HANSARD EXTRACT
|
Tax Laws Amendment (Improvements to Self Assessment) Bill
(No.2) 2005: Second Reading |
| 1st & 5th December 2005 |
Mr
HAYES
(Werriwa) (1.53 p.m.)—I
welcome the opportunity to contribute to this debate on the change
to the Australian tax system through the
Tax Laws Amendment (Improvements to Self
Assessment) Bill (No. 2) 2005. As we all know, there are
only two things certain in life: death and taxes. It is nice to know
that it is at least possible for us to have an influence on one of
them.
Tax laws have been a big issue for the
Treasurer of late. Last week he was trying to reverse his record of
continually adding pages to the tax act, announcing plans to cut the
tax law by up to 30 per cent. Mind you, the act will still have more
pages than it did when he took the job on a decade ago. This week he
had a slightly different involvement in tax, when he was trying to
avoid the issue of taxation of Liberal Party donors.
Tax laws have regularly troubled this Treasurer
and this bill seems to be no exception. I will return to some of the
difficulties that the Treasurer is experiencing with the bill a
little later, but I would like to make some comments about the
changes that the bill will implement. Tax is a big issue for just
about every Australian; it is an issue that has got progressively
bigger under what has become the highest taxing government in
Australian history. No-one likes paying tax, but I suppose most of
us understand why we do. What causes taxpayers more concern than
having to pay tax is the uncertainty that is created by the powers
of the Australian Taxation Office to reopen tax assessments after
many years.
When it comes to income tax,
Australia has operated a system of self-assessment for nearly two
decades now. The process is relatively clear. Income tax returns are
submitted and are accepted at face value on the clear understanding
that the Australian tax office may seek to verify the accuracy of
the return and, if necessary, amend the assessment at some later
date. Changes in this bill will give taxpayers a degree of certainty
surrounding examination of their returns.
The bill sets out the changing time frames in
which the Australian tax office can audit taxpayers. For those with
a simple tax arrangement, the period has gone from four years down
to two years; for those with a more complex set of arrangements, it
has gone from six years down to four years. Accordingly, the level
of protection afforded to taxpayers is increased by guaranteeing
that, after two years have expired, under normal circumstances,
taxpayers will not be subject to audit by the Australian tax
commissioner.
The second set of measures introduced in this
bill also acts to improve certainty for taxpayers. The area of the
Australian tax office public and private rulings has often caused
considerable concern and trouble for individual taxpayers as the
process of having a ruling made and maintained has become somewhat
confused. Under the changes contained in this bill, the tax ruling
process will undergo a radical change which will allow taxpayers to
be certain in the knowledge that they can rely on the formally
requested advice of the Australian tax office, including oral
advice, and not be subject to penalty at some time in the future for
a change in that assessment. The commissioner will also be granted
additional powers to determine the time from when a ruling will take
effect and is required to specify a time limit for which that ruling
will remain in operation. Clearing up the confusion surrounding
existing tax processes will be a change to the tax law welcomed by
Australian taxpayers, many of whom are guided in their financial
affairs by such rulings.
Despite these changes, Labor believes that,
when it comes to self-assessment, there are a number of other
proposals for implementation of the tax act that have not been
addressed either in this bill or as part of the Tax Laws Amendment
(Improvements to Self Assessment) Bill (No. 1) 2005. Labor believes
that it is not alone in this view. As I understand it, there are a
number of members opposite who equally feel concern. The coalition
backbench have certainly not been hesitant in expressing their view
in this regard. Only yesterday, we heard the contribution from the
member for Pearce on the government’s welfare to work proposals,
questioning the extent to which cutting someone’s income would help
find a job.
Another group of backbenchers, it seems, is
equally questioning of the government’s approach. In this case, it
is in relation to income tax assessment. It has come to my attention
that, after examining the draft of this bill, a group of
backbenchers wrote to the Treasurer raising some serious concerns
about the bill. The importance of this correspondence with the
Treasurer by coalition members and senators lies in the fact that
they expressed their concern that the bill does not reasonably
reflect the recommendations that prompted the legislation in the
first place and that their constituents have pointed out a number of
shortcomings in the bill. The document makes an interesting read. In
addition to raising some concerns of the backbenchers, it sets out
some key areas of concern that senators and members would like to
see addressed when it comes to the income tax self-assessment
regime.
