Wednesday, 23 June 2010
Tax Laws Amendment (Foreign Source Income Deferral) Bill (No. 1) 2010
Debate resumed from 13 May, on motion by Dr Emerson:
That this bill be now read a second time.
I am pleased to talk on the Tax Laws Amendment (Foreign Source Income Deferral) Bill (No. 1) 2010. This bill concerns the foreign investment fund measures of the Income Tax Assessment Act. The FIF measures, as they are called, are one of three components of the accruals taxation system, which has as its broad objective to tax Australian residents on an accruals basis on their share of income derived by certain foreign entities—income which has not been comparably taxed in an offshore jurisdiction. The three parts of the accruals taxation system are the controlled foreign company, or CFC, rules; the transferor trust measure; and the foreign investment fund measures about which this bill is concerned.
The FIF measures are designed to counter tax avoidance opportunities that remained after the earlier introduction of the controlled foreign company and transferor trust measures. So they were the third measure implemented. The FIF measures apply where a foreign company or trust, though not controlled by Australian residents, is an attractive investment vehicle because it allows for the accumulation of income offshore in low-tax or tax-free countries, thereby allowing the investor to minimise or to defer payment of Australian tax.
The FIF measures also apply to Australian residents who have invested offshore in life bonds or life policies that have an investment component. So these measures apply to Australian residents who have an interest in a foreign company or trust at the end of a year of income and those who held a foreign life assurance policy at any time in the income year. There are a large number of exceptions to the foreign investment fund measures. That describes the measures in general.
Turning to this bill in particular, it implements changes to the FIF rules and the deemed present entitlement rules. These changes were announced by the government in the 2009-10 budget on 12 May 2009. I should note that the legislation before the House follows on from initiatives of the previous coalition government and therefore explain at the outset that we see this as entirely noncontroversial. The existing attribution rules which apply were introduced in 1992 and were based on the rules developed in the 1960s by the United States of America. The former coalition government recognised that those rules had become outdated and that the global economy had significantly changed since those rules were introduced.
The former coalition government announced on 10 October 2006 that the Board of Taxation would conduct a review of the attribution rules. The terms of reference for the review were: to identify ways to reduce the complexity and compliance costs associated with the current foreign source income anti-tax-deferral regimes, including whether the regimes can be collapsed into a single regime; and to examine whether the anti-tax-deferral regimes strike an appropriate balance between effectively countering deferral and unnecessarily inhibiting Australians from competing in the global economy. In September 2008 the board provided its report to the current government. On 12 May 2009 the then Assistant Treasurer announced a number of changes to the tax law in response to the Board of Taxation’s review. This bill implements some of the changes announced at that time.
The amendments in this bill are based on the recommendations made by the Board of Taxation to reduce compliance costs for affected taxpayers. The bill abolishes the foreign investment fund rules and the deemed present entitlement rules contained within the Income Tax Assessment Act 1936 and is largely consistent with the operation of the tax law prior to the introduction of the FIF and deemed present entitlement rules in 1992.
The amendments in this bill will mean that resident taxpayers who are beneficiaries holding interests in foreign trusts will apply the normal trust tax rules that are contained in division 6 and the transferor trust provisions in division 6AAA. The Board of Taxation argued that the abolition of the foreign investment fund rules would significantly reduce compliance costs for Australian managed funds and would enhance global competitiveness and attractiveness to foreign investors. The Board of Taxation argued that their recommended changes would also significantly reduce compliance costs for Australian companies and superannuation funds. They are clearly important initiatives.
As I said, the coalition initiated this piece of legislation and we therefore support it. We recognise the good work that the Board of Taxation does. We think there is actually scope for it to do more and to involve itself in some of the difficult aspects of tax law and tax provisions that the tax office and the profession deal with on a day-to-day basis. I commend this bill to the House.
I too rise to speak on the Tax Laws Amendment (Foreign Source Income Deferral) Bill (No. 1) 2010. At the outset I want to congratulate the Assistant Treasurer and also the Treasury and the Board of Taxation for the work they have done in this area. This amendment bill does a range of things. In particular it amends the Income Tax Assessment Act 1936 to repeal the foreign investment fund, FIF, and the deemed present entitlement, DPE, rules. The schedule also makes consequential amendments to the Income Tax Assessment Act and the Superannuation Industry (Supervision) Act 1993 that are required as a result of the changes in the foreign investment fund and the deemed present entitlement rules.
