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

Finally, at last, the government has acted on the concerns of industry, state governments and those on this side of the House in relation to infrastructure financing. It has been a long wait but finally we are here. Schedule 1 of the Tax Laws Amendment (2007 Measures No. 5) Bill 2007 at long last deals with section 51AD and division 16D of the Income Tax Assessment Act. I will be commenting on schedules 1, 6, 7, 8, 10, 11 and 12 of this bill. Schedules 2, 3, 4, 5 and 9 are all sensible and non-controversial matters that the opposition will support, and I will not be detaining the House by dealing with them.

As I said, I will deal with schedule 1 first. In 1999, the Ralph review said this about section 51AD and division 16D:

Section 51AD has a severe impact where it applies because all deductions are denied to the taxpayer but the associated income is still assessable. It has been continually criticised by State Governments and infrastructure providers for its severe impact where it applies and the uncertainty it creates. Section 51AD has become even more problematical in recent years because of increased levels of privatisation and outsourcing of government services which were not contemplated when it was first conceived.

The review went on to say:

The Review recommends that section 51AD be abolished, as part of a package of reforms relating to tax exempt leasing. The Review believes that the severe treatment of arrangements that are currently subject to section 51AD is unnecessary. The Review also believes that, providing appropriate structural measures are in place, leases in similar arrangements involving tax exempts should not be treated differently simply because they are financed using non-recourse finance.

It is not hard to see why the Ralph review came to that conclusion. The Australian Council for Infrastructure Development, AusCID, which has now been subsumed by Infrastructure Partnerships Australia, said this to the review in 1998:

For well over a decade, Section 51AD of the Australian Income Tax Assessment Act has been a source of considerable difficulty, delay, frustration and unnecessary cost to private infrastructure investment in Australia.

                  …              …              …

S.51AD unnecessarily delays projects, adds significant costs and reduces the community benefit from major private sector investment in infrastructure.

AusCID went on to give examples of infrastructure projects which have been delayed because of the operation of section 51AD: the New South Wales Southern Railway or the airport line, the Eastern Distributor and the Brisbane airport line—three examples 10 years ago which the peak body relating to infrastructure in this country pointed to as being substantially delayed and causing confusion as a result of the operation of section 51AD. What did the government do in response?  The then Assistant Treasurer and Minister for Revenue, Senator Coonan, announced on 14 May 2002 that the government would implement changes to reform section 51AD and division 16D and the taxation of treatment of asset-financing arrangements with tax-exempt entities. Senator Coonan said on that date:

Further consultation on these issues will be undertaken through the course of 2002-03 and it is expected that legislation would be introduced in the Autumn 2003 sittings.

In 2003, draft exposure legislation was released for comment by interested stakeholders. On 26 June 2003 Senator Coonan stated:

These provisions are in urgent need of reform ... The Government … is committed to its early introduction into Parliament in the spring sittings, 2003.

I would hate to see something that was not urgent. I would hate to see something that the government did not really care about. It said that it was urgent in 2003 and it would legislate for it in 2003. It is now 2007 and we are debating it today. I note that the explanatory memorandum for this bill under the heading ‘Background’ claims:

This measure was announced in the then Minister for Revenue and Assistant Treasurer’s Press Release No. 081 of 13 September 2005.

Not really. This measure was in fact announced by the former Assistant Treasurer, the one before the previous one—two Assistant Treasurers ago—in 2003. The explanatory memorandum is quite cute and is arguably inaccurate.

I do acknowledge that this is a complex area. I do acknowledge that the first draft legislation released by the government was unworkable and needed to be reworked. But there is simply no excuse for the length of delays that we have seen. We have both sides of the House agreeing that there is an infrastructure problem in this country, we have every industry and business group in this country pointing to the infrastructure bottlenecks as one of the biggest economic challenges facing this country; yet one of the obstacles to infrastructure formation in this country has been the operation of the Income Tax Assessment Act. The government admitted in 2003 that it was urgent and simply has not done anything about it for four years. It simply has refused to implement this change.

In Senate estimates, Labor senators at my request asked Treasury officials why this had taken so long. We were told that there were two answers. First, it was complex. We accept and agree with that: it is complex and we do not expect it to be done overnight. Second, it has not been given the requisite amount of resources. The government has simply not considered this to be an important reform—and there we differ. We regard this as a very urgent and necessary reform and we will support it today—in fact, we think it should have been done years ago. We think this reform is long overdue and the economy and infrastructure formation in this nation has suffered as a result. A number of those submissions to the Senate Standing Committee on Economics inquiry into this bill noted the delay. The Australian Chamber of Commerce and Industry—which is not always on a unity ticket with this side of the House—said:

• ACCI is disappointed that it has taken some time to develop new rules for PPPs. It is possible that some infrastructure projects may have been delayed because the old rules for PPPs were punitive.

It is simply not good enough, given the constraints in our economy and given that both sides agree that infrastructure has been a problem, for this legislation to have taken so long. The second reading amendment I will be moving at the end of my contribution notes that and condemns the government for the delay. It is better late than never and the Labor Party does support it.

The changes will reduce a significant hurdle to infrastructure projects which Australia desperately needs. This measure should speed up the operation of projects, reduce financing risks and increase infrastructure investment. I am not convinced that this bill is perfect, and I would not rule out amendments to it in the future, but because it has taken so long I am very reluctant to move substantive amendments at this time. In particular, I note the concerns expressed by some about the limit of 55 per cent on non-recourse debt for offshore investments. There is a balancing act to be done here. On the one hand, I do acknowledge that the main focus must be on encouraging infrastructure formation in Australia. On the other hand, we must do nothing to discourage the very successful real estate investment trust operations which have developed in Australia in which people from overseas and Australia invest, through Australian real estate trusts, predominantly in overseas real estate. This has been very successful. It is a key part of Labor’s policy of creating a financial services hub for Asia in Australia.

The concerns of the property industry in relation to this bill are very serious and should be noted. Should Labor form government later this year, we will be re-examining this issue. We will need to be assured that changes in this field will be revenue neutral, positive or only a small cost. If we could be assured of that, then we would be favourably disposed to re-examining the limit on non-recourse debt for offshore investment.

I will now turn to schedule 6 of the bill, which removes the $100 million total income cap on the same business test. This, it needs to be noted, represents an extraordinary backflip from the government. When the government went down this road, Labor and the Australian Democrats opposed it. We opposed it in the Senate and it was voted down. Not only did we oppose it but also the Senate Economics Committee opposed it unanimously. Labor, Democrat and Liberal senators opposed this change; the government proceeded nonetheless. It was opposed by the Senate Economics Committee and by the Labor Party and by the Democrats because it was bad policy—bad for business and bad for infrastructure formation, once again. The report of the committee said:

… the Committee is not persuaded that there are sufficiently well established grounds for withdrawing the SBT [same business test] for companies with an income in excess of $100 million.

The report also stated:

The Committee is concerned that withdrawing the SBT may have adverse effects on important infrastructure and other projects, and on companies subject to takeovers and mergers.

The measure to remove the cap was strongly supported in submissions to the inquiry. They demonstrate that this cap should never have been introduced in the first place. The Minerals Council in their submission to the Senate inquiry stated:

This arbitrary cap was denying legitimate capital allowance business deductions—which ultimately were factored into rate of return assessments, and potentially, discouraging expansion. This at a time when there is a significant need for investment in infrastructure projects in Australia.

The Australian Chamber of Commerce and Industry stated in their submission:

... we consider that the cap was unnecessary and should not have been introduced in the first place.

Again we find ourselves in agreement with the Australian Chamber of Commerce and Industry. The CPA’s submission noted:

... CPA Australia along with other professional and industry bodies has been calling for the removal of this cap for some time ...

