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Tuesday, 9 May 2000
Page: 16070

Mr MOSSFIELD (4:31 PM) —Mr Deputy Speaker, the Taxation Laws Amendment Bill (No. 11) 1999 is an omnibus taxation bill covering four different subject areas: the integrity measures concerning the alienation of Australian real property by non-residents; the income tax deduction for gifts and extension of period of deductibility for certain donations; income tax exemptions termination for non-resident sportspersons, clubs and associations; and a capital gains tax technical amendment and correction of errors. The provisions contained in this bill are designed to amend the International Tax Agreement 1953 to overcome shortcomings in the double taxation agreement revealed in the Federal Court decision in the Commissioner of Taxation v. Lamesa. In this case, a US business acquired an Australian mining company through interposed identities. A US limited partnership was created and it acquired an Australian subsidy.

A Netherlands company, Lamesa, was interposed between the US partnership and the Australian company. The Federal Court held that no Australian tax was payable on a profit earned by a non-resident for selling his interest in an Australian real property asset. The Netherlands subsidy, Lamesa, enabled the owners to use the Australia-Netherlands double taxation agreement to avoid paying this tax. The Bills Digest advises:

Double taxation agreements generally provide that if a non-resident business operates in Australia through a permanent establishment, the business profits of the permanent establishment will be taxable in Australia. The term `permanent establishment' is defined in each double taxation agreement as a place of business and includes a branch of a non-resident company. If a non-resident company operates in Australia but does not have a permanent establishment in Australia, the business profits are taxable in the country of residence.

Double taxation agreements generally provide, as an exclusion to the business profits article, that the profits from the alienation of real property are taxable in the country in which the real property is located.

The reason the court held that no tax was payable on that occasion was that the interest was not held directly but rather through a chain of interposed companies. Rather than selling the interest in the mine, one of the interposed companies was sold. Thus, technically, the non-resident was not selling Australian real property but simply an interposed company. This ruling prevented Australia from being able to collect the tax that it was allowed to collect under the double taxation agreements. However, the profits acquired by Lamesa as a result of this sale were in excess of $204 million and represented a considerable income loss for the Australian government and a windfall for the owner, as the Netherlands government never exercised its right to tax such profits.

This bill, therefore, includes a new provision which will act as an interim measure, ensuring that the holding of Australian real property through a chain of companies or other entities will not prevent tax from being paid to the Australian government on the sale of that property. It is interim in the sense that, once a specific provision has been negotiated in the double taxation agreement, the provision no longer applies. The Lamesa Holdings case decision poses a significant threat to the Australian revenue base. This type of structure could be used to avoid tax on all Australian real property.

Rather than acting quickly, the Treasurer waited many months and finally issued a press release on 27 April 1998, many months after the decision, which announced an intention to legislate to overcome the Lamesa decision. Labor supports the decision to close this loophole; however, the handling of this issue leaves a lot to be desired. Legislation was not introduced until almost 20 months after the announcement and has had such a low priority that it is only being debated in the House now after being introduced over four months ago. This means that the legislation is very retrospective. If passed in its proposed form it will operate at least two years retrospectively. A lack of priority could mean it will not pass until June this year, around 26 months after the original announcement. Labor supports the measure for the shoring up of the Australian tax base concerning gains made through non-residents. However, we are very concerned about the severe retrospectivity of this proposal.

I might add that this is quite a complex piece of legislation, and I think all members in this House are indebted to the Information and Research Services of the Department of the Parliamentary Library for the details they have given us concerning this piece of legislation. I might also mention that this legislation also grants an extension of time for the deductibility of certain donations for income tax purposes. The bill proposes to extend the period for which donations will be tax deductible for the St Patrick's Cathedral Parramatta Rebuilding Fund, the Australian National Korean War Memorial Trust Fund and the Shrine of Remembrance Restoration and Development Trust. Labor has supported the provision of tax deductible status for these funds and will support these amendments lengthening the period of deductibility. I have particular interest in the restoration of St Patrick's Cathedral, Parramatta because of its historical significance not only to Greater Western Sydney but also to Australia. The then New South Wales government gave the present site to the church in 1827, and it became the first church dedicated to St Patrick in the colony. However, this generous gift from His Majesty's then New South Wales government seems to have been challenged by others in the colony. When a Sir Maurice O'Connell returned to Sydney in 1838, he found Patrick's Church on land he said belonged to his father-in-law. He claimed the church land, and the matter was the subject of a court case which ran from 1839 to 1841. The court decided in the church's favour. It is said that the church had the Attorney-General of the time, John Hubert Plunkett—a descendant of St Oliver Plunkett—on their side. So there may have been some divine intervention there.

