Tuesday, 20 June 2017
Treasury Laws Amendment (GST Integrity) Bill 2017; Second Reading
I rise to speak in support of the Treasury Laws Amendment (GST Integrity) Bill 2017. The bill amends the A New Tax System (Good and Services) Act 1999 to address exploitation of the goods and services tax law as it relates to precious metals. The bill introduces a mandatory reverse charge for taxable supplies between suppliers and purchasers of gold, silver and platinum. This removes the opportunity for the purchaser to make fraudulent input tax credit claims and for the supplier to avoid paying goods and services tax to the Commissioner of Taxation by liquidating. These amendments also establish a framework for parties to voluntarily reverse charge suppliers of such precious metals whether or not they are required to under the GST law.
The bill also clarifies the GST law to ensure that entities cannot exploit the special tax treatment for second-hand goods to claim input tax credits by changing the form of a precious metal. This ensures that input tax credits cannot be claimed for acquisitions of valuable metals in situations inconsistent with the policy underpinning the second-hand goods rule.
Labor supports measures that strengthen the integrity of the tax system and that ensure the tax system operates as intended. Tax evasion and avoidance by multinational companies threaten Australia's tax base. When tax loopholes are exploited by multinational companies, Australians ultimately have to either pay higher taxes or suffer cuts to vital services.
I have to say, Madame Deputy President, that this is one of those issues that come up all the time when I am talking to constituents. The vast majority of Australians pay a decent amount of tax and, when they see and read articles around high-wealth individuals and large multinational companies making large profits, and read that they are not paying or are minimising or avoiding their tax payments to Australia, it really causes a lot of distress, particularly when we have got the budget in the state that it is in. All revenue that goes into consolidated revenue is important in maintaining services, in paying for services and in making sure that people get the support they need without further cuts to services.
Labor has always taken the issue of tax avoidance and tax evasion very seriously, and I would point out that the previous Labor government began the task of tightening loopholes, including implementing the Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) back in 2012, so some five years ago, that was integral to the recent Australian tax office victory over Chevron. It is unfortunately to the government's shame that, in opposition, the coalition voted against Labor's measures to reduce multinational tax avoidance and in government have failed to take any serious action on this problem.
In 2015, Labor announced a comprehensive multinational tax package, which I could probably go through in detail, which focused on closing down debt deduction loopholes. This is part of Labor's view that we need to ensure that people pay the right amount of tax. Those tax receipts are then used by government in the provision of services to the Australian community. Labor has always prioritised this and we have been doing a lot of policy work from opposition to make sure that the policy settings are right, that people are paying the right tax, that we do not have massive loopholes that allow multinational companies to basically evade or avoid paying the right amount of tax.
While governments around the world are taking steps to shut down corporations' ability to inflate their debt deductions to minimise tax, this government have refused to back Labor's package or take any action. They simply will not act. We all know that tax havens threaten Australia's tax base, and that for every dollar lost to a tax haven, a taxpayer either has to pick up the tab or essential services like health and education have to be cut. We see that both in the debates we are having in this chamber today and with the release of the budget over the last few months. Those critical services like health and education do take up large amounts of the Commonwealth budget for good reason. I think if you asked people, health and education are priority issues. Health, education and the economy are usually Nos 1, 2 and 3 along with things like national security, and will be the top issues when you are out and about talking with people. We will have some disagreements on that later of the week in the week, particularly about education, it appears. People want these services funded appropriately and they can only be funded appropriately if our tax system does not have loopholes that can be driven through, if the policy settings are right and if everyone in this community—from businesses to individuals to households—contribute to the common good. That would allow those vital services like health and education that matter to every single household in Australia to be funded appropriately. Every dollar lost to a tax haven, a taxpayer pays the price; they pick up the tab, or we face cuts to the budget or cuts to service delivery.
Certainly the shockwaves from the Panama papers and similar scandals involving corporations and high-net-worth individuals aggressively minimising their tax are not issues just faced by Australia but they are issues that are being faced by countries right around the world. We would argue on this side of the chamber that not enough has been done to address the aggressive minimising of tax. What we are seeing is continued rising inequality, rising government debt, a significant structural deficit to the budget. At the same time, if you open the paper on any day of the week, you will read a story about some high-end tax avoidance scheme that has been going on.
We know that it is those on lower, modest and average incomes who pay the price for this, with most households having to cover the cost of aggressive tax-minimising regimes. In opposition, the government voted against Labor's measures to reduce multinational tax avoidance. We would argue that in government they have failed to take serious action on this.
I will just reflect in my speech for a short amount of time around what Labor would do to improve the bottom line and to make sure that we are tightening those multinational rorts. Back in May, Labor announced a whole series of initiatives—that we hope the government looks at—that certainly form part of our policy and would improve the bottom line by $5.4 billion over the decade through reforms to ensure that multinational companies no longer are given a free pass to use the Liberals' tax loopholes. Labor's five-point plan would restore integrity to the Australian tax system through stronger laws which would close those loopholes and increase tax scrutiny.
There are five measures to Labor's package, which we have called Their Fair Share. It includes tightening the debt deduction loopholes used by multinational companies, improving the budget by $4.6 billion over the year; increasing compliance activity by the Australian Taxation Office; removing tax advantages and inconsistencies between multi-entry consolidated groups and Australian-owned ordinary consolidated groups; delivering more tax transparency by restoring Labor's $100 million threshold for public reporting of tax data for private companies—this threshold was raised to $200 million in another deal with the Liberals and the Greens political party; and appointing a community sector representative to the Board of Taxation to ensure that community sector voices are heard in the design of tax arrangements and review processes.
