Louise Pratt (WA, Australian Labor Party) Share this | Hansard source

This afternoon I rise to speak on the Tax Laws Amendment (2009 Measures No. 1) Bill 2009. The Senate referred this bill to the Senate Standing Committee on Economics, and I was pleased to have the opportunity to examine some of the issues through that committee’s work. As has already been highlighted, the bill amends various tax laws to implement a range of improvements. It makes a number of amendments to our tax laws in three quite separate groups. These three groups of amendments are laid out in the schedules of the bill.

I would like to begin by making some comments in relation to schedule 1. Here we have, very importantly I think, a 20 per cent reduction of the pay-as-you-go instalments for the December quarter of 2008 for certain small businesses. It sets out the method by which the Commissioner of Taxation is able to determine the amount of pay-as-you-go quarterly instalments. The instalment system aims to smooth taxpayers’ cash flow by ensuring that taxpayers do not accrue large tax liabilities that may be difficult to pay as a lump sum. This would be an undesirable outcome. In order to prevent this, taxpayers earning business or investment income pay instalments towards their final tax liability during their income year. Some of these taxpayers may pay their PAYG instalment on the basis of what is known as their GDP adjusted notional tax. The instalments paid by taxpayers that will be affected by this amending legislation are set out in schedule 1 of this bill.

In this economic climate we know that business incomes have changed quite dramatically. Without this legislation, we may well be asking small business to pay too much tax upfront—more than they would otherwise be liable to pay. That is a significant disadvantage for small businesses that might otherwise be struggling anyway. So, broadly speaking, the GDP adjusted notional tax is worked out by increasing the taxpayer’s income in the previous year by that year’s rate of nominal GDP growth. This is known as the GDP uplift factor. In income years when economic and business conditions change quickly and unpredictably, causing the expected income of taxpayers to change accordingly, this uplift factor may not be representative of the expected profit growth of these taxpayers. That is certainly something we are experiencing at the moment.

What happens is that you have taxpayers who are required to pay instalments that are way too high in relation to their actual income. This income year is one in which economic and business conditions have already changed very dramatically. So, without this legislation, it is very likely that these taxpayers will have to pay instalments that are too high in relation to their actual income, unless the amendments proposed by this bill become law. Naturally, any overpaid tax would of course be refunded to these taxpayers at the conclusion of the income year, once their final tax liability has been assessed. But, in the meantime, paying overly high instalments can have very negative impacts for the cash flow of the small business affected because not only are they paying that higher rate of tax compared to their tax flow but they have a declining cash flow and, as we know, small business is also experiencing something of a credit crunch. Basically, those small businesses need that cash now.

It is true that taxpayers can vary their instalments on their own initiative. Many are reluctant, though, to work out reductions themselves because underpayments can trigger an interest charge: if you thought you were making the right decision and you underpay, you will be charged interest at the end of the financial year. On that basis, many businesses are quite reluctant to do that. What these amendments do is provide for a 20 per cent reduction in the instalment for the December 2008 quarter, and that is broadly in line with the average reduction in the instalments necessary in a single quarter to bring the instalment regime back into line with the expected slowing in small-business profit growth for the 2008-09 income year. So this reduction is going to avoid the need for small businesses affected to risk reducing instalments on their own initiative, while at the same time providing immediate relief to the cash flow of the small-business sector—a sector which provides, I think, about four million jobs.

It is really important that we do everything we can to support small business in the current economic climate. Senators will be aware that such cash-flow relief is much needed by small businesses and we really need to support their business confidence, because it is desperately needed in these difficult times. So the instalment reductions are going to offer relief to around 1.3 million small businesses that have an aggregated turnover of $2 million or less.

As such, this measure stands to benefit not only the businesses concerned but also their employees, suppliers and customers and, through them, the broader economy as a whole. This measure is part of the Rudd government’s broader commitment to take timely and decisive action to support small business and to ride out the current global financial crisis. The government are doing this because we value small business in its own right but also because we recognise the importance of small business to the broader economy.

As I said earlier, in addition to the instalment reductions in the December quarter, schedule 1 of the bill provides for a new regulation-making power, which is going to allow instalments to be reduced in the future in specified circumstances—when the economic conditions change. That is going to avoid the need for further legislation to effect reductions when those circumstances arise. It is going to give the government the flexibility to respond to the changing economic circumstances, which is very important.

Here we have greater flexibility in the tax system and a greater capacity to respond swiftly and appropriately to the changing economic circumstances that we currently face. This stands to benefit those small businesses that currently pay tax under this system. It is part of the government’s broad commitment to do what we can to make life easier for small business. I understand that the measures in schedule 1 have very broad support across the chamber, in recognition of their benefit to small business in these difficult times.

I will just comment very briefly on schedule 2, which makes largely technical amendments to superannuation. However, we know that government over many years has had difficulty matching up lost superannuation moneys with the people who actually own them. There are some significant improvements for temporary residents, as these amendments will reduce the number of lost accounts and amounts of lost money and enable temporary residents to reconnect with that income that they earned.

Finally, I turn to schedule 3. I know that Senator Stephens as parliamentary secretary will be responding to the issues raised in the debate, but I would like to note that for some time now there has been a level of inequity and unfairness in the way that taxation arrangements have applied to non-wage remuneration and discretionary losses. The amendments in schedule 3 will align the income test used to determine eligibility for the dependency tax offset with the definition of ‘income’ used for things like family assistance. The income cap will be linked to the income cap on family tax benefit part B. These changes are designed to introduce greater consistency across our tax and transfer systems.

I note that there is some controversy about these measures. I note that the government’s view was that there was a broad policy objective to remove inequities in the taxation levels that people were paying. Indeed, this was something that was supported by the Australian Council of Trade Unions in its submission to the inquiry, which said:

These are important equity measures which:

• Remove inconsistencies in the treatment of non-wage remuneration;
• Better target the dependency tax offsets to lower income families; and
• Treat the income of individuals and families without access to salary sacrifice arrangements in an equivalent way to those who are able to access—

such arrangements. So they see clearly that these provisions in the bill make our tax system fairer. Here we have in the provision in schedule 3 fairness within the tax system, in schedule 2 we have improvements to the superannuation system and in schedule 1 we have a commitment to assist small business to face the challenges presented by the global financial crisis. I commend the bill to the Senate.