Chapter 8
The
Arts, Cultural and Sporting Activities8.1 The Senate Environment, Communications,
Information Technology and the Arts References Committee took evidence on the
impact of the Government's proposed GST package on the Arts. This section represents
an edited extract from the References Committee Report. The findings of the References
Committee are set out in Chapter 1. Performing Arts Companies8.2
The introduction of the proposed GST package will come at a time when the major
performing arts are widely acknowledged to be in a parlous state. With its announcement
of the Nugent Inquiry, the Government has acknowledged the need to explore strategies
that will deliver renewed creative vitality and growth to the sector. The Australia
Council's Major Organisations Fund report, Managing The Future, found that the
sector had suffered losses of $12 million over the previous four years. In this
context the Australian Major Performing Arts Group (AMPAG) told the References
Committee that the impact of the GST would come at a time when the financial reserves
of many major organisations were extremely low. [1]
8.3 The Entertainment Industry Employers Association told the References
Committee that the entertainment industry was currently suffering a `marked downturn
in sales and production': I know, from speaking with my membership, that
… there will be considerably fewer productions in the year 2000 … Commercial
operators, in fact, are not planning productions in the year 2000. As an example,
Cameron Mackintosh, who are here with me today, in 1996 had 930 full-time employees.
Today they have 95 PAYE employees. [2] 8.4 Views
about the impact of the proposed new tax system on performing arts companies were
put by a range of witnesses; in particular, the Australia Council, AMPAG and Company
B Belvoir Street presented the References Committee with detailed modelling which
projected the monetary impact of the changes on both particular companies and
on the sector as a whole. 8.5 AMPAG has members drawn from the 25 major
performing arts companies in Australia, listed below. [3]
AMPAG conducted a study to quantify the impact of the new tax system by using
a sample group of seven companies including the Sydney Symphony Orchestra, Opera
Australia, The Australian Ballet, Bell Shakespeare Company, Musica Viva, Sydney
Dance Company and The Sydney Theatre Company. Each company provided an annual
financial profile against which the impact of the GST could be estimated. The
submission explained that while `this sample group is primarily Sydney based the
effects would be felt nationwide, with those companies based in smaller markets
likely to experience an even greater negative impact'. [4]
8.6 The initial model assumed a fifty per cent price elasticity (that prices
would rise by ten per cent and sales fall by five per cent), with no fall in sponsorship.
Results which assumed a ten and fifteen per cent fall in sales were also calculated,
along with figures which combined those falls in sales with a five per cent fall
in sponsorship. [5] 8.7 The results of the initial
model predicted that a five per cent fall in sales, with no fall in sponsorship,
would produce a $3.4 million loss across the seven companies in the first year.
The effect would be to push two more performing arts companies into deficit, which
when added to the two currently in deficit, would leave only three in surplus.
A ten per cent fall in ticket sales (as predicted by Econtech) would produce a
$6.4 million loss across the seven companies, leaving only one marginally in surplus.
A fifteen per cent fall in ticket sales would increase the loss to $9.1 million,
leaving six companies in deficit and one at break even. [6]
8.8 When those three results were combined with a five per cent fall in
sponsorship, the losses became $4 million, $6.9 million and $9.6 million respectively.
This last case would produce a situation in which all companies would slip into
deficit: Critically, as companies are forced by the imposition of a GST
to move from a surplus or break even position into deficit they will have to eat
into reserves. Those companies already in deficit risk further deterioration of
their position. Given the current inadequate level of reserves of most performing
arts companies, this result could jeopardise their existence and may well prove
fatal in some instances. [7] 8.9 In a supplementary
submission to the References Committee, AMPAG released further results of the
study, now extended to 22 of the 25 companies they represented. At the time of
the study only eleven of the 22 companies were in surplus. Assuming no falls in
sponsorship, a five per cent fall in sales would cause of loss of $7.1 million
and force fourteen companies into deficit; a ten per cent fall in sales would
see a $14.1 million loss and eighteen companies going into deficit; and a fifteen
per cent fall see a loss of $21.1 million. When a five per cent fall in sales
was combined with a five per cent fall in sponsorship the losses increased to
$8.1 million (fifteen in deficit), and when added to a ten per cent fall in sales,
the losses were $15.2 million (eighteen in deficit). [8]
After presenting the References Committee with these figures, Mr Ross commented
that: In the first year the adverse impact could be between $7 million
and $15 million … it will be an impact that is spread over three years possibly,
with the greatest impact occurring in the first year and possibly washing through
by year three, as the evidence in other countries suggests … from six to
eight of our member companies could be facing bankruptcy, unless remedial action
is taken. [9] 8.10 The Econtech study conducted
for the Australia Council included an analysis of the impact of price changes
across the performing arts sector as a whole. Econtech's model, having built in
the likely movement of consumers to competing entertainment and consumption goods
which would enjoy lower price increases, produced price elasticities for the performing
arts of well over 100 per cent. Thus Econtech's projected price increase of 7.4
per cent from the package would produce a twelve per cent fall in sales each for
performing arts venues and music and theatre productions. [10]
8.11 These results were then mapped into projected falls in production.
Econtech predicted that music and theatre productions would fall by nine per cent
($26 million), and performing arts venues would experience a fall of eight per
cent ($24 million). Related figures were falls of four per cent ($12 million)
for the creative arts, and of one per cent ($1 million) for services to the arts.
