Helen Coonan (NSW, Liberal Party, Shadow Minister for Human Services) Share this | Hansard source

Today we are debating the Tax Laws Amendment (Budget Measures) Bill 2008 that deals with the following budget changes: fringe benefits tax, exemption for work related items, fringe benefits tax for jointly held assets, fringe benefits tax for meal cards, employee share schemes and depreciation of computer software. These measures make 17 amendments to tax legislation—five amendments to fringe benefit tax legislation and 12 amendments to the Income Tax Assessment Act 1997.

This bill will raise over $1.4 billion in the next four years by, essentially, raising taxes on small businesses. The opposition thinks that these matters are worthy of comment. It is one of the high-taxing measures of Labor’s high-taxing, high-spending budget.

As to the fringe benefits tax changes, the Keating government, of course, introduced the fringe benefit tax legislation in 1986. Anyone who has ever tried to make sense of this legislation would have to conclude that it is extraordinarily complex. Over the years it has been much criticised for its density of language and tortuous syntax. One only has to look, for example, at section 136 of the Fringe Benefits Tax Assessment Act 1986 and its definition of ‘business journey’ to see just how complicated this legislation really is. It is an absolute nightmare to actually make sense of what is a business journey. For the purpose of illustrating this and to show the kind of pressure that the opposition and those on the crossbenches have been under in the Senate committee, it is worth actually quoting this. ‘Business journey’ means:

(a) for the purposes of the application of Division 2 of Part III in relation to a car fringe benefit in relation to an employer in relation to a car—a journey undertaken in a car otherwise than in the application of the car to a private use, being an application that results in the provision of a fringe benefit in relation to the employer; or

(b) for the purposes of the application of sections 19, 24, 44 and 52 in relation to a loan fringe benefit, an expense payment fringe benefit, a property fringe benefit or a residual fringe benefit, as the case requires, in relation to an employee in relation to a car—a journey undertaken in the car in the course of producing assessable income of the employee.

This is the sort of material that the Senate is dealing with in the FBT legislation. One could only hope, had there been proper scrutiny of bills, that this might not have got into the legislation in such a tortured way all those years ago. So amendments to the FBT legislation do require careful analysis. They warrant more than a pitiful one day’s notice for a committee inquiry.

While the coalition will not be opposing this bill, we do have a number of concerns that we would like to place on the record, particularly in respect of the small business community, and I will deal briefly with them. First of all, the removal of the FBT exemption on meal cards, which is projected to raise $610 million over the forward estimates, is of course a tax increase by stealth. This change in tax law is expected to raise, as I said, $610 million over the forward estimates. The Treasurer’s second reading speech states that the intent of this measure is to tighten the law applying to arrangements for work related items and for property consumed on an employer’s premises. These meal card arrangements rely on the exemption given in the FBT legislation for property consumed on business premises on a working day. There is no suggestion that the meal card arrangement has been an exercise in avoidance—far from it. The Australian Taxation Office has issued a number of class rulings that actually sanction meal card like arrangements.

The change will mean that the exemption for on-site consumption of business property will no longer apply to salary sacrificed food or drink. It is yet another case of the government promising one thing but when they get into government they change it all. I note that the explanatory memorandum claims that the cost impact of this measure will be minimal. Certainly there will be a financial impact on the many small businesses that sell food and drink under meal card deals. A good example of the impact that this will have is to look at the unintended consequences on, say, a coffee shop that is in the lobby of an office block. A coffee shop on the ground floor of a major office block in a capital city would often be dealing with those entitled to make purchases on a meal card.

Of course, while Treasury does take into account the revenue that it expects to receive from the change, one has to wonder whether there has really been a significant analysis of the losses in income that will be incurred by many small businesses and coffee shops in major cities. What will be the impact on small businesses from this decision? I think this just underscores why we on this side of the chamber have felt that we need a bit more time to scrutinise this legislation. The explanatory memorandum also states that the measure restores the original policy intent of the exemption being given for ‘modest benefits’. Most of the benefits provided by meal cards are no doubt modest. I would say that sustenance through food and drink is in fact a modest benefit. That is certainly the case for the many low-paid workers that have been hit by this budget measure.

The committee report notes that a number of submissions indicated that the large bulk of meal card users were often low-paid workers in manual labour jobs who would use these meal cards at the work cafeteria. Specifically, Accor Services stated in their testimony that meal cards were used by a range of low- to middle-income earners. Of its 7,000 clients, Accor reported that more than 60 per cent of meal card users were on a 30 per cent tax rate and 60 per cent were women. This is hardly a picture of sumptuous lunches and over-the-top catering, nor is it an example of the rich taking advantage of a tax loophole.

The FBT measure relating to work related items, which is projected to raise $530 million over the forward estimates, is also something that I think raises some significant issues. It will restrict the FBT exemption to items that are used primarily for work related purposes, such as laptops and PDAs, and limit employees to one item a year, unless of course it is a replacement. It will, as I said, raise $530 million over the forward estimates. When it comes to the FBT changes on work related items, the stated intent of this measure is to tighten the FBT exemption for certain items provided by an employer to enable an employee to do their job. In addition to computer software, a briefcase, protective clothing and a tool of trade, there will be an FBT exemption for a portable electronic device. I think we can expect that there will be some rulings and determinations from the ATO in the months and years ahead that seek to explain what is meant by ‘a portable electronic device’. For example, guidance will be required by employers in deciding whether a portable electronic device does or does not have substantially identical functions to another portable electronic device. We can only hope that we do not end up with another tortuous section. This provision as it stands gives little certainty to employers in working out their FBT liability.

