Friday, April 08, 2011

Trusts: Hockey runs for cover

Shadow treasurer Joe Hockey was speaking without the authority of shadow cabinet and without the knowledge of his senior colleagues when he declared before a group of accountants Wednesday family trusts should be taxed as companies.

After a barrage of complaints from senior Liberals and Nationals and a telephone hookup with Nationals leader Warren Truss Mr Hockey backed down yesterday, telling a news agency the Coalition had “no plan to alter the tax treatment of trusts”.

He made himself unavailable to other outlets to elaborate further.

In his prepared speech delivered to 300 accountants and still available on his website Mr Hockey says the difference in tax rates according to the type of legal entity seemd to have “no basis in logic”.

He proposes taxing trusts “in their own right and at the same rate as companies”.

“That is likely to be contentious but is worthy of serious consideration,” he told the accountants.

Unaware of what was in his speech and not alerted until reports in The Age and other newspapers yesterday morning senior figures in both parties told him what he had proposed had not been discussed by shadow cabinet and was not Coalition policy. Nationals leader Warren Truss told him special tax treatment for trusts was a core commitment his party would not abandon...

The rules do not tax trusts in their own right but tax their earnings when paid out at the rate of the recipient allowing high-earning families to income split and profits to be taxed as if they were earned by children.

“Joe said the way the farmers and others have arranged their lives since Dad and Dave’s day had to stop,” said Assistant Treasurer Bill Shorten. “I am assuming Bill Heffernan or Warren Truss or someone from the Nats took him into the milking shed, spoke to him gently until his ears were sore and he accepted the error of his ways.”

“He has to explain what happened. His comments were not off the cuff, not accidental and not confused. He is the Shadow Treasurer, not a one-man band”

A spokesman for opposition leader Tony Abbott confirmed Mr Hockey’s proposal was not Coalition policy and said the leader was pleased Mr Hockey had acknowledged that.

Briefly yesterday before the backflip Australian Council of Social Service president Cassandra Goldie welcomed the new approach saying “with Mr Hockey’s support, now might be the ideal time to reach a bi-partisan agreement to tackle this obstacle to a fair and efficient tax system”.

Greens leader Bob Brown said he would back any changes that closed “loopholes that allow for tax avoidance, including family trusts,”

After Mr Hockey recanted Ms Goldie she said she was “disappointed”.

“Actually, I am disappointed with both sides: with Mr Hockey, and also with Mr Shorten for so quickly defending what we have,” she said.

Mr Shorten said while he had been tightening the rules applying to trusts, “literally hundreds of thousands of businesses and families organise themselves this way - simply saying you are going to abolish their present status is not sustainable.”

“If you were going to declare war on an inefficient tax system, why you would pick trusts as a first beach to land on? Has Mr Hockey got modelling to back up his views? Has he got any figures?”

The 1999 Ralph review found tax avoidance through trusts cost $700 million a year - around $2 billion in today's money.

Former treasurer Peter Costello tried to change the rules surrounding trusts in 2001 but failed after a campaign by National and some Liberal MPs.

Published in today's SMH and Age

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