heferen : In the heads of agreement?

Senator CORMANN: Yes. Did you assess the cost of the inclusion of that method on the revenue that would be collected?

Mr Heferen : Not as far as I am aware. The overarching amount is estimated.

Mr O'Toole : That is correct, Senator.

Senator CORMANN: Did you make any assumption about how much that deduction would be? In order to estimate the revenue, you would have to have some sort of indication about how much of a deduction taxpayers are likely to claim against the gross mining tax liability.

Mr Heferen : From the starting base?

Senator CORMANN: Yes.

Mr Heferen : The values of the minerals at the start?

Senator CORMANN: No, it is not the value of the minerals. For companies like BHP and Rio, the book-value on all of their infrastructure and initial investment would be zero. So there would not be much of a deduction there. But including the market valuation method and allowing those assets to be depreciated over a period not exceeding 25 years, obviously that is going to reduce the amount of revenue you are going to collect. Some people in the industry would argue to a point where you are not going to collect any revenue at all for a number of years. I am giving you an opportunity to dismiss that by telling me that you have looked at the implications of the market valuation method and what that is going to cost in terms of reduced revenue. Have you done that assessment?

Mr Heferen : At an aggregate level, yes, and we estimate that the tax will raise $3.7 billion and—

Senator CORMANN: $10.6 billion over the forward estimates.

Mr O'Toole : That is right.

Senator CORMANN: The $10.6 billion is obviously the net revenue figure. How much have you deducted from the gross mining tax figure to take into account tax deductions that are likely to be claimed by bigger miners using the market valuation method to calculate their starting base?

Mr Heferen : This is getting to the value of the assets of the set of taxpayers here. I think in the past there has been a discussion about information has been provided on a commercial-in-confidence basis.

Senator CORMANN: You are now talking about the excuse the Treasurer has used not to release the revenue assumptions, the commodity price and production volume assumptions, because he said that information was in part provided by those companies. I am not even going to go into that argument today. This is quite a serious issue; if you can dispel it, I would like you to dispel it. There is an assertion out there that the value of that tax deduction is such that none of these larger companies who have signed the deal, and possibly FMG as well, will actually end up paying any tax at all, because the value of the tax deduction in that heads of agreement is such that it will net itself up—in particular, because you have not actually prescribed over what period it must be depreciated, except to say it should not exceed 25 years.

Senator Arbib: Who is asserting it, Senator?

Senator CORMANN: Industry participants who were excluded from the negotiation process when the Prime Minister, the Treasurer and the managing directors of the three biggest mining companies in Australia negotiated the design of a new tax exclusively and in secret, designing it in a way that gives them a significant competitive advantage, makes it harder for all of the other industry participants to compete with them. They are the sorts of people who assert that.

Senator Arbib: Is it some small miners, is it—

Senator CORMANN: Small- and mid-size miners. They have been on the public record. I am not being secretive.

Senator Arbib: You have not put a name to it, so I am asking you.

Senator CORMANN: Sure—other participants in the industry who were excluded from the tax design process.

Senator Arbib: Okay.

Mr Heferen : Some of those discussions have been going on as the PTG, the RTG and the legislation have been going through the House, and we do not agree. Our costing is that the MRRT will produce revenue in the first year—$3.7 billion in the first year. It is identified in—

Senator CORMANN: Yes, $10.6 billion in the forward estimates. I am aware of those figures. Even if you do not want to give me the figure, I am keen to know whether you have included in your calculations of that revenue estimate a value for what you expect to be the tax deduction by the bigger miners that are using the market valuation method. That is just a yes or no answer.

Mr Heferen : Yes.

Senator CORMANN: So you have a figure that is attached to that on what you expect to happen?

Mr Heferen : Correct.

Senator CORMANN: That is good to know.

CHAIR: Senator Cormann, we are going to engage in a lengthy discussion for two days next week on the MRRT and associated bills. At this stage, I propose to handover to another senator.

Senator CORMANN: I have got one question to finish the mining tax.

CHAIR: Okay.

Senator CORMANN: Can you clarify this once and for all. The net revenue estimates for the mining tax are provided in MYEFO—that is, footnote (a), table 3.12, page 48. Do they include the impact of all of the announced increases in state royalties made in 2011—that is, WA, New South Wales, Tasmania, South Australia—or do they exclude the royalty changes proposed by the New South Wales state government? There seems to be some confusion around that.

Mr Heferen : There should not be any confusion at this stage. My understanding with MYEFO is that the New South Wales government had not announced what it proposed its royalties to be.

Senator CORMANN: But it had announced it as part of the budget.

Mr Heferen : No, as far as I am aware, it never specified, 'We are changing the royalties on a particular commodity to a particular level.' WA has and WA's announcement was in their budget last year ,as I recall. It is a matter of public record. So, obviously, that is taken into account in published numbers. Where there is an announcement that the government might do something in the future which is essentially what the New South Wales government has done, we do not feel there is sufficient rigor around what we could actually put in there, because there is no cost attached.

Senator CORMANN: So the short answer is that New South Wales is not included at this stage?

Mr Heferen : That is right.

Senator SHERRY: There have been some announcements on superannuation increase in SG and a rebate to low-income earners of the contributions tax. Can you give me a couple of examples of outcomes as a consequence for some typical low and low- to middle-income earners of the improved retirement incomes?

Mr Heferen : I might defer to some of my colleagues, who may have more specific information. Mr Phil Gallagher.

Senator SHERRY: It is good to see you again, Mr Gallagher. You haven't had enough questions the last four years!

Mr Gallagher : It has been a bit quiet.

Senator SHERRY: I am not going to tax you too much. I am going to turn to the ATO soon on my favourite subject—lost superannuation. Could you give me a couple of examples?

Mr Gallagher : Yes. When the package was released, two standard cameos were used. One was of a person who is 30 years old now on average full-time earnings who, by the time they retired at age pension age, would get a benefit of $108,000 real from the increase in the superannuation guarantee. The other cameo that was used at the time was for a woman with a broken work pattern, who turned 30 in 2010. Because she is having children, she does not go back to work until she is 36 in 2016. She works part time between age 36 and 44, full time from 44 to 59 and part time from 60 to 66. In that case, the real benefit was a benefit of $78,000. In the Treasurer's economic note No. 45 of 27 November last year, a number of other cameos were released. There was a 22-year-old hairdresser who would get a real benefit of $99,500. There was a 25-year-old receptionist who, on a receptionist's salary, would be seeing a benefit of $94,500. A 35-year-old plumber would be getting a benefit of $75,000 by the time they retired. So there are a range of cameos in that publication as well.

Senator SHERRY: Knowing your thorough approach, I assume you have included, where it was relevant, the low-income refund of the contributions tax.

Mr Gallagher : Yes. The low-income super contribution is included, so that refund stacks up to effectively $500.

Senator SHERRY: Could you just take on notice—I wouldn't expect you to have it here and now—those cameos that you have produced? Disaggregate what the impact of the increase in the SG is and the effective refund of the contributions tax. I am just interested to see what the impact of either of those measures is.

Mr Gallagher : Yes.

Senator SHERRY: That is all I had. I had some questions for the ATO on lost superannuation—a longstanding interest of mine. Some I will put on notice, depending on how we go for time. Going to the 2010-11 annual report, on page 92 it refers to the number of accounts and the aggregate value. It then goes on, in the fourth paragraph, to say:

At 30 June 2011 we held $730 million of unclaimed superannuation money relating to 2.3 million accounts.

That is held separately, but it is not clear from that whether those figures—the 2.3 million accounts holding $730 million—are part of the earlier aggregate figure of the total number of accounts and the total, which is five million with a reported value of $20.2 billion.

Mr Peterson : The short answer is that the 2½ million is not included in the lost figure. There were 5.2 million lost accounts, and the tax office was holding about 2.3 million accounts of unclaimed superannuation.

Senator SHERRY: That would explain why the number of lost accounts decreased by 800,000 to five million, because we have got 2.3 million accounts—very low-value accounts—held separately, and the quantum of total unclaimed super money actually went up to $20.2 billion. It went up by $1.4 billion, because we moved to one side a lot of the accounts but they were accounts with a very low value.

