Conclusions and Recommendations


Conclusions and Recommendations

7.1 The Australian Democrats and the Australian Labor Party accept the evidence presented in the previous chapters. They draw the conclusions and, in the case of the Australian Democrats, make the recommendations, in the relevant sections below:

Australian Democrats

7.2 The Australian Democrats found this inquiry into the new tax package in the areas of environment, telecommunications and the arts to be of critical importance to our consideration of tax reform. It revealed that the Government failed to properly consider the serious negative consequences of its proposals, particularly in relation to greenhouse gas emissions and air pollution. We are grateful to the hundreds of people and organisations who contributed to the inquiry and who assisted us in framing recommendations which we hope will help take Australia into a much cleaner and greener future.

7.3 The Australian Democrats do not support the full $3.5 billion reduction in petrol and diesel fuel taxes. We take this view because of the overwhelming evidence that the proposed measures to achieve the reduction – primarily the cut in diesel fuel excises for heavy commercial vehicles – would be highly detrimental to the environment and to public health.

7.4 We acknowledge the Government's wish to reduce transport costs in regional Australia and to generate economic growth. In our view it is possible to achieve both objectives, delivering the same quantum of cost saving on freight whilst significantly reducing pollution and greenhouse gas emissions.

The Environment

We recommend that: the tax package measures, which have the effect of reducing the cost of diesel fuel and private road transport at the expense of rail freight, public transport, cleaner (gaseous) fuels, renewable energy and oil recycling, be substantially modified and that:

1. petrol and diesel continue to be taxed through the excise system rather than the GST.

In other words, that petrol and diesel be zero rated under the GST but excises be held such that the price at the point of sale is not reduced. We recommend that the resulting savings be allocated to measures to reduce business costs and to promote fuel efficiency and regional transport.

2. an additional sales tax be applied on new motor vehicles with low fuel efficiency, based on a sliding scale.

This would be applied in addition to the proposed sales tax on luxury cars.

1. the current Diesel Fuel Rebate Scheme be retained but modified(see below).

2. public transport be zero rated under the GST.

3. a range of non-tax related measures to reduce pollution be introduced (see below).

As specific measures, the Australian Democrats recommend that:

Diesel Fuel Rebate Scheme

a) the existing 100 per cent diesel rebate for all agricultural and other fully rebatable off-road use be maintained.

b) the total amount of the rebate for other off-road uses be capped at 1999/2000 levels and provided at a flat pro-rata amount for all off-road use.

This would bring into the scheme industries such as tourism.

c) $1 billion of additional assistance be provided to reduce the cost of regional transport, as follows:

    i) rail transport to receive a 100 per cent rebate as it too is an off-road use,

    ii) a regional transport rebate to be more tightly targeted to heavy road transport, with the weight threshold increased from the proposed 3.5 tonnes to 20 tonnes,

    It should be noted that, according to the ABS, 71 percent of freight carried on articulated trucks (mostly over 30 tonnes gross vehicle mass) is non-urban, while only 36 per cent of freight on rigid trucks (mostly under 30 tonnes gross vehicle weight) is non-urban. [1] Thus, the lower the weight threshold, the more the transport rebate benefit will flow to urban transport thereby adding to urban pollution. About 90 per cent of freight is carried on transport vehicles heavier than 20 tonnes.

    iii) companies with the above eligibility would receive a better rebate if using cleaner or renewable fuels, with incentives such as a sliding scale of rebates based on greater use of gas and ultra-low sulphur diesel.

Gaseous Transport Fuels

The proposed change to diesel taxation will significantly alter the relative attractiveness of gas as a transport fuel alternative and we particularly note the New Zealand evidence where cuts in diesel tax led to a dramatic decline in the use of gas. A rise in the level of diesel use would have very significant environmental and public health consequences.

To maintain the viability of gas as an alternative, cleaner fuel, the Democrats recommend that:

a) the current exemption from excise be maintained for compressed natural gas (CNG) and liquid petroleum gas (LPG).

b) grants be provided of up to 50 per cent of the cost of converting heavy vehicles to gas use and for the additional capital cost of new gas vehicles, giving priority to public transport vehicles; and that consideration be given to more advantageous depreciation rates and/or tax deductibility rates for the use of CNG and LPG.

Renewable Energy and Energy Efficiency

The Democrats recommend that:

a) purchases of equipment to utilise renewable energy be exempt from GST or zero-rated.

b) consideration be given to measures to advantage and encourage purchase of energy efficiency equipment.

Other Measures

The Democrats recommend that:

a) a levy be introduced on the sale of lubricating oil to fund re-refining and collection infrastructure.

b) the current exemption from excise of recycled lubricating oil be maintained.

c) the tightening of emission standards for vehicles be accelerated so that Australian's requirements match European standards by 2002.

d) tax rebates be introduced for the purchase of renewable energy equipment and for expenditure to improve energy efficiency.

e) a higher diesel excise be imposed on fuel with a high sulphur content (more than .005 per cent) as a means of encouraging the use of cleaner fuel.

