Additional Budget Estimates 2014–15
Report to the Senate
Introduction
1.1
On 12 February 2015, the Senate referred to the committee for
examination and report the following documents in relation to the Industry and
Science, and Treasury portfolios:
-
Particulars of proposed additional expenditure in respect of the
year ending on 30 June 2015 [Appropriation Bill (No. 3) 2014–2015];
and
-
Particulars of certain proposed additional expenditure in respect
of the year ending on 30 June 2015 [Appropriation Bill (No. 4) 2014–2015].
1.2
The committee is required to report to the Senate on its consideration
of 2014–15 Additional Budget Estimates (Additional Estimates) on Tuesday, 17 March 2015.[1]
Portfolio structures and outcomes
1.3
Following the Administrative Arrangements Order issued on 23 December 2014,
the Industry and Science portfolio was established. As a result of the Administrative
Arrangements Order, the former Industry portfolio's responsibility for
vocational education and skills policy and programs were transferred to the new
Department of Education and Training. Likewise, the former Industry portfolio's
small business programs were transferred to the Department of the Treasury.[2]
1.4
The Department of Industry and Science continues to have one outcome,
which is:
Enabling growth and productivity for globally competitive
industries through building skills and capability, supporting science and
innovation, encouraging investment and improving regulation.[3]
1.5
The complete structure and outcomes for each portfolio are summarised in
the appendices as indicated below:
-
Industry and Science (Appendices 3 and 4); and
-
Treasury (Appendices 5 and 6).
General comments
1.6
The committee conducted hearings over two days:
-
25 and 26 February 2015—Treasury
portfolio; and
-
26 February 2015—Industry
and Science portfolio.
1.7
In total, the committee met for 22 hours and 40 minutes, excluding
breaks.
1.8
The committee received evidence from the following ministers:
-
Senator the Hon. Mathias Cormann, the Minister for Finance,
representing the Treasurer;
-
Senator the Hon. Michael Ronaldson, Minister for Veterans'
Affairs, representing the Minister for Industry and Science;
-
Senator the Hon. Marise Payne, Minister for Human Services; and
-
Senator the Hon. Mitch Fifield, Assistant Minister for Social Services.
1.9
Evidence was also provided by:
-
Mr John Fraser, Secretary, Department of the Treasury;
-
Ms Glenys Beauchamp, Secretary, Department of Industry and
Science; and
-
officers from the Treasury and Industry and Science portfolios.
1.10
The committee thanks the ministers and officers who attended the
hearings for their assistance.
Questions on notice
1.11
The committee draws the attention of all departments and agencies
to the agreed deadline of Friday, 17 April 2015 for the receipt of answers to
questions taken on notice from this round, in accordance with Standing Order
26.
1.12
As the committee is required to report before responses to
questions are due, this report has been prepared without reference to any of
these responses. Indices of questions taken on notice during and after the hearings are
available at: http://www.aph.gov.au/Parliamentary_Business/Senate_Estimates/economicsctte/estimates/add1415/index.
1.13
Answers to questions taken on notice are tabled in the Senate. They may
be accessed from the committee's website.
1.14
For the 2014–15 Supplementary Budget Estimates round, answers to
questions on notice were due to be provided to the committee by Thursday, 12 December 2014
for the former Industry portfolio and Thursday, 19 December 2014
for the Treasury portfolio. The committee notes that:
-
The Industry and Science portfolio submitted all their answers
before the commencement of the 2014–15 Additional Estimates hearings, however
only 108 questions out of the total of 212 questions were answered by the
deadline set by the committee; and
-
Likewise for the Treasury portfolio—although all answers were
received prior to Additional Estimates, only 586 answers to 4,336 questions
placed on notice were answered by the due date. Nonetheless, this response was a
marked improvement on the previous additional estimates when answers remained
outstanding from previous estimates hearings up to the date the report was
tabled.
Public interest immunity claims
1.15
On 13 May 2009, the Senate passed an order relating to public interest
immunity claims.[4]
The order, moved by Senator Cormann, set out the processes to be followed if a
witness declined to answer a question. The full text of this order was provided
to departments and agencies prior to the hearings and was also incorporated in
the Chair's opening statements on both days of the Additional Estimates
hearings.
Record of proceedings
1.16
This report does not attempt to analyse the evidence presented over the
two days of hearings. However, it does include a brief list of the main issues
that were traversed by the committee for the respective portfolios.
1.17
Copies of the Hansard transcripts, documents tabled at the hearings, and
additional information received after the hearings (see Appendix 2 for a list
of the documents) are tabled in the Senate and available on the committee's
website.
1.18
Page numbers in brackets following the topics listed below refer to
Proof Hansard transcripts. Page numbers in the Official Hansard transcripts,
once they are produced, may differ from the page numbers in the Proofs.
Matters raised—Treasury Portfolio
1.19
On 25 and 26 February 2015, the committee examined the estimates for
the:
-
Treasury [Macroeconomic Group and Corporate Strategy and Services
Group];
-
Treasury [Fiscal Group] with the Clean Energy Finance Corporation
(CEFC);
-
Treasury [Markets Group];
-
Treasury [Revenue Group] with the Australian Taxation Office
(ATO);
-
Inspector-General of Taxation (IGT);
-
Australian Securities and Investments Commission (ASIC);
-
Commonwealth Grants Commission (CGC);
-
Productivity Commission (PC);
-
Australian Prudential Regulation Authority (APRA);
-
Australian Competition and Consumer Commission (ACCC); and
-
Australian Bureau of Statistics (ABS).
Treasury [Macroeconomic Group]
1.20
The new Secretary of the Department of the Treasury (the Treasury), Mr
John Fraser, opened with an introductory background in relation to his previous
work experience with the Treasury, IMF and UBS, both in Australia and overseas
in the United Kingdom and the United States.
1.21
The Secretary provided a summary of economic developments since the mid‑year economic and
fiscal outlook (MYEFO). At the international level, he explained:
[The] outlook for the global economy remains weak. The IMF
has once again downgraded its outlook for global growth and now expects growth
of about 3.5 per cent in 2015 and 3.7 per cent in 2016.
