Government Senators' Report
By Senators Tierney and Payne
Introduction
Evidence presented to the Committee has reaffirmed the benefits resulting
from proposed changes to the tax system under A New Tax System. Government
Members of the Committee believe that the attention of a number of those
making submissions and giving evidence to the Committee has been focused
on the perceived effect of the proposed changes to the tax system on particular
areas, without reference either to the overall effect of the reforms or
to other areas of Government policy.
In relation to environmental issues, the Government has a wide range
of policies and programs which will remain in effect, and which will not
be undermined by any aspect of the reforms to the taxation system. In
relation to the Arts, improving economic conditions, especially real wage
increases, will combine with income tax cuts and welfare payment increases.
This will leave consumers with higher disposable incomes, more than offsetting
any increases in industry prices.
In evidence to the Committee, the Secretary of the Department of Environment
and Heritage, Mr Roger Beale, said that:
It is critical to note that the Government's environmental objectives
are not changed by the tax reform proposals. For example, the tax reforms
do not impinge on Australia's commitments under the Kyoto protocol.
The proposals do not affect the commitment to increase the share of
renewables and electricity generation by two percentage points. The
detailed instruments required to achieve the Government's environmental
objectives will be developed in the context of new tax arrangements.
[1]
and that:
In summary, it is unlikely that looking back in five or ten years time
we will see any overall net reduction in environmental quality following
the introduction of the tax package. Any initial impact will be the
result of relative price changes, especially as a result of reduced
fuel prices. These, however, are likely to be more than offset by targeted
non-tax measures designed to achieve the Government's environmental
objectives. [2]
Road/Rail Intermodal Shift and Greenhouse Gas Emissions
The Government Members do not accept the conclusions of the majority
report in relation to the effect of the proposed changes to the tax system
on road and rail transport in Australia. They believe that claims of a
sudden, significant shift from rail to road, and a major increase in greenhouse
gas emissions as a result, are exaggerated. The Committee received compelling
evidence that such a shift would be marginal and that whatever small increase
in greenhouse gas emissions might be attributed to such a shift would
be more than compensated for by the increasingly fuel efficient engines
used in road transport and the increasingly stringent standards being
imposed on the industry.
The beneficial effects of the Government's proposed tax reform will give
the economy as a whole a significant boost. Clearly, increased economic
growth will have an impact on the whole transport sector, with an increase
in activity in all modes and some potential small increase in emissions,
but in the light of the industry's continuing advances in engine technology
and fuel efficiency the Government Members believe that the proposed changes
will bring about major benefits to the industry and the economy as a whole
without detrimental impact on the environment or on one particular part
of the transport industry.
Modal Shift
The Road Transport Forum referred the Committee to independent, authoritative
figures from a report commissioned by a number of Commonwealth agencies
[3]. The figures, from 1994-95, were instructive,
and clearly indicated the marginal nature of any modal shift in freight
transport that might occur as a result of the proposed tax reform. The
general context of freight movement within Australia is as follows:
- the total domestic freight task was 324 billion tonne/kilometres.
- urban freight was 37 billion tonne/kilometres annually, 11 per cent
of the total. In this area transport is almost exclusively by road –
there is no competition with rail.
- of non-urban freight, 287 billion tonne/kilometres, 38 per cent was
carried by sea, 35 per cent by rail and 27 per cent by road.
When it is considered that eighty per cent of all freight carried by
road transport goes no more than 80 kilometres it becomes clear that there
is virtually no possibility of rail carrying that freight. [4]
In urban areas in particular, road is the only mode that carries freight.
It does so door to door as rail cannot. The focus, therefore, for modal
competition, is in the area of non-urban freight.
Of that non-urban freight, there are high volume bulk commodities, such
as ore and grain, and others carried over very long distances, that will
continue to be unsuited to road transport and which will be carried by
rail. According to the Australasian Railway Association, all iron ore
haulage, 80 percent of total coal production and 70 per cent of total
grain production is carried by rail. [5]
There are clearly defined markets for the two modes of land transport,
with a narrow band of contestable freight between them. The contestable
component of rail freight is 7.3 per cent of total non-urban freight.