The repeal of the FIF and the DPE rules were announced, in the 2009-10 budget, as part of a wider reform program that we have taken on in terms of Australia’s foreign source income and anti-tax-deferral attribution rules. The wider program has been initiated by the government since 2007 to ensure that we have the appropriate regulations and rules in place to protect consumers but at the same time, very importantly, ensure we do not have unjustifiable avoidance by a range of people of taxation responsibilities in this country. We are ensuring through these good reforms that people pay the appropriate amounts—their fair contribution—to the tax system and on behalf of all taxpayers. We are certainly trying to make sure that, while we do that, we do not put in place specific burdens or compliance costs or extra hurdles for small business. It is important to get that balance right. We acknowledge that in a whole range of areas. It is not limited to this particular amendment bill, although it is certainly an important element of it. You will see it in a whole range of reviews, from the Henry review in terms of general taxation right across the board to what Jeremy Cooper is doing in terms of superannuation.
Mr Cooper is due to report by the end of this month. There are some significant changes, amendments and reforms that can come out of that review. I look forward very much to that report being handed to government on 30 June because of the significant contribution that superannuation makes in this country and the very important role it will continue to have in the future—and I might speak a little more about that in relation to this specific bill before us in a moment. The changes in this bill will mean a modernising of Australia’s financial services sector, looking specifically at the issues of foreign income sources and how to most appropriately deal with income that is received by Australian residents and nonresidents from any foreign source they have.
It is also important to note that while these changes are of a technical nature they are quite significant. They form part of some major steps that we are taking as a government to modernise our internal systems and to make sure that Australia remains competitive on a global platform. We need to remain competitive after these sorts of changes. We need to continue the good work to ensure that Australia becomes a financial services hub.
I want to take the opportunity to congratulate Mark Johnson on his review and the government on its response. There is great potential growth in the financial services sector in the future of this country. We will export our widely regarded skills and expertise in these areas. The Johnson review covered a whole range of opportunities for Australia in the future. It has been a big part of my interest and the work that I have been doing in chairing the Parliamentary Joint Committee on Corporations and Financial Services. We need to ensure that any of the reforms that we make and any of the changes that come about have a focus on Australia being a financial services hub. We need to be an exporter in the areas in which we are very strong. We are well regarded internationally in terms of our capacity and skills. In fact, Australia rates about fifth largest in terms of funds under management in the world. We are recognised for the capacity that we have, our expertise, our good corporate governance and our ability to deliver in all of these areas. We ought to take the opportunity and convert it into a stronger and larger export market.
To do those things, you need to take reform right across a particular sector and not reform just one area. That is what we are doing with the bill that we have in front of us. What these reforms will deliver is significant compliance change and cost savings. They will also simplify what is a complex set of rules, rules which normally stream across a range of particular acts. It is important to get those right, and we have done that here. The changes will consolidate two acts in particular, one from 1936 and one from 1997—the income tax acts. These changes will bring us a significant step closer to consolidating those two acts.
Over time—as is the nature of things—communities, industries and sectors have changed. This has led to a whole range of inefficiencies, unforseen consequences and other problems that were not part of the debate at the time of the inception of those particular acts. What that means is that the operation of the attribution regime has become highly inefficient. In the light of that rising global interaction—it is a very different global market—and technological chance, an extensive range of exemptions now apply. Those exemptions operate to accommodate a range of those changes. But exemptions are not the best method or the most appropriate way to solve these problems. Those exemptions set up a compliance cost burden on people who operate in this area, particularly on people who manage funds. It is a disadvantage to Australian fund managers. For some time there have been discussions about what those disadvantages mean. They involve not just extra cost but the loss of business for Australian fund managers.
From a government perspective, there is always concern about making sure that people pay their fair share of taxation. You always need to review specific areas to make sure that people are making their obligations. A foreign investment fund relates to either a foreign trust or a foreign company. They can be foreign investment funds or foreign life assurance policies as well. They were designed in the first instance to reduce tax. We want to reduce tax avoidance opportunities for Australian residents who accumulate passive income in offshore investment funds over which they have no control. They are often in low-tax regimes or even tax-free countries. There needs to be a balance. People should be able to legitimately use specific funds or other mechanisms but should not use them to deliberately and unjustifiably reduce their tax liability in Australia or defer their tax liability without any justification.
These changes will apply to a taxpayer who was an Australian resident any time in a particular income year and who had either an interest in a foreign investment fund at the end of that income year or at any other time during that income year or an interest in a foreign life assurance policy at any time during that income year. However, instead of the usual income year period, a taxpayer may elect a different time period. That needs to be understood in context. While in Australia we have a financial year spanning 1 July to 30 June, it is the case in other jurisdictions—other countries—that different periods apply. Some use a calendar year; others use other time periods. So we need to take that into account in the way that we formulate our rules and the measures that we put in place.
In these anti rollup fund measures, we have specifically replaced the foreign investment fund rules and targeted the most abusive of deferral cases, such as accumulation funds located in low-tax jurisdictions that reinvest low-risk returns. The anti rollup rule is scheduled to be introduced into parliament later this year. I look forward to its introduction and its support by the opposition. I know that the review of this area, which started in October 2006, was taken on board by the previous government. We are supportive of that review. The Board of Taxation took on that review and also released a positions paper and several other issues papers on these matters.
