Inquiry into the GST and A New Tax System
CONTENTS

CHAPTER 1

EMPLOYMENT

Introduction

1.1 One of the key principles underlying the perceived need to reform the current tax system is that a system of new arrangements would help to improve Australia's global competitiveness, thereby generating investment and employment. The Government's Tax Reform: Not a New Tax, a New Tax System (ANTS) document argues that the current tax system is failing Australia, and that, inter alia, it penalises Australian exports and discourages investment by distorting business decisions and imposing excessive compliance costs on businesses. These factors are said to reduce the total gains to Australia from investments, thereby hindering employment growth and restricting gains in living standards. [1]

1.2 The ANTS guide describes many potential benefits for Australia flowing from the new tax system proposal, suggesting that it will `fix the problems of unfairness, uncompetitiveness and complexity that plague the existing system' and `encourage job-creating investment in our businesses, both large and small'. [2]

1.3 The Government claims that the tax reform package will deliver substantial long-term improvements in the operation of the economy, to the benefit of all Australians. In his second reading speech in the House of Representatives, the Treasurer, Mr Costello, made the following claims:

This is a plan not for a new tax but for a new tax system. It encapsulates those changes necessary to make our great country more productive and more competitive. It will help our exporters, deliver more jobs and increase standards of living. [3]

1.4 The Minister for Employment, Workplace Relations and Small Business, Mr Reith, has also made clear in the Parliament the Government's belief that the ANTS package will provide a boost for employment, claiming that `the [proposed] new tax system is very good for jobs'. [4]

1.5 The ANTS document makes similar claims:

These improvements will be reflected in higher economic growth as a result of stronger, more productive investment which, together with the lowering of industry costs, will yield better export outcomes. Such changes will be crucial in relaxing the balance of payments constraint that has for so long held back Australia's growth performance. The combination of higher growth and improved work incentives will deliver more jobs and lower unemployment. [5]

1.6 Evidence and information gathered from nearly 1,500 submissions to the Senate's inquiries into the Goods and Services Tax (GST) and other new tax system proposals, a range of economic models and numerous public hearings, have discussed the validity of these and other assertions by the Government about the proposed new tax system. It is the issues in relation to employment and unemployment that this chapter seeks to examine in more detail.

Economic Modelling of the ANTS Proposals

Introductory Comment

1.7 The Select Committee commissioned a project involving the macroeconomic modelling of the effects of the ANTS package. The Select Committee commissioned Professor Peter Dixon and Dr Maureen Rimmer from the Centre of Policy Studies at Monash University to undertake this work, and, so as to maximise the information to the Committee, it also requested that another private sector forecaster comment on the findings. Mr Chris Murphy of Econtech was selected for this role and he also reported back to the Select Committee.

The Monash Model

Description [6]

1.8 The Monash model, developed by the Centre of Policy Studies, is a dynamic, computable general equilibrium model of the Australian economy. The designers of the model describe their model as being designed for forecasting and for policy analysis. The model incorporates information from a wide range of sources, such as macroeconomic forecasts from the Department of the Treasury and other analysts, forecasts of tourist numbers from the Bureau of Tourism Research and export volume and price forecasts from the Australian Bureau of Agricultural and Resource Economics.

1.9 From this information, the model generates forecasts for 113 industries and 115 commodities. The results can be transformed into forecasts for 860 sub-commodities, 341 labour occupations, 56 regions and many types of households.

1.10 Of specific interest to this Committee's terms of reference are the forecasts for the various key industry sectors, covering such issues as growth in Gross Domestic Product (GDP), exports and investment, with the linkages to employment and employment growth. Also relevant to the Committee's terms of reference is the effect on inflation, which has important linkages to wages growth. Additionally, the Dixon and Rimmer paper focuses specifically on the effect of exempting tourist packages that are purchased overseas from the GST.

The Results of the Monash Modelling [7]

1.11 The central simulation with the Monash model found that:

• the long run resource allocation gains flowing from the proposed tax changes will be negligible;
• the package will harm tourism and benefit more traditional exporters, eg iron ore;
• the effects on consumer-goods industries will be mixed;
• employment will be stimulated in the short-run by about 30,000 jobs;
• investment will be increased, especially in the short-run; and
• the package will produce a long-run increase in capital stock in Australia, but little change in economic welfare. [8]

1.12 In addition to the central simulation, a series of `sensitivity' simulations were conducted and analysed in the January paper by Dixon and Rimmer. The first is concerned with the labour market. In the central simulation, an assumption was adopted that workers make their wage bargains in real after-tax terms. This means that workers accept the income tax cuts in the ANTS package as compensation for the increase in inflation that occurs with the imposition of a GST. In the first sensitivity simulation, it is assumed that workers bargain in real before-tax terms. Under this assumption, the GST-induced jump in inflation produces a corresponding jump in wage demands. This causes a significant short-term negative impact on employment – a loss of 100,000 jobs.

1.13 If food is removed from the GST and an assumption of after-tax wage bargaining is adopted (the fourth sensitivity simulation conducted by Dixon and Rimmer), the lowering of food prices causes a dampening of wage demands which leads to a gain in jobs of 38,000 in the short-run (up from 30,000 in the central simulation). If an assumption of before-tax wage bargaining is adopted (the fifth sensitivity simulation conducted by Dixon and Rimmer), the lowering of food prices again dampens wage demands to the extent that instead of employment declining in the short-run by 100,000 as in the first sensitivity simulation, short-run job losses are now restricted to 68,000.

1.14 Although the modelling found that in the short-run there are positive effects for welfare consumption, employment, real GDP and export volumes of exempting food from a GST, it was also found that exempting food has a negligible, but negative, impact on overall economic welfare under either labour market assumption. [9]

1.15 A further issue concerns the source of the employment gains in the central simulation. Dixon and Rimmer's paper makes the following observations:

We can think of the move from the central simulation to the fourth sensitivity simulation as combining a reduction in consumption taxes with a compensating increase in income taxes. According to the fourth sensitivity simulation this leads to an increase in employment. The question arises as to how the imposition of consumption taxes combined with a reduction in income taxes generates a short-run gain in employment in the central simulation. Employment is stimulated in the central simulation (after-tax wage bargaining) only because the Government's tax package involves a net movement towards deficit, allowing large reductions in income taxes. More generally, in an environment of after-tax wage bargaining, the Government could achieve short-run employment gains simply by cuts in income taxes without changing indirect taxes. [10]

1.16 The model therefore suggests that the short-run gains in employment are a result of the fiscal stimulus associated with the proposed reductions in personal income tax; it is not influenced by the change in the indirect tax system from a wholesale sales tax to a GST.

1.17 In a sixth sensitivity simulation, Dixon and Rimmer introduced different `pass through' rates [11] for increases and decreases in indirect taxes. They make the following points in relation to their modelling of this issue:

In the central simulation we assumed that all changes in indirect taxes are passed on immediately. In the sensitivity simulation, we continue to assume immediate passing on of increases in consumption taxes but we assume that it will take two years to complete the passing on of reductions in taxes on inputs. The long runs effects of a delayed pass are negligible. However, the short-run effects could be quite severe. In the sensitivity simulation, a short-run effect of the package is to reduce employment by 15,000 jobs whereas in the central simulation employment in the short-run increased by 30,000 jobs. As recognised by the Government, it will be important to ensure that tax reductions pass through quickly to reduced input prices. [12]

1.18 That is, the modelling found that if there is delay in passing on the full savings from reductions in some indirect taxes, this could lead to an estimated 15,000 job losses in the short-run.

1.19 The Monash model simulations also find that the ANTS proposals will have little effect on Australia's long-run macroeconomic performance. Dixon and Rimmer note that:

They [the ANTS proposals] add a new dimension by illustrating two short-run down-side risks: the package will cause job losses in the short-run if wage earners refuse to allow before-tax wage rates to fall relative to inflation or if increases in indirect taxes are passed on more quickly than reductions. [13]

1.20 In relation to tourism, the Monash modelling found that there is little difference in the long-run as to whether tourism packages are exempted from the GST or not. The model finds that exempting packaged tours purchased overseas (so-called `in-bound tourism') would improve tourism exports by about 3 per cent in the short-run. However, with tourism doing better in the package-exempt case than in the central simulation, other exports fare worse because the better performance of tourism strengthens the real exchange rate (which has a negative effect on other exports). So apart from the change in the composition of exports, there is little difference between the results in the central case and the package-exempt case. [14]

1.21 In summary, the Monash modelling found that:

• up to 100,000 jobs could be lost in the early years after the implementation of the ANTS package if wages rise in response to the higher cost of living under a GST;
• any jobs that are created in the early years will be due entirely to the fiscal stimulus associated with the income tax cuts and not the GST;
• a delay of just one year in passing on the full savings from reducing some indirect taxes will lead to an estimated 15,000 job losses;
• any economic efficiency gains will be negligible even under the most favourable assumptions; and
• the package will cause a small decline in average Australian living standards. [15]

The Murphy Models

Description

1.22 The latest version of the Murphy model is MM303, which is described in some detail in a recent paper by Mr Murphy. [16] The model distinguishes over 300 different commodities in the Australian economy. MM303 complements the long-standing MM2 model. It provides a fine level of commodity disaggregation but deals only with the long-run outcomes from policy changes. MM2 on the other hand provides only a broad range of commodity disaggregation to the 18 industry divisions of the Australian and New Zealand Standard Industry Code (ANZSIC) system. MM2 is a quarterly model and is able to trace quarter-by-quarter effects until the long-run outcomes are realised. However, both models employ similar long-run equilibrium assumptions and can be successfully used in parallel.

1.23 MM303 can provide a detailed picture of the long-run effects of quite specific economic reforms, including the size of any economic gain. MM2 can offer insights into the adjustment processes set in train by such reforms, including the length of time required for the gains to fully accrue and the short-term adjustment pain that may be involved.

1.24 The main source of data for the Murphy models is the Australian Bureau of Statistics' (ABS) input-output table, which is useful for long-run equilibrium outcomes for models such as MM303 but is very limited as a source of information on adjustment processes.

1.25 The 300 commodities modelled by MM303 fall within 107 industries. This highly detailed commodity classification means that many microeconomic reforms can be analysed without the need for any further disaggregation and the gains from some reforms can be more fully captured.

1.26 The treatment of taxation is particularly detailed in MM303. The model distinguishes 25 different indirect taxes on industry production and commodity outputs. These can each be varied either universally or as they apply to each industry or commodity or end purchaser. In addition, MM303 provides for a GST, under which each commodity or industry can be classified as taxable, input-taxed or zero-rated.

1.27 MM303 allows for the following substitution possibilities, between:

• labour and capital in each of the 107 industries;
• broad consumption groups;
• imported and local sources of supply for each importable commodity;
• exports from Australia and other sources of supply (that is, a substitution by foreigners);
• different types of business investment goods;
• items within broad consumption groups; and
• the different forms of primary energy (for each industry).

1.28 MM303 conforms to the neutrality principle – that is that economic welfare would be maximised if it were possible to remove all economic distortions. For a long-run equilibrium model, such as MM303, this requires carefully designed model closure assumptions and special treatment for private savings. MM303's main closure assumptions are:

• labour supply is assumed to be fixed, so balance in the labour market is achieved by fixing the level of total employment;
• external balance is achieved by setting the trade balance to equal the cost of servicing payments on foreign capital (the real exchange rate needed to achieve this is determined by the model); and
• budget balance is achieved by designating a swing fiscal policy instrument to achieve that outcome: for instance, the rate of tax on labour income or the rate of value added tax.

1.29 In the case of private savings, MM303 assumes that the private sector owns a fixed quantity of physical capital. This assumption rules out any meaningful analysis with MM303 of the distorting effects of changes to the taxation of the property income of Australian residents. However, it does mean that the model can be used for a wide variety of other purposes.

1.30 Gains in economic welfare are assessed using the exact measures of welfare change - the compensating variation and the equivalent variation. In this type of model these measures of welfare change virtually equate with changes in real supernumerary (that is, non-essential) consumption. Effects on vertical equity are also measured by calculating movements in real supernumerary consumption for consumers at different income levels. [17]

Results of the Murphy Modelling [18]

1.31 Under the MM303 model specification, there are four points noted in the analysis of the impact of the ANTS proposals on employment. They are:

• National employment is held fixed as an assumption of the model. This means that a simulation of ANTS or any economic policy will generate exactly balancing job gains and losses between sectors. This can be characterised as job shifting.
• The assumption of fixed national employment is conservative in the case of ANTS because the Government's proposals reduce poverty traps, leading to higher national employment. This means that in reality the employment effects will be more positive than the model finds.
• The employment shifts are largely the consequence of a move to a more neutral tax system. That is, jobs migrate from sectors that were under-taxed in the past to sectors that were over-taxed.
• The migration of jobs is important in generating the gain in annual consumer welfare, which is conservatively estimated at $607 million. [19]

1.32 The Murphy paper makes the following claims in relation to job shifting:

• There will be an extra 12,000 jobs in the manufacturing sector. This will be concentrated in the motor vehicle industry, with a gain of 6,000 jobs, and the electronic equipment industry, with a gain of 4,000 jobs.
• There will be a loss of 8,000 jobs in the cultural and recreational services sector. This loss is spread thinly throughout this sector. The estimated employment loss for accommodation, cafes and restaurants of 7,000 jobs shows that claims made by the Tourism Task Force of a jobs loss in the tourism industry of 59,000 jobs are highly exaggerated.
• There is also job shifting within some industries. For example, in the construction industry, there is a jobs loss of 8,000 in residential building, largely offset by job gains throughout the rest of construction totalling 7,000, leaving a net jobs loss of 1,000. [20]

1.33 The Murphy paper also makes the following observations in relation to the differential impact of the ANTS proposal across the Australian States:

While there are small shifts in employment between industries, within each state economy these shifts are largely offsetting because most states have fairly diverse industrial bases…While there is a very small shift in the state distribution of economic activity, there is no shift in the state distribution of living standards. Living standards are higher not just at the national level, but also at the level of each individual state and territory. [21]

1.34 In summary, the Murphy modelling claims that while there will be no overall gain in employment as a result of the implementation of the ANTS package, there will be a significant degree of job shifting as resources are reallocated and labour redistributes itself between industry sectors as an outcome of the changes in the tax system.

