I rise to oppose the government's minimum tax on discretionary trusts and the associated tax reform legislation before the House. These bills raise a fundamental question about our economic future: do we want a country that encourages Australians to work, save, invest and build businesses? Treasury estimates around 350,000 active small businesses operate through discretionary trusts, with some 130,000 expected to require significant advice about restructuring on making an election, yet the government has chosen to fundamentally change the taxation of these arrangements.

A family trust is not a tax loophole. It's a legal structure, and the existence of a trust is not evidence of tax avoidance. Across Lyne, families use trusts to operate businesses, hold assets, manage investments and plan for future generations. For many, establishing a trust is not primarily about minimising income tax. It's about asset protection, risk management and succession planning. Consider a family running a building business. Construction involves significant commercial risk, contractual disputes, unexpected liabilities, insolvencies elsewhere in the supply chain and fluctuations in cash flow. A properly structured trust, often alongside a company, can help separate certain family assets from commercial risks. That protection is not absolute, but managing risks through appropriate legal structures is sound commercial practice.

Trusts also allow families to respond to changing circumstances. One child might work in the family business, another might have a disability and another might experience financial difficulty or marriage breakdown. The flexibility of a discretionary trust allows the trustee to respond to those circumstances while preserving the underlying assets. That is not tax avoidance; that is responsible financial planning. Indeed, the government's own explanatory memorandum acknowledges that trusts are used for asset protection, succession planning and legitimate commercial arrangements. Yet, from 1 July 2028, the government proposes to subject relevant discretionary trust income to a minimum tax of 30 per cent. The Treasurer argues that that is necessary to align the taxation of income from capital more closely with income earned from work.

But there is a fundamental difference between wages and returns generated from savings or investment and the assumption of financial risk. When someone earns wages, they are compensated for their labour. When someone invests capital in a business, that capital is at risk. They may lose their investment, work for years without drawing a proper salary or inject more personal savings just to keep the business operating—and often those savings come from income on which tax has already been paid. Of course investment returns should be appropriately taxed, but it does not follow that income from capital should always be taxed at precisely the same rate as wages.

On this point, the Treasurer might benefit from revisiting the work of former Treasury secretary Dr Ken Henry. In October 2009, while leading the comprehensive review of Australia's taxation system under the Rudd Labor government, Dr Henry delivered a speech titled 'Towards a better taxation of savings'. He explained why taxing investment returns in the same way as wages could produce very different economic outcomes. Part of an investment return compensates for inflation rather than representing a genuine increase in purchasing power. Dr Henry demonstrated that a nominal tax rate of 30 per cent could produce an effective tax rate of approximately 51 per cent on real investment returns under his illustrative assumptions. He also discussed economic research, questioning whether identical rates of taxation on capital and labour were optimal. This was a Treasury secretary leading one of Australia's most comprehensive taxation reviews under a Labor government. Henry was not arguing that capital should escape taxation; he was explaining that taxation has consequences for savings, investment and future economic growth. The Treasurer and this government have conveniently ignored the advice of Dr Henry, instead gaslighting Australians with this perverted version of economic theory.

There is another flaw in the government's argument: a marginal tax rate is not the same as an average effective tax rate. A worker earning $80,000 does not pay 30 per cent on every dollar; they benefit from the tax free threshold and progressive tax brackets. Yet relevant trust income would face a 30 per cent minimum, even where the ultimate individual beneficiary would otherwise have a substantially lower effective tax rate. The proposed nonrefundable offsets do not necessarily restore that benefit. The problem becomes more serious with corporate beneficiaries. Where trust income is distributed to an individual, a tax offset can recognise tax already paid by the trustee, but corporate beneficiaries do not receive the same offset. That creates the potential for the same income to face taxation at the trust level and again in the company, producing a combined impost of up to 60 per cent in some arrangements. Tax should not multiply simply because income passes through legitimate business structures.

The government offers affected businesses three alternatives—pay the minimum tax, restructure into another entity or elect to restrict the flexibility of their family trust. Restructuring may qualify for Commonwealth income tax rollover relief, but that does not automatically remove state stamp duty. The government's impact analysis cites estimates of between $36,590 and $55,000 in duty on a $1 million transfer, depending on the jurisdiction. Master Builders have also warned of substantial additional tax liabilities and restructuring costs for family construction businesses. At a time when Australia desperately needs more homes, imposing additional costs and uncertainty on the businesses building them makes little economic sense.

Then there is the government's alternative—what is called an excluded election trust. An eligible existing trust can avoid minimum tax by nominating beneficiaries and specifying the proportions of income and relevant earnings each is to receive, but those proportions must then be followed in future years to preserve the exemption. A family making this election in 2028 is effectively being asked to decide how trust income will be allocated in 2038, 2048 and potentially beyond. What about children who are not yet born? What about grandchildren who may one day need support? What happens when a child develops a disability, experiences serious illness or encounters financial hardship? There are limited provisions allowing nominated beneficiaries to change following death or relationship breakdown but no general freedom to revisit allocations simply because a family's circumstances change.

