THE LUCKY COUNTRY GOES BEGGING
TABLE OF CONTENTS

Overview

The Committee considers that the Government's tax package is unfair, complex, confusing, and significantly flawed in many crucial areas.

The overwhelming majority of evidence from across the whole health and welfare sector was highly critical of the impact of the package on the living standards of Australians. The GST will disproportionately hurt low and middle income Australians and the compensation is inadequate and vulnerable to future government budget cuts.

The Committee considers that the tax package will divide the community and entrench that division. Australians will become the `haves' and the `have nots'. High-income earners will have generous tax cuts and low-income households will have paltry compensation.

The tax cuts and pension increases offered in compensation are skewed towards high-income earners. The Government's own figures illustrate this. For a single person on $20,000 the benefit is 1.3 per cent or $4.28 per week, while for a single person on $75,000 the benefit is 7.3 per cent or $68.55 per week. [1] A single pensioner will get just $2.89 a week out of the package while a pensioner couple gets just $4.81. Just enough for a packet of cereal!

The compensation package assumes that the GST will raise prices by 1.9 per cent. Treasury's own testimony was that in the first year the effect would be 3.1 per cent.

The compensation package has been modelled by using a CPI `average,' which totally fails to account for the different spending patterns of low and fixed income earners, including the aged and disabled; a point highlighted in the Select Committee's First Report.

Low and fixed income earners spend a much higher proportion of their income on food, health and rent, and require many more services. The introduction of the GST on food, services and increased housing costs means the compensation for these families will not be enough.

Not only is the compensation insufficient, it will be eroded over a short period of time.

The Government is wrong in assuming that the removal of wholesales sales tax will result in significantly reduced prices. Evidence to the Committee shows that the Government has overestimated the impact of this measure. Witnesses were sceptical that any benefit would flow through to lower prices, or that the ACCC would be able to monitor every item and sale. Already the GST has led to price rises in the car leasing area and with pre-paid funerals.

The Government's tax package threatens a two hundred-year tradition of charitable and not-for-profit service to the community. Any tax which threatens the Girl Guides, the Boy Scouts, and the Surf Lifesavers is a tax that is not good for the community. For the first time the charitable and not-for-profit sector will lose its tax-free status given in recognition of the services they provide to the community.

Taxing the charitable sector will undermine an important part of the fabric of our society. It is simply, Un-Australian.

The Committee finds it a depressing irony that, at the same time as the Prime Minister is exhorting the corporate sector to become more philanthropic, his Government is threatening the activities of charitable organisations by taxing their memberships, fundraising and the local Church fete and lamington stall.

Charities will now become tax collectors. This will require complex and costly administrative and compliance procedures.

The threat to Charities will mean cuts to their essential services precisely when the effect of the GST will mean many more low income families will need those very services. The Government will have to pick up the extra load.

Compliance costs will occur across all areas in the health and welfare sector.

All of the supposedly GST-free areas will have associated cost increases.

In health - many essential health and community services will not be GST-free. Over-the-counter medicines that people use most often, pain relievers, cough medicines, sunscreen lotions, stop-smoking products, and vitamins will all have a GST. They are currently tax-free.

In local government - despite written assurances to local government during the election that a GST would not apply to local government activities, the GST will be applied to swimming pools, seniors' centres, bus services, home help, and school holiday programs.

In services for the disabled - the GST package is putting back barriers to participation in the community that disabled people have spent years trying to knock down. Sufferers of chronic illness, and people with disabilities and their carers will be worse off due to the GST on personal services and technology items that they require to participate in society.

In childcare - the GST will lead to increased administrative and cash flow burdens, at a time when the child care industry is already undergoing significant financial restructuring. Family Day Care workers, mainly low-income women will have to deal with complex tax problems.

In housing - rent increases are inevitable. The compensation for first homebuyers is insufficient. Low-income Caravan Park and boarding house residents will be the only renters to have a GST on their rent. The tax changes threaten the viability of the public and community housing sectors.

