Senate Economics Legislation Committee, , 7:47:47 to 8:05:06
The hearing concludes with a focus on the building and construction sector's compliance costs and a heated exchange regarding the timeline of the government's pivot on trust tax policy.
Topics: Infrastructure, Government spending
Speakers: Laura Berger-Thomson, Katrina Di Marco, Senator Andrew Bragg, Senator Dean Smith, Hon Katy Gallagher, Senator Lisa Darmanin, Senator Susan McDonald
I'm sorry, I was not um think it was.
Oh, Senator Bragg, yeah. My apologies.
Thanks very much. Look, just a couple on the trust. So um in the building and construction sector, there are a lot of small businesses. So I assume you know this, right? Yeah. So um what kind of consultation have you done with builders and trade on this trust change?
Senator Discussions on sort of transition and implementation, implementation issues are underway with a range of stakeholders, and that absolutely includes the property sector. So while I don't have a count of the number of submissions that received were from the property and construction sector, I would be very surprised if a good number of them didn't reflect concerns of those sector, and we are still undertaking consultations with that sector. Um, Ms. Berger Thomson can talk about that. She's leading those consultations, but we're certainly um certainly aware that there's many businesses in that sector who use these structures.
So my understanding is there's close to half a million small businesses in the building and construction sector. It's very heavily based around businesses under 20 people. Um what feedback have you had from the building and construction sector on this new trust idea? Uh noting that we are living through a significant housing crisis where builders have already been hit with new taxes, more regulation. It's hard to get skills. Uh now they have to contend with this very complicated, very difficult trust idea you want to force on them.
So I'm happy to talk a little bit about what we're hearing.
What are they saying to you?
From the property sector.
Um sorry, except the property sector. I don't know why you're using that characterisation. They're builders.
Well, with respect.
It's almost like you're looking down down your nose at them.
Well, that that's your assertion. I don't think that's necessary, and the witness should be allowed to provide the information that you've asked for. Builders for builders.
Let's everyone calm down.
They're building.
Do we just focus on question and answer one at a time?
That's the crap they have to put up with every day.
Senator Bragg builders for the case. We want to know what your consultation is showing. I think we just allow the witness to provide some information without your feedback.
So I have personally had a number of meetings with representatives from that sector and my team have had other meetings with representatives from that sector. We're hearing that particular features of the way that some of the business models in that sector means that that sector has some concerns about the operation of the minimum tax on trust, particularly in regards to losses and the treatment of losses. And you know, we're we're engaging with not only the property sector but other stakeholders on issues and it'll obviously be a matter for government as to what if any changes they make to in future tranches.
So in in summary, I mean you you as I said you caught the property, I would say that it's the building sector that's trying to build Australia out of a building and housing crisis. So the summary of your feedback is they think that the trusts are fantastic, they're terrible. What is it?
So typically the people who come and talk to us, Senator, are those who have kind of issues that they would like to raise. So I I would hesitate to speak about the kind of the views of the entire sector, but certainly I've outlined the ones that the concerns that those people who have come to us have raised with us. So I don't think I have anything further to say on those concerns.
So what do you estimate the cost will be to the building sector for having to comply with your new trust regime?
Senator, the impact assessment outlines really clearly.
Sorry, can I just clarify which impact assessment undertaken when and by whom?
So Treasury undertook the impact assessment, which forms part of the explanatory memorandum for the trust bill that's currently before the parliament. That explanatory memorandum does not break down the expected impact by sector. It does break down what we expect the compliance costs to be to be between businesses and non-businesses. Happy for Ms. Berger Thomson to talk you through talk you through that work, should you wish, but I just want to be very clear we have not broken down those costs by individual sectors.
So can I just I'm glad you raised that, Mr. Marco, because the impact analysis that you speak of was undertaken when
I think the well, the impact analysis would have been finalised in order to to um in order for the legislative when the legislate in order to have it um introduced with the legislation and form part of the explanatory memorandum. I don't want to speak for Ms. Berger Thomson, but I suspect that work has been underway and the policy considerations underway as part of the policy design process and finalised as part of the design and implementation.
