Chapter 9

Education

9.1 The Senate Employment, Workplace Relations, Small Business and Education References Committee took evidence on the impact of the Government's proposed GST package on education. This section represents an edited extract from the References Committee Report. The findings of the References Committee are set out in Chapter 1.

9.2 Witnesses brought to the Committee's attention that there is a significant amount of confusion in relation to the legislation. Evidence given to the Committee indicated a considerable degree of uncertainty about liability to a GST.

9.3 The Committee heard from a broad range of stakeholder representatives across the education sector: from parents' and citizens associations; from teacher unions in the school; TAFE and university levels of education; from teacher professional associations; from school principals; from organisers of community and adult learning; and from university vice-chancellors and heads of university residential colleges.

9.4 Apart from expressing concerns about the practical effects of a GST upon their particular operations, there was a commonly expressed concern about the debasement of education with the loss of its tax-free status. The Committee was left with a strong impression of a sector of key public social institutions which had been under siege for a number of years, and only just managing to cope with an approach to educational planning and resourcing which puts more emphasis on market-driven training and private funding. The education community view the GST as another impost after years of State and Commonwealth funding cutbacks to the sector.

9.5 The alleged simplicity of the GST, in its claims for non-discriminatory application, and in its (challenged) capacity to generate revenue for the Government, have been signalled as positive advantages of the proposed tax system. Even if it were true that these recommendations applied to the GST generally, they do not apply to the GST in its application to the education sector.

9.6 Against that, it could be argued that GST-free treatment of education is actually regressive, because high-income households spend more on education than low-income households, almost exclusively in the private sector. While it must be ensured that access to education is not impaired by the tax system, it should be noted that any concessions in the area of discretionary expenditure deliver benefits more to high-income families than low-income families, as the Table 1 illustrates:

Table:1 Household Expenditure Per Week, 1993-94 [1]

9.7 One of the most serious consequences of the absence of a blanket exclusion from GST for the education sector (taking into account the present WST exemption) will be the imposition of onerous compliance obligations on institutions and associations ill-equipped to deal with them. The result will be increased costs to institutions and a deterrent to the involvement of parents and teachers in voluntary associations and activities essential to supporting educational programs. The Committee is of the view that the compliance costs are out of proportion to the amount of revenue that is likely to be generated by imposing, for instance, a GST on membership fees for the Teachers' Association or saxophone hire charges for a school band.

9.8 In regard to education the proposed tax system does not acknowledge the existence of a public good.

9.9 This observation was reinforced in the submission to the Committee from the National Council of Independent Schools Association (NCISA). The submission stated:

The tax policy argument advanced by the Treasury in its evidence of 17 December 1998 to the Senate [Select] Committee that expenditure on education is no different in principle to personal expenditure on jewellery or overseas travel is too narrow a basis for addressing the needs of a modern functional society. In reality, governments throughout the world, in subsidising school education, recognise its essentiality in an industrial or post-industrial society. It makes no sense, whether in terms of fiscal or economic policy, for governments to both subsidise and tax school education at the same time. That would be a recipe for chaos, fiscally, educationally and socially, rather than a path to effectiveness and efficiency. [2]

9.10 The Government's statement on cost/benefit to education resulting from a GST has been referred to in the Preamble to this chapter. The information provided by the Minister for Education, Dr Kemp, in answer to a question in the House of Representatives was of an unambiguous $240 million a year savings to the cost of schooling, leaving the average family `some $40 to $50 per week better off.' [3] The Committee sought to clarify the arithmetic basis of Treasury estimate when it put on notice a series of questions at its second Canberra hearings.

9.11 The Committee received a response from Treasury in which few of the questions were answered in detail. The questions asked and the Treasury answers are reported in Appendix V. The response provided some broad descriptive material on the structure of Treasury's PRISMOD model, but gave none of the information that would allow Dr Kemp's figures to be replicated and their basis revised. Treasury admitted that no modelling was done on the impact of ANTS on universities.

