Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

The purpose of the Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006 is to repeal substantial amounts of inoperative tax law, including 2,600 pages of income tax law and 1,500 pages of other tax related acts. As you are probably aware, Mr Acting Deputy President, over the last 10 years plus I have had the somewhat dubious distinction of having to deal with virtually every single tax bill that has come through the Senate chamber, bar a couple of minor ones. Over recent years I have made it a practice to continually make the point as to how many more pages we were adding with a particular bill that was before us. I was pleased to see that the international tax law bill we dealt with earlier was quite thin. Here we have nearly 200 pages of additional legislation to get rid of 2,600 pages. It shows what a very difficult task this is.

The bill is arranged into six schedules. Schedule 1 repeals inoperative provisions in the tax laws. Inoperative provisions are those that no longer apply to taxpayers. Schedule 2 contains consequential amendments to various pieces of Commonwealth legislation, which are required because of the effects of schedule 1. Schedule 3 repeals provisions in income tax laws which have been identified as becoming inoperative in the immediate future. So it is a prospective schedule.

Schedule 4 makes consequential amendments arising from the operation of schedule 3. Schedule 5 contains two parts. The first part repeals 68 tax law acts that have been identified as inoperative. The second part makes consequential amendments to 30 acts required because of the schedule 5 part 1 repeals. Schedule 6 is divided into three parts. Part 1 provides for the application of the amendments made by schedules 1 to 5, part 2 has a general savings provision, and part 3 has other saving provisions and transitional arrangements. These provisions are designed to preserve powers, duties, rights and obligations in relation to the time before the repeal or amendment.

I particularly wanted to talk to this bill, even though it is in the non-controversial section, because I think it is a good time to congratulate those people—those bureaucrats—responsible for identifying the inoperative provisions and acts. It can be hard enough to work out which provisions are operative, let alone which are inoperative. It is an extremely difficult task at the best of times, even for those who may be considered tax professionals, and those involved are to be commended for their efforts. I wish to offer those congratulations in person to the officers here and to the officers listening.

Identifying the inoperative provisions is a critical first step in simplifying tax laws, and the difficulty involved in that task alone should not be overlooked, ignored or forgotten. Australia has an extremely complex set of tax laws. Although the 1936 Income Tax Assessment Act, when enacted, was only 120 pages, by 2006 the combined length of the 1936 and 1997 statutes was more than 8,000 pages long. As Mr Gary Banks—who has been around forever it seems; he is the chairman of the Productivity Commission—noted in an address to the Conference of Economists Business Symposium in 2003:

Were the rate of this growth to continue unabated, I am informed by the end of this century the paper version of the Tax Act would amount to 830 billion pages ... would take over 3 million years of continuous reading to assimilate and weigh the equivalent of around 20 aircraft carriers!

Although it is extremely unlikely that the growth of the Tax Act will continue on such an expansionary trajectory—it is unlikely, isn’t it?—it nonetheless highlights the facts that Australia has experienced a massive growth in the size of its tax laws since their inception and that it is increasingly important that attention be given to their simplification and reduction.

Recently, the Taxation Institute of Australia commissioned John Taylor, associate professor at the School of Business Law and Taxation at the University of New South Wales, to prepare a report on the compliance and complexity element of Australia’s tax laws. That, by the way, is a matter that is also before the Joint Committee of Public Accounts and Audit, on which I sit—and I am part of that inquiry. The result was Beyond 4100: A report on measures to combat rising compliance costs through reducing tax law complexity. In that report it was noted:

In 2006 the Income Tax, Fringe Benefits Tax, Goods and Service Tax and International Agreements and Superannuation legislation (in some bindings) are published in five volumes that comprise one of, if not the largest, set of tax statutes in the world.

Tax law is an area of law which is inescapable for most law-abiding citizens, and has become an integral part of a modern and civil society. However, as anyone who has ever worked with, or tried to work with, the tax laws knows, it is a very difficult system to navigate through, and cumbersome to use. It is particularly difficult when you are dealing with legislation in this chamber because there is no way you can have the Tax Act with you to refer to and correlate with. The consequence—and it is a dangerous consequence—is that senators are often required to take on trust what is before them because they are simply not equipped to cross-reference and cross-cover the matters. So the need for simplification is essential and obvious to those who care to look.

A simpler system will result in a system that is easier to use and understand. This will be of particular use to small business who cannot always afford professional tax advice, as well as those in the tax profession who must work with the tax laws on a daily basis. Even the student at university—I have been known to employ a few—will benefit from a simpler set of tax laws when they are required to study it because of their university course.

