Senate Economics Legislation Committee, , 6:05:16 to 7:00:28
Senators question electric vehicle tax concessions, superannuation tax, and the history of capital gains tax.
Topics: Electric vehicles, Government spending, Social services
Speakers: Hon Jane Hume, Brendan McKenna, Hon Katy Gallagher, Damien White, Tyron Whitten, David Allen, Diane Brown, Dr Shane Johnson, Hon Matthew Canavan, Lisa Darmanin, Nick McKim, Philip Brown, Rob Heferen
>> Thank you, Chair. I I suspect I have a few overlapping questions and I'm I'm not meaning to put fuel on any fire, but I'd like to ask my questions if that's okay. the the blowout from the electrical vehicle FPT which I heard was just being discussed. Um was it Treasury's figure the 90 90
>> So I think electric vehicles will be revenue group Senator.
>> Sorry. Yeah.
>> Electric vehicle FBT concessions will be revenue group not us.
>> what about the home batteries?
>> You can ask about home batteries. Yes,
>> that's part of Treasury.
>> Uh, so well it's not our it's not our it belongs in the Department of Climate Change portfolio. Um, but if you ask your question, we'll see what we can do.
>> Okay. So, um, on the home battery scheme, was the 2.3 billion initial costing from you guys?
>> Uh, no, Senator. So, the Department of Climate Change, Energy, Environment, and Water, I think it's their full name. They they they costed the program. uh costings are done in consultation with department of finance um to validate them. Um yeah, Treasury is not involved in expense costings or payment costings.
>> So Treasury doesn't validate any figures are given from other department.
>> Treasury Treasury does for the budget the split is Treasury does tax revenues, finance does pretty much payments and non- tax revenues. There might be some weird things that don't quite fit that, but that's the general way it works.
Um, I'll leave that there then and I'll I'll move on to another thing that you might have been involved with. Um, the construction estimates for the nuclear power plants that were being bandied around before the last election. So the 600 billion price tag that was thrown around um to build 11 gawatts of nuclear power. Was that something?
>> We have had nothing to do with that, Senator. Like we would not do things that are not for the government.
Treasury don't cost um opposition
>> No. Well, I wasn't asking whether you costed anyone else's policy. I was asking where the the 600 billion figure came from somewhere. I'm pretty sure it wasn't the opposition at the time. I was just curious as to where that figure might have come from. So, it wasn't you.
So, >> I have no idea.
>> From the Smart Energy Council, I think from just checking online.
I have additional questions in relation to the MFO release. Uh first I'd like to understand how a productivity assumption of 1.2% perennimum is justified in in the release when the past 3 years have been minus 3.5% 1% and minus.2%.
Senator, that's that was canvased in macroeconomic group earlier today and they are the people who have responsibility for the productivity estimates in the in the budget.
>> Seems I keep missing the boat, don't I? >> I won't ask any more questions on that. let's move to I think what we're just talking about the the policy effect on the budget. Um, on page 53 of the MFO, uh, and I quote, "Net policy decisions have been improved the budget have improved the budget by 2.2 billion over the Ford estimates. This is the first time since 2017 18 budget that the net policy decisions have been positive." Um, does it include 7.2 billion increase in the home battery scheme on page 67 of the report?
>> It includes all measures that are in this report, Senator.
>> Okay. and it includes the 2.3 billion for the increase of the NDIS
>> So the the net policy decision line picks up any um policy decisions of government that have gone into my EO and so each of those are then separately and individually reported in appendix A in
the document. Okay. Look, I I got to say I tend to agree with Senator Canavan a lot of those are policy decisions, not not um not an overflow from somewhere else. When you stand up and talk about policy of increasing uh spending for child care or something else, that's a policy. That's not that's not anything else, is it? Have I missed something?
>> So, um as we've had a discussion, I desperate. >> As we've talked about, I think with Senator Canavan over the last few, sorry, Senator uh Patterson over the last few estimates, >> we put things in the budget as policy decisions where government makes a decision about to change something and we have estimates variations where an existing program is the same policy, but the amounts are different for whatever reason. either more or less people take them up, the price of them changes and we clearly differentiate those in the way that the numbers change in the budget and they are in table >> is it 3.3 3.2. So on page 56 you can see that we put where governments take decisions to actively change things and then where where where estimates change just because uh the economy or the number of people wanting something or prices change and those sorts of things.
>> Yeah. So I can understand there'd be u you know unknown contingency required for natural disasters
uh but childare so for every I mean everything we have in the budget senator is a forecast assumptions and estimates are made about the various things that matter to those forecasts. So if we take child care for example, it's the number of people who will use child care which is kind of based on the number of kids of that age group, the number of days that they will use or the number of hours, the prices that they pay and how our subsidies interact with those things. And because we are forecasting the future, it is impossible to get those things right all the time. And between every estimates update that we do, and we do them twice a year, and in this case it's been about 9 months since we did the last one, things will change and people we update the estimates all the time. There has never been an estimates update where things have stayed the same for many things at all.
