It’s quite the cosy little arrangement that some of Australia’s “old money” billionaires enjoy, courtesy of the federal government. It’s a cosy arrangement afforded to no other Australians, and a number of the country’s wealthiest individuals have fought tooth and nail to protect their privilege despite repeated attempts by parliament, the corporate regulator and Treasury to end it.
Billionaires such as Gina Rinehart, Anthony Pratt, Harry Triguboff, Frank Lowy, Kerry Stokes and dozens of other “old wealth” Australian families are exempted from having to produce audited financial accounts to the Australian Securities and Investments Commission (ASIC).
A total of 1,119 large proprietary companies are on this secret rich list; a result of “grandfathering” provisions of the corporations laws that were introduced by the government of Paul Keating 25 years ago.
Our investigation has found at least 37 directors on the grandfathered list who also appear on the Australian Financial Review’s ‘Rich List’ of the top 200 wealthiest Australians for 2020.
Over the years, a number of politicians have tried to abolish this elitist “temporary measure” – the latest being an amendment by independent senator Rex Patrick to two separate Treasury bills – but to no avail. The billionaires lobby is nothing if not powerful.
Indeed, Rex Patrick, speaking to Michael West Media, made the point that after 25 years “the Government still cannot offer a policy reason for the exemption remaining in the statute books”.
Each time an amendment to eliminate the exemption has been debated in the Senate, the Coalition has come up empty handed in explaining the policy rationale for retaining it.”
The grandfathering exemption was put in place to give these wealthy proprietary companies time to adapt to a new financial reporting law introduced in 1995.
Introduced as a temporary plan by the Keating government, the list of exempt companies was to be reviewed after a few years but the Howard government stopped that move. The Rudd-Gillard government passed laws to limit the exemption, but the Coalition overturned them.
In August 1995, the Parliamentary Joint Committee on Corporations and Securities (PJSC) issued a report on the amendments to the 1995 Bill, which included the grandfathering exemption.
While the Committee supported the small/large company test (see Explainer) to replace the reporting entity test, it had reservations about the grandfathering clause, concluding that:
“Although the provision will ease the transition for some companies from the existing legislation to the new structure, [extending this assistance indefinitely] is not justified on any policy grounds.”
The parliamentary committee recommended, “the Bill be amended to include a sunset period of three years from the date of commencement of the legislation”.
The Keating government did not agree to a sunset period for the grandfathering clause but acknowledged the need to review the provisions. Paul Keating is yet to respond to questions from MWM regarding his creation of the grandfathering exemption and refusal to implement a sunset period.
In the wake of Rex Patrick’s 2020 amendment, which got up in the Senate on two separate occasions but was foiled by the Coalition in the House, Michael West Media began investigating the 1,119 “Dark Companies” on the grandfathered list.
More than 5,000 searches unveiled a string of reporting irregularities by the billionaires; further, there exists a strong connection between their Dark Companies and donations to the two major political parties, which raises the question: have Australia’s wealthiest families effectively bought off the political process?
Over the following weeks, we will roll out a series of investigations into Australia’s Dark Companies and the ultra-rich family business empires that lie behind them. Their latent power and influence cannot be underestimated.
Over the past 25 years, both sides of Parliament, the cross bench and the Greens, Treasury, the corporate regulator ASIC, and a joint parliamentary inquiry have all called for the grandfathering exemption to be abolished. But every time a repeal looks likely, suddenly enough votes are cobbled together to knock it on the head.
A question of fairness
In September 1995 in a Senate hearing, Liberals Senator Michael Baume argued there was a need “to restore fairness in terms of obligation to report”. When the Howard government was elected, it refused to review the grandfathering provision.
ASIC’s review, released to the Senate in June 1998, suggested that the 1995 changes “has created an unlevel playing field between different types of entities in terms of their financial reporting obligations”.
ASIC raised concerns that because grandfathered companies did not have to abide by the legislative requirements of the Accounting Standards, this had led to practices such as “not recording liabilities for employee entitlements and not depreciating non-current assets”.
The parliamentary committee again advised in a March 2001 report that the exemption should be removed.
In 2006, Treasury reviewed the exemption and suggested it be removed. Again, the proposal went nowhere. Furthermore, the media release on the review has been removed from Treasury’s website.
Almost 10 years later, in a submission to the 2015-16 Senate Economics Committee inquiry into Corporate Tax Avoidance, ASIC again recommended abolishing the exemption.
It argued that the “reporting exemption means that certain companies are not subject to the same level of public scrutiny as other similarly sized companies … The lack of availability of public financial reports reduces transparency about possible indicators of tax avoidance or tax minimisation.”
In October 2015 the government of Malcolm Turnbull passed legislation that continued the grandfathering exemption – this despite Turnbull attempting unsuccessfully to remove one of his private companies Turnbull & Partners Holdings Pty Limited from the secret rich list.
Turnbull said the exemption made “absolutely no difference to tax collections”. However, given that the tax payments of these Dark Companies are simply that – dark – we can only take the former prime minister at his word.
In a December 2015 Senate hearing, another amendment to the grandfathering exemption was put forward by Senator Ricky Muir of the Motoring Enthusiasts Party. In arguing against the exemption, the then assistant treasurer Josh Frydenberg claimed it was a “real concern” that wealthy business owners would be targeted for kidnapping if the public became aware how wealthy they were.
Kidnap amendment helps old money billionaires keep their secrets
During this hearing, the then finance minister Mathias Cormann said the government did not support grandfathering but reiterated the Liberal Party’s view that “the principle of not making these sorts of changes retrospectively is a very important principle that ought to be upheld”.
However, if a change cannot be made retrospectively, when exactly can a change be made?
When asked by Senator Jacquie Lambie how many directors of these Dark Companies were donors to the Liberal Party and the amount they donated, Cormann replied:
“What I would say to Senator Lambie is that truthfully, I do not know and I do not care. We determine public policy by what is in the public interest.”
In 2017 Greens senator Peter Whish-Wilson moved an amendment to repeal the reporting provision and again it was knocked back by the Coalition in the House.
And so, we return to Senator Rex Patrick, who has vowed to attach the amendment to every Treasury Bill that is introduced to the Parliament. It is currently attached to Treasury Laws Amendment (2020 Measures No. 4) Bill 2020.
Senator Patrick told Michael West Media that the secret rich list “creates an elite status for particular companies that is inconsistent with Australian values … [and] that the loophole provides for or encourages aggressive tax minimisation through a lack of transparency.”
Similarly, Labor MP Andrew Leigh has also objected to the secrecy given to these Dark Companies.
“This loophole was never intended to be permanent. It was a transitional measure. There’s no rhyme or reason for letting firms keep their affairs secret merely because they were formed before a particular date.”
It is well past time that the government ended this exemption from basic corporate law, which aids some of Australia’s wealthiest billionaires, as being directly in line with the public interest.