Senate

Second Reading Speech

Campbell, Sen Ian (LP, WA, Government)

I table revised explanatory memoranda relating to the Financial Sector Reform (Amendments and Transitional Provisions) Bill (No. 2) 1999 and the Taxation Laws Amendment Bill (No. 8) 1999 and move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard.

Leave granted.

The speeches read as follows-

FINANCIAL SECTOR REFORM (AMENDMENTS AND TRANSITIONAL PROVISIONS) BILL (No. 2 ) 1999

I rise today to introduce a bill that represents further refinement of financial system regulatory reform initiated in response to the Final Report of the Financial System Inquiry, chaired by Stan Wallis.

Honourable senators will be aware that last year the Treasurer introduced into Parliament a package of legislation to complete the first stage of the Government's financial sector reform program. These reforms introduced a new organisational framework for the regulation of the financial system from 1 July 1998, and a variety of measures to improve the efficiency and contestability in financial markets and the payments system.

The second stage of reforms transfers regulatory responsibility for State and Territory based financial institutions to the Commonwealth. I presented legislation providing for the transfer on 11 March this year. These bills passed through the Parliament in May and received Royal Assent on 17 June 1999.

I now introduce a bill with a number of miscellaneous additional amendments and transitional provisions that continue the reform process and help enhance the operation of existing financial sector legislation.

The more significant amendments will:

bring the superannuation legislation up to date for the electronic age;

clarify the availability of financial assistance to superannuation funds in cases of fraud;

allow certain foreign deposit-taking institutions more time to consider the future structure of their operations in Australia without incurring taxes, fees and charges;

better protect members of deposit-taking mutuals in the event of a proposed demutualisation; and

include amendments which assist the functioning of the Reserve Bank of Australia.

I also propose to remove Part IV of the Financial Corporations Act 1974, which provided the Government with powers to regulate registered financial corporations but was never proclaimed.

Madam President, over the last eighteen months or more the power and importance of the financial sector in the world economy has been fully recognised. Countries all over the world have been given good cause to reconsider the effectiveness of their financial sector regulatory framework.

In Australia our regulatory system has proven to be efficient and robust.

The main package of financial sector reforms already introduced by the Government helped to establish a forward looking, flexible and sophisticated regulatory regime. Today's package of amendments and transitional provisions, while modest in the context of the overall reform process, are important in refining and developing the regulatory framework and elevating it towards `world's best practice'.

These reforms will update, enhance and streamline Australia's existing financial sector regulatory procedures and operations.

They further assist the development of the financial sector as a key driver in the economy that is strongly contributing to our record economic growth. They help consolidate Australia's position at the leading edge of financial sector reform, and finally, they contribute to our continued efforts to secure Australia's place as a centre for global financial services.

I will now turn to the bill in more detail.

Amendment to the Australian Prudential Regulation Authority Act 1998

The bill amends the Australian Prudential Regulation Authority Act 1998 to exempt APRA from paying sales tax on the goods it purchases. This is consistent with the Government's intention when this legislation was originally passed. In addition, the bill proposes some largely technical amendments to the secrecy provisions of the APRA Act to enable them to operate more effectively.

Amendments to the Banking Act 1959

In response to requests from industry, the bill amends section 63 of the Banking Act 1959 to enable the Treasurer to issue disclosure guidelines to ensure that all authorised deposit-taking institutions (ADI) seeking to demutualise give proper regard to members' interests, and disclose adequate information for members to make an informed decision. As ASIC is currently responsible for assessing demutualisations by ADIs that transferred to Commonwealth supervision, these amendments enable the Treasurer to delegate his powers, regarding demutualisations falling within the scope of the Banking Act 1959, to ASIC.

Amendments to the Financial Corporations Act 1974

The bill amends the Financial Corporations Act 1974 to reduce compliance costs on business, ensures the information collection provisions are more flexible, and removes superseded provisions. In addition the proposed amendments will enable the Reserve Bank of Australia to delegate the majority of its functions under the act to APRA, the Australian Statistician, a staff member of APRA, or the Australian Bureau of Statistics.

