Chapter 1

Background

Summary of ANTS Proposals

1.1 In August 1998, the Howard Government released the document Tax Reform: not a new tax, a new tax system, which has since been widely known as ANTS. Subsequently, a package of 16 bills to introduce a new tax system was introduced into the House of Representatives in December 1998 and passed by that chamber on 10 December 1998. The package of Bills was introduced into the Senate on 10 December and currently remains at the second reading stage.

1.2 The following brief summary of the document Tax Reform: not a new tax, a new tax system (ANTS) is compiled directly from the ANTS document.

1.3 The new tax arrangements proposed by the Howard Government are based on five declared key principles:

• that there should be no increase in the overall tax burden;
• that any new taxation system should involve major reductions in personal income tax with special regard to the taxation treatment of families;
• that consideration should be given to a broad-based indirect tax to replace some or all of the existing indirect taxes;
• that there should be appropriate compensation for those deserving of special consideration; and
• that reform of Commonwealth-State financial relations must be addressed.

Income Tax Changes

1.4 Proposed reforms within the income tax system provide significant reductions in personal income tax through an increase in the tax-free threshold and decreases in all marginal tax rates except the top rate. This measure is estimated to be worth around $13 billion a year and means 80 per cent of taxpayers will have a top marginal tax rate of 30 per cent or less.

1.5 In view of these proposed reductions in income tax rates, together with reductions in marginal tax rates on saving, the Government proposes to terminate the savings rebate from 1999-00.

1.6 A declared aim of the Government's tax package is to overcome perceived disincentives created by the current interaction of the tax and social security systems. High effective marginal tax rates are seen as discouraging Australians from undertaking extra work or training, or increasing personal saving, while concurrently encouraging tax minimisation.

Changes to indirect taxes

1.7 A multi stage value added tax on goods and services (GST) is proposed to be introduced on 1 July 2000 at the rate of 10%, excluding goods which are exported or services which are consumed outside Australia. GST will not apply to a range of health, education and childcare services and will replace the wholesale sales tax and a number of State taxes.

1.8 GST will be charged on the supply of land, goods and services for payment. All goods and services imported and entered into Australia for home consumption are to be subject to GST.

1.9 There will be two types of non-taxable supplies :

• GST-free supplies which will not be taxed and where a credit is allowed for tax paid on purchases (in other jurisdictions this is known as zero rating); and
• input-taxed supplies that are not taxed but for which no credit is allowed for tax paid on purchases. In the GST jargon, this treatment is often referred to as "exemption".

1.10 GST paid by GST-registered business on the purchases of goods and services for use in the business is credited to the business and in some cases can be refunded. The aim is that no part of the GST represents a cost to business. The effect of this crediting system is that GST rolls forward at each transaction to the point of sale to the end consumer.

1.11 Businesses that are registered as taxpayers will be required to charge GST on supplies of goods and services made by them. The GST so charged will be collected by the registered person from the purchaser and remitted to the ATO by means of lodging periodic returns.

1.12 The Australian Competition and Consumer Commission will be granted special transitional powers to formally monitor retail prices as part of the Government's proposal to instigate additional consumer protection.

1.13 The Government proposes to reduce excises on petrol and diesel so that pump prices need not rise upon the introduction of GST. In addition, registered businesses will be able to claim an input tax credit for the GST payable on fuel used for business purposes.

1.14 A new diesel fuel credit will be available to registered businesses to reduce the effective excise payable on diesel fuel used in heavy transport and rail, from around 43 cents per litre to 18 cents per litre. All other off-road business use of diesel and like fuels (including diesel, bunker fuel and light fuel oil for marine business use) will qualify for a full credit of excise.

1.15 Proposed changes to the taxation of alcoholic beverages to take effect from 1 July 2000 include :

• a Wine Equalisation Tax on wine and beverages consisting primarily of wine;
• an increase in the excise on beer, and other beverages with less than 10 per cent alcohol content;
• an increase in the excise-free threshold for beer from the present level of 1.15 per cent to 1.4 per cent to support the production of low alcohol beer; and
• an increase in the excise on beverages other than wine, with more than 10 per cent alcohol content, such as spirits and liqueurs.

1.16 A per stick tobacco excise based on the number of cigarettes produced is proposed to take effect from 1 July 1999. Cigars and other tobacco products will continue to be subject to excise according to their tobacco weight.

1.17 The Government proposes to introduce a retail tax on luxury cars, at a rate of 25 per cent of the value above a luxury threshold (a GST-inclusive value of $60,000). This tax is intended to have the effect that luxury cars only fall in price by about the same amount as a car just below the luxury threshold.

Reforms to business taxes

1.18 It is proposed that most trusts be taxed as companies to ensure that most distributions of profits by companies and trusts bear tax at the entity level, which is currently 36%.

1.19 The current dividend streaming rules will be repealed.

1.20 The general anti-avoidance rules contained in Part IVA of the Income Tax Assessment Act 1936 will be reviewed so as to apply to existing and emerging tax avoidance activities utilising rebates, credits and losses.

1.21 Consultations on possible reform of the investment base will focus on the perceived poor treatment of changing asset and liability values. The three areas to be considered are physical assets; financial assets and liabilities; and the potential use of accounting principles.

1.22 CGT rollover relief and retirement exemption for small business will also be reviewed. These will be extended to include land and buildings integral to a business when these assets are owned separately.

1.23 It is proposed that five existing payment and reporting systems (PAYE, PPS, RPS, provisional tax and company instalments) will be replaced with a comprehensive pay-as-you-go (PAYG) system. This system will feature business taxpayers paying their income tax at the same time, replacing the provisional tax and company instalments systems with PAYG, and business certainty regarding which payments are subject to withholding.

Tax simplification proposals

1.24 Measures designed to simplify the existing tax regime include a 2-year amendment period to adjust a taxpayer's tax position, oral advice which is binding on the ATO, a charging system for private binding rulings, use of electronic commerce in answering taxpayer queries, and simplifying or removing tax return lodgments.

Changes to customs administration

1.25 Existing Customs concessions, rebates, remissions and regulations will be rationalised as a result of replacing the Diesel Fuel Rebate Scheme with a diesel fuel credit delivered through the GST.

