Sep 12, 2007

Tax Laws Amendment (2007 Measures No.5) Bill 2007

Tax Laws Amendment (2007 Measures No. 5) Bill 2007 – Second Reading

12 September 2007

Mr ALBANESE (Grayndler) (12.22 p.m.)—I rise to contribute to the debate on the Tax Laws Amendment (2007 Measures No. 5) Bill 2007—in particular, schedule 1, which involves the long-awaited reform of section 51AD and division 16D of the Income Tax Assessment Act 1997 and the introduction of division 250. This bill has been eagerly awaited because its passing is vital to facilitating private sector investment in infrastructure.

Let me sketch the current environment briefly. Australia’s current infrastructure is operating at full capacity. Our nation is bursting at the seams in an attempt to meet the ongoing resources demand from China and India. We are experiencing a once-in-a-generation resources boom but we have a $90 billion infrastructure shortfall. Public investment in infrastructure is in decline. The government’s own report showed that Australia ranks 20th out of 25 OECD countries for its investment in public infrastructure as a proportion of GDP. The infrastructure financing sector has publicly criticised the government’s reform complacency in the area of infrastructure financing. In May this year the sector stated that the government’s delay in introducing reform has created ‘a diabolical mess’. Given this environment, it is difficult to understand why an amendment to the tax act to facilitate private investment in infrastructure has been eight years in the making—in fact, it is inexcusable.

In 1999, John Ralph, chair of the Ralph review, thought he was delivering recommendations on how best to redesign the tax laws to a federal government that was serious about reform—a government that would be prepared to make changes that would, in John Ralph’s words, ‘equip [the nation] for the coming decades’. Regrettably, he was wrong. Instead, he was delivering recommendations to a government that is driven by short-term political interests, not the long-term national interest, a government that has sold more assets over the last 11 years than it has built, a government that is characterised by complacency and a government whose idea of tax reform has meant that the Australian tax system is now known as one of the world’s most complex systems and is in urgent need of reform.

The Howard government’s lack of urgency and lack of foresight have placed at risk our future prosperity. The opportunities that have accompanied the once-in-a-generation mining boom have been squandered. Today the nation faces crippling infrastructure bottlenecks. Capacity constraints are keeping a lid on productivity growth. We are neither well-equipped for the coming decades, nor have the recommendations of the Ralph review been fully implemented. Action, even at the eleventh hour of the 11th year, is welcome, but the long wait has meant that industry has become resentful of the lost investment opportunities and money has been invested offshore that could otherwise have found a local home.

There is rising public resentment about infrastructure shortcomings in critical areas such as health, housing and water. Indeed, our infrastructure record is abysmal. Our export volumes have been held back by underinvestment in infrastructure. Under the Howard government, we have a telecommunications infrastructure record that places us 16th out of 30 countries surveyed by the OECD for broadband performance. Our bandwidth lags at 25th among all developed economies. When it comes to water infrastructure, we know that up to 30 per cent of the precious water in water mains can be lost through leaking and burst pipes. Each year more than 155,000 megalitres of water is lost from urban water systems in Brisbane, Sydney, Melbourne, Perth and Adelaide alone. When it comes to social infrastructure, we find that the lack of childcare centres in key regions means that we are not giving our kids the best start in life and we are making it more difficult for parents to re-enter the workforce.

It is not difficult to see how underinvestment in social and economic infrastructure ultimately reduces our standard of living. On the other hand, well-planned infrastructure can support our communities and drive growth. We also know that infrastructure planning itself must be supported by a robust policy framework, including a taxation system that encourages private infrastructure investment. I would have thought that, over the last 11 years, a responsible and forward-thinking government would have been doing everything possible to, in the first instance, increase public investment in infrastructure and, in the second instance, encourage private infrastructure investment. Neither has occurred. Instead, it has taken eight years to remove the legislative obstacle that has held back private investment in infrastructure.

