Australia New Zealand Food Authority Amendment Bill 1999

Introduction

The Committee dealt with this bill in Alert Digest No. 6 of 1999, in which it made various comments. The Parliamentary Secretary to the Minister for Health and Aged Care has responded to those comments in a letter dated 20 June 1999. A copy of the letter is attached to this report. An extract from the Alert Digest and relevant parts of the Parliamentary Secretary's response are discussed below.

Extract from Alert Digest No. 6 of 1999

This bill was introduced into the Senate on 31 March 1999 by the Parliamentary Secretary to the Minister for Communications, Information Technology and the Arts. [Portfolio responsibility: Health and Aged Care]

The bill proposes to amend the Australia New Zealand Food Authority Act 1991 to:

• create objectives for the Act to clarify the role, functions and regulatory objectives of the Australia New Zealand Food Authority;
• enable the Authority to tailor consultation processes, allocate more resources where there are significant concerns and streamline processes for minor issues;
• allow effective implementation and enforceability of the new food safety standards and permit the restriction of sale and advertising of foods where necessary to protect public health;
• enable the Authority to prioritise and direct resources to its agreed work program and to the food standards matters which are of major public interest; and
• enable the Authority to charge for certain applications which are outside the work program.

Retrospective application

Subclause 2(2) and Schedule 1, item 13

Item 13 of Schedule 1 to the bill inserts a provision which “enables standards to relate to particular brands of food in addition to a type of food generally”. By virtue of subclause 2(2), this item is to commence retrospectively on 30 July 1998. The Explanatory Memorandum simply observes that this commencement date has been chosen to ensure that “existing standards are enforceable”. This would seem to suggest that there is doubt as to the enforceability of standards made by the Australia New Zealand Food Authority since that date. The Committee, therefore, seeks the Minister's advice on the status and enforceability of standards issued by the Food Authority since 30 July 1998, and on whether the retrospective commencement of this provision will adversely affect any person.

Pending the Minister's advice, the Committee draws Senators' attention to the provision, as it may be considered to trespass unduly on personal rights and liberties, in breach of principle 1(a)(i) of the Committee's terms of reference.

Relevant extract from the response from the Parliamentary Secretary

As Parliamentary Secretary with executive responsibility for the Australia New Zealand Food Authority (ANZFA), I am responding on behalf of the Government. I apologise for the delay in responding.

The comments raise two concerns:

Subclause 2(2) of the Bill provides for the retrospective application of Item 13 of Schedule 1 in order to ensure that existing standards are enforceable. The Committee has asked the Minister to advise on the status and enforceability of standards issued by ANZFA since 30 July 1998.

All standards issued by ANZFA since July 1998 are enforceable. A possible exception is the health claims standard.

Prior to the health claims standard, the making of health claims in relation to food was illegal because the Food Standards Code expressly prohibited such claims. The revised health claims standard establishes a pilot system for regulating health claims on particular brands of food products.

Advice from the Australian Government Solicitor has indicated that the pilot health claims standard implemented in 1998 might be found to be partly invalid if challenged in a court. This advice is based on an interpretation that section 9 of the Australia New Zealand Food Authority Act 1991, which provides what matters may be included in standards, may not allow the making of standards in relation to specific brands of food.

Item 13 of Schedule 1 of the Bill is designed to rectify this by providing that standards can be made in relation to a particular brand of food. Making Item 13 retrospective will overcome any potential difficulties. The standard permits over 100 food products to carry a specified health claim in relation to folate. These foods might be found to be illegal if their status were challenged in a court. Retrospectivity will ensure that those foods have been legal since their release.

This permission is part of a trial of a health claim regime to help establish the feasibility of allowing health claims on foods and to test a particular set of administrative arrangements. Folate was chosen for this purpose because of the need to encourage periconceptional women to eat appropriate amounts of it in order to reduce the probability of their babies suffering from spina bifida or other neural tube defects. Therefore, there are strong health and social reasons for ensuring that such products are able to remain on the market lawfully.

The Committee also draws Senators' attention to the provision in so far as it may be considered to trespass unduly on personal rights and liberties.

