Andrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | Hansard source

Labor's position is to support this bill, which enacts two tax changes announced by the former Labor government. Schedule 1 amends the treatment of earn-out rights associated with the sale of a business to allow the holder to defer their capital gains tax liability until the accurate financial value of those rights is known. This measure was first announced in the 2010-11 budget.

Schedule 2 introduces a new withholding tax requirement for those purchasing Australian property from foreign residents. Purchasers would be required to withhold 10 per cent of the purchase price and pay this to the Commissioner of Taxation to assist in meeting the foreign residents' capital gains tax obligation. While the first schedule was announced by the former Labor government, the second schedule was first announced in the 2013-14 budget.

Labor will always support sensible revenue measures which improve the budget bottom line without harming vulnerable Australians. The Labor Party has a strong and ongoing commitment to bringing the budget back into balance by sensible measures, including sound revenue measures such as these. 'Treasurer 2.0', Scott Morrison, is on record saying Australia has a spending problem, not a revenue problem. Yet he is now canvassing a 50 per cent hike in the GST rate. Claiming spending is the problem and then proposing GST tax changes that hit hardworking families is dangerously out of touch with economic reality.

A suggestion to the Treasurer from this side of the House could be that he might get around to releasing the tax white paper promised to the Australian people within the first two years of the government. Instead the government launched its 'Re:think' discussion paper, and then after business and community groups had spent thousands of hours and millions of dollars putting together their submissions to the 'Re:think' discussion paper the entire process has been junked. Now who knows when we are going to get the tax white paper. Indeed a timetable for the green paper, which would normally precede a white paper, is still up in the air. The government is at sea on tax reform. Good tax reform is hard. It requires more than smoke signals and thought bubbles about jacking up the GST. The impact on business and consumers needs to be fully fleshed out.

Returning to the specifics of the bill, former Assistant Treasurer Nick Sherry said when proposing the changes in schedule 1 that the measure will make it easier to buy and sell businesses. Capital gains taxation on earn-out requirements should not add inefficiency to the marketing of business assets. Earn-out requirements are an efficient and regularly used way of structuring business or business asset sales. Such requirements are commonly entered into when the buyer and seller are not able to agree on a fixed price for the transaction because of uncertainty as to the value of assets such as goodwill. Say, for example, that I were to purchase a small business from the honourable member for Cook for $1 million. He has a cost base of $600,000 and thus makes a capital gain of $400,000. However, as goodwill is an intangible asset—and he would know that more than most—I agree to give him an extra $100,000 a year if sales exceed an agreed upon threshold. The total capital gain would then be calculated using this earn-out pay-out, backdated to the point of the original sale. A reverse earn-out agreement follows a similar logic. The honourable member for Cook would repay amounts to me if an agreed performance threshold is not met within an agreed time frame—an arrangement which the Australian people might well be interested in engaging in with the member for Cook if his performance targets continue to be as they have been over the last few months!

The compliance measure in schedule 2 of this bill would impose capital gains tax withholding obligations on the purchasers of certain Australian assets. Although foreign residents have been subject to taxation on capital gains made when disposing of a taxable Australian property, voluntary requirements meant compliance was low. Given the non-resident status of the sellers, this made compliance a particularly difficult task for the Australian Taxation Office.

Talking about the resources available to the tax office, I should note that Labor favours a stronger compliance regime, better transparency and an appropriately staffed tax office. We welcome the changes in schedule 2 but they are overshadowed by the slashing of 4,700 jobs in the tax office. It beggars belief that the government can usher in compliance changes announced by the former Labor government yet completely undermine the ability of the tax office to make sure this regime is monitored effectively.