1.22
Mr Fraser elaborated:
...a better than expected outlook for the US economy combined
with the expansionary impacts of lower oil prices have not been sufficient to
offset the significant deterioration in the outlook for the euro area and,
importantly, China. Downside risks remain, including the threat of renewed
turbulence in Europe from the evolving situation with Greece and the very sad
ongoing geopolitical tensions. (pp. 5–6)
1.23
Against this international backdrop of uneven economic developments, the
Secretary singled out the US economy as a 'bright spot' which was performing
well across a range of indicators:
Output is becoming increasingly broad based, the labour
market continues to strengthen in the US and confidence has risen to high
levels. Accordingly, the US Federal Reserve has shifted its focus to the
normalisation of interest rates from the near zero levels.
1.24
This was in contrast to other parts of the world such as Europe, Japan
and China, where the economy was not as robust:
[T]he European Central Bank is about to embark on a large
quantitative easing program to support growth and address persistently weak
inflation. Similarly, the Bank of Japan continues to provide significant
monetary stimulus. The outlook for China's growth was downgraded at the
December 2014–15 mid–year economic and fiscal outlook
to reflect its ongoing transition to more moderate but sustainable growth.
Recent Chinese data support this revised outlook, although there are concerns
about the extent to which China's economy is slowing; this has seen the
authorities in China further ease monetary policy. (pp. 5–6)
1.25
Turning to the domestic economy, Mr Fraser explained economic growth was
expected to remain at below–trend
rates in the near term. And although the transition away from resources
investment to broader based sources of growth was occurring, it was occurring
at a slow pace and was constrained by weak domestic and global demand and weak
confidence. He further added that the outlook for non-mining business
investment was 'perhaps the greatest source of uncertainty, with firms
remaining reluctant to invest'. (p. 6)
1.26
On the positive side, Mr Fraser observed:
[T]he reduction in oil prices, the fall in the Australian
dollar over the past couple of months and the recent easing of monetary policy
should support consumption and demand, particularly in export-oriented and
import competing sectors. (p. 6)
1.27
Mr Fraser noted that the next ABS capex survey, which provides the first
estimates of firms' own investment intentions for 2015–16, would be a very
important element for putting together Treasury's forecasts in the lead-up to
the budget. (p. 6)
1.28
In relation to the residential property sector, the Secretary advised the
sector was experiencing strong growth, with authorities closely monitoring
investor activity, including the effectiveness of measures introduced by APRA
in December 2014 to limit risky lending practices. He noted further that despite
significant gains to household wealth, household consumption had been growing a
little below trend. (p. 6)
1.29
According to Mr Fraser, labour market developments and households'
confidence levels would be central to the outlook for consumption:
While the unemployment rate has been slowly trending higher
and job vacancy indicators continue to improve, ongoing subdued wage growth is
assisting adjustments in the labour market. With subdued wage growth and key
commodity prices, such as iron ore, coal and thermal coal, still under pressure
from high supply and subdued global demand, nominal GDP growth is expected to
remain weak. (p. 6)
1.30
The Secretary summarised recent economic developments as being broadly
consistent with the view presented at the mid-year economic and fiscal outlook
in December. Nonetheless, he cautioned that things could change in a volatile world
context and Treasury could not rule out changes to the economy in the near term
or, indeed, in the global economy. In his view, Treasury would be better placed
to renew its outlook when the national accounts for the December quarter were
released on 4 March 2015. (p. 6)
1.31
In relation to the potential for non-mining investment to fill the
previous boom in mining investment levels that were now slowing, Treasury
provided the following:
[T]he mining investment boom was really of an extraordinary
size compared with history. [Australia] went from mining investment of about
two per cent of GDP to nearly eight per cent of GDP. When [Treasury is]
thinking about the rebalancing of growth, one of the things that of course is
happening is that [the country is] moving from an investment phase within the
mining sector to a production phase. Part of the way in which the hole from a
reduction in mining investment will be filled is going to be from an increase
in the production from all of that investment. That is indeed happening. That
is certainly occurring.
[Treasury is] also forecasting, in the MYEFO forecast, a pick-up
in non-mining investment. That is in the order of one per cent of GDP, so it is
a smallish pick-up in non-mining investment. That is still a significant amount
of non-mining investment. But, just to be absolutely clear, [Treasury is]
certainly not expecting to get anything like the growth in non-mining
investment to offset the detraction in mining investment per se. When [Treasury
is] thinking about what the drivers are that will support non-mining investment,
I think you are absolutely right; the lower exchange rate would help. Lower oil
prices should also help in most of those sectors. And accommodating monetary
policy would also be assisting. (p. 19)
1.32
Other topics covered during the committee's examination of the Treasury
included:
-
the efficacy of Australia's fiscal stimulus during the GFC and
the work undertaken by Professor Makin and comparisons with other parts of the
world, such as the United States and Europe (pp. 9–11 and 34–35);
-
whether Treasury has conducted any modelling of the economic
impacts of Australia's free trade agreements (FTAs) (pp. 11–12);
-
the role of the Macroeconomic Group in relation to productivity
growth projections, projections for participation rates, and how the
information feeds into population projections which are the responsibility of
the Revenue Group (p. 12);
-
the medium term framework used in the Intergeneration Report
(IGR) consistent with the framework used for projections within the budget
context (p. 13);
-
change in methodology since the last IGR, its application in the
2014–15 budget and
the most recent MYEFO and the rationale for the change (pp. 12–13);
-
any effect of the change in methodology to projections around
unemployment (p. 13–14);
-
implications of the medium-term framework on assumptions for
growth, revenue, the structural deficit, unemployment and budget bottom line in
2017–18 (pp. 13–14);
-
any risk the country could lose its triple-A credit rating based
on some media commentary and the implications of that rating for state
governments and banks in relation to their reliance on the Commonwealth having
a strong credit rating for their easy access to capital markets (pp. 16–17);
-
tools available to address problems in pockets of the housing
market such as Sydney and Melbourne and its effects outside these pockets in
regional areas (pp. 20–21);
-
implications for real or nominal GDP growth and risks dependent
on what is happening overseas, particularly China, which is going through a
period of consolidation and dealing with issues of governance (p. 29);
-
youth unemployment, the performance of the youth labour market
and the factors which are contributing to the scale of youth unemployment
(p. 31);
-
the IGR and the looming issue of an ageing population which has
real implications for the country's revenue and expenditure (p. 35); and
-
corporate and personal taxes, World Bank's assessment of global
revenue leakage (pp. 35–36).
