Chris Hayes (Werriwa, Australian Labor Party) Share this | Hansard source

I rise to support the second reading amendment moved by the member for Hunter, Mr Fitzgibbon. Generally, Labor is supportive of the provisions of the Tax Laws Amendment (2006 Measures No. 4) Bill 2006. We support the provisions of schedules 1, 2 and 3 of the bill, but I have to say that I do have concerns, which I will raise, with respect to schedule 4. That is something that I will return to later, but I would like to make some comments now about the other schedules.

Schedule 1 deals with the capital gains tax rollovers in the event of the sale of a property caused by a court order resulting from the breakdown of a marriage. This schedule is a necessary policy change that reflects the financial elements of marriage breakdown. The tax amendment in schedule 1 has been introduced so that the situation for both parties is taken into account when calculating how much of the property is capital gains tax free when a marriage is dissolved. The amendment clarifies the fact that marriage breakdown settlements do not give rise to capital gains tax liabilities.

Schedule 2 is aimed at addressing the possibility that a remerger of demerged companies does not trigger anti-avoidance provisions. The consolidation regime applies when two associated companies elect to be treated as a single entity for tax purposes. Companies can sometimes split or demerge. However, to protect against tax avoidance current law provides that major transfers of assets just prior to the demerger are ignored. This was to ensure that the demerger was not used to manipulate the cost-setting rules that value assets of the group and reduce tax. In this case the demerger would be unwound and the previous position apply for tax purposes. However, if the demerged entity, or parts of it, then remerge they would be captured by this integrity provision and the whole transaction would be unwound for tax purposes. However, the remerger is not tax avoidance and should not be part of the integrity measures.

The changes before the House modify the integrity rules to ensure that the remerger cannot be caught by this provision. While very few taxpayers are covered by these provisions, it is interesting to note that this is the 12th time that these measures have had to be redefined since their initial introduction. The government have tinkered with these laws over and over again and, hopefully, they have got them right this time so that the confusion in this process may be lessened or removed.

Tinkering has become the hallmark of this government when it comes to tax. It has tinkered with many tax laws over its decade in office. For a government that prides itself on reducing the levels of government intervention in the economy, it vigorously defends its position as the highest taxing government in Australia’s history. It is a government that has always talked about tax reform but has, quite frankly, all but managed to do nothing about it, particularly when it comes to introducing new measures. It sets about reforming taxes and does it by introducing new ones.

This government has set about reforming the Australian tax system and lowering the burden on Australian families by increasing the number of taxes and the amount of taxes that are collected. A cursory examination of its record on tax bears this out: this government have introduced and increased, as I understand it, 187 new taxes and charges over the 10 years it has been in office. From these 187 new taxes or charges, it has raised an extra $18.6 billion.

Before the members opposite try to tell us that this is GST revenue, the $18.6 billion figure that I quoted does not include the GST. As I am sure members opposite would be aware, the GST costs taxpayers about $40 billion a year, not $18.6 billion over the 10 years. This is a staggering result. When you do the maths, you work out that the Treasurer’s 10-year tax grab has raised almost $930 for every man, woman and child in this country. What is worse is: who is paying the tax?

The tax system presided over by this government is slugging low- and middle-income earners. Effective marginal tax rates have crippled household budgets of Australian families. While it is bad enough that they have to deal with the broken interest rates promise of this government, the effective marginal tax rates faced by single-income families on the average wage has increased to more than 50c in the dollar under this government. It has risen to a level where many families on the average wage are paying a higher effective marginal tax rate than a single person earning in the vicinity of $150,000 per year.

It is patently obvious that this government is the best friend that high-income earners have ever had and the worst enemy of middle Australia. There is no doubt that the time has come for a reform of Australia’s personal tax system. When you have a result where those who are on vastly lower incomes are facing higher effective marginal tax rates than higher income earners, you know there is something patently wrong with the tax system. The government’s approach of tinkering at the margins to satisfy various groups of voters—in marginal seats, presumably—coupled with the extension of welfare to middle- and high-income earners is starting to cause the problem that most people expected would emerge at some point in time. Low- and middle-income earners have missed out and will continue to miss out on tax relief under this government.

The government has set up new welfare payments and other rebates and refunds but it avoids giving real tax relief to middle-income earners. For its entire decade in office, this government has treated tax and social security payments as two separate things, either choosing to ignore or failing to realise the fact that they often come together, particularly when they meet in the average Australian household. They come together with many low- and middle-income earners and with devastating effect, causing high effective marginal tax rates. They come together to produce the worst possible incentive for increasing workforce participation.

Many of my constituents tell me that they wonder why they continue to work when they are often worse off financially by the end of the week. Even if you rely on grandparents, once you take out childcare costs, uniforms, transport costs and other necessities of the workplace, many families are right when they tell me that at the end of the week they are worse off than if they were not in work at all. It is a staggering position to have developed, particularly when it impacts on low- to middle-income earners; I do not think that it would be all that novel a position to them. I dare say, many members if they chose to go out and about in their electorates would probably find that it is a common theme amongst low- to middle-income earners across the country. Therefore it is about time that this mess was cleaned up. For far too long the situation has been allowed to persist to the detriment of low- and middle-income families in this country.

