6 November 2013
Transcript - #18, 2013

Joint media conference, Sydney

 with
Senator the Hon. Arthur Sinodinos AO
Assistant Treasurer

SUBJECTS: Unlegislated tax and superannuation measures, carbon tax, Foreign Investment Review Board

TREASURER:

Today is another step forward in clearing the decks in relation to the true state of the Budget. On coming to Government, my colleagues and I were advised that there were 96 announced, but unlegislated tax and superannuation initiatives left behind by the previous Government. Today, I am announcing that we are dealing with this backlog of 96. Four of the 96 have been dealt with in our mining tax and carbon tax repeal packages. Of the remaining 92, the Coalition Government is going to definitely proceed with 18. These 18 initiatives provide $10.9 billion in total to the Budget. Some of these that we are proceeding with, such as the claims in relation to member accounts and superannuation, we don't like. But it is $815 million of revenue that we cannot walk away from that allows us to proceed with other initiatives, such as allowing farmers to claim more off-farm income during difficult times. Of the 92 initiatives, three will proceed with amendment. That includes changes to thin-capitalisation rules and contrary to reports this morning, we are still proceeding with changes to thin-capitalisation rules and obviously we are greatly concerned about transfer pricing and that is part of our G20 agenda next year, as the Chair of the G20. We are making amendments to deliver a more realistic figure of $890 million in revenue and in particular, we do not want to disadvantage Australian companies that want to expand offshore. It is particularly important at this moment, with the Australian dollar where it is at, that Australian companies look to expand offshore - and we want to encourage that - and the proposal as drafted would have been prohibitive in that regard.

Of the 92, we are definitely not proceeding with seven initiatives. The first initiative is the one that we campaigned loudly against during the course of the Federal Election which was changes to the Fringe Benefits Tax rules on motor vehicles. We fully funded that during the election campaign to not proceed with that initiative. I declare today that the car industry is back open in Australia and it is back open because we are not proceeding with Labor's flawed proposal to change the rules on FBT for motor vehicles. Secondly, we are not proceeding with the changes to the rules in relation to superannuation. That was a $313 million initiative announced by the Government at Budget time. It was undeliverable. The fact is it was nigh impossible for the private sector to be able to properly identify who was responsible for that liability and how it would be assessed. The third significant initiative we are not proceeding with is the cap on self-education related expenses – which was intended to raise $266.7 million over the forward estimates. Let me give you some of the facts; 639,000 taxpayers claim self-education expenses. Of those, 174,000 taxpayers claim expenses of more than $2,000. Of the 174,000 taxpayers affected by Labor's cap on self-education, 81% earn less than $80,000 a year. They are the people who are trying to invest in their own education to get ahead. It was flawed policy, with no motivation other than a simple headline. The Government recognised that when between the course of the Budget and the election campaign they announced a delay. They would never have done it, because they would have been clubbed by the reality that people should be investing in their own education. That is how we improve productivity.

Of the 92 initiatives, 64 further initiatives are going to be consulted on by my colleague the Assistant Treasurer. We have a disposition not to proceed with those 64 further initiatives. But, a decision will be made by 1 December this year and the final outcome will be put into the Mid-Year Economic and Fiscal Outlook statement to be released by Christmas. Some of these initiatives that we do not want to proceed with, and will not proceed with, date back to 2001. Some of them were announced in 2001, but the great bulk of them - 71 of the initiatives - had been announced and not legislated by Labor before they had even delivered the last Budget. This is a legacy of laziness that has left taxpayers confused.

I say for anyone who has complied with an announced tax change that the Government will not proceed with - we will give you a tax refund. For anyone who has self-assessed with an announced tax change that the Government will not proceed with - we will legislate to ensure that you have no liability. This package overall proceeds with $12 billion of revenue initiatives that have not been legislated by our predecessors. It makes $700 million of amendments. It does not proceed with $2.4 billion of initiatives. As you can see, so many of the unresolved tax and super initiatives raised very little tax, but added a massive compliance burden to the Australian economy. The 1st of December is the deadline to deal with this. For those matters that remain unresolved the Assistant Treasurer will consult, but we are drawing a line in the sand. You cannot go forward with a complicated unresolved taxation system if you want to give business and consumers the best hope that what they work hard to achieve will be achieved. Today we are resolving this emphatically, which allows us to deliver the Mid-Year Economic and Fiscal Outlook.