[11] 8.12 Witnesses from the performing arts
were also asked to consider factors which might mitigate the impact of the package.
These included the rising real incomes of many Australians over the past few years
and the compensation measures contained in the package, such as pension and social
security increases and cuts to income tax rates. While accepting these points,
witnesses replied that the gravity of the situation facing the performing arts
would overwhelm these positive effects. [12] 8.13
Mr Michael Lynch of The Sydney Opera House Trust and AMPAG's Mr Duncan Peppercorn
suggested that a price increase across the sector of 7.4 per cent, four times
that estimated by the Treasury for the whole economy, went well beyond the Government's
provisions for compensation, which are based on the lower figure. Mr Derek Watt,
General Manager of Symphony Australia, suggested that the demonstrated price sensitivity
in the sector prevented companies from passing on increased costs or maintaining
sales levels with large price increases. [13] 8.14
Mr Lynch argued that this price sensitivity would prevent the performing arts
from taking advantage of any increases in disposable incomes: we have hit
the point where it is very clear that denuding of reserves of most of the major
performing arts companies in this country, let alone the balance of the smaller
performing arts companies, has led to a situation where with the introduction
of the GST, there is not the option to continue to press the price point as a
way of maintaining the operations of those organisations. [14]
8.15 Performing arts as a group, as [the Australia Council's] Major Organisations
Fund report says, from the period 1992 to 1997 every year in aggregate recorded
a deficit. That cumulative deficit is $12.3 million. So they are not in the sunshine.
[15] Non-Profit Arts Organisations8.16
The GST also has revenue (and access) implications for non-profit arts organisations
and their clients. 8.17 Ausdance submitted that having to charge GST on
their memberships would disadvantage members who already earned low incomes. A
further concern was the impact on members and dancers of any increase in prices
for Ausdance services. Ausdance's Executive Officer, Ms Julie Dyson, told the
References Committee that few would be GST registered, and thus could not reclaim
any amounts of GST paid for the services of a non-profit organisation such as
Ausdance: The people that we service … have very little money because
they are the arts community. I really think the question answers itself; those
people cannot pick up the extra price that we would put onto our goods for sale.
We have to consider whether we continue printing and publishing those things which
are educational for them or not. [16] 8.18 Ms
Dyson also told the References Committee that while membership fees paid to Ausdance
by major companies might be able to be rebated, its state branches, which are
very dependent on membership fees, would probably not be able to pass on price
increases to their members and would be forced to absorb them. [17]
Sponsorships8.19 Corporate and other sponsorship of the arts takes
the form of donations, in-kind sponsorship (in which goods or services are provided
in lieu of funds), and sponsorship in exchange for consideration, such as naming
rights, tickets and entertainment. Donations would not be subject to GST, but
most other forms of sponsorship would be. The General Manager of Cameron Mackintosh,
Mr Matthew Dalco, told the References Committee that in-kind sponsorship such
as advertising, air travel and accommodation, was also a grey area which needed
clarification. [18] 8.20 The Australia Council
told the References Committee that eleven per cent of Australian Companies give
$65 million to the arts: A good percentage of these – we believe around
a third – are financial institutions which will not have the offset advantages
that other corporate sponsors have. While donations are not affected, the vast
majority of corporate involvement in the arts is not a donation; it is a corporate
sponsorship. This will have an additional significant effect which has not been
factored into any of the models to date. [19] 8.21
The Council said that most of the major companies, to whom sponsorship is an important
source of revenue, have: about 60 per cent box office, about 20 per cent
sponsorship and about 20 per cent government subsidy. So in fact the impact that
the GST will have on their box office and on sponsorship will affect the majority
of their income, and we are really suggesting this is part of the landscape in
terms of the fragility of the industry. [20] 8.22
Mr David Andrew, from the Arts Industry Council of South Australia, expressed
concern about the current ability of companies in smaller cities to attract corporate
sponsorship, independent of any impact the new tax system might have. In Adelaide,
in particular, he cited the movement of head offices interstate and the coming
Sydney 2000 Olympic Games as factors making sponsorship funds less available.
[21] 8.23 Ms Tamara Winikoff suggested that
sponsorships volumes could fall by the proportion of GST levied on them: According
to the KPMG report that was commissioned by the Australia Council, for anything
that could be classified as entertainment the inputs are not going to be claimable.
Where the inputs are not going to be claimable, we could anticipate that there
would be a diminution in the value of the sponsorship. The sponsors are not necessarily
going to boost their sponsorship. To compensate for that, they will simply give
the same amount of money but the GST would come out of it. [22]
8.24 Many sponsors would be able to reclaim the GST paid on sponsorships
by way of input tax credits. However, companies which provide `financial supplies'
which are input-taxed would typically not be able to reclaim the GST paid on sponsorships.
