CHAPTER 3
LIVING STANDARDS
The Impact on Wage Costs
Introduction
3.1 As part of its inquiry into the proposed Goods and Services Tax (GST)
and new tax system (ANTS), the Committee is required to report about the
impact of the Government's proposals on wage costs, particularly if the
basic necessities of life are taxed.
3.2 The Committee heard only a limited amount of evidence from witnesses
in the course of its public hearings on the issue of wage costs. Witnesses
appearing before the Select Committee on a New Tax System raised the issue
in greater detail. This section will draw on that material in discussing
the possible impact of the ANTS package on wages in the Australian economy.
3.3 The Government's Tax Reform: Not a New Tax, a New Tax System
publication [1] contains analysis conducted
by the Department of the Treasury about the impact of the ANTS package
on the Australian economy. The discussion about the impact of the package
on wage costs is limited. The document, however, does make some observations
about the linkages that exist between price increases in the economy and
wages, and claims that there is no case for wage increases. It asserts
that:
Overall, prices in the economy are likely to be broadly unchanged following
the introduction of the reform package. This overall effect would reflect
a small one-off rise in the overall prices of consumption goods and
services, offset by a fall in the prices of investment goods. These
relative price changes – and those within consumption expenditures
– must be allowed to occur to bring about the more efficient allocation
of resources flowing from the more neutral (less distorting) indirect
tax system. Similarly, some small relative wage effects may occur.
But policies will need to be set to ensure that there are no on-going
inflationary effects, as would occur were there to be demands for generalised
wage increases. There is, of course, no case for such increases as wage
earners will be more than fully compensated for consumption price increases
by income tax cuts and increases in government benefits – their
real take-home pay will actually rise. [2]
Impact on Price Inflation
3.4 The Government has claimed that the price effect of the GST will
be to lead to 1.9 per cent increase in the Consumer Price Index (CPI)
in 2001-02. The ANTS publication makes the following comment:
The increase in the cost of living associated with the introduction
of the tax reform package is calculated using the estimated population-wide
CPI increase of 1.9 per cent in 2001-02. [3]
3.5 It should be noted that the 1.9 per cent figure excludes the impact
of the tax package on tobacco prices. The ANTS document argues that this
reflects `the Government's view that the impact of the GST on tobacco
prices should not, for public health reasons, be offset by income tax
cuts' and changes in social security payment arrangements. The estimate
of a 1.9 per cent increase in the CPI does take account of the offsetting
effect that the new First Home Owners' Scheme (FHOS) will have in relation
to the impact of a GST on new house prices. [4]
3.6 The Melbourne Institute of Applied Economic and Social Research considers
that these parameters combine to produce a misleading estimate of the
CPI increase that will occur upon the introduction of a GST. This impacts
on whether or not the compensatory elements of the ANTS package can be
described as full and adequate compensation for the price effects of the
GST. The Institute make the following observations on this issue:
This [the 1.9 per cent] estimate excludes the effect of expected increases
in the price of tobacco and the full effect of increases in housing
prices. While we have no argument with the idea of not reimbursing householders
for increases in tobacco we think that this moral matter should be treated
separately from the issue of the price effects of the tax changes. That
is, the full price effects should be estimated first, then deductions
made for tobacco price changes in the calculation of compensation. Similarly,
we think that while the first home buyers' rebate may well reduce the
net cost of housing it should be treated as income and not used to offset
the expected price increases in housing in the calculation of the general
price increases. [5]
3.7 The Government's estimates of the likely impact on the CPI of the
tax package assume that the GST will be fully passed on to final consumers.
Similarly, the 1.9 per cent estimate assumes that any cost reduction associated
with the abolition of other taxes is also passed on to consumers. [6]
If price reductions are not fully passed on to consumers, then the CPI
effect of the ANTS package could be far greater.