So when when did you do the when did you do the impact analysis?
So I actually don't have the start date. So it like I would agree with Mr. Marco. We there isn't a we we have been doing this analysis as we have um been involved with the government in terms of designing the policy. We have had a draft for you know a significant period of time. Um I just don't have those dates on me. I'm sorry.
Okay, because just as well, Senator Light.
It's changed a few times, so yeah.
But the budget papers also outline, I think, quite clearly many aspects of the policy problem, which is one of those key parts of the impact analysis. So the impact analysis itself is is one part of the process and one part where you crystallise some aspects of this, but there has been work underway for some time as part of the budget which has informed that impact analysis.
Okay, so how much do you think it will cost a builder to comply?
Senator said we have not broken it down by builders versus non-builders. I can ask Ms. Berger Thomson to talk to you about the expected costs by sort of I think we've broken it down between low advice and high advice requirements, but we do not have that broken down by sector.
Let me just find it.
Which impact analysis and undertaken on which models. Which models?
Senator, the impact analysis is.
This has changed about 10 different times.
I don't think it has, Senator. The impact analysis is included as part of the explanatory memorandum for the bill that's currently before the parliament. There is only one impact analysis. Well, Senator, that's slightly different. I think the new building reform is part of the CGT changes, which is in this bill also, but the impact analysis that we're talking about is related to the trusts component.
Okay. So what have you got, Ms. Berger Thomson? For us.
Um I am just trying to find the right staff.
Average cost per business. Average cost per small business, whatever you've got.
So the average cost for a for a truck trust.
Yep.
Um we have at around I think it's 11,000.
11,000, okay. So the the housing industry association, and they say that three in five of their members use a trust. They say it will cost $50,000 per business.
Yeah, sorry, I'll just want to correct myself. That's for businesses. Um the cost is actually $2,000 for non-businesses. We we talk in the impact. So that's an average cost. There are that's a not a trust that is not under kind of undertaking an active business. Um we we discuss in the impact assessment um how we have arrived at those at those estimates. There are um separate estimates for businesses who have high advice requirements. Those um those are those the way that we define that is those that are kind of, I guess, most affected by the impl by the minimum tax on trusts. Um, and then there's some low advice requirements. There's actually um a number of trusts who uh not going to pay any additional tax or the beneficiaries don't pay any additional tax as a result of the changes because they're already paying a tax rate above the 30, the 30 percent rate. So there are we've we've distinguished between those different types of businesses, um, and then we uh we estimate um what we think the average advice requirements are for each each of the different types of businesses.
Yep.
We have um actually some quite um detailed analysis about um.
This is all published, of course.
I'm just saying, it's a part of the democratic process. We could have it on your screen.
So you could have it on your screen, you could even read.
Senator Bragg, you're at nine minutes.
So for those that restructure, we actually have um for business trusts that restructure our our estimate of the average number of hours that of a kind of that they will be required is 120 hours. That's on page 193. Um so it's quite clear. And then for those trusts that are not um undertaking a business, that's 25 hours. So we have in our impact assessment actually taken into account um you know the the significance of some of the restructures that these um business trusts will need to undertake.
Okay, so we've got uh some businesses saying it's gonna be tens of thousands. You're saying it's gonna be a few thousand bucks. Um have you have you spoken to the housing industry association and the master builders groups directly?
So I just wanted to clarify our number is an average. So we do expect that there will be some businesses who will have higher costs, some businesses who will have lower costs. But yes, we have done consultation on the compliance costs. We asked stakeholders explicitly to provide us with um you know views on what what the compliance costs are associated with uh this measure would be.
Yeah, and you've taken advice from those groups, so the master builders and the housing industry association.
Senator, all that feedback has informed the estimates that are contained in the impact analysis.
So you have.
