Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015

I am happy to support the Tax and Superannuation Laws Amendment (2015 Measures No. 3) Bill 2015, which is part of a broader package of policies and legislation aimed at repairing the Commonwealth budget after years of neglect and failure to control our nation's budget. 

One of the primary tasks the Australian people entrust to us in this place is to manage their money properly. It is not the primary task, which is making sure we keep Australia safe and secure from external and internal threats—and that is something that both sides of politics do a reasonable job of at all times—but it is a very important that we, as elected representatives, make sure that we spend Australian people's money carefully. We should be careful to ensure that we do not spend more than we can afford and burden future generations with the undue sacrifice of having to pay for the lack of frugality of those in present positions. The government has made a big attempt to do that. It has been frustrated at some levels, but, at the same time, the government has delivered more than $50 billion in savings since coming to government. This bill provides two additional policy areas of savings to that overall $50 billion package. In the overall scheme of things, they are relatively small savings, but they are still, nonetheless, contributions to that broader effort.

There are two schedules in this bill—one dealing with the seafarer tax offset and the other dealing with R&D tax offsets. The first schedule amends the Income Tax Assessment Act 1997 to abolish the seafarer tax offset, which currently provides a refundable tax offset to companies for 30 per cent of salary, wages and allowances paid to Australian resident seafarers. In order for the offset to apply, the Australian resident seafarer must be employed by a company to undertake overseas voyages on a qualifying vessel for at least 91 days in the income year. The seafarer tax offset was introduced by the former government and it was admirably intentioned at the time. It was implemented as part of a range of packages to try and grow Australia's shipping industry. Other countries apply some tax benefits to their local industries, and the then Labor government sought to do something similar. The offset became available for use after 1 July 2012. However, this government, on coming to power, decided to abolish the tax offset because it has not been used and has been proven to be ineffective in achieving its original objective of growing Australia's shipping industry.

When the package was announced by the former government in the 2011-12 Mid-year Economic and Fiscal Outlook, the seafarer tax offset was estimated to cost around $39 million over the then four-year forward estimates period. That cost has been revised down progressively because the offset has failed to be used as much as was originally expected. Indeed, the forward estimates were revised down at the time of the 2013-14 MYEFO, which was the first budget outlook that was provided by the new government. Abolishing this offset reverses the cost, or revenue lost, which is a more accurate way of describing it, across the four-year forward estimates in the 2013-14 MYEFO.

Why is the government abolishing this offset? The former package, as I said, did seek to stimulate investment in and revitalise the Australian shipping industry and to foster the industry's global competitiveness. We are abolishing this tax offset because it is not achieving its policy intent, which was ultimately to stimulate opportunities for Australian seafarers to be employed on overseas voyages and to gain maritime skills. The savings from this measure will be redirected by the government to repair the budget and fund other policy priorities. The measure will reduce administrative expenses by around $16 million in fiscal balance terms over the forward estimates and in underlying cash terms it will improve the budget bottom line by around $12 million over the forward estimates. As I discussed earlier, those estimates are lower than the original $39 million cost of the scheme because it has not been taken up as much as originally anticipated.

The measure's abolition will not affect a substantial number of companies. The 2013 Australian Maritime Industry Census report published by the Department of Infrastructure and Transport includes statistics on the total number of Australian resident seafarers working in the maritime industry. The report indicates that there are just over 1,000 seafarers directly employed by organisations in that sector. The department also publishes statistics on the number of certificates issued to companies deeming them eligible for a range of shipping tax incentives, including the seafarer tax offset. Certificates apply per company, per vessel and per income year. According to these statistics and Australian Taxation Office information, less than five companies would be affected by the abolition of this tax offset, representing just under 10 per cent of the employment in this sector.

The purpose of this tax offset was to stimulate investment. Clearly it has not done that, given that only five companies have availed themselves of the opportunity to take this offset up. It is not possible to precisely determine why the tax offset has not been taken up to a greater degree, but a number of factors may be at play. Firstly, the competitiveness of the Australian seafaring industry is affected by a range of economic factors, including the Australian exchange rate, which has been relatively elevated in the past few years. Secondly, there are significant differences between Australian wages and conditions in the shipping industry and those of some other countries. The seafarer tax offset is unlikely itself to be sufficient to bridge the gap between those differences. Finally, the seafarer tax offset is a refundable tax offset to the value of 30 per cent of salary, wages and allowances paid to Australian resident seafarers. The benefit offered by the seafarer tax offset may be small relative to the scale of shipping companies, and, of course, it is only refundable—not a direct grant.