[6] In other words, the contest between rail
and road is for 6.5 per cent of the total domestic freight cargo. While
there may be some shift from rail to road it will be a minimal figure
in the context of Australia's total domestic freight movement: a ten percent
shift from rail to road would see road transport's share of the domestic
freight task increase by one per cent. [7]
There was general agreement in evidence submitted to the Committee that
diesel use in rail transport is three times more efficient per tonne kilometre
than in road transport. [8] Since the mid-seventies
there have been very significant increases in fuel prices, a combination
of price rises by the oil producing nations and increasing government
taxes. However, during the period of significant increases in fuel costs
there was no corresponding shift from road to rail in the movement of
freight within Australia.
The nature of the freight being moved, the importance of journey time
and door to door convenience are all factors which play a very significant
role in the choice of transport mode. The lack of correlation between
fuel costs and mode of transport at a time when fuel prices were rising
rapidly reinforces the view that a reduction in fuel costs as a result
of the Government's tax proposals will not greatly affect the choice of
transport mode.
Greenhouse Gas Emissions
Considered from the perspective of greenhouse emissions, any modal shift
that does occur in freight transport would have minimal impact. According
to the National Greenhouse Gas Inventory Committee, greenhouse gas emissions
in Australia in 1995 were 402 million tonnes of C02. Domestic transport
accounted for 17 per cent of that figure, road transport alone for 15
per cent. However, two thirds of the greenhouse emissions produced by
road transport came from passenger vehicles. Trucks were responsible for
2.5 per cent of emissions and trucks carrying non-urban freight a mere
1.2 per cent of the nation's greenhouse gas emissions. [9]
Any movement of freight from rail to road would have a minimal impact
on total emissions.
In urban areas, where freight is not contestable, commercial vehicles
generate 23 per cent of greenhouse gas emissions, and the trucking industry
10.5 per cent. Urban freight will continue to be carried by trucks and
any reduction in emissions is to be desired. The highly competitive nature
of the road transport industry and the narrowness of the margins involved
will encourage operators to continue to take advantage of improved technology
in engine design and fuel efficiency. Economic incentives of this kind,
as much as government regulation, will ensure a continuing effort within
the industry to minimise emissions as the economy expands and activity
in the transport sector grows.
Arguments that a cut in diesel fuel excise would lead to an increase
in road transport quite apart from that which might result from general
economic expansion do not withstand scrutiny. The Committee heard from
some witnesses that cheaper fuel would result in a change in distribution
patterns and sourcing arrangements which would involve longer distances
and more journeys. However, it was pointed out to the Committee that while
such arguments might apply to the United States or Europe, with a large
number of geographically dispersed manufacturing centres, the manufacturing
base in Australia is confined to particular areas and no major change
in transport patterns would occur. [10]
In response to concerns expressed that some operators would shift to
vehicles over 3.5 tonnes in order to qualify for the diesel fuel rebate,
the Committee was told that such a change in general would be unlikely
to occur, as operators require particular vehicles for particular tasks.
For example, light commercial vehicles are required in urban areas to
negotiate pick-up and delivery points.
At the margins, where operators might move from vehicles slightly below
3.5 tonnes to those slightly heavier, the fuel efficiencies of newer vehicles
would significantly outweigh the result of any move to a slightly heavier
vehicle. It should be noted that Australia's urban freight and passenger
car fleets are ageing, and any incentive to move to newer, fuel efficient
vehicles is to be encouraged.
Standards and Emissions
A significant factor determining the environmental impact of road transport
is the fuel efficiency and emission standards of diesel engines. The Government
Members of the Committee believe that continuing improvements in engine
design and increasingly stringent emission standards will have a major
influence on the environmental impact of road transport, so that the effects
of any increase in transport activity flowing from the general economic
benefits of the proposed tax reforms will be more than offset by improved
technology within the industry.
