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Australia's Senate has approved a tax bill that would give foreign investors exemption from capital gains tax on the sale of domestic assets.

The government says that the Tax Laws Amendment (2006 Measures No. 4) Bill, which will excuse foreign investors from capital gains tax on the sale of assets other than land, is needed to boost investment in the Australian economy and bring the country into line with laws in other OECD countries.

"The amendments will encourage more investment in Australia by aligning Australian law more consistently with international practice," stated Treasurer Peter Costello in an explanatory memorandum.

While business and investment groups have naturally supported the bill, the proposal has drawn fire from other quarters, particularly from within the governing National/Liberal coalition party.

One notable dissenter is National Party Senator Bill Joyce, who crossed the floor to vote against the government. He argues that it is unfair to expect Australians to continue to pay capital gains tax while foreigners can get away with a significant tax break on the sale of their investments, and he criticised the opposition Labor Party for supporting the bill.

"Labor obviously does believe Australians should be discriminated against and have voted quite clearly that Australians citizens are secondary to foreign investors," Senator Joyce stated.

Joyce went on to express concern that the measure would lead to the raiding and break-up of Australian firms by foreign private equity groups, and deprive the Treasury of much more than the estimated A$300 million (US$236 million) in tax revenues, a bill that he says will ultimately be footed by Australian taxpayers.

"By supporting this Bill the Labor Party are turbo charging the break up of Australian companies by private equity firms who will now be exempt from paying Capital Gains Tax," he remarked.

He also argued that the measure would encourage tax avoidance by prompting firms to set up offshore to take advantage of the tax break.

Professor Graeme Cooper of Sydney University has estimated that the government can expect to lose A$600 million in revenues immediately after the bill goes into law, the Sydney Morning Herald reported.