KPMG suggests that this would be the case where `the sponsorship is an expense
connected with their financial services activity'. [23]
8.25 The Bill's definitions of financial supplies, which provides, for
instance, that money-handling and credit are input-taxed while advice and brokerage
is not, clearly creates some grey areas when it comes to determining the extent
to which input tax credits could be claimed in relation to GST paid on sponsorship
by financial service providers. KPMG suggests that a merchant bank which provides
most of its services offshore would be able to obtain input tax credits for the
GST paid, whereas a domestic retail bank would not, and `may be less willing to
increase its sponsorship by the value of the GST': Organisations which
provide financial services may therefore choose to re-evaluate the level and manner
in which they provide support because they may be unable to claim input tax credits
on their purchases and other business outlays. 8.26 One consideration for
these organisations, once a GST is introduced, will be which part of their business
activity should be involved in corporate sponsorship. If corporate sponsorship
is an expense which can be connected with any taxable services which the organisation
supplies, then input tax credits will be available. For example, a prudent decision
for a retail company which also has a finance arm would be to provide corporate
sponsorship through a division which makes taxable supplies such as marketing
and merchandising and not through its input-taxed finance arm. [24]
8.27 As creative as such approaches might be, they would depend entirely
on how the ATO felt it was bound to interpret the provisions of the Act, and how
it would view the strategies KPMG suggests. Further complexity is provided by
the way in which section 40-5 of the Bill distinguishes certain financial supplies
from other services provided by financial institutions. In any case, the Bill
provides that most core retail banking services, including life insurance and
superannuation, would be input-taxed. [25] 8.28
The References Committee formed the view that there are real grounds for concern
about the impact of the proposed new tax system on corporate sponsorship, especially
given the dependence of many companies on it for revenue, but believes that further
information is required to assess the impact properly. Clarification is needed
from the ATO as to how it would seek to apply the legislation to corporate sponsorship
by financial service providers and other organisations subject to GST input-taxation.
When this becomes clear the impact can be estimated using current sponsorship
revenues as a base and through further canvassing of sponsors. If a third of the
sponsorship dollars to the arts are provided by financial institutions, as the
Australia Council estimates, the impact could be substantial. Grants8.29
The Government has stated that grants, including grants to arts organisations,
would be GST-free. However the References Committee heard a great deal of concern
that the draft legislation is unclear on the matter. [26]
The Australia Council submitted that it was open to interpretation whether the
ATO would classify grants as `gifts' (which are GST-free) or a `taxable supply'
which `is made for consideration…in the course or furtherance of an enterprise'.
Many witnesses pointed out that the increasing exchange of grants for performance
agreements and services could make grants classifiable as taxable supplies. It
might well be that this issue hinges on an interpretation of whether the donor
organisation is classified as `carrying on an enterprise'. The References Committee
took the view that this still leaves the status of grants highly ambiguous and
supports the Council's call: to clarify the proposed legislation so that
the status of grants is not open to interpretation and therefore avoids unnecessary
concerns and appeals. [27] Compliance costs8.30
It is clear that to implement their responsibilities for GST accounting, reporting
and compliance would load the arts with significant costs. The small size of arts
businesses, unfamiliarity with accounting requirements for taxes on sales and
a focus on production rather than administration has meant that many artists and
arts organisations would be poorly prepared for the transition to the GST-based
system. Non-profit organisations who often rely on volunteers or who employ few
staff would be particularly disadvantaged. 8.31 Serious questions have
been raised about the adequacy of the Government's measures to ease this burden.
Arts organisations would be prevented by the legislation from forming GST-groups
to pool resources, while it remains to be seen whether the $500 million set aside
by Government for small to medium sized businesses would be enough, or whether
the solutions provided and the administration of the program would be adequate
to the task. In its submission to the Select References Committee Arthur Anderson
argued that: the Government's proposed $500 million compliance assistance
package is grossly inadequate, equating to approximately $300 each for the estimated
1.6 million taxpayers who will register for GST. [28]
8.32 Added to the compliance burdens would be the negative impact of the
GST on revenues, which would impact as the much higher price rises experienced
by the arts, compared to those predicted for competing entertainments and other
parts of the economy, flow through as a competitive disadvantage and falling sales.
Where these impacts have already been modelled, for the performing arts, the impact
is likely to be disastrous. Individual Artists8.33 Citing the
very low incomes of individual artists, many witnesses have demonstrated the enormous
costs that compliance would load onto a crucial sector of the arts economy. While
their actual incomes might be small, their significance as a creative engine for
the whole sector, and more broadly the nation, is considerable. As David Throsby
and Beverley Thompson noted in their 1993 economic study of individual artists,
So What Do You Do For A Living?: Without the individual painter, writer,
composer, actor or musician, the impressive statistics about the arts contribution
to employment, value added and gross domestic product would not exist. [29]
8.34 With the abolition of WST and the imposition of GST (rebatable on
inputs), individual artists would be struck by the registration dilemma, which
NAVA accurately described as a `catch-22': registering would allow them to reclaim
GST paid on expenses, yet expose them to a possible fall in sales; while not registering
would protect them from the backlash of a tight market, yet load them with ten
per cent higher costs in materials and other production-related expenses. This
raises some important questions: What was the intent of the $50,000 registration
threshold? Was it to ease the burden on smaller businesses? If so, why are those
below the threshold subject to the payment of GST on inputs? 8.35 Is the
catch-22 faced by individual artists an unintended consequence of the draft legislation?