9.12 The Government's ANTS package states that most educational services will be GST-free, including tuition at all levels of institutions where students are enrolled in accredited courses. [4] The five main concerns of those who were witnesses before the Committee were:

• the likelihood of a narrow interpretation being placed upon a `curriculum related' activity or excursion organised by a school;
• the likelihood of a narrow interpretation of what would constitute an accredited course, approved as GST-free, which would adversely affect a large number of people taking courses to up-grade their skills, and those taking hobby and personal enrichment courses in TAFE colleges and in university extension courses, as well as those undertaking community and adult learning courses;
• the tax penalty imposed upon teachers whose energy and professional dedication has maintained the various subject and curriculum associations which are responsible for conducting a high proportion of teacher professional development and acting as de facto extensions of systemic curriculum agencies;
• the compliance responsibilities and costs placed upon educational institutions and parents and teachers associations which will be obligated to remit GST revenues to the Australian Tax Office (ATO); and
• the problems faced by universities in dealing with a number of tax issues affecting their ability to offer accommodation, financial support and scholarships and to attract research funds.

9.13 No level of education is untouched by the GST. It appears to the Committee that the impact will be felt more at those levels which draw heavily on community participation to support their educational programs, and those who use the services of those programs. They are least able to absorb the costs of change, and the increased burden of responsibility that is to be placed upon them.

9.14 The decision to rescind blanket tax exemption to the education sector (in the traditional meaning of the word “exemption”) is consistent with the creation of a distinction in the Government's mind between what is perceived to be `practical' learning and what, presumably, is perceived as `peripheral' learning. The Committee notes that the Tax Consultative Committee has yet to advise on where the line is to be drawn in the curriculum sand, but hopes that its membership is aware of the controversial nature of the task it has undertaken.

9.15 The Government has taken the national goals of schooling as the basis of its definition of GST-free treatment of school education. While it is difficult to imagine ATO officials zealously perusing the National Statements and Profiles of the designated Key Learning Areas, or the voluminous documents of State and Territory curricula, in a search for taxable `frills', the Committee noted the concern expressed by teachers and school principals about this possibility.

9.16 The Australian Secondary Principals' Association set out a number of these points of concern in its submission. One curriculum related issue was the cost of school excursions, particularly those excursions with a sporting or cultural emphasis. Principals of country schools are known to be particularly concerned, as a GST impost was considered likely to reduce the range of experiences which schools were able to offer students.

9.17 The submission of the Australian Secondary Principals' Association set out a list of key concerns relevant to the schools sector. [5] These are as follows:

• inclusion of books – a measure which will increase the costs of parents educating their children and involve schools in a complicated accounting process for bulk purchases of textbooks;
• compulsory administration charges – complicated by varying State arrangements which currently operate but which will require the complete re-arrangement of these processes to maintain the policy of ensuring that students are supplied with the materials they need at least cost to parents, and with maintaining a minimal gap between the `haves' and `have nots';
• compliance – a whole new problem that will require administrative time and expertise as well as high initial funding, with little expectation of government assistance;
• phasing in period – expected to see initial cash-flow difficulties, with no expectation of GST savings flow-on in the short term, with smaller schools relatively disadvantaged;
• excursions – unclear status of sports and culturally related school visits, and particular difficulties for country schools;
• fundraising – status of fundraising programs in excess of $100,000 are unclear, with the likelihood that tax deductibility does not apply to donations to government schools;
• goods sold or leased – likely additional costs and compliance requirements may result in curriculum broadening experiences being unavailable to many students;
• private tuition – students in smaller and country schools may miss out on specialist subject tuition if current arrangements for contract tutoring are subject to a GST; and
• uniform shops – a fundraising activity and as assistance to children in need, uniform shops run by parent organisations will be faced with compliance costs that may force their closure.