Amendments to the Financial Corporations (Transfer of Assets and Liabilities) Act 1993

The bill amends the Financial Corporations (Transfer of Assets and Liabilities) Act 1993. It will extend the deadline for foreign ADIs operating in Australia since 18 June 1993 to obtain a banking authority until 30 June 2000, in order for them to be eligible for concessional tax treatment for transferring assets and liabilities. This will provide ADIs with more time to decide on the structure of their operations given the Government's tax reform package. In addition, the legislation will apply even if there has been a change in ownership of the foreign institution.

Amendment of the Financial Laws Amendment Act 1997

The bill amends the Financial Laws Amendment Act 1997 to correct an error in the definition of newly established foreign banks, and makes the necessary consequential amendments.

Amendment to the Life Insurance Act 1995

The bill will amend the Life Insurance Act 1995 to expand the requirements for the assignment of an interest in an approved benefit fund of a friendly society. This will bring the requirements for assignment into line with those of the Friendly Societies Code.

Amendment of the Reserve Bank Act 1959

The bill amends the Reserve Bank Act 1959 to extend the conflict of interest provisions to all ADIs rather than just banks when considering eligibility for Reserve Bank Board membership.

Amendment of Superannuation Legislation relating to Financial Assistance to Funds

The bill amends certain superannuation legislation to clarify the circumstances in which funds, which suffer losses due to fraud or theft, will be eligible to apply for a grant of financial assistance.

Amendment of the Superannuation Industry (Supervision) Act 1993

The bill amends the Superannuation Industry (Supervision) Act 1993 to extend the range of material and information required under the act that may be submitted in electronic form. Consequential amendments are also being made to the act to improve the efficiency of arrangements for the lodgment of information required under the act, including by electronic means. To complement these changes, additional amendments will apply to strengthen safeguards against misuse or fraud in relation to electronic lodgment, including penalty provisions and the removal of the requirement for a common or official seal on election notices.

I commend the bill to the Senate.

SUPERANNUATION SUPERVISORY LEVY DETERMINATION VALIDATION BILL 1999

This bill is complementary to the Authorised Non-operating Holding Companies Supervisory Levy Determination Validation Bill 1999.

I commend the bill to the Senate.

LIFE INSURANCE SUPERVISORY LEVY DETERMINATION VALIDATION BILL 1999

This bill is complementary to the Authorised Non-operating Holding Companies Supervisory Levy Determination Validation Bill 1999.

I commend the bill to the Senate.

AUTHORISED NON-OPERATING HOLDING COMPANIES SUPERVISORY LEVY DETERMINATION VALIDATION BILL 1999

I am introducing a package of bills to validate a series of determinations made by the Treasurer. These determinations relate to levies imposed on certain industries within the financial sector.

Subsection 48(2) of the Acts Interpretation Act 1901 provides that determinations have no effect if they are due to take effect before the date of notification. In this case, the determinations were to take effect from 1 July 1998, but did not appear in the Gazette until 13 August 1998.

That said, there is some ambiguity as to whether these determinations do impose a retrospective requirement as levy payments were in practice not payable until at least 1 October 1998. However, on balance, there is sufficient uncertainty to warrant legislation to ensure that these determinations are valid.

As the determinations relate to the imposition of taxation they require separate validating legislation for each determination.

I commend the bill to the Senate.

GENERAL INSURANCE SUPERVISORY LEVY DETERMINATION VALIDATION BILL 1999

This bill is complementary to the Authorised Non-operating Holding Companies Supervisory Levy Determination Validation Bill 1999.

I commend the bill to the Senate.

RETIREMENT SAVINGS ACCOUNT PROVIDERS SUPERVISORY LEVY DETERMINATION VALIDATION BILL 1999

This bill is complementary to the Authorised Non-operating Holding Companies Supervisory Levy Determination Validation Bill 1999.

I commend the bill to the Senate.