Changes to the Fringe Benefits Tax provisions

1.26 The fringe benefits tax (“FBT”) provisions amendments are in the main:

• from the 1999/2000 FBT year of income, the grossed up taxable value of an employee's fringe benefits will be disclosed in group certificates where the value of the benefits exceeds $1000;
• from the 2000/2001 FBT year of income, benefits provided by public benevolent institutions and certain other non-profit entities will be limited to $17,000 of grossed up taxable value per employee. Any amount above this limit will not be subject to the concessional tax treatment and will be subject to FBT as for any other taxpayer;
• FBT will be imposed on benefits in excess of $1,000 per annum provided by companies to their shareholders or by trustees to trust beneficiaries, where the benefits are not taxed currently;
• FBT exemption for remote area housing provided by mining industry employers will be extended to equate to those provided by primary producers; and
• the FBT gross-up rate is to be increased in order to recover GST input credits allowed to employers on their purchases of goods and services for use in providing fringe benefits to their employees.

Compensation for those deserving of special consideration

1.27 The Family Tax Initiative (FTI) introduced in January 1997 will be extended, doubling tax-free thresholds from 1 July 2000. The various benefits will be re-structured into three key assistance packages: Family Tax Benefit Part A; Family Tax Part B and Child Care Benefit.

1.28 The proposed ChildCare Benefit provides an increase in the maximum level of assistance of $7.50 per week. Higher income families with incomes above $78,000 will be entitled to assistance equivalent to that available under the Childcare Cash Rebate at the 20 per cent rate.

1.29 From July 2000, social security, veteran' pensions and other income support payments will be increased as follows :

• a 4.0 per cent increase in the maximum rate of all income support payments; and
• a 2.5 per cent increase in the income test free areas.

1.30 The pension income test will be eased to reduce the taper rate from 50 per cent to 40 per cent as of July 2000. In addition, an Aged Persons Savings Bonus of up to $1,000 per person, and a Self-Funded Retirees Supplementary Bonus of up to an additional $2,000 per person will be available to age pensioners and self-funded retirees.

1.31 An increase in the maximum Pensioner Tax Rebate and the Tax Rebate for low income aged persons is proposed to take effect from 1 July 2000.

1.32 A new 30 per cent tax rebate/benefit for private health insurance was introduced on 1 January 1999. The rebate is not means tested and applies to expenditure on private health insurance, including ancillary cover. It is available in addition to the existing medical expenses rebate and can be received as a tax rebate, lower premium rate, or as a direct payment from the Government.

Changes to Commonwealth-State financial relations

1.33 The Commonwealth proposes that from 1 July 2000 all GST revenue and revenue generated from the luxury car tax and wine equalisation tax, will be provided to the States. Financial Assistance Grants and temporary arrangements for fees on petrol, liquor and tobacco will cease. The States will continue to have the capacity to meet rebate arrangements introduced following the 1997 High Court decision on business franchise fees.

1.34 The States will be required to compensate the Commonwealth for the cost of administering the GST. In return, the Commonwealth will ensure that in each of the three years following introduction of the GST, the States are no worse of financially than they would be under current arrangements.

1.35 Transfer of GST revenue to the States is also intended to equip States with sufficient funds to assume responsibility for general-purpose assistance to local governments. Payment of GST revenue to the States would be conditional on the States maintaining the growth in general purpose assistance to local government on a real per capita basis.

Modelling and cameo approach underpinning ANTS

1.36 The Commonwealth Government developed various cameos of different household types which it argued depicted the effect of the various measures in the ANTS package on households. These cameos were published in the ANTS document.

1.37 A more detailed outline of the ANTS proposals was provided as Chapter 1 of the Committee's First Report in February 1999.

Other Tax Reviews

Tax Consultative Committee

Terms of reference

1.38 The Treasurer, the Hon Peter Costello MP appointed the Tax Consultative Committee (TCC), with David Voss as Chairman, on 26 October 1998.

The Treasurer announced the Committee's terms of reference on 27 October 1998 as follows:

1) The Government announced, in Tax Reform: not a new tax, a new tax system, that a distinguished Australian would be appointed to chair a Tax Consultative Committee to assist the Government in targeted consultation on outstanding GST design issues.

2) The design issues the Government requires assistance with are determining the scope of four of the GST-free areas as follows:

• health;
• education;
• religious services; and
• non-commercial activities of charities.

3) The Committee will also consult on specified transitional arrangements relating to motor vehicles.

4) In framing its recommendations to the Government, the Tax Consultative Committee will need to:

• take into account the policies laid down in Tax Reform: not a new tax, a new tax system and other Government announcements in these areas;
• ensure the tax system minimises any discrimination between private and public provision of goods and services in the GST-free areas;
• ensure business and charitable organisations are treated on an equivalent basis where they provide similar goods and services on a commercial basis to consumers;
• ensure the recommended scope of the GST-free areas are as simple and clear as possible;
• ensure the resulting compliance and administrative costs of its recommendations are kept to a minimum; and
• ensure its recommendations do not have significant adverse revenue impacts.

5) Given the Government's proposed implementation timetable for tax reform, the Tax Consultative Committee will report its recommendations to the Government by 13 November 1998 in a form readily transferable into legislation.

6) The Committee may invite submissions and seek information from any persons or bodies to assist in reporting to the Government. Policy and implementation issues raised with the Committee that fall outside the scope of this consultation process will be immediately referred to the Government's Taxation Reform Task Force.

1.39 The TCC report was released on 13 November 1998, making a total of 23 recommendations.

1.40 The first twenty of these concerned the scope of the proposed GST free areas in the fours areas specified in the terms of reference. Recommendation 21 concerned transitional arrangements for motor vehicles, Recommendation 22 concerned the establishment of a formal review mechanism to provide periodic advice to the Treasurer regarding anomalies which might emerge in the GST. Recommendation 23 concerned Government assistance with compliance costs for entities in the proposed zero-rated areas.

Review of Business Taxation

1.41 The Review of Business Taxation, chaired by John Ralph AO, was appointed by the Treasurer , the Hon Peter Costello, on 14 August 1998.

1.42 Outcomes (Terms of Reference):

1. The Review will report on the state of the current arrangements relating to business taxation. This will involve reporting on:

(a) the Australian business taxation system as a whole compared with international experience;

(b) the structural flaws in the broad design of business tax arrangements and the degree to which existing business tax systems bias and impede business decisions;

(c) the degree to which the current business tax arrangements meet the aims of certainty of taxation treatment, clarity of law, ease of administration and low compliance costs; and

(d) the administration of taxation, including the drafting of legislation and technical corrections to legislation and the adequacy of existing procedures for consultation between the taxation authorities and the business community.

