HOUSE OF REPRESENTATIVES
WEDNESDAY, 7 FEBRUARY 2018
Dr LEIGH (Fenner) (17:13): I move:
That all words after 'That' be omitted with a view to substituting the following words:
'whilst not declining to give the bill a second reading, the House:
(1) is of the opinion that with Government debt soaring ever higher, it’s time the Turnbull Government abandoned its plan to give big business a multi-billion tax cut;
(2) notes that the Government is debating legislative fixes that are a result of its slapdash approach to policy making; and
(3) calls on the Government to commit to a post-implementation review of this measure'.
Labor will support the Treasury Laws Amendment (Enterprise Tax Plan Base Rate Entities) Bill 2017, but we will not do so without calling the attention of this House to the Treasurer's litany of mistakes.
Just over 21 years ago, English Premier League side Southampton fielded a substitute player, Ali Dia, who had just arrived at the injury-depleted side with virtually unknown footballing credentials. In a match Southampton lost 2-0, Dia himself was substituted after a shocking performance and released from his contract within two weeks.
As it turned out, he'd bluffed his way into the job by getting a university friend to impersonate Ballon d'Or winner George Weah in a phone call to manager Graeme Souness to extol the player's skills. Souness's misplaced faith was mocked for decades to come. The player whom Dia replaced, Matt Le Tissier, spoke of the new substitute's performance in the following terms: 'He ran around the pitch like Bambi on ice. It was very, very embarrassing to watch.' Souness defended the decision on the basis that his playing stocks were depleted, but nonetheless confessed that the experience was 'a kick in the bollocks'.
As noted by Richard Cooke in The Monthly, the dire fiasco was in part a symptom of the pre-internet era. But what makes the experience of Southampton understandable, if not entirely defensible, is that they dealt with the roster situation swiftly. The contrast with the Turnbull government couldn't be clearer. Southampton addressed the issue within two weeks. We've had this Treasurer in his role for two years. Like Bambi on ice, we've seen the Treasurer slip and slide on policy positions, making mistakes with disheartening regularity. An error-prone history prefaces the bill before us today—a legislative fix to the unintended consequence of the government's rushed and poorly implemented tax plan. It is embarrassing to watch the Treasurer and the Minister for Revenue having to introduce legislation to clarify who's eligible for the lower corporate tax rate for small and medium businesses.
Let me be clear. Labor supports the small business tax cut. We just wish the government could have got it right the first time—or the second time. But, as I'll go on to discuss, it's taken the government three times to get this one right. But I'm afraid it's not the first time the Treasurer has messed up. He has 10 greatest hits on the muck-up table.
No. 1: The 15 per cent GST.
In February 2016, when the tax white paper process had been abandoned, the Treasurer switched his focus to a 50 per cent hike on the GST. The Prime Minister started to back away but the Treasurer persisted—and after the conclusion of Senate estimates he dropped out GST modelling to the papers. But ultimately the Treasurer was rolled by the Prime Minister when the two of them realised—as the Australian community had known for years—that the GST is a regressive tax.
No. 2, negative gearing excesses and hysteria.
When Labor announced our carefully calibrated and prospective policy to restrict negative gearing to new dwellings and halve the capital gains tax discount, the Liberal Party didn't quite know what to do with itself. This was a policy supported by Joe Hockey in his outgoing speech, by Jeff Kennett and by Mike Baird. While waiting for guidance from the backbench, it seemed like the Treasurer might have considered negative gearing reforms. He appeared on Channel Seven's Sunrise program. When Kochie asked, 'Does it go too far?' the Treasurer said, 'There are excesses.' Kochie said, 'Does it need to be reformed?' The Treasurer: 'There are excesses.'
But then the Treasurer started to crabwalk away. At the National Press Club, he walked away from reforming negative gearing despite the fact it was clear that such reforms are needed. And he soon began embracing outright hysteria about Labor's negative gearing reforms, trumpeting a BIS Shrapnel report that, he purported, modelled Labor policy. BIS Shrapnel, to their credit, clarified to The Australian Financial Review that 'the assumptions were set several months ago and the analysis done late in 2015, well before Labor announced its policy. Therefore, the assumptions do not align with Labor policy.' The Treasurer could have picked up some warning signs in the report, which referred to Australia's GDP as $190 million—well short of the true answer then of $1.6 trillion.