Two factors are relevant in this area: Australia's own engine standards
and those that apply in the countries of origin of the engines used in
Australia. Australia does not manufacture any diesel engines; all the
engines used here are imported from the United States, Europe or Japan.
While Australia is steadily increasing the standards required of its diesel
fleet, those that apply in the countries of origin of the engines are,
in fact, even more stringent, so that diesel engines imported into this
country exceed the necessary standards by a considerable margin.
The standard currently applying in Australia is Euro 1, with Euro 2 to
be in force by 2002. Three to five years beyond that Euro 3 will be the
required standard. The effect of these improved standards will be a dramatic
reduction in emissions, but it should be noted that many of the engines
currently being manufactured overseas and imported into Australia already
meet the higher Euro 2 and Euro 3 standards. While it would be impractical
and unreasonable suddenly to require operators to write off all Euro 1
standard vehicles in their fleets, the regular upgrading and expansion
of fleets is already seeing the introduction of the higher standard vehicles.
Under the Euro 2 standards, particulates and nitrous oxides, which are
of particular concern in urban areas, will be significantly reduced, particulates
by up to 76 per cent relative to Euro 1 and nitrous oxides by 12.5
percent. Under Euro 3 particulate emissions will decline by up to 84 per
cent relative to Euro 1 and nitrous oxides by 38 per cent. [11]
Further, the improved quality of fuel that will be required to enable
new engines to meet the required standards will also improve the level
of emissions for existing engines.
In addition, the National Environment Protection Council and the National
Road Transport Council are working towards a unified, enforceable standard
of emissions for vehicles in service, so that not only are new engines
of a certain standard but that the whole stock of vehicles is maintained
at a more efficient level through their working life. [12]
Given that the increase in road transport's share of the domestic freight
task will be marginal, any potential increase in emissions resulting from
economic growth in general and that marginal shift in particular, will
be more than compensated for by the increasingly stringent standards applying
to the manufacture of all new diesel engines and to the use of existing
diesel engines in Australia.
It is important to note also that the National Environment Protection
Measure (NEPM) for ambient air quality sets an ambient standard for particulates,
and that policies to meet this standard will constrain any increase in
emissions that would impact on health. [13]
In addition the National Environment Protection Council is currently considering
a NEPM for diesel engines and diesel fuels. [14]
These are examples of the way in which Government policies and programs
will to continue to improve environmental standards whatever the effect
of the changes to the taxation system.
As well as the impact of increasing emission standards, the road transport
industry can point to an impressive record in increasing fuel efficiency:
from 1988 to 1995 fuel efficiency increased by approximately 20 per cent
for articulated trucks and 15 per cent for light commercial and rigid
vehicles. A further improvement of 15 per cent is predicted by 2015. [15]
An increase in fuel efficiency has obvious benefits in terms of costs
to business and the consumer, the demand for fuel resources and the level
of pollution. Any suggestion, as was made to the Committee by some witnesses,
that a reduction in the cost of fuel would lead to a less economical use
of fuel in the road transport industry, with a resulting waste of resources
and increase in pollution, cannot be sustained. The road transport industry
is fiercely competitive and highly price sensitive, and no economic benefit
such as that offered by the Government's tax proposals, is going to be
thrown away. Any increase in demand will be the result of an increase
in economic activity, and that applies to road, rail and sea transport.
Public Transport
Concern was expressed by some witnesses that one effect of the proposed
tax reform would be to increase private motor vehicle use at the expense
of public transport, thereby contributing to an in increase in fuel consumption,
greenhouse gas emissions and traffic congestion, and the continuing consumption
of urban land for roads and car parks. It was argued that public transport
would become more expensive both in real terms and relative to the cost
of private motor vehicle use.
Such an assumption is unwarranted. There will be significant reductions
in the input costs of public transport. Fuel will be cheaper, as will
the costs of the vehicles themselves, parts and so on. If operators pass
on these savings to consumers in the form of reduced fares then the imposition
of a GST will result in no more than a marginal rise in overall ticket
prices. The Government's income tax cuts and compensation package will
more than cover any such marginal increase.