2. The Review will make recommendations about the fundamental re-design of business tax arrangements. While no aspect of the taxation of business entities and investments should be precluded from the scope of the review, consultations by the Review and associated recommendations will be directed to the strategy for reform spelt out in A New Tax System.

3. The Review will examine:

(a) in relation to business entities, the re-designed company tax arrangements proposed to apply to companies, trusts, cooperatives, limited partnerships and life insurers ¾ including a move towards consolidated group taxation and the achievement of a consistent treatment of distributions of profit and contributed capital;

(b) in relation to business investments, the extent of reform in the areas of physical assets, financial assets/liabilities and intangibles and the potential use of accounting principles, taking into account the following considerations ¾

(i) the need to encourage business development with an internationally competitive tax treatment of business investments;

(ii) the potential benefits of bringing tax value and commercial value closer together;

(iii) the goal of moving towards a 30 per cent company tax rate;

(c) in relation to capital gains tax (CGT), the scope for

• capping the rate of tax applying to capital gains for individuals at 30 per cent;
• extending the CGT rollover provisions to scrip-for-scrip transactions; and

(d) the Review will need to achieve overall revenue neutrality in respect of (b) and (c) with these changes.

4. The Review will make recommendations concerning the question of consultative input from the business community into the ongoing processes of policy design, drafting of legislation and the administration of taxation.

5. The Review will make recommendations concerning possible improvements in the administration and the accountability of the taxation authorities in relation to business taxation.

1.43 The Review has conducted public consultations on the discussion paper, A Strong Foundation, through a series of seminars in every State capital, as well as focus groups on particular issues. The Review issued a second discussion paper, A Platform for Consultation, in February 1999 and will also be considering written submissions on the paper, due on 16 April 1999.

Findings of References Committees

1.44 This section sets out the findings of the reports of the Community Affairs References Committee; Employment, Workplace Relations, Small Business and Education References Committee; and the Environment, Communications, Information Technology and the Arts References Committee.

Community Affairs Committee

Labor and Democrat Findings (Community Affairs)

1.45 The Committee considers that the Government's tax package is unfair, complex, confusing, and significantly flawed in many crucial areas.

1.46 The overwhelming majority of evidence from across the whole health and welfare sector was highly critical of the impact of the package on the living standards of Australians. The GST will disproportionately hurt low and middle income Australians and the compensation is inadequate and vulnerable to future government budget cuts.

1.47 The Committee considers that the tax package will divide the community and entrench that division. Australians will become the `haves' and the `have nots'. High-income earners will have generous tax cuts and low-income households will have paltry compensation.

1.48 The tax cuts and pension increases offered in compensation are skewed towards high-income earners. The Government's own figures illustrate this. For a single person on $20,000 the benefit is 1.3 per cent or $4.28 per week, while for a single person on $75,000 the benefit is 7.3 per cent or $68.55 per week. [1] A single pensioner will get just $2.89 a week out of the package while a pensioner couple gets just $4.81. Just enough for a packet of cereal!

1.49 The compensation package assumes that the GST will raise prices by 1.9 per cent. Treasury's own testimony was that in the first year the effect would be 3.1 per cent.

1.50 The compensation package has been modelled by using a CPI `average,' which totally fails to account for the different spending patterns of low and fixed income earners, including the aged and disabled; a point highlighted in the Select Committee's First Report.

1.51 Low and fixed income earners spend a much higher proportion of their income on food, health and rent, and require many more services. The introduction of the GST on food, services and increased housing costs means the compensation for these families will not be enough.

1.52 Not only is the compensation insufficient, it will be eroded over a short period of time.

1.53 The Government is wrong in assuming that the removal of wholesales sales tax will result in significantly reduced prices. Evidence to the Committee shows that the Government has overestimated the impact of this measure. Witnesses were sceptical that any benefit would flow through to lower prices, or that the ACCC would be able to monitor every item and sale. Already the GST has led to price rises in the car leasing area and with pre-paid funerals.

1.54 The Government's tax package threatens a two hundred-year tradition of charitable and not-for-profit service to the community. Any tax which threatens the Girl Guides, the Boy Scouts, and the Surf Lifesavers is a tax that is not good for the community. For the first time the charitable and not-for-profit sector will lose its tax-free status given in recognition of the services they provide to the community.

1.55 Taxing the charitable sector will undermine an important part of the fabric of our society. It is simply, Un-Australian.

1.56 The Committee finds it a depressing irony that, at the same time as the Prime Minister is exhorting the corporate sector to become more philanthropic, his Government is threatening the activities of charitable organisations by taxing their memberships, fundraising and the local Church fete and lamington stall.

1.57 Charities will now become tax collectors. This will require complex and costly administrative and compliance procedures.

1.58 The threat to Charities will mean cuts to their essential services precisely when the effect of the GST will mean many more low income families will need those very services. The Government will have to pick up the extra load.

1.59 Compliance costs will occur across all areas in the health and welfare sector.

1.60 All of the supposedly GST-free areas will have associated cost increases.

1.61 In health - many essential health and community services will not be GST-free. Over-the-counter medicines that people use most often, pain relievers, cough medicines, sunscreen lotions, stop-smoking products, and vitamins will all have a GST. They are currently tax-free.

1.62 In local government - despite written assurances to local government during the election that a GST would not apply to local government activities, the GST will be applied to swimming pools, seniors' centres, bus services, home help, and school holiday programs.

1.63 In services for the disabled - the GST package is putting back barriers to participation in the community that disabled people have spent years trying to knock down. Sufferers of chronic illness, and people with disabilities and their carers will be worse off due to the GST on personal services and technology items that they require to participate in society.

1.64 In childcare - the GST will lead to increased administrative and cash flow burdens, at a time when the child care industry is already undergoing significant financial restructuring. Family Day Care workers, mainly low-income women will have to deal with complex tax problems.

1.65 In housing - rent increases are inevitable. The compensation for first homebuyers is insufficient. Low-income Caravan Park and boarding house residents will be the only renters to have a GST on their rent. The tax changes threaten the viability of the public and community housing sectors.

1.66 There is widespread confusion about the GST. Obtaining detailed information has proven very difficult for many organisations. Lawyers and tax accountants were commissioned to examine the legislation; Government Ministers and spokespeople had to continually make statements of clarification throughout the Inquiry.

1.67 The legislation is very complex. Provisions of the Bills are vague, imprecise, open to interpretation. This tax will be a field day for lawyers and accountants.