Treasury [Fiscal Group] and the
Clean Energy Finance Corporation (CEFC)
Clean Energy Finance Corporation
(CEFC)
1.33
The Chief Executive Officer of the Clean Energy Finance Corporation
(CEFC), Mr Oliver Yates, provided an update on CEFC's activities since the last
estimates appearance:
We are continuing with our activities, as you are aware, and
we are building a pipeline. The level of emissions in relation to the projects
that we actually finance, obviously, is quite dependent upon the projects that
we are likely to finance. At the moment we are seeing a change within that as
large renewable energy projects have been slowed down with the RET [renewable energy
target]. It is quite difficult for to us forecast with any precise terms the
exact amount that we would be able to contribute to the overall government's
objective to reduce greenhouse gas emissions, but I would be very happy to try
to forecast that for you in more detail as a question on notice, Senator, when
we look in more detail in relation to the outlook, and particularly if we know
the outcome from the RET review. (p. 37)
1.34
Mr Yates commented on the uncertainty surrounding the renewable energy
target (RET) as a significant portion of a project's revenue is made up of the
RET revenue:
Without certainty about the existence of that revenue going
forward there is a delay or a ceasing of new projects in the market at the
moment. The best information I can probably suggest for you to look at is
Bloomberg. They did a forecast of where we are today. They indicated that this
year there has been an 88 per cent reduction in projects. The amount of investment
within the large sector for renewable energy is about back to the same level it
was in 2002. We have gone back about 12 years, is where we are now, in terms of
the current investment that is occurring in large scale renewables, whilst the
market has no certainty of the outcome of the RET review. (p. 37)
1.35
Other main topics dealt with during the examination of the CEFC
included:
-
banks reluctant to lend on renewable projects unless they are
backed by a long-term power purchasing agreement (PPA), in contrast to projects
coming through in the short-term backed by the ACT government as it carries a
long-term energy contract (p. 37) ;
-
the government sector as an increasing sector within the CEFC's
portfolio, with 1.6 per cent of projects being council-related transactions,
such as street lighting, and further growth at the state government level.
(pp. 37–38);
-
the CEFC's dialogue with the department about ways funding activities
or the skills of the CEFC could complement direct action activities, including
CEFC's participation in a number of expert working groups to develop some of
the methodologies for the emissions reduction fund (ERF), organised by the
Department of the Environment (p. 38);
-
how the CEFC addresses market failure in new technologies where
banks are often reluctant to approve transactions if there has not been
experience in that technology in Australia (pp. 40–41);
-
CEFC lending, which is well above the government cost of funds
(CEFC at 6.6 per cent compared to around 3 per cent for the government),
generating $54 million in revenue with its portfolio of $1 billion worth
of assets, and with $30 million to cover its operating costs of around $20
million (p. 40);
-
the jobs profile of projects financed by the CEFC across the
country, from the waste energy project in Port Hedland, to a sugar refinery in Queensland,
and a large rare earths project in Dubbo (pp. 40–41); and
-
the processes and procedures which led to CEFC's decision to
provide $70 million in debt financing to Pacific Hydro for its Portland wind
energy project and its compliance with planning rules (pp. 42–43).
Fiscal Group
1.36
The main topics covered during the examination of the Fiscal Group
included:
-
the asset recycling initiative that is worth $5 billion and its
benefits
(p. 48);
-
advice from the Australian Government Solicitor on the legality
of direct payments to states post Williams (No. 1) and Williams (No. 2) that
could impact on the constitutionality of the asset recycling fund (pp. 51–52);
-
the use of the general equilibrium economic models of the economy
to generate the estimates of one percentage point added to GDP following the
federal government's additional infrastructure investment in excess of $125
billion, and whether the estimate depended on the scale of the investment (pp. 53–54);
-
work undertaken by Treasury in the previous 18 months in relation
to the optimal rate of tariffs (p. 55); and
-
any modelling undertaken by Treasury on jobs creation following
the abolition of the carbon price and the minerals resources rent tax, and any
updated work on actual household money saved (p. 56).
Treasury [Markets Group]
1.37
During Treasury's Markets Group appearance, the General Manager of Financial
System and Services Division, Ms Meghan Quinn, provided an update from the
previous estimates on the topic of unauthorised foreign insurers. Treasury
advised that they have had discussions with regulators—APRA and ASIC, over this
period. The Treasury officer explained that as the sector would be governed by
ASIC and by APRA:
ASIC regulates the insurance brokers and APRA regulates
authorised insurance companies in Australia. [...]
Insurance brokers are governed by ASIC and so, to the extent that this
change would allow people to get insurance from unauthorised insurers through
an insurance broker, the insurance broker network and the arrangements around
insurance brokers are regulated by ASIC. (p. 19)
1.38
The committee also examined the Treasury Markets Group on the following
topics:
-
communications with APRA about the impact of allowing unauthorised
foreign insurers into the market not governed by APRA and consequences for the authorised
insurance market (p. 19);
-
difference between an authorised foreign insurer and an
unauthorised foreign insurer and the usage of a broker to access an unauthorised
foreign insurer—the broker has to identify the circumstances in which an
unauthorised foreign insurer is to be issued in the domestic market (p. 20);
-
Treasury advice to government on issues of insurance, reinsurance
and pool insurance in North Queensland (pp. 21–22);
-
competitiveness in the banking sector, net interest margins, and
the need for banks to 'look harder to expand their balance sheets and
competition' in an environment where nominal GDP is more modest (p. 22);
-
a significant shift to deposit funding across the system and a
reduction in short-term debt funding post the global financial crisis, which
has continued until recently when it has flattened out (p. 22);
-
increase in banks' tier one capital ratios driven more by a
reduction in risk weightings on their home loan portfolios than on an increase
in the equity capital they are holding (p. 23);
-
new $10,000 fee for foreign purchases of investment properties
between $1 million and $2 million, and fees from large agribusinesses, estimated
to raise $200 million per year, and where the $200 million revenue will go (pp. 24–25);
-
consultation paper seeking feedback on an appropriate definition
of agribusiness, a $15 million threshold applying to agricultural land, and a
separate proposal related to the consultation paper which looks at a different
screening threshold of $55 million for agribusiness (pp. 27–29); and
-
independent valuation or assessment of a foreign investor's
holdings in agricultural land (p. 29).
