Supplementary Report By The Australian Democrats
The Australian Democrats support the evidence as presented in the Chair's
report and provide the following supplementary report and recommendations:
1.1 This Committee has had a number of important references, looking
at the impact of the ANTS package on employment and education.
1.2 The Government has been at great pains on many occasions to claim
that the ANTS package and the GST in particular will be good for jobs.
On no interpretation does the evidence presented to this Committee and
to the Select Committee unequivocally support these claims.
1.3 If anything, evidence suggests that at best, the package is likely
to be fairly neutral for jobs as a whole, but may be positive for wages
generally. This is according to evidence that, over the longer term, more
jobs will be created in the higher waged sectors of the economy, offsetting
some reduction on employment growth in lower waged sectors of the economy.
1.4 The Committee has relied very heavily on modelling reports in discussing
the impact on employment. Several comments need to be made on this point:
1.5 First, jobs “gains” and “losses” identified by
sector or region are only relative. They must be seen as relative changes
in the context of continuing rising employment. For example, the Murphy
modelling forecasts a long run “loss” of employment in the accommodation,
cafes and hospitality sector of 7000 jobs. This does not mean that 7000
jobs will go but that the rapid jobs growth in the sector (approximately
20,000 jobs per year) will slow upon the introduction of the GST.
1.6 Second, the large macroeconomic models are general equilibrium models
and assume zero employment gains in the long run. Instead, the labour
market “clear” by an increase in real wages. If, however, the
labour supply expands, this real wage increase could be reflected instead
by jobs gains.
1.7 Third, evidence has been presented suggesting that the fiscal stimulus
of the tax cuts will have a short-term positive effect on jobs, an effect
which could be improved by 8-15,000 jobs if the tax mix switch between
indirect and direct taxes is reduced (e.g. by substituting the GST on
food for a reduction in income tax cuts).
1.8 Fourth, the models are extremely sensitive to their assumptions.
For example, the central Monash simulation assumes a very high elasticity
for tourism (-3). Lower elasticity estimates provide a more positive employment
outlook.
1.9 Fifth, while the short run impact of the package is positive, and
the longer run impact of the package is likely to be fairly neutral for
jobs, the Democrats believe that the jobs impact can be further improved
by modifying the package to minimise the negative aspects and maximise
the positive effects. That is the primary objective of our recommendations
on employment.
1.10 Sixth, the Murphy modelling shows some movement in jobs growth between
industries, with a total of 49,000.jobs between industries. While this
movement in overall terms is fairly small (about 0.5 per cent), it does
raise questions about the extent to which workers from “losing”
sectors will be able to take up jobs in “winning” sectors, particularly
if different skills are required.
Education
2.1 The Democrats strongly believe that education is massively under-funded
in this country, a situation that has become worse in recent years with
Federal and State funding cuts. We believe that these issues are worth
pursuing as education, should be a beneficiary of the growth in public
revenues that will flow from the broadening of the tax base.
2.2 The decline in funding has been exacerbated by the decline in the
tax base, which has been allowed to fall from 25.2 per cent of GDP in
1987-8 to 24.0 per cent a decade later. [1]
That represents a loss of more than $5.5 billion. Indirect taxes have
played a major part in that loss of revenue, with Federal indirect taxes
falling from 7.2 per cent of GDP in 1987-88 to 5.8 per cent in 1997-8,
and projected to fall further to 5.5 per cent by 2002. That fall would
have been even heavier (to 5.2 per cent in 1997-98) but for the uncompensated
increases in sales taxes and excises in Labor's 1993 Budget [2].
2.3 Unless the revenue base is repaired, then the education will continue
to be under funded and liable to more budget cuts. For that reason, the
Democrats support sensible measures which will result in broadening of
the direct and indirect tax systems and securing a funding base, although
the introduction of a GST is not necessarily the way to achieve this end.
2.4 Claims by the government that education is GST exempt are false.
Clearly, the proposed exemption regime for education does not give effect
to the government's commitment that education would be GST free. There
are a number of significant problems:
2.5 First, the boundaries of the exemption are unclear. Socially useful
educational activities such as adult education are excluded, while schools
will still be taxed on various activities not regarded by the Tax
Office as sufficiently “educational”.
