Michael Keenan (Stirling, Liberal Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I want to begin my remarks today by going over some of the history of the measures contained within the Tax Laws Amendment (Election Commitments No. 1) Bill 2008 and cognate bills that are before the House for discussion. I want to go over that history because I think we need to understand some of that history to understand how slippery and tricky this government has already become. In the measures that are contained within this bill, the Australian taxpayer is being asked to fork out hundreds of millions of dollars seemingly to essentially protect the government from an embarrassment of their own making. This is money that is going to be taken out of the pockets of hardworking Australian taxpayers and put directly into the pockets of taxpayers in other countries such as the United States, Japan and the United Kingdom. Or, worse, the money that will be taken out of the hands of the Australian taxpayer will just go directly into the treasuries of other countries. It will go directly into the US Treasury or the Chancery of the UK.

This is a measure that reveals that we have a government that really does not seem to have a clue about economic and taxation policies. We are being asked to spend $630 million over the forward estimates period. It is an expenditure that is really just a tax cut for foreign investors who invest in Australian property trusts. I do not need to remind the House that all this is being done in the context of a budget that increases taxes and increases expenditures, a budget that increases the pressure on average Australians who are trying to make ends meet.

With the exception of the coalition tax cuts that have been delivered by the government in this budget by Wayne Swan, this is the only other tax cut that this budget contains. I think it is worth pondering why it is that this group is being so favoured by this government. The government are happy to slug you if you like to have a Jim Beam with Coke, they are happy to slug you if you want to drive a Tarago people mover that comes in over the luxury car tax threshold and they are happy to slug you if you live in a rural area and need a four-wheel drive to get around. If you like to travel, they are going to slug you. You had better watch out if you are a consumer of gas in Western Australia, because they have a $2½ billion tax grab and the Prime Minister has been unable to rule out whether it will increase the price of gas in Western Australia. This government are going to slug you if you have private health insurance.

But, strangely enough, if you live in Japan, in the US or in some of the other countries around the world, we are going to give you a tax cut. I find this a relatively absurd proposition. While the government are delivering the coalition’s tax cuts they are telling the Australian people that these will be the last tax cuts that anyone will receive under this government. They do not really believe in cutting the taxation burden, so they are happy to deliver the coalition’s tax cuts that they were forced into promising during the last election campaign. The only other people to get a tax cut will be foreign investors in Australian property trusts.

There is absolutely no explanation as to why this is the case. There is no reason why foreign investors in property trusts have been so favoured by this government. We really need to ask: what is the reason? What is the rationale? Why are we discussing $630 million coming out of the pockets of Australian taxpayers and going into—in many cases directly into—the treasuries of other countries with no discernible benefit to the Australian taxpayer? Why is it that we have a government that is so parsimonious with its own citizens—saying, ‘Oh, no, we’re not going to give you access to any more of your money that you have earned; the era of tax cuts has come to an end’—and so generous to foreign investors?

We can only understand this by examining the history of this measure. After the 2007 budget, the then opposition, now the government, were desperately casting around for something to say in reply to the budget. They came up with an idea to make Australia a financial services hub of the region. That is actually not a bad idea; in fact, it is an extraordinarily good idea. Sadly, the then government had been pursuing that policy goal for 12 years. It had been doing it by reducing the taxation burden for Australians and providing a competitive regulatory regime for the financial services industry in Australia. The opposition needed to come up with something in reply to the budget, so they decided they would plagiarise this idea of Australia as a financial services hub for the region. Of course, they needed to put some meat on those bones and come up with a policy that they could point to that would achieve that. So they plagiarised a suggestion from industry, which was to reduce the rate of withholding tax for foreign investors in Australian property trusts.

The problem with that is that they did not seem to have any idea about how much that measure would actually cost. They have been adamant, and they were adamant in opposition, that the measure would cost some $15 million per year. We are actually discussing $630 million here tonight, but the opposition were adamantly saying that it would only cost $15 million per year, which wildly underestimated the actual cost of this measure. Indeed, Treasury and the then Treasurer stated publicly on many occasions that the then opposition’s proposal would cost in excess of $100 million per year. But the then opposition were not to be moved from the idea that what they were proposing—this tax cut for foreigners—was only going to cost the Australian Treasury $15 million per year.

I would like to remind the House of some of the things that were said in this House about a year ago. They really show that this government has absolutely no credibility on economic matters. I quote the then shadow Assistant Treasurer, now the Assistant Treasurer, talking about the costings for this measure that we are discussing tonight. On 23 May last year he said in this House:

Let me deal with the matter of costings, because the Treasurer—

the then Treasurer, of course, the member for Higgins—

went out and said: ‘The Leader of the Opposition has his sums wrong. This wouldn’t cost $15 million a year; it will cost $100 million a year.’

The then shadow Assistant Treasurer went on to say about this outrageous costing of $100 million a year that the government came up with:

How much credibility does the Treasurer have on this issue? Zero.

He said that it was not correct to say that:

... Labor’s proposal will cost the taxpayer $100 million a year. Labor’s costing is conservative, and it is thorough.

I think we will find in a minute when I go through the costings for this bill that that is complete and utter unadulterated rubbish. I will go a little more into what he had to say because it goes to credibility. Only last year, the then shadow Assistant Treasurer said:

The Treasurer thinks he is going to get away with saying that this costs $100 million ...

Many times in this chamber he attacked what the then government was saying about this measure costing in excess of $100 million. He said that the then government would have absolutely no credibility if it stuck to that costing and he was adamant during many debates in this chamber that the measure that was being proposed would only cost $15 million per year.

