Tax Laws Amendment Bill 2014 - In Committee 17/06/2014


Senator IAN MACDONALD (Queensland) (12:37): As I indicated in my speech on the second reading, I want to make some inquiries of the minister in relation to this legislation. I will not repeat all of the things that I said in my speech, which I thought explained my position reasonably well. I know that the minister was not in the chamber, but I understand that the minister saw parts of my speech on the internal video. Basically—and I want to make this very clear, lest it be misreported—I do not object to the surcharge on the incomes of those earning $180,000 or more; in fact, I support that.

I know, of my own limited thought, that we do have a debt crisis, and I have heard the Treasurer, the Minister for Finance and the Prime Minister indicate that we have a debt crisis that needs to be addressed. I accept that there is a debt crisis. I can easily see that, when you go within six short years from $60 billion in credit to $560 billion in debt, you have a debt crisis that needs to be addressed. The same thing confronted the Howard government in 1996, but in those days we had some things that could be sold—for example, Telstra. As a result of those sales and judicious management by the Howard government, Labor's 1996 debt of $96 billion was paid off. It will take a lot longer to pay off the Gillard-Rudd government's debt of some $560-odd billion this time round. Desperate measures are needed to address Labor's $667 billion—I think it is—debt. Desperate measures need to be taken.

The government have been creditable in tightening their belts. They have got rid of a lot of Labor's wasteful programs and are trying desperately to bring the budget back to a manageable size, and good luck to them. Congratulations to the Treasurer, the finance minister and indeed the government as a whole on the work they have started in this budget. There is a long way to go.

One of those drastic measures that need to be taken is this surcharge of two per cent, I think it is, on incomes above $180,000. I repeat: I support that. But, as I mentioned in my speech on the second reading, I cannot understand, in spite of many inquiries in the appropriate circumstances, why individuals are being requested to make the contribution, but companies which are profitable are not. I well recall both the Prime Minister and the Treasurer saying, 'This is a matter for all of us,' and it is indeed a matter that all Australians should be contributing to. Certainly those who are on substantial incomes have an obligation to contribute, and I support that. But I simply cannot understand, and no-one can explain to me, why it is that companies which earn more than $180,000 per year in profits are not being asked to share the burden.

Some would say, 'We don't want to attack small business,' but there would not be many small-business companies earning more than $180,000, I regret to say, after six years of Labor, and many that have a corporate veil are really a trustee for certain family trusts, so they are really not in the equation. I am talking about companies that I have mentioned by name. I bear none of these companies any ill will, but just think of the biggest companies in Australia. There is a list of 3,000 of them, I think—companies in Australia that are very profitable. Why are they not being requested to make a contribution to a crisis that 'all of us' have to contribute to?

I will not name the names, although people who know what I am talking about will know the company involved. I bear no ill will towards this particular company. A lot of cane farmers up my way do bear ill will towards this company. It is the company that owns the four mills in the locality in which I live. It is doing things with the sale of sugar that a lot of the cane farmers do not like, but I am confident that in the fullness of time there will be some accommodation reached between the mill owners and the cane farmers—but that is an issue for another time. That particular company has no Australian shareholders. I do not know what profits that company makes, but I hope they are substantial, because it paid a lot of money for those four and other mills in the North Queensland area. It is a Singapore based company, and any profits by way of dividend after payment of Australian company tax go to Singapore.

I ask why those shareholders are not being asked to contribute to a debt crisis that I am pretty sure that company would have made something of in the days of the Rudd-Gillard dysfunctional government. Can someone please tell me—and this is my question to the minister—why is it that individuals have to pay the surcharge but not companies that earn their living, earn their income, from Australia?

It just does not make sense to me. And, as I say, in spite of asking all the cleverest people why this was so, I have not yet been able to get a substantial answer. The minister is aware of the issues that I am going to raise. I mentioned it in my speech on the second reading and I have mentioned it privately to the minister. I am hoping that he will be able to make me understand why this is so.