There have been several false starts and additions to St Patrick's over the years, including the addition of a steeple in the 1880s to house a peal of bells that was lost in the wreck of the Dunbar, a ship which mistook The Gap for the Sydney Heads—a serious navigational error even for that time—in August 1857 and went down, leaving only one survivor. In 1936 St Patrick's was partially rebuilt to satisfy the needs of the Parramatta parish. When in 1986 the diocese of Parramatta was established, St Patrick's became the cathedral. On 19 February 1996, St Patrick's Cathedral was destroyed by fire. The church authorities have sought financial assistance from both the federal and the state government for the restoration of the cathedral, without success. The church applied for federal government assistance under the Federation Fund scheme, and I would have thought that, due to the historic nature of the building, some assistance would have been granted. The church community in the diocese of Parramatta, while being disappointed by the lack of government assistance, have put this behind them and are now going it alone to restore the cathedral. The restoration and extension program is to cost $9.5 million. With some $6.2 million in hand from insurance money, interest, donations and initial fundraising, some $3.3 million has still to be raised. So the extension of time for the deduction of donations for taxation purposes contained in this legislation is most welcome.

I would now like to move on to the amendment to the second reading moved by the honourable member for Wills. To start with, I would like to refer to point 3 in the amend-ment, `the Government's misleading claims for its taxation proposals'. The Labor Party has asked the Australian Competition and Consumer Commission and advertising reg-ulators to investigate false and misleading claims in the government's $80 million or $90 million—or is it $360 million?—GST ad--vertising campaign. The government fal-sely claims that a typical family will be $40 to $50 better off as a result of the tax system changes. This $40 to $50 figure is before the impact of the GST. An independent analysis of the net impact of the tax system changes has shown that many families will not benefit to the extent claimed by the government. Just a few examples will suffice: all single income couples without children; all single income couples with one child between the ages of five and 12 and with income below $55,000; all single income couples with two children and earning less than $30,000; single income couples with three children, one of whom is under five, and an income less than $30,000; all single self-funded retirees; and all self-funded retired couples earning less than $90,000.

These are just some examples of low income families who will not benefit to the extent claimed in the government's advertisement. The facts are that, if the goods and services tax is included, most single income families with one child and all dual income families with one child who earn below $70,000 a year will get less than the amount stated in the government's misleading advertisement. The Labor Party has also raised the issue that the government is falsely claiming in the John and Wendy advertisement that it provides additional assistance for the cost of raising children. I understand that that advertisement is now not showing. However, due to changes to family assistance arrangements, families like John and Wendy can actually be substantially worse off, even before allowing for the impact of GST.

It is vitally important that, if the general public is to have any confidence in the government's decision making processes, the ACCC fully investigate these claims. Governments must be subject to the same standard as private industry and the general public. It is unfair for fines of up to $10 million to be imposed on the private sector for misleading and deceptive conduct in respect of the GST when the federal government's own conduct is both misleading and is deceiving the Australian people. This government should set an example to the private sector. If the ACCC and industry bodies do not subject the government to its own standards, it will further undermine the government's credibility in the minds of the general public and reinforce the already accepted view that the Howard government cannot be trusted.

I am fascinated by the various ways in which the government are now trying to tie the ALP to the government's tax policies. It is incredible that, in their desperation to deflect any of our criticism about the GST, they now keep saying that we accept it. We accept that they are the government and that they have the numbers and, with the help of the Democrats, have foisted upon all Australians a new and unwanted tax imposition. They criticise us for daring to acknowledge the difficulties in wiping off the GST and for our view that we will, as far as possible, roll back the absolutely unacceptable facets of it. Of course, the whole tax is unacceptable. But by the next election it will have been established into the operating fabric of our nation. We are not business wreckers. After all the traumas that business have endured in trying to come to terms with the implementation of this terrible tax, would we in the ALP want to heap more horrors on them? Of course we would not, and it ill behoves the government to use their appalling tax imposition to try to line us up as supporters of their tax debacle.

