Mathias Cormann (WA, Liberal Party, Minister for Finance) Share this | Hansard source

I thank Senator Gallagher for her contribution to this debate. This bill amends the GST law to give effect to changes announced by the Minister for Revenue and Financial Services, the honourable Kelly O'Dwyer, on 31 March this year. These changes will take effect from 1 April 2017. The bill provides that entities buying gold, silver and platinum that have been supplied as a taxable supply for GST purposes will be required to apply a reverse charge. They will remit the GST to the ATO instead of the seller. The bill further clarifies that gold, silver and platinum are not second-hand goods.

Under arrangements that applied prior to 1 April 2017, the entities were able to exploit the different tax treatments applying to precious metals and scrap metals. But, generally, the supply of precious metals is not taxable, whereas the supply of scrap metals will be a taxable supply. Precious metals are gold, silver, platinum and other prescribed metals meeting particular investment form and fineness requirements. However, precious metals can be altered to turn them into scrap metals. Gold bullion, for example, can be defaced by scratching to remove logos in order to convert it into scrap gold.

The first type of avoidance activity, referred to as the 'missing trader', involves entities altering precious metals to turn them into scrap metal so that when the metals are onsold the entity can charge GST on the sale. That entity then goes missing or phoenixes to evade the liability to remit the GST to the ATO, yet the buyer might still claim a GST input tax credit. Applying a reverse charge to supplies involving these metals ensures the purchaser becomes responsible for remitting the GST to the ATO. This removes the opportunity for purchasers to claim an input tax credit without a supplier remitting the corresponding GST that is payable.

The second type of avoidance activity involves entities that are not required to be registered for GST buying bullion GST-free then defacing the bullion to convert it into scrap gold. When onsold, the scrap gold is treated as second-hand goods but the GST registered buyer buying the scrap gold claims an input tax credit without the unregistered seller paying any GST to the ATO. The GST law allows entities to claim input tax credits for second-hand goods bought from the public, with the policy rationale that GST is embedded in the price when dealers purchase these goods. However, the scrap metals—broken jewellery and other items that are bought for their valuable metal content by second-hand dealers—are very unlikely to have any GST embedded in the price. Therefore, allowing an input tax credit in such situations is not consistent with the policy underpinnings the second-hand goods rules. The elaborate arrangements involving both the missing trader scheme and the second-hand goods scheme had no commercial purpose, and organised crime was becoming involved. The opportunities had been created by exploiting the different tax treatments applying to pure versus scrap gold. This measure will benefit legitimately refiners and gold traders who comply with the law as they would no longer be at a competitive disadvantage. The reverse charge will have an impact on the cash flow of refiners and dealers. Both stakeholders will move to a cash flow neutral position.

The measure, as I indicated, was announced on 31 March 2017 and will have effect from 1 April 2017 onwards. The minister engaged in consultation in the draft legislation, which occurred in early May. Written submissions were received from five stakeholders and verbal submissions from two future stakeholders. The main concerns stakeholders raised involved the application of the 10 per cent valuable metals threshold test, definitional issues surrounding the terms 'collectables' and 'antiques', and concerns surrounding the retrospective application of the law. Minor legislative amendments were made, responding to some of those comments raised.

Of course, a prior consultation had also taken place in the week following 1 April 2017, with information sessions held in Sydney and Melbourne via webinar. This provided an opportunity for industry participants to understand the new arrangements in greater detail from 1 January 2017 onwards. The ATO also provided a voluntary reverse charge arrangement to gold industry supply chain participants so that the GST they would ordinarily pay to the supplier of the gold would be remitted to the ATO. The amendment in this bill will provide the industry with certainty as to the intent of the law and prevent future revenue leakage. The measure is estimated to have an unquantifiable gain to revenue and associated payments to the states and territories over the forward estimates period.

In summary, as I have indicated, this bill amends the GST law to give effect to these changes which Minister O'Dwyer announced earlier this year. It provides entities buying gold, silver and platinum that have been supplied as a taxable supply for GST purposes will be required to apply a reverse charge, and they will have to remit the GST to the ATO instead of the seller. The bill further clarifies that precious metals are not second-hand goods. These changes deal with two types of tax avoidance activities which allowed entities to exploit the different tax treatment applying to precious metals and scrap metals. This bill clarifies the law to ensure it operates as intended and this avoidance and, at times, phoenixing activity is stopped. The bill is targeted to address the mischief of tax avoidance and fraud and contains provisions and protections to ensure that the effect on business activity is minimised.

The government is committed to protecting the integrity of the tax system and ensuring everyone pays their fair share of tax. By making these changes to GST treatment of precious metals the government is securing additional funding for state and territory governments that provide the crucial services, such as hospitals and schools, that Australians rely on. This is, of course, part of a broader approach by the government to ensure that we crack down on tax avoidance wherever it occurs and because it is important that all of the taxpaying Australian individuals and all of the taxpaying Australian business know that everyone pays their fair share of tax consistent with the laws of our lands. That is the revenue that in the end helps to secure the necessary funding for all of the essential services that Australians expect their government to deliver.

This is also part of the government's broader fiscal strategy, which involves getting the budget back to surplus as soon as possible. Based on current projections the budget is projected to return to surplus by 2020-21. That is despite all of the additional funding commitments we have made, in particular, to schools, with the $18.6 billion in additional funding we have provided to schools, committing to genuine needs-based funding reforms. That is despite the additional funding we have provided to health, restoring indexation of relevant Medicare benefits schedule rebate items progressively over the forward estimates period. That is despite us having delivered—three years early—a return of Defence funding as a share of GDP to two per cent of the share of GDP, given that it had previously been reduced to unacceptably low levels.

The government continues to work to get federal government spending onto a more sustainable and affordable trajectory for the future. When we came into government in 2013 we were on track to have government spending as a share of GDP heading for 26.5 per cent and rising within the decade. In this budget government spending as a share of GDP is down to 25.2 per cent in this year and is projected to be reduced to 25 per cent towards the end of the forward estimates period. We do need to continue to work hard to ensure that the Australian government can live within its means, that we do not have to live at the expense of our children and grandchildren and that we are able to fund the day-to-day living expenses of government, so to speak—the recurrent expenditures of government—on the basis of the revenue that we can sensibly raise out of the Australian economy.

Obviously, making sure that all Australians pay their fair share of tax and that all Australian businesses and all of the businesses operating in Australia and generating profits in Australia pay their fair share of tax is a fundamental part of our economic plan—our National Economic Plan for Jobs and Growth—as a government. That plan also involves our commitment to making our tax system more growth friendly. That includes our Ten Year Enterprise Tax Plan, designed to reduce the corporate tax rate to 25 per cent over a 10-year period for all businesses, which also includes the accelerated depreciation arrangements for small businesses with a turnover of up to $10 million, which were passed by the Senate last week. It also includes, of course, our ambitious Infrastructure Investment Program. It includes our ambitious free trade agenda, and it also includes the government's focus on our national energy policy framework. In particular, when it comes to our national energy policy framework, we need to ensure that we bring down the cost of electricity, that we guarantee and are able to guarantee and provide for reliable and secure energy supplies and that we do all of that in a way that still helps us meet our emissions reduction targets.

I am just wondering whether we are about—