House of Representatives

Tax and Superannuation Laws Amendment (2015 Measures No. 1) Bill 2015

Second Reading Speech

Mr FRYDENBERG (Kooyong Assistant Treasurer)

I move


That this bill be now read a second time.

Today, I introduce a bill that amends various taxation and superannuation laws to implement a range of improvements to modernise Australia's tax system. This bill also furthers the government's commitment to update and continuously improve the Australian tax and superannuation systems.

The bill will also remove uncertainty from our tax and superannuation laws and remove laws that are ineffective and outdated. And it will make our laws more relevant and provide incentives for investment so that Australia is well placed to compete on the global stage.

This government, with the release of the tax white paper on 30 March 2015, is demonstrating its ongoing commitment to Australians to modernise our tax laws and making genuine reforms.

The amendments today are a step towards that.

Schedule 1 to this bill will abolish the first home saver accounts scheme.

When first home saver accounts were introduced by the previous government, they were expected to hold around $6.5 billion in total combined savings after four years. At the beginning of last year, more than five years after the scheme was introduced, fewer than 50,000 accounts were open, and containing total combined savings of only $540 million. This is less than 10 per cent of the previous government's prediction.

The scheme is being abolished using a phased approach.

New accounts opened from the 2014-15 budget night will not be eligible for any concessions. For existing account holders, the government co-contribution and the tax and social security concessions will be phased out and abolished from 1 July 2015.

This government recognises that homeownership is an important goal for many Australians; for many it will be the most significant financial investment they make. We recognise that rising house costs are a concern, especially for young Australians and families.

However, it is clear that the first home saver accounts have not helped address rising housing costs in Australia. If we are to help young Australian families realise the dream of owning their own home, then we need to address the real issues faced by families looking to enter the property market.

The supply of housing is not keeping pace with recent growth in demand. To improve housing supply, regulatory barriers relating to state and local governments' planning, land use and housing infrastructure policies must be removed.

While housing supply is primarily the responsibility of state and territory governments, we are working together to reduce the red tape that holds up the supply of housing and construction and to increase land release for new homes. This will improve housing affordability, and will allow more Australian families to realise the goal of homeownership.

Abolishing the first home saver accounts scheme will save more than $130 million over five years.

Schedule 2 to this bill will also abolish the dependent spouse tax offset with effect from 1 July 2014, as announced in last year's budget.

We want to make sure that the tax system is equitable for all Australians. That means making sure concessions in the personal tax system are well targeted, including tax offsets. At their core, concessions need to assist the people they are designed to help, and provide support where it is most needed.

When the Dependent Spouse Tax Offset was introduced many decades ago, its purpose was to provide a concession to taxpayers who 'maintained' a dependent spouse. It was introduced at a time when the welfare system was in its infancy. With changes in our society and our economy, this offset is obviously outdated.

Maintaining concessions that have outlived their purpose is simply not sustainable particularly in view of other assistance available through the welfare system that is more targeted and appropriate and the need to promote workforce participation as our population ages.

This measure is not about undermining our strong social safety net. Rather, it is about future-proofing it. That is why the Dependant (Invalid and Carer) Tax Offset, introduced in 2012, will still be available. It is already constructed in a way that takes account of current arrangements in the welfare system. It is an offset for those taxpayers supporting a dependant who is genuinely unable to work due to carer obligations or disability.

Abolishing the Dependent Spouse Tax Offset completes phasing out the offset, which the former government had already commenced. For most taxpayers, eligibility for this offset is currently restricted to taxpayers with a spouse born before 1 July 1952. Its abolition is expected to return $320 million to the budget over the years to 2017-18.

This is an important step towards repairing the budget, because it means maintaining Australians' living standards well into the future.

Schedule 3 to this bill amends the taxation law to modernise and improve the integrity of the Offshore Banking Unit regime.

In January 2014 the Government announced that it would delay the start date for this measure to ensure that this concession was better targeted and also to address integrity issues. The changes we have proposed include key recommendations arising from the 2009 report Australia as a financial centre, known as the Johnson report, to promote Australia as a regional financial services hub. One of the key focus areas of that report was to improve the international competitiveness and efficiency of the Australian financial services sector.