That that it is all informed what's contained in the impact analysis. But as Ms. Berger Thomson said, and I've re-emphasised we have not done this sector by sector. There will be some very complex structures that have been structured this way for some time that will require higher advice, and we've acknowledged that quite explicitly in the impact assessment.
I'm gonna have to rotate the call, Senator Bragg.
Okay. I just had one clarification. So most people look at this and say you're imposing on this red tape onto a sector which we desperately need to build houses for the nation. Uh there's a discrepancy of views about how much is going to cost, but you are surely willing to concede this is adding costs and red tape to their businesses when they're already struggling under the weight of other factors.
Well, that's why we've recognised in the budget uh the some of those pressures in that in across the small business sector and why we've made the instant asset write off per. We're doing other work about red tape or better regulation and for example all mandatory Australian standards being available for free. All of those issues are ones that have been raised by those organizations and also providing support around restructuring. We are making a change, Senator Bragg, except that you do not agree with that change, but we think it's an important one to make a better and fairer tax system.
We'll go to Senator Smith.
Thank you very much. Congratulations to you, Ms. Di Marco on your appointment, and we send our best wishes to Ms. Brown, who is always very, very cooperative at Senate estimates. I just want to turn to the tax trust tax changes and matters around sort of consultation. So well, actually pre-consultation. On what date did Treasury first start work on the tax changes contained in the budget?
Like prior to the budget.
Yep.
I think we would have. Yeah, I think I think it's when we dealt with this at the last hearing, to be honest.
I must have missed that. That was what I'm asking them again.
Well, it would have been through the budget process.
So on what date did Treasury first start work on the tax changes contained in the budget?
Sir, I'd have to go check what Ms. Brown has said on this previously, but my expectation is that she would have said that Treasury is always working on tax reform.
She in fact that yeah.
Because that's I I expect that will be my answer. Um Treasury is always working on tax reform. We are continually thinking about different ideas and different approaches to reforming the tax system. I think as the Senator has said earlier, reforms around ideas about reforms to trust are not new. Reviews over decades. Aspiry, Ants, Ralph, Rethink, all of them have all canvassed issues around trusts and acknowledged sort of the role they can be used to facilitate sort of aggressive tax planning. So Treasury would have been considering issues around this for a very long time. I think giving your precise date would honestly one, I don't think it's possible, and two, and I think if we did, it would be it'd probably be a false representation of the work done by done by officials over many years.
I'll come back to the point about always working on uh tax uh like through the tax expenditure and insight statements, for example. I'll come back to the Ms. Di Marco's comments about always working on uh tax changes and tax matters. I think you are right that these questions were put on notice, uh but I think you'll discover they weren't responded to.
I'll have to check about that, Senator. Like my understanding is for I don't know what session they'll put on notice for, but my understanding is from the last session. There's about 274 questions that were put on notice to the department. I think only five remain unresponded to.
It might be these five. It might be these ones. How long how long roughly would you say, how long roughly would you say it took to develop the budget's tax package?
Well, the the budget process is extensive. Um just evidence from Mr. Marco then like work on work by the Treasury and issues around trusts have been you know engaged with since 1975. In terms of different reviews and different recommendations in terms of the specifics about the decisions we took in the budget, they would have been developed and progressed through the budget process. That tends to start after the mid-year economic and fiscal update is concluded, usually a week or so after.
That's very valuable evidence uh, Minister, because in 2024, the Treasurer said explicitly, explicitly, that we the government are not contemplating or considering resurrecting the policies that we took to the 2019 election. Those 2019 election policies included changes to CGT, negative gearing, and a 30 per cent minimum trust tax. So given Ms. Di Marco's evidence that the Treasury is always working on tax matters and tax policy, and given your evidence that the work has been extensive, and I think by that you meant extensive in terms of time frame. At what point did the Treasury pivot? At what point did the Treasury pivot from honouring the Treasurer's 2024 public statement that they were not contemplating or considering resurrecting the policies that we took to the 2019 election and pivoted to 100 per cent reversal of that position? When did that happen?