>> Yeah. I just think the problem people will have is the the quantum of the update all the time like that. They're big numbers to be out by. So
um the numbers that we have in this mifo are not exceptional compared to history, right? Um there have been times where estimates variations have been bigger. There have been times where they're smaller. Um it just depends on what happens in the economy in particular service areas that the government uh provides services in. Um, as I said, it's this is not an exceptional change by any means, either in the forward estimates or across the medium term. It's the sorts of things we expect to happen each time we do an estimates update. As I said, sometimes we get closer, sometimes we're further away, but there's never been a case we're at zero.
>> Yeah, look, I guess we're going to have to agree to disagree on some of these things, aren't we? So, I'll move on. Um, the contingent liability on the housing
is that a page in my EFO senator? Uh
>> um page 110 I believe it is
>> 110. Okay.
>> So I note that the contingent liability for the guarantee for housing Australia on page 110 um and modified is a part of is is a part of this increase to account for the increased risk of defaults under the 5% deposit scheme.
>> So is it a contingent liability center? Is that how it's >> uh um done? I mean, how our housing people are in tomorrow and might be able to talk more about it, but in general, contingent liabilities don't have numbers in the budget.
>> It's saying increase or
>> we're saying we're basically like identifying risks to the budget. So, it's it's important enough to note that something could change and there could be a change to the budget down the track, but we don't yet have enough confidence in that to report a number against it.
>> And that's my question. Um, I'm not asking for a number, but is it because of the uh the increased risks for the 5% deposits?
>> I think you should,
>> Senator. Um, I might just point you to pages 118 and 119. Um, as Mr. White said, um, the housing group will be able to provide further information, but there's quite a bit of information there about the guarantees for, um, for
Does it say that it's increased or
>> Well, just modifying my understanding in my efo we're modifying a statement that uh would have appeared in the statement of risk in the budget. >> Um and it goes so it was our guarantees around housing were already in the contingent liability section and my understanding is this is modified to include some additional information which is there on page 118 and 119.
Okay, I'll have a look at that.
>> And housing are up tomorrow, Senator, if you want to take it up with me.
and finally, my last topic. Um, individual tax bracket group.
>> That's revenue group, Senator. They're next, I think.
>> Thank you, chair.
Not sure if it's um I'm just Sorry, chair. I've just asked for um a uh an article from the Financial Review to be tabled, but might be a bit of delay there. While that's happening, this article, this uh is a an opinion article by Chris Richardson um on the 22nd of January. in that article he has he has [clears throat] a a graph um of budget forecast misses and it's effectively a chart of that that line in the in table forgotten the table but in the table we were reading out um and I just heard your answer to Senator Whitten saying that this is nothing unusual in this budget and I'm just nothing out of the order or something to that effect I'm just struggling to understand that in regards to this particular chart it takes things back to the 201718 budget and uh in fact there's nothing ever never anything been like this $47.8 billion miss as uh Mr. Richardson describes it. Um so just like you to reflect on the evidence that is this just normal to have a $47.8 8 billion forecast miss uh in my ino.
>> So I was talking at the aggregate level senator about if you look at total payments or total rev seats or changes in underlying cash balance and those sorts of things. What has happened in this myo is not exceptional compared to history. As I said some have had worse uh uh bigger revisions some have had smaller revisions. That doesn't mean every single line item in the budget.
>> there's a pretty big circumstance. Yeah. $50 billion. So, I'm just wondering is is okay. Is is that is that the 47.8 billion figure in that line item? Is that is that exceptional?
>> So, we have to take that on notice and I have not I have not looked at that line item. As I said, this line item lives in the part of the budget that does the acrruel numbers. It doesn't it's not in the part of the budget that directly relates to the underlying cash balance. A lot of our focus is on the underlying cash balance as the main measure of the budget. We can go away and have a look at that line and come back to you on notice about it.
>> Just I'll just cuz I think it might just take a while for the article to be tabled and I don't want to hold you around. But so just to quote from it, Mr. Richardson says that the latest was particularly shocking. That's the latest Mo info. Uh the budget update issued just before Christmas said existing policies were going to cost $47.8 a billion dollars more than had been expected at 2025's earlier update. That is the equivalent of doubling last year's NDIS costs and putting that on the national credit card. Please read that sent last sentence again. I'm just wondering if I mean Mr. Richardson's a very uh well reggarded uh analyst and if this is concerning him so much, why don't you seem as concerned about a $50 billion budget forecast miss as Mr. Richardson describes it? Senator, I'm
not saying I'm not concerned about our ability to have better rather than worse forecasts in the budget, but we did say that this line includes some things that can change quite substantially um when people revaluate revalue assets and liabilities. They do not flow through to cash flows immediately for a number of them. They don't affect the underlying cash balance at all.
