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Improving Australia’s Tax and Superannuation Laws
I rise to speak on this package of bills. I have been listening intently to the member for Rankin’s contribution. It is always easy being an armchair expert. After six years in government and delivering the five biggest deficits we have ever had, it is very easy for the member to sit back and claim that the former government had a path to eliminating multinational tax avoidance. If it was so easy, jurisdictions around the world would not be grappling with these issues, as all jurisdictions are. So it is obviously ridiculous for the member for Rankin to claim that it was stitched up, and that the package of changes that the Labor government had proposed would, for all time, end multinational tax avoidance. Somebody with such little credibility should not be listened to.
The two aspects of the No. 4 bill that I would like to talk about revolve around the proposed thin capitalisation changes and the changes to foreign dividends. I note that the member for Rankin also criticised those changes, but the opposition is going to support them. I thought that was quite interesting. It is always difficult, in a world of mobile capital, to strike the right balance between ensuring that we have an effective and efficient tax regime and ensuring that we do not disincentivise multinationals from investing in our country. In my former life as a tax lawyer, the thin capitalisation rules were something that every single multinational taxpayer had to think about. Contrary to the contributions of those opposite, the thin capitalisation rules, when they were first introduced by Treasurer Costello in 2001, were really put in place to set a cap on which a company or a multinational could be capitalised in Australia before debt deductions were denied. It is a tool that can be used to impact multinational tax avoidance but it was not necessarily the primary reason for it.
The changes in schedule 1 to the bill tighten the debt limit settings in the thin capitalisation rules to ensure that multinationals do not allocate a disproportionate amount of debt to their Australian operations. It also increases the de minimis threshold to minimise compliance costs for small businesses. This is a really positive change. Businesses that do not have a debt deduction above $2 million do not need to think about the thin capitalisation rules. That is a really outstanding measure to try and encourage small to medium offshore companies looking to set up in Australia to do so.
In schedule 1 to the bill we introduce a new worldwide gearing debt test for inbound investors. In my view, it is one of those tests in practice that have been more susceptible in the past to being abused. These measures have strong links with the government’s initiative on base erosion and profit shifting. We have seen the outstanding work that the Treasurer has done with the G20. Contrary to the member for Rankin’s contribution, it is tough work and it is difficult getting jurisdictions with very different tax regimes together to agree on just about anything. It is really tough. I take my hat off to the Treasurer for doing such an outstanding job thus far with respect to the G20.
In respect of these initiatives, we believe that the current thin capitalisation rules are too generous compared with the actual borrowing levels of companies with truly independent arrangements. Other speakers have, in a sense, spoken about the evolution of those debt levels that companies and multinationals have had over the last 13 years of the thin capitalisation regime. It also addresses our view that ultimately base erosion and profit shifting are eroding our corporate tax base and, therefore, penalising all other taxpayers, because for every dollar we cannot collect from a multinational is, quite frankly, a dollar that we need to collect from other taxpayers.
In our view, taxpayers who genuinely require higher borrowings will continue to have these recognised through the operation of the arms-length test. Irrespective of the safe harbour rule in the thin capitalisation rules, if there are really good commercial reasons that fit into your industry profile for a multinational, or any company, to carry debt above the thin capitalisation levels, to the extent that that can be objectively proved, a company can carry that debt. These changes are really an outstanding way to address them. I think they strike a balance.
The changes to the debt-to-equity levels that are allowable, as other speakers have mentioned, reduce the maximum statutory debt limit from three to one to 1.5 to one for general entities, general taxpayers, and from 20 to one to 15 to one for non-bank financial entities. I think these changes strike a sensible balance. Again, it is not as simple as the Labor Party would make out—that you just bash multinationals over the head and tell them that they cannot deduct any debt in Australia. That would obviously have a devastating impact on our economy. Unlike the armchair experts opposite, we actually have to come up with sensible changes.
Schedule 2 of the bill amends some aspects of section 23AJ, which is an exemption for foreign non-portfolio dividends by Australian companies. In our view, it amends the exemption to address a flaw in the system that effectively allows the exemption to apply to a debt instrument and, in effect, to ensure we have greater integrity in the thin capitalisation system. So, rather than focusing on voting interests of a particular interest that an Australian entity might hold in a foreign entity, it will look at the participation interest. I think that is sensible and I would say most corporations and tax advisers would believe that that is a very sensible change. However, at the same time we do not want to impact Australian companies expanding offshore. It is absolutely outstanding for our great Australian companies that are the best at what they do—and many of them are iconic. We want them to set up offshore and we want to ensure that we have a tax system that can appropriately cater for the fact that in many cases those Australian companies will need to raise debt in Australia in order to fund offshore expansions or acquisitions. The Labor Party in some way thinks that in a perverse way we should whack these Australian companies, but these Australian companies are a success story. So I think the changes to section 23AJ, or the non-portfolio dividend exemption, strike that sensible balance.
