Jim Chalmers will have discretion to choose which assets keep CGT discounts and whether a home counts as a “new build” into the future, amid accusations the sweeping powers that allow the Treasurer to decide key elements of Labor’s tax package throw up unacceptable uncertainty.
Legal and accounting professionals have blasted Dr Chalmers for including a record number of “ministerial discretions” on the most consequential tax legislation in decades, criticising the government for including the powers because the rushed changes were not yet properly thought through.
The surprisingly high level of ministerial discretion in the bill, which is being scrutinised by a parliamentary inquiry due to report on June 22, gives the Treasurer unique powers to change the types of assets and individuals affected by the tax changes after the legislation is passed.
Labor is seeking to remove the 50 per cent capital gains tax discount in favour of an inflation-indexed discount, as well as introduce a minimum 30 per cent CGT, while banning negative gearing for new investors into existing property. Together with changes to trusts, which will be covered in legislation due to be introduced at a later date, the government is expected to reap more than $80bn from the changes.
CPA Australia’s tax policy lead Jenny Wong said she had counted a record nine ministerial determinations in the draft legislation, which indicated the tax package had been rushed. “I have never seen this many determinations in one bill and that’s before we get to trusts, which shows that this has been rushed,” Ms Wong said.
“And given ministerial determinations don’t go through the same scrutiny, this leaves the door open for further changes and that means less certainty.”
Eight of the discretionary measures relating to taxes on investment include the definition of a new dwelling, the application of the apportionment method, the additional CGT asset classes for 50 per cent discount, income support payment exemptions from the minimum CGT and a host of other quarantining and other housing definitions. The ninth related to the working Australians tax offset.
Asked whether he was giving himself power to make the discretionary changes, Dr Chalmers said on Monday the legislation would be determined in the usual way. “It’s set out in the legislation. It’s not unusual for there to be different parts,” the Treasurer said.
Among leading tax partners there was frustration at the amount of ministerial discretion.
K&L Gates tax partner Stuart Broadfoot said it indicated the changes were rushed. “There’s a lot of ministerial discretion and I think what that is symptomatic of is the much broader problem, which is they were not ready with the legislation, and not ready with the details, and they are trying to essentially ram through a system of legislation that hasn’t had the required thought,” he said. “The government has said it is still considering how this is all going to interact with a whole bunch of other complex legislative bits of the regime and so you put all of that together and you say, ‘well it’s half baked, it’s not ready for publication’. The reason they put in such a broad sort of terms and left it to ministers to decide in the future what the appropriate definition is, is because they’re not ready, and the legislation’s not ready, and they’re trying to ram it through. I assume they have the political space to do it now, and they’re worried that if they wait then they won’t have the space.”
Barrister John de Wijn KC said tax legislation should be certain not dependent on a minister’s discretion. “It shouldn’t be left to minister discretion to work out how it’s going to be applied,” he said. “That’s just fundamentally unfair and the less certain the tax system is the less people will want to invest. I think this just shows that things haven’t been properly thought through. How they treat exemptions or special treatment at the edges will also distort economic behaviour.
Corrs Chambers Westgarth tax partner Rhys Jewell said the lack of clarity in how the tax changes would interact with other parts of the system showed that the legislation was rushed and needed ministerial discretion to complete the changes later.
“I think we are actually left in what is a quite unsatisfactory position,” Mr Jewell said. “There are areas where it is proposed to be settled at a later date by introducing concepts under a legislative instrument that is made by the relevant minister at a future point in time. While there might be an opportunity for either house to move a motion to disallow that instrument, I cannot recall an instance where that has happened. I suspect it’s because legislative instruments seem to have far less public scrutiny than a bill to parliament would.
“Ideally all of that work regarding the interaction with other areas of the tax law would have been worked through before this bill gets introduced, so as to ensure that they operate as they are intended and don’t produce any unintended consequences.”
Key among the concerns for Mr Jewell were whether assets might still be eligible for the 50 per cent CGT discount and negative gearing after changes took effect.
Matthew CranstonEconomics Correspondent