As housing prices continue to rise in Australia's largest cities, so too will the number of eligible properties. This measure applies to properties worth more than $2 million, and there will be an increasing number of properties in that range on the market. When buying from a foreign resident, the purchaser will be required to pay the Commissioner of Taxation 10 per cent of the purchase price to meet a portion of the foreign resident's capital gains tax obligation. The purchaser may then withhold an equivalent amount from the seller. The withholding can be claimed as a deduction by the seller when completing the required income tax return. If they fail to do so, Australians have the comfort of knowing that at least a portion of the capital gains tax obligation has been paid.

When we were in office, Labor pursued significant responsible changes to Australia's tax regime, recognising that, in a complex and fast-moving business environment, government needs to adapt what we do to make sure the revenue base is sustained. In 2013 the then Treasurer Wayne Swan and Assistant Treasurer David Bradbury announced a $4.3 billion multinational tax package. Labor's package changed the allowable debt-to-equity ratio for companies claiming a deduction. It tackled offshore marketing hubs and closed other loopholes that let companies shift their profits offshore.

One of the coalition's very first acts on coming to office was to trash $1.1 billion of those tax changes, effectively giving a $1.1 billion tax break back to some of the world's biggest firms. Like a fish out of water, the Abbott-Turnbull government has flip-flopped on small business measures. Labor introduced an instant asset write-off scheme, allowing small business to immediately deduct the cost of new assets and equipment. Treasurer Hockey scrapped it and then brought back a larger but temporary measure that is due to expire next year. I suspect many of those firms that supply assets to small businesses are wondering what is going to happen to the pipeline of demand for their capital goods when the instant asset write-off suddenly ends at midnight on 30 June 2017. That is what happens when you structure policies based on the political cycle rather than focusing on the economics first.

From opposition, the Labor Party has announced a range of measures that improve the budget bottom line, without a regressive GST hike. Indeed our policy changes, amounting to some $70 billion over the course of the next decade, constitute the most significant package of economic measures to be proposed and costed from opposition in over 20 years. Starting with superannuation, Labor's superannuation changes will yield $14.3 billion in the first decade of operation. Superannuation tax concessions overwhelmingly go to those Australians who are in the highest income brackets, and it is those concessions that we are seeking to scale back for a fairer retirement system.

The government's own Financial System Inquiry found that 10 per cent of Australians receive 38 per cent of our super tax concessions, with a majority of concessions accruing to the top 20 per cent of income earners. Indeed, the top one per cent get a larger share of superannuation tax concessions than the bottom 40 per cent. We have superannuation tax concessions, because two positive externalities result from people who put money in superannuation. One is that they are less likely to draw on the age pension. The other is that there is a public benefit from a pool of national savings. But that second public benefit is considerably smaller than the first, and we should be careful about providing overgenerous tax breaks to people whose superannuation balances clearly indicate that they will never be in the range of applying for even a part pension.

Labor has proposed two significant ways of reining in superannuation tax concessions. The first is to reduce tax-free concessions for people with annual superannuation earnings of more than $75,000 during retirement. Earnings above the $75,000 threshold will attract the same concessional rate of 15 per cent that applies to earnings in the accumulation phase. So, it is still a good deal to have your money in super. Earnings above $75,000 in the retirement phase are simply treated the way all earnings are treated in the accumulation phase.

Our estimate is that about 60,000 superannuation accounts with balances of over $1.5 million will be affected. Capital gains will be grandfathered, and the policy will have no impact on the basic income test to the age pension. We will also remove the 10 per cent tax offset for the defined benefit superannuation scheme incomes above $75,000.

Secondly, we will reduce the higher income superannuation charge threshold. When in government, Labor introduced the higher income superannuation charge, which lowered the tax concession available to incomes above $300,000. Lowering the concessional rate to higher income earners better aligns concessions with those available to lower and middle incomes. We propose to lower the threshold from $300,000 to $250,000.

I note in passing that it is a key priority of Labor to see greater gender equity in the superannuation system. We noted with great disappointment an early decision of the coalition government to scrap the low-income super contribution, a measure that affects around three million Australians on low wages, two-thirds of whom are women. Anyone who is serious about gender equity in superannuation should have shaken their heads at this government's ill-conceived decision to scrap the low-income super contribution.