Treasury [Revenue Group] with the
Australian Taxation Office (ATO)
Treasury [Revenue Group]
1.39
During the examination of the Treasury Revenue Group, the Deputy
Secretary, Mr Rob Heferen, updated the committee of the work undertaken by Treasury
at the international level to address the taxation of multinationals:
[T]here is a very detailed process going on sponsored by the
G20. The Group of 20, under Australia's presidency last year, is well into
working through a 15-point action plan provided by the OECD. A few years ago
the G20 recognised the issue of tax avoidance by multinational corporations,
particularly brought to attention by various practices of US IT multinational
firms. The G20 wanted the OECD to do some good hard work on this. The OECD has
responded with this comprehensive action plan. At the end of last year at the
finance ministers meeting and again in the leaders meeting in November the G20
endorsed a range of seven action items. They are still preliminary at the
moment and will be finalised along with the other eight action items throughout
this year.
...There is a range of work streams dealing with transfer
pricing issues where companies try to purport to have a big part of their value
actually in another country, whereas in reality the income is earned in country
A when they are trying to purport it to be country B...Issues around
deductibility for debt; if a company borrows money the interest payments are
deductible, and whether or not firms do too much of that. (p. 49)
1.40
In relation to IT-based companies, the Deputy Secretary noted:
...With more flexibility, particularly around the IT companies,
to be able to assert that the activity is actually taken in an overseas country
and the material is exported into the country where arguably the activity is
arguably taking place, a profit is made and ought to be taxed. (pp. 49–50)
1.41
According to Mr Heferen, there were two different issues which he
cautioned against conflating:
One is the vexed but genuine issue about whether there are
profits from multinational companies that in effect go untaxed, that is, they
are not taxed anywhere, because of the various interactions of different
countries' tax rules...To hear incredible news that certain companies might not
be [paying their taxes] poses a risk to the very strong theme of voluntary
compliance we have in our country that our system really needs.
[The other is] the domestic story, and I do note one of the
several submissions made to the committee by the tax office identified that
there used to be a number of high-risk companies in Australia that the ATO
would look at carefully, and now there is one. Obviously they cannot name that
company, but there is one. The consistent theme is that corporates in Australia
are limiting their risks and clearly deciding that the risk of playing too
aggressively with the tax system or trying to push the rules too far is a risk
that they should not carry. The observation is that they have not.
[O]n the domestic front. I think it is fair to say that all
the credible evidence that I have seen on this would suggest that our levels of
compliance are not perfect, of course, and no-one is suggesting they are, but
we are at the stage where the laws we have in place and the administration we
have in place has those risks under control and is dealing with those
appropriately. (pp. 49–50)
1.42
The committee also examined the following matters:
-
the number, names and amount paid to market research companies
for branding, website, market research, communication and polling services, and
whether Treasury ensured that it had met the campaign guidelines if the spend
amount was above $250,000 (pp. 45–49);
-
the wine equalisation tax (WET) rebate, also available to New
Zealand industry due to the two countries' closer economic relations agreement
(p. 63);
-
the Tax White Paper and the discussion paper, to be released
after the IGR (pp. 70–71);
and
-
discussions around the Financial Systems Inquiry and capital
gains tax discounts (p. 71).
Australian Taxation Office (ATO)
1.43
The Commissioner of Taxation, Mr Chris Jordan, opened the Australian
Taxation Office's (ATO) appearance by restating the ATO's commitment to the
OECD working groups and provided an overview of the ATO's collaborative work
overseas:
We are making a significant investment with senior people
supported by their teams to go to the groups and to make a really positive
contribution at those meetings. We are significantly supporting that and doing
some of the leading thinking on some of these new measures.
[L]ast year, for the very first time, we initiated what we
call a project called the E6. It has never happened before that we got six
countries together and we analysed the ecommerce industry. We shared all of our
intelligence and knowledge of the industry, we pooled all of that, and we
looked at the very specific profile of a handful of companies that were high
profile in that ecommerce industry.
That prototype has been extremely successful because each
country can then take that information and do what they will. Often that has
been turning into audits, because by pooling the knowledge we get a much
greater understanding of what precisely happens with some of these operations.
That has been taken underneath the forum, or under the umbrella, of tax
administrations. Next week there is the inaugural meeting of 30 countries that
have now agreed to participate in this network so that we can analyse other
industries, other particular companies or particular issues. This has been
unprecedented in terms of tax authority collaboration and cooperation to make
sure that multinational companies are paying the right amount of tax. We have
initiated this in Australia. I found it quite surprising when I came into this
role. This had never happened before, that level of joint discussion and
ownership of issues. We have now caused this network of 30 tax authorities. We
are leading that process that is starting next week. (p. 51)
1.44
According to Mr Jordan, the ATO was not idly waiting for all of these
new rules to be developed by the OECD and was testing the veracity of companies
challenging the ATO's right to tax their profits. In order to do this, the ATO
had undertaken audits of some of these companies. (p. 51)
1.45
Following from the audits of some higher risk multinationals
operating in Australia, the Commissioner of Taxation, Mr Chris Jordan, noted
the common theme:
...of either returning the income on a sale here in Australia
and having very significant payments going out for the use of intellectual
property or having the service delivered digitally and saying that that does
not have a source here. There is an activity that is said to be done overseas,
and because of the way that is done we do not have a permanent establishment and
their income is not sourced here in Australia. We are challenging that.