>> There's a reason we have a cruel accounting. >> No, no, I agree. No, no, I'm agreeing.
>> Um, and so because they flow through over time and we actually care about them, we do we do have a bit of a look at them, but it is not the it is not part of the main focus of the budget and the underlying cash balance. We will have to come back and have a bit more of a look at what's happening there. As I said, some of these things around actuarial evaluations of programs are becoming more prominent. Like a decade and a half ago, we did not have an NDIS. the NDIS gets revalued by an actuary every time. Now, that is a that is an that change in that valuation will appear in that line that you're talking about. It's a thing that we didn't have at all a decade ago. Um, so there's possibly things about the structure of the budget that have changed that mean we're actually picking up different things or more things than we did a while back, but I don't want to say that that is the entire reason or anything, but we would need to go and have a look at that line. There will be a lot of
>> Okay. All right. Um, leave it there. Thanks, chair.
>> Thank you. All right. So, um, thank you to the, um, fiscal group. We can say goodbye to you. Um, and welcome the, um, representatives from the Department of Treasury Revenue, Small Business, and Law Group along with the Australian Tax Office, the Tax Practitioners Board, and the Australian Charities and Notfor-profit Commission. And while we're doing a shuffle at the table and in the back there, I might note we started an hour behind the schedule. So my suggestion is that we push our um next break to an hour behind when it was scheduled, which would be 4:00. So just to let people know and this um set of witnesses that we will be seeing now extend over the break, so there'll be plenty of time for round two. We stop at 4 and then come back in 15 minutes. So, we're not stopping now. We're just waiting for people to Sorry, there was a >> clumsy
>> delaying the break to
>> 4:00.
>> Right. >> And then what does that mean for the dinner break?
>> for those of us that stuff fair way ahead. >> Well, I mean, if if
>> we're due to break for dinner at 6:00
>> if we keep time. I mean,
>> but can we confirm that because people have arrangements? Let's try and break.
>> All right, we'll try. Yeah, >> no matter where we are in the program, we'll endeavor to break at six. Okay. >> Thank you everybody. All right, we might >> Just wait a minute for the deputy chair. Okay. So, the committee welcomes representatives from the Department of Treasury, Revenue, Small Business and Law Group along with the Australian Tax Office, the Tax Practitioners Board, and the Australian Charities and Notfor-profit Commission. Um, we will go to Senator Hume to start off the
questions. Thank you. Thank you, Chair. I just want to start off by asking some questions about uh the new super tax that was introduced today. I understand why we're all in here and just make sure that my understanding of how this is going to work is is clear. There was an article um in um today's paper uh around how it was excruciatingly expensive, makes death excruciatingly expensive and I'm sure you've seen that. And so I just want to ask some questions about the 296 tax and what happens when a person dies during an income year. The EM to the previous version said that um individuals who died before the last day of an income year are not liable to pay the 296 tax. But now my understanding is it says that the EM says in the year of your of death your total superanuation balance reference amount will always be the amount just before the start of the year. So that means clearly that if someone starts the year with a total super balance above the thresholds then they die during that year then there can be a 296 liability. Is that correct?
>> Uh Senator Diane Brown deputy secretary of revenue small business and law group. Um that is an issue we're aware of. U Mr. McKenna can take you through it. >> Um the article is probably um misunderstands that we've gone from a system where we look at the change in balances to a system where we look at the earnings but Mr. McKenna can explain that more fully.
>> Uh thanks Brendan McKenna um acting first assistant secretary um retirement income and superanuation division. Yeah. So what um the bill does is that as you would know um there's a change in policy from taxing gains as they occur which is under the formal model of the bill to taxing on a realization basis. um that basically requires a a different approach to how um how taxes um is calculated and it's now calculated pretty much in accordance with the way underlying taxes like fund tax is is um treated under the current fund tax system. So to the extent that there's a um taxable event that happens in the year, a CGT event um and to the extent that that's um attributable to the member and that member has died then that's um income that would be attributed to them if they happen to be um above the thresholds then um the normal tax liability would um acrew to
>> So who is responsible for that liability if the superrenuent dies? It's the
similar to uh income tax or the tax for division 293. So we already have concepts in the law that that have the estate um liable for the you know remaining tax bills of of a deceased person.
>> So what happens if the deceased estate is not the recipient of the s benefits? Is the estate still liable to pay the tax?
>> Yes, they are.
>> Okay. Okay. So, transfers of assets to family members on death are normally tax-free and the previous version of this legislation didn't apply to individuals that had died. But this new 296 is different. It can still leave a tax bill arising for your estate and that can go to your children who would potentially otherwise have received a tax-free inheritance. Is that right? So, it's a death tax. Well,
I think you're so there's the death benefit payment and there's the question of how that is treated in the hands of the recipient. Um, that's one question, but then there's a question of the fund taxation and the um and the div 296 tax and that's basically a question around how the earnings of the fund are treated. Um, and that's what we're talking about here. So, I think they're separate two separate issues.
