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Thursday, 13 April 2000
Page: 15915


Mr EMERSON (11:41 AM) —I wish to speak on Taxation Laws Amendment Bill (No. 11) 1999 in respect of the Lamesa Holdings case, and then go on to talk about the second reading amendment that has been moved by the member for Wills, in particular paragraph (5) of that amendment which expresses concern over the reluctance of the government to effectively tackle tax avoidance in Australia.

Today is a day of shame for this country and for this government because the government has squibbed the task of addressing a major avenue of tax avoidance in this country. I will explain further how it has done that and I will also talk about the reasons it has done that. In the case of Lamesa Holdings, the government was very slow in responding, but at last we have legislation which deals with the problem created by the interposing of an entity as a device for tax avoidance. We welcome the legislation in Taxation Laws Amendment Bill (No. 11) 1999 dealing with Lamesa Holdings, and similarly we welcome and support the other measures in the bill.

In respect of the broader issue of the reluctance of the government to tackle tax avoidance, because in the case of Lamesa Holdings it took a very long time for the government to act, we have learned from the front page of the Financial Review, in an article entitled `Tax: Costello buckles to contractors' demands', that the Treasurer of this country has capitulated to his party room for very base reasons and has allowed a massive avenue of tax avoidance to go unchecked. The article says:

Individual contractors who faced paying personal income tax from July 1 have been given a reprieve, with the Treasurer, Mr Peter Costello, relaxing the original plans for the new tax provision.

The concessions in the legislation were negotiated because of the extreme sensitivity of the Liberal Party back benches over a law that could alienate key constituent groups.

In other words, the Treasurer capitulated for base political reasons. It goes on to say:

Mr Costello told a meeting of the party room last night that a contractor would have to satisfy only one of four criteria to avoid having to apply for a special ruling from the Tax Office to avoid personal income tax.

The criteria comprise:

Having a business premises.

Having two or more unrelated clients.

Being able to satisfy the Taxation Commissioner that the entity is not a loss-making operation and that tools of trade are supplied, which could include a mobile or a laptop.

The entity has one or more employees who perform at least 20 per cent of the work.

The government made a commitment to this parliament and a commitment to the opposition that it would proceed to implement the measures outlined in the Ralph Review of Business Taxation relating to tax avoidance through the alienation of personal services income. On a reading of this, a dependent contractor will be able to escape these provisions if, for example, that contractor has a home office. That could just be a desk in a garage. That, on the reading of this, could be sufficient to be able to avoid tax. Or in respect of the criterion that tools of trade are supplied—which could include a mobile or a laptop—if a contractor who is really a PAYE employee goes out to the shop and buys a screwdriver or a hammer, he or she can avoid the tax obligations that would apply to a PAYE taxpayer. Or you could set up an arrangement where you received $1 a week from a friend and, therefore, you are not a fully dependent contractor.

The whole thing is an absolute disgrace. It is a capitulation by the Treasurer. He has dishonoured the office of Treasurer of Australia by capitulating for base political reasons. On 24 November last year there was an exchange of letters between the shadow Treasurer and the Treasurer where the Labor opposition agreed to pass the government's business tax changes if the government met several conditions. These were, to quote from the shadow Treasurer's letter:

Detail on the measures not yet before the Parliament, particularly the revenue raising measures, at a level that allows us to reasonably conclude that their stated intention will be achieved. This would ideally be in the form of draft legislation.

And then:

An absolute and public guarantee that these measures, when the details are known, will be implemented in full.

It goes on to talk about a third condition, which is an anti-avoidance provision in relation to capital gains tax. But our shadow Treasurer said we want:

An absolute and public guarantee that these measures, when the details are known, will be implemented in full.

The Treasurer said in the parliament that the shadow Treasurer:

... put three conditions on the opposition supporting the government's business tax package. I announced to the House the government has met all three and that should mean that the opposition supports in its entirety the government's business tax reform agenda.

He goes on to say:

... the government announced its position in relation to the so-called integrity measures of alienation of personal service income and non-commercial losses on 11 November 1999. They were measures recommended by the Ralph committee, they have essentially been adopted by the government and we have put more detail on them.

So that was the arrangement. That was a matter of integrity, where the shadow Treasurer and the Treasurer agreed and the Treasurer said, `You can trust me. I will implement these measures in full.' He has not. He has abrogated his responsibility as Treasurer of this country, because he has backed down, completely capitulated. When asked this morning on the AM program whether this would cost a bit of revenue, the Treasurer said:

Well, at the end of it, the measure raises in its first year, I think, $190 million, or something of that order.

