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

I want to make some remarks tonight, but, in opening, I will say that the coalition will not be opposing the Tax Laws Amendment (Election Commitments No. 1) Bill 2008 and the two related bills. However, I want to take the opportunity to highlight some of the serious concerns that we have with these bills and the government’s handling of them. The coalition, of course, stands for lower taxes. For this reason, we are always receptive to tax cut measures. This is why we are debating this bill at this late stage of extended sitting hours on Thursday night. The coalition have a proud record of cutting taxes for hard-working Australians, but, as Labor’s budget shows—regrettably, I think—their record is one of raising taxes for Australian families rather than cutting taxes.

Unfortunately, the government have adopted a hypocritical stance in the way they are behaving tonight, especially in relation to these bills. During the last parliament, we constantly heard Labor bleating about how the Senate needed to have the opportunity to better scrutinise government bills. It is clear from Labor’s behaviour in relation to these bills tonight that last year they were only crying crocodile tears. They do not really care about scrutiny, transparency or good government. They will just engage in petty politics when it suits them, because they believe they can get away with it. The farce that the debate on these bills has become is because the government has failed to allow the Senate adequate time to effectively scrutinise the bills. The measures only cleared the other place yesterday, and now we are seeing them rushed through the Senate at this late hour, because obviously Labor do not want any light shone on their shabby handling of these particular budget measures.

This measure takes effect over three years by reducing the withholding tax rate in the following way: year 1, reduced to 22.5 per cent; year 2, to 15 per cent; and year 3, to 7.5 per cent. It is interesting that this is actually different from Labor’s initial proposal last year in which they promised to reduce the tax to 15 per cent. This, of course, would bring the rate down to be generally in line with the withholding tax regimes on other investment types. While this is yet another example of a broken Labor promise rather than a kept election promise, it may not be up there with other broken promises, such as the education revolution that we now know will only provide a laptop for half of Australia’s schoolchildren. But, as I mentioned before, the coalition has the record and the runs on the board when it comes to lowering taxes. It was the coalition that came up with the plan during the election last year to give personal income tax relief. Labor scrambled to play catch-up, because we now know that they had—and they have—absolutely no tax plans of their own apart from hiking up taxes.

The coalition consistently used the last five federal budgets to cut taxes, and the comparison of the coalition to Labor shows just how seriously devoid of ideas the government is. In their first budget in 12 years, Labor introduced myriad taxes. They raised taxes on hard-working Australian families who are struggling daily with sky-high petrol costs, with grocery costs and with cost of living pressures. So isn’t it somewhat ironic that the only tax cut that was introduced in Labor’s budget was a tax cut for foreign investors? That is the Labor way: raise taxes on ordinary Australians by stealth and then act out the charade of fiscal responsibility by giving a tax cut to foreigners. Why is it that Labor’s first budget proposes to raise taxes on hard-working Australians but give tax cuts to foreigners? Combine this with the attempt to rush this bill through without scrutiny and it is clear that that is the way the Rudd government operates and the way it intends to go on.

What is already clear is that, after only seven months in office, we see an arrogant, out-of-touch government—a government that will say and do anything to get into government but once in government wants to ride roughshod over the opposition and the proper democratic processes that Australians want to see in parliament. One of the reasons that the coalition would prefer that this bill be scrutinised by the Senate Standing Committee on Economics is that there is the prospect that it will allow a transfer of wealth from Australia’s Treasury to foreign treasuries.

The whole argument put forward by the government that this will encourage increased investment is not necessarily true or accurate simply because they say so. If an individual foreign investor from a country that has a double-taxation agreement with Australia decides to invest here, they are entitled to a tax credit in their home country for any tax paid in Australia. The consequence of this is that any tax cut in Australia means, for some investors, a tax rise overseas. All that this does is cause a transfer of wealth from the Australian Treasury to foreign treasuries. As an opposition, we believe that we have a perfectly legitimate right to ask why Labor wants to deliver a windfall to foreign treasuries out of the pockets of Australian taxpayers.