Retrospectivity will have only a limited effect and will not detrimentally affect anyone, in particular it will not trespass unduly on personal rights and freedoms. Rather, the opposite is true. Retrospectivity will ensure the legality of over 100 food products that have been permitted to carry a health claim in relation to folate prior to the passing of the Bill. This will benefit the manufacturers and sellers of those foods and help ensure continued availability to consumers of food label information to allow them to identify folate-rich products.

Thank you for the opportunity to respond to the Committee's comments.

The Committee thanks the Parliamentary Secretary for this response which clarifies the issue.

Health Insurance Amendment (Professional Services Review) Bill 1999

Introduction

The Committee dealt with this bill in Alert Digest No. 9 of 1999, in which it made various comments. The Minister for Health and Aged Care has responded to those comments in a letter dated 29 June 1999. A copy of the letter is attached to this report. An extract from the Alert Digest and relevant parts of the Minister's response are discussed below.

Extract from Alert Digest No. 9 of 1999

This bill was introduced into the House of Representatives on 2 June 1999 by the Minister for Health and Aged Care. [Portfolio responsibility: Health and Aged Care]

The bill proposes to amend the Health Insurance Act 1973 to implement changes to the Professional Services Review (PSR) Scheme as a result of a review of the Scheme. The PSR Scheme provides for a system of peer review to determine whether a practitioner has inappropriately rendered or initiated services which attract a Medicare benefit, or has inappropriately prescribed under the Pharmaceutical Benefits Scheme, and to apply sanctions to those who practise inappropriately.

Abrogating the right to silence and patient privacy

Proposed new section 106ZPQ

Among other things, this bill proposes to insert a new section 106ZPQ in the Health Insurance Act 1973. This provision states that a person must produce documents for inspection even though those documents may tend to incriminate that person. The Explanatory Memorandum states that this section “mirrors subsection 105A(6) of the current Act”.

Under proposed section 89B and 105A, the documents to be produced may include clinical or practice records of services rendered not only by the person under review, but also by practitioners employed by that person, or by practitioners employed by a body corporate of which the person under review is an officer. These documents must be produced to a Committee member or his or her nominee (mirroring the existing legislation) and also to the Director or his or her nominee.

Proposed new section 106ZPQ goes on to limit the use that may be made of any documents or information produced. Under proposed subsection 106ZPQ(2) such documents or information are not admissible against the person producing them in civil or criminal proceedings (other than proceedings for providing false or misleading information, or proceedings before a Committee or the Determining Authority).

The Committee notes that proposed new section 106ZPQ attempts to strike a balance between the need to obtain information and the need to protect rights. However, some aspects of its operation remain unclear. Therefore, the Committee seeks the Minister's advice on the following matters:

• how any incriminating documents or information might be used against a person under investigation in proceedings before a Committee or Determining Authority;
• whether “a person” nominated by a Committee member or the Director to receive confidential documents will be required to hold any particular position or possess any special qualifications;
• in requiring the production of patient records, how the bill proposes to protect the doctor/patient relationship, which is founded on confidence and is necessary for appropriate treatment; and
• in requiring the production of patient records, how the bill proposes to protect the privacy of patients.

Pending the Minister's advice, the Committee draws Senators' attention to the provision, as it may be considered to trespass unduly on personal rights and liberties, in breach of principle 1(a)(i) of the Committee's terms of reference.

Relevant extract from the response from the Minister

I note the preliminary observation in the Committee's Alert Digest 9/99 that the proposed new section 106ZPQ of the Bill may 'be considered to trespass unduly on personal rights and liberties, in breach of principle 1(a)(i) of the Committee's terms of reference'.

I believe the amendments contained in the Bill in no way breach these principles. The Committee has sought advice on four matters.

How any incriminating documents or information might be used against a person under investigation in proceedings before a Committee or Determining Authority

The new section 106ZPQ of the Bill makes explicit that any documents or information obtained during a PSR process are not admissible in evidence against the person under review in either criminal or civil proceedings, other than criminal proceedings for an offence against section 106ZPP, or any civil proceedings before a Committee or Determining Authority.