Mr Peterson : Absolutely. You might recall what I will shortly refer to as the lost insoluble measure, that took the small value accounts off the lost members register. They became unclaimed super and were paid to the tax office. They are about 1.3 million accounts presently in unclaimed super with a value under $200.

Senator SHERRY: I want to come to that in a sec. In terms of the aggregate figures, a fund notifies the ATO of the name of an individual who has a lost account, together with the quantum. It is the fund's responsibility. That is correct, isn't it?

Mr Peterson : The reporting process is a little different to that. When a person is first reported as lost, the fund notifies the individual's details to the office and notifies a balance at that point in time. The individual's record then sits on the register until such time as it is removed or otherwise updated, so it is an on-off kind of register, meaning that balances tend to go out of date.

Senator SHERRY: Balances change—

Mr Peterson : Balances change, so what is reflected on the lost members register is not necessarily the latest balance, which is why you saw that shift, that jump, in account balances in 2009-10, when we had a full re-report of the register. A further full re-report of the register is planned for April reporting in 2012, and we are hoping there to see some really positive shifts because of a number of the initiatives we have taken in relation to lost super.

Senator SHERRY: Presumably, from time to time, you would check with funds. You would have some sort of compliance activity to make sure they are reporting in accordance with the requirements?

Mr Peterson : We run a regular program of audits across larger funds that we refer to as accuracy and completeness audits. They necessarily pick up lost and under-reporting and unclaimed reporting et cetera.

Senator SHERRY: Can you give me a bit more detail of that compliance program and the cost thereof? Take it on notice; I do not want to explore that at the moment. Do you get any details of fees or is it just balance and name?

Mr Peterson : It is just balance and name—nothing to do with fees.

Senator SHERRY: Okay. We have $20.2 billion on the register for that year with five million accounts. There is a proposal to auto-roll together accounts of less than $1,000—it is not yet law; it is a proposal—are you aware of that?

Mr Peterson : Yes.

Senator SHERRY: Has there been any consultation in the industry about how this will be implemented?

Mr Peterson : Because it is in the policy stage, the ATO has not been consulting with industry about how it would be implemented.

Senator SHERRY: Presumably the retirement income group has been doing some work with industry.

Mr Murray : There has been an ongoing process of consultation with industry on all the SuperStream and Stronger Super reforms, including the account consolidation processes.

Senator SHERRY: I am aware of that. At some time, though, the ATO, as I understand, will have responsibility for the administration and it would seem to me it would be a fairly significant admin IT issue, would you agree? It will be a significant project.

Mr Murray : Yes.

Senator SHERRY: Would you have any idea when the consultation with industry will start, and on how this would be done technically and administratively?

Mr Murray : There has been a fair bit of consultation done already. We have been meeting monthly with our working group in industry discussing all these types of issues, including account consolidation. The government has set out a basic framework as to how the account consolidation process will work from January 2014. The next stage will be to move into the legislation development phase and there will be further consultation at that stage as well.

Senator SHERRY: I was aware of that but I was not sure of what level of detail had been reached yet. Do you have any idea of when this would be an issue for the ATO to start looking at the admin IT issues?

Mr Murray : The ATO is already in that process of working through the issues for it on that side.

Senator SHERRY: So there is some work going on?

Mr Peterson : We are beginning to think about it, absolutely, but you cannot tie it down until you are sure of where you are going.

Senator SHERRY: I understand. Has there been any written documentation passed to industry from the ATO about the admin IT issues that you are thinking about?

Mr Peterson : I would need to take that on notice, just to be sure I gave you an accurate answer.

Senator SHERRY: If you have, would you take on notice whether a copy of it could be provided to the committee? The proposal is for balances of less than $1,000. Is that correct?

Mr Peterson : That is correct.

Senator SHERRY: What is the number of accounts that that will impact?

Mr Peterson : I do not have those precise figures available with me at the moment. At the moment there are 33 million superannuation accounts in Australia. It is certainly hoped that some millions of those will be reduced with this measure.

Senator SHERRY: You would have to have some idea, but take it on notice anyway.

Mr Peterson : Sure.

Senator SHERRY: Related to this, could the ATO—and I expect you to take this on notice—give a breakdown by value of $1,000 the number of accounts in the lost, unclaimed category? We have five million accounts; how many have a value of less than $1,000? How many have a value between $1,000 and $2,000? In categories of $1,000 I am interested to see where the concentration is with lost accounts.

Mr Peterson : We can do that breakdown for you. I have some of it now but not by $1,000 and it would be a very boring conversation.

Senator SHERRY: Take it on notice.

Mr Peterson : It will be a very long list if they are broken down in groups of $1,000.

Senator SHERRY: Let me change that. Five hundred dollars or less; $500 to $1,000 and then—what? Lots of $5,000?

Mr Peterson : Yes, we can go up to $500, then up to $1,000 then say $1,500 and we will go from there, if you like.

Senator SHERRY: Yes, okay. If you can do it that way. Just take it on notice; I do not need the information today. Could you also take on notice a summary of the range of programs over the years that you have initiated, and the cost of those programs, to minimise the issue of lost super? It is not a criticism of the ATO; I am aware that there are have been a range of programs over the years to reunite people with their lost super and you refer to one in the report, and that is all find and good. I am just interested in a list of them, but take it on notice. Also, could you take on notice to provide me with a list of the range of programs that the ATO have—and, again, this is not a criticism; I just want to find out the level, which I know is extensive—on SG compliance that you have initiated since the ATO has had responsibility for the SG, which I think goes back to 1992 or 1993. Can you give me just a brief descriptor, a couple of sentences, of what they involve and the cost of SG compliance over the years, broken down.

Finally, I want to go to this issue which we touched on of the small and insoluble lost members account measure and the temporary residents measure. The small and insoluble lost members account measure was the less than $200 measure, wasn't it?

Mr Peterson : That is correct. It also required the account to be lost. In relation to insoluble, I am not sure that the $200 limit actually applied to those accounts. Just before we go further, I should probably flag for you that we may struggle. We will do our very best with the questions you have put on notice, but we may struggle a little bit with some of the detail going back so far.

Senator SHERRY: Let us say for the last 10 years. Is that too difficult?

Mr Peterson : We will do our very best for you.

Senator SHERRY: Thanks. Going to the less than $200 measure: for what year did you get what amount of revenue when the measure was first introduced?

Mr Peterson : I am hunting for the information.

Senator SHERRY: What has been the revenue for each financial year? The measure has only just come in, in 2010-11.

Mr Peterson : I cannot give you the breakdown. I would need to go and do the arithmetic. I can tell you that at 30 June 2010 the ATO was holding $323 million, and $403 million at 30 June 2011.

Senator SHERRY: Just take it on notice. They are separate measures: There is the less than $200 lost accounts and then there is the temporary residents accounts. If you can get me just the figures for each year that have been collected from the measures. The first year would have seen a much larger collection than subsequent years because you already had a bank or pool.

Mr Peterson : That is absolutely right; that has been the pattern.

Senator SHERRY: The collection of that money from the funds: is that done continuously through the financial year or do you wait until the end of the financial year?

Mr Peterson : In relation to temporary residents, the process requires reporting from the department of immigration, which the ATO matches back to contributions data and then sends a notice to the fund requiring to pay accounts to the ATO. That happens twice a year. With the small and insoluble measure, it is just reported as part of the usual unclaimed moneys reporting and that also happens twice a year. That is not initiated by the ATO. The funds have an obligation to report and pay in line with a schedule specified in the law.

Senator SHERRY: I notice at the end of that section it says that Victoria and the ACT transferred their unclaimed super money holdings to you during 2010-10. What about the other states? What happened there?

Mr Peterson : Not at this stage. That is still an issue to be followed through.

Senator SHERRY: Why is that? Is it an administrative issue or is there a legal issue?

Mr Peterson : There are some legal issues for the states in releasing the money and then there is the decision by the states about whether they care to let the money go.