This is not, as the minister generously acknowledged yesterday in his summing-up speech, a new-found passion of mine. It was an issue I raised at the time when the Labor government introduced a debt levy—again, a levy on individuals but not on companies. I raised the point at that time with the Labor government: 'Why is it that you are asking the butcher and the baker to contribute to the flood levy and not Coles and Woolworths, which are the principal competitors of the butcher and baker?' It just did not make sense to me then and it does not make sense to me now. I will listen intently in anticipation of the minister's explanation as to why this is so.

Senator CORMANN (Western Australia—Minister for Finance) (12:46): I thank my good friend and valued colleague Senator Macdonald, representing the great state of Queensland, for the questions and comments that he has put on the record. I indeed acknowledge, again, that I am very well aware that this is a longstanding interest in an issue that he has pursued for some time, including when the previous government decided, for whatever reason, to implement a flood levy in the context of events in Queensland a number of years ago.

Let me answer the question that Senator Macdonald has asked this way. When we came into government in September we inherited an economy growing below trend; rising unemployment; consumer confidence which was too low; business investment which had plateaued; and a budget in very bad shape, with a spending growth trajectory which was unsustainable and unaffordable. What we have sought to do since coming into government, and in implementing the commitments that we took to the last election, is build a stronger, more prosperous economy where everyone has the opportunity to get ahead, while also focusing on the important task of repairing the budget and putting us onto a believable path back to surplus.

In the budget we are doing a range of things. We are pursuing a series of structural savings and structural reforms in order to build a stronger economy and also ensuring that our spending growth trajectory is more sustainable into the future. The virtue and the challenge with structural reforms and structural savings is that they start low and slow and build over time, which is why in this budget we have taken the view that it is necessary and appropriate for all Australians to be asked to contribute, to make a special and immediate contribution, and a special and immediate effort to help put the federal budget in a stronger starting position to start repairing the budget mess that we have inherited from Labor.

Obviously and necessarily reducing government payments, reducing the spending growth trajectory, will impact on individuals, families, pensioners, organisations, states and territories that receive payments from the federal government. The judgement that we have made is that, in order to spread the budget repair effort as fairly and as equitably as possible, the only way to ensure that higher income earners who do not receive payments from government make their fair, additional contribution to the budget repair effort over the forward estimates is by making a change to the top marginal tax rate, effectively, the two per cent increase, for a period that is the subject of the bills that we are currently debating.

When it comes to company tax, as part of our plan to build a stronger, more prosperous economy we took a couple of policies to the last election. One was to reduce the company tax rate by 1.5 per cent, from 1 July 2015. Another was to impose a 1.5 per cent paid parental leave levy as part of the introduction of a fair dinkum paid parental leave scheme in relation to Australia's biggest and most profitable companies. That is also part of our plan to build a stronger, more prosperous economy and create more jobs. One of the structural challenges that we as an economy are facing is falling rates of workforce participation in the context of an ageing population. One thing we need to do is to lift workforce participation, in particular by women, and to lift productivity. The judgement that we have made is that in relation to the 3,000-odd companies, with a taxable income above $5 million a year, the workforce participation benefits, the economic benefits overall, including the workforce participation benefits and the productivity benefits, outweigh the cost of, effectively, keeping the company tax rate at 30 per cent for those companies. So all companies not subject to the paid parental leave levy will see their company tax reduced to 28.5 per cent. All companies subject to the paid parental levy will effectively continue to pay at the same company tax rate. Increasing the company tax rate beyond the 30 per cent that is currently in place would hinder our efforts to build a stronger, more prosperous economy where everyone has the opportunity to get ahead. It would hinder our efforts to create more opportunities for business and individuals to be successful across Australia.

Finally, at the end of the day, businesses and companies are made up of individuals. What we are asking all individual Australians to do, whether they are receiving payments from government or whether they are taxpayers not receiving payments from government, is to contribute to the immediate effort to put Australia back onto a more sustainable footing.

I note in this context that, when we first flagged the proposition that there should be a temporary budget repair levy, a temporary Labor deficit levy—name it what you will—Mr Shorten's initial response was that it should be opposed: 'Oh, no, we're not going to be part of that. Labor will never be part of that. We are not going to support any increase in personal income tax under any circumstances.' Fast forward, a couple of weeks later, and of course, very quietly, Mr Shorten said, 'Yes, we're not going to oppose that.'