The insertion of a new section 106ZPQ is consistent with provisions which already existed in the Health Insurance Act 1973 (the Act), specifically subsections 106E(3) and (4) which relate to the use of evidence given by the person under review during the Committee hearing. It does not infringe to any greater degree on the personal rights and liberties than currently provided in the Act under the PSR Scheme.

It needs to be highlighted that the PSR process involves an inquiry into the professional conduct of a practitioner by a committee of peers. It is not concerned with possible criminal conduct as an objective.

In determining whether a practitioner's professional conduct was inappropriate, a committee must have regard to all relevant matters. Any documents or information furnished as part of the investigation by the Director, or during the Committee proceeding, may well be relevant matters. However, there are a range of other considerations including data from the Health Insurance Commission, the evidence given during the Committee hearing, and any submissions received from the person under review. It is unlikely that documents provided by the person under review would prove inappropriate practice by themselves.

• Whether "a person" nominated by a Committee member or the Director to receive confidential documents will be required to hold any particular position or possess any special qualifications;
• In requiring the production of patient records, how the bill proposes to protect the doctor/patient relationship, which is founded on confidence and is necessary for appropriate treatment; and
• In requiring the production of patient records, how the bill proposes to protect the privacy of patients.

Subsection 83(1) of the current Act requires that the Director of PSR must be a medical practitioner. The Director may engage staff to assist in the performance of his or her duties. The existing secrecy provisions in section 130 of the Act, and the relevant non-disclosure provisions in the Crimes Act 1903 apply to the Director, and any staff he or she engages (including committee members). Section 106ZR of the Act requires the non-disclosure of Committee deliberations. Subsection 95(4) of the Act specifies that a PSR committee must comprise practitioners who belong to the profession in which the practitioner was practising when he or she rendered or initiated the referred services. This means, if the person under review is a medical practitioner, then the committee of peers will also be medical practitioners. Subsection 98(3) of the Act currently provides for the proceedings of the Committee to be held in private.

In addition to the non-disclosure provisions in the Acts referred to above, the major participants in the peer review process are medical practitioners who are acutely aware of the need for confidentiality and protecting the doctor/patient relationship.

I hope this has clarified the intended operation of the new section 106ZPQ and addressed the concerns of the Committee.

The Committee thanks the Minister for this response which addresses most of its concerns.

The Committee notes that, under proposed paragraphs 89B(2)(c) and 105A(2)(c), documents must be produced to “a person” nominated by the Director or a Committee member. While members of staff are clearly within this definition, it seems that it may extend more widely, to include any person at all. It is in this context that the Committee sought advice on whether the definition ought be limited to the holders of particular positions, or nominees who possess special qualifications. The Committee would, therefore, appreciate the Minister's further advice on whether the class of people covered by this definition is too wide.

Taxation Laws Amendment Bill (No. 2) 1999

(previous citation: Taxation Laws Amendment Bill (No. 4) 1998)

Introduction

The Committee dealt with this bill in Alert Digest No. 1 of 1999, in which it made various comments. The Assistant Treasurer responded to those comments in two letters dated 6 April 1999 and a separate letter received on 22 March 1999. In its Sixth Report of 1999, the Committee sought further advice regarding an issue raised by Solicitors Mallesons Stephen Jaques. The Assistant Treasurer has further responded in a letter dated 22 June 1999. A copy of the letter is attached to this report. Extracts from Alert Digest No. 1 of 1999 and the Sixth Report of 1999, together with relevant parts of the Assistant Treasurer's response are discussed below.

Extract from Alert Digest No. 1 of 1999

This bill was introduced into the House of Representatives on 3 December 1998 by the Minister for Financial Services and Regulation. [Portfolio responsibility: Treasury] The bill was first introduced into Parliament on 2 July 1998 as Schedule 3 to the Taxation Laws Amendment Bill (No 5) 1998, but lapsed when Parliament was prorogued for the election.