(p. 52)
1.46
The ATO was examined on a range of other matters including:
-
an update on the ATO's investigation of companies in the (less
than pure) gold bullion industry on suspicion of GST fraud totalling millions
of dollars—pure grade gold does not attract GST, whereas with less pure gold
you can claim an input tax credit (p. 53);
-
the work of the ATO's International Structuring and Profit
Shifting Program, which was a rollover of a previous initiative, for which the
ATO was funded, plus some additional money—$242 million over four years and
expected to run out in 2016-17 (p. 53);
-
of the 41 audits currently undertaken by the ATO relating to
multinational tax avoidance, with an expectation over the four year program of
raising over a $1 billion (p. 54);
-
the ATO auditing 72 companies and raising $15 million as a result
of a leaked copy of the HSBC Swiss accounts in 2010; a further $15 million was
raised from 27 voluntary disclosures (pp. 55–56);
-
over 100 information exchange treaties with countries around the
world, including Australia's tax treaty with Switzerland last year (p. 57);
-
staffing levels in the ATO, 3000 jobs lost through voluntary
redundancies, 590 people from the auditing work area (p. 59);
-
the revenue collected from the farm-out arrangements in the
exploration industry (p. 61); and
-
failure of overseas companies operating in Australia to identify
their subsidiaries (pp. 60–61).
Inspector-General of Taxation
1.47
The Inspector-General of Taxation (IGT), Mr Ali Noroozi, commenced the
hearing with some important information about the government's announced change
to the management of compliant handling for tax matters in the 2014–15 budget—which
sees the transfer of this function from the Commonwealth Ombudsman to the IGT. Mr Noroozi,
outlined some advantages arising from this change:
[T]he transfer will leverage the Inspector-General's Office
specialised tax expertise and provide an improved focus on resolving taxpayer
and tax practitioner complaints as well as improving the tax system more
broadly. I believe that the move towards a specialised, centralised scrutiny of
this kind is an important recognition of the tax system's complex nature and
corresponding need to have specialist expertise to assist individuals
experiencing difficulties with it.
...
The nature and scheduling of my work program in future will
be greatly enhanced once the legislation is enacted. The Inspector-General of
Taxation will have greater flexibility in work design and related reporting
options. It will ensure that I am able to respond promptly to individual or
personal concerns, which I have been unable to do previously. It will also
provide faster insights on issues or concerns that are emerging and allow me to
direct resources towards the systemic implications more promptly.
The new reporting structure will also allow me to report on a
broader range of areas for improvement in real time. Where a possible
recommendation is made for ministerial consideration the existing reporting
rules will be maintained. I would like to assure the committee and other
members of the public that my office's policy of confidentiality is unchanged.
All matters will be treated confidentially.
While I may self-select broader or systemic matters for
investigation, my office will also continue its history of engaging directly
with the community to better understand their concerns. This consultative
approach often draws attention to issues that may not otherwise be heard and
ensures optimal application of my officers' resources in delivering
improvements through an open and transparent process. (p. 56)
1.48
Other matters examined during the IGT appearance included the following:
-
the status of reviews from the IGT's current work program, covering
the management of tax disputes, ATO's administration of valuation matters,
delayed or changed ATO issues, and ATO's implementation of agreed
recommendations in five previous reports (p. 57);
-
KPMG's report on illicit tobacco in Australia, in which it
identified $1.2 billion worth of lost revenue per annum (p. 57);
-
an explanation on how the IGT's work program runs between 12 to
24 months (p. 58);
-
the IGT's report looking into the ATO's use of risk assessment
tools, of which the ATO's risk rating system for assessing the compliance
potential of major corporations, is one such tool (p. 59); and
-
the transfer of systems and the way the Ombudsman currently deals
with complaints (p. 61).
Australian Securities and
Investments Commission (ASIC)
1.49
The Chairman of ASIC, Mr Greg Medcraft, opened ASIC's appearance before
the committee by providing an overview on the need to lift standards in the
financial advice sector and what ASIC had done in this space:
...ASIC has been saying for some time the financial advice
industry is a high-risk sector. We have been saying and we have been proving it
for a long time, as have others...This has been in parliamentary inquiries in the
past, in the present and those that are going to report probably in the future.
...We also raised it in our submissions to the Senate inquiry into
ASIC's performance, into the financial system inquiry and also at the PJC
inquiry about lifting standards in the financial advice sector. In the future,
for example, we will raise it again through our contribution to the Senate
inquiry on the scrutiny of financial advice, another inquiry which is currently
in place.
Some of our suggested reforms have been implemented by government,
for example FoFA was brought in with its best interest duty for financial
advisers and, importantly, the enhancements to ASIC's banning powers. Some
reforms are currently being implemented, such as the Financial Advice Register,
which will come very soon. There are some reforms which we would like to see in
the future that have been recommended by the financial system inquiry, such as
those to give powers to ban managers and executives from financial advice
firms. A lot has been implemented, and there are probably as many things
awaiting decision.
...
In the last five years we have actually removed 69 financial
advisers from the industry temporarily or permanently. We have secured 19
criminal outcomes. We had 23 licences cancelled and we have entered into over
25 enforcement undertakings. We have also had a range of enforcement outcomes
that are actually underway. We have got four matters before the courts at the
moment and we have got 17 criminal matters being investigated. In response to
the problems in the financial advice sector we have actually set up a
specialist wealth management project to focus on the large advice entities—the
four major banks, Macquarie and AMP—and we have significant work underway
targeting these entities, including NAB Wealth. (pp. 80–81)
1.50
Mr Medcraft noted that ASIC allocated additional resources to work in
the financial advice area despite a cut in its budget and the agency's reduced resources.