Further, the likelihood of a significant shift to private motor vehicle
use is minimal. While, as with the carriage of freight between road and
rail, there may be some marginal change, the vast majority of those who
use public transport do so because there is no practical, economical alternative.
A significant majority of those who live on or beyond the fringes of the
major cities use public transport to commute to work. Some of them use
two forms of public transport to do so. In those areas, as one witness
told the Committee, 'rail has such a competitive advantage' that it will
continue to be the major means of travel into city centres. [16]
Alternative Energy
As stated in the submission from Environment Australia, the Government
'continues to support the use of alternative fuels and alternative fuel
technologies.' The Government is actively promoting the use of compressed
natural gas for vehicles and the development of ethanol as a transport
fuel with significant funding in both areas.
Notwithstanding the likelihood that reductions in diesel and petrol
prices will encourage some increased use of these fuels in the short
term, [these measures] are expected to continue to encourage the wider
use of alternative transport fuels. Over the longer term, the influence
of measures to achieve greenhouse gas reductions consistent with Australia's
Kyoto target will have far greater impacts on fuel use levels and patterns
than any changes to fuel prices resulting from tax reform. [17]
As indicated above, Australia does not manufacture engines for heavy
vehicles but imports them from the United States, Europe and Japan. In
some jurisdictions, as well as a continuing tightening of emission controls,
there is an increasing tendency towards mandating alternative fuels in
a proportion of vehicle fleets over a certain size. As these developments
continue there will be a growing commercial incentive to develop the appropriate
technologies. Mr Andrew Higginson, Chief Executive of the Road Transport
Forum, told the Committee that: 'If the right technology is there it will
be used by our industry … any technology available to do the freight
task in a safe and efficient manner is picked up.' [18]
The Arts
Evidence presented to the Committee supports the proposition that the
Coalition's tax package will have a beneficial effect on the arts industry.
Despite some concerns being raised by sections of the arts community,
there was little evidence forwarded to back these claims. Many groups
entirely ignored the enormous beneficial effects of $13 billion worth
of tax cuts and increases in pensions. All Australians will end up with
higher disposable incomes after the package is introduced, and it is a
fact that increases in disposable incomes, and hence discretionary spending,
are spent disproportionately more on the arts.
Professor David Throsby, the former Chair of the National Association
for the Visual Arts, told the committee that over the last twenty five
years the arts industry 'has been one of the fastest growing industries
in the economy … That is likely to continue.' [19]
Given that for most of that period the industry was operating in the context
of high levels of inflation and a fall in real incomes and yet still thrived,
it seems unlikely that in a period of low inflation and rising real incomes
a small increase in prices in the context of income tax cuts and a compensation
package for the less well off will have the dramatic effect predicted
by some witnesses.
Furthermore, despite figures which seem to indicate that a very high
proportion of the population attend cultural events, multiple attendances
by a smaller number can distort the true picture. While those who attend
theatrical and musical performances, and visit galleries and exhibitions,
comprise a wide cross section of the population, the majority tend to
be those with higher disposable incomes, who are less likely to discontinue
attendance at such events in the face of a small price rise.
In fact, the arts will continue to be simply one of the many industries
competing for the consumer's discretionary spending. As a report prepared
by KPMG for the Australia Council stated:
So, to the extent that there will be increases in prices for the Arts
sector, the end result may be that the Arts will simply continue to
be subject to existing pressures for competition from other sectors
in the market for entertainment. [20]
Similarly, in the case of books, one witness told the Committee that
'more well off people tend to buy books,' [21]
so that any increase in book prices is unlikely to have a significant
effect on the publishing industry or on individual writers. In the case
of lower income consumers, income tax cuts and the Government's compensation
package will offset those price rises.
Further, the arguments advanced for the particular cultural significance
of books and for their exemption from the GST as a result, might also
be advanced for music, the visual arts and other areas within the cultural
sector. There are many competing claims for exemptions but it is important
for the fairness, efficiency and effectiveness of the Government's tax
reforms that the tax base be as broad as possible and that the administration
of the system be as straightforward as possible.