The Arts

The Democrats recognise the important contribution the arts make to our cultural identity and the financial vulnerability of many arts organisations and artists, and we recommend that:

1. government grants to arts and cultural organisations be clearly GST-free.

2. the GST treatment of sponsorships be re-considered to exclude sponsorship that does not bring with it pecuniary or advertising benefits to the sponsor (in line with Canada).

3. arts organisations be given favourable consideration in the allocation of funding from the compliance compensation pool.

4. the higher $100,000 registration threshold for charities for the GST be extended to individuals, organisations and businesses in the arts industry and in community broadcasting.

It should be noted that only four of the 15 European Union countries tax cultural services at the full rate of VAT and only 5 tax fully the services of writers and composers. [2] The higher registration threshold would at least go some way to assisting smaller cultural organisations, thereby encouraging cultural diversity.

5. given the high price impact the GST may have on the arts and the income of artists, the current Government inquiry into the arts take into consideration the adequacy of arts funding in the context of the tax package and that there be a further review within 12 months of implementation.

Communications

The Australian Democrats recommend that the health exemption be extended to include telecommunications equipment for the hearing impaired.

Senator Lyn Allison

Committee Chair

Australian Labor Party

LABOR SENATORS' FINDINGS

Introduction

7.5 The evidence presented to the Committee overwhelmingly supports the view that the Government's tax package will have a negative impact on all the areas examined by the Committee, including:

  • the environment, especially in urban areas;
  • public transport services;
  • emerging technologies;
  • exports;
  • the arts, including books and literature;
  • non-profit organisations; and
    • information technology and communications.

7.6 Labor Senators support the evidence to the Committee claiming that the Government's taxation reform proposals will cause huge job cuts and will undermine the employment security of tens of thousands of workers.

7.7 In addition, Labor Senators accept the evidence presented to this Committee and before other committees that the Government's so-called compensation package will not sufficiently compensate for the damage inflicted by the GST and other taxation reform proposals.

7.8 It is clear to Labor Senators that the Government did not consult with relevant stakeholders about the impact of A New Tax System (ANTS). However, it is disappointing that the Government has failed to even substantially consider the impact of ANTS on the industries examined by the Committee. Given the enormous upheaval ANTS would cause to the Australian taxation system, it is unfathomable that the Treasury failed to consult with relevant line departments about the impact of the tax reform proposals. This lack of consultation was exposed in evidence before the Committee which indicate that the taxation reform proposals contradict several other Government policy statements and intentions. Alternatively, the lack of consultation is clear evidence of a Government with only one policy intention; that being to inflict an unnecessary GST on the community.

Impact on the Environment

7.9 Labor Senators accept the overwhelming evidence before the Committee that the Government's taxation reform proposals will undoubtedly lead to disastrous and long-term damage to the environment. This will occur primarily through an increase in diesel fuel pollutants and greenhouse gases, and a reduction in economic incentives to use alternative, more environmentally friendly fuels and technologies.

Will ANTS Lead to an Increase in Diesel Fuel Consumption?

7.10 Diesel fuel consumption will increase as a result of the tax package reforms, despite attempts by the Government Senators to suggest the contrary. The Committee received evidence from a range of expert witnesses who all argued that a cut in the diesel fuel excise would result in:

  • a clear economic incentive to use diesel fuel transport and an increase in business transport;
  • switch from petrol vehicles to diesel fuel vehicles;
  • a significant modal switch from more fuel efficient rail transport to less fuel efficient and higher polluting road transport; and
    • a reduction of the economic incentive to switch from diesel fuel technologies to more environmentally friendly gaseous fuels and technologies.

7.11 An increase in diesel fuel consumption is certain to lead to an increase in environmental degradation, despite claims by Environment Australia to the contrary. In response to Environment Australia's claim that the short term damage to the environment would be offset by the longer term benefits of the taxation package, Dr Clive Hamilton of the Australia Institute said that Environment Australia's submission was a `travesty':

    Any economist will acknowledge that, if you are going to concede there will be a short-term impact, then there will almost certainly be a larger longer-term impact. Environment Australia goes on to argue, `Don't worry; we have other measures in place which will offset the negative impacts of the GST tax package and, as a result, we will meet our Kyoto target'. You can immediately see the lack of logic in that.

    First of all, the fact is that if you hold the rest of the world constant – which you always do when you are doing this sort of analysis – the GST package on its own will increase pollution. Secondly, if you applied that argument – `Don't worry about the negative impacts; we are going to do things to offset them' – to every upgrading of a coal-fired power station or to every increase in urban air pollution, then of course you would not meet your Kyoto target. So that argument has no credibility at all. [3]

7.12 The evidence is conclusive that increased usage of diesel fuel that will have a detrimental effect on the environment, especially urban environments.

Why Will the Greatest Impact be in Urban Areas?