There are still so many flaws in the system that, if the government were being really honest with the people, they would defer the implementation by another year and try to clean up the mess they have created. Look at what they have had to do in relation to the GST on petrol. They have had to find another half a billion dollars to subsidise country and regional users. They have now announced their method of doing this, by introduction of further legislation. But it still remains just as confusing and unfair as it was before the introduction of these particular bills. Do the government really think that the pur-chasers of petrol in places such as Canberra, where they can pay 91c a litre and up-wards, will not insist on being part of the subsidy? Do the government really think that the purchasers of petrol in Dundas or Dee Why or Doonside, where they will be paying in--creased petrol prices, will not insist on being part of the subsidy? Do the government really think that the patrons of the bowling clubs, RSL, country women's associations, child-care centres, kindergartens and other service groups are going to be conned by the gov--ernment into believing the GST is now the ALP's fault? There appears to be an unbe--lievable element of wishful thinking flowing through all of the government's com--ments—that somehow the Australian people are simply going to be so relieved that they will ignore the glaring inconsistencies and unfairness that are obvious to all of us.

When Prime Minister Howard invited us to join him on his great new tax adventure, he told us that there was a change of mood in the community and that people now understood the issue of the GST. This of course is not quite right and, due to the vigorous activities of the ALP, the public is now better informed about the GST and does recognise some of the dreadful pitfalls and inequities. The Prime Minister has made an appalling blunder in his assessment of the Australian people. He thought that he could thrust the GST upon them and they would accept that, because he said it was good, it must be good. The people are getting to understand the GST and they are not amused. Regional Australians know that they will be hammered on the petrol issue and, to try to save some government MPs in country areas, the government have finally introduced a petrol subsidy. We wait with bated breath. What will the government produce to try to buy the safety of their city MPs?

Every day something new emerges about the peculiarities of the GST. We have seen early impositions of the tax on insurance policy payments, funeral payments and other items. We have seen continuing spiral increases in the cost of the public education program, now up to over $300 million. We have seen iced buns with and without the GST. Nobody is sure which is correct. We have seen the issue of price ticketing dodged by the government, because they certainly do not want the public to know exactly how much GST they are paying in their grocery bills. The whole introduction of this `never ever' GST tax has been surrounded by complexities, confusion and government stuff-ups. It is not too late to pull out of it for a year. This is important, when we hear on a daily basis the difficulties business is having and the confusion out there as to whether prices can increase more than 10 per cent. It is vitally important that people have more time to consider this dreadful tax.

But I do not believe the government will withdraw this tax. They possibly believe that the criticism will die down before the next election and that the voters will never remember when they go to mark their ballot papers. We remind the government that we will fight to ensure that voters do remember. Right up until they enter the polling booth, they will be reminded and reminded again about the `never ever' GST.

There are quite a number of items in the amendment, some seven in total. Once again I appeal to the government to give some further consideration to withdrawing this legislation to give the general public and business more time to consider it. Each day in the daily press we see evidence of confusion, amongst business in particular. On Monday of this week, an article in the Sydney Morning Herald headed `ABN errors claimed as GST nears' reported:

The Tax Office has been issuing Australian business numbers (ABNs) without properly checking applicants' details and in some cases issuing two numbers to the one person in its haste to meet the GST start date, tax experts have warned.

The article continues:

While businesses have been slow to register—only 250,000 of the 1.7 million expected to register had applied for an ABN by March—there have not been enough staff to do the work, according to the Community and Public Sector Union.

This quite clearly indicates that many businesses still have not come to grips with the GST and certainly need more time. In another article in the Sydney Morning Herald the same day there is further concern that:

The vast majority of businesses are unable to calculate what their prices will be under the GST according to accountants and tax experts.

Businesses are writing to their suppliers to establish what their costs will be so as to calculate their prices under the GST, but no-one can provide an answer, according to accounting firm Hayes Knight.

I will wind up on that. I indicate my strong support for the amendment moved by the member for Wills. (Time expired)