The explanatory memorandum to the Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006 contends:

The measures will reduce compliance costs for tax practitioners, and provide material benefits to practitioners and taxpayers who read, interpret and apply the tax laws.

That is a big claim and I hope it is a good claim. I am inclined to believe it. This conclusion is consistent with another of Associate Professor Taylor’s findings in Beyond 4100:

Empirical evidence suggests that, for individuals, the sheer size of the statute increases both the cost of compliance and the likelihood of non-compliance. Company tax has been found to have still higher compliance costs both in absolute terms and as a percentage of revenue collected.

While any effort to reduce compliance costs—and complexity—should be viewed in a positive light, it seems that there has yet to be any work done on forecasting or predicting the magnitude of the expected reduction in compliance costs. I do not expect such work to be done, because I think it would be almost impossible to do.

PricewaterhouseCoopers, a leading global accounting and consulting firm, are of the opinion, and argue, that while it is true that Australia is:

... notorious amongst OECD countries for the complex drafting and detail of its income tax laws ... the changes will do little to reduce tax compliance costs.

I was disappointed to note that remark. It is in complete contradiction to my own instincts and to that part of the explanatory memorandum which I just quoted.

Fundamentally, what Australia’s tax laws need is not only a revision of their operative and inoperative provisions but also a change in the way in which provisions are drafted. There needs to be a change in mentality from drafting highly complex and particular provisions to those which express and encapsulate overarching policy objectives and themes. This is a view which is also put forward by Associate Professor Taylor in Beyond 4100.

I commend to the tax office and the Treasury some of the remarks that have already made in the Hansard record of the Joint Committee of Public Accounts and Audit in its inquiry on tax with respect to the desirability of more draft exposure legislation in tax. Of course, I am commending it to you because I made those remarks myself, but nevertheless I think they have virtue and I ask the tax office and the departments to have a look at them.

Simplicity, along with equity and efficiency, is often considered to be one of the characteristics of a good tax system. At present Australia has a system that is far from simple. The Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006 is an important and essential step in any greater efforts to change our tax law system and should be regarded as a positive step in the right direction. However, it is only part of the solution. I urge that the government build on this solid foundation and continue in its efforts to simplify Australia’s tax laws. As the Australian Democrats have long advocated a tax system that is fair, progressive, simple, transparent, effective and flexible and that has ease of compliance and encourages civic responsibility, we obviously welcome this bill and its entry into the Senate. Further, as this bill has the end goal of simplifying Australia’s tax laws, I am obviously of the view that we should support this bill, and we do support this bill.

In conclusion, I have noted some remarks elsewhere concerning this bill of a somewhat mean nature, I thought. Personally I think the Treasurer is to be congratulated on this initiative because I think getting rid of a substantial swathe of tax laws is an achievement on its own.

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

In noting Senator Murray’s contribution to this debate, I have to say that we in the Senate Economics Committee rely heavily on the fact that he has been representing and interpreting tax bills in this place for a decade or more, and that corporate knowledge is something that guides us in our deliberations about the legislation.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

Probably why it’s such a mess!

Ursula Stephens (NSW, Australian Labor Party, Shadow Parliamentary Secretary for Science and Water) Share this | Link to this | Hansard source

I hardly think so. While Senator Murray commented about the extent of our current tax legislation, the fact that we are here debating the repeal of inoperative provisions is testament to the fact that we have one of the most complex taxation systems in the world, and something desperately needs to be done about it. In fact, what we believe is that in reality the Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006 is an admission of enormous failure by the government when it comes to taxation legislation. Since the Howard government came to office the tax act has actually expanded by some 10,000 pages, and this has made the system much more complex and more confusing for taxpayers and has increased business costs.

In desperation the government asked the Board of Taxation in 2003 to identify inoperative provisions of the tax act. The board reported to the Treasurer in October 2005, identifying some 1,900 redundant pages of legislation. We need to be very clear about this legislation that is before us today: this is just taking away provisions that do not apply. It does not consider provisions that do not work well or are not used but provisions that have no legal effect. The Board of Taxation found 1,900 of these pages—an enormous number. It was a massive admission that 20 per cent of the tax act in Australia was of no legal effect, which is quite a scandalous record in tax legislation.

But then Treasury added a number of redundant sales tax acts to the list, leading to a reduction of some 4,100. That is not 4,100 pages reduced in the income tax acts at all, so the kinds of claims that are being made about the legislation and what it is going to achieve for us are quite complicated and a bit disingenuous. Major commercial publishers have agreed to print an archived volume of repealed provisions, so even these repealed provisions will not actually disappear from the shelves of tax practitioners. In addition, savings provisions come into operation by virtue of the Acts Interpretation Act. A repeal does not affect the operation of the act while it was in force. So the claim that 4,100 pages have been cut from the tax act is in fact quite an exaggeration.

