Chris Bowen (Prospect, Australian Labor Party, Assistant Treasurer) Share this | Hansard source

I am glad to have this opportunity to discuss this in the House. It is an opportunity I thought might come a little earlier. I thought the opposition were so cranky about this that sometime in the last two weeks I might have got a question, and I would have been able to answer it. I would have been able to put some of these things on the record. I was sitting there, on my spot down the end of the front bench, waiting and hoping for a question from the member for Casey. Alas, I waited in the forlorn hope that he would somehow get a question through the tactics committee. I thought he might get one up on Monday. Then I thought I might get one on Tuesday. If the opposition really were angry about this, if the opposition really understood and cared about this, they would at some point have asked me a question in question time, but there was nothing—until Wednesday, two weeks after the budget, we get an MPI. At least now we have the opportunity to put some of the issues on the table, to put on the table some of the background and the context to the government’s position.

There is an important obligation on every government, regardless of its party, to protect the tax base and to ensure that everybody is paying their fair share of tax. It is important that, while we continue to support employee share ownership and all the schemes that can have good benefits in the workplace—and I think that would have bipartisan support—we also ensure that they cannot be manipulated in a way that facilitates tax evasion. It would be irresponsible for the government to ignore the advice of the Australian Taxation Office and the Treasury that there are serious compliance issues with the tax treatment of employee share ownership schemes.

A number of groups have been in discussions with the government and made public comments about the government’s measures. Most of these groups—not all, but the majority—have acknowledged the government’s concerns. They have said, ‘Yes, we think there is a real problem here.’ Some of them have said: ‘This should have been fixed a long time ago. Yes, there are real integrity issues. Yes, it is good that you are dealing with them. Can we have a talk with you about the way you deal with them?’ The sensible and practical thing for the government to do is to listen to those concerns and to say to those groups: ‘We won’t walk away for a second from the objective of ensuring that everybody pays their fair share of tax. We won’t walk away from that at all. But we are more than happy to sit down with you and talk through the detail and see if there are ways that your concerns can be assuaged, see if we can deal with your issues in such a way that meets the government’s objectives but puts your mind at rest.’

So we have had, over recent years, a very serious loss of tax revenue from people being paid some of their salary in shares, deferring a tax on that income and either never declaring it or cutting their tax in half by declaring it only as capital gains and not as income. I thought I might share with the House a couple of case studies. Obviously I cannot go into individuals’ details. That would be most inappropriate. But here are a couple of case studies from the ATO. I stress that these are just snapshots of a couple of cases. One person acquired options in the 2004 income year. The taxpayer did not elect to be taxed upfront, instead preferring to defer any tax liability to a future time. In the 2005 income year the taxpayer exercised some of the options and immediately sold the shares from that exercise. The taxpayer did not include any discount from the exercise of the options in their tax return for that year. Instead, the taxpayer incorrectly included a capital gain in their tax return for the 2005 income year and applied the discount. An ATO audit found that the extra tax payable from that one individual was over half a million dollars.

Here is another one. One taxpayer acquired options in the 2002, 2003 and 2005 income years. The taxpayer deferred, as the law allows, any tax liability to a future time. And, in the 2004 and 2005 income years, the taxpayer exercised some of the options but did not include any of the discounts from the exercise of the options in the tax returns and did not pay any tax on those discounts. In the 2005 income year the taxpayer ceased employment and exercised all the remaining options. Again, the taxpayer failed to pay the tax owing. A tax office audit revealed that the additional tax payable for this individual was over $440,000.

These are just two case studies showing the House the extent of the potential tax loss. That is $1 million from two people. I share with the House this fact: eight per cent of the 1,300 taxpayers examined under tax office programs focusing on wealthy Australians had tax shortfalls relating to employee share schemes. The tax office advice to the government is that the loss to revenue is very significant indeed and over the forward estimates period could well add up to many hundreds of millions of dollars.

We have a real integrity issue here. It is an issue that the government would be negligent to ignore. But, at the same time, we are supporters of employee share ownership schemes. Without walking away from the central tenets of the measure—the central objectives of the measure—we have recognised that there might be ways that these could be better addressed. There might ways that, by working with the industry, we could deal with some of the genuine concerns that have been raised. This is far from the shadow minister’s characterisation that we have arrogantly refused to listen, that we have arrogantly shut down the debate and that we have refused to acknowledge that there are any issues. Quite the contrary—we have said publicly on several occasions that we are happy to work with the sector to try and work through their concerns.