1.68 The tax package is contradictory and undermines Government policies in the health and welfare area; it treats the delivery of goods and services by one type of organisation differently from those delivered by another.

1.69 The difference in services provided by religious marriage celebrants and civil marriage celebrants illustrates the contradictory and discriminatory aspects of the Bill.

1.70 The lack of research and analysis undertaken by the Government on the impact of the tax package is a glaring deficiency.

1.71 This tax is not simple.

1.72 The Committee has concluded the tax package does not benefit the poor, it rewards the rich. It is not just unfair and inequitable; it fails to grasp a great opportunity to address the social and economic divide within Australia, through genuine tax reform.

Recommendation: The Committee recommends that the Senate not pass the New Tax System Bills.

Government Senators Findings (Community Affairs)

The Position Of The Charitable Sector After Tax Reform

1.73 In A New Tax System, the Government has recognised the special role of the charitable sector by making it clear that non-commercial activities of charities will be GST-free.

1.74 Coalition Senators consider the Government's approach to the GST treatment of charities provides a simple and fair system that ensures genuine charitable activities are GST-free but also that charities do not get an unfair price advantage over businesses through poorly targeted concessions. The Government also wants to ensure the system is simple for charities to administer and that they can benefit, where possible, from obtaining input tax credits.

Conclusions

1.75 The Government's tax reform plans were comprehensively put before the Australian public in August 1998 in the policy document Tax Reform: not a new tax a new tax system (ANTS).

1.76 Implementation of the Government's policy will see:

• personal income tax cuts totalling $13 billion a year providing a 30 per cent marginal tax rate for over 80 per cent of taxpayers
• increased family assistance to low and middle income earners
• increased pensions and government benefits
• $10 billion a year of embedded taxes being removed from business
• GST-free treatment of health, education and non-commercial charitable services

1.77 With respect to the GST-free areas, the Tax Consultative Committee made recommendations as to their scope after the election and the Government adopted the recommendations or took a more generous approach in its legislation.

1.78 Government Senators were genuinely frustrated by this Community Affairs References Committee Inquiry because from the outset it was apparent that Labor Senators had a fixed position with respect to the Government's tax reform proposals without any alternative policy proposals.

1.79 Many witnesses and submissions also appeared to rely on assertion and anecdotes ("…I've been told that …") rather than primary sources like the legislation and explanatory memoranda which have been public since December 1998. This situation has lead Government Senators to place little store in the claims and conclusions of the Labor Senators' report which arise in many cases from evidence containing inaccuracies.

1.80 This Inquiry has largely focussed on charities and not-for-profit welfare organisations who provide essential services to the community in areas ranging from personal care to emergency accommodation and providing food and clothing. While some submissions and witnesses raised issues relating to compensation and whether or not food should be subject to GST, Government Senators consider these issues are being addressed in more detail in the Senate Select Committee and are therefore not addressed in this Government Senator's report.

1.81 Government Senators recognise and value the services that charities and public benevolent institutions provide, noting that while government funding is provided to the community sector, the community based organisations raise considerable funds and deliver the vast majority of services.

1.82 Recognition of the sector has also occurred in the Government's tax reform proposals because the non-commercial activities have been accorded GST-free status. That is, no GST is paid on purchases by a registered charity and there is no GST charged on the non-commercial services provided by charities.

1.83 Against this background, the following conclusions are made by Government Senators:

Charities

GST-free treatment of the non-commercial activities of charitable institutions is generous by international standards and will see the running costs of the sector fall due to the industry cost reductions in the Government's tax package.

The FBT exemption cap of $17 000 of grossed-up taxable value per employee is a fair approach which allows the PBI sector to maintain an employment cost advantage while removing the scope for abuse. Government Senators note that the FBT cap was also part of the ALP policies at the last election.

Local Government

Local governments will be financially better off under the new tax system, and are expected to benefit by around $70 million each year by not paying WST embedded in their prices, and through savings on diesel.

The States will be provided with all GST revenue and as a result be required to maintain funding to local government at least equal to the amount local government now receives under the financial assistance grant arrangements, adjusted each year for population and inflation movements.

The legislation provides no disadvantage for local government in providing community care services compared to charities. Where the supply of care is of a kind determined in writing by the Aged Care Minister, the supply will be GST-free whether provided by a charity or a local government body (s38-80, A new Tax System (Goods and Services Tax) Bill 1998)

The Health Sector

The coverage of the GST-free treatment for the health sector is both comprehensive and fair.

Contrary to the conclusion of the Labor Senator's report, the Government has achieved the best possible outcome for GST-free health services in terms of `simplicity in administration and compliance' with `clear and definitive boundaries'. This was achieved through measures such as ensuring that the medical practitioner does not have to identify patient eligibility, and making clinically relevant services provided by medical practitioners, or on their behalf, for example radiographers or nurses, GST-free.

The list of services, aids and appliances is comprehensive.

Aged Care and Disability Services

Aged care and disabilities was an area where a great deal of evidence provided was inaccurate and appeared to be based on anecdote rather than analysis of the Government's proposals. This was despite the fact the Government had distributed a comprehensive community sector briefing kit which covered most of the issues raised.

In regard to residential care, the legislation provides excellent GST-free coverage for the sector and indeed the supply of goods and services, using the Quality of Care Principles (subordinate legislation to the Aged Care Act 1997).

The Government has also ensured that most of the services that are important to carers will be GST-free. These include Home and Community Care and disability community support services – for example, home nursing, personal care, home help, delivered meals, day care, home maintenance and modification, and transport services.

Claims about complexity and compliance were consistently overstated or misunderstood given that all inputs are GST rebated regardless of whether the service is GST free or taxable.

Child Care

The Government's tax reform package received considerable support from child care professionals. For example, Mr Timothy Bradford, Australian Confederation of Child Care said:

… we do accept that the government can see that there is a need to improve the existing system in order to achieve desirable economic and social outcomes. We accept also that there is good sense in simplifying the administrative framework for the existing family assistance programs and we also welcome the decision to ensure that essential family services such as health, education and child care have been deemed to be GST free. (CA 443)

As the Government has outlined, childcare provided at recognised facilities will be GST-free. That is, childcare provided at facilities that receive Commonwealth Government funding, or where the parents qualify for a government childcare payment (such as the use of recognised home based childcare), will be GST-free.