2.6 Second, the education exemption does not extend to not-for-profit
organisations that support educational activities, such as parents associations
or professional teacher bodies.
2.7 Third, it does not encompass important costs of education, particularly
major costs such as books. The Committee has received important evidence
that the taxing of books will lead to a significant reduction in books
sold, with commensurate negative effects on local literature, literacy
and learning.
2.8 Fourth, the approach of taxing some activities of educational institutions
but not others will significantly add to compliance costs which can only
impact on the delivery of educational services as the ANTS package does
not propose full compensation for these costs.
2.9 While the zero-rating arrangements will ensure that the mainstream
educational activities conducted by educational institutions fall outside
the GST net, the government has not given proper consideration to the
impact on students, to compliance costs or to educational activities that
fall outside the mainstream.
2.10 Educational institutions are concerned about the compliance costs
of dealing with zero-rated and taxable activities. The Committee received
numerous submissions and evidence from a large number of witnesses who
supported the concept of zero-rating institutions on an `institutional'
rather than a `transactional' basis.
2.11 The Democrats propose that instead of defining what are educational
activities and forcing educational institutions to pay tax on any other
undefined activities, the tax system should assume that all activities
of educational institutions are educational activities unless they are
clearly “commercial” activities.
2.12 This approach is similar to the approach that the Democrats have
proposed to apply to charities. It would require a clear definition of
commercial activities, taking into account the many entrepreneurial activities
particular of higher education intuitions. However, this approach would
reduce compliance costs for schools generally because the doubt would
always be on the side of the institution rather than the activity.
Recommendation
The Democrats recommend that educational institutions, whether they
be private or public, should be zero-rated on an institutional basis.
GST should only be payable by these institutions on non-educational activities
which are clearly `commercial'.
Institutions which do not qualify for an institutional exemption should
still be able to claim the GST paid on a transactional basis as they would
if the proposed regime was implemented.
Educational Ancillary Services
3.1 It is outrageous that parents and citizens organisations, many of
whom have turnovers in excess of the $100,000 taxable threshold, should
be forced to pay GST on their fundraising activities, even where these
activities are not competing directly with the private sector. The Community
Affairs report has dealt extensively with the issue of the taxation of
charities and the recommendations made by the Democrats in that report
are equally applicable to parents and teachers organisations.
3.2 In that report, the Democrats recommended that the zero-rating for
the activities of charities apply to all activities of the charity, other
than those that are clearly defined by law to be commercial. Where a not-for-profit
organisation is exempt from income tax but not eligible for GST zero-rating,
the option should be provided of being GST-exempt for all of their activities
other than those that are clearly commercial.
3.3 At the very least, the Democrats would insist that the treatment
of charities be as favourable as it will be under the more generous Canadian
and UK GST/VAT systems. That is, that the following activities clearly
be defined as not being commercial:
- Membership fees (provided less than 30% is to access facilities and
activities);
- Fundraising (other than the regular supply of goods and services at
more than their direct cost);
- Hire of facilities and associated catering;
- Advertising in charitable publications;
- Sponsorships not providing actual goods or services;
- Gambling (e.g. raffles, bingo) other than those activities which directly
compete against the private sector (eg. poker machines);
Recommendation
The Democrats recommend that not-for-profit parents and teachers organisations
should not be taxed on their activities.
Adult and Community Education
4.1 The Government's `unequivocal commitment to the concept of lifelong
learning and the promotion of learning society', will clearly not be maintained
if the proposal to tax adult and community education courses proceeds.
Zero rating those courses will benefit around 500,000 adult learners.
Further, it will help to avoid reinforcing the outdated distinction between
accredited/vocational and non-accredited/non-vocational education and
training.
4.2 ACE is a second chance education for people who have had bad experience
in formal schooling but then return in later life, particularly women.
This type of education provision must be encouraged.
4.3 The Australian Democrats have actively participated in the Senate
Employment, Education and Training References Committee, inquiry in vocational
education and training. The government responded to the “Beyond Cinderella”
report by giving “an unequivocal commitment to the concept of lifelong
learning and the promotion of a learning society”. The Australian
Democrats support that commitment and take the view that zero-rating non-recreational
adult and community education courses is a necessary measure in meeting
that commitment.