This government claims to be project-business but the cap brought in by this government, against the objections of this side of the House, is anti-business. Companies have been denied the ability to carry forward legitimate losses and claim a deduction for them which other businesses can claim. I am glad that the government has recognised the error of its ways and taken on Labor’s policy to remove the cap. Labor supports the measure to encourage investment in infrastructure by large private companies and to simplify the tax legislation.

I would like to turn briefly to schedule 7. Schedule 7 provides capital gains rollover relief for statutory licences. This has generally and rightly been welcomed. However, there has been some concern from irrigators in particular about the operation of the rollover in relation to the replacement of groundwater licences. These concerns were well made in the submission of the Gwydir Valley Irrigators Association to the Senate committee. They were also supported by the evidence of Mr Michael Murray, the CEO of the association. I have taken the opportunity to have a discussion with Mr Murray and I have also discussed the matter at some length with the member for New England, who has been very vocal on these issues for some time.

I do believe that the irrigators have a valid concern. Their concern is that the capital gains event is the extinguishment of the old licence and not the distribution of compensation. This also disadvantages irrigators in terms of access to the small business capital gains tax discount. Their point is well made; however, I also note the evidence of the Treasury to the committee. Mr McMahon told the committee:

If the legislation were amended in accordance with the wishes of the irrigators council, it would create a precedent for taxpayers in similar circumstances to seek a change in the timing of the CGT event so that they too could benefit where more generous tax arrangements were not available at the time that the event occurred. More generally, amending the legislation would not only represent a change in the timing of the CGT event C2 but also bring into question the timing of CGT events more generally. A more general change in the timing of the CGT events would be complex to legislate and difficult to comply with and administer—especially where the capital proceeds of a CGT event were spread over a number of years.

This is very sobering advice from Treasury, but I do think that the irrigators have a valid concern. In the face of the advice from the Treasury it would be irresponsible to proceed with a substantive amendment to the bill at this time; however, should we form a government shortly, I will sit down with the industry and Treasury and attempt to find a common-sense solution to this problem. I cannot guarantee that there will be a common-sense solution and that it will be possible, but I can indicate that we, together with the Treasury and the ATO, will use our best endeavours to meet those concerns of the irrigators council in a good faith manner. I have communicated that to the irrigators council and put that on the record in the House today.

Schedule 8 provides CGT rollover for investors in a stapled group where there has been an interposition of a unit trust between investors in the stapled group and the stapled entities. This will allow certain stapled entities, such as Australian listed property trusts or REITs, which I referred to earlier, to restructure with an interposed head trust without any capital gains tax consequences. This is a welcome but minor measure. These amendments go a very small part of the way that is required for reform of the taxation treatment of listed property trusts, real estate investment trusts and managed funds more generally in Australia.

We need to make sure that our tax system does not create unfair obstacles for this sector of the economy, which is very successful in terms of its competitiveness. The Property Council said in its submission to the Senate inquiry:

The Property Council views these reforms as the first stage of a now widely recognised need to comprehensively reform Division 6 of the Income Tax Assessment Act, particularly as it relates to real estate investment trusts (REITs).

We could not agree more. In fact, at the IFSA annual conference last month I announced that Labor are committed to reforming division 6C in particular and our first reference to the Board of Taxation will be to devise options for a new taxation regime for managed funds and listed property trusts to overcome the problems of division 6C. While the Board of Taxation examines the options, Labor would instruct the Treasury to immediately take steps to fix the more inefficient aspects of division 6C in the shorter term. Division 6C is an administrative nightmare for the financial services industry and particularly listed property trusts. Sweeping away the antiquated rules that harm the competitiveness of the financial services industry is a priority for Labor.

The Labor leader has also announced that a Rudd Labor government will halve the withholding tax that applies to non-resident investors in Australian managed funds to a flat and final 15 per cent. These policies are part of Labor’s plan to make Australia the financial services hub of Asia. Increasing the competitiveness of our financial sector and taking away the government imposed constraints makes economic sense but requires foresight and innovative reform of the tax laws—something Labor is prepared to do but something this government for 11 years has shown no interest in doing. Labor does support this schedule as a small step in the right direction.

Schedule 10 perhaps is the most controversial part of this bill. The introduction of a refundable tax offset is included for Australian expenditure in making Australian films—the producer offset, an offset of 40 per cent for film and 20 per cent for other media. The schedule also enhances the existing refundable film tax offset for Australian production expenditure—the location offset. It is increased from 12.5 per cent to 15 per cent. It also introduces a 15 per cent refundable film offset for post, digital and visual effects production in Australia—the PDV offset. Finally, it phases out by 2009 existing tax incentives provided to investors in Australian films. The offsets are designed to support and develop the Australian screen media industry. They replace the current tax incentives which have not been effective in recent years.

The independent production sector have expressed some concerns about the new producer offset, because commercial broadcasters will be able to access the 20 per cent rebate. They argue that the availability of this new offset may encourage in-house production of Australian television programs rather than the outsourcing of those programs to independent producers who sell the programs to networks. They also argue that providing a rebate to the networks effectively provides them with a subsidy to fulfil their Australian content requirements.

I do note these concerns. I have had discussions with that sector of the industry; I have also, as you would expect, had discussions with those who disagree from the commercial television stations et cetera; and I have read with interest the submissions of all the groups and the transcript of evidence from the Senate inquiry. I do have to note that there are other policies in place which strongly support the independent production sector. The Film Finance Corporation will fund only independent productions, not those produced in-house by television stations, and independently produced programs qualify for higher points under the Australian content rules that TV stations must comply with. Perhaps most importantly, television stations will continue to choose their method of production based on who has the best ideas and who has the capability of creating the most commercial value, and it is not necessarily the role of the tax system to give an advantage to one form of production over another. It is the role of the tax system, both parties would agree, to encourage Australian production of television programs for important societal and cultural reasons as well as for economic reasons. However, the independent production sector does play an important role in Australian society and the economy, and the government does need to closely monitor its viability. The second reading amendment that I will move reflects this.

On a detail matter, the length of time of animations is dealt with in this bill in relation to the tax incentives. The Senate inquiry heard evidence that the requirement that an animation run for 30 minutes is onerous, considering that many animations run for a shorter period of time. As a parent of young children, I spend a bit of time watching animations and I agree that there are few animations, particularly for children, that run for 30 minutes, because the attention span of children is considerably shorter than that. So it is of concern that the 30-minute rule will disadvantage the production of animation, and I will be moving a substantive amendment in the consideration in detail stage to deal with that.

I now turn to schedules 11 and 12. I will consider these schedules jointly, as they both deal with research and development and with innovation. Schedule 11 of this bill amends the Income Tax Assessment Act 1936 to extend the premium 175 per cent research and development concession to companies belonging to a multinational enterprise group for additional R&D expenditure carried out in Australia on behalf of a foreign company above a rolling three-year average of expenditure. The schedule also provides a specific 100 per cent base deduction for all expenditure that contributes to a company’s calculation of additional R&D expenditure in the income year. Until now, Australian companies who conduct R&D on behalf of a foreign company that chooses to hold resulting intellectual property offshore have been unable to claim the R&D tax concession.

Schedule 12 establishes a new board, Innovation Australia, combining the roles, responsibilities and functions of the Industry Research and Development Board and the Venture Capital Registration Board. I was interested in this because before I was elected to the Labor Party frontbench I was chairman of the Labor Party caucus economics committee. We released a discussion paper on innovation last year, and one of our recommendations was the creation of Innovation Australia. I am not sure that I can claim authorship; I am not sure that the government read the Labor Party’s caucus economics committee report. Although I would like to think that it was read widely on government benches, I am not sure that that is the case. But it is interesting to see the government taking up that idea. The legislation does not go as far as what the Labor Party’s caucus economics committee recommended in terms of the new body, Innovation Australia, and the roles and responsibilities that Innovation Australia should have; nevertheless, it is a step in the right direction which we support.