The Grattan Institute's John Daley said, 'Voters should be asking themselves whether a responsible government would rely on this sort of nonsense in a public policy debate.' But we now know that the Treasurer was sitting on analysis from his own department—which sat in a desk, or maybe a filing cabinet somewhere in Fyshwick, for two years—until he was ordered to release it under freedom of information laws.
That analysis stated:
In the long term, increases in taxation on rental property could have a relatively modest downward impact on property prices.
Why wasn't it heeded? The Treasurer said:
I didn't agree with them …
That's why. The Treasurer may be entitled to his own opinion, but the public are entitled to the facts.
No. 3: timing of the budget
Having been sidelined on the tax white paper, GST and concerns over negative gearing, the Treasurer was going to stand firm on the date of the 2016 budget. Amid speculation that it might change, the Treasurer was asked if the scheduled date of 10 May 2016 was going ahead, and he said, 'That is the planning we have in place.' It wasn't. The Treasurer was rolled by the Prime Minister, who decided to bring forward the budget in a decision all to do with politics rather than policy, and advised the new timing via a cabinet teleconference.
No. 4, the hole in the Liberals' black hole claims
In the 2016 election, the longest in living memory, the government attempted to peddle dodgy numbers about Labor's policy. Journalists discovered, within a matter of minutes of the Treasurer releasing those numbers, a $19 billion mistake in their claims about a policy released by Labor just days before. The Treasurer was later reduced to giving himself a $35 billion variance in his statement about Labor's costings.
No. 5, the 'omnishambles'
In 2016, we saw the Treasurer demonstrate that, while the Liberals are good with division, they're not quite so good with addition. The Treasurer, extraordinarily, produced numbers which had stuff-ups in them, with the acting secretary of Treasury seemingly bullied into releasing a statement saying the wrong numbers were 'due to a computational error'. We then had the Treasurer, in April last year, with extraordinary chutzpah, responding to the tax office's court victory over Chevron by tweeting:
Chevron will pay more than $300m to the ATO proving the govt's program of tax avoidance funding and new measures is working
But here's the thing: the Liberals voted against the very laws that the tax office used to take on Chevron. Specifically, in 2012, the coalition voted against the then Labor government's Tax Laws Amendment (Cross-Border Transfer Pricing) Bill (No. 1) 2012. At the time, they claimed the law was retrospective. In reality, it simply clarified the operation of our tax laws and ensured that multinationals couldn't exploit loopholes. If the Liberals had had their way, the budget would be $300 million worse off. If the Treasurer was being honest, he would have tweeted: 'I got it wrong in 2012. I'm glad Labor did the right thing, and this judgement is based on Labor laws that I voted against.'
But they continue to make this same argument. Late last year, during Senate estimates, the Australian Taxation Office confirmed that none of the $4 billion clawed back from multinational firms over the previous financial year could be attributed to Liberal laws, despite their repeated attempts to claim otherwise. The most diligent Senator Ketter asked the tax office's international deputy commissioner, Mark Konza:
In terms of the $4 billion that you announced was raised on 23 August for the last financial year, I'm interested in knowing how much of that is directly attributable to the multinational anti-avoidance law?
Mr Konza replied:
The answer is nil. The multinational anti-avoidance law only came in in 2016. The $4 billion concerned audits that went back as far as 2008 …
So the Treasurer and the Minister for Revenue and Financial Services have been telling blatant untruths when they've claimed it was their policy responsible for cracking down on multinational tax dodging. To top it off, the government spent $8 million in advertising their multinational policies. That is $8 million more than the revenue that we know to have been raised by those laws.
One revenue measure the government can take credit for is the bank levy, but from the get-go they couldn't even clarify simple details, such as whether the levy was tax deductible. The Treasurer's office issued a statement in the weeks following the budget announcement that included the statement, 'The government believes the bank's figures support Treasury revenue forecasts of $6.2 billion over the budget forward estimates.' But, a month later, testimony at the Senate Economics Legislation Committee confirmed a $2 billion budget black hole in the government's bank levy. The Treasurer refuses to release modelling backing the $6.2 billion claim—but he's always willing to release material that makes false claims.