3.8 In response to questioning by the Select Committee, officials from
the Department of the Treasury indicated that the impact on the CPI of
the ANTS package in the first year of its implementation (2000-01) could
be 2.5 per cent. [7] This figure was later revised
upwards in response to a question on notice from the Committee. In their
answer, the Treasury indicated that the initial inflation effect of the
GST would be 3.1 per cent. [8]
3.9 The Committee is concerned that the Government department with policy
responsibility for the ANTS package seems to be constantly revising its
projections of the inflationary impact of the package. This is particularly
alarming in the light of continued claims by the Government that the compensatory
measures in the ANTS package are adequate (and have been framed on the
basis that the effect of the package will be to increase prices by 1.9
per cent). Clearly this will not be the case if the impact on price inflation
is significantly higher than the initial estimate.
3.10 The Labor senators are of the view that the inflationary effects
of the ANTS package could be as high as 4 to 5 per cent. This would represent
an effect greater than double the impact that was initially asserted by
the Government. Of concern to the Labor senators is that the Government
continues to claim that the compensatory elements of the ANTS package
are fair and adequate, yet those elements were determined on the basis
that GST was going to result in a 1.9 per cent increase in the CPI. A
1.9 per cent increase in the CPI is a far cry from the 4 to 5 per cent
increase that most would anticipate now.
3.11 The Labor senators believe that the inflationary affects of the
ANTS package are likely to be such as to justify wage increases. It is
quite clear to the Labor senators that the Government initial estimate
of a 1.9 per cent increase in the CPI is a major underestimation of the
inflationary impact of the taxation reform package.
Issues raised in Submissions and Evidence
3.12 The extent to which wage costs may be effected by the introduction
of the ANTS package is dependent upon the extent to which wage-earners
view income tax cuts and changes to social welfare arrangements as being
compensation for increases in prices that occur as a result of the package.
3.13 The Committee heard evidence from the Department of Employment,
Workplace Relations and Small Business (DEWRSB) at its final public hearing
in Canberra. Officers from the Department were dismissive of the prospect
of a wages `blow out' after the introduction of the ANTS package. DEWRSB
are of the view that Australia's system of industrial relations is now
sophisticated enough to prevent across-the-board wage increases in response
to price increases in the economy. One witness made the following observations:
…in a world in which we have had centralised wage fixation geared
to concepts of wage indexation simplicita, such as we had in the 1970s
and early 1980s, linkages between wages growth and the CPI have been
institutionalised in our system. Of course, over the course of the last
eight or nine years we have seen quite extensive moves to decentralise
that system with the introduction of enterprise bargaining and agreement
making on an enterprise and workplace basis.
Our assessment is that experience and the transition now in wage setting
arrangements is seeing wages predominantly influenced by the circumstances
of the individual firm and its productivity growth – certainly,
when we look at outcomes under enterprise agreement making, that seems
to be sustained. We have seen a significant winding back of earnings
growth to levels which are now much more consistent with productivity
performance… [9]
3.14 The Committee notes the evolution that has occurred in Australia's
industrial relations system and recognises that the current framework
places primary emphasis on wage bargaining at the enterprise and workplace
level. While the Committee recognises that wage increases primarily occur
based on productivity improvements at this level, it questions whether
this will remain the case given the significant increases to general prices
that will occur if the ANTS proposals are implemented.
3.15 The economic modelling of the ANTS package by Professor Peter Dixon
and Dr Maureen Rimmer [10] raises two possible
scenarios in relation to future wage bargaining by workers. The first
is that workers bargain in real after-tax terms. This means that workers
accept the income tax cuts and other compensatory measures in the ANTS
package as compensation for the increase in inflation that occurs with
the imposition of a GST. The second situation is that workers bargain
in real before-tax terms and do not consider the impact of the ANTS package
as a whole when considering future wage bargaining. That is, workers will
bargain on the basis of the price increases that they see occurring with
a GST in place.
3.16 The latter scenario becomes more likely to occur should there be
any delay in passing through price reductions that occur with the introduction
of a GST. In this situation, prices that increase under the GST will be
more obvious to consumers. Therefore, wage earners will be more likely
to consider the price effects of a GST in future wage bargaining.
3.17 In response to questioning by the Committee on the issue of whether
wage-earners would look at the ANTS package as a whole when considering
future wage bargaining, DEWRSB was clearly confident that this would occur.