>> Two separate things. Okay. Um, it does sound like that this is potentially a contentious issue. Is it something that has been consulted on?
Um, yes. Uh, it was um, yep, that was in the uh, draft legislation that was released uh, last year. We consulted on that for 4 weeks.
>> And what was the feedback?
>> Uh, there was a range of feedback on that. But um,
>> did people say I don't want a death tax?
Most people don't want any taxes, Senator. Um, so people saying they don't want taxes is probably not uh not unheard of in our line of business. Um, but I mean, realistically, what um what we've done here is we've moved from a model that was taxing earnings as they accured to a model that doesn't tax earnings as they acrew. It only tax taxes earnings when there's a realization event. And so that necessitates a different approach to uh to what we how we apply the tax.
>> But a realization event can obviously can can occur after you've passed away. In fact must occur after you've passed away. So therefore it is a tax
>> after you have to doesn't have to
>> and it's paid for by the estate even if the estate isn't the recipient of the benefits.
>> It doesn't have to occur. It it occurs if the fund needs to realize assets in order to pay out um a uh a liability for you to pay out your your death benefit. So it could be that they have other liquid assets that they can pay out uh your death benefit. If if not then they can acrue and normally would under current laws they would they would realize an asset and they would pay uh any fund tax because that would be a CGT event under the fund tax laws at the
moment. Okay. Can I ask just now that this bill has been introduced where the Treasury can um talk to me about how many of those consultations submissions raised concerns specifically about not just this issue but specifically more about the treatment of franking credits in 296.
>> Uh there were a couple that raised uh issues of franken credits. I'd have to take on notice exactly how many, but >> at least two that I can think of, I
>> And there was a total of 103 submissions to put that too in perspective.
>> So, uh, what were the concerns that were raised about the inclusion of gross up franking credits in the 296 earnings base?
>> Uh, so there were some claims that were made that um it resulted in double taxation effectively. Um and they are claims that we do not agree with
>> and they've been set out in the explanatory memorandum.
>> So did they propose any solutions to this concern?
>> There were some solutions that were proposed but as I said I think they were based on a misunderstanding of how the uh how the BTSC in the amputation system.
>> Sorry. Can you just say that a little bit louder? I couldn't quite hear you. I
said I think they were those submissions were based on a misunderstanding or a misinterpretation of how the um imputation system and the BTSC um
interacts
>> sorry the div 296
>> div 296 right
>> uh and so uh you know our very firm view is that the treatment that was put out in the exposure draft legislation and is now in the um final bill introduced to parliament is the correct um treatment and perfectly consistent with the normal operation of the imputation system.
>> All right. Can you explain to me then uh for the sake of everyone else around the desk what the concern was, what the uh solution that was proposed was and what the misunderstanding was that meant that that solution was unnecessary. What what
I prefer to do, Senator, is explain to you what the imputation system is meant to do and how it works in this situation and explain to you why I think that it is the appropriate treatment if that's okay.
>> Let's start there then.
>> Okay. So the invitation system is effectively it's intended to ensure that income is taxed at the marginal rate of the beneficiary whether it's a shareholder whether that's uh in this case we're talking about the member of a fund >> um and that it's taxed effectively at the the marginal rate that they >> that they have uh that they face and uh and we're talking about uh taxes paid in the company. So what we want to do is we want to give acknowledgement of the fact that tax was paid at the company level and we don't want to double up on that tax. So to give you an illustration, if there's a $100 of income that is earned in a company, >> it would normally pay and that's profit. Uh it would pay $30 of tax in the company. It would pay out a frank dividend to in this case the super fund of $70 because that's what it's got left after tax. Yes, >> it would have an imputation credit that goes with that of 30. And what would happen in the fund is that the fund would get a refund essentially of that $30 of tax that was paid in the company >> and and it would get assessed on the full $100 of income and it would pay uh tax at the appropriate rate for the fund. Now, in the past, that's been 15%, let's say, in the accumulation phase. Uh, under the BTSC, there's obviously the additional rates that go on top of that.
>> Sorry, what does BTSC stand for?
>> Sorry. Division 296. Better targeted super concessions, but I'll try and call it div 296. Sorry.
>> Thank you. Sorry. And could you just say
fund would might pay $15 of tax on the $100 of income, >> remembering that it's got a $30 credit that's been refunded to it. So the tax that was paid in the company has been refunded. >> Um, under div 296, uh, there would be an extra layer of tax that would be applied, you know, for people who are above 3 million or above 10 million. So it would be that extra piece bit of tax that's applied there, but it would ensure that the you know that $100 of income is treated in the same way as $100 of income that was earned by the fund through let's say interest. >> Um if they got $100 there it would face $15 of tax and if the member was above uh 3 million then it would face an extra 15. So it's exactly the same treatment. It ensures consistency uh regard in in the outcome of the tax system regardless of whether you uh invest through a company in dividends or whether you invest directly in other income.
