CEO liability for the bad conduct of their companies

Our favourite recent legislation proposed changes are that individuals will now be liable for the crimes and bad conduct that their companies undertake. A huge win for community expectations.

Bills were read in Parliament that would enforce laws:

Making bosses and staff personally accountable (including jail time) for crimes that their banks/companies commit. This ensures a top-down focus on ethical and lawful business conduct.

There will be stronger consequences for crimes in the financial sector as an outcome from the royal commission into banking through Treasury Laws Amendment (APRA Governance) Bill 2018 (p.2,3&4). It states that a new organisation will be created this year: the Australian Financial Complaints Authority to create a complaints mechanism which has teeth and doesn’t require customers who want to make complaints to require lawyers so there is no legal costs for those wanting to complain.

Additional resources and powers have been given to ASIC to pursue and prosecute individuals in the banking sector, with increased penalties of up to almost $1 million and maximum jail time extended from 5 to 10 years. For organisations, fine limits have increased to $200 million.  

Stopping animal cruelty – ensuring live exporters behave ethically by having criminal penalties for CEOs. This means that we don’t need to ban it because bosses will ensure that it is conducted in an ethical way or will take the blame. The Export Legislation Amendment (Live-stock) Bill 2018 (p.10&11) will increase and introduce new criminal offences and penalties for unacceptable conduct for live-stock exporters. Executive officers who fail to take reasonable steps to prevent the disobeying of the law will be held personally liable.

Financial institutions will now pay for their own regulation through 4 new proposed Bills. (Corporations (Fees) Amendment (ASIC Fees) Bill 2018 (p.7, 8&9) National Consumer Credit Protection (Fees) Amendment (ASIC Fees) Bill 2018 (p.9) Superannuation Auditor Registration Imposition Amendment (ASIC Fees) Bill 2018 (p.9&10) and Superannuation Industry (Supervision) Amendment (ASIC Fees) Bill 2018 .

Financial institutions will bear the cost to be regulated via levies, not taxpayers! This will encourage regulatory compliance, as good conduct will reduce supervisory levies that banks need to pay!

Prevent corporate fraud with the Phoenix Taskforce. Phoenixing is a type of corporate fraud and involves businesses who don't pay their bills and deliberately liquidate to walk away from their obligations then restart their operations under a different name and ABN. A taskforce has already been set up to locate and prosecute company directors with jail time and ban them from holding a directorship again. Jail time is also a consequence for accomplices associated with this fraud ie tax agents etc.

In the first half of 2017–18, 187 audit and reviews were conducted. Prosecution has so far raised $214.4 million in liabilities with $72.8 million in cash. This money has been collected and returned to the community. (https://www.ato.gov.au/General/The-fight-against-tax-crime/Our-focus/Illegal-phoenix-activity/Phoenix-Taskforce/) Members of the community can report illegal phoenix activity by phone on 1800 060 062 or by email at phoenix@ato.gov.au

Noteworthy good legislation being discussed in Parliament (24 May 2018)

Workers are being further protected from employers trying to not pay their employees full superannuation entitlements. Treasury Laws Amendment (2018 Superannuation Measures No. 1) Bill 2018 – second reading (p.6&7)

95% of superannuation guarantee obligations are paid in full but in 2014-15, around $2.85 billion went unpaid. This bill gives the ATO the tools it needs to detect future noncompliance and punish it appropriately, including with criminal sanctions in the worst cases. This bill introduces a one-off amnesty to employers who come forward and rectify any historical noncompliance with their superannuation guarantee obligations. The amnesty runs for twelve months, beginning 24 May 2018, and applies to any historical superannuation guarantee debts up to and including the March quarter of 2018.

Help small business Treasury Laws Amendment (Accelerated Depreciation for Small Business Entities) Bill 2018 – second reading (p.1&2)

Extension of the 2015-16 budgeted $20,000 instant write-off to businesses for a further 12 months until 30 June 2019. Eligibility has been widened to help businesses with larger turnovers, lifted from $2 million to $10 million annually which means that more businesses can claim this tax offset.

Look after veterans mental health and re-entering back into Australian society Veterans' Affairs Legislation Amendment (Veteran-centric Reforms No. 2) Bill 201 (p.14&15)

3 changes are proposed: a veteran who is studying full time as part of an approved return to work rehabilitation plan to be paid their incapacity payments at 100% of their normal weekly earning after 45 weeks, this is a rise from the current rate of 75%.

There is a Veteran Suicide Prevention Pilot, which provides services to ensure the veterans are accessing treatment and mental health support to reduce the risk of suicide and enhance their quality of life. The pilot will deliver a 'step down' service that takes into account factors that may lead to suicide, such as primary health, financial stress, housing and employment.