8.36 The References Committee formed the view that these anomalies are
a product of the failure to consult adequately with the arts and cultural community.
The assumptions in the draft legislation of generic models of business activity
have thus failed to account for the unique nature of arts businesses and their
economic circumstances. 8.37 Witnesses also identified the increased cost
and administrative burdens that accounting and compliance would produce for individual
artists. Evidence was given of their very low incomes, and of the far greater
relative costs of compliance for individuals as compared to better resourced larger
organisations. It is unclear whether resources from the $500 million small business
fund would be available to individual artists, and whether this would be adequate
to cover the complexities introduced by the new system. 8.38 A number of
witnesses, including the Arts Law Centre and NAVA, also expressed concerns whether
the current provision for the “averaging” of income tax for artists
would disappear with the new system. They stated that inquiries to the Government
and the ATO had not enabled them to clarify the situation. [30]
8.39 The evidence presented to the References Committee suggested that
a combination of increased market pressures and higher administrative costs would
see a worsening of the position of individual artists. The fragility of artists'
incomes certainly suggests that there is little room to absorb a negative impact.
However, there is virtually no detailed financial analysis available to quantify
reliably these potential impacts. 8.40 The References Committee concluded
that there is an urgent need to gather information about how individual artists
would be affected by the new tax system. Despite being crucial to the growth and
vitality of the whole sector, the circumstances of individual artists would only
be dealt with in passing by efforts like the Nugent Inquiry into the Major Performing
Arts. The References Committee felt that this should be an important priority
if the Government's own cultural policy objectives in the support and encouragement
of emerging artists are not to be unwittingly damaged. Arts Companies8.41
While arts companies were not likely to suffer the same compliance burdens as
individual artists, some witnesses claimed that the new system would present them
with cashflow problems. This was of particular concern in the performing arts,
where GST on ticket sales could be liable for payment before the funds from those
sales were released to the production company. [31]
8.42 The performing arts, in particular, are likely to be seriously damaged
by the price impacts of the new tax system. Treasury figures for `libraries, museums
and the arts' predict a 7.7 per cent price increase, well over the general CPI
estimate of 2.2 per cent, while Econtech predicts a 7.4 per cent price increase.
Assuming a shift of consumption to competing areas of entertainment and other
consumer goods, Econtech predicts a massive fall in sales of between ten and twelve
per cent across the sector, which would produce production falls of $26 million
in music and theatre productions, $24 million in performing arts venues, and $5
million in libraries, museums and art galleries. [32]
8.43 AMPAG's study, which used the recent balance sheets of its own companies,
allowed the References Committee to estimate the real impact of the dramatic falls
in sales that Econtech predicts. AMPAG suggested that a ten per cent fall in sales
across 22 of the 25 major companies in Australia, with no fall in sponsorship,
would see a $14.1 million loss and eighteen of those companies slip into deficit.
However if a third of all sponsorship dollars flow from the financial sector,
as the Australia Council estimates, sponsorship might well be affected also. AMPAG's
estimate of a five per cent fall in sponsorship (which is only half the rate of
GST but allows for the impact being restricted to a third of the sponsorship revenue)
predicts the loss in sales rising to $15.2 million. [33]
8.44 AMPAG suggested that these limited impacts could see between six and
eight of their member companies facing bankruptcy. Their estimates of price increases
and revenue falls are supported by Econtech's analysis, which in turn predicts
losses across the performing arts of $50 million. Even if the real figure after
the system's implementation was only half this, it would provoke an enormous contraction
across the sector and see a number of major company failures, with devastating
losses of employment, training, diversity and morale. 8.45 The References
Committee regarded the figures revealed by the AMPAG and Econtech studies extremely
disturbing, predicting far worse impacts than have already been experienced by
the performing arts. The gravity of the situation can be seen by comparing the
projected $50 million losses to the sector to the four-year losses of $12 million
uncovered by the Australia's Council's Major Organisations Fund and which led
to the establishment of the Nugent Inquiry. Coming on the already fragile position
of many arts companies, tightening market conditions and competition for sponsorship,
they present compelling evidence for the tax package to be altered, or at the
very least, for increased funding to allow the arts to survive the transition
to a value added tax based system. 8.46 The smaller Arts organisations
expressed concern that they would be ill equipped to cope with new administrative
burdens and complexities, while others have said that they would expect to make
few gains from the transition to a GST given that they already enjoyed many WST
exemptions. 8.47 Under the proposed tax reforms, however, in order to reclaim
GST paid on inputs those organisations would be forced to register with the ATO
and charge GST on their sales and services. This would present them with cashflow
problems and also threaten the level of service they could give to clients. Organisations
such as Ausdance and Backbone Youth Arts emphasised that the low incomes of their
clients prevented them from passing on price increases. 8.48 The References