Coalition members have asked that the following
issues be addressed. First, they say that the legislation should
more fully reflect—
Interjection
The SPEAKER—Order!
It being
2 pm, the debate is interrupted in accordance with standing
order
97. The debate may be resumed at a later hour and the member
will have leave to continue speaking when the debate is resumed.
5 December 2005 in continuation
Mr HAYES
(Werriwa) (6.10 p.m.)—Before
my contribution to this second reading debate on the
Tax Laws Amendment (Improvements to Self Assessment) Bill (No. 2)
2005 was interrupted by question time last Thursday, I had made
a number of comments about how tax issues had troubled the Treasurer
during the whole time he has been in that position. The pressure
placed on the Treasurer by the opposition last week, and obviously
by the coalition backbench, resulted in the resignation last Friday
of the cause of the Treasurer’s latest tax problem—Mr Gerard.
The resignation of
Mr
Gerard from the board of the Reserve Bank is proof of the poor
judgment of the Treasurer in appointing him in the first place.
Despite the strong protestations of government members who have said
that the government had no influence over the decision of Mr Gerard
to resign, I find that a little bit difficult to believe. The whole
affair demonstrates the poor judgment of the Treasurer in this
regard. I found it particularly interesting to read the comment of
an unnamed coalition member who is reported to have said—
Mr Tuckey—Mr
Deputy Speaker, I rise on a point of order. This is very complex
legislation relating to the tax act. The member should be asked to
return to the details of the legislation from which he has removed
himself by a very far distinction in talking about an issue—
The DEPUTY SPEAKER (Hon.
DGH Adams)—The
honourable member will resume his seat. I ask the honourable member
for Werriwa to come to the bill.
Mr HAYES—In
deference to you, Mr Deputy Speaker, I will do that, but I think my
comments reflect on the bill in terms of the decisions being made by
the Treasurer, who is responsible for the administration of the tax
act. The Treasurer’s problems with taxation do not stop with what
occurred last week. As my colleague will probably be able to attest,
there was correspondence from coalition backbenchers to the
Treasurer—which I referred to last week—that detailed a couple of
key issues of concern about this very piece of legislation. It said
that, firstly, the legislation should more fully reflect the
Treasury recommendations contained in the review of self-assessment
report; secondly, the legislation should have specific application
to the groups who complained and prompted the Treasury review;
thirdly, the legislation should apply retrospectively; and, finally,
there should be greater controls on the commissioner’s ongoing
ability to retrospectively and unilaterally make determinations.
As I said last week, that correspondence was
sent by coalition backbenchers to the Treasurer to consider in
relation to this legislation. I have no doubt that these are pretty
insightful comments but at the same time they offer a damning
criticism when they are ignored. And that is precisely what did
occur—they were ignored. Unlike the Treasurer in this regard, Labor
are willing to consider the issues that have been raised by the
coalition backbench. We on this side of the House are willing to
take the tax proposals that were rejected by
Treasurer
Costello and would be prepared to give effect to them as
appropriate. I urge all of the signatories to that correspondence to
the Treasurer, who have expressed concerns about this bill, to have
the courage of their commitment and stand up to the Treasurer. You
are on common ground with us in many respects on this matter.
While I feel that the provisions of this bill
could have gone further—and, as a matter of fact, should have gone
further—I do support the increase in the level of certainty that
these changes bring to Australian taxpayers. Having said that, I
cannot rise to speak on a bill concerning issues of tax without
passing comment on the pretty feeble attempt by the Treasurer to
reduce the pages of the income tax legislation by, as he claims, 30
per cent. According to the Treasurer’s media release on 24 November,
the Board of Taxation estimates that 2,100 pages of the combined
income tax assessment acts can be repealed. The Treasurer claims
that this is the largest simplification of tax legislation in
Australian history. Of course it is: the tax acts have become so
unwieldy that cutting out 2,100 pages is by any means a considerable
change. The Income Tax Assessment Act 1936 and the Income Tax
Assessment Act 1997 have a combined total of 6,450 pages. When you
take into account the ancillary legislation, there are, as I
understand it, some 10,000 pages of legislation.