The Department drew a parallel with the experience of the late 1980s in
which a series of `wage-tax' trade offs occurred as part of the Accord
process:
…the experience of the 1980s, under the previous government's
incomes policy, was one in which all parties in the labour market came
to understand that their income circumstances were not simply a matter
of wage increases but also of taxation and social policy changes. The
argument that we present in our submission seeks to state that, having
regard to the overall compensation elements of the tax package, there
is no case for additional wage growth to reflect any price effects that
may flow from the GST element in the package in particular. [11]
3.18 The Labor senators believe that the Department's claim that there
is no case for wage increases because there are compensating measures
ignores the differences between the ANTS package and the Accord arrangements
that existed in the 1980s. Under the Accord process, wage restraint was
agreed as a matter of policy between the (then) Government and the union
movement, as a result of consultation and negotiation. The Labor senators
take the view that this cannot be reasonably expected in the context of
the ANTS proposals.
3.19 The Department is also of the view that labour supply will be boosted
by the implementation of the ANTS package, because there will be a greater
incentive to work. [12] DEWRSB was unable to
provide any evidence in support of this claim, instead making the following
comments:
I do not think there is direct evidence available to us in that context
at this stage. We believe, as we have put in our submission, that there
are considerably increased incentives for job seekers to look for work
as a result of the taxation reform. That is twofold; one is in terms
of the lower tax rates. There is an obvious incentive there for an individual
to earn more and keep more of their income. The other side of it…is
the change proposed to various pensions and allowances where the income
test free areas are increased – and also the change to the income
test withdrawal rate for pensioners… [13]
3.20 The Committee further questioned the Department on the issue of
where the additional labour supply generated by the ANTS package will
be employed – that is, whether labour demand is affected by the ANTS
package. A witness from DEWRSB pointed out that:
Effectively, we are saying that, because of the change in the tax and
other arrangements, the labour supply should increase. If the labour
supply effectively increases, that will, on average, be expected to
reduce wages and lead to an increase in labour demand. [14]
3.21 The Committee questions the laissez faire nature of the position
that the Department is adopting, both in its argument that labour supply
will increase due to a greater incentive to work under the ANTS proposals,
and its view that wages growth will be restricted because of this increase
in supply.
3.22 The Committee is of the view that the labour market does not operate
in the way in which other markets may operate. The Committee considers
that if the Government was genuinely concerned about increasing the incentive
to work, they would redistribute the benefits of the proposed income tax
cuts from the higher income earners that are favoured under the ANTS package,
to lower and middle-income earners, where work incentives are more likely
to impact.
3.23 The Committee considers that there is much more to wage determination
than the interaction of labour demand and labour supply. It is but one
of a number of factors. Other factors include the relative bargaining
strength of workers and employers, improvements in productivity, the views
of the Australian Industrial Relations Commission and applicable employment
legislation. Additionally, notwithstanding the attempts of the Government
to undermine it, Australia does have a system of minimum wages in place.
3.24 In their submission to the inquiry, DEWRSB claim that overseas evidence
supports their view that there will not be a significant boost to wage
costs as a result of the ANTS package being implemented. The submission
makes the following observations:
The experience of those developed countries which have introduced a
GST since the mid-1980s – New Zealand, Canada and Japan –
supports [our] expectation of no necessary boost to wages. In each of
those countries there was a once-off lift in the price level, which
did not get built into underlying inflation. Had there been a flow-on
to wages, the price effect would have been ongoing. [15]
3.25 The Committee takes the view that international comparisons on this
issue, while interesting, cannot be applied with absolute vigour to Australia's
unique situation. The overseas evidence relied upon occurred in different
places, at different times and, more importantly, under different industrial
relations regimes.
3.26 Other witnesses heard during the course of the Senate inquiries
did not share the Department's confidence that wages would not increase
as a result of the ANTS package. The Australian Council of Trade Unions
(ACTU) made it clear in evidence to the Select Committee that it did not
view the income tax cuts and revised social security arrangements as adequate
compensation for the inflationary impact of a GST, and that this would
lead to increased wage demands. One witness pointed out that:
Our principal duty as a union movement is to protect the living standards
of union members and their families and low paid workers and their families.