7.13 Families growing up in urban areas in Australia expect to live in a healthy, clean environment. This is an objective governments should assist in achieving. Australian living standards in urban areas are currently among the best in the world, with variations across different regions and cities.

7.14 Unfortunately, the Committee heard evidence from a range of organisations stating that Australia's urban areas will be highly disadvantaged by the environmental impact of the Government's taxation reforms. The increase in diesel fuel usage and the likely prevalence of more diesel powered vehicles on the roads in urban environments especially concerns Labor Senators. Families living in these areas should also consider the changes in the safety of the urban environment.

7.15 Labor Senators found evidence presented to the committee about the severely detrimental health effects of diesel fuel particulates in the air disturbing. While estimates of the number of additional premature deaths as a result of the increase in diesel fuel usage (increased pollution and road accidents) varied, there seems little doubt about the linkage between the two events.

7.16 Urban street scapes are also likely to suffer as cheaper fuels and a reduction in the wholesale sales tax on cars encourages more people onto the roads, resulting in an increase in traffic congestion. This will have an obvious effect on road safety in urban environments and should be of particular concern to Australian families with young children and also older Australians.

7.17 The reduction in the quality and quantity of public transport services as a result of the `vicious circle' described in evidence by Mr Paul Mees of the Public Transport Users Association, will potentially diminish the living standards of those who most rely on public transport. That is, older and younger Australians living in outer urban areas.

7.18 Higher greenhouse gas emissions and air pollutants from increased diesel fuel consumption will lead to an increase in highly dangerous diesel fuel particulates released into urban environments. The inhalation of diesel fuel particulates carries proven health risks, particularly for families with young children who are more likely to suffer from breathing difficulties like asthma.

7.19 The final word should go to Dr David Brand, President of the Australian Medical Association:

    Medical evidence is mounting on the dangers of fine particles in diesel exhausts. I am particularly concerned by the evidence that these fine particles may lead to the premature deaths of 1,000 Australians every year. My medical colleagues have linked these particles to increased risk of lung cancer and a variety of respiratory disorders. The Government should take heed of these medical indicators and take steps to reduce, not increase the use of diesel in our cities. [4]

Impact on Emerging Technologies and Export Revenue

7.20 The Committee received evidence from a range of businesses operating in the field of new environmental technologies that have massive potential for export to other countries. In particular, the Australian renewable energy sector leads the world in the development of new technologies that will not only assist Australia in meeting its environmental obligations, but also the rest of the world.

7.21 The Australia Institute and others argued that the renewable energy sector would be disadvantaged by the proposed tax changes including a GST, with prices rising by six to nine per cent compared to 4.6 per cent for coal-fired electricity. The price of solar hot water systems is expected to rise by around four per cent relative to the prices of similar gas or electricity hot water systems. [5]

7.22 Pacific Solar Pty Ltd sells grid-connected solar photovoltaic (PV) systems that generate clean, green electricity. There is no pollution, no noise and virtually no maintenance. [6] Pacific Solar were particularly concerned at the effect of the proposed new tax system on billing:

    By way of example, if a customer buys from a utility, say 100 units of electricity in a given period, that will be subjected to the 10 per cent; 10 per cent will be paid on that. However, during that period the customer may have, for example, exported 30 units of solar electricity back to the grid. Rather than having the GST applied to the 70 units – in other words, the net bought or supplied from the grid – advice from Price Waterhouse is that the GST would apply to the full 100 units bought from the grid. [7]

7.23 Mr Alan Pears, Policy Convenor for the Sustainable Energy Industry Association told the Committee that the renewable energy sector competes with 'very large, very well-resourced and very smart energy suppliers who have a lot of scope to game the market'. He saw the proposed new tax system as having a twofold detrimental impact:

    Because we are competing with the conventional energy sector and the conventional appliance and equipment industries, our products and services have a much higher service component. That means that the incremental impact of the GST is greater. At the same time, a number or our important products are at present exempt from wholesale sales tax and, essentially, lose an advantage when that exemption is neutralised. [8]

7.24 The testimony of Mr Peter Lawley, Business Development Manager for Pacific Solar convinced Labor Senators of the potential of this sector in Australia's export market. Mr Lawley informed the Committee that Australia leads the world in PV development, and the potential for the PV industry to generate revenue in excess of $1 billion per year. [9]

7.25 It is clear to Labor Senators that the Government's taxation package will be highly detrimental to this critical and developing industry and is likely to stymie the industry's export potential.

Impact on the Arts Sector

7.26 The evidence to the Committee confirmed that the arts will suffer a serious decline in patronage as a result of increased ticket prices, crippling compliance costs and complexities. Evidence to the Committee on reduced grant and sponsorship funding will inevitably result in some arts groups and performing arts companies, both large and small, having to wind up as a result of the Government's changes.