Childcare provided at non-recognised facilities (baby sitters, play centres, holiday camps, sporting and craft programs) will be subject to the GST. Non-recognised facilities are those that do not receive government funding, or where the parents do not qualify for a government childcare payment. In practice, however, the GST will not apply to many of these services because the providers will be below the GST registration threshold ($100,000 annual sales for non-profit bodies and $50,000 annual sales for other businesses).

In response to the conclusion of the Labor Senator's report, rather than further burdening the child care sector, the availability of input tax credits will make the sector better off than it is at the moment. Not only is the Government abolishing the WST and other hidden taxes, input tax credits will ensure that there is no net GST burden. In other words, they have the best of both worlds. They do not pay GST and they do not charge it.

Much was made in evidence about the perceived added burden of the child care sector having to initially pay GST before claiming it back. Many stated that this would lead to an initial cash flow problem. This issue was dealt with in the Vos report (p 23):

Several submissions noted that the GST would have an adverse cash-flow effect on entities supplying largely GST-free supplies. That is, entities that will usually be in a position of claiming GST refunds, will first of all have to make the GST-inclusive purchase and therefore required cash up front. The Committee considers that cash flow problems will be minimal, providing the Government ensures refunds are paid promptly.

It should also be noted that businesses which account on an invoice method will be entitled to an input tax credit upon receipt of the invoice even if they don't actually have to pay until some time later. In some cases this will lead to a refund being paid prior to paying for the goods or services on the invoice.

Democrats Supplementary Findings (Community Affairs)

Introduction:

1.84 The Democrats endorse the summary of the evidence in chapters 2 to 9 of the majority report.

1.85 The evidence shows that the ANTS package as it stands will have an adverse effect on health, charity, community services and housing sectors, and fails to adequate compensate low income earners.

1.86 However, the Democrats believe that the ANTS package can be amended to ameliorate these effects. The amendments would need to be substantial. But, the amendments would not derogate from the real potential gains from the ANTS package in terms of promoting economic efficiency and achieving a more robust revenue base from which community services would be funded into the future.

Health

Medicinal products

The Democrats recommend that all products approved by the Government as therapeutic goods should be GST-free.

Complementary medicines

The Democrats recommend that all services provided by recognised complementary medicine practitioners, and complementary medicine approved for sale in Australia as a therapeutic good, should be GST-free.

Public Health Benefit

The Democrats recommend that the Government consider exempting specific products from the GST where there is a demonstrable public health benefit.

Food

The Democrats recommend that food be exempted from the GST as failure to do so could exacerbate poor nutrition in low income groups.

Compensation

The Democrats recommend that the GST should be structured to minimise the need for compensation as compensation tends to miss many needy groups and be eroded or eliminated over time.

The Democrats conclude that the Government has failed to fully and adequately compensate low income earners and particular groups with special needs for the impact of the GST.

Consumer Impact

The Democrats recommend that consumer groups be included in the formal price monitoring arrangements for the GST, assisted by the re-instatement of Federal grants.

Private Health Insurance

The Democrats believe that the GST should include private health insurance to bring it in line with other insurance products.

GST Treatment of Charities

The Democrats recommend 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.

The Democrats recommend that the following activities clearly be defined as being not-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);
• fees for recreational programs for under 14 year olds;
• life saving and first aid;
• all purchases by libraries run on a not-for-profit basis;
• tuckshops;
  • provision of housing or other services at not more than its direct cost.

FBT Treatment of Charities

The Democrats recommend that the proposed $17,000 cap on FBT concessions be replaced with a cap of 30 per cent of remuneration.

Compliance Costs faced by charities

The Democrats recommend that an additional $200 million be set aside to assist charities and not-for-profit organisation to implement the GST, and that an ongoing rebate of GST payable (eg. 50 per cent) be implemented as in Canada to help assist with compliance costs.

Housing

The Democrats recommend that the adverse impact on the housing sector of the GST be expressly addressed by:

• converting the first home buyers scheme into a targeted GST rebate scheme on new residential and rental homes to reduce the up-front cost;
• increasing funding to the Commonwealth-State Housing Agreement and the Supported Accommodation Assistance Program to offset the higher costs of the GST;
• options be developed to reduce the adverse impact of the GST on homeless people;
• the GST treatment of boarding houses and caravan parks be properly clarified where these are places of normal residence;
  • compensation through rent assistance be carefully calculated to ensure that low income renters are fully compensated for rent increases.

Employment, Workplace Relations, Small Business and Education Committee

Labor Senators Findings

1.87 Labor Senators are of the view that the Government's ANTS package is marred by several major flaws. The result is that we are left with a tax reform package that nobody really wants.

1.88 The introduction of a GST will do nothing to assist in solving the problem of unemployment. The services sector has been the most significant contributor to employment growth in Australia over recent times. Yet, absurdly at a time of high unemployment, the Government is now proposing an onerous tax on this job-creating sector. A great deal of evidence from a range of witnesses supports the view that the effect of the ANTS package on the job-rich service sector will be overwhelmingly negative. There is particular concern about the impact of the GST on the tourism industry, which is currently a major (and growing) source of employment in regional Australia.

1.89 The substitution of a GST for the wholesale sales tax system will result in significant overall increases in the costs of services, which will add up to an appreciable fall in living standards for ordinary Australians, especially for low-income earners. The Government claims that the inflationary effects of the GST will be more than offset by the compensatory elements of the ANTS package. Yet Government officials now admit that the price effect of the GST will be far greater than initial forecasts, thus throwing the Government's claims that there is fair and adequate compensation in the package into grave doubt.

1.90 The income tax cuts are highly skewed towards high-income earners. The cuts for this group will more than offset any additional expense incurred after the introduction of a GST. This will not be the case for low-income earners. Certainly some low earners will receive income tax cuts, but it will go nowhere near providing full and adequate compensation for the introduction of the GST.

1.91 The implementation of the ANTS proposals will not bring the taxation debate to a conclusion. In fact, the ANTS package opens up a continuing political issue on compensation for low-income earners and the unemployed, as well as other groups who gain nothing as an outcome of the package. The ANTS package will do nothing except shift the ground of the tax debate from questions of `how best to reform the system' to `how best to compensate for the ineffective reforms'.

1.92 Labor Senators consider that the Government should have placed more emphasis on making beneficial changes to the current tax system, such as a much more determined effort to legislate against tax evasion. This would have been a far more convincing indication of the Government's preparedness to tackle tax reform in an area that has aroused widespread public cynicism.

