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Thursday, 17 February 2000
Page: 13730


Mr CREAN (10:13 AM) —The bill covers various separate subject areas agreed to between the government and the opposition as part of the business tax package. These bills are the second part of legislation on that business tax package. The bill covers refunding of excess imputation credits, removing the intercorporate dividend rate on unfranked dividends, providing an income tax exemption for venture capital distribution from pooled development funds to Australian super funds, pooling of depreciation allowances and consequential amendments flowing from the reduction in the rate of company tax.

Since 1998, Labor has repeatedly called for bipartisanship on business tax reform. After much urging by the business community, the government finally conceded the importance of such an approach. The Treasurer finally accepted our offer of a common approach, to the benefit of the business community and the nation. Business needs the certainty in its tax arrangements that goes beyond one electoral cycle, and that can only be achieved through support by the only two parties that can form a government. Labor has delivered that certainty and has honoured its word concerning support for the government's legislation, including swift passage through the parliament. That is what occurred last year with the first business tax package, and we continue that facilitation here today in the House.

However, cooperation is a two-way street. The Treasurer still has a lot more legislation on this package to put before the parliament. Despite the measures in last year's package and the important measure in this bill, vital integrity measures remain unlegislated. The three key areas where the parliament is awaiting legislation are: dependent contractors, non-commercial losses and the entity regime. These are essential to meet the test of revenue neutrality. At least two of these—the dependent contractors, and the non-commercial losses—must be introduced in the next fortnight of sittings, and the entity regime must be introduced for passage by 30 June to meet the timetable commitments already made by the Treasurer.

The Treasurer's agreement with Labor promised not only that he would deliver the above measures in name but that he would deliver measures that would raise the substantial revenue promised in his press releases. We want the Treasury to sign off on that legislation so that it produces the same result as was included in their calculations at the time of the release of the package. There is no room to fudge for the Treasurer, no room to wiggle. He has a binding obligation to deliver. Business cannot take the goodies but duck the measures to pay for them. Revenue neutrality was the condition the government attached for the introduction of its GST. Labor support reform, but because we have a GST—something that we opposed—the revenue neutrality test must be met. The GST is unfair in that it shifted the burden from high income earners to low and middle income earners. This was a circumstance we were not going to allow to be repeated with further tax cuts to the big end of town.

It is a matter of great regret that, instead of focusing fully on business tax reform—on bedding down the legislation and informing the business community of the new regime—the government has been obsessed, and is now swamped, with trying to explain its GST. The policy attached to the GST has forced aside all other priorities for the government. It is more important for the coalition than are health, education and law and order. It is more important to them than business tax reform or clamping down on tax avoidance. It is the Prime Minister's No. 1 priority, with the possible exception of his brother's business affairs. That is a sad indictment of his goals and his lack of vision for this nation.

This obsession with the GST is about to impose a massive burden on business, especially small business. It will be difficult enough for small business to cope with the changes in the business tax package, some of which are potentially very large, but they will also have to cope with the GST, the new pay-as-you-go-system and a host of other issues as well. Labor argued that this was not all necessary, and again we have been shown to be correct. Unfortunately, there will be many small business casualties from the government's misplaced priorities.

Yesterday the Treasurer was caught out lying about the price effect. He has consistently said that, under the GST, prices can never go up by 10 per cent. He said it could not happen, but it has. Big W and children's clothing was the example given yesterday. No wonder this Treasurer fought so hard to avoid dual tagging being allowed by the retailers. He has told us in the parliament that he did not know that this was happening. If the Treasurer of the nation, who has introduced this tax, does not know what is happening, how does he expect the Australian public to know what is happening? We have been told that the Australian Competition and Consumer Commission is investigating Big W to this effect, but the ACCC has been talking to Big W for months on this issue. How could this be allowed to happen? There are boundless stories of pricing up off the back of the GST. For all its bluster, when did the ACCC act and come out publicly on the Big W issue? It was only after Labor raised it in this parliament. The ACCC is a toothless tiger, and it was caught out yesterday. It would appear that the only investigations it is making are into Big W and Accor, the hotel group, and only because Labor has raised them in the parliament.