Extra funds have also been allocated from the enforcement special account. Mr Medcraft
added:
We are doing what we can to actually not only manage within
our budget, but actually try and see this as a high-risk area. (p. 81)
1.51
Mr Medcraft also referred to media coverage regarding the NAB Wealth
management business in the financial services sector, indicating that ASIC had
acted as soon as possible to ensure all allegations and issues raised were
investigated:
In relation to the NAB Wealth media coverage and our response, we
are already expanding the work in response to the weekend's media coverage. We
have started information gathering from NAB Wealth using our formal legal
powers and the bank has been cooperative. I received a call last night from
Andrew Thorburn assuring me—and that has been the case—that we will get
whatever cooperation we need. ASIC has also initiated discussions with NAB
Wealth about reviewing the remediation provided to financial advice clients. (pp. 80–81)
1.52
The remaining topics covered during the committee's examination of ASIC
included:
-
the number of rogue planners identified by NAB and terminated,
and ASIC's request for further information from NAB (p. 89);
-
threshold for breach reporting (p. 87);
-
several issues raised around the timeliness of reporting—when the
obligation to breach report arises, as it does not necessarily arise when there
has been a misconduct by an individual adviser but does when there is a
significant breach of a licensee's obligation; there is also the issue of the licensee
failing to breach report, when it should breach report, and what action can be
taken against a licensee (p. 88);
-
the usefulness of an additional item on the register to indicate
if a person was summarily dismissed or terminated (p. 99); and
-
the licensing structure of NAB which has six licenses and 1,700
advisers (p. 99).
Commonwealth Grants Commission
1.53
The committee examined the Commonwealth Grants Commission on the
following topics:
-
GST distribution to Australian states, with some states getting
an additional share and some states receiving a significant reduction in their
shares of GST, such as Tasmania and the Northern Territory receiving
significantly less and Western Australia receiving a significant increase
(p. 103);
-
modelling on the impact on state budgets of moving to a shorter
assessment period from the current three-year average of potential income
(p. 103);
-
National Commission of Audit recommendations and its proposal to move
to GST distribution based on population (p. 104); and
-
discussions and consultations with states and territories about
changes to the current system (pp. 104–106).
Productivity Commission
1.54
During the Productivity Commission's (the Commission or PC) examination,
the Chairman, Mr Peter Harris, explained the reasons for the Commission focusing
its attention on various topical issues for its workplace relations framework
inquiry. He noted the inquiry's terms of reference, stating that the Commission
would 'look comprehensively across the system, primarily because of that
requirement for consideration, as I think the terms of reference say':
A key consideration will be the capacity for the workplace
relations framework to adapt over the longer term to issues arising due to
structural adjustments and changes in the global economy. (p. 106)
1.55
According to Mr Harris, the remit for the Commission's inquiry into the
performance of the workplace relations framework would be broad and necessarily
cover a wide range of areas. The issue of minimum wage, for example, is
included in the terms of reference as a 'safety net':
[The] Issues Paper 1 contains the terms of reference.
The second dot point says:
fair and equitable pay and conditions for employees,
including the maintenance of a relevant safety net. (p 106)
1.56
On issues of penalty rates, individual flexibility, and unfair dismissal,
Mr Harris further elaborated:
We will look at any of the pay and conditions that we thought
were most likely to be pertinent. But, because penalties rates have been a
highly topical issue in workplace relations in recent times, we have given it
its own, if you like, category. But that is not to exclude any other terms and
conditions that we will get submissions on. We will look comprehensively across
the system, primarily because of that requirement for consideration.
(p. 106)
...
Individual flexibility has been stated as being a strong
objective of some parties in the workplace, and that is not just employers.
Individuals have, as I understand it, a reasonable degree of uncertainty about
how [individual flexibility agreements] might actually be solicited from their
personal perspectives. So we are expecting to get submissions on that
particular aspect of it from numerous sources, and so we have drawn some
attention to it. (p. 107)
...
Unfair dismissal comes up because of, again, continuing
topicality or contention over whether the system is achieving the purpose for
which it was designed, and so that efficacy, if you like, would be a normal
part of us examining any business regulation or any consumer related regulation
in any inquiry we would undertake. So this is clearly a regulatory structure
designed for a purpose addressing the concerns of individuals should they face
dismissal. We are primarily going to ask the question: does it achieve its
purpose and is there a better way to do so? But it would not be sceptical as to
whether or not there would be a requirement for such a system. (p. 107)
1.57
Other matters also covered during the Productivity Commission's
examination included the following:
-
how the Commission will conduct its inquiry into the workplace relations
systems, and the processes and procedures it usually adopts in building up an
analysis (p. 108);
-
the timetable for the Commission's round of consultations with
various stakeholders, submissions closing date and final report date
(pp. 108-109); and
-
the Commission's report on child care and early childhood
learning
(pp. 111–114).
Australian Prudential Regulation
Authority
1.58
During the committee's examination of Australian Prudential Authority
(APRA), the Chairman, Mr Wayne Byres, clarified that APRA's role did not
include targeting house prices:
We wrote to all [authorised deposit-taking institutions—banks,
credit unions and building societies] in
December with our views on what we thought would be good practice in terms of
maintaining sound lending standards.
...
[W]e are not targeting house prices. We do not pretend to
know what the right level of house prices is. We do not have it within our
mandate to target house prices. What we are trying to achieve is that, wherever
house prices go, wherever interest rates go, wherever broader economic
conditions go, lending by the banking system—particularly for the purposes of
housing but I guess for all sorts of lending—is conducted on a sound and
sensible basis. So we are very much focused on making sure that the banking
system is resilient and that lending remains sensible and prudent, so that the
system withstands whatever happens in the housing market or other aspects of
the economy. It is not our job to target house prices. (p. 116)
1.59
The committee covered the following topics during is examination of
APRA:
-
an update on APRA's communications and investigations relating to
Trio Capital and the Ulan investment (pp. 114–116);
-
number of authorised deposit-taking institutions (ADIs) affected
APRA's macro-prudential policy (pp. 116–117);
and
-
update on the implementation of Basel III standards in Australia
(p. 118).