9.18 The GST implications of school excursions was raised at the first Canberra hearing of the Committee with the Australian Council of State School Organisations (ACSSO) and the NCISA. A representative of ACSSO explained to Government members of the Committee that his organisation's understanding of Government policy was that school excursions would be zero-rated provided that they were not `predominantly of recreational intent'. It was pointed out that school camps, which may have no direct relationship to the curriculum, are nonetheless an important part of school life and the educative process. Representatives of both ACSSO and NCISA strongly supported what they termed a “blanket exemption” of schools and school activities from a GST. [6]

9.19 When challenged to defend the view of excluding from GST extra-mural foreign language courses run out of schools on weekends, ACSSO representative, Dr Ian Morgan covered some broader issues of which the Committee took careful note:

The dilemma we are dealing with is that there are grey areas whichever way you go, but the grey areas and the onus of proof and the responsibility are being pushed in a direction which narrows school activities and opens up the possibility – particularly in the absence of a clear and broad definition of `curriculum' - of the GST nibbling into more and more school activities rather than picking up what may well be rorts in the system. However, there may be broad community educational advantages to Italian classes. If the classes, for example, are directed to kids of Italian origin to learn Italian, I think you could defend this. The thing that concerns me is the issue of public good, which seems to have been left out of the whole approach to the tax package, and that all activities are necessarily regarded as business activities. The phrase `to prevent unfair competition with small business' is used over and over again. [7]

9.20 Another worrying `grey area' for principals was the issue of private tuition. As their submission stated:

There are circumstances, particularly in smaller and country schools where the school cannot provide tuition in all curriculum areas from their resources. These include aspects of music and technological courses. A variety of arrangements are made with `private' tutors to allow such schools to offer these courses for which students will receive much-needed accreditation. It seems that schools will have to include a GST cost in their payments to tutors which for smaller schools will be out of the question, thereby effectively removing some subjects from the curriculum to the detriment of their students. Even if a way was found to pass on the costs to students the end result is likely to be the same. [8]

9.21 The Committee notes the recommendation of the ACSSO that the term `curriculum' be defined to include `all school-related activities which contribute to the achievement of the National Goals of Schooling, including student goals, key learning area goals and social goals.' [9]The purpose of this would be to guide the ATO in its rulings on tax GST zero-ratings. It would also put the onus on the ATO to demonstrate that certain activities were not in accord with the National Goals for Schooling, being recreational in nature.

9.22 In the view of the Department of Education, Training and Youth Affairs (DETYA) this was not a desirable way to proceed. One of its officers informed the Committee that in defining the term `curriculum' there was a risk that it would be interpreted in a restrictive way. [10]

9.23 The Committee sees the logic of the Department's argument in relation to this matter, although it notes that the legislation provides no guarantee that the application of this tax will not be interpreted in a narrow and restrictive way. The Committee believes that taxation officials lack the expertise to make judgements on complex educational issues.

9.24 The proposal to impost GST on short occupational courses will have a direct impact on the cost and accessibility of those courses. The proposed GST legislation distinguishes between courses undertaken to obtain qualifications for the purposes of entering a profession and those undertaken to maintain skills and qualifications. Only those former courses are GST-free.

9.25 The Reference Committee examining the potential impacts of the proposed GST on education was interested to know what assessment had been made by DETYA on the overall effect of the tax package on training, both from the point of view of individuals and of employers. In an answer to a question on notice, DETYA advised that the effects were difficult to predict: that employers would be able to claim input tax credits and that individuals would benefit indirectly from the usual widely quoted flow-on benefit of the new tax system.

9.26 The Committee has taken a close interest in adult and community education on this usually neglected component of the education sector. [11] It appears from evidence presented to the Committee that adult and community education (ACE) will be one of the most seriously affected segments of the education sector as a result of the Government's proposed GST policy. From evidence presented to the Committee it appears that many community courses for adults and optional courses for students are highly price sensitive. Even small increases in fees are likely to see diminished numbers enrolling.

