Craig Kelly (Hughes, Liberal Party) Share this | Hansard source

I am pleased to rise this afternoon on this rather hot Canberra day to speak on the Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016. I would like to start with some comments from the Governor of the Reserve Bank at a hearing of the Standing Committee on Economics about a week ago. I asked the governor a question about what we need for growth in the long term. I would like to quote a few passages from the governor's answer because they are very appropriate. He said, asking himself a rhetorical question:

… in the longer run, where does the growth come from?

He went on:

It cannot really be the case that we get long-run growth by just using monetary policy which, in the end, borrows from tomorrow's income to spend today. That cannot be a recipe for sustained, strong long-run growth. The sustained and strong long-run growth in living standards comes from innovation, risk taking, productivity et cetera et cetera. We have talked about all that, as you know, many times before, and I think the committee understands our view.

He went on:

That is where prosperity comes from. It does not come from manipulating the price of money. There is a place for doing that in a demand downturn but long-term growth does not come from that. We have been very clear about that.

The governor is exactly right. What grows our economy in the long term are innovation and increases in productivity. That is why the steps that this government are making to assist small business and to encourage and incentivise innovation are just so important. It is not because we are trying to give one group special favours over another group; it is the small business entrepreneurs of this country, those who put their capital on the line and take risks, who drive our long-term prosperity and innovation. We must have a taxation policy that does everything possible to encourage those people to start up new businesses. As the governor said, that is where our long-term innovation comes from.

We know that many of those businesses will not succeed. In fact, we know that most will not succeed. We know it will only be a very small percentage that will actually achieve and come up with some better way of doing something—as they say, to find a better way of building a mouse trap. It is only a very small number so we need to get as many businesses as we can to attempt to innovate. How can we do it?

We have seen the way the Labor Party did it and we have seen the results they got. You only have to look at the recent labour force statistics from the ABS. They make very interesting reading. In Labor's last year of government, January 2013 to January 2014—there was a change in government late in that year but there was no time to change policies and turn the track around—full-time employment in this country actually went backwards. There were 108,800 fewer people in full-time jobs at the start of 2014 than there were at the start of 2013. In fact, for the entire year, the increase in jobs was only 7,200—but that was because we had the offset of full-time jobs being converted to part-time jobs. There were a paltry 7,200 jobs created in that full year.

Let us have a look at what the coalition's record has been since then. We hear the member for Makin talking about the coalition's record, but let us have a look at what has happened since 2014. In the last two years—January 2014 to January 2016—250,000 jobs have been created. A quarter of a million new full-time jobs have been created in this country in the last two years—and, add to that another 198,000 part-time jobs. The record of this coalition government over the last two years has been 447,800 new jobs created in this economy. Most of those jobs have been in new start-up businesses, because we have given encouragement and incentives to those businesses. That is another thing that this bill does.

We have lowered the corporate tax rate from 30 per cent to 28½ per cent. As I have said before, I would like to double my bet that, when the taxation results are finally in for this financial year, we will get more taxation revenue from small business at 28½ per cent than was achieved in the previous year at 30 per cent. I know it may sound counterintuitive and that, if you reduce the rate of tax, you may get less tax, but that forgets incentives. I have history on my side here. Over the last 30 years, every single time this country has lowered the corporate rate of tax we have not got less tax revenue; we have got more tax revenue as a per cent of GDP. I will give you some of the numbers. In the mid-1980s when our corporate tax rate was 49 per cent, we averaged 2½ per cent of GDP in corporate tax. We dropped that tax rate from 49 per cent to 39 per cent. You would think it would result in less tax being collected if you are charging a lower tax rate, but taxation revenue went up. It went up to 3.1 per cent of GDP. In the mid-1990s, when Peter Costello came in, we lowered it from 39 per cent to 36 per cent. And what happened? Again, taxation revenue went up. We were getting 3.4 per cent of GDP back in corporate tax revenue. And exactly the same thing happened when we went to a 30 per cent tax rate. Over the last decade we have averaged 5.2 per cent of GDP of corporate tax revenue paid by companies. Every time we have lowered the tax rate, the tax take has gone up—and my prediction is that exactly the same thing will happen.