1.93 Labor Senators have noted the concerns of the business community with great interest. Evidence to this Committee has made it clear that while the business community supports taxation reform generally, many accepting a GST, they are not so supportive of taxation reform defined as the ANTS package.

1.94 Industry groups heard by the Committee made note of a raft of concerns that have not been addressed by the Government in the framing of the ANTS proposals. Issues such as high compliance costs and the heavy administrative burden, poorly targeted and inadequate compensation and a reluctance to tackle genuine impediments to employment such as payroll tax, were all raised in evidence.

1.95 Additionally, business appears to be suspicious of the Government's assumption that the price reductions that occur under a GST will be passed on to consumers. Labor Senators on the Committee share this concern, noting that evidence would suggest that while business is quick to pass on price increases, it is notoriously slow at passing on price reductions. Labor Senators again note the model of Professor Dixon and Dr Rimmer, which suggests that delays in passing on any price reductions could cost 15,000 jobs in the short term. The best that may be hoped for under the GST is that prices will remain stable, as business uses the GST `cushion' to satisfy accountants and shareholders. Prices will then rise again in line with inflation and other factors.

1.96 As well as being a tax on jobs, the introduction of a GST also represents a tax on learning. The Government's claim that education will be GST-free has been shown to be baseless. The proposed application of a GST to certain activities in the education sector indicates that given the choice between social benefit and ideological posturing, the Government has once again chosen to emphasise the latter.

1.97 The GST represents yet another attack by the Government on the right of ordinary Australians to receive a decent education. The changes proposed bear most heavily on those educational programs which draw heavily on community participation for support, and those least able to either absorb the costs or assume the additional responsibilities which will be needed to keep school and community education programs operating effectively.

1.98 The proposed new tax on learning should be seen in the context of several years of serious decline in government funding of the education sector. The education community has been under siege since 1996, with program cuts aimed at re-orienting all segments of the education sector – schools, colleges of technical and further education and universities – toward greater reliance on corporate finance sources. The result of a GST on top of these developments will be a decline in participation rates in adult and community education and a subsequent decline in the incidence of older and less well-educated people entering the workforce. There will be a continued heavy compliance burden which will divert scarce human resources from the `chalkface' into administration and add additional responsibilities to the workloads of many people engaged in voluntary but essential work in the sector.

1.99 The Labor Senators agree that the tax system needs changing. This does not, however, equate to a need to introduce a GST. Labor Senators are alarmed that the Government continues to use the words `tax reform' as a euphemism for the introduction of an unfair and highly regressive new tax such as a GST. Tax reform refers to a process through which the tax system is made genuinely fairer for ordinary all Australians, not just high-income earners. Nor is it possible for Parliament or the community to see the application of a GST in the context of other tax measures, which may be in the mind of the Government. This is a deficiency in the policy of incremental tax reform.

1.100 The ANTS package will not deliver a fairer tax system. Contrary to the claims of the Government, it will do nothing fix the problems of inefficiency and complexity that are inherent in the existing system. It will do nothing to encourage job-creation in the economy, thereby addressing the problem of unemployment. It will do nothing to improve the perceptions of inequity and unfairness that exist about the current system. It does nothing to address any of these issues.

Recommendation: Labor Senators recommend that the ANTS package not be passed by the Senate.

Democrats Findings (Employment, Workplace Relations, Small Business and Education Committee)

1.101 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'.

1.102 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.

1.103 The Democrats recommend that not-for-profit parents and teachers organisations should not be taxed on their activities.

1.104 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:

1. Provided by a not-for-profit community owned and managed organisation; or a registered training organisation which is:
   1. recognised by a State or Territory Education and Training authority as an approved provider of ACE; and
   2. 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.

1.105 The Democrats recommend that books should be zero-rated. “Books” extends to monographs and research and professional journals.

1.106 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

1.107 Thus, exempting food reduces the risk of 10,000 jobs being lost in agricultural and food industries in the short term.

1.108 The Democrats recommend that the maximum taper rate for unemployment benefits be reduced from 70% to 50%.

1.109 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).

1.110 The government must allocate at least a further $200 million specifically for not-for-profit organisations to deal with these costs.

Government Senators' Findings (Employment, Workplace Relations, Small Business and Education Committee)

1.111 The current tax system is failing Australia and it is penalising Australian exports and discouraging investment by distorting business decisions and imposing excessive compliance costs on businesses. These factors are reducing the total gains to Australia from investments, thereby hindering employment growth and restricting gains in living standards. [2]

1.112 ANTS is a comprehensive policy approach to taxation reform which brings together:

· reductions in personal income taxes totalling $13 billion a year;

· better integration between the tax system and the social welfare system to remove poverty traps and increase incentives to work;

· increased pensions and allowances;

· the introduction of a broad-based GST to replace wholesale sales tax and nine other indirect taxes; and

· a more sustainable approach to Commonwealth-State financial relations.

1.113 The ANTS publication outlines the many benefits for Australia that will flow from the new tax system proposal, noting that it will `fix the problems of unfairness, uncompetitiveness and complexity that plague the existing system' and `encourage job-creating investment in our businesses, both large and small'. [3]

Conclusion

1.114 The Government senators are of the view that the ANTS package will be very positive for employment. Improvements in the Australian economy as a result of the implementation of the ANTS package will be reflected in higher economic growth as a result of stronger, more productive investment which, together with the lowering of industry costs, will yield better export outcomes. This combination of higher growth, increased investment and greater competitiveness will deliver more jobs and lower unemployment.

Employment

Overall the Government's tax package will lead to improvements in incentives to employ and be employed.

The modelling evidence and forecasts by other respected economists, overwhelmingly support the Government's view that the tax package will substantially increase employment.

Even the generally pessimistic analysis by Professor Peter Dixon showed that the most likely impact on employment in the short run would be an increase of about 30 000 jobs.

Access Economics in their December 1998 AEM Model Forecast report say:

“The good news is that the tax cuts sweetening the GST are expected to stimulate renewed job growth, perhaps sending unemployment down to 7% in 2001.”

and

“In the long run the impact of the tax package raises national output by 2.5% and there is an additional 190 000 jobs.”

Looking at forecasts of unemployment, Access Economics has the unemployment rate falling by 0.9 of a percentage point in 2000-2001 [4], while Chris Murphy of Econtech has it falling by 0.6 of a percentage point [5].

Education

The education sector does extremely well under the Government's tax reform package, with the sector costs expected to fall by about $240m.

When the tax package was released in August last year it was outlined that virtually all education would be GST-free, with the overall scope to be subject to post-election consultation.

