Thursday, 13 September 2018
Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018; Second Reading
I was just going through a time line of inaction on money laundering or the black economy through real estate. I just wanted to make a point that similar deadlines for action have been set by various governments in this country previously—in 2008, in 2010, in 2012 and in 2014—and all of them have come and gone. There were another six times when the issues that I'm raising here in the Senate have not been acted on by this government. I think I've set out a very comprehensive time line of numerous committees, numerous reports, numerous inquiries and numerous times the parliament's actually looked at this issue but hasn't acted on it.
We have a gaping hole in our laws around money laundering. If this parliament is serious about giving law enforcement more powers to crack down on the black economy then we must deal with money laundering through real estate. Gaping holes in this country's laws have allowed money laundering through real estate to reach epidemic proportions. The ANZ's head of financial crime, Guy Boyd, said last year that Australian real estate is:
… obviously an attractive destination for capital, both legitimate and illegitimate.
I wouldn’t know if it I would call it a haven but certainly it is a place of choice for illegitimate money.
There’s been probably a lack of political will and that’s probably been driven by some very vocal opposition from those industry sectors.
In other words, it's what we see in here every day: rent seekers and vested interests lobbying to get what they want. I would propose to senators in this chamber and others who are listening that if one of the big four banks is saying that we as a country have got a money laundering problem then we've probably got a money laundering problem. I think they would know better than most. And if one of the big four banks is saying that lobbyists are stopping these laws from being introduced then that's probably true, too, because they would know a thing or two about lobbying.
Let's talk about international concerns. Not only are Australia's lax laws a source of local concern, but there's global concern about Australia's inaction on money laundering through real estate. I'd also like to note here in my contribution to this second reading debate that the Financial Action Task Force's 2015 report stated:
Australia is seen as an attractive destination for foreign proceeds, particularly corruption-related proceeds flowing into real estate.
A 2017 OECD report recommended that Australia address the risk that the real estate sector could be used to launder the proceeds of foreign bribery. Further, Transparency International's 2017 report identified Australia, Canada, the UK and the USA as the top four spots globally for laundering money through real estate and said that, on the indications that they used, Australia was likely the worst, failing to address 10 out of 10 identified legal loopholes.
Then there's money logging and the Adelaide Hilton. The Bruno Manser Fund is a Swiss based anticorruption organisation that I have met with. The fund and its executive director, Lukas Straumann, the author of Money Logging, have detailed the horrendous destruction of Borneo's rainforests, the displacement of its Indigenous people and the involvement of the so-called Asia timber mafia in this illegal logging. This is a well-known story globally. Central to this story is the governor of Sarawak, Mr Taib Mahmud, and the ownership of the Adelaide Hilton by Taib's family. Under Taib's governorship nearly 90 per cent of Sarawak's native rainforests have been logged. Despite Taib's modest income as a politician, his family has interests in more than 400 companies in 25 countries around the world, including the Adelaide Hilton, which it acquired in the 1990s and through which it seems it has been able to continue to launder money. But, because we have a gaping hole in our anti-money-laundering laws here in this country, we don't know for sure, and AUSTRAC can't pursue this issue.
Nor can it look into the billions more of dirty money that have likely gone into Australian real estate in more recent times. Last year Fairfax reported that Australian real estate agent giant Raine & Horne's offshore arm was involved in a global corruption scandal involving the sale of prime Melbourne property. The scandal centres around the vastly inflated valuation of a 280-room city apartment building, UniLodge, which mostly houses overseas students, on Swanston Street near Melbourne university. Raine & Horne International's Kuala Lumpur office valued the property at $43 million, despite the fact that the building's seller, Australian businessman Lionel Harber, had simultaneously valued it at $23.5 million.
Another big issue is China. There is plenty of evidence to suggest that a large part of the recent spike in Chinese investment in Australian real estate and in many other parts of the world is money laundering. This is what has been suggested by the French based Financial Action Task Force. But we wouldn't really know, because Australian authorities have no authority to go chasing this.
I reiterate to the Senate chamber: this is a problem that we've known about for 12 years. I've outlined a substantial time line of references to this specific issue by a number of governments, a number of committees, a number of task forces and a number of inquiries over a period of time. When are we going to deal with it? While we support the bill today—as I said earlier, everything we can do, in a holistic fashion, to crack down on this will be a positive—money laundering through real estate is a very serious problem that the government should act upon. I ask the Senate to support the Greens second reading amendment that I have moved. It should have been circulated. Let's get on with tackling the heart of the issue.
The Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018 is an important measure demonstrating this government's commitment to being responsible fiscal managers and ensuring level playing fields for those who are willing to have a go. The measures listed before us address the growing economic and social scourge created by the black economy. This black economy scourge unfairly disadvantages businesses doing the right thing, particularly small businesses across the country and in my home state of Tasmania. This includes family owned businesses that rural and regional communities rely on not just for jobs but also for the provision of products and services which support the community's way of life. How is this fair?
Not only does the black economy scourge unfairly impact business and the community in which it sits; the black economy goes further by denying the government tax revenue which could be used to pay down debt created by the Rudd-Gillard-Rudd government or spent on upgrading more roads of strategic importance in regional communities or on funding mobile black spot solutions, grassroots sports programs for our kids or training programs for our young people.
This is why the government has taken action and is responding to the Black Economy Taskforce interim report. The measures in schedules 1 and 2 of the bill seek to address the black economy scourge. Schedule 1 implements the banning of the manufacture, distribution, possession, sale and use of sales suppression technology. It is an important step in addressing participation in the black economy. Electronic sales suppression technology allows businesses to understate their taxable income and, as such, creates an uneven and unfair playing field for business. It fosters the exploitation of workers, erodes trust in the taxation system and results in loss of government revenue and unwarranted welfare expenses.
The schedule creates new offences for the manufacture, distribution, possession, sale and use of electronic sales suppression tools for the purpose of not disclosing business income. These offences are subject to strict liability and heavy penalties to deter the use of such a technology across the entire software supply chain. There is no legitimate reason for these tools. These tools remove transactions from electronic record-keeping systems, they change transactions to reduce the amount of each sale and they can modify GST taxable sales to GST non-taxable sales. In all instances, no audit trail of the changes made exists. Have no doubt that the sole purpose of this technology is to evade tax. The ATO has uncovered instances of this software in operation in Australia, and recent reports from the OECD have highlighted that this software is spreading globally and its use has been identified in a number of jurisdictions, including Canada, USA, Germany and Sweden, many of which have implemented measures to address this risk.
In relation to Schedule 2, the non-reporting of income by contractors and the use of technology to understate income are two activities that are targeted in this bill. The deployment of the taxable payments reporting system in the building and construction industry has been successful, both in terms of industry acceptance and revenue outcomes through improved contractor compliance. The expansion of the taxable payments reporting system initiative to contractors in the courier and cleaning industries is expected to yield similar benefits, by ensuring payments made by businesses to contractors in these industries are reported to the Australian Taxation Office. In fact, the measure is estimated to result in a gain in tax receipts of some $132 million over the forward estimates period.
From 1 July 2018, businesses in the courier and cleaning industries will be required to give an annual report to the ATO regarding the payments they've made to businesses who provide them with courier or cleaning services. The reporting obligation will apply from the 2018-19 income year, and reports will be required by 28 August 2019. To assist businesses in the courier and cleaning industries to comply with the reporting requirements, the ATO has prepared guidance material. The information reported to the ATO is used for the prefilling of tax returns or activity statements, which should make it easier for contractors to lodge their income tax returns, and for data-matching processes to ensure that contractors comply with their tax obligations, such as correctly lodging their income tax returns and BAS obligations.
I think we can all agree that hardworking Australian businesses deserve a level and fair playing field. I support the bill.
I rise today to speak in favour of the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018. As the chamber is well aware, the Morrison coalition government has been taking decisive action in the fight against the black economy for a number of years now. The black economy, as we know, undermines community trust in the tax system and gives some businesses an unfair competitive advantage. It puts unnecessary and undue pressure on the margins of honest businesses and often includes the exploitation of vulnerable employees through the underpayment of wages and the loss of entitlements.
The reforms outlined in the legislation we are speaking about today in this chamber follow recommendations made by the Black Economy Taskforce. The Black Economy Taskforce was put together some months ago. It had very broad consultations and has finally reported to government. It will be followed up with a comprehensive suite of supporting measures which build on a number of existing significant tax integrity measures that have already been outlined by the former Minister for Revenue and Financial Services, the Hon. Kelly O'Dwyer MP. She established that task force a long time ago—I think it was back in December 2016—to examine exactly how best to crack down on illegal black economy activity. It was a multi-agency black economy standing task force. It undertook a cross-agency approach to combating the black economy, with more effective exchanges of information to develop increased intelligence, and it was equipped to identify and prosecute the most egregious cases of black economy activity.
As the chamber may recall, additional funding was provided to the Australian Taxation Office, the ATO, at the time to expand its data analytics and data-matching capabilities and to allow a much better leveraging of community through the introduction of a hotline. The hotline was for reporting black economy and illegal phoenixing activity. It was a significant breakthrough, that new capability. It was supported by an enhanced enforcement strategy, including mobile strike teams to break up illegal behaviour as it was identified.