>> So the double taxation concern is real. It's just that it's been a decision that's made. Is that correct?
>> It's not real. The double double taxation is alleviated by the refund of the tax. the $30 of tax that was paid by the company that gets refunded to the super fund. So there's now no tax that's been paid on that $100 of income and then we just tax that as we would tax any other income in the fund. >> There's no double taxation. I
>> are you clear on publishing a submissions that
>> Yes, we're in the process of going through that now.
>> When will that be?
>> Uh as soon as we can.
>> I think we're in the process of probably checking the submissions don't have any kind of material that needs to be deleted. commercially confidential or um defamatory comments. It really is just a matter of it probably quite imminent but >> that submissions will be published.
>> I can't sorry that's 10 minutes is it? >> Yeah. >> Okay. I'll come back to this. Thank you.
>> Uh thanks M. Brown. I just wanted to tidy up a couple of matters that um the secretary kind of referred to you when I raised them with her this morning just around the capital gains tax discount. And I just want to start by saying I'm actually asking a genuine question. I don't understand how this has happened and I'm hoping that someone can help me understand how it is that in 2009 39% of the capital gains tax discount went to the highest 1% income earners. In 2022, [clears throat] that figure, the amount of the capital gains tax discount that went to high income earners was up from 39 to 54%. Those are both Treasury figures that are publicly available. And the Parliamentary Budget Office has now done an assessment that in the current financial year, 59% of the benefit of the capital gains tax discount will go to the top 1% of income earners. Can someone help me understand what is happening here, please?
I will just make a couple of comments. First, um uh there is that additional distributional information now disclosed in the tax expenditure and insight statements and that is for the very purpose of having these conversations. Um two, as uh deputy secretary DeMarco said at the time, capital gain sets can be quite lumpy uh and can affect people's income from year to year when they do a realization. Uh but Dr. Johnson has looked at it a bit more closely and he'll be able to give you a bit more of an explanation around the
>> Shane Johnson, first assistant secretary, tax analysis division. Um so I just might go through how we calculate the benefit if that helps. Um so when we're looking at the benefit for um for CGT that's in the tax expenditure statement essentially we're looking at the um the tax that's paid underneath the current arrangement versus the tax that would have been paid underneath the benchmark and the benchmark treatment um essentially what we use and it's long-standing practice is a H Simon's benchmark. So it's a what's called a comprehensive income. So it's all income is taxed at at a marginal rate um just on there. So that's that's that's the way we determine the benefit is the difference between those two. You could use different benchmarks and others have used different benchmarks. You could use a a consumption tax benchmark. You could use a taxing rent benchm ones but this is just one approach. So it gives you an example of what we're trying you know what what's being calculated. Um it is um as uh as Miss Brown said it is sensitive to changes in realization rates. Um so capital gains is a realization based tax. So it it acrru when you decide to sell the asset and so that people have that's a unlike income other income um that's a that's a choice and so you can so that can have have implications um uh what we see is that and then the other thing as well is um the size of those gains can can also change through time. So you can have a higher real a higher gain and so that can actually push someone to a higher tax bracket. So these are all things that could actually change the benefits over time. Um, one thing that we do see is that um, and I think one thing we are we just need to be careful about how we determine the benefit because there are a lot of other things that go on. Like I said, there's the realization when you realize it, it's the size of the gain. It's also the economic incident and where that actually really lies as well. So they're all things that we that to think about and the the way we co we don't bring to those things. We do a nice simple benchmark. It's just the difference between what you would have paid under an existing versus this the hey Simons benchmark essentially um one thing that we do one thing that will drive a higher proportion of the benefit going to under this calculation method is like I said realization the size of the gains but also over time um the number of people that are in the top that are in that top desile and I assume that's where you're going to is that top desile that we've shown um is that we expect a greater proportion of people in that top desile to go into the top personal tax bracket and the more and the if you're in the top personal tax bracket, you're paying a higher rate and so therefore you're getting a bigger
>> So that's gone up in 15 years from 39% to 59%. I mean, that's a massive increase in the percentage of the benefit that is going to the top one. It's not the top death, the top 1%.
>> So,
>> right. So, top 1% of income earners. So, I mean, if you're if you quit with those figures, I don't think you were, by the way, but please do. >> Um, but I'm still not clear what's happening. I mean, like you've said this might be happening or that might be happening and it's lumpy and like I get all that. What is happening here, Mr. Johnson? Why why is the top 1% getting so much so much of a greater share of the benefit of the capital gains tax now compared to 15 years ago? Why is it happening?
>> More people um are receiving capital gains income in that top bracket.
>> in the top 1%.
>> Yep. In the top 1%. Yep. Um the the size of the gains are also get bigger as well over time uh relative to um elsewhere in the distribution. And then we're seeing more people that are going into the top tax bracket as well if it's with particularly within the desol you see more people going into the top tax
>> but the figures you wouldn't quit with any of those figures.