There is widespread confusion about the GST. Obtaining detailed information has proven very difficult for many organisations. Lawyers and tax accountants were commissioned to examine the legislation; Government Ministers and spokespeople had to continually make statements of clarification throughout the Inquiry.

The legislation is very complex. Provisions of the Bills are vague, imprecise, open to interpretation. This tax will be a field day for lawyers and accountants.

The tax package is contradictory and undermines Government policies in the health and welfare area; it treats the delivery of goods and services by one type of organisation differently from those delivered by another.

The difference in services provided by religious marriage celebrants and civil marriage celebrants illustrates the contradictory and discriminatory aspects of the Bill.

The lack of research and analysis undertaken by the Government on the impact of the tax package is a glaring deficiency.

This tax is not simple.

The Committee has concluded the tax package does not benefit the poor, it rewards the rich. It is not just unfair and inequitable; it fails to grasp a great opportunity to address the social and economic divide within Australia, through genuine tax reform.

Recommendation
The Committee recommends that the Senate not pass the New Tax System Bills.

Summary of Evidence to the Committee:

Evidence presented to the Committee contradicted all the major claims made by the Government. Some of the major claims are detailed below.

Government Assertion*	What the Committee found
`the new tax system will be fairer', (p.15, ANTS) & No one will be worse off.	The GST is inherently unfair because it is regressive. Tax cuts are skewed to the higher income earners. Compensation package inadequate. Many low income families, older people, and people with disabilities will be worse off.
`work incentives for low and middle income families will be greatly improved', (p.15, ANTS)	Sole parents get more out of the tax package if they don't work than if they work part-time.
`the new tax system will also give much greater recognition to the costs of raising a family', (p.15, ANTS)	The new tax system discriminates against families with children because it assumes that the GST adds only 30c a week to the cost of raising a child. Families have not been compensated enough. The new tax system does not recognise families with a 17-21 year old dependent for the purposes of the compensation, despite the commitment of the Prime Minister to Senator Harradine that it would do so.
`social security recipients and lower income groups will be provided with extra assistance to ensure that they are more than just protected from the impact of tax reform on prices', (p.15, ANTS)	Compensation is based on the GST putting prices up by only 1.9% for everyone. The real impact on social security recipients will be much higher around 4-5%, leaving some no better off and many worse off.
`a 4 % increase in age and service pensions', (p.20, ANTS)	The Government is re-badging existing entitlements as GST compensation; pensioners are already entitled to pension increases each year to keep pensions at 25% male total average weekly earnings.
`special payments will be made to older Australians pensioners and self-funded retirees to protect the value of their savings', (p.15, ANTS)	A self-funded retiree aged between 55 and 60 does not qualify for the payment, leaving thousands of older Australians worse off.
Health and medical care is `GST-free', (p.93, ANTS)	Health is not GST-free essential over the counter medicines will be taxed.
Nursing homes are `GST-free', (p.93, ANTS)	Some residents in retirement complexes will pay the GST while others will not.
Charitable activities will be `GST-free', (p.95, ANTS)	Charities will have to pay for the GST on a range of activities including membership fees & fundraising. For the first time ever the Charities will lose their tax-exempt status. Additional GST compliance and administration costs- threaten the viability of services. FBT exemption will be reduced.
Childcare is `GST-free', (p.94, ANTS)	Child care centres will have significant GST compliance costs. OSHC centres - GST compliance may force closures. FDC - substantial compliance costs on low-income carers.
Price impact of the GST on housing sector will be 2.3%. (p.172, ANTS)	Rent increases inevitable. Predicted rises of up to 8-11 per cent. Threatens viability of public and community housing sectors. Mobile home, caravan park, boarding house tenants to pay GST on rent.
Government services are `GST-free', (p.98, ANTS)	The GST will be payable on all Local Government Services where a fee is charged. Eg home care, swimming pools. Broken election promise.

*The Committee has not had the benefit of being able to look at a number of key pieces of legislation outlining the GST compensation because at the time of writing this report, they had not been introduced into the Parliament.

Footnotes

[1] Tax Reform: not a new tax, a new tax system, p.178.