It is proposed that the partners of veterans will have 2 years rather than the current 6 months to choose how to receive compensation in the terrible case of their partner's death. The choice is as a weekly payment, lump sum or a combination of both.

Improve standards of the aged care sector Aged Care (Single Quality Framework) Reform Bill 2018 (p.16&17)

Create a competitive, market-based system where consumers drive quality and where red tape is reduced for providers of aged care. There will now be a single set of consumer focused quality standards to be called the Aged Care Quality Standards, to apply to providers of Commonwealth funded aged care. The CEO of the Australian Aged Care Quality Agency will also have the power to assess the quality of care services.

Continue to address multinational tax avoidance Treasury Laws Amendment (Tax Integrity and Other Measures No. 2) Bill 2018 Second Reading (p.17&18) This bill continues the Turnbull government's work on combating multinational tax avoidance. It implements the OECDs hybrid mismatch rules, which are designed to strengthen the integrity of the tax system.

The government has also increased penalties for companies who fail to take reasonable care when making statements to the ATO and has expanded the ATO's capacity through the Tax Avoidance Taskforce. These rules are designed to prevent multinational companies from exploiting differences in the tax treatment of instruments or entities between jurisdictions, which enable those companies to defer or reduce tax.

Prevent terrorism Counter-Terrorism Legislation Amendment Bill (No. 1) 2018 (p.11,12&13) 

Counter terrorism powers will continue for a further three years, until 7 September 2021. This includes:

-        A control order regime (which is ordered on an individual by a court and includes curfews, wearing electronic monitoring tags, restrictions on use of telecommunications, regular reporting to police).

-        Preventative detention order regime (where individuals can be detailed when there is a threat of a terrorist attack that is capable of being carried out within the next 14 days or immediately after a terrorist act if it is likely vital evidence will be lost).

-        Declared areas offences (to stop Australians who travel to conflict zones in Syria and Iraq and return to Australia with skills and intentions acquired from fighting or training with terrorist groups.

-        Stop, search and seize (these powers allow police to request a person to provide their name, address and certain other details, to stop and detain a person to conduct a search for terrorism related items, to seize terrorism related items in Commonwealth places such as airports, and to enter premises without a warrant)

Innovation is popping up in ex-mining communities (reported in Constituency Statements p.82)

Morwell is the location where the privately run Hazelwood Coal Power Station closed due to the high costs associated with maintaining it. This is where a not-for-profit cooperative enterprise recycling factory called Earthworker Cooperative Project has been set up. It manufactures goods including solar hot water pumps and tank systems, a sodium-nickel-chloride battery, which uses non-toxic saltwater as an alternative to lead based lithium batteries. This is helping the local community replace coal with environmentally friendly innovation.

Keeping older people active and not be penalised to contribute to society in retirements (p. 42 of members' statements)

On recommendation from the Seniors Forum, from 1 July 2019 people on the aged pension will be able to earn $300 per fortnight, rather than the current $250 per fortnight before they have their pension cut. This keeps citizens active.

A cashless debit card trial was implemented in the electorate of O'Connor, WA. (p. 57 of Questions without notice). Western Australian police data has indicated that the domestic and non-domestic assault rate in the Goldfields is more than twice the Western Australia average. Alcohol-related hospitalisations and deaths were 25% higher than the Western Australia state average in 2007-11.

More than 2,600 cards have been issued, and 80% of people have self-activated their cards over the phone or online. Parliamentarians were told how the check-outs were seeing less alcohol and more food and essentials being bought. They commented that they had seen families buy groceries that they had never seen in the store before. The trial will be expanded.

Reduce welfare needs though a study on families that become 'trapped' in the welfare system with a Select Committee on Intergenerational Welfare Dependence (p.19,20&21 of members' statements)

It was announced by the Coalition that the enquiry will focus on why some families require welfare assistance for short periods only and why others become 'trapped' in the system. In response Labour contacted relevant stakeholders (ACOSS, the Brotherhood of St Laurence, Catholic Social Services and St Vincent de Paul) who said that it would be better if best-practice interventions in breaking cycles of disadvantage should be the focus of any committee.

A positive case study was highlighted during Parliament of the excellent work going on in Logan in South-East Queensland, an area that has a very high percentage of children who are considered to be developmentally vulnerable and at risk associated with pockets of deep social disadvantage. Logan Together arose from the local community as a means to develop strong and stable families that have adequate access to resources and opportunities.

Initiatives to grow our financial services industry - facilitating market opportunities for the funds management sector. Corporations (Review Fees) Amendment Bill 2018 (p.5&6)

The bill helps implement the Asia Region Funds Passport framework which the government committed to by signing the international memorandum of cooperation in April 2016. An initiative which gives fund managers the ability to attract foreign clients from signatory countries (Thailand, Japan, Korea, New Zealand, observed by Singapore, Philippines and Hong Kong) and allow their funds access to international opportunities, all in all helping facilitate international capital mobilisation.