We support these amendments. These changes should encourage R&D to be undertaken by multinational firms in Australia. This should help Australian business to benefit from the skills gain and knowledge gain from R&D work undertaken by multinational enterprises. We have ongoing concern about the complexity already involved in the 175 per cent premium concession and we will continue to seek feedback from business about the effectiveness and efficiency of its operation and the efficiency of the application process. More than one business has said to me that the arrangements in place to apply not only for the premium concession but for the base rate concession are so complex and so onerous that companies are dissuaded from applying despite the benefits which may flow from it.

Innovation is a key driver of productivity. Labor understands this, and the government apparently does not. We have seen precious little on the innovation front from this government. The government’s major reform in R&D was to slash the R&D tax concession from 150 per cent to 125 per cent, and we saw the results immediately. Business R&D fell off a cliff when that so-called reform was instituted by the government back in 1996. R&D growth has stayed flat for a significant period and has returned only recently to 1996 levels. Recent ABS figures show that with R&D expenditure at 1.04 per cent of gross domestic product Australia’s rate of business R&D expenditure remained below the OECD average of 1.53 per cent. Over the full 11 years of the Howard government, the real rate of annual growth in business R&D has only been 5.7 per cent compared with 14.5 per cent under Labor—5.7 versus 14.5. Labor understands that the only way we can compete in a global economy is to focus on innovation—new products and new processes—and R&D is a key driver of that.

Of course, a large proportion of R&D is undertaken by multinational enterprises which can conduct that work almost anywhere. They have operations in many countries, and we must compete with many countries around the world to conduct that R&D. Our whole economy benefits when multinational firms seek to conduct that activity in Australia. For example, we are competing against Singapore, which has a 200 per cent R&D concession. We are competing against other countries around the world, and so we welcome these reforms. In fact, the Leader of the Opposition and the shadow minister for industry released a paper entitled New directions for innovation, competitiveness and productivity on 24 April this year. This paper points out:

… the OECD recommends that Australia improve opportunities for venture capital investments.

You will no doubt recall, Mr Deputy Speaker Somlyay, that earlier this year I moved an amendment to Tax Laws Amendment (2007 Measures No. 2) Bill 2007 to remove the significant restrictions on venture capital limited partnerships, which would encourage further innovation—an amendment which the government failed to adopt. This government has failed miserably to promote the venture capital industry and R&D in particular. This is yet another example of why the government is not up to the task of preparing Australia for the inevitable, eventual downturn in commodity prices. It may be some time before that downturn comes, but the Australian people will justly ask what the government did to prepare us for that downturn when it comes.

As I said in my opening remarks, the remainder of the schedules in this bill enjoy Labor’s support. These changes make sensible amendments to improve the integrity of the tax system, reduce compliance costs for certain taxpayers and extend tax concessions to certain groups. I am pleased to extend Labor’s support to those schedules, as we support each of the measures with the caveats and qualifications that I have referred to in my remarks. I move:

That all words after “That” be omitted with a view to substituting the following words:“whilst not declining to give the bill a second reading, the House:

(1)

condemns the Government for the inexcusable delay in implementing the taxation of infrastructure financing reforms encompassed in this Bill;

(2)

recognises the producer offset, incorporated within Division 376 of the bill, could potentially impact independent program producers;

(3)

recognises the issues raised by the independent production sector in relation to Division 376 of the bill, and recognises the independent producers’ concern at the  possibility that the bill may not allow producers to retain substantial equity in their productions and build stable and sustainable production companies;

(4)

notes the contribution of the independent production sector as one  source of innovative, diverse and culturally vibrant Australian content, and recognises that Australian independent producers should have every opportunity to retain substantial equity in their productions and build stable and sustainable production companies; and

(5)

notes the need to monitor the operation of this Bill and the need to conduct a review of the viability of the independent production industry to commence within 12 months”.

Alex Somlyay (Fairfax, Liberal Party) Share this | Link to this | Hansard source

Is the amendment seconded?

Robert McClelland (Barton, Australian Labor Party, Shadow Minister for Foreign Affairs) Share this | Link to this | Hansard source

I second the amendment and reserve my right to speak.

Barry Wakelin (Grey, Liberal Party) Share this | Link to this | Hansard source

I am somewhat dismayed at the previous speaker’s comments about the lack of enterprise capital. The government’s record over the last 11½ years is this remarkable economy which is comparable with anything in the world. The Tax Laws Amendment (2007 Measures No. 5) Bill 2007 contains 12 measures that, as has been well discussed in the House, change the tax laws regarding the treatment of leasing, similar arrangements between taxpayers and tax-exempt entities, the definition of ‘excluded equity interest’ for the purposes of the thin capitalisation rules in the Income Tax Assessment Act 1997 and the authorised deposit-taking institutions, known as specialist credit card institutions, which may in certain circumstances be treated as financial entities and not ADIs. It also alters the capital gains tax, the marriage breakdown rollover and the tax treatment of the Prime Minister’s Prize for Australian History and the Prime Minister’s Prize for Science.

Schedule 7 concerns the capital gains provisions that apply to holders of statutory licences. Schedule 8 allows a stapled group of entities to restructure with an interposed head trust without triggering certain taxation consequences. Schedule 9 updates the list of deductible gift recipients, which I think will be very welcome. Schedule 10 introduces tax incentives to support the Australian film industry, which is very much part of our national culture and very important to our national view of ourselves. Schedule 11 extends the premium 175 per cent of R&D concession to Australian subsidiaries of multinational enterprises that choose to hold the resulting intellectual property outside of Australia, which broadens the law for that purpose. Schedule 12 establishes a new board, Innovation Australia, to administer and oversight the industry portfolio’s innovation and venture capital programs. It is a comprehensive list.

The government is to be congratulated on this, as the previous speaker acknowledged. It is a measure that will encourage our infrastructure and it is an incentive for innovation. The great irony of all of this is that to criticise this government for its lack of incentives for innovation, as the previous speaker did, is quite remarkable when you look at its many achievements over the last 11½ years.

Peter Garrett (Kingsford Smith, Australian Labor Party, Shadow Minister for Climate Change, Environment and Heritage) Share this | Link to this | Hansard source

I rise to speak on the Tax Laws Amendment (2007 Measures No. 5) Bill 2007, which seeks to implement a wide range of arrangements, including the government’s long overdue film package. This omnibus bill contains a number of critical amendments. However, it is the reform of the film production tax concessions associated with the government’s long overdue film package that I will specifically address in my remarks.

I note that schedule 1 of the bill, ‘Tax preferred entities (asset financing)’, is specifically designed to encourage further investment in infrastructure projects like transport infrastructure, telecommunications facilities, hospitals, educational facilities and public housing. These changes will no doubt facilitate an increase in infrastructure investment. However, it should be recorded in the House that we have actually had to wait eight long years for this government to act on the recommendations of the Ralph review. Frankly, that delay is inexcusable given the importance of the measures contained therein.

I note that schedule 5 seeks to exempt income from income tax for the Prime Minister’s Prize for Australian History and the Prime Minister’s Prize for Science. Labor certainly supports these amendments strongly and considers it entirely appropriate that an exemption of this kind ought to apply when prizes of this sort are conferred. Schedule 10 contains the government’s film production tax concessions, which I will address later.

As a matter of some importance and relevance, Labor has long argued that changes are needed to the R&D tax concessions that are identified in schedule 11 amendments. Here the amendment is to extend the premium 175 per cent research and development tax concessions to companies belonging to a multinational enterprise group for additional research and development expenditure carried out in Australia on behalf of a foreign company—in that case, above a rolling three-year average of expenditure—and we take the view that this should encourage further research and development by multinational firms in Australia.