However, the major problem is that repealing redundant provisions does not actually reduce the complexity of the act. The complexity in the operation of the tax system is naturally driven by the provisions that are operative. So in repealing the inoperative provisions the Treasurer, Mr Costello, is simply sanding back some of the rough edges of the structure. He is not reforming its fundamental shape.

The economic benefits from this measure are not significant, whereas real reductions in the compliance costs of tax for small business would enhance returns, economic growth, employment and tax revenue and would also lead to lower prices in a more competitive market. So in fact this bill is a missed opportunity for the Howard government. Although Labor welcomes the bill, we are calling on the government to actually do something that makes the operative provisions of the act work better. This, we believe, is just a half-baked effort. It does not go far enough.

Importantly, though, it should be noted that in some cases in this bill the government is not purely repealing provisions but also changing the law in only small ways. In the previous debate, we heard what the effect of a small change to an act can be and how it can have quite significant impacts on small sectors of the community. The best example is the change to section 26(e), assessable income of goods in kind. This has been rewritten and the operation of the act changed in a minor way. The point is that this bill is really mistitled. When savings provisions and rewrites are considered, the bill involves much more than the repeal of inoperative provisions.

As I say, the best example in this legislation is section 26(e). This makes goods received in kind assessable income, but it is never used due to the operation of the fringe benefits tax regime. What should really happen is that the 26(e) regime should be repealed and consequential amendments made to the fringe benefits tax laws. But the government has not done this; it has just rewritten 26(e). It is not much of a rewrite at all, actually. In fact, it certainly does not reduce the act at all. Again, it is an example of another wasted opportunity.

I would like to make some comments now about the Taxation Institute of Australia’s report, provocatively entitled Beyond 4100. The contents certainly justified the title, as the report indicates a range of areas in which real reform of income tax law can proceed. The Beyond 4100 proposals are about substantive tax reform, in contrast to which the current bill appears rather cosmetic. Some of the recommendations of the Beyond 4100 report are more easily accepted than others. Still, the most conservative and uncontroversial recommendations request that provisions that are either almost never used and cannot be enforced should be repealed or redrafted. Labor thinks the report is an excellent contribution to the debate and now formally indicates its support for some of the less controversial and more easily implemented elements of the report.

I move the second reading amendment standing in my name:

At the end of the motion, add:

        “but the Senate:

        (1)    Notes that while technically operative, the following provisions of the Income Tax Assessment Act 1936 (ITAA) are unnecessary and should be repealed;

             (a)    in the ITAA, 26(b), 26(e), 38 to 42; 94, 102, 108, 109, Part III Div 3 Subdivision D, Part III Div 6A, Part II Div 9C, and Part III Div Subdivision 11B; and

             (b)    in the Income Tax Assessment Act 1997, 15-10, 15-15, 15-20, 15-30, 25-10, 25-35, 25-40, 25-45, 26-30, 26-35, 26-40, Part 2-5 Division 32, Part 3-1 Subdivision 110-B, Part 3-3 Division 149, and Part 2-42.

        (2)    Notes that the following provisions of the Income Tax Act 1936 (ITAA) are rarely used or enforced;

             (a)    ITAA, 95A (2), with consequential repeal of 98(2) and amendment to 99 and, Division 6D of Part II (ultimate beneficiary non-disclosure statement); and

        (3)    Calls on the Government to present to the Joint Committee on Public Accounts and Audit, within 6 months, proposals for the redrafting or repeal of these provisions to further simplify the operation of income tax law”.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

by leave—I omitted to mention in my speech that I have absolutely no idea as to whether the clauses in Senator Stephens’s second reading amendment apply, but I like the intent and I will support it.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

I think all senators and all Australians would welcome any attempt to simplify the tax laws. I listened with interest to Senator Murray’s very learned contribution to the debate on the Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006 and I have to say that I agree with almost everything he said, and I think most would agree.