1.35 However, the Labor senators consider the notion that workers who lose their jobs in one sector because of the ANTS package will find alternative employment in other industries and / or other regions to be unrealistic. This is particularly so in the case of predicted job increases in the manufacturing sector. Other economic indicators suggest that a decline in demand for locally manufactured motor vehicles in the short to medium term will see considerable pressure on that industry.

1.36 The Labor senators take the view that labour does not exhibit a high degree of mobility. For example, it can not be assumed that workers who lose their jobs in the cultural and recreational services sector (such as tourism) will pick up work in the mining or manufacturing sector. As the Select Committee report notes:

The absence of any resources in the tax package for re-skilling or other retraining initiatives, relocation assistance or regional development initiatives to assist dislocated workers, their families or their communities demonstrates that this assumption is totally implausible. [22]

Additional Monash Modelling

1.37 The Committee commissioned Professor Peter Dixon from the Centre of Policy Studies to undertake additional modelling of the employment effects of the ANTS package. The Committee was particularly interested in the impact of the package on employment by sector, by region, by occupation, by age and by gender.

1.38 Professor Dixon's report contains two sets of conclusions. First, a set of results based upon the central simulation, which assumes that workers bargain for wages in real after-tax terms. Second, a set of results based upon the first sensitivity simulation, in which workers are assumed to bargain for wages in real before-tax terms.

1.39 Professor Dixon found that the sector that will be hardest hit by the ANTS package is the tourism industry. The central simulation predicts job losses of 4.3 per cent, or 19,880 jobs, in the entertainment sector as a whole. This includes a loss of 16,420 jobs in the hotels industry. In the first sensitivity simulation, job losses of 6.3 per cent are projected, which equates to 28,952 jobs, including 19,098 jobs in the hotels industry. Additionally in relation to tourism industries, the report projects job losses of 4,607 jobs (8.1 per cent of all jobs) in the air transport sector in the central simulation, and a loss of 5,127 jobs in the sensitivity simulation (9.0 per cent of all jobs). [23]

1.40 Other industries that the report predicts will suffer large job losses include:

• transport and communications (a loss of 10,255 jobs in the central simulation and 21,118 jobs in the sensitivity simulation);
• agriculture, forestry and fishing (a loss of 6,916 jobs in the central simulation and 5,492 jobs in the first sensitivity simulation);
• food, drink and tobacco (a loss of 3,731 jobs in the central simulation and 3,806 jobs in the sensitivity simulation); and
• textiles, clothing and footwear (a loss of 1,836 jobs in the central simulation and 1,977 jobs in the sensitivity simulation). [24]

1.41 The regional results of Professor Dixon's analysis indicate that the ANTS package will have similar results across all of the States and Territories. This is indicative of the fact that all States and Territories have increasing similarities in economic profile, but with key industries in particular States providing variation (such as manufacturing in Victoria and South Australia and tourism in Queensland and the Northern Territory). However, the results do reveal that the ANTS package will, on balance, have negative implications for employment in regional areas as compared to the capital cities. In the central simulation:

• employment is projected to increase by 12,412 jobs (0.4 per cent) across New South Wales (NSW), including 10,944 jobs in Sydney. However, declines of 0.4 per cent and 0.3 per cent are predicted for far-west NSW and north-west NSW, respectively; and
• there will be an increase of 5,444 jobs (0.3 per cent) in Queensland, with 4,916 of these new jobs in Brisbane. However, there will be declines of 1.2 per cent and 1.1 per cent in central-west Queensland and south-west Queensland, respectively. [25]

1.42 In the first sensitivity simulation, all regions across Australia (except north-west Queensland and the Goldfields-Esperance region of Western Australia) experience a decline in employment. The worst hit areas, however, are again in the regions. For instance:

• employment in NSW is predicted to fall by 1.4 per cent (26,844 jobs). The model predicts a larger fall in regional NSW – a 1.8 per cent decline in both the Richmond-Tweed and mid-north coast regions; and
• there will be a loss of 22,681 jobs (1.4 per cent) in Queensland. However, the model predicts a 2.0 per cent decline (4,868 jobs) in the Moreton region and a 1.8 per cent decline in both south-west Queensland and far-north Queensland (a total of 2,060 jobs lost). [26]

1.43 The loss of jobs in tourism and hospitality and the agriculture, forestry and fishing industries was reflected in the occupational results as well. The report found that the occupations that will suffer the heaviest job losses under the ANTS package will be:

• waiters, with a loss of 1,996 jobs (5.2 per cent) in the central simulation and 2,459 jobs (6.4 per cent) in the first sensitivity simulation;
• mixed crop and livestock farmers, with a loss of 1,775 jobs (2.3 per cent) in the central simulation and 1,436 jobs (1.9 per cent) in the sensitivity simulation;
• hotel and motel managers, with a loss of 1,580 jobs (5.3 per cent) in the central simulation and 1,924 jobs (6.4 per cent) in the sensitivity case;
• bar attendants, with a loss of 1,509 jobs (4.9 per cent) in the central case and 1,880 (6.2 per cent) in the sensitivity simulation;
• livestock farmers, with a loss of 1,477 jobs (2.3 per cent) in the central simulation and 1,209 jobs (1.9 per cent) in the sensitivity simulation;
• cooks, with a loss of 1,189 jobs (3.6 per cent) in the central case and 1,583 jobs (4.8 per cent) in the sensitivity case; and
• tourism and travel agents, with a loss of 1,007 jobs (2.2 per cent) in the central simulation and 1,538 jobs (3.4 per cent) in the sensitivity simulation. [27]

1.44 The age and gender results of Professor Dixon's modelling indicate that Australia's youth and women will be hit hardest by the impact of the ANTS package. The modelling in the sensitivity simulation finds that 3,726 (1.9 per cent) of all females aged 18 to 24 in employment will lose their jobs. Similarly, 3,597 (1.4 per cent) of all working males in this age group will no longer be employed. In total, the modelling concludes that 1.2 per cent (67,997 jobs) of all males in employment will lose their jobs. The modelling projects that an even greater percentage of females, 1.4 per cent, or 50,180 people, will become unemployed as a result of the ANTS package being implemented. [28]

1.45 Although the more conservative central simulation predicts that there will be a gain of 30,000 jobs in the short-run, the Committee notes that this will involve some significant employment losses. There will be a loss of nearly 50,000 jobs in the sectors that experience a net decline in employment. The Committee believes that this highlights the serious oversight of the Government in failing to commit any resources in the tax package for re-skilling, retraining and relocation assistance for people in regional areas, to assist the tens of thousands of workers who will be dislocated upon the implementation of the ANTS package.

1.46 Professor Dixon also undertook some limited work on the costs of adjustment of the ANTS package. It was noted in evidence that costs of adjustment are all about whether people will lose their jobs as a result of the implementation of the tax package. [29] This work highlights the negative implications of the ANTS package for employment. For instance, in the current environment the number of waiters is forecast to grow by 3.7 per cent between 2001 and 2008. Under the ANTS package, the number of waiters will decline by 5.2 per cent over that period in the central simulation, and decline by 6.4 per cent in the sensitivity simulation. As Professor Dixon explained in evidence, this represents a net loss of over a year's growth in jobs for waiters. [30] The result is even worse for aircraft engineers; the number of aircraft engineers in employment is forecast to decline by 0.4 per cent over the 2001 to 2008. After the implementation of the ANTS package, prospects for aircraft engineers are even worse; the model finds that there will be a 5.0 per cent decline in jobs in the central simulation and a loss of 5.4 per cent of all jobs in the sensitivity case. [31] The net result is that the tax package will lead to the loss of over ten times the number of jobs for aircraft engineers that would have been lost between 2001 and 2008 under current conditions.

1.47 Whilst in the first sensitivity simulation the model demonstrates that there will be less structural change than in the central simulation, the number of jobs that would be lost is significantly higher. The sensitivity simulation projects a loss of 120,156 jobs after the implementation of the ANTS package. It is difficult to assess the likely unemployment and adjustment costs because no forecasting work is available.

1.48 Both simulations reveal that there may be significant unemployment as a result of the implementation of the ANTS package. Professor Dixon noted in evidence that this illustrates the definite short-run risk associated with the ANTS package – for not much long-run benefit. [32] In the Committee's view, Professor Dixon's analysis also emphasises the Government's serious oversight in neglecting to assess this short-run risk by looking at forecasts and adjustment costs. The Committee recommends that the Select Committee seek to address this oversight.

Usefulness of the Modelling

1.49 The Committee heard a number of reservations about the modelling that has been done on the effect of the ANTS package on the Australian economy. Several witnesses pointed out that the modelling did not fully capture the `dynamic benefits' of the ANTS package, particularly in relation to its capacity to deliver greater competitiveness, higher economic growth and flow on employment benefits for Australia.

1.50 The Committee heard evidence from several witnesses to the effect that the findings of the models, particularly in relation to economic growth and employment forecasts were conservative. As an official from the Department of Employment, Workplace Relations and Small Business noted:

Many of the estimates by private organisations of changes in employment, especially estimates of long-term employment changes, are in our view likely to be underestimates because they fail to take account of all the dynamic efficiency effects of the new tax system… [33]

1.51 However, the Department had not undertaken any research of its own on the employment effects of the ANTS package. In response to questioning by the Committee on the issue of sectoral employment changes that might occur if the ANTS package is implemented, DEWRSB indicated that:

…[they] are not in a position to comment on the validity or otherwise of the particular estimates that have come before the Committee with regards to the various sectoral impacts, and so on. [34]

1.52 Representatives from the South Australian Employers' Chamber of Commerce and Industry (SAECCI) suggested that observers should not place too much faith in the modelling results:

We are in dangerous country when we put too much faith in an economic model. I am not criticising the profession of modelling because it is important…But you end up writing a series of assumptions from which your econometric modelling proceeds. It is important for us to have that, but if we relied on modelling to the exclusion of what is basically a gut feeling – although that is not a good term – about what the impact of a proposal is, then we start to take larger risks than might be appropriate. [35]

1.53 Despite their stated concerns with the modelling, the SAECCI representative revealed in response to questioning by the Committee that he did not have any empirical evidence to support his concerns about the modelling results. [36] The witness appeared to be relying on anecdotal evidence when he suggested that the ANTS package will deliver a more favourable climate for investment and job creation:

…the view of the people that are making these investment decisions, is that when they decide whether they will invest in this state or another state, or in this country or another country, the tax system is a very, very important determinant in those decisions. And those decisions are happening every day. The view that they have put to us is, `Give us a better tax system and we have got a better chance of leaving money in this country that is already here, or, in fact, bringing back into this country money that is somewhere else.' [37]

1.54 The Business Coalition for Tax Reform (BCTR) also questioned the usefulness of the modelling in their appearance before the Select Committee, noting in evidence that `most of the models that are around do not factor in the dynamic benefits of tax reform' and that this `is a shortcoming of models'. [38]

1.55 However, the BCTR also indicated, in response to questioning by the Select Committee, that they have not commissioned any formal analysis of the ANTS package, preferring instead to rely on their own interpretation of the economic impacts of the proposed changes in the ANTS package. They stated that `we have thought through the economic impacts of the proposed changes in [ANTS] with the aid of the insights of economic science'. [39]

1.56 The Committee is concerned that none of the organisations have undertaken any formal studies of their own to support the claim that the models are conservative in their estimates of the effect of the ANTS package on the Australian economy. The Committee prefers to consider models and other evidence, which provide a robust assessment of the overall effect of the ANTS package, rather than relying on the orthodox, laissez faire economic theory and word-of-mouth that is being emphasised by some of the more strident business and academic proponents of indirect tax reform.

Issues raised in Submissions and Evidence

Sectoral Analysis

Introduction

1.57 The Committee received submissions and heard evidence in nine public hearings on employment and related issues from a range of stakeholders in the Australian economy. Broadly speaking, it is possible to categorise the witnesses according to the industries that they represent. For this reason, this section of the chapter is primarily a sectoral analysis of the impact of a GST and the new tax system proposals on the industry parts that make up the Australian economy.

1.58 The key industry sectors heard by the Committee (and it is recognised that there is some overlap between industries and the concerns that are raised) were:

• entertainment and the arts;
• food services and quick service restaurant industry;
• hospitality and catering;
• the printing, publishing and book-selling industries;
• small retailers and the small business sector generally;
• tourism (encompassing both domestic and inbound / international tourism); and
• the wine industry.

1.59 Additionally, the Select Committee has heard witnesses in relation to the impact of the ANTS package on the retailing and hospitality sectors more generally, and this section will draw upon that evidence where appropriate.

1.60 The Committee heard evidence that the ANTS package will have a deleterious impact on the performance of many industry sectors. This will be particularly the case in relation to employment outcomes in the individual sectors. It is the Committee's view that the industry sectors it heard from have a large number of valid concerns, and that the effect of the package for these industries (particularly in the services sector) will be overwhelmingly negative.