More generally, the government’s track record on research and development is poor. During the 11½ years of the Howard government, the real average annual growth rate in business R&D has been 5.7 per cent—a miserable 5.7 per cent, it has to be said, given the amount of available access to capital and investment that is out and about. When Labor was last in office this figure by comparison was 14.5 per cent. Additionally, we note that Australia’s research and development expenditure is about 0.5 per cent below the OECD average. That certainly is a situation that needs to be addressed. It should not have been allowed to lag at those levels for this period of time.

Labor has a long and proud association with the arts in this country. In particular, Labor recognises the enormous contribution the film and television industry has made to the cultural life of the nation. Film and television are at the forefront of embracing new and emerging technologies. It is a contemporary medium of creative expression that impacts upon the lives of many Australians. I particularly had the pleasure recently of visiting Australian Centre for the Moving Image in Melbourne’s Federation Square. Some members will be aware of that very good institution. They have the Pixar exhibition on display there, and they are responsible for some of the best entertainment that we have seen on our screens in recent years. It impressed me very much. It confirmed that really significant and exciting opportunities are offered by developments in digital animation, and particularly how screen based art in this instance captures the imaginations of both young and old. We, of course, have our very own success story in the world of digital production—the Animal Logic company, which contributed to the inspiring success of Happy Feet. I think some visitors in the gallery may be aware of Happy Feet and may have seen the marvellous work and animation that Animal Logic contributed to there. Having visited the facility, it is very clear to me that here in Australia we do have the capacity and the ability in these innovative and cutting-edge technologies to produce digital productions that are in the same league as those that overseas producers like Pixar have done. With the right investment framework in place and the right support mechanisms for research and development, there is no reason why more Australian companies cannot compete with the world’s best. As the film and television industry provides employment to around 50,000 people in production, distribution, exhibition and retail, it is critically important that we encourage and support a healthy industry.

Labor has substantially driven film policy in the past in Australia. Under the Whitlam government, bills were introduced to, amongst other things, establish the Australian Film Television and Radio School, and in 1988 Labor formed Film Finance Corporation Australia. Further initiatives that were instituted by Labor governments include establishing Film Australia as a wholly Commonwealth owned corporation—entirely separate from the AFC—and redefining the role of the AFC to concentrate on development, innovation and marketing and development as well as providing advice to government on film matters. Our film and television industry is widely respected around the world for its innovative and original productions. Our actors, technicians and directors constantly perform well above the mark—punching well above their weight, as the expression goes—in the hugely competitive film market. Only last weekend, we saw Cate Blanchett recognised at the Venice film festival for her work in I’m Not There. Her portrayal of Bob Dylan left fans and critics astounded at her versatility and her capacity. It is a product in part of Cate’s great talent—and we in the House offer our congratulations to her—but no doubt also in part because of the training she received at the National Institute of Dramatic Art.

Sadly, the sustained individual success of Australian filmmakers masks an industry that has experienced some real difficulties. Schedule 10 of the amendments represents long overdue reform of the sector, which has not been able to fulfil its clear potential. On the Howard government’s watch, the Australian film and television industry has found itself in the doldrums. Production activity is at record lows, drama levels are falling to critical levels, Australia’s skilled actors, technicians and filmmakers are struggling to find consistent work and private sector investment is at perilously low levels. The latest industry figures that were compiled by the Australian Film Commission in its report National survey of feature film and TV drama production 2005-06 paint a worrying scenario. A summary of the findings shows the value of production activity totalled $361 million but this represented a fall of 33 per cent on the previous year’s total, and it was substantially down on the five-year average of $533 million. Total budgets and value of television drama productions were also down on the five-year average—607 hours in 2005-06 compared to the five-year average of 667 hours—and private investment contributed just seven per cent to the Australian and co-production slate.

Labor has been critical of the government for its delay in reforming the taxation concessions for Australian film and television productions. The government stalled and announced review after review when it was plain to see that the industry was in dire need of financial reform. When in May 2006 the then Minister for the Arts and Sport announced a review of the full range of government support measures for funding films in Australia it was high time that we looked at the issue of the health of the film industry more generally and at the issue of reviewing other matters, including 10BA and 10B tax incentive schemes. Certainly, the current arrangements were not providing adequate levels of private sector finance and production was declining. There was also great concern about the inability to attract big budget feature productions to our shores.

We called for reform in the sector and for support. At last, as announced in the most recent budget, some of those matters have been addressed by this bill, which should go some way towards addressing the dearth of private investment in film and television. A number of principal changes were identified: the introduction of a refundable tax offset for Australian expenditure in making Australian films, which certainly is an important and necessary reform; increasing the refundable film tax offset for Australian production expenditure from 12.5 per cent to 15 per cent; introducing a 15 per cent refundable film tax offset for post, digital and visual effects production in Australia, the PDV offset; and phasing out the existing tax incentives provided to investors in Australia.

The new offsets are, as a whole, good news for the industry. In particular, the 40 per cent rebate—that is the refundable tax offset I referred to earlier—has received widespread support, and it is hoped that it can generate significant levels of new production. Labor have been calling for reform of this kind for some time and support these moves, but it will be critical for us to assess the implementation of the reform package, especially to make sure it does not negatively impact on certain sections of the industry, including documentary filmmakers and independent producers.

The original intention of the producer rebate I have referred to was made clear in a press release by Ministers Brandis and Coonan on 8 May, which stated:

It provides a real opportunity for producers to retain substantial equity in their productions and build stable and sustainable production companies …

And yet here there are some question marks, some of which are outlined in the amendment we are considering today, about whether the government’s proposed legislation will deliver what the ministers signalled.

There has been a high degree of anxiety and concern amongst the independent production sector because of the impacts of some of these changes, especially in relation to the opportunity of commercial broadcasters to access the other component of the refundable tax offset, namely a 20 per cent offset for documentary television series, telemovies, children’s television and animation. The recent report by the Senate Standing Committee on Economics highlighted a number of these concerns and heard evidence from industry representatives including the Screen Producers Association of Australia, the Media Entertainment and Arts Alliance and the Writers Guild. Of particular concern to them is the capacity of commercial producers to access the 20 per cent producer offset.

Each of the commercial free-to-air licensees must broadcast a minimum transmission quota of 55 per cent Australian programming between 6 am and midnight. Within this requirement there are minimum subquotas for Australian adult drama, documentary and children’s programming. Labor has noted the concerns raised, including the possibility of the 20 per cent producer offset being factored into the pricing of programs supplied by independent producers, and has moved a second reading amendment to address those concerns.

Concerns have also been raised that access to the offset for qualifying programming will create a strong incentive for television networks to move production in house. In-house production would provide broadcasters with direct access to the offset. Alternatively, they will certainly have strong opportunities to leverage their negotiations with independent production companies to access the offset in relation to the production of qualifying programming. This may well determine the price of those programs in time. These are particularly important issues to consider and Labor takes them very seriously.

Further, the Senate committee found an anomaly in the bill which related to the time an animation must run to qualify for the offset. The bill stipulates a minimum requirement of 30 minutes; most children’s animation programs run for less—usually 15 minutes. The committee recommendation that the bill ‘be amended to allow 10- or 15-minute animation episodes to be categorised as a series for the purposes of qualifying for the producer offset, provided that a total commercial hours threshold is met’ is necessary.

Labor’s second reading amendment addresses the concerns raised by independent producers as well as the delay in introducing other reforms to the taxation treatment of infrastructure financing. The second reading amendment moved by the member for Prospect in part provides that the House:

(2)

recognises the producer offset, incorporated within Division 376 of the bill, could potentially impact independent program producers;

(3)

recognises the issues raised by the independent production sector in relation to Division 376 of the bill, and recognises the independent producers’ concern at the  possibility that the bill may not allow producers to retain substantial equity in their productions and build stable and sustainable production companies;

(4)

notes  the contribution of the independent production sector as one  source of innovative, diverse and culturally vibrant Australian content, and recognises that Australian independent producers should have every opportunity to retain substantial equity in their productions and build stable and sustainable production companies; and—

critically—

(5)

notes the need to monitor the operation of this Bill and the need to conduct a review of the viability of the independent production industry to commence within 12 months ...