No. 6: the pretend analysis of Labor's policies
Last year, the Parliamentary Budget Office took the extraordinary step of issuing a correction about claims made in the media. The Treasurer had been peddling modelling—fictitious numbers about Labor's tax policies—to favoured journalists and claiming that these numbers were from the Parliamentary Budget Office, but they weren't.
As the Parliamentary Budget Office said:
References in the media this morning to modelling being released today by the Parliamentary Budget Office are incorrect. The analysis reported in the media this morning was not conducted by the PBO.
No. 7: the Treasurer's talk of lowering tax while he's trying to raise it
The Treasurer has regularly put on the garb of a low-tax crusader, wrapped himself in the cape of a man who is keen on cutting income tax for middle Australia. If you're a millionaire or a multinational then the Treasurer is there to back you, but seven million Australians face a tax hike under this Treasurer. At a time of low wage growth, at a time when this government is supporting cutting penalty rates and at a time when we are seeing the safety net, as the member for Gorton has pointed out, moving from 16 per cent of workers to 24 per cent of workers, the Treasurer sees fit to whack Australians earning as little as $21,000 with a hike in the Medicare levy. A worker on $60,000—a police officer or a teacher—will pay an extra $300 a year in income taxes under the Liberals compared to Labor.
Labor believe in progressive taxes. We support the reintroduction of the deficit levy on the basis that the debt has continued to increase and the deficit hasn't gone away. Why should the only temporary measure to get the budget back in surplus be the one that hits the top end of town? We would raise over $4 billion more than the government by increasing the Medicare levy only for those earning more than $87,000 a year and keeping the deficit levy on those income earners earning more than $180,000. Nine-tenths of that reintroduction of the deficit levy would be paid by the top one per cent, a group of Australians who have seen their share of income double in the past generation. The Medicare levy above $21,000 is a flat tax. When you ask a hairdresser and a surgeon to each pay 0.5 per cent of their income, that's a flat tax. Progressive taxes reflect the reality that a billionaire has greater capacity than a battler to pay for schools, roads and hospitals. With inequality as high as it has been in three-quarters of a century we don't need more flat taxes in Australia.
No. 8: the Treasurer's analysis of inequality
Earlier I paraphrased the great American professor turned senator Daniel Patrick Moynihan, who enjoyed saying to opponents, 'You're entitled to your own opinion, but you're not entitled to your own facts.' The Treasurer has claimed that inequality has 'actually got better', but experts from around the world, from Oxfam to the Reserve Bank of Australia, have confirmed what many Australians already know—that inequality is indeed increasing. The Australian Bureau of Statistics data shows that, since 1975, real wages have grown by 72 per cent for the top 10th but 23 per cent for the bottom 10th. The labour income share in the economy has fallen from 75 per cent in 1975 to 60 per cent today. Fat profits; skinny pay cheques.
The Treasurer tells us that we should look at the Gini coefficient. Let's do just that. Peter Whiteford shows that the Gini in 1981-82 was 0.27 but by 2013-14 it had risen to either 0.3 or 0.33, depending on whether you use the Melbourne Institute's Household, Income and Labour Dynamics in Australia survey or the Australian Bureau of Statistics income surveys. Either way, the Gini is up. My own estimates of pre-tax Gini coefficients for men from 1942 to 2010 show that we have seen a fall in the Gini coefficient from about 0.35 in the early 1940s to 0.27 in the early 1980s and then back in the region of 0.36 to 0.38 by the 2000s.
The top one per cent income shares are up. The top one per cent wealth shares are up. The share of national income held by the rich list is up. But the facts didn't stop the Treasurer using taxpayer money to mail out an 80-page glossy to Australian CEOs trumpeting Treasury analysis on inequality and wage growth. Will he release it? I don't think so.
No. 9—the Treasurer's own goals on company tax cuts.