7.27 The Treasury estimates of a reduction in business input costs for the sectors within the Arts industry were challenged by a KPMG report for the Australia Council. The KPMG modelling suggested that where `libraries, museums and the arts' were competing for consumers with the `motion pictures, radio and television' and `sport, gambling and recreational services' sectors, they may be at a greater disadvantage as a result of reform than competitors, particularly when `the higher estimated increase in prices for this sector, relative to the other industries' was taken into account. [10]

7.28 These relative price increases are estimated by Treasury at 7.7 per cent for libraries, museums and the arts; 5 per cent for motion pictures, radio and television services; and 0.9 per cent for sport, gambling and recreational services. The Australia Council commented that this relative disadvantage was `the third-highest estimated price increase [as a result of the new tax system], exceeded only by Tobacco Products and Government Administration'. [11]

7.29 The Australia Council and other submissions raised a number of additional issues relating to the impact on the arts sector. For example, all ticket sales will be fully subject to a 10 per cent GST.

7.30 Because neither ticket sales themselves nor many of the inputs of Arts organisations are currently subject to the wholesale sales tax, the price impact on consumers in this sector as a result of the implementation of the government's tax package will be significant. Printed music, for example, is WST exempt. Also, the fact that the largest proportional cost to most local arts organisations is labour and, therefore, not WST sensitive, means that in overall terms the removal of WST adds little value to these organisations.

7.31 Furthermore, the abolition of bank transaction taxes (FID and BAD) and stamp duties on commercial transactions will not have a significant impact on the arts sector given that many arts organisations already have “charity” status and/or income tax exemption.

7.32 In a submission on behalf of 25 of Australia's major Arts organisations (including the principal symphony, opera, ballet and theatre companies of the country) it is argued on the basis of New Zealand experience that the price elasticity of ticket sales for the arts is about -0.5: ie. a 10 per cent GST will result in a 5 per cent drop in ticket sales. This submission argues further that a 5 per cent fall in sales would result in only three of the seven major national performing arts organisations remaining in surplus.

7.33 Evidence presented to the Senate Committee from the Arts Industry Council of South Australia indicated that quite apart from the impact of the GST on the major performing arts bodies, the effect would be even greater for local performing arts groups. The AICSA stated that at least five local groups would go to the wall in the absence of GST compensation given the paper-thin margins under which they operate at present. One of the first casualties would be performances in local schools and nursing homes.

7.34 A further major impact of the government's tax package will be corporate sponsorship. Corporate sponsorship will attract the full 10 per cent GST as sponsorship is considered a payment in return for the delivery of services such as tickets or advertising. This will be the case irrespective of whether the sponsorship is provided in cash or kind. Corporate sponsors may be able to claim input tax credits for sponsorship where it can be proven that this has been dedicated to advertising rather than entertainment purposes.

7.35 However, this will not be possible for financial services companies (such as banks which are at present among the biggest sponsors) which the government proposes will be input taxed. As with other business costs, financial service providers will not be able to claim input tax credits for GST paid on sponsorships.

7.36 Overall, therefore, there is likely to be a reduction in corporate sponsorship levels - as occurred in New Zealand after the introduction of the consumption tax there.

What Impact will the GST Have on the Price and Availability of Books?

7.37 The impact of a price increase on books caused enormous alarm amongst Labor Senators. The evidence before the committee was compelling in its description of the negative impact on Australian society if books are subject to GST and become less affordable for low and middle income families. This will have a devastating impact on literacy levels.

7.38 The impact of imposing a GST on books has resulted in strongly critical submissions from the Australian Society of Authors (ASA), the Australian Booksellers Association and the Australian Publishers Association.

7.39 A tax on books themselves is a tax on education, a tax on information and therefore a tax on the future. The only exceptions are books that are part of the “course materials” of primary and secondary school curricula and are provided by schools themselves.

7.40 The critical issues are; the likely impact of the GST on the retail price of books, the price sensitivity of changes in book prices to book purchases and the impact that this has in turn on literacy, education and economic performance. In the previously mentioned KPMG study, it is estimated that the overall price increase for consumers in the “libraries, museums and the arts” industries will be 7.7 per cent.

7.41 For the book industry in particular, the fact that there is at present no Wholesale Sales Tax and that the impact of the abolition of bank transaction taxes will have a marginal impact given the nature of the sector, the overall price impact is likely to be comparable.

7.42 Even Econtech, the government's economic modellers of choice, conclude that the consumers price of books, magazines and newspapers (all of which are WST free) will rise by 5 per cent.

7.43 Furthermore, the demand for books is extremely price-sensitive. 1993 research in the UK (Fishwick, F. Cranfield School of Management) demonstrated that books had a price sensitivity of -1.0: ie a 7.7 per cent price increase is likely to result In a 7.7 per cent drop in sales.