I say finally, the MYEFO document released before Christmas will show the Australian people the problem that we have inherited. The Budget to be delivered next year will deliver the solution. I ask my colleague the Assistant Treasurer to go into a few more of the details and then we will come back for questions.

ASSISTANT TREASURER:

Thanks very much, Treasurer. Can I begin by saying that it is a pleasure to work with a Treasurer who is not only looking at the revenue side of the Budget, but he is also trying to get a handle on the policy intent of the legislation that was announced, but not enacted. What are the compliance benefits or costs of going down a particular route and also the importance of having genuine consultation on measures. So we have been prepared to take a bit of a hit to the revenue in order to have a process which gives people more time on certain measures which have been outstanding for a period to give us one last input if you like on why a particular measure should proceed. As the Treasurer said, there are 64 measures where we're predisposed not to proceed. I'm leading a consultation process with the Board of Taxation and other tax experts in order to look at those measures. This position not to proceed, we are asking people to provide us with reasons why they think something should proceed and we will use that process to make final decisions. We are keen to get this process out of the way by the 1st December to feed into the Mid-Year Review so then the Budget process can be a process which is focussed on looking forward rather than back.

The Treasurer in his presentation referred to the fact that there are some rather major compliance and red tape issues with some of the measures that the former Government had announced, but not enacted, the one on taxation on superannuation pension phase earnings above $100,000 per annum. The advice we received is that the measure would be very complex to administer and result in large compliance costs. The super funds would have to change the way they calculate and pay tax. It would involve upfront costs in terms of system changes, redesign of accounting and IT systems to calculate taxable earnings for each individual member - whether they're ultimately liable for the tax or not – and ongoing costs in red tape. The funds would need to report each individual's earnings to the ATO, adding to red tape and an increase in compliance cost. Many individuals have more than one fund, so their earnings would have to be aggregated to assess their potential liability. The treatment of capital gains would add further complexity, as well as once-off capital gains potentially resulting in a large tax liability for an individual in any one year. In other words: if you fluctuated and earnings went above 100 and you fell into the net, then this whole process was triggered even if the year after you would fall out of the net again. I won't go into further material except to say on some measures where Treasury and the Tax Office have been able to provide sufficient information for us to make a judgment, we have made the judgment as to whether a measure is worth proceeding with or not.

Can I also say in relation to measures like self-education expenses, that what the Treasurer made clear at the beginning of this process is that we are in the process of actually promoting a more innovative Australia and so many of the people who are taking advantage of this were on low incomes, were actually trying to find a way to improve incomes and become knowledge workers or getting in to new innovative industries. Our view is this is actually a positive measure to encourage that process of innovation and we are going to follow it through, obviously in some of the other work we are doing next year around innovation. In respect of the 64 measures on which there will be further consultation - they're grouped around personal tax, company tax, small business tax, philanthropy, GST-related measures. Again, these are measures which have been around for a while and our view was we will not proceed, because if they were really vital something would have happened before now. So we are giving people one final opportunity to give us a judgment on all of that. Can I say in relation to the 25-90 measure that the Treasurer was very clear that we need to be supporting Australian enterprises that are prepared to invest abroad. This is about how to promote a more open economy. We want investment coming here, but we want the capacity – we are not afraid about Australians investing abroad. So we want a system which is very clear on that. Targeted integrity rules, we will look at those to stop people from trying to abuse some of these measures.

In relation to offshore banking units, I announced a few weekends ago the start date would be put off. It was coming right on us and we had had a lot of representations that some of the reforms of the previous Government around offshore banking units would negate the purpose of having those units. Our view was if there is mischief, if there are some companies loading too many expenses that are not related to the work of the OBU into the OBUs, let's look at that and have targeted integrity measures, but not throw the baby out with the bath water. Again, many of the things we're trying to do here is how we promote innovation, our capacity as a financial setter and the Treasurer's been very clear that in doing our work we have a focus not just on the Budget side or the revenue side, it's about the red tape side. It's about how we continue to promote us as an outward-looking innovative economy.