Finally, in 2008, the board released its report to the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, under the Rudd government, and we have acted upon that. We have taken that advice, we have gone through the consultation process and we have taken on board what is some good regulatory change. The board recommended that the Foreign Investment Fund provisions be repealed and replaced with specific anti-roll-up fund measures, which targeted very specifically accumulation funds that reinvest interest-like returns. It also recommended that closely held fixed trusts should also be brought into the controlled foreign company rules, the CFC rules, and that the deemed present entitlement rules should also be repealed. They are the two main elements of this amendment.
What the board’s recommendations demonstrate is the desire for us to increase our attractiveness as a financial services hub. We need to do that in a range of ways. Tax-withholding interest, for example, is one. We want to make sure that we look attractive as an investment destination, encourage Australian businesses to be more productive and competitive, and reduce compliance costs for managed funds, industry and other investors. This is a massive opportunity for Australia. This is an area where we can make enormous change in the future and really grow what is a vibrant high-employing sector in Australia—the financial services sector.
It is good to note that in the short 2½ years that this government has been in power we have taken on board many reviews in this area. While some outside may think these reviews are in some way independent—and they all are absolutely independent—they are also strategically linked. We can look at the work my committee, the Parliamentary Joint Committee on Corporations and Financial Services, has done, the extensive work that Henry has done through the independent tax review, the work that is being done by Jeremy Cooper on superannuation or, just as importantly, the work being done by Mark Johnson on Australia as a financial services hub. If you take all of those together and look at the very strategic financial services path that this government is setting for Australia, you can actually make sense of all of these. It is important to get them right.
There is one more report that I have not mentioned, which probably ties all these in together really well, and that is the Intergenerational report. Significantly, the reports states that by 2050—in a mere 40 years time—Australia will have twice as many 65-year-olds as we have today. Frighteningly, depending on which way you look at it, there will be four times as many 85-year-olds—we will be living longer. It is also important to note that today there are five people in the workforce for every person aged over 65 years of age, but by 2050 the number of people in the workforce aged over 65 will only be 2.7. If governments today do not take heed of those warnings, then we are being derelict in our responsibilities to the people of Australia. If you take that information and look at the reform agenda that this government has put in place—fiscal responsibility, balancing budgets, sustaining health budgets into the future and making sure you do not just govern for the present but also govern for the future—then you can start seeing the link between those significant reviews we have done, some of the reforms we have already put into place and ensuring that we have the appropriate regulation in place. There should be not too much or too little but just the right amount you need to get the job done properly. You should reduce the compliance costs on small business—those regulatory burdens.
I congratulate the Minister for Competition Policy and Consumer Affairs, who is in the House here, for the work he has been doing in reducing the compliance costs and burdens for small business. They are the backbone of Australia—there is no question of that. Whether it is corner shop type small businesses, small manufacturing businesses, Australian fund managers or people working in the financial services sector, if we can reduce their compliance costs, reduce their burdens, give them more opportunities to export their skills and services and provide mechanisms to put downward pressure on costs and fees—to make it more affordable for ordinary Australians—then I think we are on the right track. That is exactly what we have been doing. That is exactly what our agenda is. When people question how all of these things link, that is the explanation I give them about what our agenda is and where specifically we are trying to head into the future.
The amendment we have put forward today is one of a number of amendments that I have spoken on this week. This week is an important week—it is the last week of the sitting before we go to the winter break. It is good to see that the government has had the capacity to deal with these very important reforms. I know some of these reforms may not seem too sexy to some members of parliament or even ordinary members of the community who may not be quite aware of the importance of some of these technical changes, but these amendments very much will form part of ensuring Australia’s future sustainability in a whole range of areas, such as the way we are managing budgets and ensuring that we can maintain health budgets into the future. I do not know how many members of parliament have understood just how much the underlying costs of health actually represent. If the federal government does not do something today, by 2026 the complete budgets of every state and territory in this country will be consumed by health spending alone. I think it is an important point to note because you need to make decisions today that will have a massive impact into the future, and that is exactly what we are setting about doing. We are doing that through a whole range of different methods: increasing people’s retirement security by increasing compulsory superannuation contributions from nine per cent to 12 per cent, looking at better forms of taxation through a resource tax to make sure that all Australians share the wealth of this country and sharing in the potential that exists there today through better taxation methods.
In summing up, I thank the House for the opportunity to say some words on the amendments of this bill. While on their own these amendments may not seem that important, they certainly are to the people they affect. The legislation is an important part of Australia’s strategic direction into the future, to make sure we have the right balance. I think we have that, and I commend the bill to the House.
Thank you for your contribution. I now call and recognise the member for Herbert and would remind everyone that this is the member for Herbert’s valedictory speech and that we do not take points of order, particularly on relevance.