So he talks about a two-year transitional period in which it raises nothing, and at the end of that two-year transitional period—that is, in the third year—it would raise $190 million. He said he would implement this in full. I have here a table from the Treasurer's press release No. 74 of 21 November 1999, which cites the revenue gains from implementing this measure in relation to the alienation of personal services income. They were, in their respective years, $380 million, $480 million, $495 million, $515 million, and $530 million. According to the Treasurer this morning the first year is gone, because of the transitional period; the second year is gone, because of the transitional period; and in the third year he will be collecting around $190 million, instead of $495 million.

When you add up the hole that has been created by the Treasurer's capitulation to the party room last night, it works out at $1.160 billion. I wonder what the financial commentators of this nation are going to say when they find that the Treasurer of the country, in a sleazy party room deal, capitulates and squanders $1.2 billion so that he can appease the backbench. Yesterday or the day before the government spent $500 million on a petrol rebate scheme for the bush, and now it is squandering $1.2 billion just to appease the backbench. Why? Because the backbench has had representations from people who have been involved in tax avoidance who say, `We're going to vote against you.' So the backbench go to the Treasurer and say, `Look, we have to do something about this,' and he says, `Okay. Fine. I will give in. I will cave in.'

He said that he is implementing the Ralph recommendations in full. That is what the Treasurer said. He promised it. He said, even today, `Yes, we are implementing them in full.' I have just shown there is a $1.2 billion hole. This is what the Ralph review had to say about the alienation of personal services income—which is now completely condoned by this government:

These practices raise significant issues of equity and pose a growing threat to the income tax base ... It is clearly inequitable that some taxpayers should be reducing their tax liability by using interposed entities to alienate income while other taxpayers also deriving personal services income, including ordinary wage and salary earners, pay the correct amount of tax.

It goes on to say:

In addition to the tax consequences, income alienation can result in highly remunerated individuals being able to reduce their taxable income to a level that entitles them and members of their families to a range of income-tested government payments. Alienation can also enable these individuals to avoid a range of other obligations such as higher education contribution charges, Medicare levy and superannuation surcharges and child support payments.

That is what the Treasurer is now condoning as a result of the decision that he made last night. The Ralph report said:

A safeguard arrangement will allow a service provider, who has received 80 per cent or more of payments for personal services from one service requirer or associate of that service requirer, to seek from the Commissioner of Taxation a decision that the 80 per cent/one service requirer rule should not apply.

Such a request will be considered on the facts of the particular case. However, an application will not be successful if the interposed entity has been consistently receiving payments from one service requirer, and it cannot be demonstrated that the interposed entity is conducting an independent trade or business.

That is what the Ralph report said should happen. Nothing like that is happening at all. Because, if you go out and buy a screwdriver or if you have a laptop or a mobile phone you can avoid these provisions completely. I cannot understand how the Treasury could even stand by a figure of $190 million in the third year. How will it raise $190 million if all you have to do is buy a screwdriver to not be caught in this provision?

There is a big history to all of this because the Prime Minister is the friend of tax avoiders. Very early on, in 1984, he said, `We smashed the tax avoidance industry; we brought it to its knees.' He keeps going on about how he did all these great things to smash tax avoidance. He said:

That is why the former Government was the one that smashed the tax avoidance industry in this country ... all tax avoidance of substance in the 1970s was destroyed by legislation that I introduced as Treasurer.

He then went on in the same speech on the Income Tax Assessment Amendment (Capital Gains) Bill 1986 to say:

The Opposition opposes this capital gains tax measure. We have said repeatedly that we will repeal it when we are elected to government.

He says, `We are against tax avoidance, but we do not want a capital gains tax that taxes the artificial conversion of income into capital gains. No, we do not want that, and we are going to oppose it.' And they did—they voted against it. He said:

What is wrong with a capital gains tax is not only its actual impact but also its psychological impact, because capital gains taxes will psychologically act against capital accumulation by small business in Australia.

Then, most despicably, the now Prime Minister went to the length of warning members of the government in marginal seats that he would be campaigning against them. For example, he said:

The honourable member will have plenty of opportunity, because during the election campaign in the seat of Hunter, which I am visiting at the weekend, we will have great delight in ramming that right down the honourable member's throat. He will be one of the great oncers of this Parliament and is on my hit list. The honourable member is on my hit list in large letters and, boy, are we going to have fun.

We are going to have fun in going around and saying, `Look, we are for tax avoidance and we are against Labor, which introduced the capital gains tax. We are going to extract a big political price from you.' That is what the current Prime Minister said. He will stop at nothing. He then went, again in that speech on the capital gains tax bill in 1986, and said:

One of the worst nasties of option A is the Government's iniquitous capital gains tax.