There are eight million stories in this dog of a tax. Big W and children's clothing is just one of them. The ACCC has asked Big W to withdraw the tags. Big penalty! The Chairman of the ACCC, Professor Allan Fels, will jump in front of a television camera as soon as you can blink, but he will not turn up to Senate estimates to be asked questions about the capacity of the ACCC to police this dog of a tax. He will not come to Senate estimates hearings. Oh no! That is much too lowbrow for him. He is always in front of the television camera blustering about the $10 million fines if retailers are caught out rorting this system, but what did we see yesterday? A slap on the wrist, `Take the tags off, Big W.' Do we know whether Big W have done it correctly or wrongly? Has there been any indication by the ACCC on this? The 10 per cent has been fully applied on the examples that we used yesterday. Just think about it. The Treasurer would have you believing that it should not go up the full 10 per cent—in fact, he goes further and says it cannot—but it did. But he says it should not go up, because of the so-called embedded taxes. He loves to rave about the wholesale sales tax. There is no wholesale sales tax on children's clothing. Some of the examples he used yesterday were imports. Imported products attract very few embedded taxes, and that is why Big W will continue to argue for the full 10 per cent hike.

Professor Fels has said that a full 10 per cent flow-on is possible under his guidelines, thus contradicting the Treasurer. The Treasurer has told this country time and time again that prices cannot go up by 10 per cent, and the prices watchdog yesterday said they can. The tags may have been withdrawn, but will the 10 per cent still stay when this tax comes in? We will not know until a month before the tax comes in. So open and so transparent is this system that they will not tell us for a month before its introduction, just as they will not tell us the formula for guaranteeing that petrol will not go up under the GST. That was their promise, but they have not produced a formula whereby they can adjust the excise downwards to compensate for the GST coming in.

This government has lied through its teeth on this GST, and it has been found out. The ACCC will not comment on what the government continues to parrot. According to the ACCC, prices can go up by 10 per cent, but Treasurer Costello continues to propagate the fantasy that no prices will go up by 10 per cent. The Treasurer must be the only person in the country who believes the GST will not lift prices by 10 per cent. The government said the inflation impact of the GST would be 1.9 per cent. There is a big difference between 1.9 per cent and 10 per cent. The compensation package is based on 1.9 per cent inflation, not 10 per cent. Consumers have been dudded twice: dudded through higher prices and dudded through inadequate compensation.

We have the Prime Minister telling his colleagues in the party room to hold their nerve: `Don't go out and break ranks; don't back down.' We have Minister Anthony sitting at the table here in the parliament saying that the 10 per cent tax is a great new thing, but going to his electorate and telling people that he is trying to get it eased for caravan parks. You are a hypocrite, Minister. Not only are you defying your leader, you will be slapped down by him, too. Get your act together. You say one thing in here and another thing in the electorate, and you will be found out for that hypocrisy. Yours is a marginal seat, brother—no wonder you are panicking.



Mr DEPUTY SPEAKER (Mr Jenkins)—Order! The Deputy Leader of the Opposition—


Mr Anthony —What do you know about regional Australia?


Mr DEPUTY SPEAKER —Order! The minister will cease interjecting. The Deputy Leader of the Opposition will refer his comments through the chair. The minister will quieten down, please.


Mr CREAN —The interjection has just been made as to what I know about regional Australia. I know a lot; the Treasurer knows nothing. The Treasurer's view for regional Australia is, `Cut your wages and we'll put your petrol up at the same time.' A good deal for regional Australia! How many times has the Treasurer gone out to regional Australia—this great listening, caring Treasurer? When he does, does he go in that tinted-window car to hide from the electorate because he loves this tax so much that he does not want to be recognised for its introduction? I know all about regional Australia. The Treasurer has no empathy with them. He wants them to take cuts and to take petrol price hikes.

But it was not just Big W that was caught out breaching this 10 per cent. Accor, the largest hotel group, as I understand, in the country was another. As I understand it, since that revelation yesterday, there have been very agitated phone calls to the Accor group from the government, very concerned that this is happening and trying to get the company to write a letter saying that it is not true. We will wait for question time, and we will probably see the letter produced. But the trouble is that we have the price list that the Accor group put out which shows that the full 10 per cent has been passed on.


Mr Anthony —What about the bed tax?


Mr CREAN —The bed tax, my friend, does not apply to the hotel that the Treasurer is booked into for the Olympics. It is outside the central business district. Get your facts right.


Mr Anthony —You're monitoring where people are staying, are you?


Mr CREAN —We were told yesterday by the government that, if the price of that group went up by the full 10 per cent, you did not have to stay there. The trouble is that the Treasurer is already booked into the Novotel at Brighton-Le-Sands. His department has booked him in for the Olympics. I think they have made a booking for something like 20 days in the Kings Suite.