It is unarguable that the independent sector plays and has played a critical role in the development and growth of the film and television sector in this country. It has been described as the ‘engine room’ of the industry, where new and emerging actors, writers and technicians can ply their craft and develop their skills.

But not only is the independent sector the engine room of the film and television industry; it is also the nursery for Australia’s talented actors, directors and technicians. The House would be well aware that many of today’s world-renowned filmmakers got their start in the independent sector. Actors like Russell Crowe and Geoffrey Rush, directors like Gillian Armstrong and George Miller, and technicians like Dean Semler, Don McAlpine and Russell Boyd—all now worldwide recognised artists of stature—honed their craft in Australia’s independent sector.

Without the training and mentoring provided by the independent sector, Australia’s film and television industry would not be the engine room for this future growth that it is today. The importance of its role as a training ground has only increased following the Howard government’s decade-long neglect of that other great film nursery, the ABC. We say to Australians: where would we be without shows like those produced by Kennedy Miller, such as Bangkok Hilton, or by Grundy Television, such as Neighbours? We would be in a different country and not as enriched, I think, by the experience. Therefore, a thorough review to assess the impacts of the new offset on the independent sector and the situation that the sector finds itself in as a consequence of these changes should be undertaken within 12 months.

I raise a further concern, which has been ignored by the minister and the government, relating to the government’s treatment of its Film—Licensed Investment Company scheme, or FLICs, which it introduced in 1999 and extended in the 2005-06 budget. FLICs was designed to increase the level of private investment in the film industry by allowing licensees to raise $10 million in concessional capital per year, with investors receiving a 100 per cent income tax deduction on the funds invested. The sole FLIC licensee in 2006-07, which had raised $10 million, now finds itself lost in transition. The FLICs legislation states that it can only invest in films with a 10BA provisional certificate; however, the government announced the scrapping of 10BA in the last budget, initially as of the end of the last financial year.

While the minister has now changed his tune to allow access to 10BA up until the passage of the new bill, the lack of communication and transitional arrangements from the government has left the FLIC scheme as dead as a dodo, with a number of prospective film projects languishing on the drawing board. This is not satisfactory. The government has abandoned this scheme. It seems to be trying to wash its hands of any responsibility. While there have been transitional arrangements for the government’s film bodies, the sole FLIC licensee now has nowhere to go. And the film industry misses out on $10 million in private investment. This is a clear oversight that I hope the government can address—and it should. If the government is serious about film investment in this country it needs to look at this oversight.

Labor support this bill because we are committed to backing the Australian film and television industry. Film is one of the most powerful contemporary creative mediums. It is capital and talent intensive. Australian creativity and stories are more often experienced through film than through many other art forms. Whilst we support the new tax offset regime and believe it should encourage greater private investment in the industry, there are a number of unaddressed issues which this government has ignored and which we have referred to hitherto in the second reading amendment.

The minister has not properly or adequately addressed the independent sector’s concerns. Labor has considered them closely. A Labor government would review the impact of the legislation within 12 months, should we prevail at the upcoming election. It is of some concern that the government also seems to have completely ignored the plight of the sole FLIC licensee, thereby condemning $10 million of vital private investment to the scrapheap. This is clearly not the position of a government that has an eye on the future. Our talented film and television production industry deserves much more. The measures proposed in the government’s film reform package are long overdue. They were called for on numerous occasions by the many diverse components of the film and production sector and with a strong sense that Australia’s culture in the future is very much at stake. (Time expired)

Tony Windsor (New England, Independent) Share this | Link to this | Hansard source

I support the Tax Laws Amendment (2007 Measures No. 5) Bill 2007 and restrict my comments to the implications of schedule 7, ‘Partial capital gains tax roll-over for statutory licences’. I quote:

This schedule amends the ... Income Tax (Transitional Provisions) Act 1997, so that the existing CGT—

capital gains tax—

exemption (or roll-over) for the granting of a proposed statutory licence on the ending of the previous licence extends to situations where one or more licences ends and consequently one or more licences are issued. Further, these amendments provide for a partial CGT roll-over in the above situations where ‘non-licence capital proceeds’ (such as money) are also received.

There is no doubt when you read that that those who are not accountants have some difficulty with the tax act. I have probably spoken on this issue more than I have on any other—with the exception of Telstra perhaps. The very important issue of capital gains tax rollovers has been around for years now. I would like to spell out some of the background, because it is very important to future natural resource management decisions and policies that governments of either persuasion make. I would not like to see the same mistakes occur that have been made over the last two or three years, and particularly in the last decade, on the removal of entitlements—in this case from irrigators but it may apply to other natural resource areas—and the way in which those entitlement holders have been treated not only at the Commonwealth level but at the state level in particular.

The issue, which goes back a number of years, is that the New South Wales state government removed entitlements from irrigators—specifically groundwater licence holders—across a number of valleys in New South Wales. Over a period a $150 million package was developed with the state and the Commonwealth putting in $50 million each to structurally adjust/compensate. The word ‘compensate’ has led to some of the difficulties that Treasury and Tax have had with the interpretation of whether the removal of an entitlement and the payment of a sum of money should be treated as income or capital. The legislation before us today was introduced to resolve that question. Up until a few months ago, the $50 million from the state, the $50 million from the Commonwealth and the like contribution from the irrigators was to be treated as income, in which case the Commonwealth would have been able to reclaim up to 85 per cent of its contribution through the Income Tax Assessment Act. That was seen as a double play by many in the irrigation sector, particularly those who were viewing this as a precedent in natural resource management and in the payment of structural adjustment/compen–sation for the loss of entitlement. Schedule 7 of the legislation deals with that issue. The proceeds from the Commonwealth and the state government for the loss of water entitlement for those groundwater licence holders in those six valleys in New South Wales will now be treated as capital under the assessment processes. That will make a significant difference to the amount of money that the groundwater users receive in their pockets.

A number of issues are still outstanding. I was pleased to hear the member for Prospect raising one of these issues this morning. It gets to the fine detail of how this will be interpreted on the ground. There are two things: one is that the deeming of the rollover provisions and the trigger mechanisms for the capital gains tax event have, as I understand it, been triggered by the acceptance of what I would call water-sharing plants. In five of those six valleys those water-sharing plants came into place in 2006. So it was deemed that the trigger mechanism for the application of schedule 7 of this bill would occur as of 2006. The water-sharing plant in the Lachlan Valley has not been approved as yet. I am told it will most likely be approved in 2007. I am open to correction from the members of the government that are here to listen today.

In a sense, the application of schedule 7 means two things to two different groups who are getting compensated for essentially the same event—the loss of groundwater entitlement as part of their licence. The 2007 trigger event will be able to take advantage of some of the small business taxation amendments that were made earlier this year. The 2006 trigger event CGT rollover people will not be able to take advantage of that. I believe the member for Prospect, the shadow minister, referred to that particular circumstance this morning. There has been concern and a lot of pressure to get this legislation into the House. There has been a lot of procrastination over this issue for some time as to who is to blame and what was the precedent that was being set. As I understood the shadow minister this morning, he was essentially saying that if the Labor Party were to come to power they would consult with the irrigators about the two trigger mechanisms of 2006 and 2007. What precedent is created for those people that will be deemed differently or will be able to take advantage of the small business provisions in a different fashion to the 2006 people? Maybe the minister would like to address those issues when he sums up the debate.

