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Tuesday, 7 September 1993
Page: 1099


Senator SHERRY (Parliamentary Secretary to the Minister for Primary Industries and Energy) (8.51 p.m.) —I table the revised explanatory memorandum. I move:

  That this Bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

  Leave granted.

  The speech read as follows—

Mr President, this bill will amend the tax laws to give effect to a number of changes arising from the 1993-94 budget.

I propose to outline briefly the measures contained in this bill. More detailed explanations of the measures are contained in the explanatory memorandum being circulated to honourable senators.

Personal tax cuts

The amendments contained in the bill will change the timing for the commencement of the two stage reduction in the tax rates announced in One Nation on 26 February 1992.

The first stage will now commence on 15 November 1993, seven and a half months earlier than scheduled. The bill provides that the second stage of tax cuts will commence at the beginning of a financial year to be fixed by regulation.

Because the first stage of the tax cuts will commence on 15 November 1993, the bill contains the new composite rate scales to apply for 1993-94 and the first stage rates for the 1994-95 and later income years.

The new rates to apply from 15 November 1993 will benefit taxpayers with taxable incomes in excess of $20,700.

The tax cuts will cost the revenue $1.55 billion this financial year. The ongoing cost to revenue of the first stage of the personal tax cuts is $2.9 billion in 1994-95 and $3.12 billion in 1995-96.

Low income rebate

The bill will also provide a rebate of up to $150 to taxpayers whose taxable income for 1993-94 and subsequent income years is less than $24,450. The new rebate will mainly assist those taxpayers who do not benefit from the One Nation tax cuts.

Taxpayers with a taxable income of up to $20,700 will be entitled to a rebate of $150 in their assessments for the 1993-94 and later income years. The rebate will reduce at the rate of 4 cents in each dollar of taxable income in excess of $20,700 and completely phase-out when taxable income reaches $24,450.

The estimated revenue costs for this measure are $530 million in 1994-95, $515 million in 1995-96 and $500 million in 1996-97.

Medicare levy

The bill will amend the Medicare Levy Act 1986 to increase the low income thresholds below which people will not be required to pay any levy.

For 1993-94, individuals with taxable incomes of up to $12,688 and couples and sole parents with family incomes of up to $21,366 will not be required to pay the levy.

There will be no change to the provisions which increase the threshold for couples and sole parents by $2100 for each dependent child or student.

The estimated cost of the increased low income thresholds is $30 million in 1993-94, $60 million in 1994-95 and $45 million in 1995-96 and 1996-97.

Unused annual leave and unused long service leave payments

The bill will remove the concessional tax treatment that applies to lump sum payments of unused annual leave and unused long service leave made on termination of employment.

Payments in respect of unused long service leave accrued on or after 18 August 1993 and payments in respect of unused annual leave made on or after 18 August 1978 will be taxed as normal income. However, there is no change to the tax treatment of these payments if the taxpayer's termination of employment is as a consequence of bona fide redundancy or invalidity or is under an approved early retirement scheme. Nor is the concessional tax treatment of long service leave accrued before 18 August 1993 affected.

The proposed amendments ensure that the tax system does not discourage taxpayers from using their leave entitlements for their intended purpose.

The estimated gain to the revenue is $80 million in 1993-94, $180 million in 1994-95, $165 million in 1995-96 and $180 million in 1996-97.

Taxation of credit unions

The bill will remove the exemption from income tax for income in the nature of interest received by credit unions on loans made to their members and will allow credit unions to be taxed as cooperatives where they satisfy the requirements for that treatment. To give credit unions time to adjust to the new measures, there will be a phasing-in period.

The measure will remove the competitive advantage credit unions enjoy as a result of the special tax treatment given to them, and is consistent with the government's general approach of ensuring tax neutrality between business enterprises.

The estimated gain to revenue is $25 million in 1995-96 and $30 million in 1996-97.

Taxation of friendly societies and other registered organisations

The bill will change the taxation treatment of friendly societies and other registered organisations.

It will phase-out, over three years from the 1994-95 income year, the concessional tax rate for friendly societies in respect of their life insurance and certain other insurance business.

As a consequence of that change, the bill will, from 1 July 1994, extend to friendly societies the same entitlement to deductions as is allowed to life insurance companies for the costs of getting in their life insurance premiums.

Another change will increase, from 1 July 1995, the rebate available to holders of friendly society life policies who are assessed on bonuses. This increase is a consequence of the phasing-out of the concessional tax rate.

The estimated gain to revenue from these measures is $25 million in 1995-96 and $69 million in 1996-97.