Though reform of section 51AD and division 16D of the tax act seems imminent, we still, at the eleventh hour of this 11th year, see no signs of a forward-thinking, long-term plan outlining how the Howard government will provide and fund the infrastructure the nation needs to prepare it for future challenges. Missing is a Howard government policy that outlines how the nation’s infrastructure will become climate-change ready and a policy that shows how the nation’s infrastructure will accommodate the changing age and distribution of the population. It has taken eight years to respond to and legislate for a handful of recommendations made in the Ralph review. It is quite clear that this is completely unacceptable. The truth is that the Howard government has proven it is not the reformist and visionary administration that Australians have been seeking and, indeed, need. In the case of infrastructure financing, the lack of reform and vision has led to eight years of policy uncertainty.

Let us take a closer look at the pathway of broken promises, excuses and inaction on infrastructure financing reform. In May 2002, in response to the Ralph review, the then Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, announced new rules for the tax treatment of infrastructure investments. She stated:

Further consultation on these issues will be undertaken through the course of 2002-03 and it is expected that legislation will be introduced in the Autumn 2003 sittings.

In June 2003 the government released an exposure draft for the new division 250 of the Income Tax Assessment Act. Senator Coonan stated:

These provisions are in urgent need of reform.

… … …

The Government … is committed to its early introduction into Parliament in the Spring sittings 2003.

It turned out that the hastily prepared exposure draft had missed the mark, and it created outrage amongst industry and sector specialists such as the Institute of Chartered Accountants and PricewaterhouseCoopers. On 4 December 2003 the government deferred the commencement date of reforms. It was in an election year that the then Assistant Treasurer advised that the government was still committed to introducing the reforms by 1 July 2004.

Finally, on 13 September 2005, the member for Longman, then Assistant Treasurer, issued a press release announcing:

The Government is amending the law to give greater certainty for parties involved in major infrastructure projects.

On Thursday of this week it will be two years since the member for Longman issued that press release. No single Australian was seeking yet another press release. What Australians wanted was legislation. Two years later, yet another election year has rolled in. Who can forget that in February of this year there was still no legislation but a telling admission from an official from the Treasury who, during a Senate estimates hearing, stated that there are ‘other priorities’ ahead of introducing tax reforms to infrastructure financing? If an investor conducted themselves with the same level of disregard as that which this government has served our nation with, frankly, they would be out of business. Australia deserves better.

Today, on the eve of yet another election, at the eleventh hour of the 11th year, Australians may finally see enshrined in legislation the recommendations of the Ralph review that relate to infrastructure financing. It is interesting to note that the inquiry report on this bill emerging from the Senate Standing Committee on Economics stated that:

Although there are some areas of concern with the legislation, submitters did not wish to see the passage of the bill delayed.

Those submitters included the Property Council of Australia, Infrastructure Partnerships Australia and the Australian Chamber of Commerce and Industry—hardly insignificant players. The stakeholders, of course, are quite right in this case. Like Labor, they believe further delays should be avoided. However, it does make one reflect on how and why key legislation is determined under the Howard government. Are stakeholders so desperate for action that they must settle for less? It is quite clear that the last time the industry was critical of draft legislation in this area the process was stalled for another four years, so you can hardly blame them for wanting to avoid further delays.

A Rudd Labor government would do things differently. Federal Labor has a long-term plan to meet the nation’s needs. A critical feature of our policy is that decisions on the nation’s infrastructure priorities will be without political interference. The nation’s infrastructure priorities will be determined by Infrastructure Australia, an independent Commonwealth statutory authority operating at arm’s length from ministers. Under Labor, the margin of a seat will no longer shape the nation’s infrastructure decisions. And, through the appointment of a federal infrastructure minister who would oversee the planning and coordination of infrastructure, we would finally stop working in silos and start experiencing the national leadership required to match our infrastructure priorities with available infrastructure investment capital. Will it take eight years to shift a legislative obstacle? No, it will not. Infrastructure Australia will be established within the first 100 days of the election of a Rudd Labor government. Following an audit of the adequacy of the nation’s existing infrastructure, the identification of weaknesses and gaps, and an assessment of our future needs, Infrastructure Australia will produce its first national infrastructure priority list within 12 months of the election of a Rudd Labor government.