This is an attempt by this government to in a small way simplify the tax laws, but I think it is a little rich of the Labor Party to be moving second reading amendments to call, as I understand it, for more simplification when one might recall that, since we have been in government, the Labor Party has been a cause for proliferation of complex tax legislation. I need only to go back to the GST debate to indicate that a simple taxing arrangement under the goods and services tax was knocked off by the combination of the Labor Party and the Democrats. I concede that the Democrats allowed the principles of the bill to come in, but in doing so the government had to allow for a lot of exemptions from the simple scheme, which made that piece of legislation far more complex than it needed to be. It is no use rehashing that debate at the moment, but suffice it to say that, had the Labor Party supported that simple taxing measure in those days, at least one piece of legislation would have been simple. Even in those days the Labor Party—

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

Simpler, I would say.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

It could have been much simpler, Senator Murray, had it not been for your amendments—which, as I say, I acknowledge were gratefully received at the time, because we were able to discharge the promise we made to the Australian people to bring in a goods and services tax. Unfortunately, we were not able to discharge all of the promise to bring in a simple system of goods and services tax, and it has turned out to be quite complex, as you rightly confess to, through your involvement. As I say, it is no use rehashing that now, but I was always of the view that the concerns you and your party and many of us had about increasing costs to various elements of society could have been better addressed in a way other than interfering with a taxing bill. Having said that, the calls that both the previous speakers now make for simplification have a touch of irony in them in that both those parties have been the cause in one bill—not this bill we are dealing with—of making tax laws far more complex than they needed to be.

There are, of course, simple ways to fix the complexity of tax. At various times people have called upon the abolition of income tax across the board—not that I am particularly advocating that today, but I do think governments should be working towards a system where tax is paid and tax returns lodged only for those above a certain limit. I will not even attempt to guess what the limit should be. The tax laws become very complex because of exemptions and concessions that governments make. If there were a simpler way of addressing the underlying principle of taxation so that you did not need to allow all the complex concessions and allowances, that would be a goer well worth attempting to achieve. But I think there is merit, particularly as far as ordinary taxpayers are concerned, to look towards a system where most Australians would not have to lodge income tax returns at all. There are other ways of raising tax. Perhaps if we had not been so generous to the Labor states and given all the GST money to the states we could have had substantial concessions in the tax we collect under the income tax and associated acts. The states, particularly my state of Queensland, are rolling in money as a result of the GST. They never concede that, but the facts speak for themselves. Queensland has done exceptionally well.

Many people still think that the GST is a tax that the Commonwealth collects and keeps. Of course, it does not keep it. It all goes to the states—all of which, regrettably, are Labor states; all of which are or should be rolling in money. But, in my own state of Queensland, they cannot keep the health system operable, they cannot keep police on the beats and they cannot do anything about the desperately needed infrastructure, particularly in south-east Queensland. One would have hoped, with all of the GST tax revenue that Queensland has received, that the state Labor government might have been able to do that. Unfortunately, as with all Labor governments, mismanagement of financial matters, increases in the number of public servants, increases in bureaucracy and putting mates into the Public Service—it has become quite politicised in Queensland at the moment very regrettably—are the sorts of things that happen when you trust Labor governments with big licks of money. Unfortunately, in those days we were desperate to get the GST legislation through and needed the states onside, but in retrospect perhaps we should have imposed more conditions on them. Perhaps we should have called for accountability in the way that they spent the money because, looking from this chamber at all of the states, particularly my own state of Queensland, the lack of accountability for the spending is something that is almost criminal.

I want to use the opportunity of this debate to raise the issue of the zone tax scheme. Perhaps, tongue-in-cheek, I could suggest that this bill could have been extended to remove from the income tax acts all reference to the zone tax scheme—that is, abolishing it. I say that tongue-in-cheek because the effect of the zone tax scheme as it was introduced in 1945 is no longer with us. In 1945 the scheme was introduced to provide special income tax concessions for people residing in certain remote zones of Australia. The ATO website actually says that it was introduced in recognition of the disadvantages that taxpayers are subject to because of the uncongenial climatic conditions, isolation and high costs of living in comparison to other areas of Australia. That applied in 1945. It applies equally today but perhaps not with the boundaries as they were in 1945.

For example, I live in Ayr, in coastal North Queensland about an hour south of Townsville, and I still get a zone tax allowance. I think it is $54. I do not consider that where I live has uncongenial climatic conditions, that it is isolated or that the costs of living are all that much higher than they are in the capital cities. They are higher, but not all that much higher. So perhaps places such as where I live do not deserve that $52 to $54 allowance—it is some figure in that order. I suspect if it were taken away, few taxpayers would even notice it. In discussions I have had with the Treasurer, he rightly says that if you take away any sort of concession that anyone gets, it has unfortunate consequences. I do not know that I agree with him and I might say that this issue of zone tax is, I suspect, the only area where I disagree with the Treasurer, who is quite clearly an exceptional Australian and an exceptional Treasurer. As I say, quite clearly Australia’s best Treasurer ever—

Ruth Webber (WA, Australian Labor Party) Share this | Link to this | Hansard source

Senator Webber interjecting—

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

and a guy who has done a fantastic job.