Recommendation
The Democrats recommend that adult and community education courses
not of a recreational nature be GST-free. To qualify for GST-free status,
the course must be:
- Provided by a not-for-profit community owned and managed organisation;
or a registered training organisation which is:
(a) recognised by a State or Territory Education and Training
authority as an approved provider of ACE; and
(b) contributes to the National Statistical Collection (AVETMISS);
2. The content of which must be likely to add to the skills of the
person in a current or future employment situation, rather than be recreational.
Books
5.1 A tax on books is a tax on knowledge and the dissemination of knowledge.
In terms of taxing school books, the GST is regressive because will have
the most significant impact on those who already have the greatest difficulty
in purchasing school books.
5.2 Books are the cornerstone of a literate and well informed society.
According to the Australian Society of Authors, Australians are presently
the biggest per capita buyers of books in the world.
5.3 Research points to a strong correlation between the levels of educational
attainment in children and the number of books in their home.
5.4 With Australians purchasing fewer books, the incentive for our authors
to write and to put our culture into words will diminish.
5.5 Economic modelling by Chris Murphy using the Econtech model commissioned
by the Printing Industries Association of Australia found that, in its
present form, ANTS will result in a 5 per cent increase in the price of
books to consumers and a reduction in overall production of books of 3
per cent. Zero-rating books would result in book prices falling by 4 per
cent and book production increasing by 3 per cent.
5.6 The Econtech modelling estimated the cost of zero-rating books to
be $45 million. This conflicts with Treasury estimates of $180 million
in the first year.
5.7 Econtech notes that reading, like undertaking formal education, can
provide benefits extending beyond the reader to the wider community, and
this is not allowed for in the economic modelling.
5.8 The Select Committee has received submissions to also exempt newspapers
and other printed materials and it is expected that that Committee will
consider the issue.
Recommendation
The Democrats recommend that books should be zero-rated. “Books”
extends to monographs and research and professional journals.
Compliance Costs
Recommendation
The Democrats recommend that at least $200million be set aside separately
for not-for-profit organisations (including educational institutions)to
deal with the costs of implementing the ANTS system
Impact on Employment
6.1 This Committee and the Select Committee have not had a huge amount
of evidence on the overall employment effects of the package. Dixon argued
that a GST was “slightly job destroying” and that the short-term
jobs gain came from the fiscal stimulus. Murphy argued that the jobs gains
from the package were likely to flow predominantly from the elimination
of poverty traps. Carmody suggested that further jobs, albeit a small
effect, might flow from the efficiency effects. Dixon also made the point
that employment would be reduced if workers failed to accept the tax cuts
as adequate compensation for the imposition of the GST, with a jobs loss
of up to 100,000 workers in the short term:
“If the tax package is to be implemented smoothly, it is vital
that Australian workers allow their before-tax wages to decline relative
to the CPI.” [3]
6.2 Commentators differ on their views as to the wages outlook. Murphy
described the wage adjustment assumption as “implausible”, particularly
in a more deregulated labour market. He concluded that the chances of
ANTS producing a wages blow-out was remote, looking at international experience
and the size of the tax cuts [4].
6.3 The ACTU were unequivocal and proffered the view that the compensation
offered was inadequate and that the inflation effect be factored into
wage demands.
6.4 In recent years, wage demands have been more closely related to productivity
than CPI movements. As Ms George stated:
“From the point of view of our constituency, the protection of
living standards has been largely fought out and bargained over in the
marketplace in terms of the productivity growth that has been sustained
or by the kind of argument we have put forward at the level of the commission
for decent living standards.” [5]
6.5 There was agreement between Dixon and Murphy that the tax package
will result in an increase in productivity, measured in part by a rise
in real wages in both of their models. Nevertheless, if workers decide
that the package does in fact under-compensate them and that inflation
will rise, this may affect wage expectations.
Food
7.1 The need to reduce short-term wage inflationary expectations must
be a paramount consideration in framing the new tax system. In this respect,
the Treasury finding that exempting food should reduce the second year
CPI effect of the tax package from 1.9 per cent to 0.5 per cent is very
significant. Using a narrower definition of food, Dixon found that exempting
food would reduce by a third the employment losses from before tax bargaining.
