Chapter 1
Introduction
Background to Senate Inquiry
1.1 In August 1998 the Coalition Government announced a wide ranging
plan for changing Australia's taxation system entitled Tax Reform:
not a new tax, a new tax system. A key aspect of the Government's
proposals was the introduction of a new indirect tax called a Goods and
Services Tax (GST) at the flat rate of 10 per cent.
1.2 Following the Government's re-election, it appointed the Tax Consultative
Committee, chaired by Mr David Vos (the Vos Committee), on 26 October
1998, to assist in determining the final design of key matters in the
new Goods and Services Tax. The Vos Committee had three weeks to undertake
its inquiry, noting in its report that `in view of the timeframe given
to it by the Government, it would not be possible to undertake a full
public inquiry or to consult with individuals or groups'. [1]
The Committee reported to the Treasurer on 13 November 1998.
1.3 On 25 November 1998, after serious concerns had been raised about
both the lack of consultation with the Australian community and the impact
on them of the proposed legislation, the Senate agreed to establish a
two-tier inquiry into the tax reform plan. It established the Select Committee
on Tax Reform to inquire into and report by 18 February 1999 on the assumptions,
calculations, projections, estimates and modelling that underpin the proposals
for taxation reform, and report on the broader economic effects of the
reform by 19 April 1999. At the same time, the Senate referred specific
matters and the Bills implementing the proposed tax changes [2]
to three Senate References Committees, including the Community Affairs
References Committee.
Terms of reference
1.4 The complete terms of reference for the Community Affairs Committee
are:
The impacts of the Government's taxation reform legislation proposals
on the living standards of Australian households (especially those on
low incomes), including:
a) the scope and effectiveness of the proposed arrangements on charities,
child care services, aged care services, welfare services, local government
human services and all not-for-profit organisations in maintaining the
quality and affordability of essential community services, including the
implications for the public funding of these services and the implications
for the commercial activities of these organisations, and whether unconditional
GST-free status should apply to bona fide charities;
b) a detailed examination of the zero-rating of health services, including
an examination of which services should be zero-rated;
c) the effects on community sector organisations of changes to their
tax exempt status, and of the compliance costs of the proposed tax arrangements;
d) the effects of the proposed private health insurance rebate;
e) the effects on people with disabilities;
f) the effects on public, community and private housing, including the
levels of rents; and
g) options for amendments to improve the fairness or efficiency of the
proposed legislation.
1.5 The Senate also resolved that in undertaking their inquiries, the
References Committees should have regard to the Select Committee's interim
report in making their own report to the Senate by 31 March 1999.
Conduct of the inquiry
Submissions
1.6 The terms of reference for the inquiries by the Select and References
Committees were advertised in the national press in December 1998. The
Community Affairs Committee also invited submissions from peak welfare,
health, aged care, housing and child care groups, and also from local
government. The closing date for submissions was 29 January 1999, however,
submissions were received and accepted throughout the course of the inquiry.
1.7 In an attempt to facilitate the processing of submissions, a central
unit was established within the Select Committee to receive all submissions
and then refer to each of the References Committees those submissions
relevant to their areas of inquiry. From the 1421 submissions received,
774 submissions from organisations and individuals were referred to the
Community Affairs Committee. The list of submissions received by the Committee
and supplementary information and other written material authorised for
publication by the Committee is at Appendix 1.
1.8 The procedure for processing submissions posed a number of serious
problems for the Committee. The complexity of issues covered in the terms
of reference and the limited time available for preparing submissions
by the 29 January deadline (coinciding as it did with the main holiday
season), provided difficulties for many organisations. Consequently, a
large number of submissions were received after the closing date. There
was a significant delay in the processing and referring of submissions
through the Select to the References Committees.
1.9 In order to conduct its inquiry within the tight timeframe, the Committee
commenced its public hearing program in early February despite the backlog
in processing submissions. As a result, arrangements for the public hearings
were often made at short notice and involved rescheduling some witnesses.
The Committee expresses its thanks to those witnesses for their patience
and forebearance with hearing arrangements.
1.10 An added complication was the different approaches adopted by Committees
to the publication of submissions. The Community Affairs Committee agreed
that all submissions referred to the Committee would be publicly released
upon their receipt by the Committee. This procedure was not followed by
other Committees, which selectively released submissions. This created
confusion as to which submissions had been authorised for publication,
especially when the same submission was referred to more than one Committee.
1.11 In a broader context, the fragmentation of issues relating to the
impact of the GST and the new tax system between four Committees proved
to be a totally unsatisfactory process. The Committee found it particularly
disconcerting that it was unable to obtain an overall appreciation of
the impact of the introduction of a GST, and many issues had implications
for more than one Committee. For example, evidence received about the
fuel tax had significant health as well as environmental implications.
1.12 The Committee expresses its strong view that the process used for
this inquiry should not be used again.