Senator SHERRY: Could you take on notice what the issues are relating to the other states—why Victoria and the ACT have been okay but the other states have not?

Mr Peterson : Yes.

Senator SHERRY: Finally, going to the superannuation holding special account, I understand its purpose—it is well explained there—but it is closed. It says it closed to employer super deposits on 30 June. Is it open for other moneys and just closed to employer super deposits?

Mr Peterson : It is closed to employer deposits from 30 June 2006. It is also the destination of last resort for super guarantee charge and co-contributions for which we cannot find a valid destination.

Senator SHERRY: The money is sitting there. In this case you have the money. It is a bit different from the Lost Members Register. What happens to it if you cannot identify where it should go?

Mr Peterson : After 10 years of the account being inactive, it is transferred to consolidated revenue. In the meantime it is a holding account as distinct from the revenue. There is the group of superannuation products where people have perhaps lost contact with their superannuation—lost, unclaimed, DASP to some degree and SHAR. We have initiated a reuniting super strategy with various overarching processes, like driving more TFNs into the system et cetera—outward telephone calls, letters, sending address information to funds. We sent a million addresses to funds for lost accounts fairly recently, for example.

Senator SHERRY: I am aware of all of that. If you could just summarise that. The point I would make is that, despite all of that—the best efforts of the ATO; a great job—the number has still grown over the years. There is the number of accounts, and $20 billion is a pretty staggering figure. That is one of the reasons we now have a greater level of proaction, which is to consolidate automatically with an opt-out provision. That is currently being developed. We have reached a point where a whole range of measures have been tried. They have worked to varying degrees, but there is another measure that is now being considered. You have referred to the 10-year period. Obviously monies are paid from the super holding account each year once the ten-year qualification is up. Could you take on notice what the actual amount was that was transferred from the super holding account to consolidated revenue for, say, each year for the last five years?

Mr Peterson : We will do our best, Senator.

Senator WATERS: Can you tell me: how does the proportion of profits versus the amount of company tax paid by the mining industry compare to other industries?

Mr O'Toole : Senator, could you clarify that question?

Senator WATERS: Sure. My reference goes to the table in the Economic Roundup Issue 2 of last year which compares average rates of company tax across industries. I am keen to have you explain to me the proportion of profits versus the amount of company tax paid—how that differs for the mining industry versus other industries. I hope you have a copy of it.

Mr O'Toole : I am somewhat familiar with the paper. I understand it was an update of the previous round-up document that was done. I cannot speak in detail, but the paper basically shows that the ratio of company tax for mining company profitability is lower on the scale, whereas for sectors such as utilities, in particular, there is a higher company tax burden relative to profit.

Senator WATERS: Can you recall whether mining is paying less than most other industries?

Mr O'Toole : Not off the top of my head. We can take the question on notice and review the article.

Senator WATERS: I am also interested in whether that proportion has changed over the years.

Mr O'Toole : I am not aware of that. Again, we can take that on notice and see whether someone in the department can help you.

Senator WATERS: Thank you. On a related matter, I am interested in how much assistance is provided in the form of tax expenditures or, effectively, concessions to the mining industry. I have some older figures, but I am interested in recent figures.

Senator Arbib: I think you asked this question earlier and it was taken on notice—is that right?

Senator WATERS: Yes, I asked a similar question.

Senator Arbib: I think Treasury took it on notice earlier.

Senator WATERS: I think they said that it was not their issue, from my recollection. Is anyone at the table or in the room able to shed any light on it?

Mr Brake : As a point of clarification, when you say 'all assistance', are you also looking at all possible outlays assistance? It is potentially quite a broad question.

Senator WATERS: Yes, as broad as you can make it, but specifically on the tax expenditures and concessions. I know there are a lot of them. Some recent figures on the vast amount that they all add up to would be very useful.

CHAIR: For the mining industry?

Senator WATERS: Yes.

CHAIR: How do you define the mining industry?

Senator WATERS: I will accept Treasury's standard definition of that.

Mr Heferen : We will take that on notice. There is the tax expenditure statement that is released. For the tax expenditure statement, some would argue that the amount represents a level of assistance provided. Others would contest that because fundamental to the notion of a tax expenditure is the benchmark that one is utilising. As Mr Brake said, there may be a range of outlays—for instance, budget funding that various miners might get at certain stages. I think it would probably be safest if we were to take that question on notice.

Senator WATERS: I am conscious of that expenditure statement but it does not give me a good breakdown industry by industry, and that is what I am interested in. What is the justification for the giving of those concessions?

Mr Heferen : That would be a question of policy.

Senator WATERS: Has Treasury formed a view or advised the minister of the propriety of the level of that assistance, given recently changing economic circumstances?

Mr Heferen : The question of whether an outlay is appropriate or whether a tax expenditure or a tax concession is appropriate are matters of policy for ministers. It would not be appropriate for us to offer a view.

Senator WATERS: Are there economic justifications for those that you are able to walk me through?

Senator Arbib: That is an opinion.

Mr Heferen : I do not think it would be fair to say that there is a hard and fast economic justification. There is a lot of contestability, even on things that some would argue are basic public goods. There might be some people who say that it still should be a matter of individuals to fund those. Any direction down that path would inherently have a set of value judgments underneath which I do not think it is appropriate for us to put a view on. To the extent that we would put a view, it would be a view we would put to a minister. But, at the end of the day, ministers would make those decisions.

Senator WATERS: So you are claiming a public interest ground exemption there?

Mr Heferen : No, it is more basic. Our role here would be to provide information and we will go away and get that information about estimates in dollar terms and how much assistance is provided. The question of whether it ought to be provided is not a matter for us to form a judgement on.

Senator WATERS: I accept that. How much less tax revenue will the mining industry contribute as a result of the proposed company tax rate cut from 30 per cent to 29 per cent?

Mr Heferen : We would have to take that on notice.

Senator WATERS: At the tax forum last year, ACOSS suggested that about half the tax concessions for superannuation contributions go to the top 12 per cent of income earners. Now obviously in the last few days there have been some in the industry that have suggested that this number is out of date. So, I am interested in whether Treasury has a more recent estimate.

Mr Heferen : I think we had a question on notice.

Senator WATERS: Yes, Senator Brown asked that in November, but we have not had a response yet.

Mr Heferen : I am afraid that might be one of those questions on notice that we are still working through the answer to. Yes, I apologise, that is one that I think we are still working through some of the detail, given the extensive range of concessions for superannuation.

Senator WATERS: Can I assume that those claims, which I think were in fact just a few days ago, will be incorporated in that response when it comes? Given that you are still drafting the response, will it pick up on claims by the industry yesterday or the day before about the figures being different?

Mr Heferen : Typically when we take questions on notice, we provide information to the Treasurer about what the value is.

Senator WATERS: What I am getting at, will it be current as at when the question was asked or as at when the answer is given?

Mr Heferen : When the answer is given.

Senator WATERS: Okay, that is good. Do you have a rough estimate of when that will come?

Mr Heferen : I am afraid not. We did have a substantial number of questions on notice provided, I think several hundred, and so we do not have many left to finalise—that is one of them—but hopefully it should be in the near future.

Senator SHERRY: I just noticed Mr Gallagher came to the table—he is a fountain of great knowledge. He might be able to help you.

Senator WATERS: Thank you, Senator. I would be happy, Mr Gallagher, for anything you could assist me with.

Mr Gallagher : The ACOSS numbers were from 2007-08. There have been two significant changes since 2007-08, which have altered the degree of tax concessions. One has been that the tax scales have changed and the other is that the contribution caps have changed. In addition to that there are a number of forthcoming measures which will change all the concessions and the distributions of the concessions: the low-income super contribution that Senator Sherry has referred to previously; the increase in the superannuation guarantee; and the change in the caps themselves. There will be a range of measures, which are in the government's legislative programs, which will change it, so the view of what the concessions are will depend on which particular year you pick. For example, the last year of data we have is 2009-10. In that year the contribution caps were effectively halved, and that has a significant impact on the concessions that high-income earners can receive. In terms of informing the estimates, it seems to me that ACOSS and industry want to discuss this issue at the superannuation round table, so I suspect that it will be live for a while.