You may recall, Acting Deputy President McCarthy, that there was a story discussed in the media and also reiterated at the economics estimates committee about how Commissioner Jordan had charged a group from the Black Economy Taskforce to go out and speak to traders at one of the markets in Victoria—it was the Queen Victoria Market, if I remember rightly. It wasn't supposed to be a confrontational experience; it was supposed to be helping some of those traders that tend to be associated with black economy activity. It gave them a heads-up. They said, 'On Thursday there will be members of the ATO coming to help you and talking to you about your businesses and how best you can report to them more transparently, more openly and more accurately.' Interestingly, the story goes that when the members of the ATO, the friendly faces of the Australian tax office, turned up to the market on that day—as prescribed, as warned—it was amazing how many traders were unwell and had their shutters drawn.
I think that while it's obvious the black economy is something that's used for egregious purposes it can also be used mistakenly in these cash economies. But it does cost: it costs the taxpayer, businesses and workers millions and millions of dollars every single year. So it's important to tackle it and to tackle it seriously. I'm very proud to be part of a government that has done exactly that. It's not a new problem; a black economy has existed since time immemorial—since taxes began to be charged people have tried to avoid them. But it is important, and this government recognises the importance of not just taxing people but also ensuring that they pay a fair amount of tax—that everybody should pay their fair amount of tax.
It is important that this particular issue, the black economy, has been tackled in a very systematic, a very professional and a very thorough manner. The Black Economy Taskforce should be commended for the work that they've done—as should, dare I say it, the former Minister for Revenue and Financial Services, Kelly O'Dwyer, who has now moved portfolios to take on issues of industrial relations. But she has certainly left a legacy behind her in this particular space.
When we think about the cost of the black economy to the Australian economy as a whole we can only think about what we could spend the money raised in tax revenue on that we are now foregoing because of the existence of the black economy. What could we spend that money on?
What could we implement that would benefit the Australian population as a whole if the appropriate amount of tax was paid by those who are currently avoiding it? Things like new hospitals. Things like new energy solutions. What about pension payments? What about putting more drugs on the PBS? There are so many things that we could do, with appropriate amounts of tax paid, in the form of distributions, which is why it is so important.
Everybody attending the chamber today knows that they have to pay their taxes at the end of the day. It's part of our civic duty. It's part of our moral duty. To avoid it, to partake in the black economy, denies your fellow man, all other Australians, access to better services and a stronger economy. As you may well recall, the government responded to the Black Economy Taskforce interim report as part of the 2017 budget delivered by then Treasurer Scott Morrison, now Prime Minister Scott Morrison. The government announced the measures to address the growing economic and social problems associated with the black economy, banning the manufacture, distribution, possession, sale and use of sales suppression technology in particular. This is technology that allows businesses to conceal what income it is that they are earning. Remember the old days, when we used to have the system of two books? It's similar to that; it's a technological version of the two books.
This bill also extends the taxable payments reporting system to two industries that present tax compliance risks, cleaning and couriers, to ensure that payments made by businesses to contractors in these particular industries are reported to the Australian Taxation Office. This bill that we have before us today delivers on those particular 2017-18 budget decisions. The measures in the bill form only one part of a much broader suite of reforms that the government is progressing through its response to the Black Economy Taskforce final report. The Black Economy Taskforce has been working now for nearly two years to put together its thorough recommendations.
I think we should go into a little bit more detail on the first schedule of this legislation. This schedule creates a new offence for the manufacture, distribution, possession, sale and use of electronic sales suppression tools for the purposes of not disclosing business income. There is, it is important to note, no legitimate reason to produce, distribute, possess, sell or use these particular electronic tools. They actively remove transactions from electronic record keeping systems and they change transactions to reduce the amount of each sale. Essentially, it's falsifying records. They can modify things like GST taxable sales to GST non-taxable sales. In all instances, no audit trail of those changes exists.
There is no reason to have this particular software or these particular tools unless you are actively avoiding tax. It's not enough to just ban the sale or the use of them; it's also important to ban their manufacture and distribution. The government is introducing a number of offences that are subject to strict liability and very heavy penalties to deter the use of such technology across the software supply chain. Because that technology is used solely for the purposes of tax evasion, the new offences will restore a level of integrity to our tax system.