Mr Anthony —Jealous, are you?


Mr CREAN —I am not jealous. This is a person who has egg all over his face. He got hit in the face with a pie warmer last year and now he has been hit by a caravan with his little episode yesterday in terms of the impact of the GST on caravan parks.

But again we have the problem. The Treasurer is staying in a hotel where the full 10 per cent is being passed on. He said that the full 10 per cent cannot be passed on. Yet his own department booked him into the Kings Suite for the Olympics, and they would have been quoted the full 10 per cent. If the government cannot police its own price mandate, if the government cannot insist that nothing goes up by 10 per cent, how can ordinary Australians?

The dual tagging has demonstrated that once people are shown what the impact of this GST is they will realise how much is being taken out of their pockets every time they purchase and realise how much they were deceived by this government. We have tried on four different occasions in this place to get an amendment up to require the government to put the amount of the GST on receipts, and the government and the Democrats have opposed us at every point. What do they have to hide? What they have to hide is what was exposed yesterday with the Big W example: the full impact will be passed on. We will continue to run this, and we will run it in your electorate too, Minister Anthony. We will be outside supermarkets up there saying, `Larry Anthony might be telling you one thing here, but he won't vote for disclosure. He thinks this tax is such a terrific thing, but he wants to hide it.' This is Larry Anthony—honest, open, with integrity. Rubbish! He is a hypocrite, and we will expose that hypocrisy as we continue.

We have the Prime Minister pretending that, when Labor is telling the truth about the GST, we are somehow engaged in a scare campaign. The Minister for Health and Aged Care got it right the other day in question time when he talked about the government's scare campaign on the GST. It was just another gaffe from a gaffe-prone minister, but it was the most telling type of gaffe because it was the truth. The only scare campaign in Australia involves John Howard's false characterisations of Australians speaking their minds. The government are so desperate they regard legitimate questioning and legitimate community debate as scare campaigns. They try to tarnish genuine community concerns as being baseless and somehow Labor's invention. It is not, especially in country Australia—and the arrogance of ignoring strong community sentiment will come back to the haunt the Prime Minister in due course.

I will go now to the specific proposals in the bill. Refunding of excess imputation credits: the dividend imputation system ended the previous double taxation of dividend income and was a major business tax reform, introduced by Labor in 1986, under which companies pay dividends out of income on which they have paid company tax. These are known as franked dividends. This means that the company tax paid on the income is available as a credit to the shareholder. The tax credit can then be used to offset the income tax payable by the shareholder.

Although imputation credits can be used to reduce an individual's or a superannuation fund's income tax liability to nil, excess credits were of no value to taxpayers. This bill proposes to refund to taxpayers any excess imputation of credits that may be left after offsetting the credits against their income tax liability. The classic example of such a situation is a low income person who earns a little investment income—for example, a full rate age pensioner. They face no income tax liability on their income and therefore cannot obtain the benefit of the excess franking credits attached to the small amount of dividend income they receive. Under this proposal, they will obtain a refund of their income tax from the Taxation Office, representing the excess imputation credits. Labor included this proposal in our taxation policy prior to the last election. Therefore we have no difficulty supporting the proposal because it is our policy. It builds on the major reform accomplished by Labor almost 15 years ago and it improves the current taxation situation faced by low income investors, especially retired Australians.

Secondly, there is the removal of the intercorporate dividend rebate on unfranked dividends. Currently, public companies obtain a rebate, known as the dividend rebate, on dividends they receive whether they are franked or not. This rebate leads to tax avoidance opportunities which cost the revenue several hundred million dollars per year. The bill proposes to remove the rebate except where dividends are paid within a company group. This will bring public companies into line with the treatment of private companies. The measure will close significant tax avoidance opportunities, and is strongly supported by Labor. This measure replaces an earlier proposal, deferred company tax, which was rejected by the Ralph inquiry because of the possible impact on foreign investment in this country. The measure will raise significant revenue: around $600 million over the next five years, which is about $400 million less than the deferred company tax proposal that it replaces.

Thirdly, there is the provision of an income tax exemption for venture capital distribution from pooled development funds to Australian superannuation funds. The bill proposes to provide a significant stimulus to venture capital investment by Australian superannuation funds. This is achieved by providing a special rebate that allows superannuation funds to receive venture capital gains free of tax, where they are earned through investments in a pooled development fund. This is a significant reform and it is in line with Labor policy. It will provide a significant incentive to superannuation funds to invest in Australian ventures. The measure should increase the retirement income of superannuation fund members over the long term as they will have access to high, long run returns in the developing segments of the Australian economy.