Committee saw compelling reasons to protect non-profit arts organisations from
changes to the tax system which would disadvantage them. Rather than continuing
the advantages they had enjoyed by remaining sales tax exempt, the threshold arrangements
in the draft legislation threaten to remove those exemptions entirely unless they
are willing to levy GST on their services. In that case either the organisation
or its clientele would be in a worse position than previously, an outcome which
appears to be counter to the Government's declared intentions in introducing the
broader changes to the tax system. Artistic Content8.49 The References
Committee received evidence that any negative impacts from the transition to the
proposed new tax system would also affect the nature of artistic work. While it
can be appreciated that an aggregate fall in production would result in fewer
productions, witnesses suggested that diversity and innovation could also be a
casualty. AMPAG Chair Mr Rowan Ross suggested that: The tendency is, if
you are in financial difficulties, that you are going to play safe and you are
going to go for far more commercial, middle of the road productions and you are
not going to push the adventure side at all or push the artistic edge. There is
a strong feeling among our companies that it is part of their mission to do that,
so that you keep pushing the boundaries out the whole time rather than sitting
there in the centre of the road playing to that audience. [34]
8.50 Ms Teresa Crea, the Artistic Director of the South Australian theatre
company Doppio Parallelo, also expressed fears that financial pressures would
erode their ability to innovate: You could describe our activity as providing
innovation, experimentation and point of entry for new artists and new forms …
The experiments we undertake in our sector are often picked up in the mainstream
and they lead into the commercial sector … The box office is small and the
market at that point of entry is quite small … One of our concerns is that
we will have to channel more money into administration and that will leave less
money for that work. [35] 8.51 The Australia
Council also stated that new artists and innovation were important to the health
of the whole sector, with their Director of Strategy and Policy, Ms Sarah Gardner,
stating that: I would imagine that there could be the potential for organisations
facing a risky period to produce work that is less commercially risky … Our
prime concern is that very new and very contemporary end of the arts is essential
for the benefit of the larger industry to survive in the longer term. [36]
Employment8.52 The AMPAG and Econtech studies of the performing
arts, which predict such dramatic falls in production, suggest that one result
of the introduction of the new tax system in its present form would be substantial
falls in employment in the arts. Modelling by Econtech, using its MM303 analysis,
predicts that `job shifting between sectors' as a result of the tax changes would
see a loss of 7,800 jobs in `cultural and recreational services'. This loss would
include 2,500 jobs from `libraries, museums and the arts' and, within that, 800
jobs in music and theatre productions and 400 in creative arts. [37]
8.53 Backbone Youth Arts suggested that the loss of employment opportunities
would have broader ramifications: Reduced output by arts organisations,
in particular youth arts organisations, must lead to a reduction in employment
opportunities for arts workers in those organisations. It is inevitable that the
result will be reduced incomes and employment in the arts industry, through reductions
in already low rates of pay, reductions in the number of hours of paid work offered,
and reductions in the number of arts workers employed by some organisations. [38]
8.54 Many submitters, including the National Association of Visual Arts,
Backbone Youth Arts and The Arts Law Centre of Australia, recommended that the
arts and cultural industries be granted GST-free status to preserve them from
the adverse impact of the proposed new tax system. Other witnesses, notably the
Australia Council, have not called for GST-free status but for increased funding
from the federal government to cover the estimated losses which would be caused
by the implementation of the tax package. 8.55 Among other measures, the
Australia Council strongly recommended that the Government introduce tax reform
measures `that will encourage sponsorship and other philanthropic activity'. [39]
Price and availability of books8.56 Evidence was put to the References
Committee of the negative impact on Australian society if books are subject to
GST and become less affordable for low and middle income families, and its impact
of this on literacy levels. 8.57 Submissions from the Australian Society
of Authors (ASA), the Australian Booksellers Association and the Australian Publishers
Association, indicated the critical issues to be: the likely impact of the GST
on the retail price of books, the price sensitivity of changes in book prices
to book purchases and the impact that this has in turn on literacy, education
and economic performance. In the previously mentioned KPMG study, it is estimated
that the overall price increase for consumers in the “libraries, museums
and the arts” industries will be 7.7%. 8.58 Econtech, estimated that
the consumers price of books, magazines and newspapers (all of which are currently
WST free) will rise by 5%. 8.59 The differential taxation treatment of
information that is screen-derived as opposed to that which is print-derived will
have a profound effect on the future of the book publishing and retailing industries.
More critically, the existing impact of international “on-line” book
wholesalers on the Australian book retailing industry will be exacerbated as the
relative cost advantage of companies like `Amazon.com' increases. This, in turn,
will have a significant impact on employment. 8.60 Authors themselves would
also be adversely affected by the proposed GST package. Both publishers and retailers
will further squeeze margins as a result of the impact of the GST on themselves.