So there are two aspects. One is what may happen in a living wage context
with a claim made in the normal way to the [Australian] Industrial Relations
Commission and argued out on the merits. The second aspect is what unions
will have regard to in collective bargaining. The favourable assumption
in [Professor Dixon's] modelling work is that workers will accept the
income tax package as adequate compensation for the GST. But, clearly,
they will not. [16]
3.27 The ACTU submission argues that `bracket creep' [17]
since the income tax scales were last adjusted has been such that the
compensatory measures in the ANTS package do not compensate for this element,
let alone the impact of a GST:
…the compensation package must be assessed after allowance for
bracket creep since the tax schedules were last adjusted, Though the
specific adjustment to be applied is arguable, the consequence is unambiguous
– the compensation offered for full-time workers earing less that
$28,000 to $30,000 a year is insufficient to compensate even for bracket
creep, leaving this group unambiguously worse off with imposition of
the GST. Full-time workers earning between about $30,000 and $50,000
a year fall in a `grey zone', with the compensation proposed falling
short of full protection against bracket creep plus the GST price effects.
On any measure, full-time workers earning more than $55,000 a year are
more than compensated for both factors under the proposed package, and
the biggest `winners' under the package are families with single incomes
of $75,000 a year or more; low-income individuals employed full-time
lose out substantially under the proposed package. [18]
3.28 In response to questioning by the Select Committee on the likely
response by the trade union movement if the ANTS package were passed into
law, a representative of the ACTU made the following observations:
Our primary responsibility is to protect real wage levels and living
standards of working people. To the extent that I have already outlined
that [the compensation] is clearly inadequate, we would seek to redress
that inadequacy either through arbitral proceedings for those who have
no capacity to bargain or through the bargaining mechanism. [19]
3.29 The ACTU's stance indicates that the union movement would pursue
wage claims as a direct result of the ANTS package because of the inadequacy
of the compensation that is offered for the price effects of a GST. This
makes it clear that DEWRSB's position of `no impact on wages' is naïve
and incorrect.
3.30 The Committee notes that this sense of injustice is exacerbated
by the unfairness of the tax cuts, with over half of the tax cuts flowing
through to the to 20 per cent of taxpayers, who will also enjoy the highest
increases in disposable income, as illustrated by the following table:
Increase in Disposable Income Due to Tax Cuts (Ignoring GST Effect)
[20]
| Income Per Annum |
Tax Cut Per Week |
Percentage Change |
| $15,000 |
$6.80 |
2.7% |
| $25,000 |
$12.31 |
3.2% |
| $35,000 |
$19.98 |
3.9% |
| $45,000 |
$39.74 |
6.4% |
| $55,000 |
$58.92 |
8.2% |
| $65,000 |
$72.34 |
8.8% |
| $75,000 |
$85.77 |
9.3% |
3.31 Additionally, the Committee heard evidence from groups claiming
that employers will pass on the costs associated with a GST to the wage
earners. That is to say, some employers will seek to pass on costs associated
with the GST by offering lower wage increases or no wage increases in
future bargaining rounds. The witness from the Transport Workers' Union
made the following observations in evidence at the Committee's public
hearing in Melbourne:
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. [21]
3.32 A similar position was put to the Committee in evidence from the
Taxi Industry Council of Australia. [22] The
Committee is concerned that one possible outcome of the ANTS package could
be that employers shift the cost burden of the GST onto employees by denying
that group access to wage increases that would occur in the normal course
of events.
3.33 The Committee also notes the submission of the Banana Sectional
Group Committee (BSGC) of the Queensland Fruit and Vegetable Growers,
which outlines the banana industry's concerns about where the cost burden
of a GST will eventually end up.
3.34 The BSGC is concerned that retailers will force producers to bear
the additional cost burden of a GST if it is introduced. The BSGC submission
notes that because there is no wholesale sales tax on fresh fruit to be
removed, in theory the full 10 per cent will have to be passed on to consumers.