Senator SIEWERT: Can I go to the issues around the draft bill? Who was consulted in drafting objects of the bill in the first place and why does it seem to have moved from the government's express position that it is supposed to be a light touch to assist not-for-profits when, it seems to me the reading of the draft, it is much more command and control and regulate.

Mr Jacobs : The drafting of the ACNC bill was effectively conducted in Treasury. There were confidential consultations undertaken with a range of stakeholders, including through the Not-for-Profit Sector Reform Council. Also, it was a bit informed by a discussion paper put out by Treasury on the reform of a national regulator.

Senator SIEWERT: I am aware of that discussion paper.

Mr Jacobs : The principle that is in those objects clauses is not intended to undermine the importance of a light-touch approach to regulation. Ultimately, the powers of the regulator need to have a graduated ability to respond to issues in the sector. So, where the regulator sees that a charity is doing things that are outside its purpose or there is fraud or there are actions that are not supporting the charitable purposes of that charity then, in effect, the regulator should have a range of measures to address those concerns. The bill itself goes through and provides a number of powers.

Senator SIEWERT: I am aware of that.

Mr Jacobs : In terms of the focus that has been placed on the bill, we put out a facts sheet at the same time as putting out the draft legislation. In that facts sheet we tried to explain that, in effect, the regulator itself will take a sensible approach to the administration of the bill. We have gone through and done a number of consultations in the community and we have gone around to all of the capital cities and also to Townsville, thanks to your suggestion about broadening-out those consultations. Through that, the implementation task force for establishing the regulator has talked about the approach that the regulator would take in utilising those powers. Certainly the implementation design paper that is out there talks about working with the sector. The basic premise you go to the sector with is that they are honest, and you work from there.

Senator SIEWERT: Through that consultation process, what feedback have you had about the draft and the associated papers? One of the complaints I have had is the fact that you have the draft bill and the importance of issues round, for example, the governance, are still discussion papers and definition. So what feedback have you taken from the consultation? I will see if it coincides with what I have been told.

Mr Jacobs : We received over 100 submissions on the ACNC bill and they go into a fair range of detail. We have had some quite good critiques of the powers that are in the bill. There are some submissions, in particular, that go through and provide some analysis comparing the powers that are in the draft bill with some powers that other regulators have. In particular, the main emphasis that has been put on the objects clause is that it should be broadened out to talk about the support for the sector but, ultimately, it still maintains the fact that it is a regulator. In terms of the powers, the main question that has come up is about the threshold for exercising those powers. There is a range of suggestions in submissions about putting in some additional thresholds before those powers can be exercised. We are working through those submissions and looking at those suggestions and we will work through revisions to the draft legislation.

Senator SIEWERT: What is your time line for those revisions?

Mr Jacobs : The regulator is due to start from 1 July 2012. We are looking at effectively having legislation ready for the government to introduce in time for that to take effect before 1 July.

Senator SIEWERT: It is a fairly short time frame for dealing with what are fairly short issues.

Mr Jacobs : It is a fairly short time frame, yes. That is one of the reasons—it was unfortunate—the consultation occurred over the December-January period. We take that on board and we really appreciate the efforts that people have gone to in putting in the submissions they did and we will continue to work with groups as we develop and further refine the legislation.

Senator SIEWERT: You said you took the draft bill to the Not-for-Profit Reform Council. How long did they have time to consider it?

Mr Jacobs : We talked them through major parts of it. I would not say we gave them enough time to really give them a detailed consultation period.

Senator SIEWERT: When you say you talked them through it, do you mean that, in other words, they did not see it?

Mr Jacobs : No, they got to see the draft legislation.

Senator SIEWERT: How long did they get to consider it?

Mr Jacobs : I might have to take that on notice, to get the exact time. But it was not a long time.

Senator SIEWERT: The consultation process has finished now, hasn't it?

Mr Jacobs : The consultation process on the ACNC bill has finished. So the formal consultation process submissions process is finished. We would look to undertake further consultations with the sector.

Senator SIEWERT: On the revised version?

Mr Jacobs : On the revised version. But it is unlikely to be a public round of consultation due to the time frames that are available.

Senator SIEWERT: Will you give them more time than you gave the not-for-profit reform council?

Mr Jacobs : We will do try to give them the greatest amount of time that we can. We will probably pick sections of it and then talk through sections of the legislation with groups.

Senator SIEWERT: When you go through that process, will you have refined the governance arrangements, for example? Because one of the—and I have heard many—criticisms I have heard is the fact that the governance arrangements are still unclear, still in discussion form, and the sector wants to see those refined some more.

Mr Jacobs : At the time we released the ACNC draft legislation we wanted to go through a process of consulting with the sector on what the governance arrangements should be. So, rather than putting out an exposure draft of what those governance arrangements were, we put out a consultation paper which looked at all the issues and, in effect, sought advice from the sector around effectively adopting a principles based approach to governance. So, rather than taking a prescriptive approach and pre-empting that prescriptive approach in the draft legislation, we took the stage of putting out a consultation paper. We have now got 150 submissions on the governance consultation paper, and we are using that as the basis for then drafting provisions that will then be in the ACNC bill to cover governance. It is a particular area that we would look to do targeted confidential consultation on. I say 'confidential consultation' just because of the time frames that are available between now and getting the legislation enacted by 1 July.

Senator SIEWERT: With all due respect, why does it have to be confidential because of a short time frame?

Mr Jacobs : I think it is a concern if you do not give people enough time. So, if you go to industry experts who have been involved in the reforms all along, they tend to be able to come to grips with the issues quite quickly. They have put in submissions. It gives us the ability to just sort of focus that discussion.

Senator SIEWERT: Sorry, I really do not understand why they have to be confidential.

Mr Jacobs : I think it is more around the time frames that are involved in a public consultation. Ideally, we would like to give sufficient time in a public consultation for people to go through and formulate responses. We do get criticism from industry bodies that have to get a consolidated view. That takes some time for an industry association to put together its views and then submit those views back through a formal consultation process.

Senator SIEWERT: Sorry, I am really struggling with this. What you mean is that you want to put out confidential papers. That bit is confidential, so that then makes what people say back to you confidential. Is that what you are saying?

Mr Jacobs : It is not so much that the comments back are confidential, because we are really just looking for the best way to get input into the development of this legislation prior to going into parliament.

Senator SIEWERT: This is the most fundamental reform that not-for-profits have seen for a long time. You want to tie up board members, for example, or people who are members of various organisations, in a confidential process where they cannot talk to their membership, where they cannot talk to fellow board members.

Mr Jacobs : I guess what we are saying is that this is building upon the fact that we have done a public consultation on, at least, the principles through the initial discussion papers. This is building off a range of submissions and the Productivity Commission reports and reports over time. We are trying to do our best to take on public consultations as we can. That is why we have put out an exposure draft.

Senator Arbib: It is not only the department undertaking these consultations; also, I and my office are in day-to-day contact with a whole gamut of not-for-profits and charities who have issues or concerns or who want to give feedback. There has been a great deal of positive feedback and there have also been a great deal of—

Senator SIEWERT: Negative feedback.

Senator Arbib: suggestions about how to improve it. I am happy to say to you there will be modifications. We are working towards that. We have to get it right because, as you said, it is a big reform and it is complex. At the same time, though, we have had public consultation. We have had over 100 submissions. We will continue to work through those, taking into account the changes, and I will also keep working with the sector. I appreciate the work the sector has done in a short time to provide us with the feedback. We need to get this right.

Senator SIEWERT: I understand what you are saying, and I would hope that you would respond to the significant feedback there has been. My concern is that you are now entering a phase of confidential consultation, particularly over things such as the governance arrangements, which are so fundamental to not-for-profit organisations.

