Communications Industries And Services
Overview
6.1 The Committee received a range of submissions, and heard from a range
of witnesses in the communications sector about the potential impact of
the proposed new tax system. They included submissions and evidence from
the Consumers Telecommunications Network, the Community Broadcasting Association
of Australia, the Australian Information Industry Association, the Screen
Producers Association of Australia, the Media Entertainment and Arts Alliance,
and the Department of Communications, Information Technology and the Arts
(DOCITA).
6.2 The main concerns expressed by witnesses included the impact on telecommunications
prices and access, potential disadvantages for non-profit community broadcasters,
and problems that the draft legislation would pose for the screen production
and information industries.
Telecommunications Services and Access
6.3 The Consumers Telecommunications Network (CTN) expressed a range
of concerns about the development of the tax package and its potential
impact on access to telecommunications services.
6.4 CTN stated that there had been an insufficient `level of informed
debate or analysis of the potential impact on residential consumers'.
A particular uncertainty was the exact increase in prices for residential
consumers, with the ANTS estimate of 4.7 per cent across the whole sector
being too imprecise to provide a reliable guide:
Telecommunications services and products are not homogeneous. Business
and residential consumers have different requirements of telecommunications
services and make telecommunications choices in totally different markets.
There are wide differences in the level of competition in residential
and business markets. The pressure to pass on cost savings will be greater
in the more competitive business market which will put upward pressure
on residential prices. [1]
6.5 The ANTS document states that a `transitional price oversight regime
will be established under special legislation which will give the Australian
Competition and Consumers Commission (ACCC) special powers to ensure that
price changes by businesses are consistent with changes in tax rates'.
[2]
6.6 CTN stated that it did not believe that the ACCC would:
be able to ensure that the full value of costs savings will be passed
onto residential consumers. The difficulties that the ACCC has had in
identifying the cost of Telstra's network, through the process of declaring
open access to local services, highlights the complexities that would
be involved in such a task. [3]
6.7 In evidence to the Committee, DOCITA stated that the Government had
made an undertaking that it would use the legislated `price caps' to ensure
that the standard telephone call remained at 25 cents. Where prices were
not capped, the ACCC would be charged with ensuring that cost reductions
were passed on. Asked about the CTN concern that residential consumers
might not see the benefit of cost reductions, the Department declined
to offer any comment. [4]
6.8 CTN also identified an added concern, which was that the nature of
telecommunications markets and the rebate of GST paid on inputs to business
would create further inequities:
Because [business] is a more lucrative market and a more competitive
market, you would normally expect lower prices to be made available
to businesses than to the less lucrative residential market … that,
combined with the fact that businesses are able to claim the input tax
credit, which households cannot, means there seems to be a basic inequity
in the proposal. [5]
6.9 In evidence, CTN told the Committee that in relation to the current
review of price controls and price caps:
We have said to the Government that we would like the baskets [of services]
unbundled so that we actually have a separate requirement to reduce
prices on each of those. There would be a requirement that the cost
of access decrease and a requirement that the local call must decrease
rather than having this bundle with which they are able to do a bit
of shuffling around. [6]
6.10 CTN also expressed concerns that the Government's planned compensation
package for low income earners and pensioners `may not redress price increases
in the longer term', given that:
in the longer-term, wealth disparities are likely to increase …
The tax package involves a level of risk for telecommunications consumers.
That risk is greater for low-income households than those on higher
incomes ... the GST burden is six times greater for those least able
to afford price increases. As a proportion of incomes, low income householders
will face an expenditure increase of 0.28 per cent of total income,
while the increase for the highest incomes households will be 0.046
per cent of total income. [7]
6.11 Similarly CTN expressed concern that people with disabilities would
be disadvantaged, given that they rely on the telephone far more than
others in the community. CTN's concern was that the 4 per cent increase
in disabilities pensions would not apply to all people with disabilities,
nor that that increase would fully cover all price increases the disabled
might face. CTN recommended that telecommunications equipment used by
people with disabilities receive a prescription health aids exemption
that is currently proposed for items such as spectacles and walking aids.
Community Broadcasting
6.12 The Community Broadcasting Association of Australia (CBAA) represents
a sector with 150 fully licensed radio stations, 142 temporary radio licensees
and eight television services, involving some 15,000 people, many working
on a voluntary basis. It told the Committee that each station is run on
a non-profit basis and is community owned and controlled. The gross revenues
of the sector are approximately $25 million per annum. Only eight per
cent of revenues derive from grants, with the bulk raised through the
sale of sponsorship announcements, membership fees, subscriptions, donations,
airtime access fees and subsidies from educational institutions. The CBAA
stated that:
community broadcasting stations are vital to the cohesion of local
communities and serve the interests of diversity in our wider community.
The financial wellbeing of every station is already finely balanced
and the Government tax reform proposals threaten their viability. [8]
6.13 Many of the concerns raised by the Association relate to the registration
dilemmas faced by much of the arts, which are particularly acute for non-profit
organisations which currently enjoy widespread WST exemptions.
6.14 The CBAA stated that most of its members' revenues would put them
below the GST threshold for non-profit organisations of $100,000. This
would apply to 94 stations, including five television licensees. While
these stations would not have to charge GST on their `sales', they would
be unable to claim GST paid on inputs and thus lose the effect of the
current WST exemptions. CBAA representatives told the Committee that this
would cost each station at least 3.5 per cent of income. [9]
6.15 The Association also told the Committee that voluntary registration,
while an alternative, would also create problems for such stations, in
regard to compliance in particular:
A lot of the very small [stations] often have no paid staff. Out in
the country, the very small stations run entirely on volunteer effort
… we are fearful that they are going to have considerable problems.