Again there is the threat, because he continues:

Over the months ahead I can tell all Government members—particularly the nine who are on our hit list for the next election, the nine who will be bundled out at the next election—that they will have that rammed down their throats.

He talks about the fringe benefits tax as an iniquitous tax and says, `We are going to oppose that, too.' The fringe benefits tax and the capital gains tax were put in place by the Labor government to specifically clamp down on tax avoidance, to smash tax avoidance. The Prime Minister said, `No, we have done all that.' Now here they are again, 16 or so years later, saying, `We have smashed all the tax avoidance.' The Treasurer actually said in 1996, `If there is any tax avoidance we will crack down hard on it.' But he has not. On 11 September he said:

This government is concerned about tax avoidance and tax rorting. This is a government that is prepared to act against it.

... ... ...

This was a government prepared to act against tax avoidance, unlike the Australian Labor Party, as you have seen, which is extremely sensitive about its record on tax avoidance.

Wherever we saw tax avoidance we acted against it. We implemented the capital gains tax and the fringe benefits tax against the wishes and against the votes of the members of the current government, including the Prime Minister of Australia. Today is a day of shame because the Treasurer of this country has dishonoured the office of Treasurer. He has a responsibility to protect the integrity of the income tax system, but he has no integrity. These are supposed to be integrity measures. What a joke! The Treasurer of this country has no integrity and he deserves no respect. I am pleased to quote from Alan Kohler in the Financial Review of 4 April this year where he says:

Lawyers, accountants and business people call it avoidance to escape the stigma of evasion, and to allow their subsequent attendance at church, but they are little more than fancy thieves.

These are the friends of the Liberal Party, the Treasurer and the Prime Minister. Why did the Treasurer capitulate? Why has he dishonoured the office of the Treasurer of Australia? For one reason and one reason only: the Prime Minister and the Minister for Employment, Workplace Relations and Small Business want the alienation of personal services income to go ahead unchecked, even though it is a major and expanding avenue of tax avoidance, so they can pursue their industrial relations agenda. They want to completely de-unionise the building industry and they are prepared to pay a very high price to do that. In this case they regard $1.2 billion as a very cheap way of de-unionising the building industry. Union members are encouraged effectively to become dependent contractors, get a whole lot of tax lurks by taking on that status and then leave the union of course. That is what the Prime Minister wants. He continues his industrial relations agenda, his obsession, to get rid of the award system and to sack the independent umpire.

We hear the Minister for Employment, Workplace Relations and Small Business in this place just about every day saying, `Labor is for the unions' and so on. By and large we are for the unions, and we are proud of it. This government, in its obsession to smash unions, has said, `We are quite happy to hand over $1.2 billion so that tax avoidance can continue unchecked.' Senator Gibson, in the Senate inquiry on the business tax reform process, referred to a comment by former Treasurer Ralph Willis that the revenue estimates from this could be four times larger than the official ones—that is, from cracking down on this area of avoidance. Senator Gibson cited those figures because he wanted to prove that the whole package was revenue neutral. It suited him to say that then, and I think he is right. The avenue for avoidance here now formally opened up by the government will spread right through the PAYE tax system. We may be witnessing the beginning of the dismantling of the PAYE tax system in this country because if it is good for the building industry and good for other industries it will be good for every industry. At some stage we will not have any PAYE taxpayers because they will all be sanctioned by the government to become contractors and therefore enjoy those extra tax concessions.

The Treasurer, who should be ashamed of himself, promised the Labor opposition that he would implement these measures in full. He has not. He went and faced the opposition from the party room. He has obviously made the choice between honouring the position of Treasurer of this country and his leadership ambitions. He has got railed against him the Prime Minister and his rival, the Minister for Employment, Workplace Relations and Small Business, saying, `We are against what you are trying to do.' He has said, `This is going to prejudice my leadership ambitions so I will capitulate to the backbench.' This government has no guts at all when it comes to smashing tax avoidance. The Treasurer is a disgrace. He will come in here and say, `We're implementing it in full.' He will give us this doublespeak about how there are no revenue losses whatsoever, but he has completely capitulated. I say to the Treasurer—and he will understand this—`Don't forget to water them geraniums, Treasurer'. You know what that means and you know that you have dishonoured the position of Treasurer in this country. You have sanctioned a major and growing avenue of tax avoidance in this country for one reason only, and that is to further your leadership ambitions. It is a day of shame and disgrace for the Treasurer of this country.