The bill proposes to amend the following Acts:

Income Tax Assessment Act 1936 to:

• widen the interest withholding tax (IWT) exemption provided by removing, for debentures issued by companies, the present requirements that they be issued outside Australia and that the interest be paid outside Australia;
• allow the issue of debentures or interests in debentures to Australia residents and allow the IWT exemption;
• extend the definition of company to include a company acting in the capacity of a resident trustee, provided the trust is not a charitable trust and the beneficiaries of the trust are companies;
• make a consequential amendment relating to the issue of bearer debentures to residents operating a business offshore;
• extend the range of entities eligible to register as offshore banking units;
• provide a tax exemption for income and capital gains of overseas charitable institutions managed by an offshore banking unit;
• extend the range of eligible offshore banking unit activities;
• remove an anti-avoidance measure preventing Australia being used as a conduit to channel loans to other countries;
• reduce the capital gains tax liability where non-residents dispose of interests in offshore banking unit offshore investment trusts;
• provide a foreign tax credit for foreign tax paid by Australian resident offshore banking units regardless of whether a double tax agreement applies;
• remove the requirement that offshore banking units maintain separate nostro and vostro accounts for transactions;
• reduce the rate of offshore banking unit withholding penalty tax for breaches of the IWT concession from 300 per cent to 75 per cent;
• enable Australian subsidiaries of a foreign bank to raise certain ITW exempt funds and on-lend those funds to a related Australian branch without affecting the subsidiary's thin capitalisation position;
• provide an exemption from the foreign investment fund (FIF) measures for interests in certain US;
• change the calculation method in FIF measures; and
• make consequential amendments to provisions relating to taxing trusts;
• require that the forgiven amount of a debt be applied, where relevant, to reduce unrecouped net capital losses in respect of all years of income before the forgiveness year of income, rather than the immediately preceding year of income;
• require that where a taxpayer incurs a net capital loss in a year of income earlier than the forgiveness year of income, and the loss is reduced by the operation of the debt forgiveness provisions, the loss will also be reduced for the purposes of the capital gains tax provisions;
• prevent franking credit trading and misuse of the intercorporate dividend rebate by denying the franking benefit or intercorporate dividend rate from a dividend where the taxpayer does not satisfy certain rules;
• limit the source of franking credits available for trading by introducing a new rule; and
• prevent franking credit trading and misuse of the intercorporate dividend rebate by denying the franking benefit or intercorporate dividend rate from a trust or partnership distribution attributable to a dividend where the distribution is equivalent to interest;

Income Tax Assessment Act 1997 to:

• set a common base for the depreciation deductions for plant that can be claimed by exempt entities which become taxable and by taxable entities which purchase plant from an exempt entity in connection with the acquisition of a business; and
• allow deductions for gifts of $2 or more made to the Menzies Research Centre Public Fund.

Extract from Sixth Report of 1999

The Committee notes that, along with a number of other organisations, it has received some additional correspondence on this bill from Mallesons Stephen Jaques, which it has made available to the Assistant Treasurer's office. The Committee looks forward to the Assistant Treasurer's further advice on this correspondence in due course.

Extract from letter from Mallesons Stephen Jacques

Executive Summary

Some aspects of the franking credit amendments proposed in Schedule 4 of Taxation Laws Amendment Bill (No. 4) 1998 (“TLAB No. 4 1998”) are unfairly retrospective, in that they:

1. have a material adverse penal impact on ordinary prudent investors; and
2. operate from 13 May 1997 but were not foreshadowed in the original or any subsequent Government announcement, prior to the release of the draft amendments on 3 July 1998.

Reasons

The amendments are designed to implement a 1997 Budget Press Release (Press Release No. 47 of 1997, 13 May 1997) (“May 1997 Press Release”).

The amendments were not released until 3 July 1998 (in the now lapsed Taxation Laws Amendment Bill No. 5 1998) almost 14 months after the May 1997 Press Release. Following the 1998 election, the provisions were reintroduced in TLAB No. 4 1998.

The Government currently intends that a significant component of those provisions will apply from 13 May 1997.

Unfortunately, some of the draft legislation goes well beyond what the May 1997 Press Release had indicated or what any investor could reasonably have foreseen even from the wide terms of the announcement. And the draft legislation has a penal impact on ordinary transactions implemented by ordinary prudent investors in the period from 13 May 1997 to 3 July 1998.