In addition, authors would not in any significant way benefit from the abolition
of WST, FID and BAD etc, taxes in which they do not at present have substantial
exposure. 8.61 The Printing Industries Association of Australia (PIAA)
also gave evidence in relation to the overseas treatment of books, magazines and
newspapers to support its case that these areas should be GST-free. The PIAA made
the following observations: The Federal Government's determination to levy
the GST on all printed matter does not compare favourably with international experience.
Both the UK and the US have a zero-rate for books. The UK also exempts newspapers,
journals, printed music, maps and charts. The justification for the zero-rating
is to avoid a tax on reading. In Ireland printed matter, such as books, is also
zero-rated. Visual arts8.62 The National Association of Visual
Artists lodged a submission on behalf of its 2,500 members nationwide concerning
the impact of the GST on individual visual artists and not-for -profit Arts organisations.
8.63 NAVA estimate that there are approx 19,000 visual artists in Australia.
8.64 NAVA reported that at present there is a wholesale sales tax exemption
on artists' materials for painters, printmakers and sculptors. That will disappear
with the abolition of the WST and the implementation of the proposed GST. 8.65
Individual artists with an annual turnover of more than $50,000 would be required
to register as a taxable business and become subject to GST for all sales. Artists
in this category will also be eligible (although with considerable compliance
costs) to claim tax credits on all business inputs. These input tax credits are,
however, not likely to exceed the amount payable in GST. The overall price of
art works for sale would therefore rise. 8.66 For artists generating less
than $50,000, registration for GST purposes is optional. If artists do not register,
they will not charge GST on their works but will also not be eligible for claiming
input tax credits. 8.67 Parallel problems arise for not-for-profit arts
organisations. Those with turnovers in excess of $100,000 will be required to
register and will have the same taxation impact as for registered individual artists.
8.68 The government applies a curious logic in granting GST status to charities
but not to not for-profit arts organisations. 8.69 NAVA have modelled the
likely impact of a visual arts organisation with an annual income of $258,500
and outlays of $258,500. Their calculation is that as a consequence of the new
tax regime, that organisation will be a 12% increase in annual costs, resulting
in a $28,000 shortfall or the loss of one staff person. 8.70 NAVA also
submitted that Artists would in addition be liable for GST on royalties earned
under copyright agreements - eg for reproductions. Pressure would be likely to
be placed on the artist to accept reduced margins in order to reduce increases
in retail prices. The Australian Film Industry8.71 The proposed
GST will have a significantly negative impact on the Australian film, television
and commercials production industry. This industry currently generates $497 million
per annum for the Australian economy and employs 9,500 people. It is an industry
that has been growing rapidly. 8.72 The Federal Treasury has estimated
that prices in the “motion pictures, radio and television” sector will
increase by 5% as a result of the government tax package. The Screen Producers
Association of Australia (SPAA) have argued that their price structure will increase
by substantially more because of a range of factors. 8.73 SPAA argue that
most producers generally do not own their own equipment but instead hire specialist
technicians who own their own equipment. Most of the equipment used in the industry
requires only long term replacement, in which case that which will benefit from
WST removal will only generate savings over the long term. 8.74 The industry
is also concerned about the impact of compliance costs as production companies
will have to pay suppliers GST inclusive prices, collect, maintain and record
input taxes and claim these as credits from the ATO. 8.75 The industry
therefore predicts that the retail price impact on cinema tickets, sale or rental
of home videos and subscription to pay TV will be great. Pay TV is not currently
taxed but with the introduction of the GST may suffer disproportionately because
pay TV subscriptions are still regarded as a highly discretionary part of household
expenditure. There will also be an effect on the home video industry because although
blank videotapes are currently subject to a WST, this is a tiny proportion of
the retail price of the video. A far more significant element of the retail price
is derived from a pre-recorded video's intellectual property value. 8.76
Treasury does not estimate the overall effect of the tax package on consumer demand
for the sector. Econtech, however, has estimated that demand for “motion
picture exhibition” will decrease by 5.9% as a result of the package. That
figure would mean significant reductions in activity and employment in the sector.