Australian Competition and Consumer
Commission (ACCC)
1.60
During the ACCC's appearance, the committee examined the following
matters:
-
petrol pricing from retailers (p. 121);
-
the ACCC's submission to the committee's inquiry into asset
recycling
(pp. 121–123);
-
ACCC's role in regulating a monopoly (p. 124);
-
ACCC's role in sectors where there is not a competition problem
(p. 125);
-
an update on the number of faulty cables recovered from homes and
actions taken (p. 125);
-
ACCC's ability to recoup money spent on resources dedicated to
recalling faulty products from importers, manufacturers and other parties in
the supply chain (pp. 125–126);
-
misleading product claims, Australian Industry Group's (AIG)
submission to DFAT concerning increased sub-standard products under an
Australia–China FTA, and lack of identification of foreign manufacturers or
producers of recalled products (pp. 125–127);
-
ACCC's court case against Coles based on unconscionable conduct
rather than misuse of market power—damaging upstream suppliers does not fall
under the definition of misuse of market power, which requires damage to competitors
(pp. 127–129);
-
mandatory and voluntary codes of conduct, and Australia Post and
its relationship with franchisees (pp. 131–132);
and
-
structure of cattle market, and buyer power in relation to Primo
and JBS Swift and other players (pp. 129–130
and 133–135).
Australian Bureau of Statistics
(ABS)
1.61
During the committee's examination of the Australian Bureau of
Statistics (ABS), the new Australian Statistician, Mr David Kalisch, commenced
with an overview of the environment in which the ABS operates. He noted:
The ABS operates in a very dynamic information environment
where there are growing expectations around what we could deliver, where the
cost of traditional survey collection methods has been increasing over time and
where new information opportunities are emerging, both in terms of new data
sources and expanded ways to use data that provide new insights...The ABS is part
of this information age but will need to adapt to ensure that it remains at the
forefront of delivering its mission. There is a desire for more timely and more
accurate information that, desirably, costs less and is less intrusive and less
costly on households and businesses to supply the information. Information
collected by governments and businesses in the course of their operations is
increasingly seen as information resources. Previous ways of collecting
information are being progressively replaced by new, more efficient and more
accurate means, just as we have seen transformation of the information-rich
retail and financial services sectors. (pp. 7–8)
1.62
Mr Kalisch also offered the committee with some comments on the
challenges faced by the agency, including an ageing infrastructure:
[Complex] policy problems generally require more complex data
and analysis that deal with the complexity of people's lives and the array of
services they receive. The ABS is part of an interconnected information sector,
and partnerships with other information producers and users will be more
important for us in the future. I have observed over past months that the ABS
statistical infrastructure is aged and fragile, which increases the risk of the
ABS making errors and having less efficient processes. The current business
model is primarily run by bespoke cottage industry approaches to our different
statistical collections, where best practice would be a consistent
enterprise-wide approach to data capture, production use and dissemination.
Despite these systems constraints, the ABS has a professional and expert
workforce who are committed to delivering the key information that Australia
needs. (p. 8)
1.63
The committee also examined the ABS on the following matters:
-
the recent capability review of the ABS and the reforms
progressing from the review's recommendations (p. 8);
-
over 100 significant information and data systems with varying
levels of complexity used by the ABS (p. 8),
-
the adequacy of the ABS's current ICT hardware systems in
contrast to the limits of its software systems which are 'not well-positioned
to be...adapted further to meet the future challenges' (pp. 8–9);
-
the efficacy and cost of the current five-yearly census
(p. 10);
-
change from five-yearly censuses to a longer frequency, such as 10-year
censuses, with reference to comparable international counterparts such as the
United States, United Kingdom, New Zealand and Canada (pp. 10–14); and
-
difference between short form and long form censuses
(p. 10).
Matters raised—Industry
and Science portfolio
1.64
On 26 February 2015, the committee examined the estimates for the:
-
Office of the Chief Scientist;
-
Australian Institute of Marine Science;
-
Commonwealth Scientific and Industrial Research Organisation
(CSIRO);
-
Department of Industry and Science [Cross-portfolio/ Corporate/
Programme 4: Programme support];
-
Department of Industry and Science [Programme 2: Supporting Science
and Innovation]; and
-
Department of Industry and Science [Programme 3: Encouraging Investment]
with the Anti-Dumping Commission.
Office of the Chief Scientist
-
The Chief Scientist, Professor Ian Chubb, provided the committee
with an overview on the current expenditure on science by the Commonwealth:
The present Commonwealth spend is about $9.2 billion per
year. That includes approximately two that is earmarked for the tax incentive
scheme, for R&D. The rest of it is allocated out for a variety of purposes:
ARC, CSIRO, ANSTO and various agencies and organisations like that and, of
course, some of it ends up in the universities for the R&D that they do.
...
Overall, if you look at the total research and development
spend, it is a bit over $18 billion a year. That puts us at around 2.1 per cent
of GDP, and by OECD measures that is not a bad proportion in total (pp. 75–76).
1.65
Other matters covered during the examination of the Office of the Chief
Scientist included:
-
the Chief Scientist's extension to the end of the year (pp.75 and
77);
-
an update on Australia's science strategy (p. 76);
-
make up and function of the Science Council and its secretariat
(p. 76);
-
over 12 million hits on the Chief Scientist's website, with
462,401 of those hits from unique visitors for the full year (pp. 77–78); and
-
the Clark research infrastructure review, which falls under the
auspices of the Department of Education and looks at 'the strategic provision
of research infrastructure to support Australian research on a national
collaborative basis' (pp. 78-80).
Australian Institute of Marine
Science
1.66
During the Australian Institute of Marine Science (AIMS), the committee
examined the following topics:
-
effect on AIMS's strategic research due to AIMS's reduced budget
(pp. 81 and 84–85);
-
the National Sea Simulator and its value to marine science
(p. 81);
-
research undertaken on the tolerance of different tropical
organisms to different types of dredged soil or dredge impact (p. 82);
-
the transferability of the research work for the Western
Australian Marine Institution to the Great Barrier Reef and Darwin
(p. 82); and
-
the Dredge Synthesis Panel and the synthesis report (pp. 82–83).