>> No I mean there are probably figures. Yeah.
>> Yep. And do you project this out into the future?
>> Uh no we don't we don't normally project we normally produce the estimates on the on the actual year of year of focus. So
>> all right thanks. Um, I've got a number of issues I want to raise. So, I'm just going to jump around a bit here. I'm going to come to the ATO. Um, it's been reported that um your uh the contracts you've um awarded to one of your private debt collecting firms, Recoveries Corp, um have been worth about $42.8 million since 2022. But before we go specifically to recoveries corp, can I be can I just ask the ATO, do you use private debt collectors to uh recover debts to recover alleged tax debts from welfare recipients?
>> Um uh thank you Senator Rob from Commissioner Taxation. Um I give Mr. Allan who uh runs our um second commissioner of frontline operations to talk through what we do. Would make the point that um you mentioned a particular taxpayer. Um we are of course constrained about talking about the um the tax position or tax circumstances of individual um of companies or people due to our confidentiality provisions. Um, so when it comes to that, we could maybe talk generally about the I understand the article went down the path of saying here is a company which we awarded a contract to and that company didn't pay any tax. Um, the fact that a company doesn't pay tax, I think as you're aware is not not particularly unusual. The whole range of reasons why and the company income tax in one sense it's a you know it's a not in one sense it's a profits tax. So if the government doesn't make profit because it's got accumulated losses from past years, it's got R&D tax deductions. Uh there could be a number of reasons why it doesn't pay any tax. So the the fact that a company doesn't pay tax, you know, when we publish our the tax transparency report, I think we publish about 4,000 uh section about 4,000 companies. And I think of those about a third don't pay tax. And it's not because they're tax avoiding or doing something um uh um doing something contrary to the spirit of the law. >> Well, we would hope they wouldn't. And the tax gap, I think, as we've discussed before, the tax gap for large corporates is actually um uh you know, relatively small, particularly compared with other taxpayers. Um but no doubt we'll come to that, but I just wanted to preface that and also give Mr. Allen time to get up to the table. So, I'll pass over to you. >> Thank you, Mr. Allen. Uh David Allen,
second commissioner, frontline operations. So we engage our recoveries corp, which is our external collection agency. Um they play an important role in our broader kind of like debt management strategy. Um and we use them to um do two things. One is we um we have a pre-engagement letter which we send to taxpayers um and these are taxpayers who we've tried to engage with. We've written to them. We've sent messages and we not been able to get engagement. So he writes to them with a pre-engagement letter effectively saying that if you don't contact us and set up a payment plan and uh meet your um debt obligations uh then we will refer you to an external collection agency. We find just the letter is actually quite effective in people engaging with the ATO. Um um however, if they don't, then we will make a referral to the external collection agency and they contact the taxpayer and say they're from an external collection agency. Um but I just want to be clear, we we only make referrals to the external collection agency when the taxpayer hasn't been engaging with us um where they haven't set up a compliant payment plan. And we exclude taxpayers who show any evidence of vulnerability um or hardship. Um, however, we recognize that we're dealing with large volumes of population here. Um, and we know sometimes that, you know, we may end up referring someone. So, a lot of training goes in with our external collection agencies to ensure that if they see signs of vulnerability, they're referred immediately back to the ATO and we've got a dedicated talent support hub uh for supporting taxpayers in vulnerable situations. Um the other thing I should probably just say about external collection agencies, they don't do any firmer actions. So things like garnishes or director penalty notices are all done by um atto teams um and more um you know dedicated teams doing firmer actions. So they have a very specific role.
>> Thanks. Do you exclude um
>> 10 minutes? Senator M. >> Pardon? >> You're at 10 minutes.
>> All right. Do you Thank you. Do you exclude welfare recipients from uh you said you excluded people that you're aware had vulnerabilities for example but do you exclude welfare recipients and the reason I ask is because after the robo debt royal commission it was clearly deemed um unethical and and harmful for centerlink to use private debt collectors to chase alleged welfare debts and I'm just wondering why in that context it's okay for the ATO to use a private debt collector to chase an alleged tax debt from a welfare
recipient. Well, as I said, we we definitely look for taxpayers in the population to have vulnerability indicators. Um and not all Centerlink recipients would we would we say have vulnerabilities. Um so, um we would you know potentially make a referral to the external collection agency on that basis. But as I said like you know if subsequently through that discussion with external collections agency some vulnerability is identified then it's referred back to the ATO but we don't make a blanket sort of a mission for um you know welfare because we're not really in a position to judge you know what that welfare um assistance is and it takes many different forms. So um our risk engines will look things such as income assets and so on and then you obviously prioritize those for the next next week's action.
