DEMOCRATS SUPPLEMENTARY REPORT
Introduction:
The Democrats endorse the summary of the evidence in chapters 2 to 9
of the majority report.
The evidence shows that the ANTS package as it stands will have an adverse
effect on health, charity, community services and housing sectors, and
fails to adequate compensate low income earners.
However, the Democrats believe that the ANTS package can be amended to
ameliorate these effects. The amendments would need to be substantial.
But, the amendments would not derogate from the real potential gains from
the ANTS package in terms of promoting economic efficiency and achieving
a more robust revenue base from which community services would be funded
into the future.
Health
Medicinal products
The Democrats recommend that all products approved by the Government
as therapeutic goods should be GST-free.
Currently, these products are all sales tax exempt and introducing differential
taxation treatment would create inconsistencies and anomalies, as well
as imposing a cost burden on specific population groups.
Failing to fully zero-rate all medicinal products adds to the regressivity
of the GST, as low income households spend a higher proportion of household
spending – 1.4% for the lowest income quintile, but only 0.5% for
the highest income quintile on these products [1].
Evidence to the Committee highlighted an increasing trend for consumers
to self-medicate and use more over-the-counter medicines for the management
of conditions. Many common medicines such as Panadol, Codral, and Mylanta,
which will now be taxable, are much used by low income earners, the chronically
ill and the elderly.
Complementary medicines
The Democrats recommend that all services provided by recognised complementary
medicine practitioners, and complementary medicine approved for sale in
Australia as a therapeutic good, should be GST-free.
While the absence of a single registration and accreditation system for
complementary medicine practitioners may create some difficulties, the
use of Schedule 1 to the Therapeutic Goods Advertising Code as a criterion
to determine which therapists should be zero rated would be an appropriate
starting point for developing an appropriate definition.
The Democrats believe that complementary medicine is an integral part
of Australia's health system, helping consumers to remain healthy or avoid
further illness and thus saving costs elsewhere in the health budget.
Australians should be free to choose complementary medicine. We recognise
that consumers of complementary medicine do not receive government subsidies
for these products and services, and should not have their health choices
dictated by artificial tax distortions.
The Democrats see the legislation in relation to medicinal products as
discriminating in favour of pharmaceutical drugs which are already heavily
subsidised.
The proposed tax treatment of complementary medicines is discriminatory.
If the services are provided by a medical practitioner, they are GST-free,
but if provided by a qualified natural therapist, they are taxed. This
is hardly fair competition, and could add to Medicare costs as customers
turn to bulk-billing doctors in preference to tax-liable natural therapists.
Public Health Benefit
The Democrats recommend that the Government consider exempting specific
products from the GST where there is a demonstrable public health benefit.
We believe that it makes little sense to promote healthy living and disease
prevention through, for example, the regular use of sunscreen and then
to impose a tax on this product. A small loss of revenue now in this area
could save substantial amounts in future years if the incidence of high
cost diseases such as melanoma were prevented.
Food
The Democrats recommend that food be exempted from the GST as failure
to do so could exacerbate poor nutrition in low income groups.
The GST on food will see clean foods rising by considerably more than
the 1.9% CPI effect – meat up by 6.6%, fruit and vegetables by 5.7%
and dairy products by 6.3%. By contrast, confectionery will rise by just
1.7% and processed foods by 2.1%. Such price changes will have negative
health effects, particularly on remote and Indigenous communities where
food costs are higher and incomes lower. The Democrats deplore the failure
of the Department of Health and Aged Care to undertake any research into
the health effects of imposing a GST on food.
Exemption of food will also dramatically improve the equity of the tax
system, as low income earners spend twice as much of their expenditure
on food than do high income earners.
Compensation
The Democrats recommend that the GST should be structured to minimise
the need for compensation as compensation tends to miss many needy groups
and be eroded or eliminated over time.
The Democrats conclude that the Government has failed to fully and
adequately compensate low income earners and particular groups with special
needs for the impact of the GST.
The evidence to this Committee and the Select Committee has been quite
compelling that the Government's compensation package is woefully inadequate.
The Democrats concur with the view of the large number of witnesses to
the committee, including church, welfare, consumer, indigenous and public
health groups that the important way to ensure compensation was adequate
was to reduce the price impact of the GST by taking food out. If food
was included in the GST then a substantially larger compensation package
would be needed.
The Democrats recognise particular groups will need compensation over
and above that of the general community reflecting their special needs,
specifically people with disabilities and chronic illnesses and their
carers, and people living in remote communities. While many of the changes
suggested by the Democrats to the legislation, for example exempting food
and all medicines from the GST, would assist people with disabilities,
people with chronic illnesses and carers, additional targeted assistance
(e.g. expanding eligibility of the current Health Care Card) is likely
to be needed.
Consumer Impact
The Democrats recommend that consumer groups be included in the formal
price monitoring arrangements for the GST, assisted by the re-instatement
of Federal grants.
The Committee has been told that many consumers do not understand how
the GST will affect the price they pay for consumer goods and are therefore
not in a position to assess whether or not retailers and suppliers are
passing on savings. There is considerable scepticism that the Australian
Competition and Consumer Commission will have sufficient resources to
effectively monitor prices, particularly in rural areas. Consumer groups
should be assisted to provide additional monitoring.
Private Health Insurance
The Democrats believe that the GST should include private health insurance
to bring it in line with other insurance products.
Private health insurance should not be treated differently from other
insurance products, as it is an insurance product rather than a health
product. This measure would raise around $350 million extra, taking into
account the impact on the 30% rebate.