In the area of multinational tax avoidance, Labor has a fully costed $7.2 billion multinational tax package that contains a range of measures that are carefully calibrated to raise revenue without hurting growth. We propose to amend the current debt deduction rules. We will scrap the two rules that lack strong economic intuition and will keep the one that does. Under Labor's proposal, the worldwide gearing ratio should be the sole debt deduction test. That essentially says to companies, 'Look, if you owe a lot of money to the banks then you should be able to deduct a significant amount of money from your Australian operations, but if you don't owe a cent to the banks then don't think you can profit shift through internal debt.' Internal debt has a place, but invariably one notices, looking at the borrowing patterns of multinationals, that they tend to follow a pattern whereby the borrowings are made in the higher-tax jurisdiction and from the lower-tax jurisdiction. Better aligning our debt deduction rules is in line with work that has been done by the OECD and represents a measure that still provides business with certainty. The measure that Labor proposes to allow companies to deduct debt under already exists in our tax laws; we simply propose to get rid of two out of three of the debt deduction rules.

Labor proposes to better align Australia's rules on hybrid entities and instruments with tax laws in other countries. Currently some companies can effectively 'double dip' by claiming tax exemptions in one country and tax deductions in another, because some countries treat hybrid instruments as equity and others treat them as debt. Companies are looking around the world to see how different tax authorities behave, and it makes perfect sense that the Australian tax office itself should be allowed to look at how its counterpart organisations in other countries treat a hybrid instrument. The ATO should not be blind to the tax treatment of hybrid instruments in other countries.

Australia also needs a better resourced tax office. Stronger compliance measures proposed in Labor's package will ensure that we add significantly to the bottom line. By contrast to this government, which has cut 4,700 jobs from the tax office, severely hampering compliance efforts, Labor will make sure that the tax office has the resources it needs in order to crack down on multinational tax avoidance.

Disappointingly, the government has been dragging its feet on tax compliance initiatives. We welcome the government's introduction of the Common Reporting Standard for sharing tax information with other countries, but Australia is starting much later than the rest of the world. In the past two years Labor has repeatedly called on the Abbott-Turnbull government to join around 40 other advanced countries that will start exchanging information next year. By contrast, Australia, under the Abbott-Turnbull government, proposes not to begin exchanging information until late 2018 for the accounts of individuals and until 2019 for accounts of corporate entities, effectively putting off the exchange of information until the election after next. Labor believes that the exchange of information ought to happen as soon as possible—that Australia should be moving with the rest of the advanced world, not sitting up the back and dragging its feet. It is extraordinary to see the gulf between the government's rhetoric about tax reform and the reality of having produced only a tax discussion paper which now has been junked by the incoming Prime Minister and Treasurer.

Compare and contrast that to what Labor did in government. Labor gave every Australian a tax cut by raising the tax-free threshold from $6,000 to $18,200. It was a Labor policy that not only cut taxes but also reduced paperwork burden for around a million Australians. The government likes to talk about cutting red tape but what better red-tape reduction could there have been than tripling the tax free threshold and saying to a million Australians: you do not have to file a tax return. For a typical Australian it takes around eight hours to prepare their tax return. So, effectively, Labor's measure gave a million Australians an extra public holiday every year. Labor also delivered three rounds of income tax cuts to low- and middle-income Australians.

By supporting this bill, Labor are demonstrating that we are always willing to have a serious and constructive conversation about tax reform. The government are welcome to join us, but so far we have seen them failing to adopt Labor's proposals regarding multinational tax avoidance or rein in unfair and unsustainable superannuation tax concessions. We know that a majority of Australians oppose an increase to the GST. The majority of Australians recognise that a 50 per cent hike to the GST is not tax reform, that it is lazy—as a former Treasurer once said—'bang you over the head' tax reform. It is an attack on the household budget of low- and middle-income Australians and a measure which will not only worsen inequality but also hurt growth.

