Tuesday, 23 February 2016
Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016; Second Reading
In summary, Labor will refer schedules 1 and 2 of this bill, the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016, to the Economics Legislation Committee. Labor supports the intention of both these measures, but we want to leave open the option of moving amendments in the Senate subject to the committee's findings.
This is another tax bill and another reminder of the Treasurer's play-it-by-ear approach to tax reform. The member for Cook has been engaged in an extended jazz improv solo for a few months now. It would be fine if he were a musician. He could just say, 'A couple of off notes but, hey, that's jazz.' The fact is, though, tax reform is not a jazz solo. You cannot get away with hitting off notes or just turning up not to play the gig at all. You have to be in tune with your stakeholders, in tune with the Australian public and willing to come out and say clearly what you mean. That action of being out of step with stakeholders and the Australian public is shown again in this bill today.
Labor has concerns about the haphazard approach of this bill, which I will go on to detail later. But, at the outset, I want to highlight the larger consequences of the member for Cook's haphazard approach. The Treasurer has floated numerous thought bubbles about an expanded or an increased GST over the last five months, since the coalition thought they had hit the refresh button. The mooted GST change led to widespread uncertainty. It did not help consumer confidence, still down from the election. It did not help business confidence. It did not help growth, which has been downgraded each quarter since the coalition came to office. It did not help unemployment, which has risen under this government. This government did not seem to realise what regular Australians realised—that raising a GST would not boost growth but would worsen inequality. Extraordinarily, it took until they received the Treasury modelling for this basic fact about a 15 per cent GST to finally pop the thought bubble.
On multinational tax reform the Treasurer continues to take a haphazard approach. After cutting 4,700 jobs at the Australian Taxation Office and after watering down multinational transparency laws, in another secretive deal with the Greens—which seems to be a regular feature of this parliament—we see the Treasurer this week talking up yet another multinational tax announce-able that yet again has no revenue estimate attached to it. So, while the Treasurer talks a big game on multinational tax, all he brings to the budget is more asterisks—just more waffle; not a coherent, clear idea about how to tax multinationals and add to the budget bottom line.
Labor has been clear about our policy on multinational tax. It better aligns debt deduction loopholes with economic first principles and it adds $7.2 billion to the budget bottom line over the course of the decade. They are resources that we badly need to make sure that Australians have the schools and hospitals that they demand and that they deserve. Labor's policy reforms now amount to some $100 billion in savings in additional measures over the course of the next decade. This includes our measures on multinational tax and high-end superannuation, on not proceeding with an expensive marriage equality plebiscite and on not proceeding with a slush fund for polluters. We do not believe it makes sense to reinstate the baby bonus and we believe that it is possible to have a measure on changing cigarette excise that delivers a health reform and a budgetary reform at the same time.
On top of that, we have announced measures on housing affordability which will help boost housing supply, improve housing affordability and help young Australians attain the dream of owning their own home. As Bill Shorten said at this dispatch box earlier today, Labor does not believe that the Australian dream is being able to negatively gear your tenth home; it is being able to buy your first home. And what does the Treasurer have in response? He has a 'no unicorns' policy—tough on unicorns, tough on the causes of unicorns. Well, it is great that he has finally nailed down his policy on fantasy animals. It would be nice if he could actually lay down his policy on multinational tax. When the Treasurer is getting beaten up by Ray Hadley, you know he is in some deep doo-doo. It led Ben Fordham to ask today: 'Treasurer, is there any truth to the rumour that you were hiding under the desk?'
Labor's policies on negative gearing and the capital gains tax discount will deliver $32 billion to the budget over the next decade. The current budget settings on negative gearing and the capital gains tax discount amount to a significant distortion that make housing less affordable, particularly for first home buyers. Again, we have seen a few thought bubbles floated from the government and a Prime Minister who, in 2005, thought that our negative gearing settings were among the more generous in the world. He was right then, and 11 years on he is even more right.
The concerns about negative gearing that the Prime Minister raised in his tax paper with Jeromey Temple in 2005 have led to Sydney becoming the second most unaffordable city in the world, measured by price to income ratios, behind only Hong Kong, and Melbourne becoming the fourth most unaffordable city in the world. The Prime Minister seems to think that is okay. He seems to think that the main role of government is to ensure that every tax loophole that assists people with a dozen homes is maintained. But the fact is young Australians are finding it harder than ever before to afford their own homes. We see the home ownership rate for 25- to 34-year-olds dropping 25 percentage points in a generation. For the low-income members of that bracket, it has dropped by 30 percentage points over the course of the last generation. Ninety-three per cent of new investment loans goes to people buying new housing stock. The current tax settings have a failure rate of 93 per cent if their aim is to boost the housing supply. Labor believes that we need tax settings that improve housing supply and that make sure that the benefits of this tax loophole flow not just to those who are fortunate enough to afford an investment property but to the entire Australian community.