In this chamber we have had all sorts of people from the Labor side jumping up and down and making political assertions. I see Senator Dastyari is readying himself to jump up and get into fray and make a few comments. No doubt he will make an eloquent political speech about why everything this government is doing is bad and everything the previous government did was good, even though the previous government that he was a part of left Australia with $191 billion of accumulated deficits in their first five budgets, $123 billion in projected deficits in their last budget, and government debt heading for an unsustainable $667 billion within a decade and growing beyond that—based on an assumption that there was not going to be any adjustment or correction for bracket creep.

Senator Macdonald, I appreciate the points that you raise. I also appreciate the consistency with which you have raised these arguments in the period of the previous government, as you are now in the period of this government. Essentially, we have had to make a whole range of judgements which seek to finely balance our aspiration and our objection to build a stronger, more prosperous economy where everyone can get ahead, while also seeking to repair the budget mess that we have inherited from our predecessors. It is in that context that we have obviously had to make some difficult decisions in order to reduce the spending growth trajectory that we have inherited. We are very mindful of the fact that these sorts of decisions necessarily impact only on those who receive payments from government, which is why we have sought to spread the effort over the forward estimates by also making the particular provision that is the subject of this bill.

The only alternative to not doing what we are proposing—which obviously must have dawned on Mr Shorten eventually as well—would be to ask those who receive payments from government to carry 100 per cent of the burden. But, from our point of view, in the context of the judgements that the government have made, we do not think that it would help us in either building a stronger economic or repairing the budget if we increased company taxation in the way that Senator Macdonald has suggested.

Senator IAN MACDONALD (Queensland) (12:54): I thank the minister for his courteous response. I have to say that there is not a lot of what he said that I do not strongly agree with, but he still did not answer the question. He did raise the issue of the paid parental scheme—which I had not raised today. But, Minister, you cannot have it both ways. If there is, and I accept there is a debt crisis that requires people to contribute, whether it is the reduction of government assistance or additional tax for high-income earners, why is it that companies—and you have told me that there are 3,000 of them earning more than $5 million a year, which is a bit of an advance on $180,000, I might say—are not being asked to contribute to the accepted and acknowledged debt crisis Australia faces?

I could say to you, Minister, in purely crass political terms, that every dollar that could be raised from companies would be a dollar less that individual taxpayers—that is, voters—would have to pay. So it is a no-brainer to me, from a purely crass political perspective, but that is not why I am arguing the point. I am not suggesting that we should increase company beyond 30 per cent, and I accept, Minister, you comments about Australia wanting to welcome investment into Australian companies. I accept all that but, if we are doing that, why then are we introducing what many have said is a very generous paid parental scheme at a time when we have a debt crisis?

You could easily divert the $5 billion that will be raised from the top 3,000 companies to pay off Labor's debt. That way, we perhaps may not need a three-year temporary levy on other Australians. We may not need to curtail other assistance that has had to be curtailed to pay off Labor's mismanagement and huge debt. If we could get more people contributing to the repair effort—which I accept is needed and which you have rightly explained, Minister—isn't that a good thing?

We clearly have this debt crisis. Labor, we know, were just appalling in the way they managed the country's finances. We are always left with the job of fixing that. As I say, I congratulate the government on the steps it has taken, but I do not think they go far enough. I was pleased to hear Mr Hockey say, 'The age of entitlement is finished.' So wouldn't this be an appropriate time—with the support of the Commission of Audit—to say, 'The paid parental scheme is a good goal to head towards. It is something that a wealthy, prosperous Australia could and should enter into, but perhaps now is not the right time because now, at this stage in our game, we are trying desperately to pay off Labor's debt'?

I repeat: we are doing that by getting additional tax from high-income earners and we are having to make very modest and moderate savings in other assistance measures because the age of entitlement is finished. Yet many have said to me that, with the paid parental scheme, the age of entitlement is finished. I will not enter into that. That is a debate for another place and another time. It is a debate, as I understand, is yet to be held. I read in the paper that there are—quoting the Deputy Prime Minister—'different issues' being looked at by the government in relation to the paid parental scheme. I look forward at some time to being taken into confidence by the government on just what is going to happen with it. But, as I say, that is another debate for another time.