7.44 A tax on books is a tax on literacy, both for children and for adults. For children, the problem arises from the impact of price changes on the relative affordability of books and the number of books and other printed material in the home. The ASA point to a 1992 study (International Assessment of Education Progress) which concluded that children from households with ready access to a wide variety of books are more likely to succeed academically and conversely, children from households with less than 25 books will be 25 per cent-60 per cent less proficient in subjects like maths and science.

7.45 Given the price sensitivity of books, a 10 per cent GST is likely to result in decreased purchases of books by lower income families in particular. The ASA also refer to foreign estimates of losses to the British, US and Canadian economies as a result of poor literacy levels of 8.4 billion pounds, $US 25-30 billion and $Can 10.7 billion annually. The GST therefore flies in the face of the Howard Government's rhetorical posturing on the importance of literacy programs in schools.

7.46 Literacy programs for adults as well as the range of post-school training, retraining and education programs involving printed materials will also become less affordable. This differential treatment of school-based education and vocational education and training is both inequitable and inefficient. Similarly, the full impact of the 10 per cent GST will be felt across the range of written materials used in the nation's universities.

7.47 The negative impact of consumption taxes levied on books on national literacy, education as well as broader economic and cultural performance is the principal reason why in 18 of the 24 OECD countries which have consumption taxes, and for which comparable data is available, books are either zero rated or else taxed at a lower rate than other commodities. That is also presumably why the Canadian Senate has before it at present Bill S-10 that proposes removing the GST on reading materials altogether.

7.48 The differential taxation treatment of information that is screen-derived as opposed to that which is print-derived will have a profound effect on the future of the book publishing and retailing industries. More critically, the existing impact of international “on-line” book wholesalers on the Australian book retailing industry will be exacerbated as the relative cost advantage of companies like `Amazon.com' increases. This, in turn, will have a significant impact on employment in this sector.

7.49 Finally, authors themselves will be negatively impacted by the GST package. Both publishers and retailers will further squeeze margins as a result of the impact of the GST on themselves. In addition, authors will not in any significant way benefit from the reductions in WST, FID and BAD where they do not at present have substantial exposure.

What Impact Will the Tax Package Have on Visual Arts?

7.50 The National Association of Visual Artists has lodged a submission on behalf of its 2,500 members nationwide concerning the impact of the GST in individual visual artists and not-for -profit Arts organisations.

7.51 NAVA estimate that there are approx 19,000 visual artists in Australia.

7.52 At present there is a wholesale sales tax exemption on artists' materials for painters, printmakers and sculptors. That will disappear with the abolition of the WST and the universal implementation of the GST.

7.53 Individual artists with an annual turnover of more than $50,000 will be required to register as a taxable business and become subject to GST for all sales. Artists in this category will also be eligible (although with considerable compliance costs) to claim tax credits on all business inputs. These input tax credits are, however, not likely to exceed the amount payable in GST. The overall price of art works for sale will therefore rise.

7.54 For artists generating less than $50,000, registration for GST purposes is optional. If artists do not register, they will not charge GST on their works but will also not be eligible for claiming input tax credits.

7.55 Parallel problems arise for not-for-profit arts organisations. Those with turnovers in excess of $100,000 will be required to register and will have the same taxation impact as for registered individual artists.

7.56 The government applies a curious logic in granting GST status to charities but not to not for-profit arts organisations.

7.57 NAVA have modelled the likely impact on a visual arts organisation with an annual income of $258,500 and outlays of $258,500. Their calculation is that as a consequence of the new tax regime, that organisation will be a 12 per cent increase in annual costs, resulting in a $28,000 shortfall or the loss of one staff person.

7.58 For individual visual artists, the GST presents further anomalies and difficulties. These include the distinction by the ATO between primary and secondary art markets. When a registered artist first sells for example a painting, full GST is payable on the full sale price of the work. But when the painting is re-sold, GST is only payable on the difference between the buying price and the selling price. The bulk of the tax burden therefore falls on the artist.

7.59 Artists also are liable for GST on royalties earned under copyright agreements - eg for reproductions. If these negotiations are done for artists by an agent, pressure is likely to be placed on the artist to accept reduced margins in order to reduce increases in retail prices.

What About the Impact of the GST on the Australian Film Industry?

7.60 The proposed GST will have a significantly negative impact on the Australian film, television and commercials production industry. This industry currently generates $497 Million per annum for the Australian economy and employs 9,500 people. It is an industry that is growing to nearly eight times the national average.

7.61 The Federal Treasury has estimated that prices in the “motion pictures, radio and television” sector will increase by 5 per cent as a result of the government tax package. The Screen Producers Association have argued that their price structure will increase by substantially more because of a range of factors.

7.62 The Government's argument that costs in this sector will decrease by 4.5 per cent is unbelievable. Not many of the inputs used by the industry are currently subject to the WST. These include unexposed cinematograph film and cinematograph cameras.