We heard the Prime Minister at the dispatch box today touting misleading statistics about the beneficiaries of negative gearing. More benefits of negative gearing go to teachers than surgeons, he said. Well, I have a fact for the Prime Minister: it turns out there are rather more teachers than surgeons in Australia—roughly 300,000 teachers to 5,000 surgeons. So, although on a per-person basis, teachers do get far less of the benefits of negative gearing than surgeons, it probably turns out that if you have a group that is 60 times as large then when you aggregate up their benefits it becomes bigger. But the fact is that if you look at the Grattan Institute numbers, you can see that the average benefit in negative gearing for cleaners is $41, for nurses it is $254, for teachers it is $372, for anaesthetists it is $3,352 and for surgeons it is $4,161. In other words, the average surgeon gets 100 times more benefits from negative gearing than the average cleaner. That gap would narrow if we looked at the total benefit of all of the cleaners and compared it to the total benefit of all of the surgeons because there are more cleaners than surgeons in Australia. But let us not play fuzzy math with an issue as important as inequality in Australia—now at a 75-year high. We know that in the case of the capital gains tax discount that, again, 70 per cent of the benefits go to the top 10 per cent of income earners.
Labor aims for a plan which adds to housing supply and adds to equity. The coalition's defence of tax loopholes is at odds not only with the position that the Prime Minister took in 2005 but with dozens of outside experts. Joe Hockey stood on that side of the parliament and said that negative gearing should be restricted to new-built homes. Jeff Kennett has criticised his own side of politics for playing politics on negative gearing and has praised Labor for bringing positive policy ideas to the table. The Grattan Institute's John Daley, Saul Eslake, Chris Richardson are not people who instinctively line up with Labor on every issue, but they recognise good policy when they see it. The current tax settings burn a hole through the budget. The capital gains tax subsidy is blowing out from $4.2 billion in 2014 to a projected $8.6 billion in 2019. Labor's policies rein in the cost of the capital gains tax subsidy. The government's failure to come up with policies does not.
Just as we would welcome the government's adopting Labor's policies on restricting negative gearing to new-built homes for properties purchased after the middle of next year, so too we would welcome the government adopting our multinational tax plan. That would be more economically efficient and it would add to the budget bottom line. Indeed, the government does not have to listen to Labor; it could just heed the advice of the Financial System Inquiry it commissioned. Right under the headline 'Major tax distortions', it outlined the case for reform and the economic benefits that would follow.
Another tip for the Treasurer would be to tell stakeholders how they will be affected. Labor has carefully detailed our structural reforms with the long run in mind, whilst giving certainty to investors under the current regime. No-one is made worse off by Labor policy. Just to be clear about that: any investor who has purchased property before 1 July 2017 can carry on without concerns that the rug will be ripped from beneath them. Investors purchasing new housing stock from 1 July 2017 onwards can carry on with the confidence that they can still enjoy negative gearing if they can help contribute to housing supply. Investors who buy an existing property after 1 July 2017 will still be able to deduct costs relating to that investment against their rental income—or, indeed, against other investment income. That is how the system works in Britain, that is how the system works in the United States and—news flash for members opposite—these are places where house prices have been steadily rising over the last generation. So this scare campaign about Labor's policy causing house prices to fall is just that: a not very scary scare campaign, as someone famously put it before being scared off by a scare campaign.
The fact is that the coalition's first critique of Labor's policy was to say it did not raise very much revenue, that it did not do very much, that it was a very small policy over the next four years. They realised pretty quickly, though, that they could not run a scare campaign about our policy and keep on saying it raised more revenue in the long run than in the short run. They have, now, quietly dropped that discussion point—I did see it appear on their daily talking points today, but you did not hear it from the Treasurer or the Prime Minister—in favour of this outrageous suggestion that Labor's policy will have an impact on existing investors. The fact is, it does not. It has been grandfathered. And that is more than the government can say for their suggestions. They have been unwilling to rule out decisions that affect existing investments.
The suggestion that they might change the capital gains tax discount for superannuation funds should send a chill down the spines of Australian mums and dads with investments in superannuation—that they might be affected by changes to the capital gains tax discount for superannuation. Labor's policy does not touch superannuation. The coalition's sure does. Recently, when asked whether the Abbott-Turnbull tax white-paper process was still alive, the head of Treasury said the department was still 'waiting for direction' from the government. That is, nearly three years on, $7 million spent after the white paper was promised in the first two years of the Abbott-Turnbull government. The Australian people want to know what direction the coalition will take on tax reform, but in 46 minutes at the National Press Club the Treasurer was unable to offer a skerrick of direction on his tax policy. That is clear at a broad policy level but it is clear, too, in the minutiae of tax changes, such as those in schedules 1 and 2 of this bill.
Labor supports the intent of these measures but wants to make sure they operate as intended and that there are no unexpected adverse consequences. Levelling the playing field between local and overseas businesses is a goal that Labor supports. As the rules currently stand, overseas competitors can offer products 10 per cent cheaper than Australian companies because they are not required to pay the GST. Labor has real concerns about the operation enforcement of the cross-border tax treatment measures in this bill. Scrutiny is vital for tax measures, particularly ones thought up by this government. That is why Labor will refer the bill to the Senate Economics Legislation Committee.