8.77 Furthermore, there is uncertainty in the Australian film industry
about the impact of the GST on investments from such bodies as the Australian
Film Finance Corporation and on grants from the Australian Film Commission. It
is clear that sponsorships will be fully subject to the GST – thereby placing
pressure on the corporate sponsors to reduce the dollar value of their contribution
to the Australian industry. Sport8.78 The Select Committee heard
evidence from representatives of sporting organisations who raised their concerns
about the impact of the GST on their organisations and participants in sporting
clubs and sporting activities. 8.79 The Confederation of Australian Sport
raised in their submission a number of negative impacts that the proposed GST
package would have on sport. In their submission they recognise that sport may
be adversely affected. 8.80 The possible adverse effects that they identify
are: - Sport is not directly taxable on its output under the wholesale
tax;
- Sporting activities will be taxable under a GST;
- Approximately
70 percent of sports revenue is derived from the supply of goods or services to
final consumers who cannot claim GST input tax credits. As a result, sport is
particularly prone to final consumers choosing to effectively avoid GST simply
by ceasing to consume sports' goods and services;
- The price for participation
in and attendance at, sports events is price sensitive; and
- There may
be an increase in the administrative time necessary to comply with the requirements
of a GST. This may result in an increase in compliance costs. [40]
8.81 In concluding their organisation's position on the reforms they
state that whilst they are supportive of taxation reform, research undertaken
by Econtech indicates that sport will be negatively impacted upon, if income taxation
cuts are funded only from the GST. In this scenario, they argue that “the
current taxation regime will be preferable for sport than the introduction of
a GST”. [41] 8.82 The Australian Olympic
Committee Inc. gave evidence to the Select Committee that the proposed GST has
the potential to impact adversely on both the AOC as an organisation that financially
supports athletes and Australia's athletes themselves. [42]
8.83 The AOC requested through the Committee that should the GST package
be implemented they would need specific rule in place which will: - Minimise
any detrimental effects of the GST which might impact on athletes and non-profit
sporting organisations to whom grants are paid by the AOC;
- Minimise the
detrimental effects on the AOC of GST for example, sponsorship agreements; and
- Maximise the input credits which the AOC is entitled to claim in respect
of its day to day activities. [43]
8.84
In giving evidence to the Select Committee, the AOC outlined the difficulties
they had identified in the legislation that could result in athletes being discouraged
from pursuing their sporting goals: 8.85 The AOC provides grant funding
to athletes. In effect, what we do is give away money. The ultimate beneficiaries
are the athletes of this country who we hope will represent us with distinction
at an Olympic Games. Our simple belief is that these grants are outside a GST
altogether. They do not constitute a supply…Our concern is that, if this
is not so, athletes would have to begin dealing with a GST and associated issues
of registration, invoicing and accounting support. We truly do not believe this
is the intention of a GST. [44] 8.86 The AOC
also stated that they were concerned about sponsorship revenues. As they pointed
out to the Committee, sponsors who are input taxed and could not cla Sponsor
negotiations are difficult at the best of times. Sponsors have limited budgets,
and traditionally sponsorships are fixed amounts. So for those who are input taxed,
we would clearly see a disadvantage in the net revenues that are directed towards
the Olympic movement. We also have concerns over the fundraising activities that
we would undertake and their being subject to a GST. [45]
8.87 The AOC sought clarification on whether funding programs such as the
Medal Reward Scheme would be affected by the GST. The program provides performance
based payments to athletes on a regular basis. The Scheme is to culminate in the
year 2000 when payment to athletes will be paid on the basis of their performance
at the Sydney Games. 8.88 At the Select Committee Hearing the implications
of the AOC concerns were clearly described by the following discussion: CHAIR--
Is that payment GSTable? Mr Mercer,I do
not see that as being any different to any other grant we would pay to an athlete.
As I said, we have concerns and we seek clarification over the treatment of grants.
That really is one of the concerns we would be trying to address. Mr
Gelski?I think the bottom line is that the Olympic Committee is looking
for confirmation of the view that grants to athletes will be treated in the same
way as grants by government, which are in the nature of donations. They do not
fit comfortably within any notion of, as I say, a supply of goods or a supply
of service or the creation of rights. It does not fit within any other category.
It is actually the payment of money which, on the face of it, in accordance with
the bill is excluded from the notion of a supply. So unless we have some notion
that exists in other systems of a deemed supply, we believe there ought not be
a problem. CHAIR Given that there is a question mark
over this, we cannot be sure should, hopefully, Cathy Freeman win a gold medal
and be stepping down from the dais with the strains of Advance Australia Fair
dying in the background that at the bottom step there will not be a tax man with
his hand out asking for 10 per cent. Mr Gelski I doubt
that we could have created a more effective word picture had we done it ourselves,
Senator. CHAIR We cannot be sure though, can we?