7.63 The Screen Producers Association of Australia (SPAA) also argue that most producers generally do not own their own equipment but instead hire specialist technicians who own their own equipment. Two problems arise. Most of the equipment used in the industry requires only long term replacement, in which case that which will benefit from WST removal will only generate savings over the long term. Second, SPAA have genuine fears ( like many other end users in the economy) that much if any of these savings will be passed on to producers.

7.64 The industry is also concerned about the impact of compliance costs as production companies (like other taxable companies) will have to pay suppliers GST inclusive prices, collect, maintain and record input taxes and claim these as credits from the ATO.

7.65 SPAA also warn of the impact of general inflationary effects of the tax package on the overall cost structure.

7.66 The industry therefore predicts that the retail price impact on cinema tickets, sale or rental of home videos and subscription to pay TV will be great. Pay TV is not currently taxed but with the introduction of the GST may suffer disproportionately because pay TV subscriptions are still regarded as a highly discretionary part of household expenditure. There will also be an effect on the home video industry because although blank videotapes are currently subject to a WST, this is a tiny proportion of the total value of the video. Most is derived from its intellectual property value.

7.67 Treasury does not estimate the overall effect of the tax package on consumer demand for the sector. Econtech, however, the government's economic modeller of choice, has estimated that demand for “motion picture exhibition” will decrease by 5.9 per cent as a result of the package. Even taken at face value, this figure would mean significant reductions in activity and employment in the sector.

7.68 Furthermore, there is uncertainty about the impact of the GST on investments from such bodies as the Australian Film Finance Corporation and on grants from the Australian Film Commission. It is clear that sponsorships will be fully subject to the GST – thereby placing pressure on the corporate sponsors to reduce the dollar value of their contribution to the Australian industry.

7.69 Because the Australian film industry occupies a significant place in the overall fabric of Australian culture, it is remarkable that the government has not embraced the approach adopted by other counties with consumption taxes, which offer a reduced rate at cinema houses. For example, in Denmark, the VAT is 12 per cent at cinemas compared with a general rate of 22 per cent. The challenge for Australian cinema is comparable given that only 4 per cent of the total Australian box office last year were made up of Australian films.

Impact on Information Technology and Communications

7.70 The information technology and communications sectors will also be detrimentally affected by ANTS through increased costs, above what was modelled by the Treasury, and a failure to pass any cost falls which may occur on to residential consumers. In particular, evidence to the Committee suggested that consumers would fail to benefit from any expected cost reductions in telecommunications, especially internet connectivity, and computer software.

7.71 Australians have generously embraced new telecommunications technologies. This has led the telecommunications sector on a massive growth spiral and has opened enormous opportunities to Australians from all walks of life to embrace high technology. A GST on computer software and internet connectivity is likely to limit low income Australians accessing these vital communications and educative tools.

7.72 Evidence also suggests that the government's `compensation' package will not sufficiently compensate consumers for price increases. ANTS is also likely to have a devastating impact on community radio services.

7.73 The Consumers Telecommunications Network (CTN) expressed concerns about the Government's compensation package for low income earners and pensioners:

    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. [12]

7.74 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.

What About Community Broadcasting?

7.75 Approximately 15,000 people are employed in the community broadcasting sector around Australia, many on a voluntary basis. Each station is run on a non-profit basis, is community owned and controlled with 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.

7.76 In evidence before the committee, the Community Broadcasting Association of Australia (CBAA) said that the Government's taxation proposals could threaten the viability of many community radio stations:

    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. [13]

7.77 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.

7.78 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, may 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 do. 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. [14]

What Impact Will the Tax Package Have on Jobs?

7.79 There is little doubt that the Government's taxation proposals will cause job losses. This conclusion has been reinforced both in evidence before this committee and before other committees investigating the impact on jobs.

7.80 Mr Ian Maloney, Chairman of the Autogas Committee of the Australian Liquefied Petroleum Gas Association, said that as a consequence of the relative price changes between petrol and LP Gas, there would a reduction in the annual conversion rate of new vehicles from petrol to LPG would be from 60,000 to 40,000. Mr Maloney said that the impact of that reduction would result in about 2,000 job loses:

    That loss of jobs would close about 400 of the over 1,000 small businesses that are the backbone of the LPG industry. Our proposed solution to prevent that happening is an environmental grant of $400 for each vehicle converted. [15]

7.81 In the area of waste oil collection, Mr Fred Wren, Managing Director of Wren Oil which recycles waste oil, is able to compete with major petroleum companies by collecting oil free of charge and re-refining it for between 25 and 40 c/L. Mr Wren told the committee that the proposed tax changes would bankrupt his business and cost jobs:

    The reason I am here today pleading for help is that the GST reforms threaten us with closure, the loss of 19 jobs and personal bankruptcy. In spite of competitive pressures and practices, we have continued to grow over the past 19 years. It is the excise tax removal that might just put an end to Wren Oil. Senators, I want to stay in business, so please do not drop the diesel excise. [16]

7.82 Similarly, Mr David Braham, General Manager of Mulhern Waste Oil, also said that his business would be bankrupted by the proposed changes to diesel excise and said that more than seventy people would lose their jobs. [17]

7.83 In the arts sector, the job loss story is no different.

7.84 The AMPAG and Econtech studies of the performing arts, which predict such dramatic falls in production, suggest that one result of the introduction of the new tax system in its present form will be substantial falls in employment in the Arts.

