Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I move:

(1) Schedule 1, page 13 (line 15), omit the heading.

(2) Schedule 1, item 12, page 13 (line 16) to page 14 (line 29), TO BE OPPOSED.

(3) Schedule 1, item 14, page 15 (lines 6 to 8), omit the item, substitute:

14 Application

The amendments made by this Schedule apply to income years starting on or after the day this Act commences.

This amendment goes to the whole issue of the retrospectivity of this legislation. There is one reason that the government is moving in this legislation here in the Senate today, and that is that it is concerned that the Australian Tax Office has acted contrary to the legislation passed by this parliament. The government is concerned that the Australian Tax Office has collected revenue which it was not entitled to collect according to the legislation that was passed by this parliament in years gone by.

The government's solution to this is to change tax laws retrospectively, going back all the way to 1 July 2004. That is very bad practice for a range of reasons that I outlined in my second reading speech to this bill. Fundamentally, taxpayers cannot be expected to have complied with tax laws that did not exist at the time that certain decisions were made that are relevant to the tax liabilities that those taxpayers are exposed to. It is very important for there to be certainty and predictability in the way our tax laws are administered on a day-to-day basis. Taxpayers have to be able to expect that they are only required to comply with the laws as they stand at the time that they make certain decisions that will have a tax consequence for them. If we can make changes eight years after a particular investment decision has been made, if a government can make a decision in 2012 which will essentially increase the tax liability in relation to decisions made in 2004, 2005 and 2006, where does it end?

At the end of the day, what we are saying is that it does not matter how wrong the tax commissioner gets it; the tax commissioner can have whatever extensive interpretation of the tax laws that he likes and he can manifestly stretch as far as he wants. But instead of saying, 'No, the tax commissioner should actually administer the law the way it was passed by this parliament,' and instead of saying, 'The administration of the laws passed by this parliament should be consistent with the intent of what was passed through this parliament,' all we are going to do here in this parliament every time the tax commissioner—or any other public servant for that matter—decides to go beyond what the legislation that was passed by this parliament intended is to fix these things retrospectively. We are going to make sure that the legislation plays catch up with whatever decisions a particular public servant has decided to make on a particular day.

That is not the way for our legislative processes to operate. That is why we have said, very constructively, that if the government's intention is for the tax laws in relation to transfer pricing to operate consistent with what is in this legislation and what should happen appropriately, then that change should be a prospective change. It should not be a change that is applied going back eight years. Now, the discussion has been had. We have had the debate here in the Senate and if it is the view of the parliament as a whole that the tax laws in relation to transfer pricing should be changed to reflect what is in this legislation, then everybody now understands what the circumstances are going to be moving forward from here. But people back in 2004 and back in 2005 could not possibly know that the Senate on 20 August 2012 would be having a debate where it wanted to change the tax laws all the way back to 2004 in relation to these sorts of matters. It is, quite frankly, a very bad way of progressing tax laws in this country.

Of course there is only one reason why this is happening, and that is because this government are short of cash. They are desperately casting around for more cash wherever they can get hold of it. Of course, they do not want to lose out on any cash even if they are not entitled to it, consistent with the laws as they existed at the time. This is why we are having tax grab after tax grab, and we are now having retrospective tax grab after retrospective tax grab.

As I said in my second reading remarks, the retrospective tax changes are bad, as a matter of principle, because they have significant implications for bargains that were struck between taxpayers who made every effort to comply with the prevailing law as it existed at the time a particular agreement was entered into. They can expose taxpayers to penalties in circumstances where taxpayers could not possibly have taken steps at the earlier time to mitigate the potential for penalties to be imposed, and they may change a taxpayer's tax profile, which in turn can materially impact the financial viability of investment decisions and the pricing of those decisions. And, of course, they do increase Australia's level of perceived sovereign risk.

Every government and every parliament has the prerogative of changing tax laws. We can have political debates about the merits or otherwise. This is a very high-taxing government. We know that. We know that the Labor Party cannot manage money. We know that they are always short of cash. We know that they will always come up with one new ad hoc tax after the other. But, ultimately, these are matters for the democratic process to sort out. We have elections, and hopefully at the next election people will vote for a low-taxing, low-spending, fiscally responsible government. We hope that is going turn out for the betterment of all Australians. But that is to legislate for tax changes moving forward.

When you have a government that retrospectively wants to put its hand into people's pockets—

Senator Farrell interjecting—

Senator Farrell is interjecting and has mentioned the GST. There could not have been more warning in relation to the GST. Whatever your views on the merits or otherwise, the GST was fundamental tax reform. Not only was it there for all to see before it was implemented but it was also announced before the then government went to an election. That was a government that felt so strongly about the merits of tax reform that it put it to the Australian people before the election—which reminds me of recent events in which the current Prime Minister, who makes a habit of this, went to the last election explicitly ruling out that there would be a carbon tax. 'There will be no carbon tax under the government I lead,' she said, only to turn around after the election and impose one on the unsuspecting Australian families and small businesses of Australia who will be facing increasing cost-of-living pressures and an increasing cost of doing business as a result.