The offshore banking unit reforms will better target the offshore banking unit tax concession by updating the list of eligible activities which will attract additional mobile financial services activity to Australia. These changes will improve our competitiveness and better position Australia as a leading financial services centre. Alongside these changes, we will also improve the integrity of the regime to ensure that this concession is not subject to abuse. The government believes that the schedule strikes an appropriate balance between encouraging offshore banking unit activity and maintaining the integrity of the tax system.

Schedule 4 adds the Global Infrastructure Hub to the list of named income tax exempt entities in division 50 of the Income Tax Assessment Act 1997.

The Global Infrastructure Hub was established to implement G20's multiyear infrastructure agenda. The Australian government along with several other countries has pledged financial contributions to the Global Infrastructure Hub. Without the amendment to the act, the contributions made to the Global Infrastructure Hub would be assessable and taxable accordingly. It would be inappropriate for the Australian government to tax assistance provided to the hub under an arrangement agreed to as part of Australia's G20 presidency.

Schedule 5 extends the specific listings of two entities as deductible gift recipients for a further three years: Australian Peacekeeping Memorial Project and National Boer War Memorial Association.

Both Australian Peacekeeping Memorial Project and National Boer War Memorial Association have fallen short of their fundraising targets. This extension of their deductible gift recipient status will help these organisations attract public financial support for their activities, as taxpayers can claim an income tax deduction for certain gifts to deductible gift recipients.

Schedule 6 makes a number of amendments across the tax and super law to provide certainty for taxpayers. These amendments make sure that the law operates as intended by correcting technical or drafting defects, removing anomalies, and addressing unintended outcomes.

This furthers the government's commitment to restore simplicity and fairness to the Australian tax system. It also demonstrates the government's commitment to the care and maintenance of the tax law. By clarifying the law and repealing unnecessary provisions, these amendments also further the government's deregulation agenda.

A number of the amendments relate to issues lodged on the Tax Issues Entry System, a platform for members of the community to raise issues regarding the care and maintenance of the Australian government's tax and superannuation systems.

These include:


Ensuring that life insurance companies are not inappropriately liable for franking deficit tax; and

Correcting inconsistent wording in the definition of in-house residual fringe benefits;

Additional amendments fix a defect in the law preventing the Commissioner of Taxation from revoking access to certain tax concessions for past noncompliance by the entity seeking to rely on the concessions.

Schedule 7 to this bill amends the income tax laws to implement the final stage of the investment manager regime.

The establishment of an investment manager regime was another key recommendation of the Johnson report which I referred to earlier.

The investment manager regime reforms are aimed at encouraging greater foreign investment into Australia, and promoting Australia as a financial services centre. It does this by removing the uncertainties in the application of Australia's tax laws as they apply to widely held foreign funds and foreign investors. In particular, the investment manager regime clarifies the income tax treatment of gains made by these foreign funds and made by foreign investors investing through Australian fund managers.

The government believes that the bill strikes an appropriate balance between encouraging foreign investment and maintaining the integrity of the tax system.

In conclusion, this bill is very much a part of the government's overall plan to update and modernise our tax system. Our tax system has to be adaptive to the changes both domestically and beyond our borders. These changes today lay the groundwork for our continued efforts to ensure our tax system is efficient, modern and well targeted.

That is why we are talking to the Australian people and having an open dialogue through the tax white paper process to hear what is important to all Australians. We want to listen so we can truly improve and modernise our tax systems.

An effective and relevant tax system is the foundation to any healthy working economy and we are investing resources to make sure that we get it right.

It is no secret that, globally, many economies are doing it tough. We are not isolated and cannot ignore what is happening around us. Our commerce and industries are more connected internationally today than ever. We need to be cognisant of the work currently being undertaken internationally by the Organisation for Economic Co-operation and Development and explore ways we can improve our laws to address multinational tax avoidance, such as through the G20's work on base erosion and profit shifting. And we must confront new business models, such as the increase in internet and business operations, which are increasingly borderless.

It is clear that our tax system must evolve to stay current. We must continue to adapt to our changing environment.

That is why we are discontinuing some things.

And that is why we are building and improving those things that are working.

Full details of all these measures are contained in the explanatory memorandum.

Debate adjourned.