As I said earlier in my speech, Labor's laws helped to deliver a victory to the Australian Taxation Office against Chevron. They were laws that were passed back in 2012, which the government voted against at that time. Whilst in this budget we see an attempt by the government to continue with their handout to big business and the banks, with their $65 billion tax cut to those at the big end of town, we would argue that they should have a look at our policy as outlined and stand up and fight for those Australian workers and businesses who do pay their fair share—or sit by as the budget revenue and those dollars slip away.
There is an opportunity straightaway to improve the budget by $5.4 billion over a decade through some straightforward reforms that the government could adopt. They certainly form part of Labor's policy. We have been doing the work, whether that has been in Senate committees or the policy work that is being led by the shadow Assistant Treasurer, the member for Fenner, Dr Andrew Leigh. They are a series of policy initiatives that the government could adopt to address some of the issues around how everyday, ordinary Australians feel ripped off when they are paying the right amount of tax: close those loopholes for multinationals, millionaires and those that can afford to aggressively minimise, avoid or evade paying the right amount of tax.
In conclusion, Labor will support this bill. We do support measures to ensure the integrity of the tax system. We do support measures that clamp down on people who use those current loopholes to their own benefit at the cost of the community. This is a bill that seeks to do that; however, we do believe that the government could be doing a lot more. We do believe that they could take this issue seriously, adopt some of the policies that we have put out, improve the budget at the same time and deal with maintaining key services for the Australian community by making people pay their fair share and do the right thing. It is not hard; it is not rocket science to ensure that people pay the right amount of tax and that services can continue to be delivered at the same time that you are dealing with budget repair. Were the government to choose to take that path, the Labor Party would happily support them in it. Certainly, in relation to this bill, we are happy to support it in this instance, but we would like the government to be doing a lot more in this space.
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—
Sure. I know that the Labor Party is quite keen to hear me talk about the government's national economic plan. Maybe we should go into committee on this bill. That might help proceedings. I might be assisted if somebody from the table is able to give me some indication of time. But—
Opposition senators interjecting—
Indeed. The government's national economic plan is focused on making sure that our economy is as internationally competitive as it possibly can be. That means that we have to have an internationally competitive tax arrangement. We have to ensure, as part of that arrangement, that everyone pays their fair share of tax according to our laws. But it also means that, across all areas of government policy, we are focused on making every post a winner—that we are in the best possible position to take advantage of the opportunities coming our way, in particular from being part of the Asia-Pacific, which is where most of the global economic growth will be generated for years if not decades to come. But we also need to ensure that we are as resilient as possible in the face of inevitable future global economic headwinds coming our way.
It is very good news, of course, that the global economic outlook is improving. Indeed, in recent years, I have had the privilege of attending International Monetary Fund meetings. On every occasion, the International Monetary Fund had just downgraded their global economic growth outlook, until April this year. In April this year, based on a more positive outlook for the United States, based on a more positive outlook for Europe, based on a generally more positive outlook for emerging markets, the International Monetary Fund upgraded their global economic growth outlook and upgraded their growth outlook for Australia, which is good news indeed. Given that Australia is an open trading economy, what happens to the rest of the global economy very much matters to us. The stronger the growth in the global economy as a whole, the better the opportunities for Australians, who benefit from the upsides that come with that.
Part of the reason why we pursue such an ambitious free trade agenda is that we want both benefits for our exporting businesses and benefits for Australian consumers. We want exporting businesses in Australia to be able to sell their outstanding products and services into key markets all around the world, the more the better. Australia is an important market, but it is a comparatively small market. Obviously the global economy is a very, very significant market for Australian exporting businesses to access, and we want Australian businesses to have the best possible, most competitive possible access to these key markets around the world. That is why we continue to pursue free trade agreements with countries around the world. In our first few years in office, we were able to finalise free trade agreements with China, South Korea and Japan. We have also been able to further enhance our partnership with Singapore, and Minister Ciobo is pursuing free trade agreements with Indonesia, India and the European Union.
Being an open free-trading economy is also particularly beneficial for consumers, because consumers in Australia are able to access high quality products from around the world at competitive prices. Both of those elements—the benefits for businesses exporting out of Australia and the benefits for consumers in Australia—have contributed substantially to our economic performance as a nation over the last 26 years in particular, and to the lifting of living standards in Australia over that period. It is indeed a great achievement for Australia that we have now been able to record 26 years of continuous growth. The improving global economic growth outlook will stand us in good stead. On top of that our official cash rate continues to be comparatively low by Australian historical standards. Our exchange rate is comparatively low compared to where it has been, which helps with our international competitiveness. On top of that, the Australian government is pursuing a pro-growth agenda across four facets of government policy, whether it is reforming our tax system, whether it is in pursuing pro-growth trade policies, whether it is pursuing productivity-enhancing investments into our nationally significant infrastructure or whether it is indeed the policy work that we are currently doing in the energy space.
All of this is underpinned by making sure that governments can raise the necessary revenue to fund the important and essential services that governments provide sustainability into the future. It is for that reason that, from time to time, we need to ensure that we pursue the necessary integrity measures wherever malfeasance is detected, wherever there is evidence of systemic malfeasance and the policy response is warranted. Our government and governments before us have taken the necessary steps to protect the revenue base of the Commonwealth, and that is what this bill before us is all about. This is what this bill is designed to achieve.
In summary, as I believe I have indicated, this bill does amend the GST law to give effect to changes that were announced earlier this year by the relevant minister, the Minister for Revenue and Financial Services, the Hon. Kelly O'Dwyer. The bill does indeed provide that entities buying gold, silver and platinum that have been supplied as a taxable supply for the 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 also further clarifies that precious metals are not second-hand goods. These changes deal with the types of avoidance activities that have been detected. I think that might have some—