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Wednesday, 24 June 2009
Page: 4098


Senator FIELDING (Leader of the Family First Party) (10:17 AM) —The Tax Laws Amendment (2009 Budget Measures No. 1) Bill 2009 sets out changes to the tax system and superannuation system that will see the government pocket $675 million. These changes will be felt by many families and will come as a blow to them. In particular, this bill will cause significant changes to the superannuation scheme and will have substantial consequences for future years. One such change is to the co-contribution arrangements which are presently available. Under the proposed changes the government will temporarily reduce the government’s superannuation co-contribution for eligible contributions made between 1 July 2009 and 30 June 2014. This will mean that low-to-middle-income earners who have in the past enjoyed government contributions of up to $1,500 to their superannuation will now be entitled to a maximum of $1,000 for voluntary contributions.

The contribution measures introduced under the Howard government were reforms which I believe put Australia on the correct path for dealing with the issue of our ageing population. It is no secret that in future years Australia will be faced with the problem of a larger non-working population and will need to find money to support them. A strong superannuation scheme will mean that more Australians will become self-sufficient and will not rely so much on pension payments from the government to get by. This will significantly reduce our future liabilities and leave more money to be invested in other important areas such as education, health and social services. The current reforms are therefore a step backwards from that design. They will reduce the incentives for low-income earners to save more money and invest in their future. They will ultimately result in greater costs to the government. However, I am mindful that these changes are only temporary and are necessary to help pull Australia out of the enormous debt which threatens to become a burden for future generations. Therefore, Family First will support these changes—with the understanding that they are not a reflection of the government’s long-term policy.

This bill will also see a reduction in the concessional contributions cap. These changes will have the greatest impact on high-income earners who currently use the generous superannuation rules to reduce their tax liability. Family First is not anti wealth. We do not believe in punishing the rich and taxing them so heavily that we reduce all incentive to achieve success. Family First believes that success ought to be applauded and rewarded. However, Family First also believes that those with a greater capacity to assist Australia should do so in times of need. And now is a time of need. When we are facing a massive deficit of $57 billion, we need to ask those who can afford to do a bit more to actually do a bit more. These changes will achieve some of this. The bill also contains changes to the taxation of income earned overseas by Australians. As it stands at the moment, Australian residents are exempt from paying tax in Australia on any income earned overseas where they have been engaged in continuous foreign service for a period of not less than 91 days. This is an important exemption which ensures that Australian firms can remain competitive when tendering for overseas projects that will involve the employment of Australian residents.

Australian firms, particularly in the mining and construction sectors, often employ workers for overseas projects on a net salary basis. This means that their wage is calculated after tax, with their expenses being paid for by the employer. Under the proposed changes, Australian employees will become more expensive to employ and, as a result, less attractive when compared to employees from other locations with lower tax rates or more generous exemptions for working abroad. This includes countries such as the US, the UK, New Zealand, Germany and many countries located within Asia. Family First is disappointed with these changes and believes they will have an unfair impact on Australians working for short periods of time overseas. As with the other changes to this bill, Family First also recognises, however, the need for tough decisions to secure our long-term future.

There are still two unintended consequences of this bill which Family First believes need to be rectified. As a result of the removal of this overseas income exemption, Australian workers employed overseas will have their tax automatically withheld by the Australian employer as well as by the country in which they are employed. In some cases this will lead to 85 per cent of their pay cheque going towards taxes. Withholding tax is currently payable in numerous countries within the Asia-Pacific region as well as in the United States and the United Kingdom. This means that Australian residents working in any of these countries will be affected. While these workers will be entitled to a refund for any tax paid overseas, they will only be able to recoup this money at the end of the financial year, in some cases a full 12 months later. Family First believes that this is grossly unfair and has included an amendment to that effect.

Under the amendment, the pay-as-you-go requirements would not apply to Australian workers overseas. This would mean that the tax would only be collected by the government where there is a shortfall at the end of the financial year when the tax return is lodged rather than taking up to 85 per cent of someone’s take-home pay. This will still result in the same amount of tax being collected by the Australian government but will ensure that workers living overseas are not double-taxed and then asked to wait 12 months to get their money back. The government has flagged to me that in such cases employers can apply to the Australian Taxation Office for an exemption to withhold this tax at a lower rate. However, this is not a good solution. This will create more red tape and additional administrative costs for businesses. Family First’s amendment therefore provides a more efficient and workable solution.

The government has also raised with me concerns that this amendment will affect what expenses will be taxable under the fringe benefits tax arrangements. This is correct. As it stands at the moment, an employee sent overseas by an Australian company and who has their medical insurance paid for by the employer is required to pay fringe benefits tax. This is paid by the employee in the country where the benefit is incurred. However, what the government is now seeking to do is double dip. It is asking employees to pay tax on their fringe benefits overseas and then asking the employer to pay the tax again on the benefit in Australia. This is unfair. No-one likes paying tax but collectively as a nation we accept that this is important in order that our country can function properly. However, few people would accept that it is fair to pay tax on the same benefit twice. This is wrong.

The government itself has accepted that this is a significant issue and has suggested that the Australian Taxation Office address this concern. The Senate Standing Committee on Economics, which conducted an inquiry into this bill, also recommended that measures be adopted to prevent double taxation from occurring. Now we are being asked to vote on a bill in the chamber—one which by the government’s own admission contains flaws—without seeing the solution which it proposes to introduce. This is not how good decisions of such importance should be made. It is incumbent on the government to present a solution before it asks us to lend our support to its measures.

Family First’s amendment is that solution. Family First’s amendment will result in a far more equitable system and warrants the full support of the Senate. Family First will continue to support the government in its efforts to tackle the enormous debt we are facing as a country. However, we will not write the government a blank cheque. At the forefront of our mind will always be whether the government’s actions are giving Australian families and businesses a fair go.