TAXATION LAWS AMENDMENT BILL (No. 8) 1999

This bill makes amendments to the income tax law and other laws to give effect to the following measures:

CFCs and capital gains tax

The bill will amend the controlled foreign company (CFC) rules in the Income Tax Assessment Act 1936 to give effect to the Treasurer's announcement in the 1997-98 Budget to rectify a number of anomalies in the interaction of the CFC measures and the capital gains tax (CGT) provisions. These amendments ensure that capital gains made on tainted assets, deemed to be disposed of after the amendment of the measures on 13 May 1997 when a company leaves a wholly-owned company group, are included in the attributable income of the Australian resident controllers.

The amendments also enable those tainted capital gains to be taken into account when applying the active income test. In addition, the amendments will prevent taxpayers deliberately avoiding taxation of those capital gains by using schemes or arrangements intended to dilute the Australian taxpayer's attribution percentage in the CFC holding tainted assets that have previously received CGT roll-over relief.

Amendments to exempt certain post-judgment interest

This bill will amend the income tax law to exempt post-judgment interest in personal injury compensation cases from income tax, where the interest accrues from the time a judgment debt arises until all avenues of appeal have been exhausted. The amendments will apply from the 1992-1993 year of income. This will allow taxpayers who have already paid tax on post-judgment interest in recent years to obtain a refund.

Franking of dividends

The bill will amend the Income Tax Assessment Act 1936 to make a number of corrections to the franking credit trading and dividend streaming rules. These changes will apply from the commencement of the measures.

Non-deductibility of bribes

This bill amends the income tax law to deny tax deductions for bribes paid to foreign public officials. The Government is introducing this measure to support global moves to discourage bribery in international business transactions. The amendments are in response to the recommendation by the Organisation for Economic Co-operation and Development that member countries deny tax deductibility for bribes made to foreign public officials. The amendments will apply to the 1999-2000 year of income and later years of income. The gain to the revenue from the amendments is estimated to be insignificant.

Philanthropy

The bill will provide taxation incentives for personal and corporate philanthropy in Australia.

These measures arise as a response to the report on philanthropy in Australia by the Business and Community Partnerships Working Group on Taxation Reform. The measures were announced on 26 March 1999 by the Prime Minister, the Treasurer and the Minister for Family and Community Services.

Rate of tax for friendly societies

In Tax Reform: not a new tax, a new tax system: The Howard Government's Plan for a New Tax System the Government announced changes to the taxation treatment of life insurers that are proposed to commence from the 2000-2001 income year. The details of the changes to the taxation of life insurers are being developed as part of the Review of Business Taxation.

As the law currently stands, the rate of tax on the eligible insurance business of friendly societies is scheduled to increase from 33 per cent to 39 per cent for the 1999-2000 and subsequent income years. However, pending the results of the Review of Business Taxation, this bill will retain the rate of tax for the eligible insurance business of friendly societies at 33 per cent for the 1999-2000 income year.

Company Law Review Amendments

The bill will amend the Income Tax Assessment Act 1936 and associated tax laws to ensure that distributions of share premium are within the ambit of certain anti-avoidance rules known as the capital streaming and dividend substitution rules. The bill also makes some minor technical and clarificatory changes to ensure that other provisions operate as intended.

The amendment to include distributions of share premium within the ambit of the anti-avoidance rules will apply from the date of introduction of this bill. The other amendments will apply from 1 July 1998, the date of commencement of Taxation Laws Amendment (Company Law Review) Act 1998

Technical amendments

There are minor technical amendments in the bill that improve the signposting to provisions in the income tax law dealing with excess tax offsets.

Concessional tracing rules for company loss

This bill gives effect to the Government's 1996-97 Budget announcement that the prior and current year loss, bad debt and debt/equity swap deduction rules for companies will be amended so that two concessional tracing rules that are available to trusts under the trust loss measures will also be available to companies. These amendments will apply to losses and debts incurred in the 1996-97 income year and later income years.

These rules were previously included in Taxation Laws Amendment Bill (No. 6) 1997 which was introduced into Parliament in October 1997 but lapsed because of the election.

Full details of the measures in this bill are contained in the explanatory memorandum.

Debate (on motion by Senator Denman ) adjourned.

Ordered that the Taxation Laws Amendment Bill (No. 8) 1999 be listed on the Notice Paper as a separate order of the day.