Recent reports from the OECD have highlighted that this particular software is spreading globally. Its use has been identified in a number of jurisdictions, including Canada, the USA, Germany and Sweden. Obviously the black economy is a problem that pervades not only the Australian economy but also the global economy. Many of those countries where this particular software or these electronic suppression tools have originated or proliferated have already implemented measures to address that risk. This legislation simply brings Australia into line with our global counterparts. The ATO has uncovered a considerable number of incidents already where this software has been in operation in Australia. That's schedule 1 of this legislation.
Schedule 2 is in respect of third-party reporting. From 1 July this year, businesses in both the courier and cleaning industries will be required to give an annual report to the ATO, the Australian Taxation Office, regarding the payments they make to businesses for them to provide courier and cleaning services. This particular reporting obligation will apply from the 2018-19 income tax year and reports will be required by 28 August 2019. The measure is estimated to result in a gain in tax receipts of $132 million over the forward estimates period—the four years of the forward estimates. That's $132 million. It's a very significant tax revenue increase from one measure alone.
Business-to-business payments for courier and cleaning services are within scope. Clearly, these industries have been targeted for black economy activities. Implementation of the tax payments reporting system in the building and construction industry has resulted in improved contractor tax compliance and reporting of income. The government has also decided to extend this reporting system to other high-risk industries. The Australian Taxation Office has prepared significant and detailed guidance material to assist businesses in those sectors, the courier and cleaning industries, to comply with their reporting requirements. The information reported to the ATO is then used for the pre-filling of tax forms or activity statements, which should make it much easier for contractors to lodge their income tax returns and also for data-matching purposes to ensure that contractors comply with their tax obligations, such as correctly lodging their income tax returns and also their BAS obligations.
As you can see, the government has acted on the concerns raised by many, many stakeholders that mixed businesses providing those courier or cleaning services may have a disproportionate compliance burden where the provision of those services is merely a small part of the overall activity of the business. The introduction of this threshold test will mean that businesses that receive payments for courier or cleaning services that are less than 10 per cent of the business's overall GST turnover for the reporting period will, in fact, be exempt from the reporting payments they make to contractors commissioned to complete these services. The Commissioner of Taxation, Commissioner Jordan, may, through legislative instrument, amend or alter the threshold test in response to a change in compliance risks or compliance burden identified in these industries. Any alteration to the threshold test would be subject to parliamentary scrutiny. The Australian Taxation Office will also publish guidance material to assist those businesses providing courier or cleaning services to determine when they need to report.
I think you can see, Acting Deputy President, this new approach, which is boosting our capabilities to tackle the black economy, will deliver a targeted, stronger and far more visible enforcement, and it will demonstrate the very, very real consequences of participating in the black economy.
There are other aspects of tax reform that have been tackled under the umbrella, I suppose, of the Black Economy Taskforce. One of them which I want to touch on, although it is not necessarily directly pertinent to this piece of legislation, is the new measures that this government has introduced to tackle illicit tobacco. The illicit tobacco market is one of the barnacles of the black economy. It seems to rear its ugly head over and over again. The problem with illicit tobacco is it's inexorably intertwined also with the flow of funds to organised crime syndicates. It's important to tackle it not just for its own sake but also as a crime prevention strategy.
The previous Minister for Revenue and Financial Services, Kelly O'Dwyer, put together a new multiagency Illicit Tobacco Taskforce which comprised members of law enforcement, border security agencies and the ATO to deliver a multifaceted approach that leveraged the whole-of-government capabilities and powers to proactively target, disrupt and prosecute organised crime groups at the centre of the illicit tobacco trade.
The government has introduced an economy-wide cash payment limit of $10,000 applying to payments made to businesses for goods and services, and that will apply from 1 July 2019. That cash payment limit captures high-value transactions and helps stamp out opportunities for criminals to launder the proceeds of crime into goods and services or for businesses to hide transactions that reduce their tax liabilities.
As you can see, there are a number of aspects to tackling the scourge of the black economy: the Black Economy Taskforce and the legislation that we are considering today are just one piece of the puzzle. There is more to do. However, the government thanks the Black Economy Taskforce in particular, which was led by Michael Andrew AO, as well as the stakeholders who participated in that very broad, detailed and thorough consultation process.
The aim of the game for the government, of course, in its response to the Black Economy Taskforce's final report, is to improve fairness for businesses to ensure there is a level playing field and to continue to strengthen the integrity of our tax system. Fairness isn't all about everybody paying the same thing and receiving the same thing; fairness is about paying what you owe and not avoiding paying what you owe.
As a very proud member of the coalition, I say we should all be very pleased with the work that the previous Minister for Revenue and Financial Services, the Hon. Kelly O'Dwyer, has done in this space. It's fantastic to be part of a government that has tackled one of the most difficult issues in our economy, a scourge on our economy, for many decades.