Treasury was consulted twice in the GST treatment of digital product services and other intangibles: once in May 2015 and once in October 2015. But the submissions have not been made public. We do not know what concerns were raised or what modifications were made to the exposure draft to the legislation in response to these consultations. Stakeholder and media commentary has broadly welcomed the intended cross-border measures but has also raised concern about the collection of revenue and the treatment of GST-exempt services, such as those related to health and education.
We simply do not know how the government will effectively enforce GST compliance under these new rules. Where is the detail of the steps taken to make sure overseas retailers collect and remit GST revenue? What measures does the government take to penalise retailers who do not comply with the measures? These measures were announced in the 2015 budget, in May last year. Coming up towards the anniversary of that budget we are still waiting for direction in the operation of these measures. The Senate Economics Legislation Committee will openly and transparently examine this package and Labor will reserve its position until the committee reports. If the government wishes to split schedule 3 from this bill and progress it while the committee inquires into schedules 1 and 2, Labor is open to that course of action.
Labor supports schedule 3 and notes that in this instance, as part of the Agricultural competitiveness white paper, the government has had a rare instance of consultation and flagging potential reforms. Yet even within this very portfolio the government consults on one measure and acts unilaterally on another. That is why Labor opposes the Deputy Prime Minister's thought bubbles to arbitrarily relocate three agricultural research and development corporations and the Australian Pesticides and Veterinary Medicines Authority—moves opposed by the agricultural community and the organisations themselves. Moving these organisations out of Canberra is a blatant pork-barrelling exercise. The government has not consulted with producers or the research corporations about the appropriateness of relocating them into electorally-significant regional electorates rather than keeping them in proximity with the very scientific organisations they collaborate with.
Where there has been good consultation with stakeholders, Labor is open to sensible policy proposals. We will support measures that help make Australia's agricultural sector robust in the face of numerous challenges. The measures in schedule 3 were developed in response to the Agricultural competitiveness white paper released in July 2015 and they have been well-received by stakeholders. Labor welcomes the changes to the Farm Management Deposits Scheme, which follow on from a range of initiatives Labor led. In government, Labor demonstrated a commitment to advancing the agricultural sector and consulting on policy reforms. We have a strong record on assisting farmers through tough times, including the $420 million concessional loans program in the farm finance package announced in the 2013-14 budget. That Labor program came after significant consultation with stakeholders, including through the Rural Finance Roundtable Working Group in 2012. Labor provided three years of funding to the Rural Financial Counselling Service to expand by the equivalent of 17 full-time councillors. Those measures were accompanied by an awareness campaign to ensure farmers requiring assistance were aware of the programs available to them. But, as the bill as a whole currently stands, it is a reminder of the Abbott-Turnbull government's haphazard approach to tax reform and to governing itself.
In the past few months, it has become transparently clear for everyone that the government does not have the reformist zeal to match the rhetoric espoused by the new Prime Minister when he toppled the member for Warringah. In September the new Prime Minister promised 'new economic leadership', but starting over was no way to begin. The Prime Minister has dithered and delayed on tax policy. As Adam Giles, the Northern Territory chief minister, said recently: 'The national tax reform discussion has become even more uncertain.' No plans. No policies. The member for Wentworth promised he would change his party, but his party has changed him
He seems to lack political capital, and the best he has been able to do is to hide the Treasurer in witness protection. Tax reform is hard and requires scrutiny. Being Treasurer, you expect scrutiny. You do not expect to be running away even from your best mate, Ray Hadley.
The measures in schedules 1 and 2, though having an intent that Labor supports, require further scrutiny. We will refer them to the Economics Legislation Committee and reserve our position until that committee reports.
I rise to speak on the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016. It is late, and I am imbued with a sense of collective spirit, but I have to point out to the member for Fraser that, as good as the now opposition was to the agricultural sector, the agricultural sector will never forget what Labor did to the live export trade and what that meant all the way down in the south-east. The Prime Minister has spoken about this. He spoke about the shock to our industry, the cattle job as we know it, or the live export industry for cattle in particular in Australia. He said that it was not limited to those who were involved in the live export trade out of the north. And it was not, because I can tell you that cattle markets in my electorate could not be further away from that sector. They are at the southernmost part of Australia, and we felt the impact that week. That will never be forgotten.
Can I also say to the member for Fraser that he knows well that if you are to reduce the demand for existing house stock and take investors out of the market, that will have a deleterious effect on demand for existing house stock, which will inevitably put downward pressure on prices. That is a very bad thing for everyday Australians who invest in their own homes, their primary asset. They know it and I am sure he knows it. I am reliably informed that he is a former professor of economics. I know that he knows it well, and he cannot run away from that. But I am not here to be combative. I do enough of that from time to time, as those opposite have pointed out.