Mr Heferen : I am going to nuance this a bit. The focus is not so much on the confidentiality; it is more on the targeted nature. There are a range of people out there who, as Mr Jacobs said, have already been involved and have a fair bit of knowledge about what is going on, particularly those who have particularly strong views about what ought to occur. We want to make sure we go to them. The downside of doing another public consultation is that that would open it up to the world at large again, so to speak. With the targeted route, those we go to may get information from people that they deal with, sources or networks—contacts they may have. That would be a very useful thing. I think you are latching on to the confidential bit and seeing it as an attempt to freeze people out; it is more the notion of targeting and identifying those who already have a strong contribution to make and leveraging off their expertise.

Senator SIEWERT: Going back to the comments you were making about the governance arrangements, those will be developed and will then be part of the bill as it goes out in its new form—is that what you intend?

Mr Jacobs : They will be incorporated into the bill.

Senator SIEWERT: When it goes out for that next form of consultation?

Mr Jacobs : Yes.

Senator SIEWERT: Sorry; I might be being a bit pedantic. My understanding of what you said is that the next process is doing a new draft, that it will go out for the targeted consultation and that the next time people will see it will not be when it is introduced into parliament.

Mr Jacobs : Apart from that targeted consultation, the next formal process is the introduction of the bill.

Senator SIEWERT: But there will be targeted consultations prior to that with the new provisions in there?

Mr Jacobs : That is it; yes.

Senator SIEWERT: Is the development of the definition of 'charity' the next round of the process?

Mr Jacobs : Yes. The next process for the statutory definition of 'charity' is to put out an exposure draft. The government will put out an exposure draft of the legislation, perhaps in the middle of the year.

Senator SIEWERT: So once this is bedded down you will start on that process—is that correct?

Mr Jacobs : That is right.

Senator SIEWERT: Is it the same for the targeting of concessions initiatives, for example, and the 'in Australia' special conditions test?

Mr Jacobs : There is a second exposure draft of the 'in Australia' special conditions, and that will go out once the government has cleared it. That should go out in the first half of the year. Similarly, there has been a consultation process on the development of the better targeting arrangements, and the next stage for that is to release exposure draft legislation.

Senator SIEWERT: With a similar time frame?

Mr Jacobs : Yes. In any event it is up to government. But that time frame is the expectation, and in the communications we have put out to the sector we have talked about it being in the first half of the year.

Senator SIEWERT: Is it planned that the consultation process will be similar to what you did for the draft bill—will you be going to each of the capitals? I was going to call it a travelling roadshow, but I was not intending to be rude. Will you be going around to the capitals, or will it be paper based?

Mr Jacobs : With the remaining parts, it is more likely that it will be done through submissions rather by going around meeting with people.

Senator SIEWERT: You talked about the not-for-profit reform council and taking the draft bill we were talking about earlier to them. Did you take it to any other body?

Mr Jacobs : We did take it to some other—

Senator SIEWERT: Can you tell me who they were, please.

Mr Jacobs : I will take that on notice. I do not have the details.

Senator SIEWERT: Similarly, can you tell me the time frames they were given.

Mr Jacobs : Yes.

Senator SIEWERT: Are you still getting feedback on the bill? It has been suggested to me that a number of people who would have gone to consultations would potentially have been board members who did not feel they could comment but they would take it back to their organisations and talk to them. Are you still getting comments back?

Mr Jacobs : We are still doing a number of discussions with particular groups. We are meeting weekly with various not-for-profits to talk through particular issues that they have. As you know, it is a diverse sector and there are a diverse range of issues. We and the implementation task force are going through and having those discussions.

Senator SIEWERT: You have touched on my next issue. In terms of the diverse nature of the sector, do you feel the feedback that you have had reflects that diversity? There are the community sector groups, there are the more focused sporting organisations and you have your environment NGOs. Are you getting a broad representation that is across the diversity?

Mr Jacobs : We have got submissions from a broad range of not-for-profits, so I think we are. During the consultations that we did in capital cities and in Townsville we held two specific sessions with Aboriginals and Torres Strait Islanders in the community to try to focus on the issues that were affecting that group. In that way we tried to we tried to make sure we covered that one in particular. Otherwise, we have just held meetings with lots of different sectors.

Senator SIEWERT: Just going to the specific tax changes that are going to be made—that all happens post next year, doesn't it? Then the commission will be involved in developing the various changes in tax laws.

Mr Jacobs : There are two consultation processes out there. One is on the in-Australia provisions. The expectation is that the legislation will go out in the first half of this year, prior to the establishment of the Australian Charities and Not-For-Profits Commission and the better targeting of tax concession measures. The expectation is that the exposure draft legislation for those will also go out before 1 July.

Senator SIEWERT: This year?

Mr Jacobs : Yes.

Senator SIEWERT: But the idea—sorry, I am not being clear—is that they are not being implemented until 2013.

Mr Jacobs : There are lots of different dates. The statutory definition of 'charity' is the key change, and it will not apply until 1 July 2013. The process is to try to have legislation for that passed through parliament in time for the Australian Charities and Not-For-Profits Commission to develop guidance materials on the application of that new statutory definition so that new charities seeking endorsement from 1 July 2013 are in a position to understand how that new law applies.

Senator SIEWERT: I beg your pardon. The time frame is actually shorter than I was thinking because you need to have it through so you can develop the guidelines to implement it in 2013.

Mr Jacobs : That is right.

Senator SIEWERT: I have a couple of other questions that I will put on notice.

Senator CAMERON: Mr D'Ascenzo, did you get the pay increase you were after?

Mr D'Ascenzo : That is a matter for the independent Remuneration Tribunal.

Senator CAMERON: So it is with the Remuneration Tribunal. Let us know how you go. You probably deserve it. Mr D'Ascenzo, I have written to you. Did you get a copy of that correspondence?

Mr D'Ascenzo : I did.

Senator CAMERON: I will go to another issue first. That is the issue of your procurement policies. Who can help me on procurement policies?

Ms Granger : I can try.

Senator CAMERON: Do you have procurement policies?

Ms Granger : Yes, we do.

Senator CAMERON: Do they include specifications for local content?

Ms Granger : I cannot tell you the terms for them precisely, so if you ask the questions we will get you the answers.

Senator CAMERON: That is a question.

Ms Granger : Yes, I am sorry. I do not have the detail of that.

Senator CAMERON: You do not know about local content?

Ms Granger : Not off the top of my head, no.

Senator CAMERON: Have you outsourced your procurement function?

Ms Granger : No.

Senator CAMERON: So you have a department within—

Ms Granger : Yes, we do. It is under the chief financial officer.

Senator CAMERON: You do not use a company called UGL at all for procurement?

Ms Granger : I do not know. I am not aware of it.

Senator CAMERON: Are you in the process of procuring new office chairs?

Ms Granger : We could be. It is a big organisation, so there could be office chairs being procured at particular times. We will have to check on the detail.

Senator CAMERON: I have received some advice, and I am not sure how authentic it is, that you are doing a significant procurement of office chairs. Given the number, I am sure somebody would know. Nobody here knows whether you are doing a procurement?

Ms Granger : Not the detail, but we are in the process of opening a number of significant new buildings this year—one in the Melbourne area and one in the Adelaide area—and so it could be associated with that.

Senator CAMERON: Do you have some advice on it now?

Ms Granger : It says we do use UGL.

Senator CAMERON: Oh, you do use UGL.

Ms Granger : It says we do use UGL.

Senator CAMERON: You said you did not a minute ago.

Ms Granger : I said not as far as I was aware.

Senator CAMERON: So I will have to be careful with you, will I?

Ms Granger : I am not trying to be tricky.

Senator CAMERON: You are not?

Ms Granger : I simply do not have the knowledge myself.

Senator CAMERON: Okay. Tell me what UGL does for you. Is there anyone who can tell me? This is a big issue.

Ms Granger : I am happy to take the details and get you the answer. I just do not have it here.

Senator CAMERON: I will have to write to you the same as I did to Mr D'Ascenzo, I think, to get some answers.

Ms Granger : Certainly, or put it on notice. We would be happy to answer.

Senator HEFFERNAN: Could I raise a procedural matter?

CHAIR: You may.

Senator HEFFERNAN: Do the witnesses have an objection to the camera? That is part of the procedural processes of a Senate committee. You cannot just wander in and film without asking people if they have an objection.