Mr Gelski That is the concern. There was a threat during
the last Olympic Games that the commissioner would be standing there with his
hand out in respect of any monies being achieved by athletes. Mr
Mercer We believe the total pool of funds that we would have available
would be reduced, yes. (Hansard Evidence Sydney 16 March 1999 p1845)
8.89 Womensport Australia provided a submission to the Inquiry outlining
the potential impacts that the proposed tax package would likely to have on women's
participation in sport. 8.90 Like other organisations whose members are
reliant on attracting sponsorships, they raised concerns about the impact on women
to be able to attract sponsorship for sporting activities. 8.91 Further
they raised the outcome from the taxing of membership fees, which many sporting
organisations rely upon as their funding basis. 8.92 Womensport stated
that research undertaken in 1998 by the Confederation of Sport estimated that
there would be a likely increase to the costs for sporting associations of between
two and four percent. They noted that any increase in the cost of memberships
and sporting goods is likely to increase the barrier for women's participation
in sport as women are more likely to be reliant on low incomes. 8.93 The
Riding for the Disabled Association of Queensland Inc. in its submission to the
Inquiry, noted the negative consequences for the participants in their organisation
if the proposed GST package was implemented. In addition to their the concerns
raised by many not for profit organisations regarding membership fees, fundraising
and sponsorships, they are concerned about the impact on other costs: Riding
for the Disabled has been sales tax exempt. We will no longer be able to take
advantage of this small amount of assistance in purchasing goods. The purchases
made by us with sales tax applied are very generally, stationary, saddles and
riding tack, etc. Our main expenses are farrier, veterinary services, horse feed
which will all attract a GST. [46]
Footnotes[1]
AMPAG, Submission 1038, p 1. [2] Ms Jan Stoneham,
Entertainment Industry Employers Association, Hansard, Melbourne, 23 February
1999, p 78. [3] AMPAG represents the Bangarra
Dance Theatre, the Melbourne Symphony Orchestra, Opera Australia, Circus Oz, The
Australian Ballet, the Bell Shakespeare Company, the Adelaide Symphony Orchestra,
the Black Swan Theatre Company, Meryl Tankard Australian Dance Theatre, Playbox
Theatre Centre, Queensland Theatre Company, State Opera Company of South Australia,
Sydney Symphony Orchestra, Symphony Australia, West Australian Ballet, West Australia
Symphony Orchestra, Australian Chamber Orchestra, Melbourne Theatre Company, Musica
Viva, Opera Queensland, Queensland Ballet, State Theatre Company of South Australia,
Sydney Dance Company, Sydney Theatre Company and the West Australian Opera. See
AMPAG, Submission 1038. [4] AMPAG, Submission
1038, p 1. [5] AMPAG, Submission 1038, p 2. [6]
AMPAG, Submission 1038, pp 3-5. [7] AMPAG, Submission
1038, pp 3-4. [8] AMPAG, Supplementary Submission
1038A, p 2. [9] Hansard, Sydney, 2 March
1999, pp 465-466. [10] The Effects of A New
Tax System (ANTS) on The Arts - Modelled using MM303, Report for the Australia
Council, Submission 298B, p 19. [11] The Effects
of A New Tax System (ANTS) on The Arts - Modelled using MM303, Report for
the Australia Council, Submission 298B, p 21. [12]
Mr Michael Lynch, The Sydney Opera House Trust and Mr Duncan Peppercorn, AMPAG,
Hansard, Sydney, 2 March 1999, pp 469-470. [13]
Hansard, Sydney, 2 March 1999, pp 469-70. [14]
Hansard, Sydney, 2 March 1999, p 471. [15]
Hansard, Sydney, 2 March 1999, p 471. [16]
Hansard, Canberra, 1 March 1999, p 367. [17]
Hansard, Canberra, 1 March 1999, p 368. [18]
Hansard, Melbourne, 23 February 1999, p 83. [19]
Ms Jennifer Bott, The Australia Council, Hansard, Sydney, 2 March 1999,
p 448. [20] Ms Jennifer Bott, The Australia Council,
Hansard, Sydney, 2 March 1999, p 450. [21]
Hansard, Adelaide, 24 February 1999, p 192. [22]
Hansard, Sydney, 2 March 1999, p 383. [23]
The Australia Council, Submission 298, p 8. [24]
The Australia Council, Submission 298, p 8. [25]
A New Tax System (Goods and Services Tax) Bill 1998, p 103. [26]
See, for example, the Australia Council, Supplementary Submission 298A and the
evidence presented by Ms Delia Browne of the Arts Law Centre, Hansard,
Sydney, 2 March 1999, pp 384-6. [27] Australia
Council, Supplementary Submission 298A. [28]
Arthur Anderson, Submission 927, p 5. [29] David
Throsby and Beverley Thompson, So What Do You Do For A Living?: A New Economic
Study Of Australian Artists, Redfern, 1994, p 1. [30]
The Arts Law Centre, Submission 941. [31] Ms
Jan Stoneham, Entertainment Industry Employers Association, Hansard, Melbourne,
23 February 1999, p 78. [32] The Effects of
A New Tax System (ANTS) on The Arts – Modelled using MM303, Report for
the Australia Council, Submission 298B, p 21. [33]
AMPAG, Supplementary Submission 1038A, pp 1-4. [34]
Hansard, Sydney, 2 March 1999, p 476. [35]
Hansard, Adelaide, 24 February 1999, p 190. [36]
Hansard, Sydney, 2 March 1999, p 454. [37]
The Effects of A New Tax System (ANTS) on The Arts – Modelled using MM303,
Report for the Australia Council, Submission 298B, p 23. [38]
Backbone Youth Arts, Submission 890, p 4. [39]
Ms Jennifer Bott, Hansard, Sydney, 2 March 1999, p 449. [40]
Confederation of Australian Sport submission No. 186 p 2. [41]
Conferation of Australian Sport submission No. 186 p 4. [42]
Australian Olympic Committee submission No 829. P.1 [43]
Australian Olympic Committee submission No 829 p. 2 [44]
Hansard Sydney 16 March 1999 p 1843 [45] Ibid.
[46] Riding for Disabled Association of Queensland
Inc. Submission No. 404
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