Commonwealth Scientific and Industrial
Research Organisation (CSIRO)
1.67
The new Chief Executive, Dr Larry Marshall, commenced the committee's
examination of the Commonwealth Science and Industrial Research Organisation
(CSIRO) with some comments about his background and vision for CSIRO.
He stated:
I am a scientist, turned entrepreneur, turned CEO and later
investor. I want to take the great people that make CSIRO what it is on part of
my personal journey. You will see some great things from CSIRO this year and in
the years to come but this year, in particular, you will see inclusion and
collaboration, a more inclusive team with richer, deeper partnerships with
universities, researchers and with industry. So, perhaps somewhat ironically,
this will not be about the 'I', it will be about the we and the us of CSIRO. (p. 86)
1.68
Dr Marshall also acknowledged the work ahead for him and CSIRO:
Any time there is change in any organisation it can bring
about uncertainty; it can affect staff morale; it can raise questions about the
future, and that can cause instability. I think the way that you stabilise an
organisation is to communicate a clear message about the future and to actively
engage staff so that they get back to the mission that they are there for. (p. 86)
1.69
Other topics canvassed by the committee during the Commonwealth CSIRO's
appearance included:
-
technology mining of CSIRO's 3,900 patents to 'create solutions
that improve the lives of all Australians' (p. 86);
-
CSIRO's engagement with small to medium businesses and the role
the SME Engagement Centre will play in this engagement strategy (p. 87);
-
CSIRO's budget (p. 87);
-
CSIRO's role in an agricultural boom in science (p. 91);
-
forty per cent of CSIRO's revenue from non-government sources
(p. 91);
-
update on staff morale, staffing levels and leakage of expertise
(pp. 92–93);
-
possible merging of National ICT Australia (NICTA) and the CSIRO,
and the future of the 300 PhD students hosted by NICTA (p. 94);
-
CSIRO's study Field measurements of fugitive emissions from
equipeny and well castings in Australian coal seam gas production facilities,
released mid last year and its current work on the potential impacts of
coal seam gas in order to provide new technologies and solutions (pp. 95–99); and
-
CSIRO's Australian Telescope National Facility Steering Committee
and its replacement, and whether the role of international adviser will be
filled (pp.100–101).
Department of Industry and Science
[Cross-portfolio/corporate/Programme 4]
1.70
Under examination by the committee, the Department of Industry and
Science's cross-portfolio, corporate and Programme 4 areas were questioned
about the timeliness of responses to questions on notice from the previous
supplementary estimates, and the number of late responses to the committee. The
Secretary of the Department of Industry and Science elaborated:
[The department] took 212 questions on notice. Two of those
were answered on the day of the hearing, 23 October. Part of those 210
remaining questions, in a sense they were 1,422 parts, to provide some context.
Of the [210], 108 were provided on time and a further 100 were tabled within
seven days of the deadline. (pp. 101–102)
1.71
Other areas of examination by the committee included:
-
information on program costing (pp. 90 and 103);
-
information on the trial of open data program and the National
Facilitator Growth Fund (p. 103);
-
update on the Australian Innovation System Report and the Australian
Industry Report, and potential overlap in the two reports' themes for this
year
(pp. 103–104);
-
difference between industry policy and innovation policy (p. 104);
and
-
the Pharmaceutical Working Group and the function of the Sectoral
Growth Policy Division (pp. 106–107).
Department of Industry and Science [Programme
2: Science and Innovation]
1.72
The Department of Industry and Science's Programme 2 was examined by the
committee on the following topics:
-
R&D tax incentive, and the processes of AusIndustry and
Innovation Australia for companies planning their R&D work in future years
(pp. 110–111);
-
the $25 million grant to CO2CRC over five years under the Carbon
Capture and Storage Flagship Program, and whether there was an independent
evaluator (pp. 116–123);
-
level of staffing in the automotive branch in the department
(p. 121);
-
update on the number of firms currently registered with the
automotive transformation scheme (ATS) (p. 122);
-
whether the department has prepared a submission to the inquiry
into the future of the automotive industry (p. 123); and
-
the Prime Minister's Prizes for Science and the different
categories, including four for science research and two for science teachers
(p. 120).
Department of Industry and Science [Programme
3: Encouraging Investment]
1.73
During the Department of Industry and Science's Programme 3 appearance,
the committee examined departmental officers on the soon to be released Energy
White Paper. The Secretary, Ms Glenys Beauchamp, noted:
There has been much interest in the energy white paper and
the green paper that was provided on 23 September 2014, subsequently getting
over 200 submissions. This has provided quite a depth of material to finalise
the white paper, acknowledging that there are a number of issues that do need
to be sorted out over the
next little while. But we are looking at a white paper that is long term and
sustainable, and that provides a really good framework for any changes that
might arise with those other processes. (pp. 128–129)
1.74
The committee was informed that the report was in the process of being
finalised and put to government—that the budget for white paper was $1.2
million, and in addition to receiving 200 submissions, the department engaged
an expert reference panel as well as consultations with stakeholders. (pp. 129 and 131)
1.75
Other matters also covered during the department's examination by the
committee included:
-
an update on the department's work since the release of the Gas
Market Development Plan and the Eastern Australian Domestic Gas Market Study
(p. 129);
-
each state having its own regulatory regime, including titles
administration, environmental approvals and its own technical regulatory space,
creating impediments to a unified approach to policy (p. 129);
-
update on the process of selecting a national facility for
radioactive waste and whether the department would prepare a submission to
South Australia's royal commission on nuclear energy (pp. 131–132); and
-
fuel security, Australian refineries using imported crude oil,
with the majority sourced from Singapore (p. 133).
Anti-Dumping Commission
1.76
During the committee's examination of the Anti-Dumping Commission (the
Commission), the committee dealt with the following matters:
-
update on the Commission's investigation into the alleged dumping
of certain PVC flat electric cables exported from China (pp. 136–137);
-
process of an applicant's claims of anti-dumping (pp. 137–138); and
-
the role of the International Trade Remedies Advisory Service and
the Commission's obligations under the world trade organisation (WTO) agreements
on anti-dumping subsidy and countervailing measures (pp. 138 and 141).
Senator Sean
Edwards
Chair
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