However, because fresh fruit growers are price takers in the market, the
BSGC is concerned that retailers will adopt pricing strategies that result
in the cost burden of the GST passing back through the marketing chain
to producers. [23] This will lead to profit
reductions in the industry, perhaps with flow on consequences for employment.
3.35 In summary, the Committee is concerned that the inflationary effect
of the ANTS package may be higher than predicted by the Government and
that this will feed into wage demands. If workers fail to believe that
they are adequately compensated by the ANTS package, then this will also
feed into wage demands. Based on the Monash modelling, these effects could
lead to a significant reduction in employment, with a loss, in a worst
case scenario, of 100,000 jobs. [24]
The Proposed Compensation Package
3.36 The Senate Committees have heard a range of evidence that suggests
that the 4 per cent adjustment to all pensions and benefits under the
ANTS package barely meets the average (community-wide) price impact of
a GST. Under the proposed changes, the compensation for low-income earners,
including the unemployed and students is particularly limited. As the
submission from the Australian Council of Social Service (ACOSS) notes:
Actual increases in living costs for low-income households from the
imposition of the GST will be higher than the average increases for
the population as a whole, because of difference in spending and saving
patterns. The CPI is a population-wide measure and should therefore
not be relied on to accurately estimate the impact of the proposed GST
on the budgets of low-income households. [25]
3.37 ACOSS suggests that even if the proposed compensation package were
increased, the risks facing low-income households would not be removed
because the reality is that compensation will always fail to reach some
groups, will always leave some worse off and will always be subject to
erosion in future budgets. The latter point is particularly relevant given
that the tax cuts are funded by drawing on the budget surplus at a time
when budget revenue projections are clouded by economic uncertainties
and the risk of another round of harsh expenditure cuts. [26]
3.38 In relation to the cost of housing, the Government suggests that
a potential 2.3 per cent increase in the price of housing is reduced to
0.7 per cent due to the offsetting impact of the proposed FHOS. ACOSS
notes that the benefits of the scheme should not be averaged across the
whole population in this way, because the whole population will not gain
from the scheme:
…it is not clear that [the] FHOS should be treated as an offset
against the cost of housing rather than an income supplement (for example,
the 4 per cent rise in rent assistance is being treated as an income
supplement in the Government's modelling). Further, because the FHOS
will not be available to all people facing increased housing costs,
this offset will not be evenly distributed across the population…In
Sydney, where the cost of housing is well above the national average,
the amount of $7,000 is unlikely to fully compensate many people for
the effect of a GST. [27]
3.39 ACOSS also make note of alternative estimates of the impact of the
GST on the cost of housing. Estimates of the likely increase in rents
vary from 3.9 per cent (estimate produced for the Housing Industry Association)
to as high as 11 per cent for some renters in Sydney (estimate produced
for the NSW Federation of Housing Associations). [28]
ACOSS suggest that further distributional analysis should be undertaken
to determine the `differential impact of the tax package on the housing
costs of different types of households, depending on income level and
housing tenure.' [29]
3.40 The Committee notes the comments of the Melbourne Institute who
conclude that the proposed compensation package is likely to be inadequate.
The following observations are made in this regard:
…the government has underestimated the level of compensation required
for particular household groups in the short to medium term. The cameos
shown in the tax package are misleading because they use an inappropriate
measure of aggregate price change, they assume a common set of expenditure
shares for all households and they do not allow for differing patterns
of saving and dis-saving. When more appropriate assumptions are made
the extent of compensation required to match the price changes induced
by the tax changes is greater than is indicated. Further, while no overall
assessment is made of inequality here, the use of more appropriate assumptions
is such that the estimates of inequality are likely to be greater. [30]
3.41 In relation to the proposed tax cuts and the distributional effects
of the compensatory elements of the ANTS package, the Melbourne Institute
make the following comments:
The income tax cuts occur at all points in the taxable income scale
but give the greatest absolute benefit to the highest income earners.