The inconsistency in the government's approach to fairness is remarkable. When defending its decision to reduce the private health insurance rebate for Australians over 65, health minister Mark Butler argued that two neighbours on the same income should receive the same rebate regardless of age. The government says that is intergenerational fairness. Yet imagine two siblings. One is born before the family trust election is made and included as a beneficiary; the other is born several years later. Under the proposed rules, that younger child cannot simply be added to the nominated allocation on equal terms without potentially jeopardising the election. When it comes to private health insurance, Labor says age should not determine how people are treated, but, when it comes to family trusts, the timing of a child's birth can affect their family's ability to provide for them. Where is the consistency in that?

The consequences of departing from the election are severe. The trustee can become liable for the top marginal tax rate plus the Medicare levy on the trust's net income for that year. The 30 per cent minimum regime then applies in subsequent years, and the election cannot simply be made again. A concession that requires families to sacrifice their capacity to respond to future generations is no meaningful substitute for a genuine discretionary trust.

Estate planning lawyers have also raised concerns about existing wills. Many testamentary trusts have been drafted to include broad classes of possible beneficiaries, allowing families to respond to circumstances after someone dies. But, under this legislation, a testamentary trust established from 1 July 2028 may lose its exemption if its beneficiaries include companies or other trusts, even where those entities never receive a distribution. What happens to someone who has developed dementia and no longer has the capacity to amend their will? Tax reform should not leave families wondering whether arrangements established in good faith will still protect their children after they are gone.

The government also points to its exemption for primary production income, but that is not an exemption for every business associated with agriculture. Contract harvesting, shearing services, farm accommodation and certain rental income may fall outside the exemption. Regional families who diversify to manage commercial risk deserve clarity about how their arrangements will be treated.

Treasury estimates average additional regulatory costs of $141.5 million annually over 10 years. That money is diverted into compliance, accounting advice and restructuring rather than productive investment, and significant administrative and integrity provisions remain to be settled. Businesses are being asked to make long-term decisions without having the complete rules before them.

Now, alongside these measures, the government brings forward the Treasury Laws Amendment (Tax Reform No. 4) Bill 2026. This legislation exposes another contradiction in the Treasury's approach. Having removed the general 50 per cent capital gains discount for most assets, the government now proposes to restore that discount for investors in certain qualifying innovative businesses. Why? Because it recognises that startup investment is risky, entrepreneurs need capital and higher capital gains taxation can discourage investment. But those same economic principles apply to the family builder, the regional manufacturer and the small-business owner who has invested everything in their enterprise. Why should the incentive to take commercial risk depend on whether a business satisfies a government definition of innovation?

The proposed concession is confined to qualifying young companies. It involves an innovation test and additional compliance obligations. Treasury estimates the resulting regulatory costs at $17.2 million annually. I support innovation, research and development and the availability of venture capital, but investment incentives should be designed around sound economic principles, not an increasingly complicated collection of selective exemptions. The Treasurer is trying to repair some of the consequences of his broader capital gains tax changes for a narrow class of businesses while leaving others exposed.

The Treasury Laws Amendment (Tax Reform No. 4) Bill also retains a partial fringe benefits tax concession for eligible electric vehicles. The government's own review has identified increasing costs and benefits concentrated among higher income earners. The coalition's position is to end these concessions rather than continue subsidising particular vehicle choices through the tax system.

There is also a broader issue about how tax policy is being developed. The government provided just 23 days for consultation on the trust proposals in July and 15 days in September. The draft Treasury Laws Amendment (Tax Reform No. 4) Bill was also subject to a shortened consultation period. Parliament is being asked to consider complex changes with substantial consequences for business structures and investment. What justifies this haste? The trust tax is not scheduled to commence until July 2028. The coalition will seek to separate the trust tax from the other measures in Treasury Laws Amendment (Tax Reform No. 3) Bill so parliament can vote on it independently.

We support the transitional superannuation relief in schedule 6 and do not oppose the corrective measures in schedules 4 and 5, notwithstanding their remaining shortcomings. We oppose the trust tax and will seek a 12-month delay if the government refuses to withdraw it. We also oppose the Treasury Laws Amendment (Tax Reform No. 4) Bill because of the broader capital gains tax framework it seeks to patch and unresolved problems within the bill. The coalition has committed to repealing the discretionary trust minimum tax if it becomes law.

I believe in a fair and progressive tax system. I support effective action against artificial arrangements designed to avoid legitimate tax obligations. But Australia already has extensive anti-avoidance provisions. Where deficiencies exist, they should be addressed directly. The answer to inappropriate tax avoidance is to target inappropriate tax avoidance, not to penalise legitimate business structures because some taxpayers misuse them. There is a fundamental difference between closing a tax loophole and penalising a legitimate business structure. Small business should be backed, not billed. For those reasons, I oppose these bills and urge the House to reject them.

(Quorum formed)