I'll just make a quick contribution to the debate on the Treasury Laws Amendment (Black Economy Taskforce Measures No. 1) Bill 2018. I always say that life's about fairness. This bill is about clamping down on tax cheats and the black economy. As you know, Madam Deputy President, there are two certainties in life: death and taxes. I've always been of the opinion that, while ever you've got cash in the country, you'll have tax evasion. If you're handing around $50 notes, $20 notes—whatever—and paying people by cash, of course people avoid tax. However, when they do spend it, at least the GST is paid and the states will benefit from that.
But this bill is about the saving of $132 million over the forward estimates—perhaps not a lot of money in the face of a $450 billion budget, but every bit helps. It is about fairness. As Senator Hume said, everyone paying their fair share of tax, their proper share of tax as they should pay, is fair. If they don't pay those taxes, of course, as you go right across the black economy, it leaves a hole in the budget. What happens then? Government debt grows. They've got to cut spending, and those important finances provided by the taxpayer, via the government, are for aged-care facilities, for our defence, for our child support, for our day-care support, supporting working mums and dads—in most cases working mums—and the many, many services that are provided out of Canberra right throughout our nation and of course overseas. So, the more that is cheated, the less that can be done and the more the budget is under pressure.
We all know in this place that the budget has to come back to the black. We can't go on borrowing for ages. We should have had it back in the black a lot earlier, but the Senate blocked many of those savings. If we'd listened to those opposite, Mr Wayne Swan, the Treasurer for the Labor government, was going to have it in the black well and truly by now. Of course, black print is something you rarely ever see at the bottom of a Labor government's budget.
Getting the budget back in the black is most important, and every bit contributes, whether it be increasing revenue through catching the tax cheats, cutting spending or, as we have done, growing the economy, growing the GDP, hence growing the tax take for Canberra. As we head towards $560 billion of gross debt, of course that does include the HECS debt. What's the HECS debt? Forty-odd billion dollars? Amazing. When I went to university, you either paid your way or you got a scholarship. I was lucky to get a scholarship, but I didn't stay for long in tertiary education, because I thought I'd spent enough of my life with my nose in a book and I didn't really want to spend much more, so it was back to the bush, shearing sheep, driving trucks and farming, which I thoroughly enjoyed—perhaps another mistake I made in my life!
The more you cheat the tax system, the more others have to fill the gap, the others being the honest taxpayers, the honest businesses, the PAYG workers—the working Australians who are paying their tax. So, as I said, whenever you have cash in a society, you always have a form of tax cheating. That is just a fact of life. There are plenty of examples. A pensioner may have a tradie come in to fix their lights—to do some electrical work, to do some building, or to fix something. Of course, the $50 notes come out. Does that tradie declare it? Of course he or she doesn't. But when they hand the money to their wife or to whoever, or when they spend it themselves, that's when it comes back to Canberra in the form of GST, which is handed to the states, also increasing the profits of those businesses where they've spent it, whether it be a holiday resort or a motel, or down at the pub or at the bottle shop or wherever. Those businesses are then paying tax, so it does eventually come back here. But to allow people to simply get away with tax evasion is not fair. It is not right.
This bill—which I know my colleague Senator Seselja will have more to say about in his summary—is about catching the tax cheats and stopping the black market and the black economy. It's about seeing that the money does come into Canberra and is distributed properly throughout Australia, providing services, and that it is distributed to the states and even to local government. Through the financial assistance grants and the Road to Recovery grants, money goes out of Canberra to our local governments—vital money, I might add, especially for fixing our roads. All sides of governments for many years now have continued these grants. I know John Anderson played a big part in getting those policies in place, and I'm glad to see they've been continued. Money is going out to regional areas to help fix roads. Many of us still drive on dirt roads. I know that, to those in the cities, dirt roads are something strange. However, this bill will help close the gap. It will bring fairness across the tax system that will see the people who make money pay their fair share of tax—as they should—and then Canberra can carry out its services and do what it has to do in respect of governing Australia.
I commend the legislation. As I said, Senator Seselja will have more to say in his winding-up remarks on this bill. Let's hope this bill does pass. I see no reason why those opposite would oppose it. Senator Marshall, I'm sure you won't be opposing it.
Firstly, I'd like to thank those senators who have contributed to this debate. These measures are about addressing the growing economic and social problem of the black economy, as established in the Black Economy Taskforce's interim report as part of the 2017-18 budget. The black economy undermines community trust in the tax system. It gives some businesses an unfair competitive advantage, puts pressure on the margins of honest businesses and often includes the exploitation of vulnerable employees through the underpayment of wages and the loss of entitlements.