The distributional effects depend on the proportional change in income
after allowance for tax, transfers and changes in consumer prices. It
is not clear what the effects are but cursory inspection suggests that
the changes are likely to increase inequality. [31]
3.42 The Committee believes that the distribution of the (claimed) benefits
of the ANTS package requires close scrutiny, particularly given the source
of the budget surplus that is being used to pay for the implementation
of the new arrangements. The Committee considers that surplus was achieved
through significant cuts in government expenditure, which disproportionately
impacted upon low-income earners, including the unemployed. The Committee
takes the view that these groups will be further disadvantaged if the
ANTS package is implemented.
Other Proposed Changes
Changes in Business Taxation Arrangements
3.43 As part of the Government's overall approach to taxation reform,
the Treasurer in August 1998 appointed Mr John Ralph to head an Inquiry
into Australia's business taxation arrangements. The ANTS publication
sets out plans for the reform of business taxes on two fronts:
- applying a framework of redesigned company taxation arrangements consistently
to all limited liability entities; and
- considering the scope for more consistent taxation treatment of business
investments with the prospect of achieving a 30 per cent company tax
rate and further capital gains tax relief (CGT). [32]
3.44 According to the Treasurer, the Inquiry's terms of reference were
drawn to:
…allow comprehensive consultation and take into account the current
problems with business taxation and the goal and strategy for reform
set out in [the ANTS publication]. The strategy in relation to reform
of business entities is to consult on the proposed framework and on
transitional and implementation details. The strategy in relation to
business investments is to consult on the extent of reform against the
goal of achieving a 30 per cent company tax rate and the prospect for
further CGT. A requirement of the reform of business investments is
that it is revenue neutral.
A stable, simpler and more coherent business tax system will provide
a basis for more robust investment decisions, improved competitiveness,
greater productivity, higher GDP growth and more jobs. [33]
3.45 Although the Inquiry has not yet produced formal recommendations,
the Government has made no secret of its desire to lower the company tax
rate to 30 per cent and to abolish the accelerated depreciation allowance.
The Committee heard evidence from Professor Peter Dixon that this could
have unwanted implications in certain sectors, particularly in agriculture.
Professor Dixon concludes that domestically owned unincorporated enterprises,
such as farms, are likely to increase their required rate of return on
capital, thereby reducing investment, output and employment. Large domestically
owned corporate enterprises, such as banks, are likely to be the beneficiaries
of the proposed changes. [34]
3.46 The Committee takes the view that the Government should conduct
detailed quantitative modelling in order to ascertain the impact of the
proposed reforms before policy changes are implemented.
The Impact of Fringe Benefits Tax Changes
3.47 The Committee's inquiry touched only upon the peripheries of the
implications of the Government's policy to limit fringe benefits tax (FBT)
arrangements to $17,000. A much more detailed examination of this issue
was carried out by the Community Affairs References Committee in its report
on the GST and new tax system.
3.48 Two organisations appearing before this Committee argued strongly
against this proposed policy on the grounds that it would make it difficult
for them, and for the welfare sector in general, to attract good staff
at affordable rates of salary. Evidence given to the Committee by the
Royal Institute for Deaf and Blind Children states that its salary packaging
arrangements resulted in employment cost savings of over $100,000 per
annum. The limiting of the FBT would result in a funds shortfall for many
charitable institutions and there is no way of knowing how this shortfall
could be made up. [35]
3.49 Similar advice came from a representative of Centacare Townsville,
and with it a request to the Government to provide recurrent funding to
non-profit organisations so that they could meet the increased costs resulting
from changes to FBT arrangements. Centacare recommended that salary sacrifice
arrangements not be limited to a fixed dollar amount and that any limit
be expressed as a percentage of salary packages. [36]
Conclusion
3.50 The Labor senators do not believe that the implementation of the
ANTS proposals will do anything to improve the living standards of low-income
earners and unemployed Australians. The Labor senators take the view that
the replacement of the wholesale sales tax system with a GST will result
in significant overall increases in the costs of services, which will
add up to an appreciable fall in living standards for ordinary Australians,
especially for low-income earners.