7.85 Econtech, also predicts that `job shifting between sectors' as a result of the tax changes would see a loss of 7,800 jobs in `cultural and recreational services'. This loss would include 2,500 jobs from `libraries, museums and the arts' and, within that, 800 jobs in music and theatre productions and 400 in creative arts. [18]

7.86 Backbone Youth Arts suggested that the loss of employment opportunities would have broader ramifications:

    Reduced output by arts organisations, in particular youth arts organisations, must lead to a reduction in employment opportunities for arts workers in those organisations. It is inevitable that the result will be reduced incomes and employment in the arts industry, through reductions in already low rates of pay, reductions in the number of hours of paid work offered, and reductions in the number of arts workers employed by some organisations. [19]

7.87 This alarming evidence supports the conclusion that the GST will be bad for youth employment in the arts sector, with much wider ramifications than the Government has considered.

7.88 Labor Senators strongly support the evidence given to by the Australian Society of Authors who identified a much larger issue relating to the GST on books: employment. The Society argued that books and other printed materials are of vital importance to education and literacy, which are key skills that workers need to get jobs. Imposing a GST on books could have serious consequences for national welfare:

    The way into the Australian workforce is education, the way into Australian culture is education and the way into education is via the book. Whole community literacy is a vital need. It is the only way we can compete within the global economy and the only way we can continue as a coherent nation. [20]

7.89 Evidence of Mr Peter Dixon to another committee supports the evidence given before this Committee that many thousands of jobs will be lost by the proposed tax changes.

Is the Government's Compensation Package Sufficient?

7.90 Throughout the hearings, Government Senators maintained that evidence given by witnesses highlighting the negative consequences of the tax package failed to take into consideration the Government's so-called compensation package.

7.91 However, it is clear in evidence before this Committee and before other committees that the so called compensation package is inadequate. In particular, witnesses were consistently critical of the Government's claim that its $500 million start-up assistance package would adequately assist small organisations and businesses with compliance costs.

7.92 Mr David Cox, Executive Officer of the Arts Industry Council of South Australia, suggested that the $500 million earmarked by the Government for start-up assistance to small and medium-size businesses would be inadequate. He also expressed fears that compliance costs would shift jobs from artistic product to administration. [21]

7.93 Mr Michael Lynch of the Sydney Opera House Trust expressed similar concerns:

    My concerns are with ... both the major organisations, their stress point and the reason [the Government has] called an inquiry into them, and the smaller organisations. The range of changes and the range of compliance issues they will need to deal with…are going to be extraordinarily onerous … I took notice of the comments about the small business package, but from my point of view a lot of small businesses in Australia are going to be going for that $500 million. [22]

7.94 The Senate Select Committee on a new tax system is examining the Government's compensation package and the Government's claims in detail. The Committee's interim report cited evidence suggesting that the modelling used by the Government to calculate the CPI increases grossly understate the CPI impact.

7.95 However, even if the Government's compensation package was increased to more accurately match the likely CPI increases, Labor Senators argue that it is impossible to compensate for some changes. For example, how will the Government compensate Australians for poor health resulting from inhalation of diesel fuel particulates? How can Government's compensate for the increased likelihood of road accidents. How can the Government compensate reduced safety in urban streetscapes and increased in traffic congestion? How can the Government compensate for the loss of cultural capital as writers and artists can no longer afford to produce work? How will the Government compensate pensioners and other low income Australians for the loss of communications with the outside world? How will the Government compensate people who lose their jobs?

Does ANTS Contradict Other Government Policies and Initiatives?

7.96 During the course of the hearings, it became quite clear to Labor Senators that the impact of ANTS on the industries examined by the Committee contradicted several of the Government's previous policy statements and intentions. Specifically, the ANTS package contravenes the Government's previous policy statements on:

  • the environment: by making it almost impossible to meet the Kyoto greenhouse gas reduction targets;
  • improving literacy standards: introducing a GST on books will increase the cost of books which will invariably lead to a reduction in reading and access to printed materials, particularly for low income families;
  • the inquiry into Urban Air Pollution: by facilitating increased usage of diesel fuel in urban areas and a likely decrease in public transport usage;
  • corporate philanthropy: introducing a tax disincentive for corporate entities to sponsor arts companies and organisations, a relationship which has been longstanding and symbiotic, is likely to reduce corporate philanthropy, despite the Prime Minister's pleas; and
  • encouraging emerging artists: by limiting employment opportunities, particularly for young, emerging artists, and damaging the long-term skills base, creative resources and diversity of the arts.

