Tuesday, 28 March 2006
Tax Laws Amendment (2006 Measures No. 1) Bill 2006
Consideration in Detail
Bill—by leave—taken as a whole.
by leave—I move opposition amendments (1) and (2):
(1) Page 39, after Part 2 of Schedule 2 (after line 10) insert the following heading:
Part 2A - Other business related costs
Income Tax Assessment Act 1997
(2) After item 50, page 39 (after line 10) insert:
50A Subsection 26-52(4)
Repeal the subsection, substitute
(4) An amount is not a bribe to a foreign public official if
(a) it is incurred for the sole or dominant purpose of expediting or securing the performance of a routine government action of a minor nature, and
(b) the value of the benefit was of a minor nature, and
(c) as soon as practicable after the loss or outgoing was incurred, the person made a record of the loss or outgoing and the record complies with subsection 70.4(3) of the Criminal Code Act 1995.
Over the past few months we have come to understand the real extent of the AWB scandal. We have learned that an Australian company, with or without the knowledge of the Howard government—that is yet to be determined by the Cole inquiry—paid money in contravention of UN sanctions. That money went to the coffers of Saddam Hussein and was no doubt used to invoke acts of terror. It is probably still being used to fund the insurgency movement in Iraq. We also learned along the way that a $300 million payment was claimed as a tax deduction. That means that ordinary Australians have unwittingly paid some $90 million as a contribution towards the AWB scheme. We do not know yet exactly how the payment was claimed—that, I hope, will be a matter for determination by the Cole commission—but we do know, as a matter of fact, that it is technically and legally possible that that deduction could have been claimed as a facilitation payment.
Labor’s amendments today seek to ensure that, in the future, that could never be the case. The amendments simply seek to align the tax act with the Criminal Code to ensure that, as the Criminal Code stipulates that the facilitation payment must be small in value, the tax act also stipulates a claim must also be small in value. Because of the existing inconsistency, we currently have the bizarre situation where a facilitation payment could be determined as an illegal bribe under the Criminal Code but still could be eligible to be a tax deduction. That is because the Criminal Code demands that facilitation payments be restricted to a limited value, whereas the tax act does not.
We cannot reverse what happened in the AWB case; we will certainly continue to pursue it, particularly to determine what the government knew and what role it played in the controversy, but we cannot change the events per se. However, we can do our best to ensure that this does not occur in the future—and that will take all sorts of efforts by government. But this is a simple, uncontroversial way of closing a very small loophole that can lead to some very big problems.
The OECD has declared that the Australian government is not meeting its commitments, its obligations, as a signatory to the international convention on bribery. These sensible and responsible amendments will assist the Australian government to meet its obligations under that international instrument. On that basis, we invite the government to support our amendments, which have been put forward in good faith. If the government sticks to its usual procedure of never accepting opposition amendments—and I am not suggesting for a moment that it would be the first government in our history since Federation not to accept opposition amendments—I invite it to take the amendments away and introduce them itself. The opposition would be more than happy under those circumstances to support the government amendments.
These amendments do not rule out tax deductibility for facilitation payments per se, even though an ethicist would probably argue that we should. Some would argue that allowing a tax deduction for so-called facilitation payments has the effect of perpetuating corrupt practices by Australians in overseas nation-states. Many would argue that that is not a responsible thing to be doing—that Australia is not acting as a responsible international citizen. However, the opposition acknowledge that facilitation payments currently are a fact of life and are required for some Australian companies to operate effectively and profitably in overseas nation-states, both to our benefit and often to the benefit of those other nations, so we accept that. We would not move to close off tax deductibility for facilitation payments without properly consulting industry and determining the extent to which Australian business would be affected.
All we are doing today is inviting the government to align the Criminal Code and the tax act to ensure that they are consistent and that the loophole does not continue to exist. (Extension of time granted) It is a loophole that allows very high payments of money to be claimed as facilitation payments. That is very clear on any close examination of the two acts that I have been talking about. We cannot allow the tax law of this country and, indeed, the Australian Taxation Office to apply one standard to the Robert Gerards and AWBs of the world and another standard to hardworking Australians and hardworking and struggling small businesses. The tax office’s aggressive approach to small business debt collection closed down about 2,000 small businesses in this country last year. I am distressed tonight to learn that perhaps it is about to do so once again.