Again, the coalition would have wished to have had an opportunity to have a Senate committee examine this to determine just how much money this bill will transfer out of Australia’s Treasury and into the treasuries of foreign countries. As you can see, this is not a straightforward issue. The fact that we are having this rushed through so quickly really smacks of arrogance, hubris and a complete disdain for the need for transparency and proper scrutiny.

Another reason that the coalition would have wished to have had more time to scrutinise this measure is the monumental and incompetent mishandling by Labor of the costings of this policy. Last year Labor promised that this measure would cost only $15 million a year. When the then Treasurer, the member for Higgins, Mr Costello, queried this and suggested that it would be over $100 million, Labor, to its eternal discredit, criticised the coalition rather than buckling down to work out what the impact of this measure would actually be. Now, by Labor’s own admission, it is even more again. The budget forward estimates show that this measure will actually cost $630 million, as opposed to the $60-odd million that Labor promised. If the government has miscalculated a policy and costed it at one-tenth of its real impact, there is a compelling case to check the costings and to scrutinise this measure. In light of the miscalculations made by Labor, the Senate economics committee should have been given the opportunity to examine Treasury officials about the costings to ensure that they are now accurate.

The coalition will not oppose this measure tonight, as the industry has been requesting it and they are very keen to see it become law before 1 July. Whilst we support policies that will increase investment, we do not usually do this in this manner and on the run. I give Labor due warning that this is not to be repeated. We will cooperate with the government tonight to ensure the passage of this bill because of its significance to the business community. Our cooperation in relation to complex bills where there is more than a whiff of a government stuff-up must not in future be taken for granted.

Labor’s attempt over the past few days and weeks to don the mantle of responsible economic management is, I have to say, wearing pretty thin. Labor again tried to use question time to complain that the decision to refer budget measures to Senate committees was maliciously destroying the government’s budget. That is what the Leader of the Government in the Senate, Senator Evans, said. Labor falsely claims that only these tax hikes will stop inflation because they will build the surplus. But this measure actually lowers the surplus. How dare the Labor government lecture us for opposing tax hikes on ordinary Australians with their argument about building the surplus when they are now trying to justify lowering the surplus. The government is, I think, confused and in disarray. These bills show it. They promised to be economic conservatives but have instead shown themselves to be incompetent and dissembling in their dealings on this measure.

The opposition recognises the importance of a competitive withholding tax regime to the business community and the funds management industry. Through no thanks to the government’s antics, this bill will pass tonight.

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

I do not know who is confused or in disarray but I would suggest it is the opposition, after the performance of the shadow Treasurer, Mr Turnbull—but I might come back to that a little later. The Tax Laws Amendment (Election Commitments No. 1) Bill 2008, the Income Tax (Managed Investment Trust Withholding Tax) Bill 2008 and the Income Tax (Managed Investment Trust Transitional) Bill 2008 deliver on a very important election commitment to slash the withholding tax rate that applies to non-resident investors. The legislation represents the final stage of the implementation of an election commitment that was first announced in last year’s budget reply by the now Prime Minister, Mr Rudd.

That was a specific commitment in the budget reply, which was given just over a year ago. It was reiterated on a number of occasions in the lead-up to the election, and it was a specific election promise. I am aware that, at the IFSA conference the year before, before Mr Rudd became leader of the then opposition and obviously before he became Prime Minister, he had a particular interest in this issue and he raised it on that occasion. I think that was approximately October 2006. So on this issue, from the original announcement by Labor of its interest in this area through to the specific announcement in the budget reply last year and then the election commitments, the Prime Minister has had a very long, clear, unequivocal commitment on behalf of the Australian Labor Party.

Schedule 1 of the bill replaces with a new withholding tax regime the existing 30 per cent non-final withholding tax regime applying to certain distributions from Australian managed investment trusts to foreign investors. The importance of this measure to Australia’s future prosperity should not be underestimated. The measure is a key plank of the government’s aim to make Australia a financial services hub, and this is of great importance to the financial services sector, particularly in the Asian region. It will ensure that Australia remains a world leader and at the cutting edge of funds management.