My concern at the moment is that we have this debt crisis—and those are Mr Hockey and the Prime Minister's words. I accept them. You do not need to accept their words to know that, after six years of Labor—as after the Hawke-Keating years, 13 years of Labor—there will be a financial crisis. It has to be addressed. I agree with that. I have no issue at all with my government on that, but what I simply cannot understand—and, with respect, Minister, I know it is not totally your responsibility but you have not answered the question—is why companies do not pay this.

Let me ignore this current levy and go back to Labor's flood levy. You might find this easier to answer, Minister. The Labor Party introduced that levy to help Queensland recover from floods. Why was it that individuals had to pay but companies—like the company I have talked about but not named, which makes a profit out of sugar cane grown in Australia and, quite rightly, sends its profits in dividends to Singapore—were not asked to contribute to the flood levy? I know for a fact that its mill operations actually received some benefit from the flood levy that individual Australians were asked to pay. Why wasn't that company asked to pay? It cannot be because the dividends were going to Australian shareholders who had already paid, because they all go elsewhere. I just use that company as an example because it is an immediate one for me, easy for me to relate, but with BHP, Rio and Wesfarmers—you name it—I am sure a lot of their shareholders are overseas. Why aren't they being asked to contribute to paying off Labor's debt as every other Australian is being asked to? It just does not make sense to me.

I note that the Labor Party and, I think, the Greens are supporting this flawed, in my view, method of raising additional funds that are needed. Labor, of course, would support it, because they did this with the flood levy. I indicate that I am opposed to the bill, because, with respect, Minister, neither you nor the Treasurer nor anyone has explained to me why it is that these 3,000 profitable companies earning $5 million or more are not contributing to solving Labor's debt crisis. Perhaps you could do that, Minister, not that it matters—as I say, with Labor and, I think, the Greens supporting the government, this is going to go through regardless of how I vote. But I do want to make the point as strongly as I can so that, if we in the future need to raise money for particular issues, we do it in an honest way by increasing the general rate of taxation on the progressive scales we have in Australia, so that we can deal with these things that come up. And floods come up—I accept that. Debt crises come up—I accept that. After Labor rule, it is a given—you know there is going to be a crisis. But everyone should be contributing, and that includes companies, many of which are foreign owned and controlled and with foreign shareholders. Why shouldn't they contribute as well?

Minister, I hope you can find something new that would convince me I should support this bill. So far, I regret to say, you have not, and you are not alone in that. We have a $5 billion bucket there that could be used to pay off Labor's debt, and we are apparently not using that. We are engaging in what some—not necessarily me—call an age-of-entitlement allowance to certain individual Australians. I hope, Minister, you will be able to persuade me. If not, I hope that, in the future, governments, be they of this persuasion or that persuasion, will have an honest tax system where additional money is raised and not this dodgy arrangement where we have a levy, not a tax, that is imposed on only a certain number of Australians and not on Australia's wealthiest companies.

Senator CORMANN (Western Australia—Minister for Finance) (13:05): I thank Senator Macdonald for his further remarks. I did do my absolute best to answer his previous questions as directly and relevantly as possible, but I will have another go. Senator Macdonald talks about the debt crisis that we inherited, and indeed Labor did leave behind a debt and deficit disaster, but, as I tried to point out in my earlier remarks, the debt and deficit disaster that Labor left behind was not the only challenge we inherited from the previous government. We also inherited some significant economic challenges. We inherited an economy growing below trend. We inherited an economy with rising unemployment. We inherited an economy with low consumer confidence. We inherited an economy where business investment had plateaued. The very direct answer to Senator Macdonald's question is, yes, we also inherited a budget in very bad shape and an unsustainable spending growth trajectory which needs fixing, but the way we fix the budget mess left behind by Labor cannot detract from our efforts to build a stronger, more prosperous economy where we can create more jobs, where we can attract more investment and where we can lift consumer confidence into the future.

In our judgement, to do what Senator Macdonald is suggesting would hamper our capacity to build a stronger, more prosperous economy and create more jobs and increase business investment. All these policies to build a stronger economy, create more jobs and create opportunity for everyone to get ahead, when properly implemented, will ultimately also lead to increased revenue for government, without the need to increase or implement new taxes.