The other issue that is involved in this occurred in 2005—and I might be corrected on the date. As part of this $150 million package, the New South Wales government made a contribution to the same groundwater users, particularly of the Namoi groundwater system, of $20 million. When the $150 million package was agreed between the states and the Commonwealth, that $20 million was rolled into the $150 million joint state-Commonwealth compensation package. The state said, ‘We have already made a contribution of $20 million, so if we add another $30 million that will make our $50 million, and the Commonwealth should put in its $50 million and the irrigators should put in their $50 million in kind.’ That $20 million, as I understand it—and I am once again open to correction—is going to be treated differently from the provisions that this legislation will put in place. That has upset many irrigators. I will not go through this letter I have from a groundwater irrigator. In summary, the writer goes through the various issues his accountant has raised in clarifying a ruling. He mentions that his accountant has spoken to the member for Gwydir about the 2003 structural adjustment package and the tax status of that package, even though it has been rolled into this larger package of $150 million. Even though he has lost an entitlement and has been partly compensated for some of that loss, he reaches the conclusion:

This means that my family has lost nearly $100,000 in tax, which should have been considered capital repayments and, therefore, tax free.

I think what he was saying by ‘therefore, tax free’ is that it was subject to income tax but that it should have been considered under the capital gains tax provisions that schedule 7 allows. So I was pleased to hear the shadow minister raise that issue. However, I would also like the current minister to look at those two events—the trigger mechanism of the 2006-07 variations in terms of the water-sharing plants and this early payment of something that was rolled into a much larger arrangement. I am pleased to see the minister here in the chamber now. I do thank the minister and his staff for some of the work that has taken place on this within the last few months. Many people have been critical of the government for being slow, but I think there was a genuine attempt to try to get it right in the end. I had contact with the minister and some of his senior people, and I thank them for the way in which they have tried to come to grips with some of these issues.

I would like to congratulate John Clements, the CEO of Namoi Water. I have been involved in this issue for many years and with issues that preceded this, involving property rights and the arrangements that were put in place with the National Competition Council back in 1995. I have absolutely no doubt that, had Namoi Water, their chairman and their chief executive officer, John Clements, not stuck to this issue like glue and spent time doing the detailed work, we would not be here today debating this piece of legislation. Even though there is a great deal of angst among irrigators about the delays that have taken place, this is a much better outcome, due to the detailed work that Namoi Water have done. Some of the other irrigation areas and representative bodies had given up, in a sense, and only came back in for the kill when they could see that the real issue was back on the agenda. I congratulate Mr Clements on his work. I also congratulate Michael Murray from Gwydir Water. I know he has been talking to the member for Prospect and others and to the minister’s office. He has obviously put in a lot of work in relation to the detail of the Treasury response and the way in which this matter has gone on and on over a period of time.

In my view, the water debate, and this issue in particular, is 10 years overdue. In the past 12 months we have been talking in this parliament about a $10 billion Murray-Darling plan, part of which is to claw back entitlements. I take the parliament back to 1995, when the national competition agreement for reform of four basic areas, water being one, was signed. Two major issues were addressed in the document that the states and the Commonwealth signed at the time: firstly, that a proper operating market for water be achieved across the four states and, secondly, that property rights be recognised. Over a 10-year period, property rights have never been recognised. There has been constant movement of the goalposts. We have gone through a whole lot of intergovernmental agreements, bilateral agreements and catchment management blueprints. I remember the member for Gwydir standing up and saying, ‘Property rights have been achieved because they are in the catchment management blueprints, because I put them there.’ They are unsighted today. They do not exist. Some people have claimed that schedule 7 of this bill is in fact recognition of a property right. It is not at all. I ask the minister to address the issue of property rights. The Prime Minister, in answer to questions that I have asked him on this issue, used the words ‘properly conferred water right’ and said that it should be treated as compensatable.

If, at the time of the 1995 agreement, there had been real leadership in the water debate, recognising the overallocation of some of our river and groundwater systems, recognising a property right and recognising that the community would compensate for the removal of some of those rights, we would not be going through this fantasy of another $10 billion package to save the Murray-Darling. When you analyse the flow of money under the national competition arrangement from the Commonwealth to the states that could have been used for water reform, you find that something like $8.5 billion has been expended through water quality and salinity arrangements, various intergovernmental agreements, bilateral agreements, catchment management blueprints, the Murray-Darling Basin Commission, the National Water Initiative—and on and on it goes. We have never addressed the underlying problem. No wonder irrigators and communities are suspicious of government. Government signed off on an arrangement and the current government endorsed that arrangement in 1996 and has carried it on ever since. The states have taken the money and have not repatriated those who have had to make major adjustments to their income streams. On and on it goes, and now we have another one, called the Prime Minister’s cigarette paper plan, which is going to save the Murray-Darling and is going to look at the overallocation issue and the entitlement issue and is again going to save the world. No wonder people are very suspicious of those issues.

When we look at the removal of a licence, the rollover provisions and the trigger mechanisms, I think we should learn from what we did not do all those years ago and remember that there are human beings involved in this who were allocated licences legitimately. The Commonwealth has been saying for years, ‘That is a state problem.’ Now the Commonwealth is saying, ‘Through the cigarette paper plan we will be able to overcome those problems in a policy sense by taking charge of the Murray-Darling.’ I did not support the previous legislation, because I think it is flawed in many ways. But this is not the forum for debating that. What it does show is that there have been issues in the past that could have been addressed by the Commonwealth. The Commonwealth had control of the money. That was what the national competition arrangements were about—control of the wallet to force an agreement. Time and time again the member for Gwydir, the Prime Minister and the Treasurer would say: ‘We will not allocate the money to the states. We have control of the money.’ I think Queensland were in breach of the national competition arrangements for tobacco, a $10 million arrangement, back in the 1990s. Very rarely has the National Competition Council actually used its powers to force the states to comply with the original agreement.

Whilst the shadow minister is in the chamber—and I think he has a reasonable chance of being the minister in a few months time—I would ask him to look very closely at that particular issue. It was decided back in those days that the basic issue of property rights be recognised. If it sets a precedent, so be it. These people who are going to lose entitlements that were due to be granted to them should not be treated with the disdain with which they have been treated over the last decade. I would ask the shadow minister to have a very close look at the implications for those human beings and those communities if his party comes to power.

Anthony Albanese (Grayndler, Australian Labor Party, Manager of Opposition Business in the House) Share this | Link to this | Hansard source

I rise to contribute to the debate on the Tax Laws Amendment (2007 Measures No. 5) Bill 2007in particular, schedule 1, which involves the long-awaited reform of section 51AD and division 16D of the Income Tax Assessment Act 1997 and the introduction of division 250. This bill has been eagerly awaited because its passing is vital to facilitating private sector investment in infrastructure.

Let me sketch the current environment briefly. Australia’s current infrastructure is operating at full capacity. Our nation is bursting at the seams in an attempt to meet the ongoing resources demand from China and India. We are experiencing a once-in-a-generation resources boom but we have a $90 billion infrastructure shortfall. Public investment in infrastructure is in decline. The government’s own report showed that Australia ranks 20th out of 25 OECD countries for its investment in public infrastructure as a proportion of GDP. The infrastructure financing sector has publicly criticised the government’s reform complacency in the area of infrastructure financing. In May this year the sector stated that the government’s delay in introducing reform has created a diabolical mess. Given this environment, it is difficult to understand why an amendment to the tax act to facilitate private investment in infrastructure has been eight years in the making—in fact, it is inexcusable.

In 1999, John Ralph, chair of the Ralph review, thought he was delivering recommendations on how best to redesign the tax laws to a federal government that was serious about reform—a government that would be prepared to make changes that would, in John Ralph’s words, ‘equip the nation for the coming decades’. Regrettably, he was wrong. Instead, he was delivering recommendations to a government that is driven by short-term political interests, not the long-term national interest, a government that has sold more assets over the last 11 years than it has built, a government that is characterised by complacency and a government whose idea of tax reform has meant that the Australian tax system is now known as one of the world’s most complex systems and is in urgent need of reform.