Schedule 3 ensures that foreign resident capital gains tax regimes operate as intended, by preventing the double counting of certain assets under the principal assets test. I will not go into that in much detail. I do not think it is controversial, but it cleans up some issues that have been really there since the foreign resident CGT regime was put in place. The foreign resident CGT regime basically tries to have the effect that a foreign entity pays tax in Australia if it is making a gain on the sale of Australian real property even though it may not have a tax presence in our country.
Schedule 4 to the bill is an outstanding piece of policy. The Labor Party have criticised it and the member for Rankin criticised tax receipts. What is wrong with telling the Australian people and outlining to them in a transparent way where their tax dollars go? I think it probably highlights the divide between both sides of the House. I believe that government expenditure is ultimately taxpayers’ money that they have entrusted us with that we have spent. I get the impression that many people on the left of the Labor Party think that is the government’s money. But if you come at it from where I believe is a sensible starting point, which is we are spending taxpayers’ money on their behalf, it absolutely makes sense for us to be extraordinarily transparent with those taxpayers on where their money is going. I heard the member for Rankin criticising this policy. Taxpayers would be wise to be quite suspicious of anybody that criticises this form of transparency. What is wrong with this parliament, in a very clear way, letting Australian people know where their money goes?
The tax receipt will include a notional breakdown of the taxpayer’s personal assessment into various categories of government expenditure, and those will be decided by the government of the day. But those categories and those breakdowns will be things that the Australian public, and Australian taxpayers, will be entitled to scrutinise. Approximately 10 million taxpayers will receive a tax receipt for the 2013-14 financial year. Like the member for Bowman, I think it is a nice way of saying thank you—thank you to those 10 million taxpayers for everything they do in funding all of the necessary aspects of government activities and, in an egalitarian society, helping people who are less fortunate and who need that support; in many cases, only for short period of time. Most of those taxpayers will have received some help in their life from other taxpayers, and then they get to a point where they start giving back and providing help to others. I think that saying thank you, in the form of a tax receipt and transparency, is a good way to go.
In respect of the other bill in this cognate debate, the Tax and Superannuation Laws Amendment (2014 Measures No. 5) Bill 2014, I will, just quickly in the remaining time, touch on three aspects of this bill. And again, I think this is sensible tax policy. Schedule 1 of the bill abolishes the mature age worker tax offset from 1 July 2014. As members opposite have noted, the Labor government started to phase out the offset by restricting access to it for taxpayers born before 1 July 1957. We have accepted that the mature age worker tax offset is complicated. It is not really well understood and, in our view, it is not a cost-effective way of encouraging continuing engagement in the workforce by mature age workers. Importantly though, savings from abolishing this offset will be redirected to the government’s new seniors employment incentive payment, called Restart. This payment will provide a clear, long-term incentive for employers to hire and retain mature age Australians, and to help them overcome discrimination. In this sense, Restart is a subsidy of up to $10,000 and it will be available to employers who hire a mature age job seeker aged 50 years or over who has been receiving income support for a minimum of six months. The Restart program will help mature age Australians to re-enter the workforce. Around 32,000 mature age job seekers per year are expected to benefit from the subsidy. I think that redirecting the lost revenue from the mature age tax offset to the Restart program is an outstanding policy, and will ultimately help us reach the objective of more senior Australians in work.
Schedule 2 has been spoken about. It is abolishing the seafarer tax offset, which provided a refundable tax offset to Australian shipping companies for certain salary and wages of seafarers. I think it benefited a couple of hundred seafarers. This really was just a part of Labor’s shipping reforms—which were really just a sop to the Maritime Workers Union. And that is why, ultimately, this is bad policy and needs to be abolished.
Finally, schedule 3 to the bill amends the Income Tax Assessment Act, to reduce the rates of tax offsets available under the R and D tax incentive. The refundable and non-refundable tax offset rates will be reduced by one-and-a-half percentage points: from 45 per cent to 43½ per cent, and from 40 per cent to 38½ per cent, respectively. These changes are really just consistent with the government’s commitment to cut the company tax rate.
This is ultimately a broad package of changes in the bills before us today. It cleans up a lot of the issues that are legacy problems which were not dealt with by the former Labor government, and I think it is good tax policy for the country.