Arts and Entertainment Industries

1.61 The nature of the arts and entertainment industries are such that it has not been subject to a great deal of taxation in the past, given that it is a services sector industry. This means that the industry will be among the most severely affected if the ANTS proposals are introduced.

1.62 The Government has acknowledged that in comparison with other sectors the arts, entertainment and cultural industries will be disproportionately affected by the introduction of the GST. The Government has noted, in its White Paper on the New Tax System, that the arts will experience price increases of 7.7 per cent and for motion picture, radio and television services, increases of 5 per cent. [40] These price increases will most likely translate into reduced demand for products in the industry, thereby threatening the continuing employment of a large number of Australian artists. As the Media, Entertainment and Arts Alliance (MEAA) notes in its submission:

The arts and entertainment industries are dominated by small business. The Alliance is of the view that the introduction of a goods and services tax will have a negative impact on the financial viability of many companies in the sector with consequent loss of jobs. [41]

1.63 The Committee heard evidence at its public hearings in Sydney that the arts and entertainment industry is a significant and growing employer of Australians. Representatives from the MEAA made the following comments:

…what is self evident if you look at the arts is that the arts is a heavily labour intensive industry…The arts industry, as you will be aware, is a very significant employer of labour in this country. ABS statistics reveal that over 150,000 people are involved in the arts and cultural sector. [42]

1.64 In response to questioning by the Committee on the issue of what the employment impact of a GST might be in the arts and entertainment sector, the industry representatives were unsure. However, they were of the view that it would be overwhelmingly negative for the artists involved:

The answer is that we do not know. But what we do know is this: say we were to see production levels reduced by 25 per cent, it would not be as crude as we would therefore lose 25 per cent of jobs. This is not 25 per cent of factories closing down; this is a freelance industry where people are earning modest incomes. If there were to be, say, a net decline of 25 per cent in production levels, we would see a whole lot of people who would be obliged to leave the industry and find alternative sources of employment because they could not survive with a 25 per cent decrease in income when they are looking at an average income of about $14,500. [43]

1.65 Additionally, the Committee was informed of the negative impact for Australian society as a whole over the course of the longer term. Not only would a reduction in employment levels in the industry have a negative impact in terms of the job losses and the human cost that is involved with those individuals, it would have a serious impact on the arts industry in general. The diversity of people, performers, writers and directors who are required to preserve the vibrant nature of the arts and entertainment industry would be diminished if people were progressively forced from the sector. [44]

1.66 The Committee also heard that any diminution of the nature of the arts industry in Australia would result in reduced investment in the sector, leading to a further loss of employment opportunities over time.

1.67 The industry representatives told the Committee that they saw value in exempting the arts and cultural industries from the application of the GST for a period of five years:

…we are saying zero-rate the arts and review it in five years. Let us look at what we do know. We do know that there will be a severe impact on the industry in the short term. No one I think questions that. Government has been very up-front about it, to their credit. They have said, `This sector will be heavily hit by the imposition of a GST'. So in five years time, let's review it. [45]

1.68 They argued that an exemption for a five-year period would allow consumers to adjust to the new taxation arrangements and re-adjust their spending patterns. This would mean that the arts and entertainment sectors would not be caught up in the overall adjustment of consumer spending patterns as the industry would be insulated from the initial impact of a GST. The Committee was told that the arts industry is not like any other industry and was given the following example:

A shoe company closes down and it can be rebuilt. Close down the Australian Opera and you do not just pick it up in a few years time. You lose a wealth of repertoire, a wealth of artists…Those people are built over a very long period of time. The Sydney Symphony Orchestra has built up its international position over decades. [46]

1.69 The Committee is of the view that the ANTS proposals would have a negative impact on the arts and entertainment sectors, both in terms of the impact on current employment and future employment opportunities in the sector and also on the future of the arts industry in general. The Committee recognises the fragile nature of the arts industries, and its vulnerability to pressures likely to be placed upon it by a GST.

Food Services and Quick Service Restaurant (QSR) Industry

1.70 The Committee heard evidence from two of the main players in the food service and quick service restaurant (QSR) industry in Australia, Tricon Restaurants International (South Pacific) and McDonald's Australia.

1.71 The food service industry in general supports the need for reforming Australia's taxation system. If there is to be a GST, it supports the consistent treatment of all goods and services – that is, a tax with the broadest possible base. In particular the industry asserts that all food, be it food sold in a supermarket or food sold in a QSR outlet, should receive the same tax treatment, in order to negate the possibility of demand distortions arising in the market for food and the consequent significant employment losses that would result under a system of differential tax rates on different types of food.

1.72 In its submission of support for the consistent treatment of all food supplies, McDonald's Australia address the likely impact on the food service industry if a differing GST treatment is applied to basic groceries. The main focus of the submission is on likely employment consequences and the impact generally on small to medium-sized businesses. In its submission, McDonald's claims that it:

…does not seek a special treatment for the food service industry, just an equal and fair treatment (that is a level playing field) which avoids so far as is possible, competitive distortions and negative impact on retail sales and employment in the food service sector. [47]

1.73 Even if all foods are taxed for GST purposes, McDonald's argue that they are already at a competitive disadvantage compared to the grocery retailing industry. It is claimed that `the disadvantage arises from the value which is added by operators in the food service industry in preparing food for consumption'. [48]

1.74 McDonald's argue that the introduction of a GST will cause the majority of food prices to rise, since most foods are not taxed under the current wholesale sales tax arrangements. The submission states that:

…a GST will cause the price of prepared foods to rise by a larger amount than the price of groceries, due to the value added to prepared foods (home labour is not subject to GST). As a consequence, demand for prepared foods may decline in favour of lower priced groceries, thus affecting sales in the food services industry. [49]

1.75 The McDonald's submission relies on the experiences of the company in New Zealand when a GST was introduced in that country in 1986. On the basis of this experience, McDonald's claims that because demand for its products is extremely price sensitive, any increase in price under a GST will lead to a reduction in sales growth, lower levels of investment in the food services industry and decreased employment in the sector. The submission contends that this chain of events will lead to an increased reliance on the social welfare system, particularly by young people, who represent a significant proportion of the McDonald's workforce. On these issues, the submission states that:

When a GST of 10 per cent was introduced in New Zealand in 1986 with very few exemptions or zero-rating, it largely replaced the existing sales tax regime which had existed. Nevertheless, McDonald's in New Zealand still experienced a reduction in sales growth. It is probable that a similar reduction in sales growth will be experienced by operators in the food service industry in Australia when the GST is introduced. Small businesses generally are unlikely to be in a position to absorb the GST related price increases particularly given the higher relative overheads.

The reduction in sales growth will also have indirect consequences. Unemployment is expected to rise as operators in the food service industry are forced to retrench staff. This will of course place a greater burden on the social welfare system. Since the food service industry is highly labour intensive, the failure of businesses in the food service industry is likely to significantly impact upon employment. Youth unemployment is likely to rise as the food service industry is a major employer of young people.

Investment in the economy will also fall with the failure of businesses in the food service industry. [50]

1.76 In evidence to the Committee, McDonald's representatives attempted to quantify the projected fall in employment upon the introduction of a GST in Australia:

The food service sector in Australia employs 288,000 people; 60 per cent of its $14 billion annual sales is made by small to medium sized businesses…A GST that taxes all food at 10 per cent is expected to result in 7,000 jobs lost in the food service industry… [51]

1.77 It is also important to note that a significant proportion of employees in the food service industry are young, entry-level and / or unskilled employees. McDonald's claim that it is unlikely that there would be any significant increase in employment in the supermarket sector if jobs are lost out of the food service industry. This would worsen the level of youth unemployment:

The people working in [the food services] sector tend to be young; they are often entry-level employees. Often the job is of a transitional nature while they are on their way to some other job. There are also quite a number of full-time employees, but they tend to be the lower skilled entry-level people in the labour market. So, again, they are the ones who can least afford to lose their jobs; they are quite vulnerable. [52]

1.78 In light of the estimates of job losses in the food service industry, the Committee questioned whether McDonald's had factored in any reduction in demand resulting from reduced spending power if compensation is not adequate. McDonald's conceded that they had not specifically considered this issue. [53] The Committee believes that the loss of jobs under a GST system could be greater than the quantum estimated by McDonald's, particularly given that low income earners comprise a large component of their customer base.

1.79 Further, McDonald's contend that if food is to be exempted from the application of a GST this would create demand distortions in the food market, leading to a further reduction in employment. According to their submission, evidence from the United Kingdom (UK) of the discriminatory effect of the Value Added Tax is stark. When differential rates of tax on food were introduced in 1984, [54] Kentucky Fried Chicken alone lost 15 per cent in sales, which had deleterious flow on effects for employment.

1.80 The McDonald's analysis suggests that if food purchased in a supermarket is exempted from GST, while food purchased from a quick service restaurant is GST liable, this could result in an additional 14,000 jobs being lost due to the demand distortions that are created.

1.81 Similar evidence was heard by the Committee from Tricon International (South Pacific), the parent company for Kentucky Fried Chicken, Pizza Hut and Taco Bell outlets in Australia. Tricon put the view that they support tax reform generally, and do not oppose the introduction of a GST provided it is fair and equitable across the food industry.

1.82 Like McDonald's, Tricon emphasised the importance of the food service industry as an employer of young Australians. Tricon described how they employ 35,000 young people and pay more than $300 million in wages and salaries each year, a significant contribution to the Australian economy. [55]

1.83 Also like McDonald's, Tricon quoted overseas experience when describing the likely impact of a GST in Australia on their operations. Tricon claim that if a discriminatory (in terms of discriminating between food purchased in a supermarket and food purchased in a QSR) GST is introduced, this would `drive more than 7,000 job losses across the quick service industry as a whole.' [56] They conclude:

Based on the Canadian experience, we would expect a $600 million reduction in industry sales if supermarket food was exempt from GST and our restaurants were not. That $600 million drop in sales means a minimum of 7,000 jobs lost in our industry alone. A $600 million drop in sales also means a flow on $200 million reduction in purchases from our industry suppliers, and that means real job losses within the organisations of our suppliers.

A GST which is not fairly and equitably applied would also severely curtail investment in our industry. Each year the QSR industry spends hundreds of millions of dollars on new restaurants and facility upgrades. This investment would be dramatically reduced, leading to fewer jobs in both the construction industry and the QSR industry. I will illustrate this with an example. Tricon is currently testing Taco Bell in Australia. We have 2 stores open, with another 3 planned this year. In the US there are 7,000 Taco Bell outlets. So it is not unreasonable to expect that Australia could support well over 200 units. Anything less than a level playing field in terms of a GST could destroy this opportunity, eliminating a capital spend of tens of millions of dollars over the next few years plus the thousands of jobs created by these new restaurants. [57]

1.84 Tricon concludes that the market distortions that will arise under a system of differential GST treatment of various types of food will result in a playing field that is not level. This will result in job losses for Tricon employees, job losses for Tricon franchisees, job losses for Tricon suppliers and reduced investment overall in Australia. [58] Reduced investment in Australia will eventually flow through the economy and restrict future employment growth and prosperity.

1.85 The burden of administrative and compliance costs will also increase if different food items are treated differently under a GST. A given item of food would need to be classified for a particular tax treatment and accounted for in a particular way. Higher compliance costs `will be most pronounced in businesses which sell mixed supplies of groceries and prepared foods, such as delicatessens, take-away shops and corner stores'. [59]

1.86 The additional administration created by a GST will be felt to the greatest extent by small business. The Labor senators note that Dr Neil Warren has reported that a UK study for 1992-93 found that net compliance costs for small businesses were over 30 times larger than for big businesses. [60] McDonald's Australia submits that:

Small business already has higher overheads than large business and will be least able to absorb increased costs. In an era of reducing the administrative burden upon small business, a differing GST treatment of food would impose substantial administrative and compliance costs on small businesses. Increased compliance and administrative costs for the Australian Taxation Office will also be significant. [61]

1.87 The Labor senators take the view that, as a significant employer of youth in the Australian economy, the fast food industry needs to have its concerns recognised by the Government. The Labor senators share the industry's concerns about job losses in the industry at a number of levels. First, if there is any GST on food (even if it is applied uniformly across the food sector), it will cost jobs. Second, if food from supermarkets is GST-free while food from QSRs is deemed GST-liable, an even greater number of jobs will potentially be lost.

1.88 The Labor senators are particularly concerned about the types of jobs that will be lost. As already noted, a large majority of employees in the sector are young Australians, and many of the rest of the employees are unskilled workers. The Labor senators accept McDonald's argument that these jobs will be lost to the Australian economy. Certainly it is unlikely that there will be any compensating increase in employment in the retail sector, and given the skills base of the workers it is unlikely that they would easily find employment in another sector.

Hospitality, Restaurants and Catering Industry

1.89 The Committee heard evidence from one of the main players in the hospitality and catering industry in Australia, Restaurants and Catering Australia. Restaurants and Catering is the peak employer group in the hospitality industry. Additionally, the Community Affairs References Committee heard evidence from the Western Australian Branch of the Australian Liquor, Hospitality and Miscellaneous Workers' Union (ALHMWU) in relation to the impact of the ANTS package on the hospitality sector workforce.