I well remember, some 14½ years ago, making my first speech in this place. It was great because I was on the other side of the House—over there. Unfortunately, I am not going to get back there, but many of my colleagues will, in a short amount of time.
What a privilege it is to wear this green pin. I think all of us wear it with pride. It does not matter which side of the House we are on, we wear it with pride. We know and understand what it means.
My wife Margaret and my daughter Kylie have joined me here. In partnership with Margaret, I judged it was time to stand aside and allow renewal in the seat of Herbert. And that is a good thing, because the party needs others of ability to come along and bring new ideas. For a busy member of parliament, as you all know, there is never enough time to pursue so many personal interests, but I will now have that time. I will be able to sit and watch question time from Townsville!
It was such a privilege to have worked with John Howard, Peter Costello and the team of the coalition, as we managed the difficult task of fixing the economic and social problems of Australia after the last Labor government. The next coalition member for Herbert will be part of the team that has to fix the mess that is being created by the current Labor government.
It has been an honour to serve the people of Townsville. For 25 years now, as both the member for Herbert and also as councillor for Division 9 on Townsville City Council, I have been deeply grateful for our community and the support that they have given to me.
I have particularly enjoyed the work done, at all levels, with the men and women of the Australian Defence Force. Whether the role is in war fighting, humanitarian assistance, peacekeeping, training or mentoring, Australia can be mighty proud of the professionalism of the ADF.
I have also invested considerable time in Australia’s youth, through the Left Right think tank. It has been just so rewarding. Left Right was formed by Richard Newnham and Thom Woodroofe. It is an inspiring movement of young Australians dedicated to empowering all young people to contribute to public policy. Richard, you will be watching today and I want you to know that as CEO your energy, vision and leadership has been outstanding. You are truly a great young Australian and your parents, John and Susie, must be so proud of your achievements.
Colleagues, I leave my job knowing that many of my achievements in Herbert have made such a difference. Major initiatives have included the Townsville Ring Road and the Douglas Arterial, which many of my colleagues say is the ‘Peter Lindsay highway’. Such works as the Woolcock Street extension and the Woodlands to Veales Road upgrade, including the Mount Low Parkway intersection have been achievements.
I turn now to James Cook University. Back in 1997 I literally saved the university from financial ruin. The books were in a dreadful state but we were able to sort that out at the time with the help of Dr David Kemp. If you go out to the university you find that almost one-third of the university has been established under my watch and through my advocacy: the medical school and places; AIMS@JCU; Allied Health school; biotechnology places; Lightspeed; the communication facility, the pharmacy building and places; the microscope and mass spectrometry facility; veterinary science building and places; agricultural science places; a second medical school building and additional places, and the establishment of the Australian Tropical Sciences and Innovation Precinct. I am pretty proud of that.
In terms of the environment, I was part of protecting the Great Barrier Reef for generations to come through the world acclaimed Green Zones process. And hasn’t that been successful? All of the research now shows that it has worked and has produced more fish stocks for the fisherman and has locked up and protected our magnificent Great Barrier Reef for ever. I had Magnetic Island confirmed as a World Heritage listed area. The have been many Green Corps projects and a refurbishing of Reef HQ and so on. And I secured Townsville as one of the first of two Australian solar cities. I thank Ian Macfarlane for helping me do that.
In terms of Defence, you just would not know Lavarack Barracks now. There has virtually been a complete redevelopment of the largest defence base in Australia. There have been significant numbers of new Defence homes built, hundreds of new single-soldier accommodation units, redevelopment of port facilities for the LHDs that are coming along and the transfer of a new battalion to Townsville. Where is Dana Vale, the member for Hughes? I took the Third Battalion of the Royal Australian Regiment from her! There has been massive redevelopment at the RAAF base in Townsville and at 5 Aviation Regiment at the Air Force base in Townsville.
I move to a disappointment. I certainly got one of the first Australian technical colleges in Australia built in Townsville. It proved to be the best in the country, and then the Labor Party came along and defunded it. They say, ‘We’re into skills training.’ They were into skills training by defunding the best technical college in the country! That is a disappointment.
In relation to the community, we handed over Jezzine Barracks. We had a huge community program to do that. I think the parliamentary secretary at the time ultimately said, ‘Lindsay, how did you do that?’ because we handed over $45 million worth of defence land to the community and, on top of that, probably about another $25 million to redevelop that bookend of the Strand, and that is being done now. We secured funding for the Tony Ireland Stadium at Riverway and the redevelopment of the Murray Sports Complex. The member for Berowra is here; he will remember the first family relationship centre in Australia and the first Federal Magistrates Court in Northern Australia, and I thank him for his assistance in achieving that.