The measure is actually separate from the government's other reforms to the Australian shipping industry, notably those affecting the coastal shipping industry. They have been subject to separate reviews and a separate response to the issues there. I will draw some links between the issues around the lack of use of this seafaring tax offset and the broader Australian shipping industry. Of course, there is no argument that the Australian shipping industry faces challenges, particularly challenges around profitability and economics. The very fact that it has been a difficult economic time perhaps indicates why this offset has not been taken up and also why we should seek to correct the underlying profitability issues with the sector before introducing tax offsets themselves. Ultimately, if shipping companies are not making money, a refundable tax offset is not going to change that. By definition, they would need to be making money before they could benefit from a refundable tax offset.

The coastal shipping industry is a part of the broader Australian shipping industry. Unfortunately, in the past decade or so, it has been declining as a share of our nation's freight task and declining in absolute terms as well. That is notwithstanding similar attempts by the former Labor government to stimulate investment and uptake in coastal shipping—notably, the changes that the Labor government introduced in 2012, called the Coastal Trading (Revitalising Australian Shipping) Act. It did not quite meet the lofty goal set for it in the title of the bill. That is not unusual. Often people who are trying to hide something else include various words in bills that do not actually achieve things. That is not just true of bills. The German Democratic Republic was hardly democratic, and Labor's Coastal Trading (Revitalising Australian Shipping) Act is hardly a revitalising piece of legislation. In the first two years since that bill was introduced, there was a 63 per cent decline in the carrying capacity of Australia's coastal trading fleet. It was a piece of legislation that was intended, in fact, to grow our coastal trading effort, but the coastal trading fleet fell by 63 per cent in tonnage terms over just two years.

Taking a longer term view, the fleet of major Australian ships over 2,000 deadweight tonnes with coastal licences is in sharp decline, plummeting from 30 vessels in 2006-07 to just fifteen in 2013-14, halving the number of vessels in just seven years. Over a 12-year period between 2000 and 2012, shipping's share of Australian freight fell from 27 per cent of our freight tasks to just under 17 per cent, while the volume of freight across Australia grew by 57 per cent. Even looking forward, the picture is not much rosier. Between 2010 and 2030—over broadly the next 20 years—Australia's freight task is expected to grow by 80 per cent but coastal shipping itself is only expected to grow by 15 per cent, meaning that its relative share of our freight task will continue to decline.

That decline is being driven by basic economics and basic costs. I am often told by manufacturers in particular that the cost of bringing or moving Australian freight along coastlines is so excessive that it is much cheaper to import from overseas products that compete against our domestic manufacturers or farmers, because of the differential in freight costs. One example that I will mention is that a soft drink manufacturer in Melbourne reported to me that it is cheaper to import sugar from Brazil than to import sugar from North Queensland. That sugar is priced on a world market, so there is no difference in the price of the raw sugar FOB, but the difference is completely to do with the difference in the freight costs and other transaction costs of shipping between overseas shipping and coastal shipping in Australia. So something has to be done.

The government has a plan to liberalise the stagnant and stultifying regulations that were introduced by the Labor Party. The government has a plan to increase the amount of freight that goes by coastal shipping and, ultimately, to also increase the number of Australian employees on those ships. We will set minimum numbers of Australian employees on coastal ships as part of those reforms. Unfortunately, those reforms are being blocked at the moment. There will be no sunlight for the Australian coastal shipping industry if we simply maintain the existing set of regulations, which are clearly not doing anyone any favours.