The financial services industry makes a large contribution to Australia’s wealth and has significant potential to contribute even more. The financial and insurance sector currently contributes more than seven per cent of gross domestic product, and this makes it the third-largest industry in the Australian economy. The sector employs around four per cent of Australia’s workforce, or around 400,000 people, and contributes about $30 billion in tax revenue through corporate and personal income taxes.

Some people would be surprised to learn that Australia in fact has the fourth-largest offshore managed fund market in the world, with assets worth approximately $1.4 trillion under management. This is primarily due to superannuation savings, in turn primarily due to the initiative of compulsory superannuation introduced by the Hawke and Keating governments and later built on by former Prime Minister Mr Keating. This puts Australia in a uniquely fortunate position to assist in the country becoming a financial hub and to underpin export financial services. Due to the huge size of funds under management, Australia has developed a number of natural advantages in funds management: a good reputation; a well-respected, experienced, regulatory regime; a skilled workforce; and being strategically placed in the Asian time zone.

However, despite all these advantages, incredibly, less than three per cent of fees derived by Australian funds management funds are attributable to foreign investment. Added to this is the fact that, of the small amount of foreign funds under management here, most of this is derived from investors in a narrow range of countries, in particular the US and the United Kingdom. So it is clear to the Labor government and to the industry that the financial services sector has an immense untapped potential for growth, particularly in the Asian region, and obviously the Asian region itself has very fast economic growth, driving significant funds under management in Asia.

The Access Economics report last year demonstrates the export potential of Australian funds management. The report found that, under a business-as-usual forecast, the financial services industry would by 2010 export just over $1.5 billion out of total sales for the sector of just under $50 billion. But, if the share of exports in the financial sector increased gradually from its current level of three per cent to 10 per cent by 2010, exports by the sector would be $3.3 billion higher by 2010.

Reducing the withholding tax will substantially improve the competitiveness of Australian managed funds and help Australia realise its potential and boost financial services exports. The measure will give Australia one of the lowest withholding tax rates in the world, which will significantly boost the attractiveness of Australian managed funds, particularly property trusts for foreign investors.

We do not suggest that Australia will become a London or a New York. They have historical, geographical, political and financial strengths that were laid down centuries ago, in both cases. But Australia as an Asian financial services hub, to compete effectively with centres like Singapore, Hong Kong and Dubai, is achievable. The Australian Labor Party and the government believe that we can grow an Australian industry to ensure our bright and skilled young people have first-class jobs in Australia and are not forced to go overseas to get valuable experience and that indeed, if they do—and many Australians do—they will return to a world-class financial services sector.

The rate of withholding tax will depend on the residency of the foreign investor. Residents of countries in which Australia has an effective exchange of information agreement on tax matters will be subject to a reduced final withholding tax rate of 7.5 per cent once the measure is fully implemented. The rate goes beyond the government’s election commitment and ensures that Australia’s funds management industry is well placed—and that is a contributor to the cost issue that Senator Coonan touched on in her contribution. In the first year, the rate of tax will be 22.5 per cent, dropping to 15 per cent in the second year. However, in that first year residents of effective exchange of information countries will be eligible to claim deductions for expenses relating to their distributions. This will assist in the transition to a flat and final withholding tax regime. Residents of countries with which Australia does not have an effective exchange of information agreement will be subject to a 30 per cent withholding tax.

Efforts to prevent international tax evasion are substantially enhanced by the ability of countries to exchange information relating to tax matters. Australia does not have this capacity with many countries, with some actively trading on their scope to offer individuals and businesses anonymity. The list of countries with which Australia has effective exchange of information will be prescribed by regulation.

Schedule 2 of the bill will exempt from income tax the Prime Minister’s Literary Awards, to the extent that the awards would otherwise be assessable income. The Minister for the Environment, Heritage and the Arts announced on 28 February that these awards would be tax exempt, and the bill delivers on that commitment.

As I touched on in the beginning, it is unfortunate that there was some uncertainty in the opposition’s position on this legislation—or at least until I spoke in question time today—and I understand that the Treasurer, Mr Swan, touched on the issue as well, but that has now been clarified, fortunately. With those comments, I commend the legislation to the Senate.

Question agreed to.

Bills read a second time.