I would like to think I have made a difference, and others will judge that. I certainly take quiet pride in the part I played in the Howard government’s courage to take on the difficult issues. We have only got 11 of the class of 1996 here now: Don Randall is one, as are Danna Vale, Bruce Billson, Bob Baldwin, Jo Gash, Fran Bailey and Joe Hockey. We balanced the budget. We eliminated government debt. Do you remember the difficulties in doing that? We restored Australia’s AAA credit rating. We reformed superannuation. We liberated industrial relations. We swept away a raft of taxes, we cut capital gains and income taxes, and we built the Future Fund. Under the Howard government, unemployment was at record lows and the incidence of industrial disputes was the lowest in Australia’s history. What a mighty record. The Howard years saw higher wages, more productive workplaces, higher pensions, better living standards, more funding for health, education, defence and transport, better border protection—that rings a bell!—and an economic resilience that was the envy of the developed world which did not happen by accident. It was a great distinction to be a part of that decision process.
I would like to thank the people of Townsville for the opportunity to represent them in five Commonwealth parliaments. This is the third longest period of service by any member of Herbert since Federation, and Herbert was a Federation seat. Together we have achieved so much, with Townsville today being a confident, go-ahead city in which people enjoy living and working. That is of course why I proudly carry the tag of ‘the member for paradise’.
I do have some regrets—for example, when I see the debate going on in Townsville now in relation to health. The government comes in and says, ‘We’ve got this great new program for health,’ but what the government does not say is, ‘It’s not going to start till 2014,’ and we worry if it is going to start at all then. We need a PET scanner in the north. We have got to fly our patients to Brisbane at the moment, which is wrong. The government says, ‘We’re going to give you a PET scanner but, by the way, not till 2014.’ If there is a change of government, we will deliver a PET scanner immediately. Next week, construction will commence on the building that will house the PET scanner, and that is at Mater Park Haven Hospital. It will be ready. If there is a change of government, we will fund that PET scanner and it will be up and running as soon as we can buy a machine and install it—and that is how it should be.
Then there are the GP superclinics. I do not know how many of my colleagues have been promised GP superclinics. Remember the last election? ‘We’ll have a GP superclinic in Townsville and, by the way, we’ll have a family medical centre for Lavarack Barracks, the first of two—one in Darwin, one in Townsville—and we’ll build it straightaway.’ That promise is gone; it was canned. It translated into: ‘We’ll put Defence into the GP superclinic.’ So when do you think we will get a GP superclinic? Not in this term.
Yes! Thanks, Member for Boothby. We have got to push that along. If there is a promise made to the people that they are going to get a GP superclinic, it should in fact be implemented.
Mr Deputy Speaker Sidebottom—and, Mr Speaker, if you are listening—here is something for you. This is a regret: question time. Question time in the House of Representatives is when the opposition has the opportunity to hold the executive accountable. Former Labor Prime Minister Paul Keating once said that question time was a courtesy extended to the House by the executive branch of government. But the philosophy of the Westminster system is that there has got to be a time when the opposition can ask a question and expect an answer. That is not happening. Day after day, we waste two hours in this place. It is a farce. Why do we come in here? We ask a question and then we get 15 minutes of blah, blah, blah back across the table. That is not democracy in action. That is not responsible government. Why is the government hiding from answering the questions? Senator Alan Ferguson, the former President of the Senate, took quite an interest in this as well. There has to be a reform of question time in the parliament. We need relevant answers and we need short answers. We could well look at models in other systems. The Indian system, the New Zealand system, the British system and the Canadian system all work far better than ours, and it is my view that currently question time is not a very good use of time whatsoever.
I have a second point about the parliament that is a great disappointment to me. It is only a small matter. When I first came to this place—and those who have been here for some time will know this—if you had visitors from your electorate or other special guests and the parliament was not sitting, you could bring them onto the floor of the parliament. Right now you can go onto the floor of the House of Commons, you can go onto the floor of the Indonesian parliament, you can go onto the floor of the New Zealand parliament and you can go onto the floor of the United States congress. You can go into the UN General Assembly; you can go into the Security Council and sit in the president’s chair. But you cannot bring your constituents onto the floor of the Australian parliament. This is the people’s parliament; why shouldn’t you be able to? What is the problem? Why shouldn’t a member of parliament be able to conduct a group onto the floor of the parliament and talk about this great democracy that we have in Australia? I ask the Speaker and the President of the Senate to review that, please.
The other thing I worry about in Australia is bureaucracy. I saw an instance of this at my local GP recently. I was getting a swine flu injection, and I cheekily said, ‘Can I have a jellybean please?’ They said, ‘We don’t give out jellybeans anymore.’ When I asked why, I was told, ‘Well, it’s a health and safety issue—you might choke.’ So they don’t give jellybeans to kids! What is happening to our country when you cannot give a kid a jellybean?