Senator CAMERON: That is an issue for us.

CHAIR: Senator Heffernan, I have never asked a witness that in my life. It has been 16 years.

Senator HEFFERNAN: There you go; you have been a bit off the pace. It is part of the practice.

CHAIR: I have never been in a committee where witnesses have been asked.

Senator HEFFERNAN: You ought to come to my committee.

CHAIR: What I advised the cameraman is that he is able to film the heads of people but not the paperwork on the desk.

Senator HEFFERNAN: I think it is required, to give you some advice.

CHAIR: Does anyone object? No? Thank you.

Senator CAMERON: Ms Granger, would it be in the realm of possibility that you are about to order 20,000 chairs? The information I had about UGL was correct, and I am told the number is around 20,000. I think that is a lot of chairs.

Ms Granger : Indeed it is. I will need to check.

Senator CAMERON: You do not know?

Ms Granger : I am not aware of it. As I said, that could be a contract over time, for example. I simply do not have the details for you here tonight.

Senator CAMERON: So it is within the realm of possibility. The advice I have is that you are ordering 20,000 chairs from Korea.

Ms Granger : I am sorry, I do not have the information here tonight.

Senator CAMERON: Could you find out for me whether you are ordering any number of chairs from Korea through the company UGL.

Ms Granger : Certainly.

Senator CAMERON: Could you find out whether the chairs that you are ordering are called Aeron chairs. Could you also advise me if these are the same chairs that were designed in 1994, and which have been rejected by the Auckland Savings Bank as not ergonomically acceptable. What checks and balances would you have within the ATO in relation to UGL? I suppose you do not know that either, seeing as you did not know they were there.

Ms Granger : Just because I do not have knowledge of it does not mean that there is not a proper process.

Senator CAMERON: So nobody here can tell me about it?

Ms Granger : Not in this level of detail, and I would prefer to get you a proper answer.

CHAIR: Is this the united group?

Senator CAMERON: Yes, United Group Limited, in Western Australia, I think.

Senator HEFFERNAN: Are these those chairs you can go back to sleep on?

CHAIR: Do not interrupt, Senator Heffernan.

Senator CAMERON: While I am asking about local content and procurement policies, I understand that Seibels have a chair that is ergonomically superior to this old style chair and is a competitive price. If this is correct, did UGL or the ATO have a look at the capacity to procure locally and maintain jobs within Australia at Seibels, who employ Australian workers? Could you give me copies of your procurement policies—I do not want contracts—that UGL have to meet, as the ATO is now contracting out procurement. There are other issues that I want to raise, but obviously you do not have the answers tonight, and I accept that.

Ms Granger : I would be very happy to take those on notice and get you the answers.

Senator CAMERON: Thank you. Let us hope we have more luck with Mr D'Ascenzo on the issue of TPG Capital. I wrote to you on 8 February, Mr D'Ascenzo, about my concerns in relation to TPG Capital. There has been legal action in the Federal Court. I think that the case is TPG Newbridge Myer Ltd v The Deputy Commissioner of Taxation. To set the scene, TPG acquired a $300 million stake—and 84 per cent stake—in Myer. TPG sold its stake through a public listing and they realised $1.8 billion. Under tax law, as this was designed to attract foreign investment they were exempt from capital gains tax. The ATO took the view—and I think correctly—that the return to TPG was trading profit not capital gain and the ATO attempted to freeze TPG's bank accounts. But the accounts had already been emptied. The ATO was looking to recover $678 million in tax for the Australian public. TPG had emptied their accounts and shifted money through a number of related entities through tax havens in the Cayman Islands and Luxembourg to the Netherlands and then to the United States. TPG Capital is a company with $48 billion in assets. While we have tax treaties with both the US and the Netherlands, it seems to me that we cannot enforce our claim on TPG because of the channelling of funds initially through related entities domiciled in tax havens with which we do not have tax treaties. Is that a proper summary of where we are up to? It is not all the detail, but are the broad terms correct?

Mr D'Ascenzo : I will preface my answer by saying that normally we try not to talk about individual taxpayers. But there has been a lot of information put on the public record in relation to this matter.

Senator CAMERON: Mr D'Ascenzo, these are not taxpayers. It seems to me that you cannot in any way claim that they are taxpayers.

Mr D'Ascenzo : I was using the generic term.

Senator CAMERON: I agree with your proposition for normal taxpayers, but there are not.

Mr D'Ascenzo : The point that I am making is that there is quite a lot of public records and reading from that public record your summation is in broad terms a reasonable one. The flows went from Australia to the Netherlands to Luxembourg to Cayman Islands rather than the way that you described, but other than that your statement was reasonable.

Senator CAMERON: Good. In this very murky little situation that we have here, we have a thing called the protocol to the double taxation agreement with the US. Is that correct?

Mr D'Ascenzo : Yes.

Senator CAMERON: This was a treaty signed by the Howard government in June 2002, correct?

Mr D'Ascenzo : The Joint Standing Committee on Treaties met in May, and so it was subsequent to that.

Senator CAMERON: I want to come to that joint standing committee. Are you aware that the joint standing committee expressed significant concerns about signing off on this protocol?

Mr D'Ascenzo : Yes, I am aware of that.

Senator CAMERON: In fact, they raised the fact that there would be significant costs to the Australian taxpayer as a result of this protocol, costs estimated at around $190 million per annum. Is that correct?

Mr D'Ascenzo : That is right. In fact, I think that the figure of $190 million was provided to the committee by Treasury and the ATO.

Senator CAMERON: The joint treaties committee report that was tabled on 12 March 2002 raised the concern that the revenue gains to Australia could not be quantified. Is that correct?

Mr D'Ascenzo : I am not fully aware of that but I am happy to accept that as a reasonable proposition.

Senator CAMERON: The committee made a number of recommendations. They said that they would decline to support the binding treaty on the protocol. They said that the ATO, in consultation with the Treasury, should develop a methodology to quantify the economic benefits of the double tax agreement. Given that you were aware that I was going to ask these questions, have the concerns of that treaties committee been fulfilled? Where these legitimate concerns? Was there a cost to Australia's revenue? Has a methodology been developed to quantify the economic benefits of double tax agreements?

Mr D'Ascenzo : I ensured that Treasury were aware of your interest in this area. They may be better placed to answer the second part of that question.\

Mr McDonald : Going back to the 2002 report, subsequent to that report being tabled Treasury provided to the committee a letter with additional information. In that letter, the secretary at the time, Dr Henry, noted that we had not undertaken any dynamic modelling on the benefits of the protocol as these are very difficult to quantify, that—as the committee noted at the time—other countries faced similar difficulties and that it is very difficult to weight the different elements of the protocol, because some of the benefits are to do with the trade and investment flows that are going to follow and the subsequent loss of revenue.

Senator CAMERON: I am sorry to interrupt you, but does that mean that the decision was not evidence based policy?

Mr McDonald : Please allow me to continue. We provided a static analysis at the time that looked at the net national benefit that would from that protocol. That analysis was necessarily partial, because it only quantified those things that are reasonably able to be quantified. Being static, it does not take into account any dynamic response effects. That analysis found that there were a net national benefit in that instance.

Senator CAMERON: I am not going to ask you what a dynamic response effect is. We will be here forever.

Mr McDonald : I guess the question then comes to: do we take the view that things that can be easily quantified are the only things that can be assumed to be important? While we in Treasury—

Senator CAMERON: You have asked me a question. I do not normally respond to questions.

Mr McDonald : Sorry, I meant it rhetorically, but I am happy for you to comment if you wish.

Senator CAMERON: My view is that, if you are entering into these things, there has to be a benefit to this nation. I am happy for you to put your long response in writing on notice because I have got other issues and I am running out of time. Let me ask some specific questions. Given that the protocol has been in operation for nearly a decade, what are the costs and benefits to Australia of the operation of the protocol? You were aware that this was an issue. Do you have an answer to that?