The Howard government’s lack of urgency and lack of foresight have placed at risk our future prosperity. The opportunities that have accompanied the once-in-a-generation mining boom have been squandered. Today the nation faces crippling infrastructure bottlenecks. Capacity constraints are keeping a lid on productivity growth. We are neither well-equipped for the coming decades, nor have the recommendations of the Ralph review been fully implemented. Action, even at the eleventh hour of the 11th year, is welcome, but the long wait has meant that industry has become resentful of the lost investment opportunities and money has been invested offshore that could otherwise have found a local home.

There is rising public resentment about infrastructure shortcomings in critical areas such as health, housing and water. Indeed, our infrastructure record is abysmal. Our export volumes have been held back by underinvestment in infrastructure. Under the Howard government, we have a telecommunications infrastructure record that places us 16th out of 30 countries surveyed by the OECD for broadband performance. Our bandwidth lags at 25th among all developed economies. When it comes to water infrastructure, we know that up to 30 per cent of the precious water in water mains can be lost through leaking and burst pipes. Each year more than 155,000 megalitres of water is lost from urban water systems in Brisbane, Sydney, Melbourne, Perth and Adelaide alone. When it comes to social infrastructure, we find that the lack of childcare centres in key regions means that we are not giving our kids the best start in life and we are making it more difficult for parents to re-enter the workforce.

It is not difficult to see how underinvestment in social and economic infrastructure ultimately reduces our standard of living. On the other hand, well-planned infrastructure can support our communities and drive growth. We also know that infrastructure planning itself must be supported by a robust policy framework, including a taxation system that encourages private infrastructure investment. I would have thought that, over the last 11 years, a responsible and forward-thinking government would have been doing everything possible to, in the first instance, increase public investment in infrastructure and, in the second instance, encourage private infrastructure investment. Neither has occurred. Instead, it has taken eight years to remove the legislative obstacle that has held back private investment in infrastructure.

Though reform of section 51AD and division 16D of the tax act seems imminent, we still, at the eleventh hour of this 11th year, see no signs of a forward-thinking, long-term plan outlining how the Howard government will provide and fund the infrastructure the nation needs to prepare it for future challenges. Missing is a Howard government policy that outlines how the nation’s infrastructure will become climate-change ready and a policy that shows how the nation’s infrastructure will accommodate the changing age and distribution of the population. It has taken eight years to respond to and legislate for a handful of recommendations made in the Ralph review. It is quite clear that this is completely unacceptable. The truth is that the Howard government has proven it is not the reformist and visionary administration that Australians have been seeking and, indeed, need. In the case of infrastructure financing, the lack of reform and vision has led to eight years of policy uncertainty.

Let us take a closer look at the pathway of broken promises, excuses and inaction on infrastructure financing reform. In May 2002, in response to the Ralph review, the then Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, announced new rules for the tax treatment of infrastructure investments. She stated:

Further consultation on these issues will be undertaken through the course of 2002-03 and it is expected that legislation will be introduced in the Autumn 2003 sittings.

In June 2003 the government released an exposure draft for the new division 250 of the Income Tax Assessment Act. Senator Coonan stated:

These provisions are in urgent need of reform.

               …            …            …

The Government ... is committed to its early introduction into Parliament in the Spring sittings 2003.

It turned out that the hastily prepared exposure draft had missed the mark, and it created outrage amongst industry and sector specialists such as the Institute of Chartered Accountants and PricewaterhouseCoopers. On 4 December 2003 the government deferred the commencement date of reforms. It was in an election year that the then Assistant Treasurer advised that the government was still committed to introducing the reforms by 1 July 2004.

Finally, on 13 September 2005, the member for Longman, then Assistant Treasurer, issued a press release announcing:

The Government is amending the law to give greater certainty for parties involved in major infrastructure projects.

On Thursday of this week it will be two years since the member for Longman issued that press release. No single Australian was seeking yet another press release. What Australians wanted was legislation. Two years later, yet another election year has rolled in. Who can forget that in February of this year there was still no legislation but a telling admission from an official from the Treasury who, during a Senate estimates hearing, stated that there are ‘other priorities’ ahead of introducing tax reforms to infrastructure financing? If an investor conducted themselves with the same level of disregard as that which this government has served our nation with, frankly, they would be out of business. Australia deserves better.

Today, on the eve of yet another election, at the eleventh hour of the 11th year, Australians may finally see enshrined in legislation the recommendations of the Ralph review that relate to infrastructure financing. It is interesting to note that the inquiry report on this bill emerging from the Senate Standing Committee on Economics stated:

Although there are some areas of concern with the legislation, submitters did not wish to see the passage of the bill delayed.

Those submitters included the Property Council of Australia, Infrastructure Partnerships Australia and the Australian Chamber of Commerce and Industry—hardly insignificant players. The stakeholders, of course, are quite right in this case. Like Labor, they believe further delays should be avoided. However, it does make one reflect on how and why key legislation is determined under the Howard government. Are stakeholders so desperate for action that they must settle for less? It is quite clear that the last time the industry was critical of draft legislation in this area the process was stalled for another four years, so you can hardly blame them for wanting to avoid further delays.

A Rudd Labor government would do things differently. Federal Labor have a long-term plan to meet the nation’s needs. A critical feature of our policy is that decisions on the nation’s infrastructure priorities will be without political interference. The nation’s infrastructure priorities will be determined by Infrastructure Australia, an independent Commonwealth statutory authority operating at arm’s length from ministers. Under Labor, the margin of a seat will no longer shape the nation’s infrastructure decisions. And, through the appointment of a federal infrastructure minister who would oversee the planning and coordination of infrastructure, we would finally stop working in silos and start experiencing the national leadership required to match our infrastructure priorities with available infrastructure investment capital. Will it take eight years to shift a legislative obstacle? No, it will not. Infrastructure Australia will be established within the first 100 days of the election of a Rudd Labor government. Following an audit of the adequacy of the nation’s existing infrastructure, the identification of weaknesses and gaps, and an assessment of our future needs, Infrastructure Australia will produce its first national infrastructure priority list within 12 months of the election of a Rudd Labor government.

Infrastructure decisions will take into account economic, social and environmental objectives, and they will be sensitive to long-term challenges such as climate change and the age and distribution of our population. While the Howard government has dealt with regulatory inconsistencies by pointing the finger at the states, federal Labor will resolve such issues in cooperation with the states. Long-term planning will allow the procurement and construction of infrastructure projects to be systematically mapped out over the long term. This means that we can avoid overloading the construction market and exacerbating skills shortages. Industry can look forward to making important investment decisions with confidence and certainty, and long-term investment certainty will lead to a more competitive market. The economy will benefit, consumers will benefit, investors will benefit and Australia will benefit.

In August, the Prime Minister signalled that future budget surpluses should be directed to establishing funds which would use earnings for economic and social infrastructure. This, of course, is a direct copy of Labor’s proposal for a Building Australia Fund. Labor has proposed for two years that future surpluses be placed in the Building Australia Fund and be managed by the current board of the Future Fund. Earnings would be available for infrastructure projects that are essential to secure our future prosperity. The Howard government’s adoption of part of Labor’s agenda is welcome, but there remains a critical weakness in the approach as outlined by the Prime Minister. There is no vehicle to drive the coordination of the infrastructure development that the business sector and others in the community have been calling for. Infrastructure Australia is precisely what is missing in current government practice and what remains missing from current government proposals—a driver of coordination and reform.