Alan Ferguson (SA, Liberal Party) Share this | Link to this | Hansard source

Senator Webber, you have been running a continuous commentary which is quite audible. I would ask you to please remain silent while Senator Macdonald is speaking.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

Regrettably, Mr Acting Deputy President, I have not heard the running commentary.

The Acting Deputy President:

Regrettably, I have.

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

I can guess that it is saying, ‘Good on you; good point. I agree that Mr Costello is the best Treasurer ever.’

Ruth Webber (WA, Australian Labor Party) Share this | Link to this | Hansard source

Senator Webber interjecting—

Ian Macdonald (Queensland, Liberal Party) Share this | Link to this | Hansard source

It is a pity I have not heard the commentary, because I am quite sure that the senators opposite would be agreeing 100 per cent with everything I have said, including my praise of the best Treasurer Australia has ever seen. But, in the area of zone tax, I do think that further investigation is needed.

There are parts of my state of Queensland and other parts of Australia where a zone tax rebate is needed because the conditions in those areas, the isolation and the extremely high cost of living do deserve and need, in my view, assistance from the government. I think it is essential that today we revisit the 1945 zone tax rebate scheme and reimplement the principles that were so prominent there in legislation. In 1945, when that scheme was first introduced, the basic wage was about $7.38 per week, in today’s monetary system. The zone allowance in those days was $80 a year in current currency. So that is about 10 times the average weekly wage. Today the average weekly wage is about $700 a week, but the zone allowance for the year in remote areas is $338 per year, about half the average wage. If the relativity were maintained today, as it was originally, at 10 times the average wage the rebate would be something like $7,000 per year instead of $338 per year.

There is the huge and critical difficulty that country people have in getting access to health professionals, indeed professionals of all types—not only professionals but tradespeople as well. There is an extra cost; there is an inconvenience of living in some of the remote parts. For example, you cannot slip down to the next suburb to go to a concert; you cannot slip down the road and see a major sporting event. You certainly cannot go down to the end of your street and see a doctor. If you want to access a lawyer in some of these remote places, you have to travel for a minimum of six, seven or eight hours.

There are inconveniences and high costs of living in parts of country Australia and they do engender and promote two different classes of Australians: those who live in the capital cities and have all of the resources and lifestyle attributes there, and those who live in the more remote parts who can barely get access to the most necessary support—that is, in the health area. It is worst in Queensland because the current government is very much a south-east Queensland government. They look after the south-east and all of their focus is on it. They built a footbridge across the Brisbane River so that the good citizens of Brisbane—which is part of my electorate, I might add—could have a nice walk across the river. That bridge cost an enormous amount of money, whereas hospitals up in the north-west—even hospitals in Townsville, which is a major provincial city—are suffering for lack of money. Yet the current Labor government just spends money on the high-profile, feelgood things like the new sporting stadium in Queensland that gave Mr Beattie the opportunity of, yet again, smiling and grinning and telling everyone how good he is and how he looks after them. He is only interested in that area of the state because, of course, that is where all the voters are. He does not worry about those of us in the north or the west—out of sight, out of mind. Even if they all vote against him, it is not going to make any difference to the huge majority he has in parliament.

But I digress. I want to return to the issue of the zone tax rebate. I was told in my discussions with the Treasurer that there are suggestions that having a different rate of tax for different Australians could be unconstitutional. That may be the technical legal view from some of the QCs or very learned legal people in the Attorney-General’s office, but it is not one that I would suggest, from my very limited understanding of law, would hold water. One very strong reason I have for saying that is that it has been in place now for more than 60 years and no-one has challenged it yet, so I do not think suggesting that we should not look at it on the basis that it might be seen to be unconstitutional is a relevant response.

There should be ways that we can assist those who live in the more remote areas and this zone tax rebate scheme, when it was first introduced, was a great way of doing that. It has been sort of added to over the years, but it has not kept pace with inflation and now does not have anywhere near the impact that it had when it was first introduced and that it was intended to have. I suggest, tongue-in-cheek, that this bill could perhaps be added to by removing all reference to the zone tax rebate scheme because, quite frankly, it is now hardly worth the paper it is written on. But, rather than remove it, I would suggest that the Treasury should be looking at some way to bring it back to the principles that were so very obvious when it was first introduced and are so very obvious now. Any legislation that starts or continues the process of attempting simplification is one that we should support and I certainly commend the bill to the Senate.

Question negatived.

Original question agreed to.

Bill read a second time.