Really? Well, I have learnt to fight. In the choice between fight or flight, I am pleased to say it is fight and fight and fight. In any event, I am here because the coalition and only the coalition can deliver the best outcomes for rural, regional and remote Australians. My electorate of Barker is the engine room of the South Australian agricultural industry. It produces some 50 per cent of the value of all agricultural products of my great state of South Australia. Whilst this government has delivered significant opportunity through the free trade agreements with China, Japan and Korea and signed up to the Trans-Pacific Partnership, there is more that needs to be done to secure the future of agriculture in this nation. Decisions made here in Canberra have a massive effect on the ground in my electorate, particularly when it comes to agricultural policy. Many of us on this side of the chamber have grown up in regional Australia and understand the challenges faced by our farming families and primary producers. That is why we consistently deliver better policy in this space. That is why we would never have taken the measures that resulted in the prohibition of the live export trade. But I will not go back there.
Whether it is drought, bushfires, flood or extreme weather, farmers and primary producers feel the variable effects of climate more acutely than most. Indeed, in few industries is the success of an enterprise as tied to variables out of the control of human agency as it is in farming and primary production. Across my electorate, from Renmark to Angaston, from Karoonda to Loxton, from Lucindale to Lameroo, I consistently hear the same themes arising when it comes to equity in farms and the pressure that climatic conditions puts on households budgets, especially with respect to small- and medium-size farms.
I myself am the son of farmers and understand the difficulties that often plague farm financing. It is from this position of firsthand experience and through a long engagement with the vast agricultural community in Barker that I can unreservedly say that the legislation before the House, particularly in relation to part 3, is a big win for farmers and primary producers. Today, obviously, I rise to speak in favour of it. I do so because the bill strikes at the very heart of the issues confronting our agricultural sector. I am particularly supportive of the changes to the Farm Management Deposits that are delivered in schedule 3 of the bill, changes that will deliver better outcomes for farmers. This will relieve the pressures they often face in tough years when growing is hard and budgets inevitably tighten.
I rise today from a position of experience in the agricultural sector, informed by an extensive and longstanding dialogue with farmers across my electorate. From such a position I say that today's legislation is squarely in their interests. This bill will deliver better outcomes to farmers across my electorate of Barker, from Naracoorte right across to Riverland and down to Penola and Nangwarry. The bill will deliver some real and meaningful options when it comes to financial security for small- and medium-size enterprises.
This bill will deliver more opportunities, particularly for younger farmers seeking equity in their property. If you speak to farmers across my electorate, indeed across the nation, they will tell you that there is a dire need to get more young Australians into the agricultural sector—more young people like Christian Biele from Loxton High School. Christian was this year's Australian school-based trainee runner-up at the Riverland and Mallee Vocational Awards for his efforts in translating his theoretical understanding of agriculture into good practical skills. We need generational renewal in the agricultural sector but, as you can appreciate, farmers and aspiring farmers today face significant challenges when it comes to financial pressures.
I came to this place to make it easier for young Australians like Christian to get into the agricultural sector, because I know that the prosperity of my electorate, and indeed the nation, is inextricably linked to the engagement with agriculture and primary production. I have long fought in this place for greater opportunity for regional Australians. Opportunity is a core coalition value, and we believe in our very heart that, through making room for the individual, industry flourishes.
This bill delivers on that commitment to the individual. We in the coalition understand that through ensuring greater autonomy and increasing farm equity our hardworking farmers and primary producers will succeed. Farmers know best how to spend their own money, but it is imperative that the government take steps to unlock the full financial potential of our farming sector—steps taken considerably forward through this bill.
Our financial system, when it comes to loans, is fundamentally set up in a way that demands absolute consistency. Each and every month we are expected to pay interest on our debt. Day in, day out, rain or shine, interest is charged. Whilst this is the reality which cannot be changed it is the reality which is often incongruent with the cycles of agricultural production. The ever-marching and ever-compounding interest on loans often has a massive impact on our farming communities, especially as they face natural disaster and global market pressures which are increasingly beyond their control.
The problem facing many younger farmers, in particular, is acquiring equity in their property. It is against such challenges that the mechanism of farm management deposits seeks to deliver some certainty to our farming sector, particularly to those young producers. Farm management deposits are primarily a risk management tool that enables primary producers to deal with the often uneven income between years. Eligible primary producers utilise these deposits to set aside pre-tax income from their primary production in a special account for use when times are tough or through, for example, periods of drought.
It is a sensible approach to easing the inconsistency between the often uber-variable outcomes of farming enterprise with the ever-consistent demands of financial institutions placed on those who borrow to invest in their farms. This approach is one which takes into account the importance of the long-term perspective required when it comes to growth in the agricultural sector. It is an approach which has worked and it is an approach which the bill seeks to expand upon, both to capture more farmers and to assist them in delivering greater equity in their property.
This bill delivers three key changes to farm management deposits, with each delivering excellent results for farmers and primary producers. Firstly, the bill doubles the maximum amount that can be held in farm management deposits from $400,000 to $800,000, capturing more farmers in need and reflecting the reality of modern farming practices. Secondly, the bill allows primary producers experiencing severe drought conditions to withdraw an amount that has been held in a farm management deposit for less than 12 months without affecting the income tax treatment of the farm management deposit. Thirdly, the bill allows amounts held in farm management deposits to offset a loan or other debt relating to the deposit holder's primary production business.