Given the magnitude of infrastructure needs in Australia and the substantial supply of private capital looking for a home, the private sector has a critical role to play in partnering with government to plan and deliver infrastructure. Its appetite for infrastructure to invest in is insatiable. It is therefore critical that an appropriate environment be created to encourage and accommodate that investment. We know that the tax system can have a significant influence on the competitiveness of the economy. That it has taken eight years to introduce tax reform arising out of the Ralph review that will mean greater investment in infrastructure is, frankly, inexcusable. We know that infrastructure is an area that yields greater returns than any other. But here we have action at the eleventh hour of the 11th day, which highlights the fact that the Howard government has simply not been interested in preparing for and addressing the challenges of the future. The Howard government is governing for the next 10 weeks—possibly even for the next 10 hours—rather than the next 10 years. We need long-term planning to provide the infrastructure the nation needs, not long-term planning to write legislation. We need infrastructure planning that is about nation building, not pork barrelling. Australia needs fresh ideas and long-term vision to secure our prosperity beyond the mining boom. Only a Rudd Labor government can deliver this.

It is also appropriate to take this opportunity to point out that there are areas of tax reform that are not included in this omnibus bill. One of those was drawn to my attention by a constituent of mine, Ms Christina Fiddimore. Christina wrote to me last month and outlined her situation. Christina is 43 years of age; she was diagnosed with metastatic breast cancer in 2005, with a terminal prognosis. Christina’s situation is that, at the very young age of 43, with an eight-year-old daughter at school, a mortgage, mounting medical bills and no savings, she was desperate for legislation to be changed so that she could access her super funds without being penalised by the imposition of a tax of 21.5 per cent.

I am pleased that, after I wrote back to Ms Fiddimore and she then wrote to the government about her plight, there has now been a response, and Australians with terminal illnesses will be able to draw down on their super, tax free. That is a policy that Labor have called for. It is a policy that we support. We would encourage the government to get on with producing legislation, or perhaps even amending this legislation, to ensure that that occurs as soon as possible. After all, we are talking here about people’s entitlements to which they have contributed. In the case of Christina Fiddimore, her tragic situation should not be made worse in terms of pressure on her family by these penalties being in place. If she were aged 55, she would not face this situation. The tragedy of someone suffering a terminal illness at such a young age should not result in a penalty being imposed on them. I urge the government to take action, not just to assist Christina Fiddimore, who happens to reside in Enmore in my electorate, but to assist others who may find themselves in this tragic situation.

Peter Dutton (Dickson, Liberal Party, Minister for Revenue and Assistant Treasurer) Share this | Link to this | Hansard source

I thank those members who have taken part in the debate on the Tax Laws Amendment (2007 Measures No. 5) Bill 2007. I will begin by addressing the second reading amendment. In relation to the film production offsets, the shadow Assistant Treasurer raised the issue of access by independent producers. I respond by saying that it is only fair that the new tax offsets are available to all producers in the screen and media sector. To limit the offsets to independent producers would distort investment decisions in the production market. This would impact on the quality and quantity of drama produced for Australian audiences. Broadcasters have been able to access tax concessions under the division 10B and 10BA schemes, so there is no reason to now exclude them from the new arrangements. Making the offsets available to all businesses in the production sector will encourage diversity and a focus on audience appeal.

I note that significant incentives are already provided by the independent production sector, including direct funding by the Film Finance Corporation which cannot be accessed by broadcasters, and direct funding to the ABC and SBS of around $10 million per annum for the commissioning of programs from the independent sector. Further, independent production is encouraged by rewarding independent production under the Australian content standard for drama, which Australian commercial broadcasters are obliged to meet. Indeed, the government strongly supports our film industry, and these film incentives certainly demonstrate our commitment to the industry.

The shadow Assistant Treasurer also raised issues involving division 6C. The government acknowledges the need for broader reform of division 6C to ascertain what sensible reforms can be made to the division without compromising the integrity of the tax system. This process commenced earlier in the year, with Treasury indicating it would initiate discussions with the Property Council regarding possible reforms of division 6C, and a discussion with IFSA regarding a possible taxation regime for managed investment trusts.

Unlike the ALP, we do not just talk about conducting reviews, having further processes like think-tanks and inward-looking discussions; we actually do something, and we provide good outcomes for business. That is the main reason why Australian business at the moment are saying under no circumstances would they risk the Australian economy with an inexperienced Labor government dominated by union bosses.

The shadow Assistant Treasurer and the member for New England raised the issue of the CGT event with respect to old water licences. The government provided an additional $25 million to the Achieving Sustainable Groundwater Entitlements Program, which would substantially offset any tax on payments. The timing of the cash payments is unrelated to the timing of the CGT event, which is the ending of the licence. It goes without saying that to change the timing of the CGT event would create a difficult precedent—that is, a moving of tax events for some taxpayers—because later changes to the tax law would create an expectation by other taxpayers that we could do the same in other areas where CGT events take place.

This bill provides measures contained in a total of 12 schedules. Schedule 1 significantly improves the tax treatment of leasing and similar arrangements between taxable entities and tax-exempt entities, including foreign residents, for the financing and provision of infrastructure and other assets. These changes streamline the existing harsh rules and will also reduce the ongoing compliance costs of Australian businesses by providing greater flexibility.

Schedule 2 amends the thin capitalisation rules to ensure that they operate as intended. Amendments will be made to the definition of ‘excluded equity interest’ to remove those equity interests that remain on issue for a total period of 180 days or more.

Schedule 3 will allow groups that consolidate for tax purposes to apply for the thin capitalisation rules as if the group did not contain an authorised deposit-taking institution, or an ADI. Where the only ADIs in the group are specialist credit card institutions, the changes will reduce compliance costs for these groups.

Schedule 4 will provide a capital gains tax rollover on marriage breakdown to ensure that CGT need not be an impediment to separating spouses achieving a clean break from each other in terms of their superannuation.

Schedule 5 of this bill will exempt from income tax the Prime Minister’s Prize for Australian History and the Prime Minister’s Prize for Science to the extent that the prizes would otherwise be assessable income.

Schedule 6 amends the company loss recoupment rules to remove the $100 million total income cap on the same-business test. This will give all companies access to the same-business test to determine whether prior year losses can be deducted against future income.

Schedule 7 extends the existing statutory license CGT rollover. The rollover will apply where a statutory licence ends and is replaced by one or more new licences that authorise substantially similar activity to the activity authorised by the original licence or licences. The measure also provides a partial rollover where a statutory licence ends and is replaced by new license or licences and other capital proceeds are also received.

Schedule 8 provides investors in a staple group of entities with the CGT rollover to allow the group to be headed by an interposed trust so that they can be treated as a single entity for the purpose of overseas acquisitions. The changes are also being made so that the interposed trust will not be taxed as a company after the restructure.

These amendments demonstrate the government’s commitment to making improvements to the tax law to enhance the international competitiveness of Australian managed funds and, in particular, Australian listed property trusts.

Schedule 9 amends the list of deductable gift recipients in the Income Tax Assessment Act of 1997. Deductable gift recipient status will assist these organisations in attracting public support for their worthy activities.

Schedule 10 introduces a package of incentives that will reform and strengthen the Australian film industry. This package will encourage private sector investment and improve Australia’s international competitiveness.

Schedule 11 extends the premium 175 per cent research and development, or R&D, tax concession to Australian R&D activities undertaken on behalf of multinational companies. This measure will encourage additional expenditure on R&D in Australia to allow subsidiaries of multinational enterprises to conduct those activities.

Finally, schedule 12 establishes a new board called Innovation Australia to administer and oversee the industry portfolios innovation in venture capital programs.

These changes to the tax laws demonstrate the government’s ongoing commitment to improving the quality of the tax laws and reducing the client’s costs for taxpayers. I again thank those who have participated in this debate and I commend the bill to the House.

Kim Wilkie (Swan, Australian Labor Party) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Prospect has moved as an amendment that all words after ‘That’ be omitted with the view to substituting other words. The immediate question is that the words proposed to be omitted stand part of the question.

Question agreed to.

Original question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.