7.2 The Democrats conclude that the benefits of the package could
be lost if wages move with the CPI movement. While wages
are moving more with productivity rather than CPI, workers' perceptions
about the compensation package could inflate wage demands. To that extent,
the substantial reduction in the CPI if food is excluded would help reduce
potential wage pressure.
7.3 Exempting food will have other positive employment effects. Dixon's
report to this committee shows a short-term loss of 2.17 per cent in agricultural
and 1.82 per cent in food industries, a total loss of 10,650 jobs. This
reflects the very large increases in the price for basic foodstuffs (meat
6.5%, fruit & vegetables 5.7%, flour & cereals 6.2%) in ANTS.
A number of consumer and health organisations, in submissions to the Community
Affairs Committee expressed the view that these price increase are likely
to lead to a reduction in the consumption of basic health foods, or moving
to lower quality foods( e.g. Australian Consumers Association (sub. No
630), Dietitians Association of Australia (sub. No 796), Public Health
Association (sub.895)). Further, a number of food and agricultural bodies
have expressed concerns about the likely negative impact of demands of
higher taxes on food, including Dairy Farmers (sub. 1039), the Australian
Beef Association (sub. 459) the Australian Fresh Stone Fruit Growers Association
(sub. 85), the Banana Section Group Committee of the Queensland Fruit
& Vegetable Growers Association (sub. 713) and the Australian Food
and Grocery Council (sub, 340), suggesting various means of ameliorating
the impact. Murphy's modelling shows a very positive effect for both agriculture
and food processing from the zero-rating of food.
7.4 Thus, exempting food reduces the risk of 10,000 jobs being lost
in agricultural and food industries in the short term.
Housing
8.1 The Australian Democrats are critical of the government compensation
proposal for housing and made a number of comments in our supplementary
report to the First Report of the Select Committee in relation to the
alternative proposal put by the Housing Industry Association. Those comments
are worthy of repeating:
The residential housing sector, which employs around 300,000 people,
will also be adversely affected by a GST. Murphy has forecast a 2.5%
decline in housing investment, close to the Monash estimate of 2.5%.
Murphy has suggested that the price of house construction will rise
around 6%, the price of a house and land package by about 5%, and the
price of residential rents by 3-4%. Employment in housing is forecast
to fall by 8,000 jobs, partly offset by a 7,000 job gain in commercial
construction. The 6% rise in house prices compares with the 4.7% increase
forecast by Treasury. The Housing Industry Association predicted that
housing prices (including land) would rise by 8 per cent in the short-term
[6]
…
The Housing Industry Association instead recommended a re-arranging
of the First Home Buyers Scheme into a rebate scheme. This is because,
they argued, around $600m of the $830m earmarked for the current scheme
would be used to support the purchase of GST-free houses. [7]
By converting the scheme into a partial GST/stamp duty rebate scheme,
at a cost of an additional $90 million, much of the negative effect
on housing is reversed. Modelling of the plan by Econtech found:
HIA COMPENSATION PROPOSAL EFFECT
| Item |
ANTS |
HIA proposal |
| Residential building activity |
- 2.4% |
-0.7% |
| All construction |
0.7% |
1.5% |
| Housing employment |
-2.4% |
-1.0% |
| All construction employment |
-0.2% |
0.6% |
| New House Prices |
5.0% |
1.9% |
| Dwelling Rent |
3.0% |
0.3% |
| CPI |
0.8% |
0.1% |
| GDP |
1.8% |
1.9% |
While the details of the compensation package proposed by the HIA raise
some difficulties, the Econtech modelling suggests that restructuring
the First Home Buyers Scheme could, with little extra expenditure, deliver
significant benefits. From an employment point of view, the Democrat
believe that adopting a partial GST rebate scheme as proposed by the
HIA could save up to 8000 building jobs in the longer-run.