Mr Heferen : To try and get the benefits of an agreement over a period of time where the tax revenue cost was in the order $190 million is just not feasible in the context of the size of the tax revenue each year. As Mr McDonald was saying, the attachment to Dr Henry's letter back in 2002 has a table that shows, at least for the things that can be measured, that there is an unambiguous net benefit to Australia. It would be reasonable to assume that would be the case for that year and possibly the case for the next year. The whole point of these agreements to try and reduce the respective withholding taxes that apply is to facilitate the investment flows within the two countries.

Senator CAMERON: Let me just put these on notice because I really want to get back to the loss of revenue in the TPG case. I will put these on notice: given that the protocol has been in operation for nearly a decade, what are the costs and benefits to Australia of the operation of the protocol? With the benefit of a decade of operation of the protocol, is it possible to say that the evidence provided by Treasury to the Joint Standing Committee on Treaties in 2002 and subsequently expanded upon by the Treasury secretary on 25 June 2002 was accurate—that is, has the net benefit to Australia of the protocol been $70 million? If not, what has been the net benefit or loss? Has the ATO or Treasury developed any methodologies for quantifying the costs and benefits of tax treaties that are an advance on those available in 2002 consistent with recommendation 5 of the committee? I come back to the ATO. Can you explain how TPG's ownership of Myer operated?

Mr D'Ascenzo : I do not have those precise details. I do not know whether Mr Quigley does.

Senator CAMERON: I am happy for you to take it on notice. How does the Australia-Netherlands tax treaty operate? What does it do? Does it treat profit on revenue and capital gains differently and, if so, in what way?

Mr D'Ascenzo : Generally under the business profits articles of our double tax treaties, the taxing rights in relation to business profits go to the country that has the permanent establishment. If the permanent establishment is in the Netherlands and not in Australia then the tax would be subject to the Netherlands treaty. The Netherlands domestic law exempts these profits on capital rather than on revenue. What we have argued in relation to these sorts of matters is that the business is one of buy and sell rather than buy and hold, an approach that has recently been agreed to by the German federal court. So our position is that there is a revenue profit in Australia and the technique of going to use treaties interposed between the transaction and the final recipients is treaty shopping. Our view is that the general anti-avoidance provision does apply to treaty-shopping operations.

Senator CAMERON: I am on your side on this. So you could not really tell us whether tax would be due either in the Netherlands, the Cayman Islands, Luxembourg or the United States; it all depends.

Mr D'Ascenzo : We have put four tax determinations out in the marketplace over the last couple of years to make our position very clear. Where it is a business model to buy and sell, the profit is on revenue account rather than on capital account. The exemption in the law from capital gains tax does not apply when it is on revenue account. Where people use treaties for treaty shopping we think that that can be struck down by the general anti-avoidance provisions. We think that profits in relation to buying and selling of Australian shares is sourced in Australia and therefore taxable in Australia, subject to the treaties. Ultimately, if there is a flow through to a legitimate treaty partner in relation to cases such as these where there are beneficial owners—let us say shareholders, trust funds or individuals in a country such as the US or even the Netherlands—we will look through it and if the limited partnership can show where those funds are going we will abide by the treaties. That is our position. In relation to a treaty arrangement that goes from Australia to the Netherlands to Luxembourg to Cayman Islands to the US, being the ultimate recipient, we say if we can be shown who in the US actually has these funds then the treaty will apply as intended, otherwise we see it as treaty shopping.

Senator CAMERON: That means they pay the tax in the US and not here.

Mr D'Ascenzo : That is right.

Senator CAMERON: If they are avoiding tax everywhere then we still have a claim.

Mr D'Ascenzo : Because we think that is treaty shopping.

Senator CAMERON: I have run out of time, so I will put some questions on notice for you. Has the ATO made any rulings that are directed to closing down the type of tax structure that was employed by TPG in relation to its Myer asset?

Mr D'Ascenzo : The answer is yes.

Senator CAMERON: Please give us details of that on notice. Other than ATO rulings, which presumably are challengeable in court, what other measures are available to close down the loophole through which TPG passed? Is there any further legal action, either on foot or pending, in relation to this matter or is it the case there is no prospect of the ATO recovering any tax from the proceeds of the Myer float? Is it true, as suggested in the Sydney Morning Herald, that private equity firms have accessed these tax structures, enabling them to pay little or no tax anywhere, that are not available to more conventionally structured companies operating in Australia?

Senator CORMANN: I would like to clarify one of the answers given by Mr Heferen. He said the reason the MYEFO estimates of the mining tax revenue took into account the WA royalty increase was it was in the budget. He also said the royalty increase in New South Wales was not included because it was just an announcement of an intention.

Mr Heferen : My understanding is they have not given the specifics of what rates they are applying to what commodity for us to take them into account.

Senator CORMANN: It is actually in the New South Wales budget. They say that they will increase royalties on coal and they have budgeted $944 million in revenue over the forward estimates.

Mr Heferen : As I understand it, they have not said what their rate is going to. They have not put in the assumptions that would enable us to calculate what that might mean for the MRRT.

Senator CORMANN: So it is not that they have not made a firm budget announcement; it is just that you do not have all the information you require?

Mr O'Toole : My understanding is that the figure was announced in the budget. However, the New South Wales government have indicated that they are developing legislation and will negotiate details once they release it. My understanding is it has not been released yet, so those details are not known.

Senator CORMANN: Sure, but there are dollar figures in the budget. Anyway, moving on from all of that, Mr D'Ascenzo, could you provide us an update on the number of public and private rulings that the ATO has released in the past year?

Ms Granger : I can give you the figure for this financial year till the end of December.

Senator CORMANN: That would be great.

Ms Granger : There were 38 public rulings and determinations this financial year up to the end of December.

Senator CORMANN: How does it compare with what was happening the previous year?

Ms Granger : I am not sure I have the year-to-date figures, but there were 62 public rulings and determinations issued in the entire last financial year, so 38 is a little bit more than half. Some of those are drafts and some of those are finals. We have another 46 in the pipeline, so that is a little bit more than last year.

Senator CORMANN: In recent years, as a trend, has the number of public and private rulings increased or reduced?

Ms Granger : That figure was just for public rulings. I have not given you private rulings. I should also have said that that does not include class rulings and product rulings. There are a number of classes of public rulings as well. For private rulings, the number finalised in the last financial year was 9,075. For the year to date, to the end of December, it was about 4,500. On the trend in the private rulings, I have a number of years there. The numbers have come down slightly. The earliest year I have is 2008-09, and about 11,420 rulings were finalised in that year. So there is a slight downward trend in the numbers. Private rulings are on request by a taxpayer, as you would know.

Senator CORMANN: Sure. So you do not drive the numbers; they are initiated? Do you discourage them? How does it work?

Ms Granger : Quite the opposite.

Senator CORMANN: So the more the better from your point of view.

Ms Granger : We are keen to have people bring issues to us. Obviously you always have to manage workloads, but it often helps to decide whether in fact we need to do a public ruling, for example, and that may come out of a private ruling request as well. Giving people advice upfront is a better outcome than it becoming an issue after the assessment.

Senator CORMANN: There is a perception—it may be unjustified, but there is a perception nevertheless—that the ATO is increasing its focus on litigation. Is that something that is justified by what is happening in the data, or is that something you would disagree with?

Ms Granger : First of all, in this area you are talking about a dispute around an assessment. It is important to remember that litigation is initiated by taxpayers, not the tax office, because they are disputing an assessment that we do. To put the figures in context, just for income tax alone, the number of disputes compared to assessments is less than one per cent of total assessments and a much smaller number again are actually litigated. In recent years, we have found that there are in fact fewer cases and we think that is because we are working hard on how to minimise disputation, whether there are better explanations or a whole range of things in that area. So we would not say the levels of litigation are increasing.

Mr D'Ascenzo : In 2009-10 compared to 2010-11, the number of court decisions decreased from 75 to 45 and the number of AAT decisions—

Senator CORMANN: Sorry, from where to where?

Mr D'Ascenzo : From 2009-10 to 2010-11.

Senator CORMANN: Yes. How did they increase?