This bill will incentivise start-ups. Often when businesses start up they are not sure what the best corporate structure is for them. Should they be a sole trader? Should they be a partnership? Are they best to start up as a trust or a proprietary limited company? Under the current tax law there is a problem when you change from one entity to another. For example, a business might start up small as a partnership, have a lot of success and then decide that the best structure for them going forward might be as a proprietary limited company. But, under the current taxation laws, if they do that they are liable for capital gains tax on the capital gains that they have created on the value of the business. So that is a disincentive for them to start up in the first place and it becomes a disincentive again for them to modify their business to what is the best corporate structure for them. Very simply, we are removing that obligation for them to pay capital gains tax.

That brings me to the issue of capital gains tax, which was talked on at length by the member for Fraser. In question time today in this parliament we saw the economic illiteracy of the opposition and the economic threat that they pose to this country. As the Prime Minister said, if you remove one-third of buyers from a market, prices will go down. Yes, we want to work on housing affordability, but the worst thing we could do would be to implement a scheme to fiddle with negative gearing and see house prices tumble down. That would destroy confidence in the economy. And what is often forgotten is that the increase in housing prices is something that underwrites the capital for small business entrepreneurs to borrow against their own family home to start up a business. So, if Labor's plan were introduced, we would be destroying billions of dollars worth of wealth and we would be making it much harder for people who want to get into business, to have a go themselves, to use their own family home as capital. This would be one of the most detrimental and economically reckless policies that anyone could think of; yet it is the policy the Labor opposition are going to take to the next election—a policy that would drive down housing prices, smash confidence and destroy the ability of many people to get into business for themselves.

The other thing that needs to be commented on is the amendment moved by the member for Fraser, where he says:

… while not declining to give the bill a second reading, the House calls on the Government to make Australia's capital gains tax and negative gearing regimes fairer and more sustainable.

The member loves the words 'fairer and more sustainable'. I had a little bit of deja vu. The taxation changes and the capital gains tax changes proposed by the member for Fraser would bring Australia's capital gains tax in line with that utopia Venezuela! This brings me back to a statement from 2007 when members of the Labor Party and the Greens actually sent an invitation to Hugo Chavez begging him to come to Australia. This is what the invitation said:

We have watched developments in Venezuela with great interest. We have been impressed by the great effort that your government has taken to improve the living standards of the majority of Venezuelans …

... what Venezuela has been able to achieve in so little time will be a source of inspiration and ideas for many in Australia.

That is probably the source of inspiration for the member for Fraser. That letter, in 2007, was signed by a Democrats senator, an Australian Greens senator, an ALP national president, an ALP Speaker of a legislative assembly, another ALP senator, another Greens MLC—the list goes on and on, and it is a who's who of the Labor Party and the Greens. They all signed that.

We have seen what has happened in Venezuela through economically irresponsible policies. When they made that invitation, the Venezuelan bolivar was worth US50c. So two bolivars was worth US$1. Today, with the economically reckless policies and increasing capital gains tax—exactly what the Labor Party wants to do—that two bolivar note is no longer worth US$1; it is worth less than one sheet of toilet paper. This is the economically irresponsible policy the Labor Party wants to inflict upon our nation.

There is another issue that we need to tackle. To make sure that we give as much incentive as we can for people to start up new businesses, to try new things, to experiment, to innovate, to drive the economy in the long term and to create those jobs, we need to make sure we have the right competition policy in this country. There have been some reforms suggested in the Harper review, which, with respect, I think completely missed the mark. We know that the legislation that we previously had did not deal adequately with predatory pricing. That is why Peter Costello, the former Treasurer, agreed with the now Deputy Prime Minister Barnaby Joyce—then a senator—to introduce the Birdsville amendment to give us an effective regime against predatory pricing. Yet, under the Harper review, that gets repealed and we get this faux effects test. I call on my colleagues: please, look at this proposal very carefully. It is not an effects test; its effect is to substantially lessen competition. It is not what you think it is it; it is a Trojan Horse.

We need to do everything that we possibly can to maintain incentives and encourage small business to innovate, to take risks— (Time expired)

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