3.51 The Government claims that the inflationary effects of the GST will
be more than offset by the compensatory elements of the ANTS package.
Yet Government officials now admit that the price effect of the GST will
be far greater than initial forecasts, thus throwing the Government's
claim that there is adequate compensation in the package into grave doubt.
3.52 The Labor senators do not accept the Government's position that
there will be no pressure on wages as a result of the implementation of
the ANTS package. The lack of adequate compensation in the package means
that many low and middle-income earners will have no choice but to pursue
additional wage claims to ameliorate the impact of increased prices on
their standard of living.
3.53 Several analysts conclude that the income tax cuts are highly skewed
towards high-income earners. The cuts for this group will more than offset
any additional expense incurred after the introduction of a GST. This
will not be the case for low-income earners. Certainly some low earners
will receive income tax cuts, but it will go nowhere near providing full
and adequate compensation for the introduction of the GST.
Recommendation
3.54 The Labor senators recommend that the ANTS package not be
passed by the Senate because of the negative impact that it will have
on the standard of living of low-income earners, including the unemployed.
Footnotes
[1] Hon Peter Costello MP, Tax Reform: Not
a New Tax, a New Tax System, Australian Government Publishing Service,
Canberra 1998.
[2] ibid, pp. 156-157.
[3] ibid., p. 162.
[4] ibid.
[5] David Johnson, Rosanna Scutella, Sally Cowling
and Glenys Harding, `The Government's Tax Reform Package – Equity
and Efficiency Effects of Indirect Tax Reform', in Quarterly Bulletin
of Economic Trends, Melbourne Institute of Applied Economic and Social
Research, University of Melbourne, September 1998, p. 79.
[6] Department of the Treasury, Submission No.
121, p. 5.
[7] Select Committee Hansard, Canberra,
17 December 1998, p. 13.
[8] Senate Select Committee on a New Tax System,
First Report, Senate, Canberra, February 1999, p. 27.
[9] Hansard, Canberra, 12 March 1999,
p. 873.
[10] For a fuller analysis of the economic
modelling conducted by Professor Dixon and Dr Rimmer, refer to the first
chapter of this report.
[11] Hansard, op. cit., p. 873.
[12] Department of Employment, Workplace Relations
and Small Business, Submission No. 1338, p. 2.
[13] Hansard, op. cit., p. 870.
[14] ibid.
[15] Department of Employment, Workplace Relations
and Small Business, op. cit., pp. 4-5.
[16] Select Committee Hansard, Sydney,
4 February 1999, p. 677.
[17] `Bracket creep' refers to a situation
where taxpayers push up into higher tax brackets even though their economic
circumstances have not changed. As a consequence, taxpayers end up with
lower effective disposable (after tax) incomes even though their earned
income may have risen.
[18] Australian Council of Trade Unions, Submission
No. 383, p. 4.
[19] Select Committee Hansard, op. cit.
[20] Hon Peter Costello MP, op. cit., p. 178.
[21] Hansard, Melbourne, 3 March 1999,
pp. 709-710.
[22] Taxi Industry Council of Australia and
Taxi Drivers' Association of Victoria, Submission No. 236.
[23] Banana Sectional Group Committee of Queensland
Fruit and Vegetable Growers, Submission No. 713, p. 5.
[24] 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.
[25] Australian Council of Social Service,
Submission No. 68B, p. 12.
[26] ibid., p. 8.
[27] Australian Council of Social Service,
Submission No. 68A, p. 7.
[28] ibid.
[29] ibid., p. 8.
[30] David Johnson, et. al., op. cit., pp.
89-90.
[31] David Johnson, et. al., op. cit., pp.
73-74.
[32] Hon Peter Costello MP, op. cit., p. 112.
[33] Hon Peter Costello MP, Business Income
Tax Consultation, Media Release, 14 August 1999.
[34] 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. 9.
[35] Hansard, Sydney 22 February 1999,
p. 174.
[36] Hansard, Cairns, 25 February 1999,
p. 457.