Mr D'Ascenzo : It decreased from 75 to 45.

Senator CORMANN: These are court decision?

Mr D'Ascenzo : Yes, court decisions. AAT decisions decreased from 96 to 79.

Senator CORMANN: Sure, but with court decisions presumably those processes would have been initiated some time earlier. How many active court cases are you involved in now compared to what you would have been about 12 months ago and two years ago?

Mr D'Ascenzo : At the moment we have 1,200 tax litigation matters on hand, of which 774 are disputed income tax assessments. That is about 0.005 per cent of matters.

Senator CORMANN: Do you have a figure there on what the litigation value across these 1,200 is?

Mr D'Ascenzo : No, I do not have the value figures.

Senator CORMANN: Just in order for us to get a bit of a sense on the trend, could you give us, at this point in time and then for each year over the last four or five years, the number of court cases you were involved in at that point in time and how that number has been tracking? Is that something that you can provide us on notice?

Mr D'Ascenzo : We can, yes.

Senator CORMANN: Thank you. What is your annual budget in terms of cost of litigation?

Mr D'Ascenzo : My people say it is not enough.

Senator CORMANN: Not enough! Gee, you are frightening people out there, Mr D'Ascenzo!

Mr D'Ascenzo : The point is that you have a bucket of money in your pouch allocated to greater responsibilities. It is not an open-ended amount. In other words, it is not an open chequebook. We have to be very careful about how we use the money. What we have been trying over recent years is to use alternative dispute resolution processes and ways of resolving matters without having to go to costly litigation. As I pointed out beforehand, the number of cases that actually go to the litigation stages is very, very small.

Senator CORMANN: Because if you can do a deal with the tax office then you would rather do a deal, right?

Mr D'Ascenzo : There are questions of principle and there are questions of being able not to progress matters that are unnecessarily clogging up the courts. In fact, we have some figures here for the 2011 year. We had something like 588 litigation cases finalised, of which 240 were settled, 142 were withdrawn by the taxpayer, 82 were conceded by the ATO, 45 were decided by the courts and 79 were decided by tribunals. So you can see that we have a funnel that tries to reduce the level of litigation as much as we can.

Senator CORMANN: Can we just go back to the question about the budget for—

Ms Granger : Yes, just in terms of external legal services—we also obviously have people working inside the organisation. That does not just include litigation; it also includes provision of advice. But last financial year it was $54 million. This year, it is forecast to be $52.6 million, so it is slightly less for this year.

Senator CORMANN: What was it the year before that?

Ms Granger : I will just check if I have those figures here.

Senator CORMANN: Just provide it on notice.

Ms Granger : It was $42 million.

Senator CORMANN: So it has gone from $42 million to $54 million and now come back to about $52.6. million.

Ms Granger : Yes.

Senator CORMANN: Just moving through a number of issues, there have been some concerns raised—again, these are perceptions, but stakeholders have come to see me—that there has been some change to the ATO's practice away from self-assessment in relation to taxpayers in the financial services industry. Is that something that is an accurate perception or is that something that you would say?

Mr D'Ascenzo : I do not know what this going away from self-assessment really means. Basically, a self-assessment system allows taxpayers to lodge returns on their face, and then you had an audit process after that in terms of any areas of concern. The taxpayers and we say, 'Hey, if there are areas of concern, can we get together earlier and show our cards on the table and see whether or not they can be resolved early in the piece.' What many segments of business, particularly large business, have been saying to us is, 'We do not want surprises. We want to resolve issues early, continuously, on a real-time basis.' So what we are trying to do with taxpayers is get the information early in the piece rather than having a hide and seek approach in an area of the market.

Senator CORMANN: Has the number of audits increased in recent times?

Mr D'Ascenzo : I do not think it has. What we have done is try to have much more ongoing dialogue so that issues are resolved early. That is why we are promoting products like our annual compliance agreement, where we are saying to particularly large business: 'Let's share the risk ratings of ourselves. What areas do we have concerns about and let's see whether or not we can fast-track a resolution of those issues.'

Senator CORMANN: Can you provide us on notice with the number of audits the ATO has commenced in the last three financial years and has the time taken for audits increased over time?

Mr D'Ascenzo : Is that across the board or for a particular segment? We break our compliance work into a range of different segments. One segment is large, other segments are small and medium enterprises and other segments are micro and so the dynamics will be different across the spectrum.

Senator CORMANN: Let us just talk about the small to medium size and the micro level. Has the number of audits and the time taken for audits increased in recent times?

Mr Quigley : I did not say that they had increased. I would have to check the exact figures. As well as what Mr D'Ascenzo said, there are different segments and also different products. We have audits, which would be a full audit. They would obviously take a lot longer than, say, a review, which is just an analysis of an early stage. We have interaction with the taxpayers there.

Senator CORMANN: In order to facilitate things for the committee, maybe you could provide us on notice with a breakdown of audits commenced this year of small businesses, large businesses and individuals and the average length of time to audit small businesses, large businesses and individuals over the last three years. If you are able to, could you also provide us with a breakdown of audits commenced by states. That would also be very much appreciated. Moving to one last issue in the final bit of time—

Senator BUSHBY: I have a whole pack of questions to ask too.

Senator CORMANN: I might put everything else on notice.

Senator HEFFERNAN: Can I quickly ask a question?

Senator BUSHBY: I have a whole pack of questions to put in a couple of minutes.

Senator HEFFERNAN: Do you want me to ask a question while you are going through them?

Senator BUSHBY: No. It is all right. The ATO has been reported as dismissing 100 staff from its Hobart office, with HR still determining the final numbers. Have those final numbers been determined yet?

Mr D'Ascenzo : Is this full-time employees?

Senator BUSHBY: I think they are probably not full-time employees, according to the report. It is why I want to clarify that.

Mr D'Ascenzo : I can certainly tell you the answer is no in terms of full-time employees.

Senator BUSHBY: Sorry? What was that?

Mr D'Ascenzo : The answer is we are not doing that for full-time employees.

Senator BUSHBY: Okay. So what is the total number of job losses? Has that been finalised?

Ms Granger : There is no program to lose jobs. There is, as is routine, the finalisation of non-ongoing contracts, which are associated usually with the end of tax time or peaks and troughs in our operational work. I am not aware of that particular issue but it may be that that is what it is associated with. There are certainly no planned redundancies of permanent staff in the Hobart office.

Senator BUSHBY: That is not part of the reduction of about 1,284 full-time equivalents over the next three years, which you referred to in an answer to a question on notice SPT24?

Ms Granger : Yes. That also includes productivity efficiency figures which we need to achieve for our enterprise agreement. What we plan to do is manage that with productivity improvements and natural attrition. So there is no planned redundancy program. As I said, throughout the year there will be times when non-ongoing contracts come to an end.

Senator BUSHBY: The location of the 1,284 full-time equivalents will be led by where people are leaving and things like that? There will not be any sort of planning about where they might need to come from?

Ms Granger : You are asking me to say whether we are targeting a particular area. Obviously, one of the things that parts of the business will do over this period is look at what they should consolidate to be more efficient. Typically how we manage that is that we move staff in a particular area where they might change function, for example. That is usually how we manage that.

Senator HEFFERNAN: In New South Wales we have the New South Wales Crime Commission. Much to the horror of the Australian Crime Commission and the AFP, they have in recent years had a curious habit of negotiating the proceeds of crime in lieu of prosecution of some criminals. Mr Bradley has, fortunately, retired and we might change the practice. I am wondering what the view of the Taxation Office is of the tax status of proceeds of crime where the proceeds have been negotiated in lieu of prosecution—so the crim takes half and the New South Wales Crime Commission takes the other half. By the way, this is now in the budgetary considerations for the department.

Mr D'Ascenzo : We have worked with the New South Wales Crime Commission and the Australian Crime Commission very cooperatively in law enforcement areas. Ultimately, when it is a law enforcement—

Senator HEFFERNAN: You may take it on notice, if you want to.

Mr D'Ascenzo : That might be a better idea, to give you a more exact answer.

Proceedings suspended from 18 : 46 to 19 : 46