Cybersecurity and medical efficiency/privacy (p.55 of members' statements).

Last week, the Turnbull government announced the rollout of phase 2 of My Health Record. The rollout means that every Australian's private health information will be stored online unless they opt out.

Australia Day (p. 58 Questions without notice)

Labour are interested in changing the date of Australia Day, Mr Tudge (Aston—Minister for Citizenship and Multicultural Affairs) thinks mainstream Australians are very against the move. 

Status of the Royal Commission into Institutional Responses into Child Sexual Abuse

As read in the 24 May 2018 House of Representatives parliamentary papers. Members' Statements  (p. 36-55) saw Parliamentarians now discussing how to provide compensation to the 20,000 survivors of sexual abuse who as children were in the care of 4,000 state and territory government institutions.

Julia Gillard establishment the Royal Commission in 2013, it finished on 14th of December 2017 and had 400 recommendations. It was needed because reports from victims at the time of the crimes were ignored and institutions chose to protect their reputation and so sheltered perpetrators and moved them from institution to institution.

Over the five-year inquiry, there were 42,041 calls handled, 25,964 letters received, 8,013 private sessions held,and 2,575 referrals to authorities, including to the police.

At the request of the Commission, the Catholic Church provided data on complaints. Between 1980 and 2015 alone, over 4,400 people alleged incidents relating to more than 1,000 separate institutions. Of the victims, 78% were male. Tragically, the average age of male victims was 11½ years old, while for girls it was just 10½.

Of the alleged perpetrators, 90% were male. 62% of the perpetrators were priests or brothers. 7% of all priests were perpetrators. 20% of all Marist Brothers and 22% of all Christian Brothers were perpetrators. Can you imagine another institution in this country where close to one-quarter of its members were perpetrators?

Five male religious orders—the Christian Brothers, the De La Salle Brothers, the Marist Brothers, the Patrician Brothers and the St John of God Brothers—represent more than 40% of all claims made to Catholic Church authorities.

The commission tabled its final report on 15 December and so on the 15th of every month, the Care Leavers Australasia Network (CLAN) (who represents, supports and advocates for people who were raised in Australian and New Zealand Orphanages, Children's Homes & Foster Care) will release an update of how many of its recommendations have been implemented.

Examples of recommendations include that a range of changes be made to Medicare to help provide rest-of-life psychological care to survivors of child sexual abuse, reforming the Catholic Church around celibacy and the culture of secrecy with the seal of the confessional where the faithful seek divine absolution from their sins.

There has already been results, the highest ranking official in South Australia’s Catholic Church Philip Wilson will reign from his post of Archbishop after being found guilty of not only ignoring but covering up a priest's sexual abuse of altar boys including one 10 year old boy who was a family friend who confided in Wilson at age 15. The paedophile, priest Jim Fletcher died in jail in 2006. Wilson now faces a maximum 2 years in jail with sentencing to occur on June 19 2018.

National Redress Scheme for Institutional Child Sexual Abuse Bill 2018

The national redress scheme is due to commence on 1 July 2018. It will pay survivors:

-        Maximum $150,000 each

-        Provide counselling and psychological care throughout a survivor's life.

Changes are being discussed to refrain from providing just a lump sum of $5,000 but to make changes to Medicare to help provide for rest of-life psychological care to survivors.

Housing affordability

I want a nest egg. You want a nest egg. Everyone wants a retirement nest egg. But how do our leaders facilitate this without distorting residential property markets which affect other market players?

Negative gearing allows property investors to attain tax deductions from the outgoing expenses that come from holding a rental property (or properties) as an investment when they are more then the rent they are earning. This includes: interest on the loan, the cost of repairs, maintenance and improvements, renovations, council rates, water rates, insurance, fire levy, stamp duty and real estate transaction costs. However, if you buy the property as your place of residence you do not get to claim these tax deductions, although you do get to claim a capital gain tax exemption.

Researchers from the Grattan Institute have found “that certainly there are some middle income earners that negatively gear” but “when you look at the distribution of tax benefits they overwhelmingly go to high-income earners”. About 50% of the benefits from negative gearing go towards the top 10% of income earners.

Australian Prime Minister Malcolm Turnbull once agreed with this opinion. He described negative gearing as using tax policy to “distort economic behaviour…skewing national investment away from wealth-creating pursuits, towards housing, [creating] a property bubble” in a 2005 tax policy paper. More recently, Turnbull has changed his opinion stating that "scrapping negative gearing will cause rents to rise” and will curb investors’ “demand for property”.

Particularly in Melbourne, the PM’s stance that scrapping negative gearing will increase rents is unjustified. There is no evidence of this. In 1985-87 when negative gearing was abolished, rent decreased in Melbourne and every other city in Australia (other than Sydney and Perth and thus negative gearing cannot be deemed the cause). 