>> I I will rotate and then we can come back to you. Um so Senator Him do you
>> Yes. Thank you. Just before I move on slightly, I just want to clarify whether Treasury costed an alternative where the div 296 >> wouldn't be taxed on death. Whether was there a big revenue difference between whether it is or whether it wasn't isn't
I think to be sure I'd have to take that on notice. I don't I don't believe that we did. Um as I said um we constructed like we moved from uh a taxing on a cruel basis to a taxing on a realization basis. In doing that we had to revisit a range of settings around how that tax what makes sense in that new kind of construction of the tax. And so I mean this is one of the things that um I guess we we work through. Um but I just want to take that on notice I guess just to be sure.
>> So you take on notice as to where the Treasury did costings on whether not charging people tax after they had died >> uh compared to deciding to tax people on their super after they have died. >> Yep. >> Yes. >> Thank you. That would be good. Um I want to ask some questions about which I asked earlier but uh this is probably the better place to do it about the AFR's reporting this week about the intention to scale back or replace the 50% capital gains tax discount and whether that's being examined against uh ahead of the budget. I'm wondering where the revenue group has undertaken any analysis or modeling or policy development on changes to the capital gains tax discount.
Uh, so Senator, I I do recall that you asked the secretary that question or a similar question this morning. >> Um, and I think as the as the secretary said this morning, the treasur has indicated um that he's considering whether to take um more steps can be taken on tax reform. Um we will support him in that work. We provide advice on the operation of the tax system on an ongoing basis. um to now indicate specific matters or specific tactics under discussion would as I think the secretary indicated risk inhibiting the deliberative process.
>> Yeah.
>> Um and uh decisions of budget are normally made at budget time by the
treasurer. So I mean obviously capital gains can occur in the residential housing market and or the housing investment market investment housing market which is I think where this is being um uh the the discussion largely revolves around that but obviously capital gains can occur in any investment. I wonder whether revenue group has done any analysis of what the effect might be of cutting the um or abolishing the 50% capital gains tax discount in other asset classes. Well,
Miss Brown in her previous answer indicated that um they support the work of the treasurer in um you know um all the processes that are underway for budget um but they aren't in a position to go into specifics about work um being done um because that moves into more of the deliberative um arrangements that government works through in the leadup to the budget. I think the the treasurer has been clear in his public statements um that he um he is prepared and the government is prepared to have a discussion around intergenerational issues in housing.
may I ask then for revenue groups description of why a capital gains tax discount uh was uh introduced in the first place. What was the thinking behind a capital gains tax discount?
>> Uh so a capital gains tax was introduced uh back in 1985. Um there was a a a few considerations I believe at the time and some of these had been raised in submissions made to the uh inquiry looking into the operation of the um capital gains tax. Some of it was to encourage um savings so to tax it at a lower rate to labor income. some was to um uh have um if it was taxed at nominal rates uh it would have been very high effective tax rates um and I'm I'm just trying to recall there was a third reason given as well
was it simplification
>> pardon
>> a capital gains tax I remember when the capital gains tax was brought in capital gains tax discount >> it's largely it was a simplification measure wasn't it was a red tape reduction measure because calculating the index you know an indexed capital gain is actually quite complic licated for average Joe. I mean, yes, there's technology that can help you do that and but a capital gains tax discount made it all pretty clear. Is that right?
>> Uh it was a simplification. This is a 199 was a simplification exercise. >> Yeah.
>> So then removing a capital gains tax discount even if it's only removed on one asset class is a tax complication measure as opposed
sorry, can you repeat that? I mean, I think it's
>> Well, if a capital gains tax discount is a tax simplification measure, then removing it is a tax complication measure.
>> Well, that's more of a statement, I think, from you, Senator Hume.
>> Actually, it's just logic, isn't it?
>> Is there a question?
If you put
>> Is it a hypothetical?
>> Well, no, clearly not. I mean, if you won't tell me whether this is something that you're considering or reveal the analysis or any of the deliberations of Treasury on this particular measure and it's been pretty clear because it's linked to the media all over the place that this is something that you're considering.
>> We're conducting normal um budget processes, Senator Hume.
So my question was if the original capital gains tax discount was introduced partly as a simplification measure, a red tape reduction measure, then if you remove it, it actually makes tax more complicated.
>> There's a lot of ifs in there.
>> Well, not really. Yeah,
>> There was two. If you if if it was introduced for this and then if you remove it, it's that. Right.
>> Sorry, you mustn't have been listening. But M. Brown said, M Brown said it was introduced as a simplification measure.
>> Your question, your question or your proposition has a lot of ifs in it. We're not going to get into the specifics of work that may or may not be being done for the budget process.
so the Parliament is now currently doing a Senate inquiry into a CGT discount, >> but it doesn't have access to the same information that appears to be circulating through some of the media
>> Well, I'm not sure what you're talking about there and what information >> the committee might be seeking. I think
information that's being briefed out to journalists and we've already established that's not coming from Treasury. so I'm interested to know if there is this information is available and journalists are getting hold of it, but why is it not being made to a Senate inquiry where that information would gets the opportunity for appropriate
scrutiny? Well, Senator McKim indicated and I would just point out that it was your votes that helped establish the select committee into CGT for uh for inquiry supposedly on something you don't support changing is what I'm kind of where I'm hearing. >> I think inquiry gives us the opportunity to receive submissions to seem all sides
of an argument, don't you think?