The alternative would be to refuse to recognise that perhaps the measure might be improved. The alternative would be to arrogantly barrel on and say: ‘We are not listening. No changes. You can forget about.’ Or it would be to arrogantly refuse to meet with the industry or with the sector and to allow the uncertainty to drag on for months. I have a feeling that that is perhaps what the Liberal Party would have done in the same situation. How do I know that? It is because they have form on this.

In October 2007 my predecessor in the role of Assistant Treasurer, the honourable member for Dickson, made an announcement. He announced major changes to the tax treatment of scrip for scrip takeovers. The member for Lindsay would remember it well. The then Assistant Treasurer announced these changes, and his objectives, I must say, were good. He was cracking down on tax evasion. I would give him my 100 per cent support—there was no question that his motives were welcome. But he made a mistake. The laws were poorly crafted. There were unintended consequences from the member for Dickson’s measure.

The operation of capital markets in Australia was fundamentally changed. Takeovers, which are important for economic efficiency, stopped in their tracks. Expert commentators said that up to $28 billion worth of takeovers were scrapped because of the member for Dickson’s mistake. Now, we all make mistakes. I am not critical of the member for Dickson for that. He was trying to stop tax evasion, and he had my support in trying to stop tax evasion.

But what did he do? Did he acknowledge that maybe it could have been done better? Did he acknowledge that perhaps there had been an error? Did he acknowledge that they had rushed in and made mistakes? No, he arrogantly refused to acknowledge that and they barrelled on. And what did they do? Frankly, they left it to me to fix. They waited for the election. The new government had to come in and I had to work through a better law with the industry, with the Treasury and with all affected sectors to achieve the objectives that the member for Dickson was correctly trying to achieve but had bungled. He had got it wrong. As I say, my criticism is not of the member for Dickson for getting it wrong. I do not criticise him for trying. My criticism is that he arrogantly refused to acknowledge that perhaps it could have been done better. My criticism is that he allowed months of uncertainty and that he stopped takeovers for months—$28 billion worth of takeovers because of the member for Dickson’s bungled policy.

If we are going to have a fair dinkum debate, let us have a look at these two case studies. In both case studies, the government is trying to crack down on tax evasion. They are very laudable efforts. In both case studies, the government is saying, ‘We want to make sure everybody is paying their fair share of tax.’ In case study No. 1, the member for Dickson’s exercise, there are unintended consequences arising and mistakes are being made. And he is arrogantly refusing to recognise it and sit down and work through the issues with industry. He is arrogantly refusing to acknowledge that perhaps it could have been done better. In case study No. 2, we have this government saying, on the advice of the ATO: ‘We have a serious integrity issue here. We have to make sure that people are paying their fair share of tax. We have to ensure that workers who don’t have access to employee share ownership schemes aren’t subsidising those who do.’ That is what this government did.

We have sat down with industry in meeting after meeting over the last week or so and said: ‘Okay, tell us your concerns. We will work through them with you. Perhaps we could change the way we implement the measure. Perhaps we can do some finetuning. Perhaps we can adjust. Perhaps what we can do is achieve our objectives in a slightly different way.’ And we do not mind admitting that perhaps we could calibrate this measure better. That is the difference between the Liberal approach and the Labor approach. That is the difference between doing things the right way and the wrong way. So let’s not have lectures from those opposite about not understanding business or not understanding that things need to be fixed when there are unintended consequences. Let’s not have the member for Casey saying that this just shows that the Labor Party does not know how business works, because the opposite is the case.

What this case study and the member for Dickson’s case study show is that we are more than happy to sit down with business and work through issues. The member for Casey called the Labor Party’s approach the ‘hatred’ of employee share ownership schemes. He said, ‘You hate these things and you do not understand how business works.’ There are a few little problems there in the member for Casey’s narrative. It was the Keating government that established employee share ownership schemes. It was the Keating government and, in fairness, the Howard government—

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