But I am getting distracted by the interjections of Senator Farrell on behalf of the government. The fundamental point is this: Senator Farrell talks about the GST. The GST, whatever your views on the merits or otherwise of this substantial policy, was a best practice model of how to progress a piece of legislation in an accountable and democratically transparent way.

On behalf of the coalition I fundamentally object to this particular part of the legislation. The government is telling us: 'The tax office got it wrong in the way it has interpreted the tax laws in our land. The tax office, we believe, has erred in the way it has interpreted tax laws, and so we have, we believe, collected more revenue than we should have. The tax office has collected more revenue from Australian and other businesses than it should have, but rather than change the practice of the tax office we're going to say the legislation has got to be changed retrospectively.' That is not an appropriate way for government to act. If you want to encourage free enterprise, and if you want to encourage people to take risks, make investment decisions, invest in Australia, create jobs, create business opportunities and, essentially, help us grow our economy and create economic prosperity around Australia, then this is exactly the wrong way to go about it. Not only does this government put its hands into people's pockets via multibillion dollar new tax grabs moving forward, like the carbon tax, but it also puts its hands into people's pockets for events going back as far as 1 July 2004.

The vote for amendment (2), which I am moving, is going to be very interesting. I will be moving amendment (2) on behalf the opposition and I will then vote against it. I and the coalition will be voting against the printing of schedule 1, item 12, page 13, line 16 to page 14, line 29, because we do not want that particular part of the bill to stand as printed. I flag that should coalition amendment (2) be unsuccessful then amendment (1) will become redundant, and I will still seek to proceed with amendment (3) after that. With those few words—unless Senator Farrell wants to provide further provocations on behalf of the government—I conclude my remarks.

Don Farrell (SA, Australian Labor Party, Parliamentary Secretary for Sustainability and Urban Water) Share this | Link to this | Hansard source

I cannot resist that invitation. Very briefly, from what I understand, Senator Cormann's position is that the opposition does not disagree with the cross-border transfer pricing position that existed as it went back to 1982, and so for the vast bulk of the period of the Howard government. Nor does the opposition disagree with it going forward into the future. The dispute here is really about the question of the retrospectivity of this particular piece of legislation.

Senator Cormann is right: I did intervene to mention the GST. This was not to talk about the GST generally but to talk about the fact that in the Tax Laws Amendment (2006 Measures No. 3) Act 2006 the previous Howard government did, in fact, make six years of retrospectivity with respect to a particular aspect of the introduction of the GST. So this is not the first time a government—Liberal or Labor—has introduced retrospective legislation. It is done very much in the exception, but the government believes that this is one of those rare cases where it is appropriate in these circumstances to apply a retrospective approach.

Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

Two in two months.

Don Farrell (SA, Australian Labor Party, Parliamentary Secretary for Sustainability and Urban Water) Share this | Link to this | Hansard source

That is still rare, Senator Cormann. Given the vast number of bills that this government has introduced and passed since it came to power in 2007, that continues to be a very rare event. I indicate that the government does not support the amendment and will be voting in favour of the resolution.

Mark Furner (Queensland, Australian Labor Party) Share this | Link to this | Hansard source

The question is that amendment (2) on sheet 7261 stand as printed.

Question agreed to.

Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I refer to the same argument that I put in talking to amendment (2), which is that the change to the taxation arrangements in relation to cross-border transfer pricing should be prospective only. Of course this amendment—which would amend schedule 1, item 14, page 15 (lines 6 to 8)—seeks to omit that particular item and substitute an application arrangement where the amendments made by this schedule apply to income years starting on or after the date this act commences. We think it is good and appropriate practice for governments and parliaments to make changes to tax laws that are prospective and not retrospective, in particular in these sorts of areas that are sensitive to Australia's capacity to attract overseas investment. Attracting overseas investment is very important for us to continue to develop our economy to ensure we reach our full potential moving forward. With those few words, I commend this particular amendment to the Senate.

Mark Bishop (WA, Australian Labor Party) Share this | Link to this | Hansard source

The question is that amendment (3) on sheet 7261 be agreed to.

Question negatived.

Mathias Cormann (WA, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

In order to assist the Senate, I have not been calling for divisions and I will not be calling for a division on the substantive bill either. I place on the record, given that those very sensible and constructive amendments that the coalition has moved in relation to this bill were unsuccessful, the coalition will be voting against this bill. But to assist the Senate, I will not be calling a division.

The TEMPORARY CHAIRMAN: Thank you for that advice, Senator Cormann.

Bill agreed to.

Bill reported without amendment; report adopted.