1.90 The Committee was told that the industry employers supported the need for tax reform, including a GST, despite the fact that they `clearly recognise that, as part of the services sector, we are not exactly going to be one of the winners out of the broad agenda.' [62]

1.91 The Committee heard that the restaurant and catering industry is a major, and growing, employer of Australians and covers every part of Australia – from the large cities to the regional and rural areas with unemployment problems. Importantly, the industry is also a significant employer of Australia's youth. Restaurant and Catering made the following comment in relation to employment in the industry:

The restaurant and catering industry is a major contributor – obviously, from our perspective, it is a huge contributor – to the economy of Australia and it is a major employer, with over 160,000 people employed in cafes and restaurants Australia wide. The growth in the last few years in our industry has been fantastic. From 1994 to 1997, that growth in employment has been well over 10 per cent in our industry. The positive benefit in our industry is that it is geographically diverse; it is all over the place. In fact, growth has been even more spectacular in some of the smaller states – such as Tasmania and the territories – where growth in employment has been over 50 per cent in the last few years…we are the type of industry that Australia needs more of in our view: labour intensive, growing, willing to employ young people – and we certainly employ them, with over 25 per cent of our employee population being youth… [63]

1.92 The Committee was informed that Restaurant and Catering Australia has concerns about the impact of the ANTS package on the level of employment in the industry. The Committee was told by a representative of the organisation that:

…we do not believe that there are not going to be any job losses in our sector. I think it is very clear from the overseas evidence that our sector is going to be greatly affected by it. If they are making up the jobs in other sectors, it is not going to be in a sector that is small business, geographically spread, employing and returning profits into Australia…For small businesses the employment effects are quite different. [64]

1.93 Restaurant and Catering Australia is strongly opposed to exempting any food items from the GST. Their submission notes that:

It is readily accepted that the labour involved in producing food for consumption in food services sectors is far greater than that to sell it as a grocery item. If, as was the case with Canada, there is a shift away from buying food prepared outside the home and back to groceries, then the employment effects will be great and the economy will be far worse off, as will the prospect of many young people who otherwise could find a job in our industry. [65]

1.94 Restaurant and Catering's submission suggests that if the Canadian experience were repeated in Australia, then Restaurant and Catering estimate that over 11,000 jobs will be lost from their sector alone, and over 20,000 jobs would be lost across the entire food services industry. [66] In order to preserve these jobs, it is submitted that a GST should be applied uniformly across all food items.

1.95 However, despite the expressed concern about the employment implications of the ANTS package on the restaurant and catering sector, the industry organisation is supportive of the Government's proposals. Restaurants and Catering state in their submission that they `have long recognised the need for comprehensive tax reform' [67] despite being concerned about the negative impact on the restaurant and catering industry of taxing services.

1.96 Restaurant and Catering remains `hopeful that the tax package will deliver economic benefits to our industry in terms of increasing per capita income and higher disposable income' [68]. Presumably the industry is hopeful that if in fact that ANTS package does generate higher disposable income levels for Australians, this will translate into demand for restaurant and catering services and employment in the industry.

1.97 The Committee questions whether judgements can be made about how people will spend additional disposable income generated by the ANTS package, if indeed the package generates extra income at all. The Committee considers it a large step to predict that the (at best) marginal benefits generated by the package in terms of disposable income levels will translate into additional employment opportunities in the restaurant and catering sector.

1.98 The ALHMWU raise the issue of industrial relations in the hospitality and catering industry. The union submits that as margins in the industry becomes tighter under a GST, the industry will be forced to cut labour costs in an effort to maintain profit margins. The union foresees `a far more competitive and cut throat approach to industrial relations as…employers seek to reduce their labour and other costs'. [69] The ALHMWU go on to state that:

We believe that Hospitality…workers are already disadvantaged. The industry employs its workforce on a predominantly part-time and casual basis. The majority of these workers are women, often supporting families and earning wages below the Henderson poverty line. [70]

1.99 The Labor senators share the concern that already marginal workers will be negatively affected as the impact of the GST flows through to the hospitality and catering sector.

1.100 In addition, the Committee is concerned about the nature of the employees in the restaurant and catering industry. As with the QSR industry, it would seem that the majority of these workers are young, generally unskilled, entry-level employees. The Committee has doubts as to whether large numbers of these types of workers could be readily absorbed into other sectors, should employment levels in the hospitality sector be severely affected by the ANTS package.

Printing, Publishing and Book-selling Industries

1.101 The Committee heard evidence from a number of stakeholders in the printing, publishing and book industries. The Printing Industries Association of Australia (PIAA) was heard in Canberra, while witnesses from the Australian Publishers' Association (APA) appeared at the Melbourne public hearing.

1.102 The industry representatives expressed a degree of concern about the possible impact of the GST on their respective industries. In the case of the printing industry, the PIAA has commissioned some modelling by Econtech as to the impact of the ANTS package on the industry. The modelling found that the package would increase printing output by 2 per cent, which would translate into increased employment in the industry over the long term. The Monash modelling found similar effects, strong growth in commercial printing (with a 1 per cent increase in employment), but well below average employment growth in newspapers and books (an increase of 0.1 per cent).

1.103 However, the analysis also reveals that if areas currently not subject to sales taxes (books, magazines and newspapers) are subject to a GST, there will be declines in each of these areas. Consumer prices in these areas will rise by 5 per cent, causing a marginal decline in newspaper output, a 3 per cent fall in book printing and a 5 per cent reduction in magazine printing. [71] These reductions would translate into corresponding falls in employment in these parts of the printing industry.

1.104 The PIAA analysis found that if books are GST-free, the ANTS package would have the potential to increase output in the printing industry by 2.5 per cent, equating to an additional 410 new jobs in the industry as a whole. If books, magazines and newspapers are all determined to be zero-rated under a GST, the output in the printing industry as a whole increases by 3.4 per cent, translating into an increase in employment in the industry of 1,150 jobs. [72]

1.105 In summary, the PIAA considers that the industry will benefit from the proposed taxation reforms, but that exempting certain areas that are currently not subject to sales taxes could improve the outcomes for the printing industry by 70 per cent. [73]

1.106 The PIAA also gave evidence in relation to the overseas treatment of books, magazines and newspapers to support its case that these areas should be GST-free. The PIAA made the following observations:

The Federal Government's determination to levy the GST on all printed matter does not compare favourably with international experience. Both the UK and the US have a zero-rate for books. The UK also exempts newspapers, journals, periodicals, printed music, maps and charts. The justification for the zero-rating is to avoid a tax on reading. In Ireland printed matter, such as books, is also zero-rated. [74]

1.107 While the printing industry appeared generally supportive of the ANTS package as a whole, the APA was more concerned about the possible impact on their industry. The APA quoted figures from the Treasury's PRISMOD analysis of the ANTS package, which found that book prices will increase by 4 per cent, likely to result in a 4 per cent reduction in demand for books in Australia. [75] However, in evidence the APA went on to note that:

We [the APA] would suggest it is more like 7 per cent. Price elasticity studies here and overseas suggest that for every percentage point of price increase we will see a decline in demand of 1 per cent. A 7 per cent increase in the price of books will see a 7 per cent decline in the use of books. [76]

1.108 The APA went on to note the impact that such a decline in the demand for books will have on employment in the publishing industry:

It is beyond question that the publishing industry is one area that will suffer and it is one area where there will be a decline in demand and it will negatively impact employment and our future investment… [77]

1.109 In response to questioning by the Committee about the size of the employment impact in the publishing industry, a witness from the APA noted that there could be `hundreds of jobs' involved and that `it would be a substantial impact on our industry'. [78] Another witness agreed with the Committee that there could be thousands of job losses involved. [79]

1.110 The Committee also took evidence from an individual witness who has conducted substantial research on overseas evidence of the impact of a GST on the book and publishing industries. The witness made the following comment about the potential impact of a GST on employment in those industries:

Higher prices…will have flow-on effects not only to local booksellers but also publishers. The UK National Book Committee estimated [that there would be a] 15 per cent decrease in industry employment if there was a 20 per cent drop in sales. In December 1995, book publishing companies alone employed 4,513 full-time staff and many other persons in a part-time or freelance capacity. There will be a reduction of employment in the industry with all the costs to the community that unemployment entails. Also there would be a gradual loss to the nation of the services and skills associated with the workers in the production chain (typesetters, printers, artists, authors, etc.). [80]

1.111 The Committee also heard concerns from the Australian Society of Authors (ASA) about the possible impact of the GST on the book industry. Similarly to the arts and entertainment industry, the ASA is concerned about the possible impact of the GST on the future of writing in Australia. One author, appearing with the ASA, made the following observations:

If this GST goes ahead and if my books become more expensive and if publishers are taking fewer risks publishing books, this will impact disastrously on me. I think it would virtually destroy the likelihood that we will get a new generation of authors who are willing to take risks. We have a literary culture to be proud of in this country…It would be a terrible thing to see it undermined by, in my opinion, an unnecessary and punitive tax. [81]

1.112 The Committee recognises the valid concerns expressed by the PIAA and the APA about the negative employment consequences if the ANTS package were to be implemented. Additionally, the Committee shares the concerns of the ASA that the ANTS proposals could have a negative impact on Australia's literary culture, in particular because of discouragement of future generations of authors.

Retail Sector

1.113 The Select Committee heard evidence from the Shop, Distributive and Allied Employees' Association (SDA) in relation to the impact of the ANTS proposals on the workforce in the retailing sector. The SDA's submission contends that the ANTS package will have a negative impact on the retail sector, particular on the workforce of that sector.

1.114 The SDA submits that the real price impact of the GST will be far greater for most workers than the 1.9 per cent one-off increase in the consumer price index claimed by the Government. It is claimed that consumers would reduce or restructure their spending as a result of price increases under the GST. The decrease in demand in the retail sector would flow through and lead to reductions in staffing levels.

1.115 As a result of reducing staff levels in the retail industry, unemployment will increase. This will particularly be the case among Australia's youth, who comprise a significant proportion of employees in the retail sector. The SDA attempts to highlight an inconsistency on the part of the Government when it claims that:

The Government has recently made great play of its concern for young workers, yet it will be that very same group who bear the brunt of any fall in retail employment which results from the introduction of a GST. [82]

1.116 The Select Committee was further informed of the impact on youth employment at its public hearing in Melbourne when the SDA representative stated that:

In our view a GST will cost young people their jobs. A GST will lead to lower employment levels in the retail industry, and some people will experience reduced hours or no hours as a result. [83]

1.117 In evidence to the Select Committee, the SDA also expressed concern about the impact of the GST on part-time and casual labour in the retail sector, when its representative stated that `…it would probably lead to part-time and casual workers having their hours cut'. [84] This Committee notes that a majority of part-time and casual workers would be young people or women, two groups already seen as being disadvantaged in the workplace, even without the GST.

1.118 This Committee heard evidence from the Australian Retailers' Association (ARA) at its Sydney public hearings. The Committee was informed that the industry did not foresee significant changes in employment levels as a result of the introduction of a GST. This is because the industry takes the view that employment levels are fairly closely linked to retail sales levels, and that the industry expects that the tax package will have `a benign impact on retail sales'. Consequently, the industry anticipates that the ANTS package will also `have a benign impact on retail employment'. [85]

1.119 In relation to this issue, the ARA's representative went on to state that:

…the ARA does not and, as the Committee will observe, has not relied on changes in employment as a reason for supporting the tax package in its submission. If I were to be pressed on the issue, I would suggest to the Committee, without the benefit of any economic modelling, that, if the tax package has any effect on retailing, a positive effect is probably more likely than a negative effect, but it is highly likely that on balance across the whole retail industry the impact on retail employment would probably be neutral. [86]

1.120 In response to questioning by the Committee, the representative stressed the point of employment neutrality further when he stated that `…overall, we think that the impact on employment, as I said, will be mildly benign or, at the very least, neutral'. [87]

1.121 The Labor senators note the Econtech modelling results, which suggests that the retail industry will be one of the industries to suffer a decline in employment upon the introduction of the GST. The modelling finds that there will be a loss of 5,000 jobs in the retail trade sector. [88] This is somewhat at odds with the prediction of the ARA that the impact of the GST on retail employment will be neutral.

1.122 The Committee shares the concern of the SDA that any negative impact on employment in the retailing sector will most likely affect younger workers, given the high proportion of people employed in the sector who are aged under 25. The Committee is also concerned that part-time and casual workers generally will be adversely affected by the impact of the ANTS package on the retail sector, given that these workers also comprise a significant proportion of employees in the industry.

1.123 The Committee is also concerned about the possible impact of a reduction in retail employment in regional and rural Australia. The Committee recognises the importance of the retail sector as an employer in the Australian economy, particularly outside of the major cities. The Committee is of the view that the Government should be wary of the possible impact on the employment prospects of country people when considering the future of the ANTS package.

Small Retailers and Small Business

1.124 The reaction of the small business and small retailing sector to the GST has been mixed. The Committee heard evidence from the National Association of Retail Grocers of Australia (NARGA) at its Sydney public hearings and it heard from the Tasmanian Independent Wholesalers (TIW) in Hobart.