Car parking expenses for self-employed

The bill will also amend the income tax law so that, from 1 July 1994, a tax deduction for the cost of car parking for persons other than employees will be denied in certain circumstances. This will place car parking by self-employed persons on a comparable tax basis to car parking for employees.

A deduction for car parking expenses incurred by self-employed persons will only be denied where certain conditions apply. The rules for determining the non-deductible amount of a car parking expense in this bill are similar to the rules applicable to employers in valuing a car parking fringe benefit.

The estimated gain to revenue of this measure is $70 million in 1995-96 and $35 million in 1996-97.

Non-deductible expenses

The income tax law will also be amended to allow deductions to employers for expenses incurred in providing their employees with a range of benefits such as entertainment, club fees, leisure facilities, travel expenses of accompanying relatives, Higher Education Contribution Scheme payments and Student Financial Supplement Scheme payments. These expenses have previously not been deductible.

Benefits of this nature, if provided to employees, are fringe benefits under the fringe benefits tax law. However, the taxable value of these benefits is reduced to the extent to which they are non-deductible to employers under the income tax law.

This amendment, which will apply from 1 April 1994, will allow a deduction to employers for these expenses under the income tax law. In consequence, it will subject these benefits to a fringe benefits tax liability.

The estimated gain to revenue is $435 million in 1994-95, $240 million in 1995-96 and $240 million in 1996-97.

FBT rate of tax

This bill will amend the Fringe Benefits Tax Act 1986 to increase the current rate of fringe benefits tax from 48.25 per cent to 48.4 per cent. The increase will take effect from 1 April 1994 and will maintain the alignment of the FBT rate with the top marginal personal tax rate and Medicare levy rate. The increase reflects the increase in the Medicare levy rate, from 1.25 per cent to 1.4 per cent, on 1 July 1993.

The estimated gain to revenue is $9 million in 1994-95 and $8 million in 1995-96 and 1996-97.

Excess domestic travel

This bill will amend the fringe benefits tax law to impose fringe benefits tax on the amount of a travelling allowance received by an employee for travel in Australia which is in excess of a prescribed amount. The amount will be prescribed by regulation.

The income tax law will also be amended to disallow expenditure incurred by employees or self-employed persons on travel expenses (i.e. accommodation, food, drink, and expenditure incidental to travel undertaken in Australia) which are in excess of the prescribed amount.

The estimated gain to revenue is $60 million in 1994-95 and $45 million in 1995-96 and 1996-97.

Sales tax

Mr President, I now turn to the three sales tax changes proposed in the bill. The first change will increase all sales tax rates by one percentage point, with effect from midnight tonight. This is expected to raise $435 million this year and $585 million in 1994-95. A further one percentage point increase for all sales tax rates will come into effect on 1 July 1995.

The second change will increase the rates of sales tax on wine, also with effect from midnight tonight. Compared to beer and spirits, wine is lightly taxed. While it is presently subject to sales tax, it does not carry any excise.

It is proposed to increase the rate of tax on wine with an alcoholic content of greater than 1.15 per cent from 20 per cent to 31 per cent.

The rate of tax on low-alcohol wine, that is wine with an alcoholic content of 1.15 per cent or less, is to increase from 10 per cent to 21 per cent. Some low-alcohol wine is currently taxable at 20 per cent and its rate of tax will increase to 21 per cent in line with the proposed increase for all sales tax rates.

The gain to revenue from this measure is estimated to be $70 million in 1993-94, $95 million in 1994-95, $105 million in 1995-96 and $110 million in 1996-97.

The last sales tax change will vary the rate of tax applicable to luxury motor vehicles, also with effect from midnight tonight. Luxury vehicles are currently taxable at 30 per cent on their entire wholesale value. The current sales tax treatment results in a substantial pricing distortion: the addition of one dollar to the wholesale price of a passenger motor vehicle now priced at the threshold would increase the sales tax liability by $4873.

It is proposed to remove this distortion by applying a split rate of sales tax to luxury motor vehicles. Broadly, the ordinary rates of sales tax applicable to motor vehicles will apply up to wholesale luxury threshold. A rate of 45 per cent will apply to that portion of the wholesale value over the luxury threshold.

The gain to revenue from this measure is estimated to be $5 million in 1993-94 and $10 million in 1994-95, 1995-96 and 1996-97.

Full details of the amendments are contained in the Explanatory Memorandum being circulated to honourable senators.

Mr President, I commend the bill to the Senate.

  Debate (on motion by Senator Panizza) adjourned.