7.97 Evidence to the Committee from the Department of Communications, Information Technology and The Arts (DOCITA) indicated that it had not played a major role in the development of the Government's tax package. Rather, the Treasurer had primary responsibility for the new tax system, including its application to the Communications, Information Technology and the Arts sectors, while the Australian Taxation Office (ATO) would have responsibility for its administration and implementation. DOCITA stated that it had, wherever possible, facilitated the flow of information between Treasury and interested stakeholders (such as portfolio agencies and industry bodies) to ensure that the proposals were well communicated. [23]

7.98 DOCITA officers also stated that it had carried out no independent work analysing the impact of the package on telecommunications or postal charges, nor its impact on the arts. Rather, they were basing their analysis on the Treasury's own estimates. [24]

7.99 In evidence before this and other committees, it has become quite clear that the Government has not considered the impact of its taxation package on a range of industry sectors. The inconsistency with other Government policy statements and initiatives makes this glaringly obvious. This leads to the conclusion that the Government's taxation package lacks credibility. The claim that it has a mandate to implement its package, apart from all the other arguments against the mandate theory, is further undermined by this evidence.

Conclusions

7.100 The evidence presented to the Committee has convinced Labor Senators that the Government's tax package will have a devastating impact on the environment, the arts and communications.

7.101 Urban environments and streetscapes will alter dramatically as a result of increased traffic consisting of highly polluting diesel fuel driven vehicles. Public transport services are likely to decline in quantity and quality impacting heavily on older and younger Australians alike, who are most reliant on public transport for access to inner city areas and services.

7.102 The demise of the more environmentally friendly gaseous fuel industry must occur as a result of the reduction in incentives for conversion to gas fuel driven vehicles. This could have detrimental effects on Australia's capacity to develop and export emerging environmentally friendly technologies in which we are among the world's leaders.

7.103 The impact on the Arts community will also be devastating. Ticket prices will definitely increase and patronage will definitely decrease as a result of the GST. Evidence from overseas has shown that a similar tax imposed on the arts sector wiped out many arts companies and organisations, particularly smaller and medium sized companies. Individual performers are also likely to have to seek other forms of employment in order to survive.

7.104 Information technology and communications costs will also rise causing a reduction in access and equity for low income earners to communications services.

7.105 As predicted, the evidence before the Committee clearly demonstrated that Government's taxation reform proposals will cause huge job cuts and will undermine the employment security of many workers.

7.106 In addition, Labor Senators accept the evidence presented to this committee and before other committees that the Government's so-called compensation package will not sufficiently compensate for the damage inflicted by the GST and other taxation reform proposals.

7.107 Labor Senators have no choice but to conclude that the Government's taxation package including the GST will profoundly disadvantage the sectors examined by the Committee.

Senator Nick Bolkus

Senator Kate Lundy

Senator Mark Bishop

 

Footnotes

[1] ABS Survey of Motor Vehicle Use cat. No. 9202.0

[2] European Union Directorate-General XXI “VAT rates applied in the Member States of the European Community” XXI/148/98 - EN

[3] Hansard, Canberra, 1 March 1999, p 265.

[4] Australian Conservation Foundation, Taking your breath away…How the Tax Reform Package affects Air Pollution and Human Health, March 1999.

[5] Submission 120, p vi.; Mr Alan Pears, Sustainable Energy Industry Association, supplementary material, 8 March 1999, p 2.

[6] Pacific Solar Pty Ltd, Submission 823.

[7] Mr Peter Lawley, Pacific Solar Pty Ltd, Hansard, Sydney, 2 March, 1999, p 396.

[8] Hansard, Canberra, 1 March 1999, p 316.

[9] Pacific Solar Pty Ltd, Submission 823, attachment.

[10] Australia Council, Submission 298, p 4.

[11] Australia Council, Submission 298, Cover Letter from Dr Margaret Seares; ANTS, p 172.

[12] Consumers Telecommunications Network, Submission 840, p 1.

[13] Community Broadcasting Association of Australia, Submission 601, p 3.

[14] Community Broadcasting Association of Australia, Submission 601, p 2.

[15] Hansard, Canberra, 1 March 1999, p 326.

[16] Hansard, Perth, 26 February 1999, p 231.

[17] Hansard, Adelaide, 24 February 1999, p 160; Mulhern Waste Oil Removal Pty Ltd, Submission 234, p 3.

[18] The Effects of A New Tax System (ANTS) on The Arts - Modelled using MM303, Report for the Australia Council, Submission 298B, p 23.

[19] Backbone Youth Arts Inc. Submission 890, p 4.

[20] Ms Libby Gleeson, Hansard, Sydney, 2 March 1999, p 478.

[21] Hansard, Adelaide, 24 February 1999, p 191, 197.

[22] Hansard, Sydney, 2 March 1999, p 473.

[23] Department of Communications, Information Technology and The Arts, Submission 1350, p 1.

[24] Hansard, Canberra, 1 March 1999, p 247-54.