1.125 The main concern of NARGA, which represents some 10,000 members around the Australia who are principally in the small to medium food selling category, is that a GST be applied as uniformly as possible, with as few exemptions as possible. The Association's concern is about compliance costs for small business. The view was put to the Committee that the more exemptions that are created, then the higher will be the compliance and administrative costs for small business. As one witness lamented, `there seems to be very little discussion or debate about the consequent compliance costs that would arise from exempting food.' [89]

1.126 In response to questioning by the Committee on the possible employment impact of exempting food from the GST, the industry representatives were equivocal. One witness stated:

All I can say to that is that, if we have a lot of exemptions, particularly in relation to food, a lot of our retailers will not survive because of the compliance costs. We have a lot of micro-businesses in our membership and a lot of small to medium retailers who are relatively unsophisticated…I think that the viability of many of our stores which are hanging on at the moment would be at risk. I could not put a figure on how many and I could not put a figure on the employment that would be involved. All I can say is that it would be a very serious issue for our members to deal with. [90]

1.127 The representative from the TIW expressed his concern to the Committee about the compliance costs for small business of introducing a GST. The Committee was informed of the importance of the small business sector as an employer in Tasmania:

Over the last 13 years in Tasmania, small businesses have employed an extra 26,600 people, which represents a 50 per cent increase in small business employment from 55,300 people in 1983-84 to 81,900 in 1996-97. During that same period the number of small businesses in Tasmania grew from 14,100 to 21,000. [91]

1.128 The TIW submission further underlines the importance of the small business sector to the Tasmanian economy when it quotes ABS figures which show that 55 per cent of Tasmania's private sector workforce are employed in small businesses. The submission goes on to note that this constitutes one of the highest small business proportion mixes in Australia and that `in Tasmania small business pays out a wages bill well in excess of $1.5 billion each year.' [92]

1.129 The Committee also recognises the importance of the small business sector as an employer in otherwise depressed regional and rural communities, as noted by the TIW when it states in relation to Tasmania that:

…71 per cent of its grocery [is] transacted outside the four major cities of Burnie, Devonport, Launceston and Hobart. Hence, it can be seen that many people and families in rural and regional areas rely very heavily on the continuing viability and competitiveness of this important Tasmanian small business sector. [93]

1.130 In general, the small retail sector supports the ANTS proposals, including the GST. However, this support is dependent on fair and adequate compensation to the small business sector to cover the start up costs of a GST. The witness from the TIW noted that the GST is something that the sector would like to see occur, if there was adequate compensation for small business as well as for low income earners and the disadvantaged. [94]

1.131 The TIW are concerned that the impact of the compliance costs and administrative burden associated with the introduction of a GST will be too great for many small businesses to bear. The Committee heard that the $500 million assistance package that the Government is offering to assist small business to help cover the start up costs of a GST is completely inadequate. The TIW is concerned that small business carries a disproportionately high burden of compliance costs relative to turnover. It notes that:

If [a] GST…is to be introduced, then governments need to be very sensitive to its implications and [the] burden on small business. The costs of the maintenance of records and compliance with government's regulatory requirements could prove crippling to many job-rich small businesses. [95]

1.132 The Committee heard evidence that overseas experience points to the fact that the burden of compliance falls disproportionately upon the small business sector. The TIW believe that the Government should consider overseas evidence in determining the level of compensation to be offered. The submission cites evidence from New Zealand in relation to the cost for small business of compliance with the GST. [96]

1.133 The submission also quotes from a report by the National Tax and Accountants Association, which estimates that a GST in Australia `is likely to cost over 900,000 small businesses some $6.4 billion in its first year of introduction.' [97] The Committee notes that this makes the $500 million being offered by the Government seem totally inadequate.

1.134 Similarly to NARGA, the TIW told the Committee of their opposition to exempting food or other grocery items from a GST. The TIW was of the view that this could lead to `an increase of at least 50 per cent in compliance costs if a multi-rated GST system is implemented.' They suggest that if a GST is to be implemented, it should have the broadest base possible, because `such an approach would in effect minimise the time, paperwork and other costs associated with administering the tax.' [98]

1.135 The Committee recognises the concerns that small business, particularly small retailing, has in relation to the introduction of a GST. The Committee views the $500 million assistance fund being offered by the Government as compensation for small business as being completely inadequate. The Committee notes that the additional compliance costs could result in many small businesses being forced to close, resulting in the loss of large numbers of jobs, particularly in regional areas.

Tourism Industry

1.136 The Committee believes that the tourism industry will be severely affected by the introduction of a GST. As a services sector industry, products offered by tourism operators have generally not been subjected to any form of sales tax in the past. Significant price increases that flow from the introduction of a GST will most likely lead to a substantial drop in demand in the sector, something that would inevitably cost jobs.

1.137 The economic modelling performed for the Select Committee found that there would be a reduction in inbound tourism in the short term as a result of the package. This could cost a significant number of jobs in Australia's tourism industry. The models also found that if inbound tour packages are zero-rated under the GST, then the position is somewhat improved. However, both of the main models contend that over the longer term, there is not a great deal of difference between employment outcomes in the sector if the in-bound industry is zero-rated.

1.138 The Committee heard representatives from the three major tourism lobby groups, the Tourism Task Force (TTF), the Inbound Tourism Organisation of Australia (ITOA) and Tourism Council Australia (TCA), as well as the Commonwealth's Office of National Tourism (ONT), in its schedule of public hearings. The TTF and the ITOA tended to be more pessimistic about the impact of the ANTS package on the tourism sector. The TCA was only mildly pessimistic in comparison with the other two bodies.

1.139 All of the organisations heard by the Committee noted their support for taxation reform. However, the industry has two major concerns. All three of the industry groups contend that inbound tourism should be treated as an export for GST purposes, and therefore zero-rated. The point was made that inbound tourism was a significant contributor to Australia's balance of payments. Secondly, tourism is a large (and growing) employer of Australians in all areas. Any reduction in employment generated by the GST will result in major job losses in regional areas. The TTF make the point that `at $16 billion earned per annum, tourism is our largest export industry' and that `tourism contributes to the employment of 1.028 million Australians of whom 627,000 are employed due to the direct…impact of tourism spending.' [99]

1.140 The TTF representative made the following observations in relation to the possible employment effects of a GST on the tourism industry:

Our chief findings are that the impact of the reduction in spending across the tourism sector as a result of this package will costs Australia 59,500 jobs of which 34,100 will fall in the domestic sector and 25,400 in the inbound sector. In comparison to the size of their work forces, the Northern Territory, Tasmania and Queensland will be most disadvantaged by job losses. Importantly, regional tourism will also be heavily impacted.

I cannot understate to you the importance of job losses in rural and regional Australia. If you lose your tourism job in Sydney or in Melbourne, you have a good chance of picking up a job elsewhere in any number of other industries. If you are a waiter in a [bed and breakfast] in south western Tasmania or if you are a retrenched miner and you have put your redundancy pay out into a barra boat in Cairns, you have all your nest egg in one basket. One tourism operator in Cairns, who unfortunately cannot appear before you tomorrow, told me that if you do not have a job in tourism in Cairns you do not have a job. That is a bit colourful, but it does not understate the impact of the package. [100]

1.141 The suggestion is that not only is tourism a large employer in the Australian economy, it is a large employer of the normally high unemployment groups, such as youth and Australians living in regional and rural areas, including indigenous Australians.

1.142 On the question of treating inbound tourism as an export and hence giving it a zero-rating, tourism, as with other export industries, would appear to have a very strong case. The importance of income from tourism to the Australian economy cannot be overstated. Tourism is one of Australia's largest sources of revenue, and yet it is not afforded the same GST treatment as other, more traditional, export industries such as coal, wheat and wool. As the TTF notes:

Given that tourism is exposed to more competition than these other exports, and given that we employ more people than these industries and given that we do it with relatively minimal Government assistance, we think it is fair enough to ask a simple question – `why?' [101]

1.143 According to the ITOA, the Government has yet to `satisfactorily explain why it has chosen not to recognise tourism as an export for GST purposes', and quotes the World Travel and Tourism Council's tax policy, which states that:

Policy makers should apply the same standards to travel and tourism exports that are applied to exported manufactured goods. International travel and tourism is essentially an export industry. Taxing inbound travel is equivalent to taxing an export product. [102]

1.144 The ITOA go on to express concern at the inconsistency of the Government on this issue, noting that the ABS deems expenditure in Australia by non-residents (that is, inbound tourists) as being part of Australia's export income. Additionally, for many years the Government has recognised inbound tourism's export status by encouraging the export of tourism services under the Export Market Development Grants Act 1974. [103]

1.145 The TCA also recommends that the tourism industry be treated equally to other traditional export industries and zero-rated for GST purposes. [104] When questioned by the Committee as to whether inbound tourism could be treated as an export, a representative at the public hearing in Cairns had the following to say:

I would be very surprised if the Government or the Opposition or any economist would seriously suggest that we exclude tourism exports from our national accounts, for example. Our national accounts would look rather sick if you suddenly did not treat tourism exports as what they are. [105]

1.146 When further questioned by the Committee on the issue of whether to be considered an export a product should be consumed overseas (in the same way as coal, wheat and wool), a representative of Tourism Tropical North Queensland, who appeared with the TCA in Cairns, made the following observation:

That is a convenient argument if you want to argue against the zero-rating. There is no doubt that, if we as a country are looking to be competitive, we must be looking at our exports, that is, basically the things we are selling to people offshore, and tourism and holidays is one of those things. However complicated you want to make it, in the simple sense it is bringing foreign exchange into the country and it is improving our balance of payments. If we choose as a country to argue against that and not allow that to happen, I think we are cutting our own throats. [106]

1.147 The TTF cites overseas evidence of the concessional treatment that is given to the tourism industry with a value added tax framework. The comment is made that:

Europeans as pioneers of broad based consumption taxes, are the most reliant on them and have gone furthest in providing concessions recognising tourism's special significance. Importantly, most European jurisdictions recognise the importance of tourism exports and import competition by imposing a lower value added tax rate for tourism related services such as accommodation, meals, sightseeing and entertainment. [107]

1.148 The various tourism industry groups also made reference to the negative impact that the Government's ANTS proposals may have for domestic tourism. Indeed, the Committee heard evidence from the TTF that the job losses as a result of a decline in domestic tourism may outweigh job losses that are incurred as a result of a GST being applied to inbound tour packages.

1.149 Analysis quoted by the TCA shows that, under a GST, prices for Australians travelling at home will rise by 5.2 per cent if the trip includes an air component and 4.8 per cent if travel is by car. [108] From this evidence, the only conclusion that can be drawn is that domestic tourism will fall. Industry representatives informed the Committee that the domestic tourism industry is already stagnating. According to the TTF:

Even without the GST, domestic holiday tourism is set to perform poorly, with the Government's own Tourism Forecasting Council predicting that it will grow by a total of only 2.8 per cent from 1997-98 to 2006-07. [109]

1.150 The TTF state that `while domestic tourism fails to grow, the Tourism Forecasting Council (TFC) predicts that overseas holiday travel [by Australians] will grow by 43 per cent over the same period'. [110] The stagnation in domestic tourism will be exacerbated by the introduction of a GST. The TTF conclude that reductions in domestic tourism as a result of the introduction of the GST could lead to reductions of 34,100 jobs in the industry.

1.151 The Committee also took evidence from a number of tourism operators at its public hearings in Brisbane and Cairns. A representative of Omni Leisure Operations, which operates a number of theme parks across Australia, expressed concern that the imposition of a GST could lead to serious employment problems in the industry. The Committee was told that the majority of employees in Omni's operations were young, semi-skilled, entry-level employees. The witness from the organisation made the following observations:

…these venues pay nearly $18 million in wages and salaries and provide employment for up to 1,500 staff. The occupations represented at the venues range from professional staff, such as engineers and accountants, to shop assistants, catering attendants and ride operators in the semi-skilled and entry-level roles. The great majority of staff employed by Omni – perhaps 75 per cent - are included in the latter categories. [111]

1.152 The Committee received a submission from the Tjapukai Aboriginal Cultural Park in Cairns. The submission notes that the park is possibly `the largest private enterprise employer of Aboriginal people in Australia' [112] and that these jobs could be at risk if the GST is applied in its current form.

1.153 The submission from Tjapukai also noted that its visitors largely come from overseas, and have purchased tickets as part of inbound tour packages. The submission expresses concern that any increase in admission prices would result in fewer inclusions in tour packages [113] and cost the jobs of the indigenous people employed at the park.

1.154 The Queensland Government also has concerns about the possible employment effects the ANTS package, noting that this effect is `of major concern for the Queensland Government'. [114] It notes the importance of tourism as an employer in the State of Queensland, particularly in the regional areas.

1.155 The Queensland Government commissioned the Centre of Policy Studies at Monash University to undertake analysis of the impact of the ANTS package on Queensland. The submission draws on that analysis while making the following observations about the overall employment effects of the ANTS package:

The [Centre of Policy Studies] analysis indicates that the employment outcome in the short-run varies significantly between the best-case and worst-case scenarios. In the best case scenario, the implementation of the tax package would cause a slight improvement in employment in the short-run of 0.26 per cent. Under the worst-case scenario…the tax package will lead to a reduction in employment of 1.4 per cent.

In Queensland, the short-run gain in employment in the best case is projected to be 0.21 per cent, slightly less than the national figure. This is predominantly due to the fact that the tax package imposes a larger negative impact on tourism, which is a major source of employment in Queensland. In the worst case, the tax package is projected to lead to a reduction in employment of 1.4 per cent…or approximately 22,900 jobs. [115]

1.156 Given the concerns that were expressed to the Committee by several major stakeholders about the possible impact of the ANTS package on the tourism industry, the Committee also invited the Commonwealth Government's ONT to give evidence. However, the ONT indicated that it had not undertaken any specific studies of its own on the impact of the ANTS package on the tourism industry, suggesting instead that this sort of analysis had been done by Treasury.

1.157 The ONT's lack of research about the possible impact of the ANTS package on the tourism industry was further highlighted when it was revealed to the Committee that they were still working on industry forecasts that did not even factor in the impact of the proposed taxation changes. For example, the ONT suggested that the TFC has projected increases in inbound tourism over the next few years but that these forecasts do not take into account the tax changes under the ANTS package. In response to questioning by the Committee, the ONT revealed it did not have any forecasts that took into account the impact of the proposed taxation reforms. [116]

1.158 The Committee expresses its disappointment that the Commonwealth Department with specific policy responsibility for the tourism industry has not done any work on the impact of the ANTS package on the industry.