This bill takes steps to deliver more equity to farmers in delivering them a more secure future when it comes to their finances. The ability to offset loans and decrease the pressure of interest costs to our farmers is a measure of such importance that I cannot overstate it. It is an excellent policy. Indeed, it is a measure which gets me particularly excited because I know how positive an impact this will have on our young farming sector in particular. The reality is that in the hard times—a time which some and, indeed, much of my electorate is currently experiencing because of drought—those interest payments can often be the difference between a full pantry and an empty one.
There is a perception, of course, that surfaces from time to time that farmers are well off or, indeed, are extremely well off—that they always have food on the table and that they do not face the same day-to-day challenges that those in the cities do in making ends meet. It is a perception which is wholly out of touch, and it is most certainly out of touch with the reality in my electorate today as it grapples with a one-in-100-year rainfall deficiency. The truth is that farmers and primary producers may be asset rich but they are very often cash poor, especially when it comes to dealing with drought or low commodity prices. It is in such times that interest payments really bite. As such, I am proud of the steps this government is taking to alleviate the pressures through the offset measures in this bill.
Of course, during periods of drought, the likes of which my electorate is experiencing, farmers will not have the capacity to deposit significant sums in their farm management deposits. But by this bill—and particularly part 3 of it—we are establishing the architecture for the good times, to ensure that young farmers in particular, but all those across the farming sector, can invest in their farm management deposit, offset their debt, achieve a higher level of equity in their property and, in that sense—pardon the pun, Mr Deputy Speaker—'drought-proof' their enterprise. As I have conveyed in this place before this will be particularly important to my electorate, because it is experiencing a rainfall deficiency that is not only starting to pinch but is really starting to hurt.
It is excellent to see a focus on delivering equity to our farmers. And whilst I understand that in the short term, as I have explained, this will be of limited benefit, in the medium to long term it will be a measure that will be most useful. This bill is particularly good news, as I said, for young farmers experiencing disruption to growing cycles due to poor weather conditions—drought or other intervention. This bill will ease the financial burden through delivering more reasonable and up-to-date provisions when it comes to farm management deposits. Measures delivered in this bill will make the lives of farmers and primary producers easier through delivering financial peace of mind.
Whilst these changes were announced in the agricultural competitiveness white paper, the legislation before the parliament today must be passed before 1 July this year in order to deliver the changes for the next financial year—something that is, of course, an absolute priority. I am very pleased to see this piece of legislation before the House today, because it delivers farmers and primary producers in my electorate some much-needed certainty when it comes to farm management deposits. It provides a ray of hope for them in what are clearly difficult times.
These changes are the product of an extensive process of consultation across the spectrum of stakeholders in the agricultural and primary production sectors. The substance of this bill is surely an endorsement of the effectiveness of that process. This bill is a win for farmers, it is a win for primary producers and it is a win for Barker. It is a bill of which I am particularly proud and I commend it to the House.
I rise to speak on the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016. I am conscious of the time, and so I will not be speaking for a very long time, but I have to respond to the previous speaker. It is amazing that when the issue of housing affordability gets raised that the government's first response is to talk about live cattle exports! I mean, if that is going to be their line between now and election day then bring it on. Bring it on!
I must say, as someone who had to go to about five or six auctions before getting the house that my wife and I are now living in, and at each stage, at auction after auction, being outbid by property agents and buyer's advocates—who were there not to give a home to someone who wanted it in the area but who was just engaging in what was effectively part of a tax scheme that allowed them to rent it out at a low rent and then flip it and get a discount at the end of it—that there are hundreds and thousands of people, if not millions of people, in this country who want housing to be made more affordable. They want to see action on negative gearing and they want to see action on capital gains tax, because they know that that is what has contributed to pushing up prices not only to buy a house but also to rent to the point where people are not able to live near where they work or study. So, if the response from the Liberals to a debate about making housing more affordable so that people can buy their first home is to talk about live cattle exports, bring it on. I cannot wait for the next few months if that is going to be the debate.
Over the last 6 months the Greens have fought hard against the government's push to increase the GST by 50 per cent—a push that, had it been successful, would have seen many ordinary Australians slugged to enable the government to keep unfair tax breaks for the super wealthy—like the capital gains tax that they do not seem to have the courage to tackle. We said that tax reform needs to start at the top, not at the bottom, and that fair tax reform should be about closing the gap between rich and poor. We opposed the GST when it was introduced, we have opposed it being spread to food and medicines and we have supported campaigns to remove it from tampons.
We have done this because it is a regressive tax. In other words, you pay the same amount regardless of your income. To use the classic example: if you are a millionaire and you buy a birthday cake for your kids, you will pay the same amount of tax as a low-income worker who buys the same cake. What this means in practice is that the poor end up funding the unfair tax breaks of the rich. So we fought the GST and we fought off the GST rise, and as a result the Prime Minister has said that any changes to the GST have been taken off the tax reform table.
But now, despite what the Prime Minister has said, government is continuing with their budget plan to extend the GST to digital services like Netflix and software apps on iPhones. This bill will mean the GST is extended to cross-border supplies of digital products and services imported by consumers. In other words, this Netflix tax is a great big new tax on everything on the internet. Downloadable books, music and movies will all be affected. Business and work apps, fitness apps and games will all be affected.
