CHAIR (Senator Ronaldson)—Welcome. I declare open this meeting of the Standing Committee on Economics. This hearing has been convened to receive evidence in relation to the revisions of the Tax Laws Amendment (2007 Measures No. 3) Bill 2007. The bill is an omnibus bill that will implement changes to Australian taxation in a variety of areas. The committee received five submissions on schedule 10, two submissions on schedule 2, two submissions on schedule 4 and one submission on schedule 8. The hearing today will commence with a consideration of schedule 10, which has attracted the most comments and submissions. At the committee’s discretion we may also hear from Treasury on schedules 4 and 8. The committee is due to report to the Senate on this bill on 6 June.
These are public proceedings, although the committee may agree to request to have evidence heard in camera or may determine that certain evidence should be heard in camera. I remind all witnesses that in giving evidence to the committee they are protected by parliamentary privilege. It is unlawful for anyone to threaten or disadvantage a witness on account of evidence given to a committee, and such action may be treated by the Senate as a contempt. It is also a contempt to give false or misleading evidence to a committee.
If a witness objects to answering a question, the witness shall state the ground upon which the objection is taken and the committee will determine whether it will insist on an answer, having regard to the ground on which it is claimed. If the committee determines to insist on an answer, a witness may request that the answer be given in camera. Such a request may, of course, also be made at any other time. I welcome the witnesses to these hearings. Do you wish to make an opening statement?

Mr Gilbert—I would like to thank the committee for convening this hearing today to hear our concerns. We believe they are very critical concerns and we are grateful that the parliament has an intense interest in this issue. Our concern is with schedule 10. Schedule 10 in a principle sense is about this issue: whether we have a flat and final tax rate which is competitive, has integrity and has a final particular view or characteristic, or whether we want a very uncompetitive withholding tax rate against which you can have deductions, which are messy, complex and not attractive to overseas investors. That is the principle.
Our submission talks about some of the design and technicality difficulties that the bill has, but the real focus for us is the 30 per cent withholding tax. It is just too high and too uncompetitive. We have put out this week, and we have sent to the committee, a document called Policy options to increase Australia’s export of funds management services. It outlines the future direction of how this industry should be marketed offshore and provides a 20/20 vision on how to take the Australian economy beyond the resources boom. Obviously the 30 per cent rate in relation to this is in conflict with our document. We believe we need a whole-of-government approach. It is not just in tax—there are other issues—but tax is critical. This one is probably the most critical.
We will be putting out research in coming weeks to talk about the GDP impact of having a more competitive, transparent and integral system for tax. We look forward to sending that to you as well. Suffice to say that research will show that we can add considerably to the economic capacity of the economy by having a more competitive tax system. Our industry has a number of characteristics which do that. First of all, we have scale and spare capacity. Secondly, the rates of pay in our industry are higher than in other industries. The argument about substitution—about pulling resources from one industry to another—has largely dissipated because of the fact that we pay higher rates of pay. So we have a chance here to boost productivity in the economy and also to boost GDP.
Instead of potentially boosting GDP, schedule 10 does the opposite. We are getting feedback from our foreign investors that it is not a good move. Also—and we do not have any tangible evidence yet—if we do not get this right, it is possible that our real estate investment trust industry will move offshore. If it does not move offshore in its current state, we could well find that the new REITs which we set up in this industry are not set up in Australia but are set up in centres which do have a competitive rate of tax.
We believe the committee has a very vital contribution to make in the strength of the economy and also in relation to this particular measure. In order to be constructive here, we have a proposal to make as a principled proposal—that is, that foreign investors who invest in Australian managed funds should receive the same tax treatment as Australian investors would receive when they invest in those overseas countries’ funds. We believe this measure would be competitive. We believe it would uphold the Australian sense of balance and fairness—that is, it has parity, mutuality and reciprocity. The third point, which I think is critical, is that this is something which the board of tax suggested in its report. That is my opening statement. I think Mr Cooke is going to follow me, and then Mr Speed, if that is okay.

Senator JOYCE—I understand that we are at 30 per cent and all the other nations are at 15, with Japan at seven. My question really goes to the fact that withholding tax is a cyclical thing; if they are entitled to it they can claim it back.

Mr Speed—In their home countries, sometimes they get a credit for it. If you are a pension fund, where you are paying zero tax, which are the large investors, then they cannot claim it back.

Senator JOYCE—So for taxable entities overseas it is a timing issue; for others it is a taxing issue. For pension funds, predominant investors in industry, it is a disincentive unless they have the capacity to use a Delaware instrument or something like that to get around it?

Mr Speed—It is not just a timing issue, because to get your refund out of Australia you have to lodge a tax return. Whilst it may seem odd, the truth is that they do not want to do it. It is an administrative problem for them and they will not do it. If they have an alternative, they will not do it. They would prefer—

Senator JOYCE—Just to pay the tax.

Mr Speed—They would prefer to pay the final tax. When you are dealing with them day to day they say, ‘We do not want to lodge a tax return. Just tell us what the final tax is. We know what it is; we will bear that cost—end of story.’

Senator JOYCE—But we need to tell them 30 per cent.

Mr Speed—They will say, ‘We’ve got to report you.’

Senator JOYCE—You have silence at the end of the phone.

Mr Speed—Yes.

Senator JOYCE—I want to run through what are probably other macro issues that go off at a bit of an angle, but I am sure that, for a lot of people who are tuned into this—who obviously have nothing to do on a Friday morning—they are questions that they might want to know about. If we put further encouragement, further stimulus, into the housing market or into the investment market and into the construction market, which is obviously the benefactor, does that filter out to have effects on housing prices and other people and the regular mums and dads trying to buy a house out on the street? Who wants to answer that?

Mr Cooke—It is probably important to recognise that at this stage residential real estate forms part of a securitised REIT, so what we are really talking about in the Australian context is shopping centres