GST Treatment of Charities
The Democrats recommend that the zero-rating for the activities of
charities apply to all activities of the charity, other than those that
are clearly defined by law to be commercial. Where a not-for-profit organisation
is exempt from income tax but not eligible for GST zero-rating, the option
should be provided of being GST-exempt for all of their activities other
than those that are clearly commercial.
The Democrats recognise the valuable contribution made by charities and
public benevolent institutions (PBI's) in all sectors of Australian life,
particularly for the disadvantaged. We also recognise that the charitable
sector performs work which would otherwise need to be undertaken by the
Government and thereby saves the Government substantial sums every year.
The GST, with its complex division into taxable, non-taxable and exempt
goods and services, will seriously damage the charitable sector, increase
compliance costs and inevitably reduce services that can be provided.
The Democrats want to hold the Government to its stated intention of
not harming the charitable sector by seeking to broaden the scope of the
zero-rating for charities as well as providing relief for not-for-profit
organisations that do not qualify for zero-rating treatment.
The Democrats preferred position would be that, instead of seeking to
define the non-commercial activities of a charity in a very narrow set
of instances and creating compliance headaches for charities, all activities
of charities should clearly fall within the exemption unless they were
clearly commercial. Clearly commercial activities would be defined by
the Act to include activities that are conducted on a for-profit regular
basis on a proper business footing in direct competition with other for-profit
businesses. A charity owning and running a food manufacturing outlet,
or a hotel, or a licensed club and restaurant, or a fully staffed gift
shop is clearly engaging in commercial activity. But a charity running
a weekly bingo night, or a yearly greeting cards or lamington drive, or
an op-shop run by volunteers, or a tuckshop, or low-cost housing, or a
passive share portfolio is not engaging in commercial activities.
However, if the Government refuses to agree to this option outright,
the Democrats would recommend that the treatment of charities be at least
as favourable as it will be under the more generous Canadian and UK GST/VAT
systems:
The Democrats recommend that the following activities clearly be defined
as being not-commercial:
- Membership fees (provided less than 30% is to access facilities
and activities);
- Fundraising (other than the regular supply of goods and services
at more than their direct cost);
- Hire of facilities and associated catering;
- Advertising in charitable publications;
- Sponsorships not providing actual goods or services;
- Gambling (e.g. raffles, bingo) other than those activities which
directly compete against the private sector (eg. poker machines);
- Fees for recreational programs for under 14 year olds;
- Life saving and first aid;
- All purchases by libraries run on a not-for-profit basis;
- Tuckshops;
- Provision of housing or other services at not more than its direct
cost.
FBT Treatment of Charities
The Democrats recommend that the proposed $17,000 cap on FBT concessions
be replaced with a cap of 30 per cent of remuneration.
The Democrats understand the need for community sector organisations
to compete with the private sector in attracting quality staff, and that
salary packaging using fringe benefits has become a necessary part of
that in tight budgetary situations.
We also recognise that some organisations have rorted these arrangements
and that some cap is necessary and appropriate,. However, the cap proposed
by the Government is too low and will mean that charities will have to
reduce staff or cut wages to implement it. This is an unacceptable outcome,
particularly considering that fringe benefits are tax deductible for for-profit
organisations but not for charitable organisations. Evidence provided
to the Committee was that in many organisations a cut in staffing levels
of about one in three would occur as a result of the FBT changes.
Compliance Costs faced by charities
The Democrats recommend that an additional $200 million be set aside
to assist charities and not-for-profit organisation to implement the GST,
and that an ongoing rebate of GST payable (e.g. 50 per cent) be implemented
as in Canada to help assist with compliance costs.
The Democrats understand that many charities and PBI's will face considerable
compliance costs as a result of the tax changes. We recognise the difficulties
that many organisations will have in competing with businesses for the
fixed pool of funds to assist with compliance. Therefore, the Democrats
believe that a separate allocation of $200 million should be made for
not-for-profit organisations to help with compliance costs
The Democrats also believe that in recognition of the complexity of the
taxation changes the legislation should include a clause relating to `due
diligence' to protect organisations making genuine mistakes in implementing
the tax changes, and that an amnesty period (e.g. five years) should apply
to penalties for not-for-profit organisations which rely heavily on volunteer
labour.
Housing
The Democrats recommend that the adverse impact on the housing sector
of the GST be expressly addressed by:
- Converting the first home buyers scheme into a targeted GST rebate
scheme on new residential and rental homes to reduce the up-front cost;
- Increasing funding to the Commonwealth-State Housing Agreement
and the Supported Accommodation Assistance Program
to offset the higher costs of the GST;
- Options be developed to reduce the adverse impact of the GST on
homeless people;
- The GST treatment of boarding houses and caravan parks be properly
clarified where these are places of normal residence;
- Compensation through rent assistance be carefully calculated to
ensure that low income renters are fully compensated for rent increases.
The evidence to the Committee was substantial that the Government has
understated the impact of the GST on the housing sector, particularly
on the rental market. With rent making up 19% of the spending of low income
earners – the next biggest item after food – it is essential
that the impact on the low rentals sector in particular be minimised.
The Democrats' recommendations are designed to ensure that the housing
compensation already provided in the package is best targeted to minimise
the cost impact of the GST for lower income groups.
Senator Andrew Bartlett
Australian Democrats Senator for Queensland
Footnotes
[1] ABS HES 1993-4 cat.no. 6535.0