And there has been virtually no debate, despite the tax reform debate we are supposed to be having as a country, on the implications for everyday Australians. The government has said this Netflix tax will raise $350 million, but there have been suggestions that the compliance costs for the ATO will be large and so in terms of revenue it may not have much impact on the budget. But so far there has been no modelling released on how it will affect consumers. What we do know is that one of the biggest cheerleaders for the tax is Foxtel, who own the on-demand TV service Presto. Obviously they are hoping it will put a dent in the success of Netflix, but is helping Rupert Murdoch a reason to put in place a Netflix tax?
The Greens are concerned about this bill. We want to see it properly scrutinised by a senate committee, we want to see Treasury's modelling and independent modelling on who will be hardest hit and we want to hear from the industries affected as to what it will mean for them. We do accept that there is some merit in ensuring that, generally, tax treatment of non-resident companies and Australian companies that operate online should be similar. We do not want to see multinationals avoiding paying tax, and that is why we have been fighting hard for tax reform that reins in multinational companies' diverted profits. But we are equally concerned that the government is extending the reach of the regressive GST and doing so when there is a clear alternative, which is to end unfair tax breaks and maintain and extend our progressive income tax system.
So we will reserve our position on this bill until it has been closely examined by the Senate committee, but we reiterate to the government that, if your concern is about balancing the books—although we do not hear much about the budget emergency anymore—there is an unfair way to do it and there is a fair way to do it. So far you have been trying the unfair way. If you want a plan that has a chance of getting through the Senate, try the fair way. Try saying that we are going to start tax reform at the top by removing some of the unfair tax breaks that are enjoyed by very wealthy and large companies in this country, and you will find that there is a lot more money there than by asking everyday Australians to pay a bit more to go see the doctor or get a blood test.
We have a choice: we can do it fairly or we can do it unfairly. Sadly, in the same way that we hear capital gains tax reform is not on the table but maybe it is and we are told GST rise is off the table and then a bill comes before us to say it is not, it is unclear if this government has any plan when it comes to tax other than to defend their large and wealthy backers who put them there and who never seem to get hit by any of the tax bills that come before this parliament. So we are going to scrutinise this bill closely, but we urge the government to go back to the drawing board and start tax reform at the top, not at the bottom.
After that contribution by the member for Melbourne, I was wondering whether I was speaking on the correct bill, because the bill that I am here to discuss will make changes to the farm management deposit scheme, which is an instrument used by primary producers across Australia to assist them with financial management of their business to promote self-reliance and make them less affected by commodity price cycles and adverse weather events. There is nothing about GST in this bill. The Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016 will improve upon the scheme by raising the sum a primary producer may hold in a farm management deposit, introduce greater commercial flexibility and allow the farm management deposit holder to access their funds held in deposit earlier if required.
But first a little history. In 1992 the Senate Standing Committee on Rural and Regional Affairs conducted an inquiry into the national drought policy and reported on the response of the recommendations of the Drought Policy Review Task Force. The lead-up to the Senate inquiry in 1992 had seen some pivotal changes in Australian agriculture. The 1980s was a period of structural adjustment in the sector, with the scale of individual farm enterprise expanding and the subsequent reduction in the number of farms. The natural attrition as farmers retired from the sector and neighbours bought the farm next door to achieve greater economies of scale has been a feature of the sector for over a hundred years.
I was at university in the late 1980s, studying agribusiness at the Muresk Institute of Agriculture and learning agronomy, animal science, agricultural economics, accounting and tax law.
One of the major shocks imposed on the rural sector at the time was the demise of the wool reserve price scheme in 1991. The termination of the scheme was inevitable, as agripoliticians, the Australian Wool Corporation and the state farmer organisations failed to grasp the realities of the scheme running out of control in earlier years.
The Pastoralists and Graziers Association of Western Australia was the first farmer representative group in Australia to come out and call for the end to the reserve price scheme. The PGA's wool committee, led by Lyn Johnstone and Alan Cleland and supported by PGA president Tony Boultbee, recognised that the wool industry was on the road to ruin as wool growers were taxed at 25 per cent of their gross wool income to keep buying back their own product and storing it in a stockpile.
The demise of the wool reserve price scheme meant that wool growers needed to start learning how to manage price risk for themselves. Another structural change in that era, which actually opened up opportunities for grain producers in the eastern states of Australia, was the deregulation of the domestic wheat market in 1989. Up until that time, every grain of wheat produced in Australia was technically the property of the Australian Wheat Board when it left the farm it was grown on. The only legal option for the wheat grower prior to 1989 was to deliver it to the AWB pool manager. That wheat may have ended up in the domestic market or it might have gone for export, but the pool manager would have control of its marketing, and any associated costs could not be avoided by the farmer. For the first time since prior to World War II, wheat growers could legally sell their wheat directly to the flour mill down the road, and gain feedback from the miller on the quality of his wheat.