Listen to this. For as long as anybody can remember, the Air Force cadets have paraded on the apron in front of Air Movements at RAAF Townsville. The cadets have always been resplendent in their uniform, all ironed and creased up properly and inspected. Because somebody has decided there is a workplace health and safety issue, they now have to wear orange safety vests and earmuffs in case their hearing gets affected. But there are no aircraft on the tarmac, because the RAAF controls its own tarmac. Wouldn’t it be better for somebody to actually say, ‘Look, this seems a bit silly; why don’t we just get air traffic control to say, “There will be no aircraft on the tarmac during this parade”?’ Bureaucracy has gone stupid in Australia. We are all part of that. Think about the Australian Army cadets who went to Bundoon, where the SAS train, for a camp. They could not use the refrigerator. Why couldn’t they use the refrigerator? Because nobody had done a risk assessment on using a refrigerator. They were not allowed to use it. This is stupidity. I have a whole range of other examples, but I do not have time to go through them.
I want to thank a few people in the time that is left to me. To my own staff, who are in the gallery today—Robin, Hawk, Lori, Matthew, Sharyn and Ella—thank you so much for the support that you have been able to give to me for such a long time. My thanks go to the staff of the parliament, and in particular to those in Broadcasting. Many of you will not know about Broadcasting, but down in mushroom corner, in the basement, we have Sharon, John, Eric, Phil, Ferg, Karlie and of course Mr Nightcart. Mr Nightcart’s surname is actually Cathcart, but he has this great nickname. He is a legend—thank you, Ken, for the fun we have had over the years. In IT and communications we have Ann Mackinnon and her staff, and Andrew Pang. In committees, Siobhan Leyne will be watching this now—you are the most impressive inquiry secretary that I have ever seen in any committee in my time. Thank you for your support.
As for colleagues, Ian Macdonald and George Brandis are in the senators’ gallery. Ian, you got me into this—it was you who did it. You have been such a good friend and mentor for so many years now, so thank you so much. Thanks also to Brucey Billson—I am not allowed to say ‘Brucey Billson’—Greg Hunt, Gary Nairn, Mal Washer and Alex Somlyay and his staff, and Nathan is sitting over there. Thank you all for your support. I wish our party and its leaders well. Tony, thank you for coming. I know Julie has something else she has to do at this time. Thank you to my colleagues for coming, and I wish all of you every success at the next election. We need you, Tony, and we need the team back here sitting on the other side.
I thank also my former staff. Katherine is in the gallery—thank you, Katherine. There are Ross Jordan, Joe Nyhan, Robert Hardie, who is over here, and Mr Snuffleupagus, who is watching in Brisbane at the moment—g’day to you. We also have our support people, the HRG staff and the great people at Qantas. We have had a terrific time. I would like to thank my electorate committee, branch members of the Liberal-National Party and so many friends who have supported me and worked tirelessly on five tough election campaigns.
I am blessed to have lived long enough to witness the arrival of my first grandchild, Jessica, and to have her youthful laughs forever etched on the grooves forming on my face. So many have never laughed, and so many have died before seeing their children have their children. I can say no and mean it. I can say yes and mean it. As you get older, it is easier to be more positive. You can care less about what other people think. I do not question myself anymore; I have earned the right to be wrong. I like getting older. It has set me free, and I like the person I have become. While I am still here I am not going to waste time lamenting what could have been or worrying about what will be.
In the last 60 seconds, I am going to bawl. To Margaret and Kylie, and my son Mark—isn’t this ridiculous; 15 years in the parliament and I am bawling!—thank you so much; I love you so much. I am a softie. Thank you.
I begin by acknowledging the service to this House of the member for Herbert, and extend my best wishes to him and his family for their future.
I rise to speak on the Tax Laws Amendment (Foreign Source Income Deferral) Bill (No. 1) 2010. Schedule 1 of the bill amends the Income Tax Assessment Act 1936 to repeal the foreign investment fund and deemed present entitlement rules. The schedule also makes consequential amendments to the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997 and the Superannuation Industry (Supervision) Act 1993 that are required as a result of the foreign investment fund and deemed present entitlement rules.
In the 2009-10 budget, the government announced significant reforms to Australia’s foreign source income attribution rules. In summary, the reforms mean that the controlled foreign companies rules and the transferor trust rules will be retained and modernised while the foreign investment fund rules and the deemed present entitlement rules will be repealed. The repeal of the foreign investment fund rules has been welcomed by the management fund sector as they contend that the foreign investment fund regime imposes significant costs and an uncompetitive tax burden on Australian fund managers. The reforms advance the government’s commitment to secure Australia’s place as a leading financial services centre in the region and more generally to improve the competitiveness of Australian businesses competing offshore—in fact, it is in respect of that matter that I address my comments on this bill.