After the election, the Tax Consultative (Vos) Committee was established and charged with the task of making recommendations on the appropriate scope of four key GST-free areas, including education.

The Vos Committee reported on 13 November, commenting that

The Committee is satisfied that its recommendations in relation to the application of a GST to educational services represent a comprehensive and workable framework for the Government to implement its taxation policy. [6]

The Government either accepted the Vos recommendations, or went further, with more generous treatment for professional education for example.

Families will also be better off with the cost of many education related items including computers and stationary, falling following the removal of wholesale sales tax.

The tax package includes major reductions in family income-tax and a compensation package for low income families, and substantial reforms and improvements to the various forms of assistance provided to families through the social security and income tax systems.

The education sector will benefit from a combination of falling costs to the sector, a generous GST-free treatment, and increased real disposable income for families as a result of personal income tax cuts and increased government benefits.

The Government senators recommend that the ANTS package be passed by the Senate without delay.

Environment, Communications, Information Technology and the Arts Committee

Labor and Democrat Findings

1.115 The Committee believes that the Government's proposed new tax system would take Australia backwards in its impact on the environment, and represents the loss of a rare opportunity to change the tax system and implement reforms that would result in greater ecological sustainability.

1.116 Ecological tax reform has been embraced in several OECD countries but if the new tax package were to proceed, Australia would be the only country in recent times to introduce a net reduction in taxes and charges for fuel and energy.

1.117 The Committee heard compelling evidence that the proposal would deliver higher levels of pollution and waste, and act to discourage the growth of more sustainable practices.

1.118 Environment Australia told the Committee that the government's environmental objectives were not changed by the tax reform proposals. Environment Australia argued that the proposed new tax system would improve the robustness of economic sectors and so enhance their capacity to manage any economic adjustment in response to environmental policies. The Committee rejects this view.

1.119 The Government's proposed tax reforms run counter to the spirit of the International Framework Convention on Climate Change and the Kyoto Protocol, and contradict the Government's own stated policies in a number of areas. The Government does not appear to have taken climate change considerations into account. The tax package sends a powerful message to the international community that Australia does not consider greenhouse issues to be of central importance to the nation's future or, for that matter, to the world's.

Reduction in Diesel Fuel Excise

1.120 The tax package would provide a substantial incentive to people to use more environmentally polluting modes of transport.

1.121 International studies clearly demonstrate that taxes on fuel should be increased in order to internalise the environmental costs produced by the transport industry and that the biggest increase ought to apply to diesel fuel because, at least in urban areas, it has the most damaging effect on human health. The tax package, by reducing the price of the one fuel that the scientific consensus suggests we should be doing most to discourage, does the opposite.

Gaseous Fuels

1.122 There is currently a considerable incentive to change from highly taxed liquid fuels to tax-free gaseous fuels (mainly LPG but to some extent CNG). The Government acknowledges that there are compelling economic and environmental reasons to continue to support the development of the gaseous fuels industry, and it is clear that the Government's tax proposals would have a serious impact on that industry.

Road and Rail Transport

1.123 The Committee found the evidence in relation to the effect of the proposed change in diesel excise on road and rail transport unequivocal. There would be a very significant increase in road transport at the expense of rail, with serious consequences in a number of areas.

1.124 Diesel use in rail transport is at least three times more efficient per tonne kilometre than in road transport. The submissions and evidence received by the Committee suggested that the impact of the proposed new tax system is likely to foster road freight at the expense of rail, with serious consequences. The Government's proposals would:

• shift ten per cent of inter-state freight from rail to road;
• cause the cessation of some interstate rail services;
• increase heavy vehicle traffic and increase the potential for truck-related crashes;
• increase fuel usage and greenhouse gas emissions; and
• increase road congestion.

1.125 Modal shift to road because of the proposed changes to diesel fuel excise would cause an additional 500 to 600 semitrailer movements per day between east coast capital cities. This would increase transport fuel use and greenhouse emissions and would increase pressure for federally funded road improvements.

1.126 It would seem unjustified to tax diesel fuel for rail at the road rate when so little rail fuel excise is returned to rail track upgrading.

Public Transport

1.127 There was general agreement in evidence to the Committee that the effect of the proposed tax package would be to increase private vehicle use in urban areas at the expense of public transport.

1.128 Australia already has very low public transport patronage, only one third that of European cities and one of the lowest in the OECD. Concessional tax treatment of public transport is common public policy in European VAT tax regimes, some countries providing GST-free public transport.

Renewable Energy

1.129 The proposed GST and tax package would further tilt an already steeply sloping playing field against sustainable energy.

1.130 The Committee found evidence in relation to the impact of the tax proposals on the renewable energy sector compelling. The industry is not only of major importance in reducing Australia's greenhouse gas emissions but also has the potential to generate significant export revenue.

Recycled Oil

1.131 The Committee was disturbed by the evidence it received in relation to waste oil and believes that there are profound implications for the environment if the tax package is implemented as proposed. There would be a massive increase in the volume of waste oil to be disposed of.

The Arts

1.132 The Committee believes that the Government's proposed new tax system would expose the arts and cultural industries to significant damage if the proposals were implemented unchanged. This could see losses of over $70 million across the sector in the first year, along with long term damage to the sector's artistic diversity, employment, training, morale, financial strength and creative vitality.

1.133 The Committee shares the concern of many witnesses about the lack of consultation between the Government and the arts community during the design phase of the new tax system. This lack of consultation has resulted in distortions in the draft legislation, arguably undermines the Government's more general cultural policy objectives, and exposes the sector to a very damaging impact which could have been avoided.

Costs

1.134 Given that many arts organisations currently enjoy WST exemptions, they would find that if they were not registered for GST purposes they would pay ten per cent more on their business purchases; however, if they chose to register, they could have those costs rebated but would have to charge GST on their services. The Committee heard extensive evidence which suggested that arts prices are highly inelastic and that any increase would lead to significant falls in sales.

1.135 Compliance costs would also increase significantly. The small size of arts businesses, unfamiliarity with sales tax accounting and a focus on production rather than administration means that many artists and arts organisations would be poorly prepared for the transition to the GST-based system.

Revenues

1.136 Revenues would also be affected by the Government's proposals. The arts market is highly price sensitive and would suffer falls in sales at least equal to the rate of GST.

1.137 The input taxation of financial services could also endanger a significant revenue stream for many arts companies. While a third of the $65 million in corporate sponsorship to the arts comes from this sector, finance companies might not be able to claim it as a business expense in the way that other corporations could. There are fears that this would reduce available sponsorship by ten per cent.