Prior to domestic deregulation, the Grains Council of Australia prevailed with an argument that the Australian Wheat Board should be provided with a capital base that would allow it to compete in the domestic market. The Wheat Industry Fund was designated for this purpose and it came into existence from the 1 July 1989. When I say it 'came into existence', it was not magically conjured up; it was imposed upon growers by government edict. Every wheat grower across the nation was required to contribute two per cent of their gross wheat proceeds to the Wheat Industry Fund, the WIF, that would be used as a capital base for the statutory Australian Wheat Board to trade wheat domestically.
At this point I pay tribute to the work done in the early 1990s on the issue of the WIF by the former member for O'Connor, Wilson Tuckey, some farm consultants from WA and some of my former colleagues on the grain committee at the PGA. The farm consultants and advisors had done the sums, as had many farmers themselves, showing that in a production year when wheat prices were depressed, two per cent of your gross wheat cheque could exceed your entire net surplus from growing that crop.
Wilson Tuckey and some other Liberal members from WA were instrumental in having the legislation controlling the WIF amended in the early 1990s. Members of the PGA grain committee, including Gary McGill and Leon Bradley, travelled to Canberra to make the case to parliamentarians to amend the legislation to introduce the WIF buyback. This allowed wheat growers that knew they possessed business acumen superior to the Grains Council of Australia, to get back their money out of the WIF and use it in their farm business.
Young wheat growers these days would probably not believe me if I told them that an agripolitical system could support the confiscation of your business's entire annual net surplus. I remind the House of these events as it highlights the evolution of the Australian farming sector. The removal of government intervention meant that farmers had to learn to manage the vagaries of weather and commodity price changes, without the security blanket of a price stabilisation scheme or regulation of some form. Farmers were having to upskill themselves, or seek out professional help to manage aspects of their increasingly complex businesses. Fortunately, through the 1990s, government had been developing instruments that would assist primary producers in one aspect of farm finances: the Farm Management Deposit Scheme.
The 1992 senate inquiry, which I referred to earlier, highlighted that a common view from individual farmers and state farmer organisations was that the national drought policy should encourage and facilitate a self-reliant approach to drought. This is still a common view from many in the agricultural, pastoral, forestry and fisheries sector. One of the instruments available at the time to assist the sector in achieving that self-reliance was the income equalisation deposits, or IEDs. IEDs, however, featured a number of drawbacks in that they lacked commercial flexibility, were not tax effective and featured restrictions around their withdrawal.
Farm Management Bonds were another financial instrument available to primary producers at the time but they also featured a number of restrictions that did not fully meet the needs of the sector. In November 1995, the economics committee at the PGA released its plan for an improved financial instrument, the Farm Management Deposit Scheme.
Some of the names that had provided important leadership during the debate around the wool reserve price scheme and changes to the Wheat Industry Fund again featured—McGill, Johnstone and Boultbee—all successful farmers and deep thinkers who contributed to the development of the FMD Scheme. The PGA were the first to propose the commercialisation process of the scheme, with the banking sector to become involved, as up to that point the funds were on deposit exclusively with the Reserve Bank of Australia.
The PGA proposed a scheme with greater commercial flexibility, with deposits to be non-assessable in the year the deposit was made and fully assessable in the year of withdrawal. Features of the PGA policy were subsequently picked up by the coalition government elected in 1996 and were legislated in 1998. The amendment bill in 1998 allowed financial institutions to take the deposits, as government knew that the commercial sector was more likely to innovate and offer increased flexibility to farmers.
The limit on holdings in 1998 was raised to $300,000 per taxpayer, and interest would be earned on the entire deposit. An income equalisation deposit earned interest only on 61 per cent of the total sum under deposit. The success of the FMD Scheme from 1999 onwards can be measured in the sums held in deposits across Australia. In June 1999, the total funds on deposit in FMDs was $228 million. The scheme topped $1 billion in June 2001; over $2 billion in June 2003, and $3 billion by June 2012.
In 2006, the scheme was reviewed for its efficacy and to assess whether it was meeting its intended purpose. One of the improvements recommended at the time was to adjust upwards the off-farm income limit that was permitted, while still allowing the business access to the FMD Scheme. The threshold sum at the time was $50,000 and the review recommended it be indexed to $65,000 per individual taxpayer. As is very common, a partner in the business, often a spouse, could be earning an off-farm income. This income alone may not exceed $50,000, but other sources of income, such as the earnings from a modest share portfolio may push the off-farm income over the threshold.
I welcome the changes in the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016 to allow for FMD monies to be used as an offset account against a mortgage or other debts owing to the financial institution. A flaw in the scheme up to this point has been the inability of an FMD to be used in this manner. Farmers have been paying one interest rate on their debt to the bank, and earning a lower return on the funds they have in an FMD with the same institution. And if I just do some mental arithmetic: $3 billion times a two per cent margin is probably around $60 million that will be put back into farmers' pockets without a single cent cost to the Treasury.
Financial institutions will, as ever, choose what rates they apply to loans and offset accounts. I do, however, expect that the marketplace will drive improved financial products for primary producers as farmers shop around for a better deal from rural financiers offering FMDs alongside their regular accounts.