So the Treasurer has decided that it is time to
give the 25-centimetre thick, four-volume tax assessment acts a bit
of a prune. This will only get them back to the level of the
taxation acts he inherited back in 1996; he will only be able to
prune the tax assessment acts back to the size when he got control
of the legislation in 1996. That is not reform. Sure, it is
important that periodically we do act to trim the size of
legislation by removing clauses which are redundant, cumbersome or
infrequently used—but let us not kid ourselves: that is not reform.
Unlike other so-called reforms by government—such as the Work
Choices or Welfare to Work provisions, which tear at the very fabric
of Australian society—throwing out clauses in the tax acts that have
passed their use-by date is hardly radical reform.
It seems that the Treasurer has lost even the
modicum of reformist zeal that he had at the start of his nine years
in office in control of the tax system. The Australian taxpayer has
nothing to fear from these reforms—mind you, they have little to
gain either—but at least there is nothing hiding in the fine print
as is the case with many other initiatives of this government. The
only changes that the Treasurer has set about making to the tax laws
since he has had carriage of them have resulted either in pages
being added to the tax laws or in middle Australia missing out on
tax cuts. In 1996, the tax acts were 3,500 pages long. Now there are
nearly 10,000 pages of tax law—a threefold increase. The Treasurer’s
record is not a thing to be admired when it comes to tax reform, and
it seems that the coalition backbench is starting to work that out.
Under the Australian income tax system, if you
are an ordinary PAYE taxpayer you pay tax. You are not able to avoid
tax like some millionaires around the country seem to be able to. I
understand that before the 1996 election both parties were advised
that it was possible for millionaires to reduce their average tax
bill to around 25 per cent. At that time that rate was below the
rate that would have been paid by ordinary working Australians on
$40,000 per annum. Nine years later, we have the highest taxing
government in Australian history and what does a recent study from
the Melbourne Institute of Applied Economic and Social Research show
us? It reports that the nation’s wealthiest households are still
paying a tax rate of around 25 per cent. What a sensational effort
by this government: after nine years and a threefold increase in the
number of pages in the tax acts, the wealthiest Australians are
still enjoying a tax rate below that of ordinary working
Australians.
Working Australians in my electorate would love
nothing more than to be able to minimise their tax to the same
extent that the Treasurer continues to allow the richest among us to
do. It is quite clear that there are deep-seated economic
inefficiencies contained in
Australia’s current taxation regime. A tax regime that allows the
highest of income earners to pay less tax than the average income
earner has got to be seen as being in desperate need of repair. As
the Treasurer said himself in the lead-up to the 1998 election:
High tax rates mean rich people spend more time and money on tax
planning to reduce their tax liabilities. Low-income earners who
cannot afford such advice keep paying more tax.
He is dead right about that. This makes complete sense when you
consider taxation statistics which show that almost half of all
individual taxpayers seek professional taxation advice that produces
a total deduction in the tax system of around $1 billion annually.
When individual taxpayers consider it necessary and in their
interests to spend $1 billion on tax advice, surely we must realise
that there is something crook in the system.
When you dig a bit deeper into the tax
statistics, the case for reform of income tax starts to become
somewhat overwhelming. Probably the biggest inefficiency—and the
greatest opportunity for rorting the tax system—comes about because
of the sometimes very generous claims for work related deductions
that are allowed. Don’t get me wrong: work related deductions are
often necessary and do reflect the fact that in order to work many
people sometimes need to make purchases directly related to their
occupation. But, given the current level of deductions, you would
have to ask a couple of questions. In the 2002-03 financial year,
there were some 10.7 million taxpayers who reported a total income
of $381.2 billion. A total of $20.7 billion was claimed in
deductions, about half of which were work related deductions. When
billions of dollars are claimed in work related deductions, it seems
to me that these deductions are starting to move away from the
reasons for which they were introduced and to become means of
lowering taxable income and avoiding or at least minimising tax
liabilities. While the Treasurer feels that lopping off redundant
and unused parts of the tax acts is radical reform, there is an
overwhelming need to address
Australia’s income tax system at a more fundamental level. I take
this opportunity to again call on the government to get serious
about tax reform, to get serious about putting incentive back into
the tax system and to get serious about providing tax cuts for the
more than 80 per cent of income earners in my electorate of Werriwa
who missed out on the tax cuts in the last budget and are now seeing
their money locked up in a $14 billion surplus that this government
seems to have little desire to let go of.
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