Public Hearings
1.13 The terms of reference indicated that the Committee should consult
widely, holding hearings in each State and Territory as required. The
Committee, as it has in previous inquiries, attempted to give as many
groups as possible the opportunity to express their views directly to
the Committee. By necessity, this resulted in tight scheduling for most
hearing days. With so many submissions to the inquiry, the Committee had
to make a selection to create a balance of evidence. The Committee trusts
that witnesses appreciate the good intentions of the Committee's approach.
1.14 The Committee held 11 days of public hearings in Canberra (4 days),
Brisbane, Sydney (2 days), Melbourne, Adelaide, Perth and Hobart. 121
Organisations relevant to the Committee's key areas of inquiry appeared
before the Committee with 229 witnesses in total. Details of the public
hearings and the witnesses who gave evidence are listed in Appendix 2.
1.15 The Committee notes that there was adverse comment during the course
of the inquiries being undertaken by the Select and References Committees
that organisations were giving oral evidence before more than one of the
Committees. The Community Affairs Committee considers this to be an entirely
appropriate procedure given the different terms of reference of the respective
Committees. Some of the major welfare and peak organisations provided
a submission or multiple submissions addressing the terms of reference
of different Committees and it was quite proper to provide these organisations
with the opportunity to speak at all relevant Committees. Very few organisations
were involved. For example, ACOSS, St Vincent de Paul Society and the
Australian Local Government Association gave oral evidence to both the
Community Affairs Committee and the Select Committee on different issues.
The benefit of the GST inquiries
1.16 The Committee notes that the Government, and the Treasurer in particular,
have made critical comments about the Senate inquiries, questioning their
value. [3] The Committee strongly refutes these
views. Given the lack of detail available about the Government's tax changes
prior to the election and the short timeframe the Vos Committee had in
which to report, the value and importance of the inquiry has been immeasurable.
1.17 The Senate inquiry process has provided the only public opportunity
for individuals and organisations to examine and debate the impact and
assumptions of the Government's tax package. Even this process, with its
limited timetable, has not provided sufficient time for the Committee
to fully address the huge range of issues within its terms of reference.
1.18 The evidence to the inquiry has highlighted, time and time again,
the gross insufficiency of the Government's consideration of the GST package.
Evidence by the Departments of Health and Aged Care, and Family and Community
Services confirmed the complete lack of departmental modelling and research
about the impact of the tax proposals.
1.19 The inquiry also provided an opportunity for many organisations
in the health, welfare and other fields to raise issues of concern and
seek information. Consultation with the community has uncovered many weaknesses,
anomalies and other problems with both the legislation and its underlying
assumptions.
1.20 The inquiry was hampered by indications from Government members
that aspects of the GST package were still under consideration by Treasury
and by Ministerial announcements refining or clarifying tax policy. [4]
The Government added to the confusion by making policy on the run. Mobile
home and caravan park operators were told that they would not have to
charge the GST, but that they could if they wanted to. The Scouts Australia
were told that they would not have to pay GST on Bob-a-Job, but this just
raised the question of other exemptions for other organisations and created
more confusion.
1.21 It is apparent that Treasury and the Government are only now, as
a result of the inquiry process, sifting through the evidence received
from the Australian community on the impact of the new tax. A number of
organisations have been offered Treasury briefings subsequent to the hearings
but many questions remain unanswered and have been referred to Treasury
for a written response.
The Report
1.22 It is not possible for the Committee to specifically refer in its
report to all of the submissions and evidence that were received. Nevertheless,
the Committee wishes to stress that it placed great value on these submissions
and evidence as primary sources of information.
1.23 The Committee was assisted by the fact that many organisations emphasised
the same or similar arguments in their submissions and evidence.
1.24 Overwhelmingly, the majority of submissions and evidence to the
Committee expressed serious concerns about the Government's proposed tax
changes. In particular, the problems faced as a result of the inadequacy
of the compensation measures and concerns from organisations about the
increases in the administrative and compliance costs.
1.25 The Committee has not had the benefit of being able to examine in
detail a number of key pieces of legislation outlining the GST compensation
measures, because at the time of writing this report legislation was still
being introduced into the Parliament. The Committee faces the further
difficulty that the legislation it has examined, is undergoing re-appraisal.
Acknowledgments
1.26 The Committee expresses its appreciation to the many individuals
and organisations who have so willingly given their time to make submissions
to the Committee, provide other written information or give oral evidence
to the Committee.
Footnotes
[1] The Report of the Tax Consultative Committee,
Chairman Mr David Vos (the Vos Report), p.13.
[2] 16 Bills implementing the new tax system
were introduced into the House of Representatives on 2 December 1998.
A further 12 Bills were introduced on 24 March 1999.
[3] Treasurer, Press Release No.111, 10.11.98;
House of Representatives Hansard, 11.3.99, p.3263.
[4] Committee Hansard, 3.2.99, pp.209-10;
5.2.99, pp.420-21; 10.2.99, pp.504-5.