I support schedule 1 of this bill because it will deliver those multimillion dollar savings, albeit small savings in the context of the entire budget. But you count your pennies and eventually you end up saving pounds, and that is what this government is doing with this bill here. This bill also looks at the research and development tax incentives and offsets that exist in our legislation, and it seeks to slightly modify those. I am a big supporter of R&D tax system. Indeed, we were a trailblazer among the world in introducing R&D tax credits of the kind that we have in Australia. Other countries—particularly developed countries—ultimately, have largely followed us in introducing things like this. But the good thing about our R&D tax system is that it is largely generic and it does not seek to pick winners or identify particular sectors where we here think we know better than private businesses and private financiers in the real world. What we seek to do is provide a generic support for all types of R&D across our economy, and, ultimately, let those who are putting their own money at risk make the decisions about which businesses deserve their particular support and funding.

In saying that, it is a costly element of the budget. Indeed, I do not have the figures in front of me, but when I was an economist at the Productivity Commission we used to estimate government assistance at around $17 billion a year, and a good $8 billion or so of that was made up just of this particular measure. As I say, it is something that should be supported and is supported by both sides of politics; nonetheless, it is a very costly form of industry assistance on the whole. So the government has announced a slight reduction in the offset rates for the R&D tax incentive. The current offset rates of 45 per cent and 40 per cent, depending on the size of the business, will reduce by 1.5 percentage points to 43.5 per cent and 38.5 per cent respectively.

The change from a tax concession to a tax incentive was made in 2011 by the former government. In the 2014-15 budget it was announced that these offset rates would be reduced by this margin of 1.5 per cent. We know from the stats that around 9,500 consolidated groups claimed the R&D tax incentive in the 2012-13 year. The government's original decision to reduce these offset rates was to commence on 1 July 2014, keeping in mind the need to repair our budget, as I said in my opening remarks. The changes were estimated to provide the budget savings of $810 million in fiscal balance terms over the forward estimates and $740 million in underlying cash terms over the forward estimates. That estimate has since changed, given the change in timing of this bill, particularly in getting it through the Senate. The current estimates are for savings of $620 million in fiscal balance terms and $550 million in underlying cash terms.

It is important to note that this measure will not affect the eligibility of companies or the broad workings of the R&D tax incentive, which has general bipartisan support in this chamber, and that will not change. All that will change are the offset rates themselves. Combined with the government's change to the company tax rate for small businesses, the benefits of the R&D tax incentive will not change in net terms, because while the tax offset will reduce by 1.5 percentage points, the government has also changed the corporate tax rate for small businesses with a turnover of less than $2 million by 1.5 percentage points. So, in net terms, there will not be an impact for smaller businesses. Data from the 2011-12 income year indicates that approximately 4,400 companies with aggregated turnover of less than $2 million claimed the R&D tax incentive. Those firms will not be affected. The only firms that will have a slight reduction in their ability to claim offsets will be larger companies that have not been able to benefit from that corporate tax change.

I have spoken to some in the industry about this particular measure. While there is some concern that we have not been able to achieve a 1.5 percentage point reduction in the corporate tax rate overall, again, that is a function of the tight budget we have and the difficulty where we cannot perhaps do all we would like to do in this area. In saying that, there is a Senate committee is currently conducting an inquiry into innovation. It has looked closely at this issue as well as a broad range of issues affecting innovation. While that inquiry has been going on, the government has announced plans, particularly in relation to STEM industries—science, technology, engineering and maths—and particularly to implement a range of industry growth centres focusing on delivering innovation in key sectors across our economy. This change should be seen in the context of those other support measures that the government has bolstered over time, which will continue to ensure that Australia has a strong innovation sector, a strong research and development sector and an industry which largely relies on encouraging private actors to take initiative, to take a risk, to have a go and to see if they can make a new product that is better and more cost efficient and that ultimately delivers better outcomes for the Australian people.

I return to the core reason for this bill, which is to ensure that we do not leave the next generation with a greater burden than that which we face. Clearly, on the current trajectory that we are on, even notwithstanding these kinds of measures, we are set to do that. Whatever you think of the assumptions in the Intergenerational report, they clearly show that we would leave our grandchildren with a burden somewhere in the order of $60,000 to $120,000 in debt per person, and that is not something I want to deliver. I will do everything I can in this chamber to ensure that that does not happen. This bill will help moderate that increase, and I hope it achieves the support of this chamber.

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