If they get into this area of doing sums for the Taxation Office, I
think they are going to have considerable problems … At the moment,
we have a crisis in Goulburn, where the station looks as though it is
going to have to close. It is affected by the general economy of a town
like that in the country, with government services being reduced. Essentially,
our stations in rural areas are very stressed and are finding it very
difficult. [10]
6.16 The other main concern raised by the Association related to how
sales (the majority of station revenues) would be affected for those stations
who are either required to register, or do so voluntarily. Sponsorships
would be taxed, while tied donations, and membership and subscription
fees, might also be taxed because they are sometimes rewarded with services
such as discount passes. Most of these sponsors, being individuals, would
not have the input tax credits available to them that corporate sponsors
would. The Association argued that:
The concept of a GST as consumption tax – i.e. ultimately paid
by `end point' consumers – does not fit neatly with the production
and output of broadcasting services which are not a sold commodity,
but a public good provided freely. The principle of allowing input tax
credits all the way along the production and distribution chain, does
not recognise the bulk of community broadcasting inputs which are voluntary
and unpaid nor the real output of stations which are not `sales' but
broadcast programming. [11]
6.17 The CBAA has appealed for the activities of the community broadcasting
sector to be GST-free, based on their status as non-profit community organisations.
Based on 1997-98 figures in which the gross revenue of the sector was
approximately $25 million, the measure would cost the budget $2.5 million.
[12]
Screen Production
6.18 The ANTS document estimates that `costs to the motion pictures,
radio and television services' would fall by 4.5 per cent after the introduction
of the new tax system, while Econtech estimates the same figure to be
5.1 per cent. While acknowledging these figures, the Screen Producers
Association of Australia (SPAA), expressed concern to the Committee that
the screen production sector would find it difficult to realise the whole
amount of these projected savings:
we are already free of wholesales sales tax in relation to cinematographic
films. In relation to videotape and equipment, the main costs are borne
by television broadcasters rather than producers. We are already in
a position where there is a level of tax concession available to the
industry, so removing the wholesales sales tax will not have the same
effect on reducing costs. [13]
6.19 SPAA also stated that the savings from the abolition of WST might
not be fully passed through to their members because:
The cost savings from the wholesale sales tax are buried – it
is not as though we are paying it as the final user or purchaser of
the goods. So we cannot insist that it be passed on to us in to the
same extent we could if we had been paying previously the sales tax
direct. [14]
6.20 Another concern of the industry was that investment funds might
be subject to GST, which would impact negatively on cashflow and fundraising
for productions:
Film and TV productions are almost always cash flowed on an instalment
basis – where the amount of the tap is turned on to is limited
by the investor's other cash flow needs and the cost of the money. So
in the case of a commercial investor, we are going to be asking him
to speed up the cash flow by up to ten per cent. This may in some cases
reduce their enthusiasm to invest at all or just make them inclined
to drive a harder deal with us, which may reduce our share of the end.
Therefore, production companies may become less potentially profitable.
In the case of the [Australian Film Finance Corporation] it may drain
their annual pool by up to ten per cent. [15]
6.21 SPAA also appealed for the Government to ensure that offshore production
within Australia be treated as exports and thus not subject to GST.
Information Technology
6.22 The Committee received evidence from the Australian Information
Industry Association and Austar Entertainment (a regional Pay TV provider)
about the potential impacts of the new tax system on the information industry.
While being broadly supportive of the Government's plans, they expressed
a series of concerns about some aspects of the draft legislation.
6.23 The AIIA appealed for the Government to clarify the position of
services to non-residents, which it believes would be subject to GST,
but should ideally be treated as an export.
6.24 A further concern was the burden that could be placed on its members,
and downward pressures on IT sales, by the lack of transition provisions
in the legislation to prevent the double-taxation of capital equipment
purchased just prior to June 30 2000, which would be subject to WST (unrebatable)
before that date, while services provided using that equipment would be
liable to GST:
in the immediate transitional period there is going to be, either for
the AIIA computer hardware members or distributors, considerable pressure
from business not to upgrade computer equipment because the cost will
go down significantly post-1 July 2000 … the whole computer industry
could suffer very badly if demand drops off significantly. [16]
Footnotes
[1] Consumers Telecommunications Network, Submission
840, p 1.
[2] Tax Reform: not a new tax, a new tax
system, p 15.
[3] Consumers Telecommunications Network, Submission
840, p 1.
[4] Mr Andrew Skewes, Department of Communications,
Information Technology and the Arts, Hansard, Canberra, 1 March
1999, p 252.
[5] Mr Stephen Horrocks, Consumers Telecommunications
Network, Hansard, Sydney, 3 March 1999, p 526.
[6] Ms Helen Campbell, Consumers Telecommunications
Network, Hansard, Sydney, 3 March 1999, p 529.
[7] Consumers Telecommunications Network, Submission
840, p 1.
[8] Community Broadcasting Association of Australia,
Submission 601, p 3.
[9] Mr Bruce Francis, Hansard, Sydney,
3 March 1999, p 518.
[10] Mr Michael Thompson, Hansard, Sydney,
3 March 1999, p 519.
[11] Community Broadcasting Association of
Australia, Submission 601, p 2.
[12] Community Broadcasting Association of
Australia, Submission 601, p 3.
[13] Mr Nick Herd, Screen Producers Association
of Australia, Hansard, Sydney, 2 March 1999, p 493.
[14] Ms Jane Cordon, Screen Producers Association
of Australia, Hansard, Sydney 2 March 1999, p 493.
[15] Mr Andrew Blaxland, Screen Producers Association
of Australia, Hansard, Sydney 2 March 1999, p 495.
[16] Mr Damien Walsh, Arthur Anderson for the
AIIA, Hansard, Sydney, 3 March 1999, p 532.