Patricia Karvelas:
The Assistant Treasurer, Dan Mulino, is my guest in the studio. Welcome.
Daniel Mulino:
Thanks for having me on, PK.
Karvelas:
This is a big backflip, isn’t it?
Mulino:
Well, what I’d say is that the government has identified the fact that there were some details that we were very explicit on Budget night that we were wanting to work through with business, including the way in which the CGT changes operated in relation to innovative start‑ups, but also some of the details around how some of the CGT exemptions and concessions operated in relation to small businesses.
We’ve undertaken some meaningful consultation already, and today the government announced that it was happy to make some changes to make sure that these reforms acted in a better way.
Karvelas:
The Prime Minister said that the message from him was that this government, your government, backs small business. Isn’t that, minister, a concession that small businesses have not felt backed; this is actually addressing that they did not feel backed?
Mulino:
Well, what I’d say, to take a step back, is that this Budget included a number of measures that really did back in small businesses including the fact that the instant asset write‑off was made permanent, this is something which has been an annual issue for a long time.
Karvelas:
Yeah. No, I appreciate that, but –
Mulino:
We made that permanent –
Karvelas:
– like politically speaking, you don’t say the message is ‘we back you’ unless you know for the last 5 weeks they have not felt backed.
Mulino:
Well, I think small business welcomed some of those measures, so the instant asset write‑off, they welcomed the loss carry‑back. But then there have been a lot of representations made through peak bodies through small businesses individually that they wanted to see some changes to the way in which the CGT operated. And we’ve listened to those concerns, and we’ve acted.
Karvelas:
Okay. So you’ve acted, you say. So let’s go through some of the detail. This new $10 million turnover, it just strikes me, why didn’t you go into the Budget with that in the Budget? Like haven’t you got this the wrong way around?
Mulino:
So we’ve put in the Budget some changes to the way the CGT operates. We’ve gone back to the original indexation method that was put in place in the Hawke–Keating reforms. We’re looking at real gains, and that was something which has been welcomed by a lot of experts, by a lot of chief economists at banks, and we’ve said that as part of that we would retain the CGT concessions and exemptions.
Now when it comes to the operation of those CGT exemptions and concessions that have been retained, small business said that they wanted us to look at the thresholds which have been in place for a long time.
And so when it comes to the exemption, the concession that has the most usage, the active asset concession, we’ve said, well, look, we’ll raise the threshold to $10 million, that now operates that concession for all small businesses, all active small businesses, 98 per cent of all businesses.
So that’s an important change. It’s going to benefit a lot of small businesses, and it means that they will get a 50 per cent discount.
Karvelas:
How about the walk‑back on the minimum tax on discretionary testamentary trusts? Is that a sign that your government has been pretty rattled by the death tax label?
Mulino:
Well, so the changes that we’ve put in place in relation to discretionary trusts, again, I take a step back and say that those are changes that have been a long time coming. If you look at all of the major tax reviews going back decades, they’ve all identified the need to remove inconsistencies when it comes to discretionary trusts. We received –
Karvelas:
But on this testamentary trusts, you had a tax that you were going to put on it, the Prime Minister has announced it’s gone now. Is that because you got freaked out by the death tax label?
Mulino:
Well, and so we made clear from the start that this wasn’t going to apply to deceased estates, that a fixed testament trust wouldn’t be affected. And so we’ve heard concerns raised, and concerns that there was some areas where discretionary testamentary trusts were needed. There was a bit of confusion in relation to the way this might operate in relation to other areas of the tax system. So to remove any confusion and to –
Karvelas:
You just got rid of it.
Mulino:
– deal with those concerns, we’ve said, to remove the application of this to discretionary testamentary trusts would have a very modest impact on the revenue raised by the overall changes. It’s estimated that it would be $50 million, and so it was a sensible pragmatic move.
Karvelas:
Okay. But it was a political move.
Mulino:
No, not a political move, I think it’s –
Karvelas:
But it was, wasn’t it? You said there was confusion, the Prime Minister had told us that this was necessary, it was fair, it’s suddenly not fair? Like why has it changed then?
Mulino:
No, no, so what we’re saying is that from the start, we’ve made clear that there are certain areas of testamentary operations that this new tax system wouldn’t apply to, fixed testament trusts and deceased estates, but there had been some concerns raised around the way that discretionary testamentary trusts operate in certain circumstances. We’ve listened to those concerns, and we’ve said, to make things absolutely clear, we’re going to exclude those from the operation, but the core of the discretionary trust reforms remain.