1.159 Although the Committee heard reservations that ONT held about the TTF and TCA estimates of job losses in the industry (because of the estimates of price elasticity of demand used in the TTF and TCA analyses), it had no contrary information to provide based on its own research.

1.160 The jury is still out on the issue of price elasticity of demand in the tourism industry. Industry analysts are of the view that the tourism market should be analysed in three parts: holiday-makers, visiting relatives and business visitors. As these three groups tend to have different elasticities of demand, the question of the average elasticity in the tourism industry is somewhat uncertain. The Committee believes that this is something that can only be resolved by careful econometric work, which has not yet been undertaken, and therefore shares the concerns of the tourism industry about the effect of the GST on its operations.

1.161 The Committee notes the importance of tourism as an employer in the Australian economy, particularly in rural and regional areas. The Committee also recognises the role the tourism industry plays in employing Australia's youth and indigenous people, groups that traditionally have higher unemployment rates than the community generally.

1.162 The Committee notes the European evidence, which shows that most countries offer a concessional rate of GST for tourism packages. The Committee also recognises the special circumstances of Australia in the world tourism market, in that it is far distant from other destinations and that this distance can deter overseas visitors.

Wine Industry

1.163 The wine industry will not be subject to the same rate of taxation under the ANTS package proposals as is the case across the other industry sectors from which the Committee heard evidence.

1.164 In general, wine sales are currently subject to what is effectively a 41 per cent sales tax. The 41 per cent is made up of two components, the 26 per cent wholesale sales tax that is levied by the Commonwealth and 15 per cent in sales taxes that were levied by the states prior to a High Court decision in 1997. [117] That decision determined that certain state business franchise fees were prohibited by the Constitution; that is, the states were prevented from levying duties and taxes on various products such as wine. After the decision, the Commonwealth increased the tax on wine and then distributed it to the states in an attempt to prevent any shortfalls in state revenue that may have resulted from the removal of the state-based taxes in accordance with the High Court decision.

1.165 It is the view of the Winemakers' Federation of Australia that the current system:

…distorts resource allocation in the economy, thereby reducing economy-wide efficiency and consequently tax reform is seen as essential for the continuing viability of the industry in what is an increasingly competitive global economy. [118]

1.166 Under the proposed new tax system arrangements, wine sales will still effectively be subjected to 41 per cent in sales taxes. The government has decided that, from 1 July 2000:

Wine, and beverages consisting primarily of wine, will become subject to a Wine Equalisation Tax to replace the difference between the current 41 per cent wholesale sales tax and the proposed GST. The Wine Equalisation Tax will be levied at such a rate that the price of a four-litre cask of wine need only increase by the estimated general price increase associated with indirect tax reform; that is 1.9 per cent. The concessional taxation treatment of the alcohol content of cask wine will therefore be preserved. [119]

1.167 The wine industry is a significant employer of Australians, particularly in the regional areas. As the Winemakers' Federation notes in its submission to the Committee:

With close to 1,000 wineries in Australia, ranging from boutique wineries to large multinational companies located in 45 defined grape growing regions in Australia, in all Australian States, the grape and wine industries play a vital role in regional economic development and are a major source of regional employment. The Population Census of 6 August 1996 identified 7,400 people whose main occupation was grape growing and 8,300 whose main occupation was in the manufacture or blending of wine. At almost 16,000 employees, direct employment has increased by more than 6,000 full-time employees since the 1991 census. Furthermore, casual and part-time employment is estimated to provide another 3,500 full-time equivalent jobs. A further 4,900 people are employed in wholesaling (beer, wine and spirits) and 7,600 in retailing. [120]

1.168 The wine industry is concerned that any price increases that occur under the new Wine Equalisation Tax (WET) arrangements will result in a significant number of these jobs being lost, particularly in the smaller wineries across regional Australia. Available evidence estimates the price elasticity of demand for wine to be in the range of 0.4 to 0.5; that is, a 10 per cent increase in price will lead to a 4-5 per cent reduction in demand for wine. [121]

1.169 If the WET is set at such a rate so as to reduce demand, small wineries may become unviable and large numbers of employees will become unemployed, thereby adding to the problem of regional unemployment. As the Winemakers' Federation notes, there are 800 wineries across Australia that crush less than 50 tonnes of grapes each vintage. They argue that the pressures on these wineries to reduce costs, usually in the form of reducing labour costs, will increase, [122] thereby creating additional regional unemployment.

1.170 Consequently, the industry proposes that a revised WET system should be applied in such a way that it should reduce the distortions of the current sales tax system and the proposed WET arrangements, on the smaller end of the wine industry, thereby helping to ensure the continued viability of that section of industry. The Winemakers' Federation proposes that:

…the WET tax [sic] should only be applied on cellar door sales after a $500,000 sales threshold has been reached. This will reduce the distortionary effect of the additional WET tax [sic] and minimise the possible employment damages to those areas of the wineries. It will also demonstrate support for regional Australia and recognise the importance of small wineries to the whole industry. [123]

1.171 Also important are the indirect employment opportunities created by the wine sector, particularly in the area of tourism. Wine industry tourism continues to gain importance, both as a drawcard for the domestic tourism market and for overseas visitors. Ensuring the continued viability of Australia's wine industry, particularly among the smaller wineries, is crucial to enabling the level of employment, both directly in the wine industry and in associated tourism activities, to be maintained.

1.172 The Vineyards' Association of Tasmania recognises the importance of the wine industry as a direct employer and an indirect employer in the area of tourism:

The small regional wine producer is providing significant employment in rural areas, a role which is extended by the tourism `cluster' which forms around wineries: often the areas are otherwise depressed rural regions with high unemployment. [124]

1.173 The submission from the Vineyards' Association of Tasmania goes on to describe the example of Pipers Brook Vineyard, which is still a small (but expanding) Tasmanian winery that employs:

200 employees with field workers mostly drawn from neighbouring and depressed communities of George Town, Lilydale and Bridport; [another] 25 people work in the hospitality arm of the business. A tax regime which impacts adversely on this end of the wine industry, as will be the case with GST/WST, will impact adversely on many rural regions. [125]

1.174 In summary, the winemaking industry is a highly labour intensive industry. If a number of vineyards become unprofitable under the proposed WET arrangements, there will be significant pressure to reduce labour costs in the industry, which will lead to a reduction in employment. This will add to the problem of regional and rural unemployment. Additionally, there will be an impact on tourism in the industry, leading to a further loss of jobs in regional Australia.

Other Matters Relevant to the Committee's Inquiry

Effect on Employment Services

1.175 The Committee heard evidence about the impact of the ANTS package on the provision of employment services, and is concerned about the degree of confusion that seems to exist among employment service providers on the question of how they will be affected by the ANTS proposals.

1.176 At its public hearings in Brisbane, the Committee heard from the Brisbane South Area Consultative Committee (BSACC), who had surveyed 24 Job Network providers in their region. Their submission notes that there exists a `high degree of confusion, skepticism and sometimes misconception about the impact and implementation of the proposed new tax measures'. [126]

1.177 The BSACC survey results support the view that there is a `total lack of information available as to how the proposed tax measures would impact on employment service providers.' The BSACC suggest that clarification on the issue had been sought from the Department of Employment, Workplace Relations and Small Business (DEWRSB), yet conflicting information was supplied and so providers are `none the wiser'. [127]

1.178 The BSACC submission makes note of the following comments that were received from the surveyed Job Network providers and the National Employment Services Association, an organisation that represents some 94 per cent of all Job Network providers:

1. There are questions such as whether providers will pay a GST on purchased services from ancillary providers (such as health professionals and trainers). Also, with the next Job Network tender and new contracts due to commence in March 2000, prospective tenderers are uncertain whether provision needs to be made for the GST in the tendering process.
2. Employment services should be exempt from a GST as it is considered to be detrimental if an agency gets taxed for putting people into jobs.
3. [It is too early to] make a judgement on the effect of the new tax measures until further information is forthcoming. However, if a GST is to apply to employment services, it should be applied uniformly to all providers regardless of whether they are community, private enterprise or government [providers].
4. [The] administrative burden faced by providers to `collect' the GST on behalf of the government. Job Network providers already have a lot of paperwork and this will add to the burden and make them less competitive…Job placement fees from the government would need to increase to cover the additional administrative workload.
5. If employers are faced with additional fees for staff recruitment, they may abandon job placement agencies in favour of advertising and other self-recruitment methods. [128]

1.179 It is apparent to the Committee that there is a high degree of confusion as to how the GST will apply to the provision of employment services. The Committee is of the view that the Government should make it clear that if a GST is introduced, it will not apply to employment service providers, or to the provision of ancillary services to those providers.

1.180 The Committee also heard evidence from Group Training Australia (GTA) and a group training company, Apprentices Trainees Employment, at its public hearing in Melbourne. GTA is the national association for over 110 group training companies across Australia who employ apprentices and trainees and place them with host employers for varying periods until they complete their contract of training. The network collectively employs over 26,000 apprentices and trainees, making it the largest employer of this group in Australia. [129]

1.181 GTA informed the Committee that a large majority of the host employers are small to medium sized enterprises. GTA are concerned that if these employers have to pay GST on the cost of hiring apprentices or trainees from group training companies, then demand for apprentices and trainees could decline. GTA estimate that around 5,000 apprentices and trainees face a loss of employment opportunities under this scenario. [130] The witness from Apprentices Trainees Employment suggested that the figure could be as high as one third of the 26,000 apprenticeships currently undertaken by GTA; that is, up to 8,500 apprentices and trainees could lose their employment opportunities. [131] This will occur notwithstanding the fact that the enterprises will be able to claim all GST paid back as an input tax credit. A representative of GTA noted that:

The latest data we have is that 89 per cent of our host employers are small to medium sized employers and 50 per cent of our group training host employers, currently nearly 34,000, employ fewer than five people in total. They are the micro-businesses which simply need the service of an external organisation to deliver that which group training does and…they are the…people who will walk away from apprentice and trainee training. [132]

1.182 In relation to this issue, the representative from Apprentices Trainees Employment noted that:

We put our clients into basically three categories. There is one group that are highly committed apprentice employers; they will employ apprentices no matter what – well, within reason. There is a middle group that are a little ambivalent about it but you can sell it to them, and there is a third group that would never employ an apprentice in their own right, but because of the service we offer we can convince them to take an apprentice. [133]

1.183 In evidence to the Committee, GTA noted that there is an element of discrimination in the application of GST to the cost of the services that they provide, because the service is an essential part of the eventual achievement of a trade qualification by an apprentice or a trainee:

[Our argument is that] courses that are provided by registered training organisations are GST-free, that apprentices and trainees are engaged in courses and that employment is an integral part of the achievement of the qualification…all of the services associated with the placement and support of apprentices and trainees should also be GST-free, otherwise it is discriminatory. [134]

1.184 By declaring that group training companies be completely GST-free, GTA envisages that the potential problems with the proposed arrangements could be overcome. GTA considers that the employment services that they provide for apprentices and trainees is too important to have it threatened by the imposition of a GST, irrespective of whether host employers will be able to claim any GST payments as input tax credits.

1.185 The Committee also heard evidence from an employment service provider for people with disabilities in its first public hearing in Canberra. The witnesses noted that their organisations are already poorly resourced and could not afford the additional costs that would arise if a GST were to be implemented.

1.186 The Committee heard evidence that notwithstanding the fact that disability employment service providers will be able to register and claim any GST incurred as an input tax credit, they can not afford the cash flow pressures that such procedures create and would be better off not having to pay GST at all. The witness from Advance Personnel made the following comments:

…[if] there is a credit system involved, then there will be a cash flow problem within our agency. If we pay for those services and pay the GST and there is a mechanism to reclaim them back, our agency and our budget is such that that would affect the cash flow ability of our operations. [135]

1.187 The Committee heard evidence from DEWSRB at its final public hearing in Canberra. In response to questioning from the Committee on the impact of the GST on charges to employers by employment service providers, DEWRSB made the following comments:

In relation to those Job Network members who are charging an employer for filling their vacancy, under the tax reforms the GST will be applied to that and then remitted through the Taxation Office. We believe that there would be no real effect, in fact a neutral effect. [136]

1.188 The Department also made note of the fact that Job Network providers would have access to the $500 million assistance package that the Government will be making available to small business to assist in covering the compliance costs and administrative burden associated with the start up of the GST. [137]

1.189 The Committee expresses its concern that the Government has not adequately clarified the treatment of employment service providers under the ANTS proposals. The employment services market is an essential service for the community. It is an area that has undergone significant change in the past year, from being a function that was universally provided by the Government under the Commonwealth Employment Service umbrella to a system of private provision, under the Job Network arrangements. The Committee is concerned that the Government is now intending to tax the provision of these employment services.

1.190 The Committee again questions whether the assistance package will be adequate to cover the GST start up requirements of small businesses (including Job Network providers) across Australia. The Committee also notes that Job Network providers can ill afford the additional compliance costs of a GST, given that they are generally poorly resourced and already operating on tight margins and subject to a high administrative burden.