Under this government, if you are at the bottom of the income scale, you face the highest effective marginal tax rates and the lowest real chance of taking advantage of the loopholes that have been allowed to develop. When faced with such a system, it is little wonder that there are problems with workforce participation. How can anyone seriously expect low-income families to try and get themselves up the ladder when they are faced with oppressive effective marginal tax rates and a system in which they will, quite frankly, keep little additional income as a result of their earnings? The time has come for a serious look at personal income tax. It is about time this government got serious, as opposed to tinkering at the edges, and undertook some targeted reform within the tax system, particularly in terms of the system of transfer payments. Of itself, reform of the transfer payments system will not achieve the same reduction in disincentives and potential for increased participation in the workforce that reforms in the tax would, but it would nevertheless assist.

I now turn to the provisions of schedule 4 of the bill, which relate to non-resident capital gains tax. This schedule represents a major reduction in the capital gains tax base for non-residents and is expected to cost, I think, in the order of $65 million per year. Schedule 4 is both controversial and expensive. It is noted that the cost of these proposals needs to be considered in light of Australia’s relative attractiveness as a source of international capital. The measures involve a significant tax concession for foreign residents operating in Australia, mostly companies, by restricting the capital gains tax base to real property—that is, land and income derived from land. Capital gains on non-resident shares are therefore, as I understand it, now to be excluded. It is noted that the government has argued that this treatment is consistent with other OECD nations and certainly compliant with the OECD tax model treatment. The government has also argued that this approach is sought by other jurisdictions in tax treaty negotiations.

That said, there is certainly potential for the cost of this charge to grow significantly through time and there is concern that should also be expressed about some of the problems that may arise as a result of these changes. It is recognised that the basic principle of international taxation is that the host country taxes income that relates to operation in the host country, irrespective of where the company’s headquarters are located. Accordingly, income from operations conducted in Australia is taxed here. If a foreign company has a subsidiary with operations here, it pays capital gains tax. However, if the assets are held by an intermediary company then the claim by Australia to obtain the tax is, quite frankly, suspect—even if in reality the operator’s real operations are in fact conducted in Australia.

The Senate economics committee examined the provisions of this bill and its findings were handed down on 5 October. It would come as no surprise to anyone that the government senators arrived at the following conclusion:

The committee considers that the bill adequately addresses anomalies in Australia’s international taxation system as it relates to the treatment of capital gains tax and non-residents. The committee is convinced that the amendments to the taxation system will reap important benefits to the Australian economy and to the people of Australia.

Naturally, following such a glowing report, the committee recommended that the Senate pass the bill. One element that concerns me is the fact that the Labor senators in their additional remarks indicated that they had not received the analysis that they considered necessary to examine this bill thoroughly. As the Labor senators noted:

Decisions of this nature by the Parliament require the highest levels of analysis this country can afford. In this case, the Government has not put its argument with sufficient economic rigour.

The Labor senators went on to note:

Treasury officials have indicated that two amendments will be made to the Bill.

This is a disturbing trend—amendments upon amendments. That is what we have seen from this government on many occasions and this is just another example of that. Imperfect legislation presented for consideration and passage through this parliament is becoming the hallmark of the Howard government.

The government is getting sloppy when it comes to a number of tax bills. It gets the ones right that it introduces that either raise or introduce a new tax or charge, but it seems to struggle with the amendments to existing laws. I do not know if this is a result of a government that is trying to tread a fine line and not impact on any of its friends or, if that is not the case, that it is simply a lack of information being provided to senators or members on that side of the House who are considering the bill. However, the work and the analysis that should underlie any proposal coming to this parliament are not being done appropriately and accurately to justify the proper consideration of the matters at hand.

It is for this reason that the member for Hunter has moved his second reading amendment. It is in the interests of making sure that the right information and the right analysis is available to decision makers. While this might not be a bill that is foremost in the public mind and which the public would consider to be of particular significance, this bill will affect many people. It is yet another example of a government which is arrogant in its approach and sloppy when it comes to public policy and presenting detail in legislation for consideration by this parliament. It controls both the House of Representatives and the Senate now, and it exercises unprecedented arrogance, particularly in the way its members operate in considering matters which will impact across wide sections of the community.

The tax system, the level of taxation and the relative contribution of individual taxpayers will always be a source of debate, and there will be differing opinions. While there are taxpayers, there will be a debate about the level of tax and, quite frankly, this parliament should not shy away from it. However, this is a debate that must be based on good information and good analysis. Good information and good analysis does not seem to have been available when this bill was considered by the Senate and are certainly not contained in the bill or the supporting material that has been presented to this House. I hope that this is an aberration, but I have to say, as I made the point earlier— (Time expired)

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