Tourism
9.1 Tourism is without question the most adversely affected export industry
by the tax reform package. Modelling by Dixon and Murphy both showed that
tourism exports would fall by 6.6 – 9% depending on the elasticity
of demand. The Tourism Taskforce forecast an even larger fall of 11.75%
in inbound tourism numbers, which they forecast would result in the loss
of 24,500 jobs. [8] The Tourism Council, while
arguing that the GST would increase the price of inbound tourism packages
by 3.8-5.5% and domestic tourism by 5%, was reluctant to agree to the
high price elasticities driving the Tourism Taskforce and Dixon modelling
outcomes on overall effects. [9] Zero rating
of tourism, based on both sets of modelling, would have a very positive
effect:
ZERO-RATING INBOUND TOURISM EFFECTS
|
Dixon |
Murphy |
| Business Investment |
+0.05% |
-0.1% |
| Exports |
+0.04% |
+0.1% |
| Tourism exports |
+3.5% |
+3.0% |
| GDP |
0.0 |
0.0 |
| Exchange Rate |
+0.24% |
+0.1% |
| Employment |
+3000 jobs in the short-term |
+500 jobs in the hospitality sector in the long run |
| Revenue cost |
-$300m |
n.a. |
| Consumer Welfare |
+$30m |
-$103m |
9.2 These tables assume a high elasticity in Dixon (-3) and a lower one
in Murphy (-2), which Geoff Carmody, appearing with the Tourism Council
said were too high. Carmody did concede that inbound tourism packages
were the most price elastic component of tourism. [10]
9.3 The Central simulation of the Monash model assumed a very high demand
elasticity for the tourism sector, which reduced jobs gains. Many expert
witnesses, including Chris Murphy, Geoff Carmody (appearing with the Australian
Tourism Council) and the Office of Tourism disputed this estimate of elasticity.
Monash's alternative modelling using the lower tourism elasticity estimate,
found that the short-term increase in jobs rose from 30,000 to 36,000
jobs from the ANTS package.
Job Network
10.1 It makes no sense to impose a GST on Government payments to providers
through the Job Network, particularly when the vast bulk of placements
are either by Government bodies or not-for-profit charities. The Democrats
believe that all government grants should be GST-free, and the contracting
out of employment services fits into this category. The Main report contains
an adequate summary of the evidence on the issue of employment services.
Eliminating poverty traps
11.1 The Committee and the Select Committee has unfortunately received
little evidence on poverty traps. This has been regrettable, as the elimination
of poverty traps is a very important employment promotion measure. Chris
Murphy went so far as to predict in his report to the main Committee that
the elimination of poverty traps would be the main generator of jobs in
the ANTS package. Dr Michael Keating, appearing before the Select Committee
also argued that the elimination of poverty traps had great potential
to increase employment because it would encourage more people to make
themselves available for more work.
11.2 The ANTS package contains three initiatives to reduce poverty traps:
- The taper for additional family assistance is reduced from 50% to
30%, cutting in from a higher threshold ($28,290 rather than $24,000);
- The taper rate on pensions is reduced from 50% to 40%;
- Marginal tax rates are reduced from 20% to 17%, and from 34% to 30%
11.3 Dr Keating told the Select Committee that these measures, particularly
the reduction of family payments taper rate, would go some way to eliminating
poverty traps. However, he was critical of the failure to reduce the 70%
taper rate on unemployment benefits, which pushes around 40,000 low income
earners into effective marginal tax rates of more than 70%. He recommended
that the unemployment taper should have been reduced rather than the pensions
taper. The Democrats recognise that reducing the unemployment benefits
taper is costly ($500 million), but is a necessary reform if the Government
is to claim to have eliminated poverty traps, thereby maximising the job
generation potential of the ANTS package.
11.4 Five eminent economists have recently written an open letter to
the Prime Minister endorsing the attack on poverty traps as an essential
part of any plan to combat unemployment.
Recommendation
The Democrats recommend that the maximum taper rate for unemployment
benefits be reduced from 70% to 50%.
Reducing payroll tax
12.1 Many organisations were critical of the Government failure to reduce
payroll tax as part of the tax reform package. These included Australian
Business (sub. 870), the Australian Chamber of Commerce and Industry (sub.
864), its state affiliates in Tasmania (sub. 818), Victoria (sub. 122),
South Australia (sub.881) and New South Wales (sub. 825), the Australian
Conservation Foundation (sub. 932), and the Council of Small Business
Organisations (sub. 1368) The Australian Food and Grocery Council, in
its submission to the main 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 prices. (sub. 340).