Effect on Training

1.191 The Committee is also concerned about the potential impact of a GST on training and tuition that is provided by employment service providers for job seekers. The submission from DEWRSB suggests that tuition purchase by a Job Network member for a job seeker from a college, university or other recognised institution that leads to a formal qualification will be GST-free. [138]

1.192 In response to questioning by the Committee, DEWRSB was unable to provide an estimate of the proportion of tuition purchased by Job Network providers that leads to a formal qualification:

…it is a bit early for us to have that sort of data at this stage. The evaluation of Job Network will cover such issues, but that is some time off. Under the intensive assistance service, which is the major one for disadvantaged job seekers under Job Network, it is too early for us to even have an indication of the extent to which Job Network members are providing those sorts of services. [139]

1.193 In relation to other forms of education and training (that do not lead to formal qualifications) that may be purchased by Job Network members, DEWRSB informed the Committee that providers `will pay GST on that and, of course, will claim that back'. [140]

1.194 The Committee is concerned, however, that irrespective of whether Job Network providers, or indeed employers, can claim back any GST that is paid, they will be discouraged from purchasing training services because of the cash flow pressures that are created by having to pay GST.

1.195 The Committee believes that this will discourage the use of external tuition and educational services by employers and Job Network providers and make up-skilling and reskilling workers more difficult in a climate of labour market adjustment.

Contractual Employment Issues

1.196 The Committee is concerned that the ANTS package does nothing to address the very real concerns of a number of groups about contract employment. The Committee heard evidence on this issue from the Transport Workers' Union of Australia (TWU) at its public hearing in Melbourne.

1.197 In evidence to the Committee, the representative from the TWU noted that there are two sorts of members of his organisation; actual employees and owner-drivers. The witness concentrated his evidence on the issue of owner-drivers. Although owner-drivers are employed by large firms as independent contractors, they are essentially in the same situation as normal employees, because:

They are tied to single transport companies and by that I mean they drive trucks which have transport company colours on the side of them, they will wear a uniform of the transport company and their hours are set by transport companies…you would not be able to tell the difference between an owner-driver and an employee. [141]

1.198 The TWU's representative went on to suggest that the ANTS package will cost employment in the transport industry:

…I need to say to this Committee today that this new tax system is going to cost jobs among owner-drivers. Without a doubt it will cost jobs…for two pretty simple reasons. The first is that there is going to be a very significant administrative burden placed upon owner-drivers by this new tax system in the form of asking them to be the tax collectors for the GST.

The second point…is the effect that this is going to have on the bargaining relationship, at least the first time round, between the union and these people and the transport companies. On 1 July 2000 these people are going to add to their rates a component for GST. The system assumes that the burden of paying that will completely be borne by the transport company. It assumes that because that money can then be claimed back by transport companies when they indeed remit their own GST that they collect from their customers.

But it is simply not the case that the entire burden will be borne by the transport companies. In the next twenty months we will go to the transport companies and make two asks, which involve an increase in the owner-driver rates. The first is for the GST and the second will be for a wage increase which would occur in the ordinary course of events. Already we are having transport companies say to this that, `This time round you've got to leave us alone because we're going to have to bear the burden of the GST'. It may be said that that must be a fallacy because they can claim it [as an input tax credit], but it is the reality and it is going to affect the dynamics in terms of bargaining for these people. [142]

1.199 The TWU claim that this scenario would result in a shift in transport work from the owner-driver sector of the industry to smaller contractors. This is of concern for the industry workforce because the small transport company sector of the industry is the least regulated component of the industry. As the witness noted:

…that is the sector of the industry in which the worst abuses of transport occur. That is the sector of the industry in which you have the greatest drug use; it is the sector of the industry in which you see the greatest abuse of long driving hours; it is the sector of the industry where you see the unsafest trucks; and it is the sector of the industry which gives rise to the most accidents on the road. It is in that part of the industry that people are working longer for less; a person needs to do the job of two people in order to earn a living wage. [143]

1.200 The Committee heard similar evidence from the Taxi Industry Council of Australia (TIC), who also noted that the additional costs associated with being an owner-driver with a GST in place will result in a shift in the taxi industry from owner-drivers to small contractors. As with the transport industry generally, this sector of the taxi industry is the most unsafe, the least regulated and the least rewarding for employees in terms of possible earnings.

1.201 The Australian Taxi Industry Association (ATIA), in its submission to the Select Committee takes this point further, lamenting that the longer term effects of the ANTS package could be that large-scale shortages of taxi drivers and operators could emerge. [144]

1.202 Both the ATIA and the TIC are concerned that the draft legislation for the GST requires that taxi drivers be registered collectors of the GST, irrespective of whether earnings are greater than the more general registration turnover threshold of $50,000 per annum. The TIC are `opposed to any requirement for tax drivers to be singled out under the legislation'. [145] The ATIA are of the view that substantial assistance to the taxi industry should be provided to compensate for the start up costs of a GST on the industry. [146]

1.203 The Committee also heard evidence from the Recruitment and Consulting Services Association (RCSA) at its public hearings in Melbourne. RCSA is the peak organisation representing the recruitment consulting industry in Australia and New Zealand. The submission from RCSA expresses concern that:

…employment agents will suffer a competitive disadvantage in relation to their ability to supply labour to input taxed entities, compared with the direct engagement of labour by such entities. [147]

1.204 The submission notes that under the proposed legislation:

…employment agents will be making taxable supplies in relation to the provision of labour resources to their clients. The consideration for this supply will be the total fee charged by the employment agent to their client. That consideration will be subject to GST at the rate of 10 per cent.

In contrast…where a person is engaged as an employee, or other [pay-as-you-earn] earner, that person is not undertaking an enterprise and is not required to account for GST in respect of the supply of their labour to their employer. [148]

1.205 The submission suggests that the outcome of the legislation will be to make labour that is engaged through an employment agent more expensive (as a direct result of the imposition of a GST), when compared to the alternative of direct engagement of employees by employers (which is not subject to a GST). [149] That is, the GST will put labour hire companies in an uncompetitive position compared to the direct recruitment of employees by employers.

1.206 The Select Committee heard evidence from the Construction, Forestry, Mining and Energy Union (CFMEU) about the impact of the ANTS package on employment arrangements applying in the building and construction industry. In evidence to the Select Committee, a representative of the CFMEU noted that:

…tax rorting is spiralling out of control in the Australian construction industry today and the decision of the government to embark upon a tax reform package and all that that entails including scrapping the current system of tax collection in the industry, known as the prescribed payment system, or PPS, does open up a significant window of opportunity to get this problem or epidemic in our industry under some sort of control. [150]

1.207 The CFMEU believes that when the PPS system was introduced in 1983, it went some way towards addressing the tax rorting that was occurring in the construction industry. However, eventually employers and workers saw advantages in switching the workforce over to the PPS away from the pay-as-you-earn (PAYE) system. According to the CFMEU, PPS workers:

…are able to claim a vast range of deductions, split the income with their partner and use all sorts of techniques to pay very low amounts of tax in comparison to the PAYE worker. [151]

1.208 The CFMEU's concern stems from the fact that the PPS promotes the use of contractual labour in the building industry. Similarly to the transport industry, this is the least regulated part of the industry. As the witness from the CFMEU explained:

This trend is having a very serious effect on a whole range of conditions and standards in the industry. Contractors who switch all their workers to the PPS invariably do not train anybody. They cannot take on apprentices because they are trying to operate at very cheap rates and undercut the more bona fide businesses in the industry. They have little regard for safety because PPS workers are only paid when they are working; they are not paid to stop and fix up safety. There are a whole range of bad and damaging effects that this whole trend is having on the industry in terms of dragging the industry down. [152]

1.209 The CFMEU are concerned that there is little detail available about the operation of the proposed pay-as-you-go (PAYG) scheme. If the PAYG system is merely mechanism to allow businesses to minimise their administrative dealings with the Australian Taxation Office, then the CFMEU does not oppose its introduction. However, the union is keen to confirm that a PAYG scheme would continue to involve the withholding of tax from payments to contractors in the construction industry. [153]

1.210 The CFMEU is concerned at the prospect of the introduction of a minimum turnover of $50,000 for a business to qualify for an Australian Business Number (ABN). The CFMEU's suggests that a turnover of $50,000 per annum is `not adequate to measure whether or not a bona fide business is being operated in the construction industry'. [154]

1.211 If the GST pushes workers in the direction of incorporation to ensure their capacity to obtain input tax credits, this should not automatically mean that there is no scrutiny of the substance of their working arrangements. The CFMEU submission concludes that:

More information is required before it can be decided that the GST will assist in monitoring the activities of contractors and reducing the cash economy. For example, it is not clear whether the new system will be designed to record the ABN of contractors purchasing materials. If this were done the data collected may assist in differentiating between bona fide contractors and employees. Such a capability would also be pivotal in reducing the cash economy. [155]

Payroll Tax

1.212 The Committee heard evidence from a number of witnesses about the issue of payroll tax. The current payroll tax arrangements that apply in each State and Territory will not be affected by anything in the ANTS proposals.

1.213 The submission from the SAECCI notes that the `major disappointment…in the package is that it did not include the abolition of payroll tax' and that it `is our strong belief that payroll tax should be abolished as part of any general reform of the tax system'. The submission continues, suggesting that payroll tax should be abolished at the time a GST is introduced because a `GST in conjunction with a payroll tax would effectively tax the labour component twice' and that `removing payroll tax will reduce the cost of labour relative to the cost of capital, thereby encouraging employment.' [156]

1.214 A representative from the SAECCI reiterated these observations about the failure of the Government to abolish payroll tax in the ANTS package:

The major disappointment we have with the tax package announced by the government was that it did not include the abolition of payroll tax…To us, it is a discriminatory tax. It feeds into the costs of our goods and services and therefore detracts from our competitiveness. If we abolished it at the time a GST was introduced we would reduce the cost base in our business and, therefore, would offset some of the inflationary impact that might otherwise occur. If we have it in conjunction with the GST, the labour component of value-add will effectively be taxed twice.

If you remove payroll tax, you will reduce the cost of labour apropos capital. Economic modelling would say that that ought to enhance employment – jobs. It certainly will reduce the displacement of labour that takes place because of the capital-labour substitution. The chance of getting rid of it is at its strongest at the time of the major changes to the tax system. [157]

1.215 In response to questioning by the Committee on the issue of payroll tax, the witness from the SAECCI indicated that his organisation would have preferred to see payroll tax abolished and a lower level of income tax cuts offered as part of the ANTS package. [158]

1.216 While other witnesses were not as unequivocal as the SAECCI, most indicated that they would have preferred payroll tax to be abolished as part of the ANTS package. Organisations such as the BCTR note that they would have preferred issues such as payroll tax to have been addressed in the ANTS package, and that it is not ideal that States and Territories `will continue to impose a range of selective indirect taxes including payroll tax.' [159]

1.217 The Australian Food and Grocery Council, in its submission to the Select Committee, also called for payroll tax to be abolished, in preference to providing large income tax cuts to the well-paid, or to reducing diesel fuel excises. [160] Submissions from Australian Business, the Australian Chamber of Commerce and Industry and the Council of Small Business Organisations also argued that taxes on employment should be reduced. [161]

1.218 In general, payroll tax was considered to be a hindrance to job generation. For instance, the PIAA suggested that there is potential for employment growth of 1.6 per cent in the printing industry if payroll tax were to be abolished. For this reason, the PIAA noted that payroll tax was an `an impediment to employment creation' and that they saw the ANTS package as an opportunity for payroll tax to be abolished. [162]

Impact on Workers' Compensation Arrangements

1.219 The Committee heard evidence from the Heads of Workers' Compensation Authorities (HWCA) at its public hearings in Brisbane. HWCA is a group comprising the Chief Executives of Australia's ten workers' compensation authorities (comprised of eight State and Territory and two Commonwealth bodies).

1.220 The HWCA's concern with the ANTS package is that there is some doubt as to its application to workers' compensation accident insurance. HWCA's contention is that workers' compensation schemes be treated the same as general insurance arrangements are treated in the ANTS package. As the HWCA noted in evidence:

I think the consensus in the practitioner community is that the intent is for workers' compensation schemes to be treated as for general insurance companies. Whether in fact that is truly the intention of the government is uncertain. [163]

1.221 The HWCA express the view in their submission that the legislation establishing the GST needs to be amended to clarify the treatment of workers' compensation accident insurance under the GST:

Workers' Compensation accident insurance is conceptually analogous to general insurance business. The application of the GST Bill, in particular [section] 78 is fairly clear in respect of general insurance where there exists two parties, the insurer and the indemnified party. However, in workers' compensation schemes, payments can be made directly to a third party. The treatment of such payments under the GST regime requires clarification and the legislation amended to reflect the desired intent. [164]

1.222 The HWCA are concerned that if the draft legislation is not amended, there is the possibility that the GST will lead to higher workers' compensation accident insurance premiums. The HWCA suggests that this `would impact particularly on small businesses that are not readily able to absorb such increases to the extent that this may affect employment levels'. [165]

1.223 The Committee is of the view that the Government needs to make its intentions clear with respect to the GST treatment of workers' compensation accident insurance premiums. The Committee recommends that these premiums should be treated in the same way as general insurance arrangements are treated under the proposed legislation.

An Additional Comment on Compliance Costs in Small Business

1.224 The Committee notes that much has been made of the $500 million that the Government is offering as assistance for small business to help cover the start up costs of a GST after it is introduced. The Committee has heard a great deal of evidence from industry, and they seem to suggest that the compensation package that is proposed by the Government is completely inadequate.

1.225 The Committee is of the view that if small business is not adequately compensated for the compliance costs associated with the introduction of a GST, then a large number of businesses could become unviable and forced to close. This could result in large numbers of jobs being lost across Australia, particularly in regional and rural Australia, areas that are already hit hard by high unemployment. The Committee also recognises that a substantial proportion of the small business workforce are women and young Australians, two groups traditionally disadvantaged in the work place.

