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Monday, 30 August 1993
Page: 474

Senator HARRADINE —My question is directed to the Minister representing the Treasurer. What taxation treatment was applied by the Fisher Labor government in 1915 to the income of trade unions, friendly societies and credit unions? What Labor principles motivated that decision? Did not those same Labor principles motivate Labor Treasurer Frank Crean to restore the exemption of interest income derived from members by credit unions after the courts had ruled that the mutuality principle did not apply as previously thought? What motivates this government in its 1993 budget, which increased taxation of workers' friendly societies and credit unions, and will that not put them at a competitive disadvantage compared with life offices and banks which have much larger client bases over which to spread the fixed cost of regulations, for example, by the Insurance and Superannuation Commission?

Senator Crane —This will test your history, Bob.

Senator McMULLAN —Yes, I have to say that I will capitulate—

Senator Crane —You'll have to take this one on notice, too.

Senator McMULLAN —No, I will capitulate to others on the history lesson from Senator Harradine, but his question really went to the substance of why measures have been taken in this budget. That is the matter on which he really wants me to provide an answer, I am sure, and that is the matter to which I will address myself. I assume, for the purpose of the answer, that he is correct with regard to Andrew Fisher.

  The problem with which the government found itself faced was that the exemption, as it previously existed, provided credit unions with an unfair competitive advantage when compared with the tax treatment of other financial institutions. These days, credit unions provide a range of services similar to those of other financial institutions and there is no justification for the tax exemption on the basis of the sorts of services provided. Building societies and other financial institutions are taxed and have to compete with credit unions. Effectively, the tax exemption provided credit unions with a cheap source of funds subsidised by the taxpayers.

  Group asset growth for credit unions has been higher than for building societies and substantially higher than for banks. The credit union industry has high levels of compliance with the new prudential standards, including risk weighted capital requirements. There is no evidence to suggest that taxation would materially weaken the overall capacity of the industry to comply with its minimum capital requirements because, without going into all the details about how it might apply, by definition, only profitable credit unions will pay the tax.

  The measure includes a significant adjustment period, especially for smaller credit unions, which goes to some of the concerns that Senator Harradine raised. While the credit union movement has played a very substantial and positive role in Australian history—and I would not, in any way, wish to question that, having been peripherally involved in it myself—I do not think it can any longer expect to build its financial strength on a tax exemption and a competitive advantage.

  I think the inherent merits and virtues of many credit unions will indicate that they will go on from strength to strength, notwithstanding the tax change. The credit union movement will survive and thrive on its competitive merits, on the quality of its services and the special connections it can develop with its members—which credit unions have a capacity to do over and above many other financial institutions—rather than being a tax driven advantage which does not seem to be appropriate any longer.