So we are doing two things at the same time. We are working to put government expenditure on a more sustainable footing by reducing the spending growth trajectory we inherited from Labor, which was going to take us to 26.5 per cent of government spending as a share of GDP by 2023-24 or from $409 billion this financial year to $690 billion by 2023-24. We are significantly working to reduce that spending growth trajectory.

In order to spread the effort fairly and equitably, in the immediate effort required over the forward estimates beyond just those who receive payments from government we are also pursuing this budget repair levy, which effectively is an increase in tax of two per cent for individual Australians who earn more than $180,000 a year. If we were to increase company tax, it would make it harder for us to grow, to get out of the situation we have inherited where the economy is growing below trend. It would make it harder for us to reverse the rising unemployment trend we inherited from our predecessors and it would make it harder for us to attract business investment.

In his further remarks, Senator Macdonald raised with me, as he did privately on various occasions, the Paid Parental Leave Scheme. The Paid Parental Leave Scheme is an integral part of our economic strategy to build a stronger, more prosperous economy. If you look at the two economic challenges we are facing as a nation, one relates to the falling terms of trade and the other relates to the implications which come with the ageing of the population. The ageing of the population, among other things, has led to falls in workforce participation, which is why in the budget we are pursuing initiatives to encourage older Australians to work longer. Also we need to pursue initiatives to lift workforce participation by women in order to help us build a stronger, more prosperous, more resilient economy. The two areas of policy which we need to get right in order to lift workforce participation are paid parental leave arrangements and childcare arrangements.

In relation to childcare arrangements, a Productivity Commission review, which is underway, will guide some of the government's thinking on the best way forward. But when it comes to paid parental leave, I know that it is easy to look at paid parental leave as though it is just another welfare entitlement. In our view it is not that. To ensure that, up to an appropriate level, women are able to draw a replacement wage for a certain period while they are having a baby is essentially the same as somebody who goes on annual leave, on long service leave or on sick leave, while also being paid a replacement wage. Nobody would suggest that somebody who takes three months long service leave should somehow receive a welfare payment. Nobody would suggest that and neither they should. Nobody would suggest that somebody who goes on sick leave should be moved onto a welfare payment. Everybody would accept and acknowledge that it is quite appropriate, while on sick leave, that you should continue to be paid at your wage. Public servants right now here in Canberra are able to access their replacement wage when they have a baby. Indeed, many big businesses are providing paid parental leave benefits now. The problem is that small businesses, as they compete for a workforce, find it difficult to compete with Public Service or big business employers because they cannot afford to pay for that sort of workplace entitlement. That is why the scheme we are putting forward as part of our broader strategy to build a stronger, more prosperous economy, provides a fairer deal for small business and helps them to recruit and retain high-quality female workers.

We were very transparent in the lead-up to the last election on what we think needs to be done in order to build a stronger, more prosperous economy. Part of that strategy, of course, is scrapping all the bad Labor taxes like the carbon tax and the mining tax. Part of it is to implement a 1.5 per cent company tax cut and part of it is to implement this fair dinkum Paid Parental Leave Scheme, which will be funded significantly with a 1.5 per cent levy.

If we were to do what was suggested by Senator Macdonald—that is, effectively to increase company tax by two per cent in the same way as we are proposing through this bill to increase the top marginal tax rate for Australians earning more than $180,000—we believe, based on all the information we have been able to review, that that would detract from growth and would make it harder for us to reverse the rising unemployment trend we have inherited. Ultimately, it would make it harder for us to repair the budget because rising unemployment means increased costs and less revenue than otherwise would be the case. So in all of the circumstances, we have not taken any of this lightly. We have made a series of very considered, deliberate decisions on how best and how most sensibly to reduce the spending growth trajectory we inherited. And that is never easy.

If somebody believes they are going to get a particular increase in their payment from government, nobody is going to like to hear the government say, 'We can't afford that. The previous government might have made these promises but we actually cannot afford to give you them because we are going to have to continue to borrow from our children and grandchildren in order to fund these benefits and your current lifestyle. Our children and grandchildren would have to pay back those costs, with interest.' So we have said we cannot do that and we have reduced the spending growth trajectory.