The comparative stability of Australia’s financial institutions has become abundantly clear in the fallout from the global financial crisis, when we saw the domino effect of the collapse of one financial institution after another. Of course, that stability was very much increased by the Rudd government’s swift and decisive action to guarantee both bank deposits and bank wholesale lending. The performance of Australia’s financial institutions attracted the praise of international commentators and has been held up as a model at G20 meetings. Worldwide, there are fewer than 10 AA-rated banks and, of those, four are here in Australia. We now have the opportunity to build on that financial strength and stability. We know that in recent years the Asian and South-East Asian regions have emerged as regions of strong economic growth, and we saw that again in reports in the media only this morning. A well-regulated financial institution sector in Australia therefore provides Australia with a unique opportunity to build a leading financial services sector for the region.
The accumulation of superannuation funds over the last two decades has clearly contributed to the growth and strength of Australia’s financial sector. Compulsory superannuation was introduced in 1986, when an agreement between government, the ACTU and industry ensured that, under industrial awards, workers were required to have three per cent of their wages paid as superannuation contributions. In 1987 the assets of superannuation funds totalled $41 billion. By 2007 this amount had grown to $1.1 trillion, and it is expected that by the year 2035 this amount will grow to around $5.3 trillion.
The government’s commitment to increase superannuation contributions from nine per cent to 12 per cent over the next decade as part of the measures associated with the resource super profits tax will significantly add to the balance of superannuation funds available for investment. That in turn will lead to an even stronger financial sector, with more funds for reinvestment in Australia and further employment growth in the financial sector and in other sectors were those funds are invested. The Australian financial services sector has seen very strong employment growth in recent decades. The sector currently employs around 400,000 Australians, which is an increase of around 80,000 jobs in just 15 years.
I said earlier that Australian-based investment managers currently manage $1.1 trillion in assets on behalf of domestic Australian investors. As the Minister for Financial Services, Superannuation and Corporate Law has previously stated in this House, these same Australian-based fund managers only manage $53 billion worth of overseas investments. This means that in the global economy less than five per cent of funds managed by our domestic fund managers are sourced from overseas.
On 26 September 2008 the government announced the establishment of the Australian Financial Centre Forum, headed by Mark Johnson AO, to recommend ways that Australia could take advantage of its opportunity to become a leading financial services centre. The Australian Financial Centre Forum reported to the government, and on 11 May 2010 the government announced its response, which provided in-principle or direct support for nearly all of the 19 recommendations of the report. The Minister for Financial Services, Superannuation and Corporate Law made a statement in the House only some days ago that those recommendations include:
the introduction of an investment manager regime, providing greater certainty around the tax treatment of foreign funds managed by Australian investment managers;
the establishment of an online regulatory gateway, providing domestic and international investors with a one-stop shop for basic information about the Australian market; and
the development of an Asia region funds passport, which would involve a multilateral framework to enable a complying retail investment fund in a country that signs up to the passport framework to offer its products in each of the other signatory countries.
The announcement made by the minister two weeks ago will have been welcomed by the finance sector throughout this country. The announcement went to the heart of an opportunity that this country has ahead of it to establish a major industry—or at least an additional aspect to a major industry—in this country. It is not often that this country is in a position to compete with the rest of the world in a range of sectors. In most cases, we in fact find ourselves somewhat disadvantaged because of either our distance from the rest of the world or other competing pressures that seem to enable other countries to undercut our industries. I refer particularly to the manufacturing sector in this country. It may not be the case that we have seen a decline in that sector over the years, but it is certainly the case that we have seen many of our manufacturing industries relocate offshore.
With the finance sector, however, it is entirely different. It is different because the financial industry does not have to be specifically located in a particular country. It operates on the basis of technology that is available to the world today and from which you can establish a major industry wherever you want in the world. Australia has demonstrated that it has the capability, the stability and the security of our financial sector to become a financial services sector for the rest of the Asia and we should grasp that opportunity. We know from what we have seen in recent years that it will be the Asian area where we see growth occur most rapidly. We know that China has been a country of rapid growth, but we also know that several other Asian countries equally withstood the global economic downturn and withstood it well. We know that those same countries are in a prime position to continue to grow and, as they do, they will also look not only to increasing their relationship with Australia but also to working with countries that have stability within.
The financial services sector has certainly been rocked by the global financial crisis of the last couple of years. We saw that the financial hubs, whether in New York or in London, were very much rocked to the point where there would have to be without question a continuing degree of uncertainty as to whether they are the best places for governments and private enterprise to continue dealing with. I believe the global financial crisis presents Australia with a terrific opportunity to ensure that Australia builds on stability and security and does develop itself as a financial centre for the Asian region.
As part of its package of reforms for the financial services sector, the Rudd government is committing $25 million to establish a regional centre for financial system regulation and innovation. The sector in Australia has been stable and secure, but we can always do better. The establishment of a $25 million regional centre for financial system regulation and innovation is something we should all embrace. Our financial regulatory system in Australia was a key part of ensuring that our financial systems in this country remained stable and secure during the financial downturn across the world. The regulatory system can always be improved. It can always be made better, it can always be streamlined and made easier for the finance sector members to operate within.