>> You seem like you've pretty much formed your views if I'm just picking up the vibes here. But anyway, um, Senator McKim's indicated that he he is considering I think your chair uh, considering calling Treasury uh, to provide evidence to that committee.
>> Can I ask then, Minister, can I be very clear here because we are not ruling anything in or ruling anything out. You are not ruling out changes to capital gains tax applying across housing, shares, trusts, and any other form of
investment. Well, I'll refer you to my previous answer where I said the treasurer has made public statements and uh I I have as well and I think the prime minister has about um uh a discussion about examining the intergenerational issues affecting housing in Australia. Uh we've been clear on that.
>> That's just housing. What about the
other asset classes? Well, I mean, in terms of I go back to my earlier answer, which is we aren't going to be sitting having a rule in rule out game as we undertake normal budget processes. You will see the budget in May. Um, and um, we'll be able and available to answer questions at that point.
>> Okay. I think that's going to frighten the horses for a lot of investors out there that aren't necessarily invested in that aren't necessarily invested in investment property. You've just said we're not playing rule in rule out on a whole bunch of asset classes that have nothing to do with housing supply
>> code. That's code for you're going to go out and whip up a scare camp.
>> You just did, Minister.
>> Senator, I did not. I >> You can rule it out. You don't have there's no scare campaign to be done. >> I referred you to the uh the previous answer I gave which said we are interested in a discussion on the intergenerational issues around housing. Now, you're the one that supported a select inquiry into the operation of the capital gains tax, Senator Hume. >> Uh, so take responsibility for that.
>> I'm not entirely sure why you fear inquiry on this issue.
>> Well, it does seem rather odd to me. I'm not sure you what you got in return for supporting the select committee, but that you would be sitting here uh beginning it seems to wage a scare campaign uh based on a committee that you supported establishing. >> I would imagine that there will be an awful lot of submissions to that
vehemently opposed to changes in the capital gains tax. Vehemently opposed. In fact,
>> let me prepared to establish to have a look at it. So they're incredibly
opposed. So let me just point you to
Housing Association. Sorry, chair. Let
me just get the question out. Housing industry association managing director >> who said if the policy objective is to increase the supply of new housing housing, Australia requires more investment in housing, not less. This requires stable I'm sorry I'm just quoting.
>> Yeah. No, sorry. Like oh okay. So because we are investing in housing then you
>> just let me finish the question just even a quote would be a good start. Let me do that.
>> Just holding it to your the way you vote in the Senate.
>> just um Senator Hume get it out and then >> So Housing Industry Association managing director Jocelyn Martin said if the policy objective is to increase the supply of new housing, Australia requires more investment in housing not less. This requires stable, predictable, and neutral tax settings and a reduction in policy settings that increase costs, uncertainty, and risk for housing investment. Changes to capital gains tax or negative gearing that raise the cost of investing in housing risk further constrain on the housing supply pipeline. So, does Treasury agree or disagree with Housing Australia Association's assessment that increasing taxes on housing investment risks further constraining the housing supply
pipeline? Can I just point out that there's about I think there's 70 other submissions uh to that inquiry. Many of whom have a very different view to the one that you've just quoted from Senator Hume from my quick looking at it this morning because I haven't engaged uh very closely on that committee. I' um be interested uh once the committee reports of course but um you know if if your um explanation for establishing this inquiry is because you don't support changes to capital gains tax but you thought you may as well have a little look around and and get the vibe of submissions before you um just reconfirm your existing view then you're accountable for that. We have said we're prepared to have a look and and a discussion about intergenerational issues as >> Minister I understand all of that but you're very very defensive. I just want
is on this. That's all I You seem very
very sensitive from one submission um which I don't know if Treasury's even read opinion >> uh which is not normally >> the role of the Tre well it's not the role of Treasury. No it's not the role
of Treasury on housing investment to
committees in fact it's against the standing orders to ask for opinions from public servants.
>> Oh my heavens it's an economic issue, isn't it? I mean, surely this is
not something that is out of that committee and I'm sure that they will participate fully.
>> Hang on. I'm allowed to ask Minister
for an opinion.
>> I wasn't asking for your opinion. I was asking for Treasury's opinion.
>> Does Can I just ask does Treasury want
to make any comment at all and then I'm
break? >> Opinion.
>> I can see you. No. So, Treasury has no
comment on here to appropriate questions increase tax that they are responsible for.
>> I think that the matter has been addressed. Perhaps not to your satisfaction, Deputy Chair. It's 4:00. Um we will come back and there'll be plenty more time for this um group to have questions answered. So we'll leave it there for now and come back at 4:15.