Infrastructure decisions will take into account economic, social and environmental objectives, and they will be sensitive to long-term challenges such as climate change and the age and distribution of our population. While the Howard government has dealt with regulatory inconsistencies by pointing the finger at the states, federal Labor will resolve such issues in cooperation with the states. Long-term planning will allow the procurement and construction of infrastructure projects to be systematically mapped out over the long term. This means that we can avoid overloading the construction market and exacerbating skills shortages. Industry can look forward to making important investment decisions with confidence and certainty, and long-term investment certainty will lead to a more competitive market. The economy will benefit, consumers will benefit, investors will benefit and Australia will benefit.

In August, the Prime Minister signalled that future budget surpluses should be directed to establishing funds which would use earnings for economic and social infrastructure. This, of course, is a direct copy of Labor’s proposal for a Building Australia Fund. Labor has proposed for two years that future surpluses be placed in the Building Australia Fund and be managed by the current board of the Future Fund. Earnings would be available for infrastructure projects that are essential to secure our future prosperity. The Howard government’s adoption of part of Labor’s agenda is welcome, but there remains a critical weakness in the approach as outlined by the Prime Minister. There is no vehicle to drive the coordination of the infrastructure development that the business sector and others in the community have been calling for. Infrastructure Australia is precisely what is missing in current government practice and what remains missing from current government proposals—a driver of coordination and reform.

Given the magnitude of infrastructure needs in Australia and the substantial supply of private capital looking for a home, the private sector has a critical role to play in partnering with government to plan and deliver infrastructure. Its appetite for infrastructure to invest in is insatiable. It is therefore critical that an appropriate environment be created to encourage and accommodate that investment. We know that the tax system can have a significant influence on the competitiveness of the economy. That it has taken eight years to introduce tax reform arising out of the Ralph review that will mean greater investment in infrastructure is, frankly, inexcusable. We know that infrastructure is an area that yields greater returns than any other. But here we have action at the eleventh hour of the 11th day, which highlights the fact that the Howard government has simply not been interested in preparing for and addressing the challenges of the future. The Howard government is governing for the next 10 weeks—possibly even for the next 10 hours—rather than the next 10 years. We need long-term planning to provide the infrastructure the nation needs, not long-term planning to write legislation. We need infrastructure planning that is about nation building, not pork barrelling. Australia needs fresh ideas and long-term vision to secure our prosperity beyond the mining boom. Only a Rudd Labor government can deliver this.

It is also appropriate to take this opportunity to point out that there are areas of tax reform that are not included in this omnibus bill. One of those was drawn to my attention by a constituent of mine, Ms Christina Fiddimore. Christina wrote to me last month and outlined her situation. Christina is 43 years of age; she was diagnosed with metastatic breast cancer in 2005, with a terminal prognosis. Christina’s situation is that, at the very young age of 43, with an eight-year-old daughter at school, a mortgage, mounting medical bills and no savings, she was desperate for legislation to be changed so that she could access her super funds without being penalised by the imposition of a tax of 21.5 per cent.

I am pleased that, after I wrote back to Ms Fiddimore and she then wrote to the government about her plight, there has now been a response, and Australians with terminal illnesses will be able to draw down on their super, tax free. That is a policy that Labor has called for. It is a policy that we support. We would encourage the government to get on with producing legislation, or perhaps even amending this legislation, to ensure that that occurs as soon as possible. After all, we are talking here about people’s entitlements to which they have contributed. In the case of Christina Fiddimore, her tragic situation should not be made worse in terms of pressure on her family by these penalties being in place. If she were aged 55, she would not face this situation. The tragedy of someone suffering a terminal illness at such a young age should not result in a penalty being imposed on them. I urge the government to take action, not just to assist Christina Fiddimore, who happens to reside in Enmore in my electorate, but to assist others who may find themselves in this tragic situation.