We should also never lose sight of the fact that, no matter what industry we are in, we do compete with the rest of the world and, therefore, we need to constantly be innovative in what we do. The establishment of this centre is going to be critical in providing the innovation that is required by the sector as a whole to ensure that it does remain competitive and to ensure that it is able to provide the financial services that we are hoping will come to this country if it becomes a centre for financial services in the Asian region.
I understand that the centre will provide tertiary education and training for financial regulators from Australia and the Asia-Pacific region. I said a moment ago that it is the Asia-Pacific region that I believe will be at the heart of global economic growth in the years ahead. I was pleased to hear the Prime Minister announce only yesterday the new deals that have been signed between Australia and the Chinese government with a number of the mining companies in this country. I have to say that certainly flies in the face of those who are opposed to the resource super profits tax and those who have been suggesting that that tax will drive investment away from this country. Clearly that is not the case, and we saw that with the signing of those multibillion dollar agreements with the Chinese government only yesterday. It will be in respect of other trade matters as well that the establishment of a financial hub here in Australia will benefit the Australian economy and the Australian people.
One of the benefits of having a financial services centre in Australia and the increase of superannuation funds that will accumulate over the years is that this in turn provides the Australian people with a source of revenue that can be used to reinvest in this country. I expect that much of that reinvestment may well be back into the resources sector from which we have heard criticisms of the increase in superannuation from nine to 12 per cent. They will be one of the beneficiaries, because they cannot claim that the resource super profits tax is affecting the superannuation funds of millions of Australians without acknowledging that it is the superannuation funds of millions of Australians that are contributing to their very investments and to the very development of resources.
The Australian government recognises that regulation and innovation of financial markets cannot be separate issues; they must keep pace with one another. A moment ago I was speaking about the establishment of the Centre for International Finance and Regulation here in Australia. That in itself will create additional employment in this country, but it will also ensure that in the future we are not likely to see the kinds of crises and problems that were encountered by governments across the world as a result of the global financial crisis, where governments were consistently being asked to bail out the financial services sectors within their own countries. Better regulations, better training and innovation, which all go hand in hand, will ensure a much stronger sector.
We see announcements being made today by the new British government about how they are going to have to tighten expenditure across so many sectors in order to try and get their budget back in the black. You can contrast that with what happened here in Australia—stable banks, secure banks, a government that acted quickly and a debt and deficit regime that is much lower than most other countries, in fact, the lowest of all advanced economies. What we are seeing in this country right now is growth. With that growth come new investment funds. With that growth comes the need to borrow funds in order to pay for new developments, and that in turn means that we will have a financial services sector that will be more and more important to the future of this country.
The finance and tax laws of Australia are complex. It would be fair to say that most people would have little understanding of their complexities. Whether it is the taxation acts or the superannuation acts, they are very complex laws. Undoubtedly, because of their complexity these laws add to the cost of business in this country and will add to the cost of doing business into the future unless we begin a process of simplifying them. If we streamline and simplify the laws under which companies operate, we not only reduce their overheads—and that will be something that is welcomed by them—but also make them much more competitive.
This bill, with these amendments, does exactly that. It is a bill that will simplify tax laws in this country. It is a bill that will make Australian business more competitive and, in doing so, will put us on the right track to securing Australia as a leading financial centre for the Asia-Pacific region. It is something that this country has been pursuing for some time. The Rudd government has recognised this and is doing what it can to ensure that we do become a financial hub. Disappointingly, I heard the minister make it absolutely clear that the opposition does not support the intent of the Johnson report and does not support Australia becoming a future financial hub in years to come. That is disappointing because we have an opportunity that we should not let go. As I said a moment ago, this bill simplifies our tax laws and makes business more efficient. Those measures can only be welcomed by the business sector of Australia. I commend the bill to the House.
I would like to thank those members who took part in this debate. The Tax Laws Amendment (Foreign Source Income Deferral) Bill (No. 1) 2010 bill, which gives effect to the repeal of the foreign investment fund, or FIF, and deemed present entitlement rules, delivers the first tranche of reforms that were announced in the 2009-10 budget. As part of wider reforms to Australia’s foreign source income anti-tax-deferral attribution rules, this measure will assist Australian managed funds and other businesses to compete internationally by reducing complexity and compliance costs that are associated with the making of foreign investments. The repeal of the FIF and deemed present entitlement rules further contributes to the government’s objective of promoting Australia as a pre-eminent financial hub in our region. This will support Australian jobs. This measure, being part of wider reforms to better target Australia’s attribution rules, will also further simplify the taxation law and bring consolidation of the two-income tax acts a significant step closer. This bill deserves the support of the parliament. I commend the bill to the House.
Question agreed to.
Bill read a second time.