Labor supports, and indeed has long advocated, a business tax system which fosters investment, job growth and innovation, including greater investment in venture and patient capital and in research and development. We support the greater commercialisation of Australia's R&D and innovative effort. This measure will assist that goal. But we have also argued that more is needed than simply changes to taxation. We need to develop a venture capital-innovation culture in this country. Venture capital is an area for which we were able to get bipartisan support from the day the government announced its business tax package. The reason for that of course is that Labor took to the last election a proposal in relation to venture capital whereby we recognised the need to attract overseas pension funds to this country. Those overseas pension funds operated in their own countries in circumstances in which the capital gains tax was much lower than applied here. Of course, if it were lower than here, why would they invest here?

Our argument—because evidence had been put to us that we were missing out on investment opportunities in the development of this country, and of course the name of the game has to be about jobs and the building of our industries, and about new industries in particular—was that this was a vital area that needed to be attracted. So we proposed, going into the last election, changes to attract the US pension funds. But the notion was not just to attract their capital; there was also the notion that, if you have got their capital, you will also attract their expertise, the people who actually manage the investments—manage the venture capital—and who have experience in taking up the idea and working it through the start-up phase to commercialisation. We also require that these funds invest in partnerships with Australians so that we instil that culture and develop the networks of expertise so that we can keep more of the inventions and the research here and develop them more here to the nation's advantage.

This is an area in which countries like the US have had a long period of experience. We had to tap it and we needed to make the tax system, along with other programs, ensure that we did. The US has probably had some 30 years of experience in this area, and it is not an experience that can be obtained overnight, although it is very interesting that a country the size of Israel has made huge inroads into this area, as has Ireland. Both of those countries have understood the importance of attracting not only the capital but also the expertise, the means by which the capital is managed wisely. So it is against that background that we welcome the initiatives in terms of the overseas pension funds, because there was a barrier to venture capital coming to Australia.

It is also interesting to note that when we took this issue to the last election the government rubbished us on this measure—the measure that they are now agreeing with us on. They said then that it would not work. At the time, they had obviously not considered the detail. It was too much of a knee-jerk response and too much of a rejection of the notion that we should develop a bipartisan and agreed position on a number of these areas. Now they have come to the party. The government have picked up our suggestions. We legislated the foreign pension fund measures last year, and today we are dealing with the concession for Australian superannuation funds. We welcome these measures, and we welcome this about-face by the government. It is an important move for venture and risk capital in the country, and it will be good for innovation and jobs.

The next area is the pooling of depreciation allowances. The bill proposes to implement two reforms of the depreciation provisions. It proposes to replace, except for small business, immediate deductibility of the items of plant costing $300 or less, with a right to pool together all items of plant costing less than $1,000 and to depreciate that pool as a single item of plant over four years. It also proposes to allow taxpayers to add items of plant to the above pool if they have been written down to less than $1,000 under the diminishing value method. These proposals are part of the abolition of accelerated depreciation and associated reform of capital allowances, the bulk of which were legislated last year. These proposals will yield significant net savings over the forward estimates period. In addition, they should significantly simplify the compliance burden on taxpayers. Labor supports these measures as they represent a substantial simplification of depreciation arrangements for minor items of plant and equipment. These will all enjoy a common regime, which should lower compliance costs substantially, especially for business. Removing existing capital allowances is not all a negative for business. This measure shows that simplification can be achieved in this context, substantially assisting business whilst still protecting the revenue.

The final area that the bill covers is the consequential amendments flowing from the reduction in the rate of company tax. The dividend imputation system and tax concessions applying to infrastructure borrowings need to be adjusted when the company tax rate is changed in order to maintain the current effective treatment of the dividend imputation system and the infrastructure bond concession. This is a terribly important measure, particularly for regional Australia. Similar adjustment to the imputation system has occurred in the past when Labor changed company tax rates, and it is not opposed by us. We support it. The amendments are essentially technical in nature and, in keeping with my commitment not to delay the passage of the bill, we will facilitate its speedy passage. But my colleagues have important contributions to make, and I commend their comments, along with mine, to the House.

Debate (on motion by Mr Tuckey) adjourned.