MATTERS OF URGENCY
Senator DOWLING (Tasmania) (18:59): Senator McGrath has brought on an urgency motion about a problem that was actually examined 50 years ago. Apparently, the urgency is to make sure we still do nothing about it. In 1972, Liberal treasurer Billy Snedden commissioned the Asprey review.
Its 1975 report asked a basic question: how do we build a tax system that is fair, efficient and simple? One problem it identified was income splitting through trusts. Asprey did not design the legislation we're looking at today, but it did recognise the underlying concern.
People on similar incomes can face very different tax outcomes because of how their income is structured. And history did not stop there. In 1998, the Howard government itself recognised that the same investment could face different tax treatment depending on whether it was held through trust or through a company, and it indeed proposed reforms to trust taxation—not the same model we are debating today but the same principle about how income is dealt with through trusts and other forms that are generated.
The Henry review also raised concerns again in 2009, and, just as recently as 2015, the coalition's own Re:think discussion paper acknowledged that discretionary trusts can deliver tax advantages when beneficiaries have different incomes. So let's not pretend this problem was suddenly invented in the last budget. This debate and this concern have been going on for 50 years.
Rather, this budget finally took on the challenge 50 years after it was first flagged. Let's consider a very simple example that illustrates the principle. There are two families with similar incomes.
One earns wages. The other receives income through a discretionary trust. The first cannot divide a pay packet among relatives to reduce the tax bill.
The second can have scope to allocate trust income to beneficiaries on lower tax brackets. The economic contribution of both families is probably equally valuable, yet their tax bills can be very different. Treasury analysis found that families using discretionary trusts face an average tax rate of around four percentage points lower than families on similar incomes without them.
That is the fairness question that this motion avoids entirely. Economists deal with it as 'horizontal equity'—people in similar circumstances should be treated similarly by the tax system. A good tax system should reward productive activity, not the ability to choose the most favourable structure for receiving income.
Nobody disputes that trusts have legitimate purposes, including succession planning, asset protection and the operation of family businesses. Not everyone using a trust is trying to avoid a tax, but recognising those legitimate purposes does not require preserving every tax advantage. Tasmanian economist Saul Eslake supports reforming discretionary trusts even though he operates his own business through one and expects to be affected.
He called it the right thing to do. He also raised concerns about the treatment of startups, and that is a serious contribution—support the objective but then seek to improve the design. The reforms would introduce a minimum 30 per cent tax on discretionary trust income from July 2028 with important exclusions.
Primary production income is excluded, meaning a fixed trust, charitable trust, special disability trust or superannuation fund. This motion invokes farmers while neglecting to mention the exclusion of primary production income, a significant omission. And what about the headline figure of $13 billion in restructuring costs?
It's a large number and deserves scrutiny, and it doesn't become inevitable just because Senator McGrath puts it in a motion. Trusts can elect to make fixed distributions and be exempt from the minimum tax without restructuring. Expanded rollover relief will also be available for those who choose to restructure.
Advice costs matter and so does getting the transition right. We should listen to small business, test the details and fix practical problems. But we can refine the edges of this legislation without hollowing out its core.
The opposition says the reforms punish the people who take risks and create jobs, but genuine enterprise deserves better than being confused with the ability to arrange a smaller tax bill. Australians who earn their living from wages also work hard, take risks and contribute to our prosperity. They deserve a tax system that treats them fairly.
The Howard government recognised distortions. The Asprey review did. The coalition's own 2015 paper acknowledged it.
The government is acting. I oppose this motion.