1.226 It is evident that the Government's estimates of the start up costs for small business of a GST are grossly understated. The Government has made much of its concern for the small business community, however it does not seem to appreciate the scope of the administrative burden that will be placed on that same community with such a fundamental change to the tax system as the introduction of a GST.

A Tax on Employment

1.227 From the available evidence, it is impossible to conclude that the implementation of the ANTS proposals will be beneficial for employment. The Labor senators are of the view that evidence received by the Committee has been overwhelmingly negative. The Labor senators believe that the imposition of the new tax system on the Australian economy is effectively a tax on employment.

1.228 The Labor senators consider that the services sector has special cause to be concerned about the potential impact of the ANTS package. It is important to note that the services sector is one area of the economy that has undergone significant growth in employment over the few years, as shown in the following table:

Employment Growth in the Services Sector [166]

ANZSIC Industry Division	Annual Employment Growth
	May 1997	November 1997	May 1998	November 1998
Accomodation, cafes and restaurants	8.24%	2.12%	2.74%	2.12%
Property and business services	4.13%	4.33%	8.80%	7.15%
Health and community services	0.56%	1.45%	5.83%	2.34%
Cultural and recreational services	11.58%	14.55%	1.47%	0.72%
Personal and other services	5.04%	10.19%	0.06%	1.66%
Total services sector	4.42%	4.68%	5.31%	3.76%
Total all employment	0.64%	1.48%	2.07%	1.51%

1.229 It can be seen from the table that job growth in the services sector industries has been considerably stronger than growth elsewhere in the economy. The Labor senators do not believe that it is appropriate for a Government that claims to be concerned about employment issues to start taxing job creation in the sector that is leading the way as far as employment growth in Australia is concerned.

1.230 In the Labor senators' view, each of the industries from which the Committee heard evidence expressed some degree of concern about the impact of the Government's ANTS proposals on their sector. The majority of the industry representatives were of the view that the effect of the GST in their sector would be reduced employment. Further, some witnesses put the view that it would not only mean a fall in employment in the short term, but that future employment prospects would also be negatively effected as a result of continuing decline in investment in their sector as effective demand dwindles under a GST regime.

1.231 The Labor senators are of the view that the GST and new tax system package being proposed by the Government will not have a positive impact on employment, as claimed in some quarters. The Labor senators are very concerned that the overall impact of the package on employment could be negative, particularly at a time when unemployment remains unacceptably high.

1.232 The Labor senators are also concerned about the areas that will be most severely affected by the cuts in employment as a result of the ANTS package. The Labor senators believe that the Committee has taken evidence from a large number of witnesses, particularly in the services sector, who claim that the greatest effect will be felt by regional and rural areas, and among Australia's youth and indigenous people. The Labor senators are very concerned about this prospect. These sectors of the community are already highly disadvantaged by above-average unemployment rates, and it is the Labor senators' view that the plight of these groups should not be further worsened by an unfair and regressive tax on employment.

Recommendation

1.233 The Labor senators recommend that the GST and new tax system proposals not be passed by the Senate because of the deleterious effect that the proposals will have on employment.

 

Footnotes

[1] Hon Peter Costello MP, Tax Refor7m: Not a New Tax, a New Tax System, Australian Government Publishing Service, Canberra 1998, p. 7.

[2] ibid., p. 9.

[3] Hansard (House of Representatives), 2 December 1998, p. 1087.

[4] Hansard (House of Representatives), 9 December 1998, p. 1722.

[5] Hon Peter Costello MP, op. cit., p. 155.

[6] This description is drawn from the first report of the Senate Select Committee on a New Tax System.

[7] For a full analysis of the results of the Monash model analysis, refer to Peter B. Dixon and Maureen T. Rimmer, The Government's Tax Package: Analysis Based on the Monash Model, paper presented to the Forum for Modelling Australian Taxation, held in Sydney on 10 December 1998 and Peter B. Dixon and Maureen T. Rimmer, The Government's Tax Package: Further Analysis Based on the Monash Model, report prepared for the Senate Select Committee on a New Tax System, 25 January 1999.

[8] Peter B. Dixon and Maureen T. Rimmer, The Government's Tax Package: Further Analysis Based on the Monash Model, report prepared for the Senate Select Committee on a New Tax System, 25 January 1999, p. ii.

[9] ibid., p. iv.

[10] ibid.

[11] The term `pass through' rates is referring to the length of time that it takes for the price changes that result from the switch from wholesale sales taxes to a GST to be passed on to the consumer.

[12] Peter B. Dixon and Maureen T. Rimmer, op. cit.

[13] ibid., p. v.

[14] ibid., pp. 19-20.

[15] Senate Select Committee on a New Tax System, First Report, Senate, Canberra, February 1999, p. 38.

[16] This description is derived from a paper entitled: MM303 (as at 29 August 1998). The paper was provided to the Select Committee during the course of its inquiry into a GST and a New Tax System by Mr Chris Murphy of Econtech.

[17] Senate Select Committee on a New Tax System, op. cit., pp. 10-11.

[18] For a full analysis of the results of the Murphy modelling conducted by Econtech, refer to Chris Murphy, Econtech, Modelling a New Tax System (ANTS) – Comparing Monash and MM303, report prepared by Econtech for the Senate Select Committee on a New Tax System, 14 February 1999.

[19] Chris Murphy, Econtech, Modelling a New Tax System (ANTS) – Comparing Monash and MM303, report prepared by Econtech for the Senate Select Committee on a New Tax System, 14 February 1999, pp. 27-29.

[20] ibid., p. 29.

[21] ibid., p. 33.

[22] Labor Senators' findings in the Senate Select Committee on a New Tax System, op. cit., p. 42.

[23] Peter B. Dixon and Maureen T. Rimmer, The Government's Tax Package: Short-Run Implications for Employment by Industry, Region, Occupation, Age and Gender, Report Prepared for the Senate Employment, Workplace Relations, Small Business and Education References Committee, 19 March 1999, p. 15.

[24] ibid., pp. 12-15.

[25] ibid., pp. 16-17.

[26] ibid.

[27] ibid., pp. 18-26.

[28] ibid., p. 27.

[29] Hansard, Canberra, 25 March 1999, p. 886.

[30] ibid., p. 889.

[31] These results are from additional material provided to the Committee by Professor Dixon at his appearance before the Committee in Canberra on 25 March 1999.

[32] Hansard, op. cit., p. 888.

[33] Hansard, Canberra, 12 March 1999, pp. 868-869.

[34] ibid., p. 869.

[35] Hansard, Adelaide, 2 March 1999, p. 485.

[36] ibid., p. 487.

[37] ibid.

[38] Select Committee Hansard, Melbourne, 3 February 1999, p. 612.

[39] ibid.

[40] Media, Entertainment and Arts Alliance, Submission No. 921, p. 1.

[41] ibid.

[42] Hansard, Sydney, 23 February 1999, p. 241.

[43] ibid., p. 243.

[44] ibid.

[45] ibid., p. 252.

[46] ibid.

[47] McDonald's Australia, Submission No. 552, p. 2.

[48] ibid.

[49] ibid., p. 3.

[50] ibid.

[51] Hansard, Canberra, 19 February 1999, p. 27.

[52] ibid., p. 27.

[53] ibid., p. 30.

[54] The (then) 15 per cent value added tax applied to take out food but not supermarket food.

[55] Hansard, Sydney, 23 February 1999, p. 231.

[56] ibid.

[57] ibid., p. 232.

[58] ibid.

[59] McDonald's Australia, op. cit., p. 5.

[60] Dr Neil Warren, Food: Staple of Life or Staple of the GST, Paper for the ATAX GST Law Conference, University of NSW, Sydney, 16 December 1998.

[61] McDonald's Australia, op. cit., p. 6.

[62] Hansard, Sydney, 23 February 1999, p. 219.

[63] ibid., pp. 215-216.

[64] ibid., p. 227.

[65] Restaurant and Catering Australia, Submission No. 697, p. 17.

[66] ibid.

[67] ibid., p. 8.

[68] ibid., pp. 8-9.

[69] Australian Liquor, Hospitality and Miscellaneous Workers' Union, Western Australian Branch, Submission No. 1122, p. 2.

[70] ibid.

[71] Printing Industries' Association of Australia, Submission No. 567, p. 5.

[72] Hansard, Canberra, 12 March 1999, p. 836.

[73] Printing Industries' Association of Australia, op. cit.

[74] Hansard, op. cit.

[75] Australian Publishers' Association, Submission No. 1037, p. 3.

[76] Hansard, Melbourne, 3 March 1999, pp. 640-641.

[77] ibid, p. 641.

[78] ibid, pp. 649 and 650.

[79] ibid., p. 650.

[80] Ms Fran Bryson, Submission No. 466, p. 5.

[81] Hansard, op. cit., p. 643.

[82] Shop, Distributive and Allied Employees' Association, Submission No. 553, p. 16.

[83] Select Committee Hansard, Melbourne, 2 February 1999, p. 395.

[84] ibid.

[85] Hansard, Sydney, 22 February 1999, p. 108.

[86] ibid.

[87] ibid., p. 120.

[88] Chris Murphy, Econtech, op. cit., p. 28.

[89] Hansard, Sydney, 23 February 1999, p. 280.

[90] ibid., p. 286.

[91] Hansard, Hobart, 4 March 1999, p. 766.

[92] Tasmanian Independent Wholesalers, Submission No. 782, p. 5.

[93] ibid.

[94] Hansard, op. cit., p. 769.

[95] Tasmanian Independent Wholesalers, op. cit., p. 7.

[96] ibid., pp. 10-11.

[97] ibid., p. 11.

[98] ibid., p. 12.

[99] Tourism Task Force, Submission No. 472, pp. i-ii.

[100] Hansard, Brisbane, 24 February 1999, pp. 411-412.

[101] Tourism Task Force, op. cit., p. 3.

[102] Inbound Tourism Organisation of Australia, Submission No. 471, p. 7.

[103] ibid.

[104] Tourism Council Australia, Submission No. 718, p. 16.

[105] Hansard, Cairns, 25 February 1999, p. 447.

[106] ibid., p. 448.

[107] Tourism Task Force, op. cit., p. 20.

[108] Tourism Council Australia, op. cit., p. 15.

[109] Tourism Task Force, op. cit., p. 9.

[110] ibid.

[111] Hansard, Brisbane, 24 February 1999, p. 413.

[112] Tjapukai Aboriginal Cultural Park, Submission No. 1391, p. 1.

[113] ibid.

[114] Queensland Government, Submission No. 1088, p. 8.

[115] ibid.

[116] Hansard, Canberra, 12 March 1999, p. 864.

[117] The relevant High Court decision is Ngo Ngo Ha and Anor. v. State of New South Wales and Ors.; Walter Hammond and Associates Pty. Limited v. State of New South Wales and Ors. (1997) 146 ALR 355.

[118] Winemakers' Federation of Australia, Submission No. 938A, p. 8.

[119] Hon Peter Costello MP, op. cit., p. 87.

[120] Winemakers' Federation of Australia, op. cit.

[121] ibid., p. 9.

[122] ibid.

[123] Hansard, Adelaide, 2 March 1999, p. 551.

[124] Vineyards' Association of Tasmania, Submission No. 84, p. 3.

[125] ibid.

[126] Brisbane South Area Consultative Committee, Submission No. 1025, p. 2.

[127] ibid, p. 3.

[128] ibid.

[129] Group Training Australia, Submission No. 263, p. 1.

[130] Hansard, Melbourne, 3 March 1999, p. 684.

[131] ibid., p. 685.

[132] ibid., p. 686.

[133] ibid., pp. 689-690.

[134] ibid., p. 687.

[135] Hansard, Canberra, 19 February 1999, p. 18.

[136] Hansard, Canberra, 12 March 1999, p. 874.

[137] Department of Employment, Workplace Relations and Small Business, Submission No. 1338, p. 3.

[138] ibid.

[139] Hansard, op. cit., p. 875.

[140] ibid.

[141] Hansard, Melbourne, 3 March 1999, p. 709.

[142] ibid., pp. 709-710.

[143] ibid., pp. 710-711.

[144] Australian Taxi Industry Association, Submission No. 1268, p. 3 of covering letter.

[145] Taxi Industry Council of Australia and Taxi Drivers' Association of Victoria, Submission No. 236, p. 14.

[146] Australian Taxi Industry Association, op. cit., p. 2.

[147] Recruitment and Consulting Services Association, Submission No. 687, p. 2.

[148] ibid., p. 3.

[149] ibid.

[150] Select Committee Hansard, Sydney, 5 March 1999, p. 1690.

[151] ibid., p. 1691.

[152] ibid.

[153] Construction, Forestry, Mining, Energy Union, Submission No. 1089, p. 15.

[154] ibid.

[155] ibid., p. 16.

[156] South Australian Employers' Chamber of Commerce and Industry, Submission No. 881, p. 2.

[157] Hansard, Adelaide, 2 March 1999, p. 483.

[158] ibid, p. 498.

[159] Business Coalition for Tax Reform, Submission No. 104A, p. 11.

[160] Australian Food and Grocery Council, Submission No. 340.

[161] Australian Business, Submission No. 870; Australian Chamber of Commerce and Industry, Submission No. 864; and Council of Small Business Organisations, Submission No. 1368.

[162] Hansard, Canberra, 12 March 1999, p. 839.

[163] Hansard, Brisbane, 24 February 1999, p. 389.

[164] Heads of Workers' Compensation Authorities, Submission No. 1022A, p. 1.

[165] ibid., p. 5.

[166] Australian Bureau of Statistics, Australian Economic Indicators, Catalogue Number 1350.0, Australian Government Publishing Service, Canberra, February 1999, pp. 95-96.