This amendment bill will also double the amount a primary producer may hold in their FMD from $400,000 to $800,000. This is a welcome development. The input costs of broadacre cropping have continued to escalate over the years and the scale of individual farm businesses continues to grow. Many family farms in my electorate of O'Connor can spend several million dollars on a single cropping program. The complete failure of a crop, or a poor year, combined with depressed grain prices, can result in a year being loss-making, or break-even at best. Without instruments like FMDs, that farmer may well be struggling to finance the sowing of a crop when the drought inevitably breaks.
Looking back at the record, there are many times when there has been a clamour for the taxpayer to bail out farmers in that financial position. This risks putting the government in the perceived position of choosing who wins the lottery of taxpayer support. Such a situation also raises the question of whether this decision making can be equitable to all and not prevent the necessary structural adjustment occurring in the sector.
The bill makes an amendment allowing for primary producers affected by drought to gain earlier access to their funds if required. Currently, the funds must stay under deposit for at least 12 months before they can be withdrawn, or the tax advantages are lost. The unpredictability of seasonal conditions in Australian agriculture is well known. I believe that allowing farmers prompt access to funds under deposit will encourage improved decision making before a business comes under financial pressure.
In December 2015, the Farm Management Deposit Scheme across Australia held $5.789 billion, which is a very good outcome for the nation and for farmers, pastoralists, fishermen and foresters seeking to manage the challenges of their chosen profession. That $5.7 billion is a buffer fund for the rural sector to manage the inevitable poor seasons that are a feature of the Australian climate. We are in a globalised economy, so commodity price cycles are a reality to be managed with business acumen, not a reason to go seeking government intervention.
The value of the Australia dollar will fluctuate, and some years rural businesses will be squeezed. The ability to draw upon equity in a farm management deposit account will assist thousands of primary producers across the nation to withstand these challenges. I commend the bill to the House and commend the minister for taking this action to assist the sector in becoming more independent of government, financially robust and self-reliant.
The world economy is never still. It continues to be reinvented and redefined. We have seen the industrial revolution come and go, and the emergence of the new economy. Services and other intangibles are now the demand of the day.
Australia's GST system has been in place for 15 years. Since its introduction in 2000, there have been a significant number of changes in Australia and throughout the world. One of the most notable changes has been in the growth in cross-border supplies of services and other intangibles. This has radically changed the economic playing field. We need a tax system that understands the changes of the times—a system which incorporates the growing digital economy: simple, fair and growth friendly. That is the tax system the coalition wants to create.
This bill enables us to future-proof our tax system, allowing us to repair tomorrow's problems today. Schedule 1 and 2 both contain measures that both modernise the GST and address the challenges we currently face. When the GST was introduced in 2000, cross-border supplies of services and other intangible transactions were fairly unusual, especially for consumers. Now, at the click of a button or the tap of a screen, consumers can purchase music, films, eBooks, apps and software, along with a slew of other intangibles. Local businesses should not be disadvantaged. Walking into the local bookstore should be no different to buying a book online. We want our small businesses, our local businesses, to have the same chances as those that are online. We want a tax system that paints all businesses with the same brush strokes.
In the growing and changing economy it is important that we have a tax system that is prepared and ready for the challenges of tomorrow. Cross-border supplies now form a large and growing part of Australian consumption. The importance and now commonplace nature of these types of transactions highlights that the GST was designed with a focus on Australian-based rather than cross-border supplies. For cross-border supplies that are for private or domestic use, the GST often does not apply to supplies made by nonresidents to consumers in Australia.
Increase in cross-border transactions and the growth of the digital economy has led to an expanding area of consumption which is now outside the scope of the GST. This harms the integrity of the GST tax base and can disadvantage local suppliers. Amendments made by schedule 1 update the GST law to ensure that GST applies consistently to all suppliers of digital products and other imported services made to Australian consumers. The government will require overseas vendors to collect and remit GST on the sale of their digital products and services to consumers in this country. Overseas vendors and multinationals who sell digital products like music, apps, and other intangibles will be required to register, collect and remit GST on their sales to Australian consumers. This ensures that Australian businesses selling digital products and services are not disadvantaged relative to overseas businesses that sell equivalent products in Australia.
Schedule 1 removes an anomaly that has existed in the GST for a while. The tax system we inherited from Labor clearly failed to keep up with the times. Although the internet and the digital economy have been around for some time, it is this government, the coalition government, that has taken action on these matters. Our government is determined to reform our tax system and ensure that it fits with the changing times. Schedule 1 is the product of our government's work with international tax authorities.
Australia has been working with the G20 and the Organisation for Economic Co-operation and Development, or OECD, to address weaknesses in the current rules. The OECD's Base Erosion and Profit Shifting report Addressing the tax challenges of the digital economy highlighted the impact of the evolution of technology. It is noted that technology has dramatically and drastically increased the ability of private consumers to shop online and the ability of businesses to sell to consumers around the world without the need to be present physically or otherwise in the consumer's country. It further noted that this more often than not results in no GST being levied at all on these sales and a negative and adverse effect on countries' GST revenues.