JOURNALIST:

On the superannuation obviously you've taken away this measure. Could you give us what your view is about the superannuation system overall because you've made great speeches about the age of entitlement and multiple studies have found that superannuation is very costly, that concessions and that they go to higher income earners. There's a Budget emergency, we need to repair it. What's your attitude to the longer term challenge of superannuation?

TREASURER:

We support superannuation as it stands in Australia. We have said that we are not going to have any unintended negative consequences or we are not going to have any negative announcements about superannuation for the first term of a Coalition Government. Superannuation is crying out for stability and we are delivering it, because people are saving for their own retirement. We want to encourage that and one reason that we include superannuation payments in our Paid Parental Leave scheme is because a lot of mums in particular miss out when they go and have children from having superannuation contributions and we are covering that. That is how important superannuation is to us. You cannot use superannuation as a milking cow on an ad hoc basis in order to try and fix your Budget problems which is what our predecessors did. This proposal in relation to superannuation which we are dumping today was not only massively complicated, but it was basically undeliverable. So it was easy to announce but it was nigh impossible to actually deliver. And that was the story of Labor.

JOURNALIST:

Following on from the last question, you are now in a situation where you scrapped a measure which a lot of people realise was going to be, as you say, undeliverable, but you're walking into a situation where there's going to be some grumbling about the abolition of the low income contribution. I haven't quite kept up but have you said that at some stage you'd like to see that restored?

TREASURER:

No. It is part of the mining tax package. The original mining tax package was intended to raise over $45 billion - in fact, $49.5 billion. The mining tax package raises $4.4 billion. The problem is Labor kept spending against the money that it never received. One of those is the low income contribution on superannuation. It is just unsustainable. I would say to the Labor Party basically  if you care about the Budget bottom line, backing our repeal of the mining tax package saves the Budget over $13 billion. For so long as Labor drags its feet or opposes the repeal of its insidious mining tax and related expenditure, the Budget will bleed. Because the mining tax has been an abject failure. We have gone to two elections saying that we cannot continue with the expenditure measures associated with the mining tax. We are true to our word. Now we are cleaning up Labor's mess in relation to 96 other tax initiatives.

JOURNALIST:

Minister, you were sharply critical of Labor's chronic deficits before the election and now you've made a decision to actively worsen the bottom line of the Budget by $2.4 billion over the forward estimates. Shouldn't Australians find that a curious decision?

TREASURER:

Essentially these initiatives would not have in net terms raised this money. For example the FBT on motor vehicles; no-one believed that you could actually deliver that initiative without massive compensation to charities, massive compensation to the motor vehicle industry, and to dealers that were carrying a massive amount of stock on their floor at their cost. It bled the motor vehicle industry at every point and had a huge negative impact in parts of the economy. The compensation associated with that initiative alone would have ensured you would not have received over $1.7 billion but Labor banked that money without even considering the flow-on effect. It is much the same for the other initiatives. In relation to self-education; the fact of the matter is for the amount of money raised the costs to the economy would have been significantly greater and we are making a call because ultimately Labor would have changed this if they were sensible. I will never know, but they were not sensible. So perhaps I'm being a bit generous to them.

JOURNALIST:

Isn’t 2.4% the figure that is going to be in MYEFO though?

TREASURER:

Yes for example the FBT we fully accounted for that in our election promises. The net figure is much smaller.

JOURNALIST:

What about in the current financial year, is the bulk of that hit going to be up front?

TREASURER:

No it won't be in the current financial year. The bulk will be over four years.

JOURNALIST:

You talked about MYEFO coming before Christmas - that it would highlight the problem. Is that a veiled suggestion that you're expecting the Budget bottom line to deteriorate further from the published figures you've seen.

TREASURER:

Yes. The Budget has deteriorated of course it has. We are methodically and carefully going through every cupboard and I did in relation to the Reserve Bank, done in relation to the debt limit we are doing it today in relation to taxation changes. 96 taxation changes announced but unlegislated. Advice is that in a large number of cases, no-one knows how to draft the legislation, it is so complicated and we are clearing the decks. Australians are going to cheer at that I'm sure.