It has been noted by a number of commentators that those employers who have been providing benefits such as meal cards and salary packaging of laptops and PDAs will now have to consider certain challenges to their strategies to attract and retain scarce talent in this tight labour market. One can only wish them good luck.

The changes to employee share schemes have been described as a tax integrity measure. Under the measure, where an employee who is granted shares or options at a discount to market value elects to be taxed on that discount in the year of grant, instead of deferring tax, say, to year of sale, the employee will not be able to take advantage of changes in value and try to backdate their election—that is, the ATO will be unlikely in future to let employees amend earlier year returns to include the discount belatedly. There is also a measure to remove double taxation by correcting a technical exposure to trustees and members of an employee share scheme on the member becoming absolutely entitled to shares in the scheme.

The opposition supports action that prevents employees from making a late election for up-front taxation where the taxpayer does not have an acceptable explanation—which of course is the current policy. However, to remove the commissioner’s discretion to accept late elections in any situation suggests the government considers that the ATO has been ineffective in its administration in this area of the tax law. We contend that there is no evidence to support this inference. If there is any, we would like to know about it. Indeed the ATO was successful before the full Federal Court in a recent challenge to its decision making in relation to the taxation of employee share schemes. It would be helpful if the minister representing the Treasurer would, in his comments, provide us with the assumptions underlying the revenue impact, estimated at $77 million over the forward estimates.

On another point, there are numerous elections throughout the tax legislation, as we all know. There are numerous discretions given to the commissioner throughout the legislation. These are well-established features of the self-assessment system that has been in place now for 20 years or so. I call on the Minister representing the Treasurer to inform the Senate, in his remarks, whether the taxpayer behaviour that apparently justifies the measure included in item 12 of the bill has longer term implications for the self-assessment system more broadly. Will the self-assessment system be part of the ever-expanding root and branch Henry tax review? No doubt, as has been shown with most other matters that have got the government into a bit of hot water, it can quite readily be added to the scope of the review. In our view, the tax community needs to know whether the government is going to go back 20 years or so and examine self-assessment.

The extension of the write-off period for software from 2½ years to four years is yet another hit on small business. This change in write-off periods will spread tax deductions for software over longer periods, leading to increased revenue of $1.3 billion over the forward estimates. Software is bought by businesses for operational reasons, not tax reasons. That is something the government does not seem to grasp. The Treasurer has already acknowledged that, where a business scraps software before the four-year write-off period has ended, the business will still get an immediate write-off for the remainder under the existing tax law. I call on the government, through the Minister representing the Treasurer, to inform the Senate about the assumptions that underlie the estimate of $1.3 billion, given that businesses will be able to fully write off their expenditure in the circumstances outlined by the Treasurer and will still be able to self-assess an effective life that is shorter than the four-year write-off period.

I note that there is a measure in Treasury’s 2007 tax expenditure statement described as ‘accelerated depreciation for software ... a tax expenditure in relation to software which has an effective life greater than 2.5 years’ which estimates the concession to cost approximately $70 million per annum. Given that this lower estimate is plainly there for all to see in the tax expenditure statement, will the minister inform the Senate why the government are setting a longer depreciation rate than the effective life for software assumed by Treasury in the tax expenditure statement.

As I have already noted, we have some major concerns about the potential impact of some of the aspects of this bill. I have to say, now that I am over this side of the chamber, that we wish to take a responsible attitude towards the measures that are part of this bill, but it does raise some issues when we think the business community and certain individuals that are impacted by these changes deserve a more fulsome explanation than we were able to glean from a one-day Senate inquiry and other inquiries that have been made about this.

Ordinarily such a bill as this would at least be afforded the opportunity for adequate scrutiny by parliament. Unfortunately, I think this bill will be remembered and remarked about not so much for its content but rather for the way in which, unfortunately, it has been rushed through the parliament without proper scrutiny and proper consideration of the personal and financial impact on small businesses and working Australians dependent on these work related benefits for their tax arrangements.

Senator Sherry, Senator Evans and Senator Conroy—and the government generally—have been using question time in the Senate to claim that we are somehow being economic vandals by referring some complex bills to committee for further analysis. Nothing could be further from the truth. This is of course our job—to elicit a more comprehensive explanation of the policy rationale underpinning these changes.

It is very unfair and unedifying for the Rudd Labor government to treat the Senate like a sausage factory. It shows a government under pressure. The disgraceful manner in which this bill has been rushed through the other place and the Senate raises serious questions that go either to the government’s motives or to the government’s competence. Why, after the bill was introduced into the other place, did the second reading debate occur just the very next day? What was the haste that meant such a bill should be rushed through without even giving the opposition a chance to look at it for a week before voting on it? Why was the Senate Standing Committee on Economics only given a day to advertise for the very, very brief public hearing that it had last Friday? These are all serious questions. What this shows is the shambolic mess that the government is making of its legislative program.

While I have made it very clear that we do not oppose the bill, we would like to point out for the record the concerns that we have with it. It is a matter of great regret that the Senate has again been pressured into supporting a bill that is all about digging the government out of a hole of its own making in its legislative program and not about delivering well-considered tax policy for the Australian economy.