Karvelas:
Okay. There was meant to be a longer process for all of this. We’ve got the Senate report coming out tomorrow. So why wouldn’t you wait for the Senate report and the negotiation with the Senate? It seems unusual to say, ‘This is what we’re doing’ because you have to actually now embark on another consultation, don’t you, to actually get it through the parliament?
Mulino:
Well, so some elements of this we’ve said we’ve heard loud and clear from different stakeholders what we should change, and we’re going to act on those elements. On some elements we need further consultation, and that’s why, for example, when it comes to innovative start‑up companies, we’ve issued a discussion paper, and those elements need further work. We need to figure out what should the thresholds be, we need to figure out what’s the definition, the boundary of an innovative company.
And so some of these elements need further work, and that will be informed both by consultation with the discussion paper, but also the findings of that Senate inquiry.
Karvelas:
That’s going to be – I’ve looked at that paper – for a company to demonstrate that it’s genuinely focused on, you know, this and it’s a genuine company, it has to prove itself in some pretty onerous ways, it has to support claims, companies are required to maintain records, business plans, commercialisation strategies. Are you making this very complicated for these companies?
Mulino:
There’s a number of benefits in our tax system, and also in our industry support system, which are aimed at venture capital, which are aimed at companies that are innovative already. Those all require, for integrity reasons and rigour reasons, they all require that companies establish that they are genuinely innovative, that they are genuinely undertaking either research and development in certain areas or that they are creating new products and services. So it’s not unlike any of those areas where we want to make sure that we’re targeting the measures at the right kinds of the companies.
Karvelas:
And when will we have a settlement – I mean it’s a discussion paper – of what all of those definitions are?
Mulino:
So we’ll go through a consultation process, we’ll receive submissions, we’ll work through those submissions. This is very normal in the tax system. In my portfolio, I work through discussion papers and submissions on complex tax matters as a matter of course. You want to step through these things carefully.
Karvelas:
I just want to move to another topic, and that’s the deal, the US–Iranian deal. It’s a 60‑day period where there is no toll on the Strait of Hormuz. After that there could be a toll. Does that sound like a good deal?
Mulino:
Well, look, I’ll let the Minister for Foreign Affairs talk about the details here.
Karvelas:
But you are an Assistant Treasurer. It sounds to me obviously inflationary if there’s to be a toll on oil and fertilizer or anything else going through the Strait of Hormuz.
Mulino:
Yeah, look, what I’d say is I welcome the fact that it seems like the parties have made progress. I welcome the fact that the parties are sitting down at all, but it looks like there have been real forward progress here, and these are complex matters, and all I can say is that I hope that the US and Iran can sign a longer‑term agreement here. Look, if you look at –
Karvelas:
There’s no toll, you’d hope?
Mulino:
Sure.
Karvelas:
There was no toll before.
Mulino:
Sure, and if you –
Karvelas:
That would set the world economy backwards, wouldn’t it?
Mulino:
If you look at the market’s impression of this and what the price of oil has done, and this is not the only determining factor here and they’re not perfect, but the price of oil has come done appreciably since the announcements over the last couple of days.
So, look, that’s a sense that there’s hope amongst a lot of experts who trade in the main commodity that’s trying to get through the Straits of Hormuz there’s real prospects of forward progress.
But when it comes to working through the details of what’s been announced, but also the geopolitical complexities, look, that’s something which the Foreign Affairs Minister will have more detail to say.
Karvelas:
Are you confident you’re going to pass this legislation in the next fortnight?
Mulino:
Well, I don’t want to get into the intricacies of the Senate negotiation.
Karvelas:
Is that the government’s plan?
Mulino:
What I would say is, firstly, we’ve shown a genuine willingness to listen to feedback and to make changes, and there are some matters which we’re taking forward through the discussion paper.
I would say to both the Greens, but also to the Coalition, that in this bill there are genuine changes that make the housing system work better for young people, there are genuine changes to the way CGT operates. So I’d hope they would come to negotiations in the Senate in a fair‑minded way and look at this bill on its merits.
Karvelas:
So just in terms of nailing down the government’s ambition, you would hope to have it passed by the mid‑winter break?
Mulino:
I would hope that would be possible, and again, it’s not just those measures which make the housing market work better and the CGT system work better which are very material, there are also tax cuts in these bills through the WATO and through the instant deduction for all Australians who earn their income through labour and through the instant deduction for 13 million plus.
So, look, this is a really important bill to get through, and I think, I hope the Greens and the Coalition both look at it with a sense of priority.
Karvelas:
Thank you so much for joining us.
Mulino:
Thanks PK.
Karvelas:
And that’s the Assistant Treasurer Dan Mulino on the capital gains tax changes and the trust changes that were announced.