The relevant provisions potentially impact all Australian resident investors (individuals, companies, trusts and partnerships) who have invested in Australian shares if they have reduced their risk of holding such shares by commonplace hedging strategies. This is so even though the investor acquired their shares before 13 May 1997. Such retrospectivity is not justified.

Because of this retrospectivity, we respectfully suggest that fairness dictates that the commencement date of those particular provisions be moved from 13 May 1997 to 3 July 1998.

In our opinion, the Government, the Treasury and the ATO have not satisfied the very heavy burden of proof that such penal retrospectivity is justified. The retrospectivity involves specific provisions which were not foreshadowed in any previous Government or ATO announcement or statement but which have a penal impact on commonplace transactions (as distinct from blatant tax avoidance or artificial transactions) entered into by ordinary prudent investors.

Relevant extract from the response from the Assistant Treasurer

The Committee seeks further advice in response to issues raised by Mallesons Stephens Jacques (Mallesons).

In their letter of 12 March 1999 Mallesons sought a change to the date of effect for the related payments rule, an anti-franking credit trading measure set out in Schedule 4 of the Bill. They requested that the operation of the related payments rule in relation to notional payments be changed to 3 July 1998, when draft legislation was introduced into Parliament. I understood that their concern is with the effect of the related payments rule on Share Price Index (SPI) futures, which they argue was not adequately described in the relevant Press Release. The amendments sought would have the effect of excluding SPI futures from the operation of the related payments rule until 3 July 1998.

The Government has decided to move an amendment to the Bill in the Senate to postpone the date of effect of the related payments rule as it relates to Share Price Index (SPI) futures to 2 July 1998, when draft legislation was first introduced into the Parliament (in Taxation Laws Amendment Bill (No. 5) 1998). Apart from this change, the Government proposes that the related payments rule should apply from 13 May 1997.

The related payments rule denies franking benefits where a taxpayer eliminates risk in respect of shares and makes a payment equivalent to the dividend paid on those shares (the `related payment') to another person. `Related payment' is broadly defined to include notional payments, for example, where the equivalent of a dividend is deducted from another amount, and not actually paid to the person.

One kind of security to which the related payments rule will apply is SPI futures. A SPI future is a derivative which is commonly used to hedge baskets of shares corresponding with the shares in the All Ordinaries Index. In calculating the amount payable under a SPI future, an amount equivalent to the dividends on the shares in the All Ordinaries Index is passed from the seller to the buyer.

Accordingly, a person who holds a basket of shares corresponding with the All Ordinaries Index, and sells SPI futures, eliminates risk in respect of the shares and passes the equivalent of the dividends to the buyer of the SPI future; thus he fails the related payment rule and loses franking benefits on dividends paid on the shares.

You will appreciate that every effort is made to ensure that Press Releases concerning changes to the tax law state the proposed changes clearly, accurately and completely. However, it is not possible for a Press Release to specify all the consequences for taxpayers of changes to the law and instead, general statements of principle supported by examples are provided.

While the Treasurer's Press Release No. 47 of 13 May 1997 did not expressly refer to the effect of the related payments rule on SPI futures, I think it was apparent from the general principles expressed in the Press Release what that effect would be. Following consultations with the Australian Stock Exchange, it was subsequently announced in the Treasurer's Press Release No. 89 of 11 August 1997 that taxpayers using the institutional carve-out would be exempt from the related payments rule for related payments under SPI futures. Although this later Press Release did not expressly state that SPI futures would otherwise be subject to the related payments rule, again I believe that this conclusion was readily apparent.

The Government is not aware of any taxpayers other than Mallesons' clients who did not appreciate the effect of the related payments rule on SPI futures.

However, there was a significant delay in this case between the announcement of the measure and introduction of the Bill into the Parliament, which may have contributed to Mallesons' clients' problems. Therefore, the Government has decided to postpone the application of the related payments rule in relation to SPI futures.

The Committee thanks the Assistant Treasurer for this response and for the amendment relating to the application of the related payments rule in relation to Share Price Index futures.

Barney Cooney

Chairman