12.2 The Democrats are very disappointed that the Government chose to
reduce petrol and diesel taxes by $2.5 billion rather than reduce payroll
tax. Reducing payroll tax instead of energy taxes would have been a win-win
solution for the environment and the economy. What is clear is that, if
$3.5 billion of tax credits were available for abolition of business taxes,
halving payroll tax rather than petrol and diesel excises would have been
far more efficient on economic grounds. It is not proposed to go over
the ground of the Environment References Committee dealing with the negative
environmental, economic and health effects of cuts to petrol and diesel
taxes. Rather, this report seeks to highlight the positive effect of the
alternative, of reducing payroll taxes ahead of energy taxes.
12.3 A recent report by the Melbourne Institute highlights the relative
ineffectiveness of reducing petrol excises as opposed to other business
taxes:
Effect of the removal of selected indirect taxes on macroeconomic
variables
| Macroeconomic Variable |
WST |
Payroll tax |
FID/ BAD |
Petrol Excise |
Stamp duties |
All Selected taxes |
| Real GDP |
2.3 |
1.2 |
0.3 |
1.2 |
1.3 |
6.3 |
| Real aggregate consumption |
4.4 |
3.1 |
0.8 |
3.1 |
2.0 |
13.3 |
| Real aggregate investment |
4.7 |
2.6 |
0.5 |
2.2 |
3.1 |
13.0 |
| Export volumes |
-4.4 |
-5.5 |
-1.6 |
-4.1 |
-2.0 |
13.0 |
| Export prices |
1.1 |
-0.6 |
0.3 |
-0.4 |
0.6 |
-17.5 |
| Import volumes |
3.5 |
1.7 |
0.3 |
2.5 |
1.4 |
1.0 |
| Import prices |
0.5 |
-1.4 |
0.1 |
-1.0 |
0.3 |
9.3 |
| Real exchange rate |
-0.1 |
-1.9 |
-0.1 |
-1.9 |
0.4 |
-1.6 |
| Real wages |
8.1 |
4.6 |
1.1 |
-5.0 |
3.6 |
-3.6 |
| Capital stock |
4.7 |
2.4 |
0.5 |
1.9 |
2.8 |
22.4 |
| Required size of broad GST |
4.7 |
2.7 |
0.8 |
3.4 |
2.1 |
12.2 |
| GDP/GST |
0.49 |
0.44 |
0.38 |
0.35 |
0.62 |
13.7 |
(Source: Melbourne Institute 1998, quoted in Johnson D et al. “Tax
Reform: Equity and Efficiency report No 3.” Melbourne July1998 p/17)
12.4 What this table shows, in the last row, is the largest increase
in GDP from removal of a tax, taking into account the cost of removing
the tax, comes from removing stamp duties, followed by Wholesale Sales
Tax and payroll tax. Petrol excises have the least impact on GDP. In short,
cutting petrol excises is the least efficient way of stimulating the economy
through indirect tax reform. Abolishing payroll tax rather than excises
would have had a greater effect not just on GDP, but on consumption, investment,
export prices, and real wages. Interestingly, the modelling suggests that
cutting petrol excises will reduce real wages, while cutting payroll
tax would increase it. On efficiency grounds, payroll tax makes
a better candidate for abolition than petrol excises.
12.5 Other research by the Melbourne Institute also finds that abolishing
payroll tax rather than petrol taxes would also make the tax system marginally
more progressive, because higher income groups tend to consume more petrol
than low income groups:
Taxes paid by households classified in quintiles by level of aggregate
weekly expenditure (% of total expenditure in brackets)
|
Poorest 20% |
Second 20% |
Third 20% |
Fourth 20% |
Richest 20% |
| Petrol excise |
4.73
(2.36%)
|
10.18
(2.64%)
|
15.91
(2.84%)
|
23.09
(2.96%)
|
39.92
(2.99%)
|
| Payroll tax |
2.99
(1.49%)
|
5.83
(1.51%)
|
8.61
(1.54%)
|
12.10
(1.55%)
|
21.54
(1.61%)
|
| Average expenditure |
200.31 |
385.30 |
559.95 |
779.44 |
1337.21 |
(Source: Melbourne Institute 1998: Johnson D et al Tax Reform: Equity
and Efficiency Report No 2: May 1998 pp. 10, 22)
12.6 This highlights that abolishing petrol excises provides a much bigger
benefit both in dollar terms and in percentage terms for high income earners
rather than low income earners. On equity grounds, payroll tax makes a
better candidate for abolition than petrol excises.
