Interview with Sally Sara, RN Breakfast, ABC Radio

Subjects: tax reform passing the House of Representatives, consultation process, CGT, negative gearing, KPMG whistleblower allegations Sally Sara: In a few minutes I’ll be speaking with the South Australian Premier Peter Malinauskas, but first, the federal government’s sweeping tax changes have passed the House of Representatives. Now the hard work begins to get them through the Senate.

The government needs the support of the Greens to ensure proposed changes to the capital gains tax and negative gearing are passed the Upper House, after the Coalition confirmed it will vote down the reforms. Daniel Mulino is the Assistant Treasurer and Minister for Financial Services and joins me now. Minister, welcome back to Breakfast.

Daniel Mulino: Oh, thanks for having me on this morning, Sally. How significant are these tax changes? Oh, they’re really important, once‑in-a‑generation changes.

They involve 2 tax cuts for millions of Australians, the Working Australian Tax Offset and the instant tax deduction. They also of course involve really important measures to make it easier for first‑home buyers and younger Australians to get into the housing market, dealing with issues such as negative gearing and capital gains tax changes brought in by the Howard government that have long needed attention.

Minister, if you’re describing these as once in a generation changes, why are you only allowing 2 days for an inquiry into these reforms? So we’ve just finished a process in the House of Representatives that involved 17 hours of debate. We also had a long‑running process early in the term which included the 3‑day Economic Reform Roundtable, which the Shadow Treasurer attended.

But this proposal wasn’t on the table then, was it? And is 17 hours enough for once in a generation reforms? Oh, look, it is one of the most exhaustive discussions I’ve seen in the parliament, but when you go back to the 3‑day Economic Reform Roundtable we had a whole day devoted to tax.

And as you know tax is an area of policy where there’s usually a lot of discord. But coming out of that discussion there was pretty much unanimous agreement that we needed reforms, and we needed them urgently for intergenerational equity, that we needed it to improve the way the tax system interacted with the housing market. So, these issues have been on the agenda for a long time.

When it comes to the Senate inquiry – So is that when the government became wedded to the idea of these changes, after that roundtable if that was a unanimous view? Well I think what came out of the 3‑day Economic Reform Roundtable was a consensus that we needed tax reform in a range of areas, that we needed it in particular in relation to intergenerational equity.

And so over the months following that there was a broad‑ranging discussion in the community about the fact that the tax system isn’t working for young people and that the housing market is one of those areas. So it was in that broader context that the Budget was framed. And so there has been a long‑running discussion around these kinds of issues.

And in fact a lot of the issues dealt with in the Budget have been looked at in previous tax inquiries, including the Henry Review, the inquiry under the Howard government and even before that. The government says it wants to help people into the housing market. Well that in mind, in your view should house prices go up or down?

So we’re not targeting house prices per se, but what we’re saying is that we need a more affordable arrangement overall. And can I just go back a step and say that we remain absolutely committed to more supply. That remains an absolute priority for the government.

And on top of all the measures in the first term there are more supply measures in this Budget. But on top of more supply – But this particular measure doesn’t increase supply. No, but on top of building more supply there are also issues within the housing market in relation to the way that the tax system operates.

And it is creating additional barriers for young people, the way that negative and CGT interact. If you go back to the 1999 changes the Howard government brought in, they didn’t have the desired impact. What they in fact led to was a surge in investment in highly‑leveraged stand‑alone properties which contributed to a doubling of house prices relative to incomes over the last 25 years.

And this has created a huge barrier for young people in particular. So we need to remove these problems and distortion in the tax system, and that’s what we’re doing. Given the Greens haven’t come to a position on the proposed tax changes are you confident the government will be able to negotiate with the Greens and find a pathway to pass the tax bill through the Senate before parliament’s mid‑winter break?

So there’ll be a Senate Legislation Committee inquiry over that 2‑week break. It will have 2 days of public hearings. And this is a very normal process for a complex bill.

We’ve seen other complex pieces of legislation have 1 or 2 days of public hearings; many of course go through without any. I imagine that a lot of the issues that have been discussed in the public realm over the last couple of days will be ventilated in that inquiry. And I understand that when it comes to the high‑level issues at play that the need for tax cuts for all Australians through the WATO and the instant deduction, but also the fact that there is a need for reform of negative gearing and CGT, there is an acknowledgement by the Greens that change is needed, and now we’ll get down to the detailed discussions.

Just before we move on to another issue, so you’ve described this as a once‑in-a‑generation set of reforms. Although discussions were held around the national productivity and economic roundtable last year, this legislation and these changes weren’t directly on the table, so this will just leave 2 days of public consultations? Well, so what we’re doing is bringing forward at the moment the framework legislation, and that is very normal with tax reform that there be tranches of legislation.

So this first piece of legislation will clarify the 2 tax cuts, and the WATO and the instant deduction, and the negative gearing, CGT framework. Then we’ve acknowledged that we will consult on range of issues around venture capital and start‑ups and some issues around small businesses for the CGT. The expectation is that there would be a subsequent piece of legislation down the track for that.

And then there’ll be consultation over the next few months around some of the detailed issues around trusts. So this is very normal, and when you go back to previous pieces of major tax reform, like the GST under the Howard government, there were similarly tranches of legislation. Let’s move on to a separate issue.

We’ve heard this week about whistleblower allegations around the misuse of client information at the accounting firm KPMG. There are calls in the parliament to ban the firm from all government contracting work. Is that something the government is considering?

Well, I understand that Minister Gallagher, the Minister for Finance, has indicated that there is a broad‑based inquiry or examination of the use of outsourcing, and that would this clearly inform that. And that’s appropriate because some of the behaviour looks like it was highly inappropriate here. There’s also other work which I’m undertaking around whistleblower activity in the corporate and taxation realms which again will be very relevant to the kinds of activity which has been alleged.

What do you think about KPMG having a contract for whistleblower service for clients including the Reserve Bank? So I think the government will be examining all of the KPMG contracts in place is my understanding. There’s also a briefing coming up from the department, from Treasury to me in relation to whistleblower activity in light of this.

But as I mentioned, I’ve recently put out a discussion paper seeking views from stakeholders on whether we need to strengthen our whistleblower arrangements. That went out a couple of weeks ago, with views sought by the end of July. ASIC holds powers to pursue audit partners but is more limited in how it regulates consultants within the firm.

Will the government legislate to eliminate that loophole? So, one of the issues that we’re going to need to examine is the extent to which whistleblower protections in relation to corporations apply to partnerships. It’s not a straightforward area and that’s one of the issues that we’ll look at as part of the whistleblower inquiry.

Yesterday we spoke to former KPMG partner and whistleblower, now academic Brendan Lyon, let’s take a listen to what he said. Brendan Lyon: They are entirely unregulated. They don’t need to submit to Corporations Law, there’s no particular duties that bind the CEOs of the firms to good conduct, and we leave them to self‑regulate.

And on top of that Australia has globally‑unique laws that cap liability for the big 4 at $1 million a firm in most instances, about $1,000 a partner. What that means is the upside is unlimited in terms of multimillion dollar salaries and all of the rest. And the downside per partner is less than the cost of a new iPhone. [End of excerpt] Do you think that needs to change?

Well I think there are a set of complicated issues, and as I indicated. One of the issues in play here is the interaction between the powers of ASIC under the Corporations Law with partnerships. And so that’s something that we will examine as part of the consultation.

I think that there was already a process under way but the allegations against KPMG have just heightened the urgency of this. Daniel Mulino, Assistant Treasurer and Minister for Financial Services, thank you for joining me this morning. Thanks very much.