We have sought to spread the effort more equitably by putting forward this temporary budget repair levy. But to pursue the change to company tax arrangements that Senator Macdonald is suggesting, for all the reasons which I have done my best to outline as clearly and as explicitly as possible, we do not think would be in Australia's national interests or in the interests of growing a stronger, more prosperous economy, of creating more jobs, when we have inherited an economy growing below trend and rising unemployment. We would humbly put to the chamber that the budget that we have put forward, including this measure, is part of a package of initiatives that seeks to protect our living standards, build opportunity and prosperity in the future and finely balance the whole range of competing issues that we have to deal with.

Senator IAN MACDONALD (Queensland) (13:14): I will not continue on with this past this question. I acknowledge that Senator Dastyari has allowed me to finish my line of questioning, which I appreciate. Minister, thank you for that, but, with the very greatest of respect, can I just say that the arguments you raise really do not make sense. You said, 'If we were to increase company tax it would impact on our desire to build a stronger economy through additional investment.' Well, sorry, Minister—you are increasing the income tax on companies; you are increasing the company tax. As the coalition promised before the election, we were reducing company tax by 1½ per cent—a great initiative, to do everything you said, Minister. That is, we are going to build a stronger economy by encouraging investment. Yes, the 1½ per cent reduction was great for that. I supported that. So everyone gets a 1½ per cent reduction. But, hang on—for the top 3,000 companies the tax goes back. If it applies on one side it must apply on the other. So, by increasing the tax on those top 3,000 companies, you must be impacting on your desire to build a stronger economy through encouraging investment.

You also talked about falling terms of trade and ageing of populations. I am not quite sure what that has to do with the matter I am discussing. And, whilst I accept that women in the workforce do need encouragement to have their children and go back to work, there is already a scheme in place. It is a Labor scheme, so it cannot be particularly good, but it is there; it is in place.

Senator McKenzie: Public servants can double dip.

Senator IAN MACDONALD: And public servants can double dip. But, Minister—and this is where the logic fails in the argument that you put to me—you say that big business already has a very generous paid parental leave scheme. Maybe big business should have a look at their schemes. And why isn't the Public Service having the same sort of Paid Parental Leave scheme as every small business and every other Australian has? It is not brilliant, but it is a start.

We will get the economy back into the black. We will get it powering ahead. I know our government will do that, because we have the right policies and the right philosophy to do that. And we have done it before. It is a continuous cycle, be it at state or federal level: Labor gets in and smashes the economy; Liberals come back and improve the economy. We know that that is going to happen. And, when we have done that, then—perhaps instead of giving tax deductions—we can look at a properly funded, very good Paid Parental Leave scheme. And I would be the first to support it.

But arguing that big business is already doing that, and then giving them a cut in their income tax so that they do not then have to use their own funds to do their own Paid Parental Leave scheme, and then putting the 1½ per cent back so that we have this universal Paid Parental Leave scheme—don't you see that it just doesn't make sense? I have tried. But, with Labor supporting your proposals and, I think, the Greens, too—I cannot take this anymore. I do thank you, Minister—

Senator Whish-Wilson: Keep going—we're thoroughly enjoying it.

Senator IAN MACDONALD: Well, I hope you might not just enjoy it but think about it in the future, so that the next time your mates in the Labor Party want to introduce a flood levy on individuals and not on these big 3,000 companies, you might encourage your mates in the Labor Party not to do that. That is presupposing they ever get back into government, and that is a big presupposition.

But I just hope that people do learn something from this. To me, there is no valid argument why the top companies, with profits of more than $5 million, are not contributing to the debt that Labor created—

Senator Whish-Wilson: Hear, hear!

Senator IAN MACDONALD: with the help of the Greens. There is that debt crisis there. We have to pay that debt back. Here is a way we could get the top 3,000 companies to do it. We are not doing it. I think it is a missed opportunity. But I cannot take it anymore. Minister, I thank you for your answers, although they have not convinced me.

Senator Jacinta Collins: Nonanswers.

Senator IAN MACDONALD: Well, no. I do appreciate, Minister, the answers you have given. They have not convinced me. But I really cannot take it much further.

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