Australians will remember that when the GST was introduced in the year 2000 the economy almost slipped into recession. That is because household spending makes up about three-fifths of the Australian economy. Add to this the fact that we have got slipping consumer sentiment. We have had a 3½ per cent fall in the Westpac-Melbourne Institute Index of Consumer Sentiment. We have got jitters on global stock markets, with some losing around a tenth of their value this year. Australians will recall Japan's experience in 2014 of raising their consumption tax from five per cent to eight per cent and sending a fragile economy back into recession, as a result of a two per cent drop in consumption.

What is extraordinary about Treasurer Morrison is that he says that he wants to 'protect consumption'. Raising the tax on consumption is a funny way of doing it. You would have to think that, if you are going to raise the tax on consumption, you are going to get less consumption. That was the experience of Australia when we introduced the GST. It was the experience of Japan when they hiked the GST. The government like to say that they believe in boosting growth. We heard the member for Wannon on radio this morning saying that the key to tax reform is boosting growth. He is a GST spruiker, who is arguing that if we were to raise the GST and cut income taxes that would deliver a growth dividend. I would urge the member for Wannon to have a look at his government's own Re:think discussion paper. It is a discussion paper which looks at the growth drag of the GST and income tax and which finds that the growth drag, which economists call the deadweight cost of both those taxes, is about one dollar in five. The best estimate from Treasury is that, if you raise $5 of revenue from the GST, the cost to economic activity is about $1. If you raise $5 of revenue from income tax, the cost to economic activity is about $1. So I would like to know how the member for Wannon thinks there is going to be a growth dividend from hiking the GST and cutting income taxes. In fact, their own modelling suggests that that would have no benefit to growth whatsoever, but it would certainly worsen inequality. We know the proportional impact of the GST is nearly twice as high for the poorest fifth as for the richest fifth, and that is because the poorest fifth are not saving. In fact, they are often net borrowers, whereas the richest fifth are saving about a quarter of their incomes. So the GST is a regressive tax that does not boost growth.

We also have the small matter of compensation. We have the Treasurer claiming that the government's plan is not to increase the tax share. Taken literally, it means that not a dollar of increased GST revenue could be returned in pension increases or family benefit increases. If you take just one dollar of additional GST revenue and put it back through higher household payments, you have raised the tax share. So, if Treasurer Morrison is to be believed, the impact of a GST hike would be devastating for Australian pensioners, who would see the cost of many of the things they buy go up by five per cent but who would get not a dollar of household compensation. If that is wrong, if in fact Treasurer Morrison does not know what he is talking about and there are plans to compensate people on fixed incomes, then in that case do not go around the country telling us you are not planning to raise the tax share, because you clearly would. Either this government's GST rise will not compensate people on fixed incomes or it will increase the tax share. You cannot have both.

Jacking up the GST is not real tax reform. Hitting household budgets while refusing to make big companies pay their fair share is not real tax reform. It is simply going soft on the strong so you can go hard on the weak. The measures in this bill are measures that Labor can support, because in at least one case they are measures that originated under Labor. If only we had a government that was willing to apply this approach more broadly, engage with Labor over our fair and sustainable revenue and tax measures and recognise that we can make sensible and targeted cuts to the slush fund for polluters through not instituting the baby bonus, through cigarette excise, through multinational taxation and through changes to our unfair and unsustainable superannuation tax concession system. If we do that, we would be able to reduce inequality and raise growth—unlike increasing the GST, which would hit growth and worsen inequality.

In closing, I move the second reading amendment that has been circulated in my name:

That all the words after "That" be omitted with a view to substituting the following words:

" while not declining to give the bill a second reading, the House condemns this Government ' s failure to pursue real tax reform and instead hit families with a higher GST. "

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