The Total Impact

1.138 This combination of the cost and revenue pressures of the Government's proposals would have a highly detrimental effect on the arts as a whole, and particularly on the performing arts. Non-profit arts organisations would be particularly hard hit, as they would face the unpalatable alternatives of either an increase in compliance and input costs, or a reduced level of service and accessibility to their clients. It is to be expected that individual artists, already on a median gross income of $20,000 per annum, would also be disadvantaged by the changes.

Communications Industries and Services

Telecommunications Prices

1.139 The Committee shares the concerns of some witnesses that residential telecommunications consumers could be disadvantaged by the new tax system. The Committee feels that the Treasury's estimate of an increase in telecommunications prices of 4.7 per cent is unreliable, given the complex packaging of services in this sector. In residential markets, still largely protected from competition, cost falls may not be passed on to consumers.

1.140 The Government's undertaking that the cost of the basic service would be restrained by price caps could be undermined by the bundling of elements within the basic service. This would allow Telstra to resist passing on reductions in cost in areas such as local calls and line rental by reducing prices in other areas, such as STD. The Committee also believes that the Australian Competition and Consumer Commission would have difficulty enforcing the passing on of reductions in cost to consumers on other services

Community Broadcasting

1.141 The Committee believes that the proposed tax package should be modified to mitigate a negative impact on the community broadcasting sector, which involves 15,000 people in some 300 community radio and television stations. Evidence to the Committee suggested that the extra cost burden of the new tax system could be 3.5 per cent of income, while the impact on revenues could be as high as ten per cent.

Australian Democrats Findings (Environment, Communications, Information Technology and the Arts)

1.142 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.
2. an additional sales tax be applied on new motor vehicles with low fuel efficiency, based on a sliding scale.
3. the current Diesel Fuel Rebate Scheme be retained but modified (see below).
   1. public transport be zero rated under the GST.

a range of non-tax related measures to reduce pollution be introduced

Diesel Fuel Rebate Scheme

1. the existing 100 per cent diesel rebate for all agricultural and other fully rebatable off-road use be maintained.
2. 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.
3. $1 billion of additional assistance be provided to reduce the cost of regional transport.

Gaseous Transport Fuels

1. the current exemption from excise be maintained for compressed natural gas (CNG) and liquid petroleum gas (LPG).
2. 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

1. purchases of equipment to utilise renewable energy be exempt from GST or zero-rated.
2. consideration be given to measures to advantage and encourage purchase of energy efficiency equipment.

Other Measures

1. a levy be introduced on the sale of lubricating oil to fund re-refining and collection infrastructure.
2. the current exemption from excise of recycled lubricating oil be maintained.
3. the tightening of emission standards for vehicles be accelerated so that Australian's requirements match European standards by 2002.
4. tax rebates be introduced for the purchase of renewable energy equipment and for expenditure to improve energy efficiency.
5. 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

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.
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

That the health exemption be extended to include telecommunications equipment for the hearing impaired.

Labor Senators' Findings (Environment, Communications, Information Technology and the Arts)

Introduction

1.143 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.

Conclusions

1.144 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.

1.145 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.

1.146 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.

1.147 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.

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

1.149 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.

1.150 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.

1.151 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.

Findings by Senator Dee Margetts and Senator Bob Brown

Ecotaxes

Recommendation 1

That there be a inquiry to examine ecological tax reform elements that could replace or stand parallel to elements of the government's current ANTS package such as:

• carbon taxes; and
• tax incentives for fuel efficient and low pollution vehicles and technologies.

Excise

Recommendation 2

The proposed reduction in all fuel excises is abandoned in acknowledgment of the extensive short and long term health, environmental and economic costs directly associated with the reduction.

Recommendation 3

The Government calculate the whole range of economic, environmental and social costs associated with fuel use (such as road costs, pollution, congestion, noise, health impacts) and incorporate them into the level of fuel excise.

Recommendation 4

The Government explores other, less destructive policy options to assist rural and regional communities.

Industry Impacts

Recommendation 5

The explicit acknowledgment of:

a) enormous negative impacts on sunrise industries including:

• the alternative fuel industries such as LPG and CNG;
• the renewable energy industries such as solar and wind; and
• the recycled oil industry;

b) the massive opportunity and long term costs associated with these negative impacts.

Recommendation 6

A greater commitment by the Government to direct and indirect assistance to encourage the development of these industries and the take up of these more sustainable technologies.

Environmentally Friendly Products and Services

Recommendation 7

Should the ANTS package proceed, environmentally sound technologies, products and services should be zero rated, for instance:

• public transport fares; and
• solar panels

Non Profit Organisations

Recommendation 8

The Government explicitly acknowledge the significant increases in compliance costs associated that the community sector will face.

Recommendation 9

The complex definitions and distinctions associated with whether particular goods, services and payments are GST free be simplified.

Recommendation 10

Substantially increased funds be made available to assist the community sector with start up costs in addition to the $500 million currently available to small business, community and charity organisations.

Recommendation 11

There should be an explicit acknowledgment by the Government of:

• the peculiarities of the arts and cultural industries and the value of the industry which exacerbate the negative impact of the ANTS package on the industry;
• the immense contribution the arts industry makes to the nature including contributing to employment, GDP, export potential, expression of Australia's diverse cultural identity, debate around current issues, promotion of a more imaginative and creative society, the showcasing Australia to the world.

Recommendation 12

There should be further inquiry into policy options to ameliorate the immense negative impact on this industry.

Government Senators' Findings (Environment, Communications, Information Technology and the Arts)

Road/Rail Intermodal Shift and Greenhouse Gas Emissions

1.152 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.

Public Transport

1.153 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.

1.154 Such an assumption is unwarranted. There will be significant reductions in the input costs of public transport. 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.

Alternative Energy

1.155 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.

The Arts

1.156 Evidence presented to the Committee supports the proposition that the Coalition's tax package will have a beneficial effect on the arts industry.

1.157 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.

Conclusion

1.158 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] Tax Reform: not a new tax, a new tax system, p.178.

[2] ibid., p. 7.

[3] ibid., p. 9.

[4] Access Economics, AEM Model Forecast Report, 7 December 1998.

[5] ECONTECH, (Murphy Model MM2), Australian Economic Outlook, 13 December 1998.

[6] The Report of the Tax Consultative Committee, p.58