A number of witnesses from arts organisations expressed concern at the
effect on sponsorships of the proposed tax reforms. Such a concern stems
from a misunderstanding of the situation that will apply. Genuine donations
and sponsorships which do not constitute a fee for service will be GST
free. When a sponsorship constitutes a payment for service, such as naming
rights, hospitality etc, the donor will pay GST on the amount of the sponsorship
but will also be able to claim that amount as an input tax credit, so
that 'The GST is therefore unlikely to have any material impact on the
transaction.' [22]
Compliance costs were raised by many within the arts sector as a concern,
particularly for very small community based organisations or for individuals
acting as one-person businesses. There was a fear expressed that the complexity
of administration involved or the time required to comply would impose
a significant burden on those organisations or individuals. However, such
concerns are not justified. The Government has allocated $500 million
for assistance to small business in adjusting to the new system, and in
most cases the administrative burden on small companies will be negligible,
requiring the quarterly submission of a simple form.
Conclusion
The Government Members of the Committee believe that the proposed tax
reforms will establish a framework for economic activity in Australia
that is relevant to the twenty-first century. Within that context the
benefits delivered to all Australians will increase the strength and diversity
of the economy. A stronger economy, and improving technology, will enhance
the capacity to respond to a variety of challenges, including those facing
the environment. In the arts sector, the robustness of the economy in
general, the savings to business delivered by the package and the increased
disposable incomes of consumers will contribute to a vibrant and growing
industry.
Footnotes
[1] Mr Roger Beale, Department of the Environment
and Heritage, Hansard, Canberra, 1 March 1999, p335.
[2] Mr Roger Beale, Department of the Environment
and Heritage, Hansard, Canberra, 1 March 1999, p 337.
[3] Appelbaum Consulting Group, Australian
Transport Task, Energy Consumed and Greenhouse Gas Emissions, Volume
B, Report prepared for the Commonwealth Department of Transport et al,
1997.
[4] Road Transport Forum, Submission 302, p
3.
[5] Australasian Railways Association, Submission,
83A, p 5.
[6] Appelbaum Consulting Group, Australian
Transport Task, Energy Consumed and Greenhouse Gas Emissions, Volume
B, Report prepared for the Commonwealth Department of Transport et al,
1997.
[7] Mr Michael Apps, Road Transport Forum, Hansard,
Canberra, 1 March 1999, pp 306-307.
[8] Mr John Kirk, Australasian Railway Association,
Hansard, Melbourne, 23 February 1999, p 34; Mr Mark
Carter, Rail 2000 Inc, Hansard, Adelaide, 24 February 1999, p 181.
[9] Mr John Apelbaum, Road transport Forum,
Hansard, Canberra, 1 March 1999 p 302.
[10] Mr Andrew Higginson, Road Transport Forum,
Hansard, Canberra, 1 March 1999, p. 303.
[11] Mr Michael Apps, Road Transport Forum,
Hansard, Canberra, 1 March 1999, p 308.
[12] Mr Brian Hobsbawn and Mr Roger Beale,
Department of Environment and Heritage, Hansard, Canberra, 1 March
1999, pp 342-343.
[13] Mr Roger Beale, Department of Environment
and Heritage, Hansard, Canberra, 1 March 1999, p 336.
[14] Mr Roger Beale, Department of Environment
and Heritage, Hansard, Canberra, 1 March 1999, p 342.
[15] Road Transport Forum, Submission 302,
p 3.
[16] Dr Paul Mees, Public Transport Users Association,
Hansard, Melbourne, 23 February 1999, p 31.
[17] Environment Australia, Submission 931,
p 3.
[18] Hansard, Canberra, 1 March 1999,
p 300.
[19] Hansard, Sydney, 2 March 1999,
p 387.
[20] Australia Council for the Arts, Submission
298, attachment: KPMG report, Taxation Reform and the Arts: An Update,
p 17.
[21] Ms Fran Bryson, Hansard, Melbourne,
23 February 1999, p 68.
[22] Department of Communications, Information
Technology and the Arts, Submission 1350, p 4.