In December 2017, Treasury analysis commissioned by the Treasurer and released late on a Friday afternoon again clearly demonstrated that, for companies with a turnover of more than $50 million, workers are not remunerated in line with their productivity. This came on the back of OECD analysis earlier this year that showed that Australia lagged most other OECD economies when it came to workers getting a fair share of productivity gains. This selective release of data late on a Friday is characteristic of the way in which this government operates. While this House was passing the historic same-sex marriage laws at the end of last year, the Turnbull government released tax transparency data. They didn't want the public to ever see these data. They voted against the laws and tried to get rid of them. The figures showed that one in three large firms in Australia pay no tax, including more than 100 firms that reported more than a billion dollars in total income.
No. 10—the bill we are debating today: base rate entities, patch-up on a patch-up.
As I have noted, Labor have always supported a lower tax rate for small businesses with a turnover of up to $2 million. So we need to make sure that the eligibility rules for the lower rate are right. But we have had concerns being raised as far back as September 2016 about the applicability of these laws. Bodies such as The Tax Institute and the Chartered Accountants Australia and New Zealand, while welcoming the clarification, have recommended a post-implementation review of the legislation, possibly by the Treasury or the Board of Taxation. We hope the government heeds their calls. Support for this technical amendment has no further implications for Labor's position on the threshold at which a lower company tax rate applies. This is simply about clarity in the operation of tax laws, as long as a two-tiered company tax rate stands.
Under the measures contained in this bill, if more than 80 per cent of a company's assessable income is of a passive nature, for example, rents or dividends, they won't be eligible for the lower rate. Many of these entities are known as 'bucket companies', associated with discretionary trusts. The legislative patch-up is a result of the government's poor implementation of their $65 billion corporate tax giveaway. Indeed, it's extraordinary that as debt continues to soar. Those who have received their receipt back from last year's tax return will have seen gross debt now at $501 billion. The Turnbull government refuses to abandon the rest of its plans to give some of the biggest companies in the world a huge tax cut.
In the case of the eligibility for passive investment, eligibility for lower tax thresholds was always intended to be contingent on 'carrying on a business'. The receipt of passive investment income hadn't been regarded as enough for a taxpayer to be able to demonstrate that. The government claims that, during the phase-up of company revenue tax thresholds, there was no intention for passive companies to receive lower tax rates. That has been Labor's understanding as well. Passive income entities would only be eligible for the same tax rate as other corporate entities if and when the corporate tax rate was uniform for all entities, which on the government's current schedule would be the 2023-24 income tax year at 27.5 per cent. Interestingly, the government are silent on why they exclude passive income entities during the phase-in period of their tax cut but include them at full implementation. No policy case has been given, which is rather telling.
As I noted, the tax practitioner consternation began in 2016, and in July last year the Minister for Revenue and Financial Services finally commented on the issue but didn't comment in a way that suggested she took those concerns seriously. Instead, she described the industry's concerns as 'premature'. The government was focused instead on tax cuts for millionaires and multinationals. The detail of getting a small business tax cut right wasn't a priority, despite the fact that a small business tax cut had bipartisan support. In September 2017, we finally saw the government admitting that it had made a blunder. But, as we understand it, this bill is about to be amended by the government. They are going to patch-up their patch-up. This is another omnishambles from a government that has shown its inability to get the detail right. If you're not focused on getting the detail right for small businesses, how can Australians have confidence in economic leadership in this country?
When the now Prime Minister rolled his predecessor, he said some of the key reasons for doing so were the loss of 30 Newspolls in a row—how's that going for you, Prime Minister?—and the lack of economic leadership. And as this bill has shown, Australia is failing to get the economic leadership from this government that it was promised. The government has failed to provide timely clarity to businesses and tax practitioners this year to avoid the chaos that flowed through at tax time last year. They are amending their own amending bill, admitting yet again that they haven't been able to get the detail right on the status of passive income.
Labor will support the government fixing their blunders. Let's face it, that's a lot of what we do on this side of the House—that is, try to save the government from making more blunders. Yet again we've seen this Treasurer unable to sort out the details, and a revenue minister who can't work out whether or not Labor's plans will send up or send down house prices. Yet again they're not focused on the detail of implementation. Labor will support this bill, this patch-up of a patch-up, but we shake our heads in so doing.