If I may, I will go to what the costings actually are for this measure because I think this is a pretty interesting indication of the slipperiness of the then opposition, now the government, on this issue. In fact, even up until a couple of months ago the Assistant Treasurer was blithely repeating to journalists that he essentially did not believe Treasury’s costings on this. Funnily enough, when the Assistant Treasurer gave his second reading speech last week on this bill, guess what he did not mention at all? What was the one thing that the Assistant Treasurer did not mention when he gave his second reading speech? He made absolutely no reference to costings.

The Assistant Treasurer spent the last year talking about the costings of this measure saying that it was only going to cost taxpayers $15 million. He spent the last year attacking the then government for correcting him and saying, ‘No, it’s going to cost in excess of $100 million a year.’ Then he comes in here and takes a totally different tack last week when he is making his second reading speech on this bill and he never once refers to costings. I have a good idea why that is. It is because the costings contained within his own legislation show what a joke his arguments were that this was only going to cost $15 million. The financial impact of these measures is substantially more than that. In fact, it shows that, when the then government was arguing that the measure would cost in excess of $100 million, we were actually being conservative. That is a very conservative estimate of what this measure is actually going to cost.

I want to turn to the costings. The nature of this bill is that the rates come down over a three-year period. In the first year the rate is 22½ per cent; in the second year, it is 15 per cent, which was what the government actually promised before the election; and then in the third year it moves down to 7½ per cent, an extraordinarily low rate for any taxation measure in Australia. The financial impact of these measures in the first year will cost taxpayers $60 million. In the first year, as I have just said, the withholding tax will be 22½ per cent. Even when the withholding tax is 22½ per cent, not the 15 per cent that the then government was advocating, the cost of that is $60 million. Remember that the Labor Party were arguing that the withholding tax rate of 15 per cent was only going to cost $15 million a year. Already that is four times the estimate that the opposition supplied the Australian people with prior to the last election.

In the following year when the withholding tax rate goes down to 15 per cent—which was of course the magic target the government promised prior to the last election—it is going to cost $125 million. So, it is not going to cost the $15 million that they promised prior to the election, nor the $100 million that the Treasury estimated. Now it is actually going to cost $125 million in the second year. The following year it is going to cost the Australian taxpayer another $210 million and in the final year of the forward estimates it is going to cost another $235 million. If I am not mistaken, that makes a grand total of $630 million over the forward estimates period. So that is the final costing for this measure that the then opposition said would cost the Australian people $15 million a year. I think that is outrageous. For so long the Australian people were promised that this measure was actually not going to cost terribly much and it turns out that it is actually going to cost a truckload.

As I said, the Assistant Treasurer failed to mention the costings in his second reading speech. This measure means that the rate will come down over time from 22½ per cent to 15 per cent and then finally to 7½ per cent. That is in excess of what the Labor Party promised prior to getting into government, which was 15 per cent. But not once has this new rate actually been justified. Why is it that foreign investors only investing in Australian property trusts will pay the 7½ per cent rate of withholding tax? I cannot think of anybody within the Australian system that gets a more generous treatment than that. Certainly, Australian citizens do not get anywhere near that level of generosity when they make their investments. Why are we now levying a different rate of withholding tax on income from property trusts than we are from other types of investments? Why are we levying a different rate than, say, the rate that we levy on interest or the rate that we levy on dividends? The government has not provided one word of explanation as to why its stated policy goals have suddenly changed.

In fairness, there is actually some logic to the 15 per cent rate because that brings it down to be generally in line with the withholding tax regimes on other investment types. That is actually justifiable. I pause just to say that even the most gung-ho members of the industry are only calling for this withholding tax to be brought down to 12½ per cent over time. As far as I am aware, nobody within the industry was actually calling for the rate to be 7½ per cent and I would be fascinated if the government could actually provide any evidence of anybody who thinks that this was an appropriate response.

I think we need to ask ourselves why this is the case. Why would a government essentially deliver a windfall to foreign treasuries out of the pocket of the Australian taxpayer? We all know the answer to that. What is happening is that they are covering up for the fact that they totally misrepresented the costings of this measure prior to the last election. They did not give the Australian people a chance to examine the costings for this policy and they stuck to their guns even though there was ample evidence that those costings were incredibly inaccurate.

This bill contains measures that the opposition would normally be very happy to endorse. We are ultimately the parties of lower taxation in Australia. We have a record that a tax-and-spend Labor Party will never be able to match and we see their approach within this latest budget. There are arbitrary and relatively wide-ranging tax hikes on certain industries all of which, as is the nature of tax hikes, will ultimately flow back to Australian consumers. We are the parties that over many years authored consistent tax cuts for the Australian people. We provided much-needed tax relief in successive budgets over the 12 years that we were in government.

We are also the parties that wholeheartedly embrace foreign investment. We understand that foreign investment creates jobs and prosperity here in Australia. We also have a good record of championing Australia as a regional financial centre. Indeed, we did many things to enhance Australia’s competitiveness to make it a regional financial hub. From the tax perspective alone, we accepted the great majority of the recommendations that were made by the Board of Taxation when they were reviewing Australia’s international taxation arrangements. Remember that they recommended that the rate of withholding tax for foreigners investing in Australian property trusts should be 30 per cent—that was their recommendation. This is obviously an important issue for the industry. Every player within the Australian financial scene would like to see Australia become a regional investment services hub.

Debate interrupted.