Government’s contractor crackdown angers building sector

The construction sector is furious with the Government’s plan to require construction companies to report payments made to contractors, but the move has been defended by CPA Australia, which describes it as a “reality check” for an industry with a history of cash payments.

Under the plan released at this week’s budget, businesses will be required from July 2011 to report annually on payments made to contractors in the building and construction industry. The commercial cleaning industry is flagged as next in line for the new payment-reporting regime.

The Government says the move, designed to improve voluntary compliance and improve tax fairness within the building and construction industry, will bring in an additional $513 million in revenue over the forward estimates period.

Building industry group Master Builders Australia has slammed the move, describing it as a “guise for attacking the legitimacy of contracting in the building and construction industry”.

“The new reporting arrangements will impose an additional red tape burden on a yet to be determined category of contractors,” chief executive Wilhelm Harnisch says.

“For smaller contractors this additional compliance would be an unacceptable time and cost burden.”

“Builders are also fearful that commercially confidential information will be accessed by building unions as part of their industrial and wage bargaining campaigns.”

The Opposition has also criticised the move, arguing it is an ideological assault on people who choose not be employees, thereby avoiding the union movement’s grasp.

Shadow Small Business Minister Bruce Bilson this morning raised concerns about the “stalking” of independent contractors, with the new reporting requirements adding to pressure from the Australia Taxation Office, the Fair Work Ombudsman and Australian Building and Construction Commission.

But Paul Drum, business and investment policy head of CPA Australia, says that the $513 million revenue figure could prove modest.

“The Government’s running it as a pilot,” Drum says.

“The message of what that sends to the community about ensuring that you meet your tax obligations, there’s a profound dividend there,” he says.

“If it was rolled out more fully, we’d expect the amount to be a large one, or behaviour to change.”

The announcement follows a vigorous debate about whether the Government is unfairly targeting Australia’s one million contractors, or whether flouting of Australia’s labour laws is commonplace in contracting agreements.

The Fair Work Ombudsman defines ‘sham contracting’ as an employer disguising or misrepresenting an employment relationship as an independent contracting arrangement, thereby avoiding employee entitlements such as minimum rates of pay and leave entitlements.

The Government will deliver by a $46.4 million increase to funding for the Australian Taxation Office for data-matching, reviews of contractors’ tax liabilities and targeted audits.

CPA’s Drum says the move doesn’t seem to be a flagrant attack on independent contracting, but is simply an integrity measure.

“The building and construction industry has a long history of being non-compliant, and having a lot of cash transactions,” Drum says.

“And therefore in the context of everybody paying their share, we’re supportive to a compliance initiative, to ensure they’ll fulfilling their tax obligations.”

Drum also rejects suggestions the crackdown will lead to a massive increase in building costs, suggesting that companies will find ways to keep prices attractive to consumers to ensure they keep spending.

The extra compliance for a head contractor is they’ll need to make an annual summary on who’ve they paid, Drum says.

“That will be a pest and a nuisance, but it doesn’t seem burdensome.”

Fair Work Ombudsman Nicholas Wilson recently said in a speech that “if a party sets out to avoid its workplace relations responsibilities, and that avoidance takes the form of using the commercial processes to find a business partner who will undercut established minimum wage rates, then that may well be unlawful.”

In March, the Ombudsman confirmed it was taking aim at sham contracting in the health and beauty, cleaning, and call centre industries.