Lance and Debbie Beckett run Callais Cleaning in my electorate. They owe the tax office a debt of around $300,000. It would only be about $145,000 if it were not for the impact of the punishing general interest charge. Admittedly, the Becketts have not been perfect in terms of their obligation to the tax office, but they have had some rough times. They have had a few problems with their accountant and the very nature of their business causes very slow payments to come, particularly from insurance companies. The Becketts are into cleaning-up operations, after natural disasters in particular. In fact, at the moment they are in Far North Queensland helping to deal with the aftermath of Cyclone Larry.
The ATO is their only debtor. The Becketts are paying the debt at a rate of $5,000 per month. They have recently secured the services of a new accountant, who believes that the former accountant made mistakes on previous tax returns. The new accountant believes that, with the lodgment of an amended assessment for the two previous tax returns, the debt could be significantly reduced. Therefore, I have asked the ATO to allow the Becketts to continue to pay the $5,000 each month until it has had an opportunity to determine the future of that tax bill.
Alas, I found out today that the tax office has not accepted my request and is calling in all of the debt owed by the Becketts. This will force them to the wall. I say that it is better to retain the 17 jobs involved and to give the Becketts an opportunity to pay that debt over a reasonable period of time—and certainly to give them an opportunity to have their debt reassessed—rather than to close them down, which will result in the ATO getting very little money at all. Their house is encumbered, and the tax office will lose a lot of money if it continues to pursue the Becketts in this way. I have made representations to the tax office per se, but I will be writing to the tax commissioner asking him to have another look at the case of Callais Cleaning, which is Cessnock based, and for the tax office to be more reasonable in its approach.
I know that the tax office is under pressure following the Vos report, which indicated that small business debts to the tax office have been spiralling upwards, but we cannot relax discipline. The ATO cannot become the lender of last resort. The worst thing we could do for small business is relax the discipline too much. That would only cause small businesses to ramp up more debts and see more of them in trouble. But I think this is a case where the ATO is being overly aggressive. I think we have seen a few of those cases of late. So again I am making a last-ditch appeal to the tax office not to pursue the Becketts in this way, not to call in all of the debt by the end of March this year, but to have a little bit of compassion and commonsense and allow the Becketts to continue. They have been trading for decades. I have known these people my whole life; they are hardworking and responsible people, and I think they are worthy of a sympathetic hearing. I commend the amendments to the House.
I will address specifically some of the issues that were raised by the member for Hunter in relation to the two amendments that he has moved to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006. It needs to be pointed out that the government has adopted the OECD’s 1996 recommendation that member countries deny tax deductibility for bribes made to foreign public officials. This comes on top of the key strategy of making it a criminal offence to pay bribes to foreign public officials, part of the OECD’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which came into force in this country on 17 December 1999.
In October of this year, Australia will respond to the OECD’s working group on bribery on how recommendations in its January 2006 report, which examined the convention’s application, have been addressed. It is important to note that the Attorney-General has carriage of the response to the OECD report. As to whether or not the law in relation to facilitation payments is aligned, the OECD report itself noted—and I put it on the record:
The ATO believes that the definition of “routine government action” under … the Income Tax Act, which is identical to the definition under … the Criminal Code, is sufficient support to restrict facilitation payments to those of a minor nature. It is the position of the ATO that due to the definition of “routine government actions” of a minor nature, as specified under the Income Tax Act, it is not possible that a payment in order to obtain such an action could be anything but “minor”.
Moreover, the ATO’s Deputy Commissioner, Serious Noncompliance indicated at the recent estimates hearings that, in practice, the income tax laws and the Criminal Code have the same requirements.
It is unfortunate that this debate on the government’s very serious attempts to provide the support that business, both small and big, needs to compete in the modern environment has been tainted by the political moves of a desperate opposition. This issue in relation to AWB has primarily been driven by Mr Rudd, the member for Griffith and shadow spokesperson on foreign affairs, in some vain attempt to put himself forward as a leadership candidate. He puts himself forward at a time during which the Leader of the Opposition has been the most ineffective in his period in public life. It is unfortunate that this debate is being used as a political option for the Labor Party. The member for Hunter should be ashamed of the tactics that the member for Griffith has put him up to. As such, the government rejects the amendments.
That the amendments (Mr Fitzgibbon’s) be agreed to.
Bill agreed to.