His comment is further unfounded due to the current and amplifying glut of city and inner city apartments in Melbourne. In 2016 and 2017 there is expected to be “about 21,000 to 22,000 apartments” built in Sydney and Melbourne, further adding to the market. The law of supply and demand means that this will, in fact, keep rent prices low. This, paired with an extremely low interest rate predicted to drop to a “record low” of 1.75% in August 2016, means that 2016 is an ideal time to realign this market distortion.

What would help to keep rent prices affordable is using tax policy to encourage Australians to rent out empty properties. By measuring water usage, researchers have found that there are currently “some 82,724 properties, or 4.8 per cent of the city's total housing stock" that appear to be unused in Melbourne.

First home buyers in Melbourne and Sydney can only hope for a dip in property demand (and hopefully a realignment of the market) after the unsustainable growth in house prices averaging 7.3% a year since 1999. According to the 2015 12th Annual Demographia International Housing Affordability Survey, Australia has 2 of the top 10 least affordable housing markets in the world. We want Australia to be a world leader, but not in this measurement. Sydney sits at number 2 globally and Melbourne equal 4th with Auckland and San Jose, USA. The other 6 are Hong Kong, PRC (1st), Vancouver (3rd), San Francisco (7th), London (8th), Los Angeles and San Diego, USA (shared 9th).

Negative gearing needs to be wound back, used for new properties (to encourage supply) but with a limit placed on the amount of properties that can be negatively geared per family.

The flow on effects and negative ramifications that would come from restricting negative gearing to only the banking sector have also been mitigated. In June 2015 financial services regulator, the Australian Prudential Regulation Authority (APRA), enforced policy to significantly change banks’ lending policies to investors, thus cooling the market. They released a temporary directive to the big four banks and Macquarie requiring them to “increase the amount of capital they hold against their residential mortgage exposures”, causing banks to reduce the amount of mortgages they can supply. However, Westpac has now reduced these higher mortgage deposit requirements for investors.

The government needs to stop incentivizing investment in property, which artificially inflates housing markets at the expense of other buyers. Instead, it needs to incentivize the investment of startups and long term infrastructure funding. The coalition has recognised this and has made a start supporting angel investors, startups and entrepreneurs in an attempt to adopt an Israeli style support network for entrepreneurs. This incentivizes real growth in the economy, rather than market distortions for the gain of just one section of society. Initiatives include “a $200,000 cash injection to promote fintechs on the global stage” and a continuation of the innovation agenda announced in 2015. This involves the government contributing "$11 million to establish startup landing pads” in Tel Aviv, San Francisco, Shanghai and Berlin. According to the budget, these landing pads will “support emerging Australian companies in global innovation hotspots”.

There are other investment possibilities that have not been incentivized for individuals: long-term infrastructure, science, research, and very necessary communication infrastructure such as a higher quality National Broadband Network (NBN). In response to the dire need for investment in long-term bankable infrastructure projects, multinational organisations have taken up the call as they recognise the long-term, negative ramifications of a shortage of adequate infrastructure in Australia’s major cities.

The G20 has come to the forefront to address this need. Sydney has put up its hand to house the G20 Global Investment Hub (GIH). This platform has a global outlook and seeks to facilitate “knowledge sharing, highlighting reform opportunities and connecting the public and private sectors” as well as “lowering barriers to investment, increasing the availability of investment ready projects, helping match potential investors with projects and improving policy delivery.”

It would be incredibly helpful for superannuation funds, managed funds and personal investors to have the ability to jointly invest in hugely needed infrastructure projects checked by the GIH as being a high-quality investment which would help to develop economies without compromising housing affordability. The GIH is planning to eventually provide “a project pipeline to showcase investment ready projects to multilateral banks and private investors.”

The World Economic Forum’s Infrastructure Investment Blueprint stresses the need for investors to have ‘a clear role’ in funding projects either solely or as part of public-private partnerships (PPPs). It recommends tax policy changes with “lower expenses and cost of capital for investors” for long-term infrastructure. Thus, allowing long-term investors the ability and information to invest in needed infrastructure boosts the growth potential of economies while still obtaining returns in a lower risk market compared to other vehicles as well as furthering the public-private model.

When it comes to building a retirement nest egg for the future, property is still regarded as one of the safest long-term investments – no incentive is needed. The funds from Australian ‘mum and dad’ investors could be more strategically incentivized in order to enable growth, jobs and efficiency.

Originally posted in 'Insights' by Young Australians in International Affairs by Cassandra Oaten, International Trade and Economy Fellow. 

 This article can be republished with attribution under a Creative Commons Licence. Please email publications@youngausint.org.au with any questions or for more information.

Image credit: OTA Photos (Flickr: Creative Commons)