12.7 On environment and employment grounds, abolishing payroll tax rather
than taxes on fossil fuels (including petrol and diesel) also has a much
more positive effect. Modelling by the highly respected Centre of Policy
Studies at Monash University, using ORANI-E, commissioned by the House
of Representatives Environment Committee in 1994 found such conclusions.
It modelled two options – one raising taxes on carbon emissions by
$2 billion in 1992/3 dollars (about $3 billion in 2000/01 dollars) and
using the revenue to reduce payroll taxes, and another raising taxes on
carbon emissions by a rate sufficient to abolish payroll tax completely
($6.3 billion in 1992/3 dollars). The result was quite startling:
Swapping payroll taxes for carbon taxes using ORANI-E
| Variable |
Reduce Payroll Tax by $2 billion |
Abolish payroll tax completely |
| GDP |
0.15 |
0.2 |
| CPI |
-0.47 |
-0.57 |
| Budget balance (% of GDP) |
0.03 |
-0.14 |
| Employment |
0.33 |
0.69 |
| Carbon dioxide emissions |
-4.6 |
-11.7 |
(Source: Centre of Policy Studies cited in House of Representatives Standing
Committee on Environment, Recreation and the Arts “Working with the
Environment” Opportunities for Job Growth” November 1994 p 33)
12.8 What this shows is that a tax swap between payroll and fuel taxes
roughly of the order in ANTS would increase GDP, cut inflation by half
a percent, increase employment by around 30,000 jobs and reduce greenhouse
gas emissions by 4.6 per cent. A complete abolition of payroll tax, funded
by carbon taxes, would generate 60,000 extra jobs and cut greenhouse gas
emissions by around 11.7 per cent. In short, on economic and environment
grounds, there are very strong reasons to argue that reducing payroll
tax should have been given higher priority over reducing taxes on fossil
fuels like petrol.
The Democrats conclude that reducing payroll taxes rather than petrol
and fuel taxes would have a far more positive impact on the economy, as
well as avoiding the environmental and health problems associated with
increased fuel usage.
Conclusion
The terms of reference of this Committee raise issues of serious concern
to the Australian Democrats:
The proposed exemption regime for education does not give effect to the
government's commitment that education would be GST free. The proposal
to impose the GST on books, adult community education courses, and parents
and citizens organisations will impose an unacceptable burden on students,
prospective students and parents.
The estimated impact of the ANTS package on employment is less than clear
and is severely affected by minor changes in underlying assumptions. However
there are a number of modifications to the package which should be made
at a minimum to improve its employment effects. These include:
- zero-rating food (8-12,000 extra jobs);
- reducing the cost impost on the housing sector (7000 jobs in the medium
term);
- zero-rating inbound tourism packages (3000 jobs in the short-term);
- zero-rating all government payments from Jobs Network to employment
providers;
- eliminating more poverty traps, particularly the 70% taper rate on
unemployment benefits;
- reducing payroll tax rather than petrol and diesel taxes (30,000 jobs).
The government has grossly underestimated the compliance burden which
will fall on educational institutions as a result of the implementation
of this package. The government must allocate at least a further $200
million specifically for not-for-profit organisations to deal with these
costs.
Senator Natasha Stott Despoja
Footnotes
[1] Budget Paper 1998-99 No 1 p.2-71
[2] Senate Select Committee On a New Tax System
Report p.72
[3] Dixon report 25/1/99 p.ii
[4] Murphy report p.21
[5] Evidence p.684
[6] Housing Industry Association submission
tabled 5/2/99 p. 7.
[7] HIA Submission p.3-4
[8] Tourism Taskforce submission no. 472 p.
22
[9] Tourism Council submission p.13-6
[10] Geoff Carmody evidence 5/2/99