JOURNALIST:

Can you give an idea of the quantum, you said yes, that it would be deteriorated?

TREASURER:

I am not going to speculate. Nice try Tom.

JOURNALIST:

Trusts was the other area that people wanted clarity over. Can you give us a sense of what you will do in that space?

ASSISTANT TREASURER:

There's work going on through the Board of Taxation and we are actually speaking to them about when they might report on that. I'm not pushing them to report prematurely, because what underlies your question is the complexity of trust arrangements. As a veteran with scar tissue of changes in 2000-2001 when there was an attempt to tax trusts as companies I know how complex the area gets.

TREASURER:

We have both got scar tissue.

ASSISTANT TREASURER:

Yes, scar tissue on scar tissue. The point is we are doing further work in that area, but that is separate to this exercise. The Board of Taxation has a number of remits that it is pursuing separate to all of this.

JOURNALIST:

You are saying the budget emergency is going to get worse. You’ve announced this today. Does that mean there'll need to be more saving measures in the MYEFO?

TREASURER:

What I said is MYEFO will illustrate graphically the problem that we have inherited and the Budget will offer the solution. In the interim I want the Australian people to go out and spend for Christmas.

JOURNALIST:

As a result of this statement today you've both got $2.4 billion effectively on the costs in what could have been there previously. You also indicated you've got rid of a lot of inefficient taxes that might have cost more to collect than what you would have got in. Given the state of the Budget right now, will you have to introduce new more efficient taxes and if so what will they be?

TREASURER:

What we have said emphatically is that we are going to have a Taxation White Paper and the proposals that come out of that White Paper we will take to the subsequent election. I do not want to introduce any new taxes in the first term of Government and in the second term we will seek a mandate for that election - that second election. I just want to emphasise; let us have some taxation stability for a while. Let people know what they have to send to Canberra and then get on with the business of doing business. I want Australia to have confidence in the taxation system and simplicity and fairness are the key ingredients here.

JOURNALIST:

Notwithstanding the fact that the Budget could deteriorate?

TREASURER:

We want to reduce our expenditure, that is our focus. To reduce expenditure, to get rid of the waste, that is our focus. With a growing economy we can see growth in revenue. I want to emphasise that. The only way we are going to deliver strong sustainable surpluses is to reduce Government expenditure, but at the same time ensure that we can have higher economic growth and it will be that higher economic growth that will help to deliver the stronger revenue stream.

JOURNALIST:

Can you give a guarantee that electricity prices will go down by 9% when the carbon tax is repealed?

TREASURER:

Electricity prices will go down as a result of the abolition of the carbon tax. There is no doubt about that. There is no doubt about that. The AIG proposal might have referred for example to Virgin. Virgin Airlines said in their annual report -which I highlighted at the time - that because of the nature of aviation they were not able to immediately pass on the full cost of the carbon tax to their customers. But it does not mean that at some future time they won't try and recoup that, which they would. It might not have immediately been passed on my some businesses but they still have to pay it. As you know, sooner or later business always passes on higher costs to consumers. The fact of the matter is that electricity prices will come down as a result of the abolition of the carbon tax. The economy will be stronger - there will be higher economic growth as a result of the abolition of the carbon tax. The only person standing between a stronger economy and better economic growth and a determination to hang on to the dying days of the Rudd and Gillard Government is Bill Shorten.

JOURNALIST:

How much parliamentary work do you reckon Barnaby Joyce did at all those football matches, Treasurer?

TREASURER:

What I will say to you is that the amount of parliamentary work and the amount of drafting that is going to go as a result of the initiatives announced today is going to be a great financial benefit to the Australian people. Thanks very much.

JOURNALIST:

There are rumours you are going to allow the foreign takeover of Graincorp with conditions. Is that true and if so what conditions would they be?

TREASURER:

Let me say this on foreign investment. I will not be bullied or intimidated by anyone when it comes to dealing with the national interest. Anyone.