9.27 There was considerable support for the view that if GST were to be charged in a way that was based on the artificial separation of accredited and non-accredited educational programs then the cost impact in these cost-sensitive programs would force numerous programs to close. A submission from a Victorian community education organisation made this point:

The neighbourhood house and community learning centre sector has a philosophical commitment to ensuring education is available to everyone. In order to achieve this, houses and centres have implemented a number of strategies including pricing policy. Houses and centres offer concessions to people on low incomes and benefits and strive to meet the needs of people with no income (recent migrants, young people ineligible for benefits, women whose husbands control the family income etc). This commitment requires extensive planning and financial management. The financial balance that is required to maintain the provision of low-cost adult education is tenuous and could easily be jeopardised. [12]

9.28 The case against a GST applying to adult and community learning was put very strongly in the submission from its peak organisation, Adult Learning Australia (ALA). Personal Enrichment Course enrolments were over 426,000 in 1996. According to ALA an anomaly exists in the way that these courses are defined and described because of the blurred distinction between, for instance, courses in wine appreciation that may be taken purely for recreation or for the purposes of improving knowledge and skill as a restaurateur. The ALA submission makes the point that course intentions are not recorded in enrolment statistics, although some NSW research indicates that vocational motives have a high significance for the majority of all participants among adult and community learners. [13]

9.29 In evidence to the Committee on this issue, a DETYA officer put the view that any person working in a particular field who took a course relevant to their employment, and which was currently tax deductable, would find the same concessions under the proposed tax changes. The Department made no reference to any legislative provision to support this assertion. The official indicated that providers would continue to have the choice of bringing their courses toward accredited status, a process which varied from State to State. [14]

9.30 It is acknowledged that there is an argument that practically all `hobby' or `recreational' courses have some element of vocational purpose for some learners. The value of the courses run in the adult and community programs was recognised by the Australian National Training Authority (ANTA) in its 1996 report on adult and community education and its relationship with vocational education and training (VET). The report anticipated that ACE providers would increase their delivery of VET programs but strongly advised that national and State policies and practices supportive of general adult and community education were needed to ensure that their increased involvement in VET did not distort its primary role. [15]

9.31 The Committee was interested to note, in the light of ANTA's advice, information included in the ALA submission in which it is reported that in the briefing material provided to education organisations, DETYA `appears to have taken the line that the appropriate response is not to extend GST-free status to non-VET courses in this way, but for ACE to set about trying to get more of its courses appropriately accredited.' [16] The ALA points out that it would be impossible to gain accreditation for a significant proportion of adult and community education courses because there is no relevant or appropriate occupational framework within which they could be assessed. It is difficult to see how such accreditation could be consistent with, or compatible with, the Australian Qualifications Framework (AQF) or the National Recognition Framework (NRF) or the endorsed competency standards. Nor, as the ALA submission notes, has DETYA underscored the seriousness of its proposal to accredit ACE courses by proposing to allocate resources to this exercise in the way that was done with VET. [17]

9.32 The accreditation of courses is a matter which crosses State-Commonwealth jurisdictions via the National Training Framework Committee. The process of accreditation can be protracted. In the time it takes, some courses may disappear before receiving accreditation.

9.33 DETYA was asked a number of questions on notice at the Committee's second Canberra hearing in relation to adult and community education which resulted in little if any information of use in clarifying the anticipated effect of the GST on `personal enrichment' courses. Nor was the Department able to supply any information about the number of people likely to be affected by the impact of a GST on Stream 1000 courses. The Committee received a standard response to the effect that GST costs needed to be seen as offset by savings from the abolition of the wholesale sales tax and income tax cuts.

9.34 The Committee remains concerned about the GST status of Stream 2000-4500 courses for people undertaking short-term occupational courses and skills upgrading. It notes advice from DETYA that individual modules of accredited VET courses will be GST-free but makes the point yet again that many thousands of people will be disadvantaged in undertaking training courses which do not lead to an AQF or RATE (Register of Australian Tertiary Education) qualifications. DETYA has failed to reassure the Committee that the Government's imposition of a GST will not effect even those in the pre-vocational and vocational Stream 2000-4500 courses.

9.35 The Committee recognises that the threat to the viability of ACE programs is no new phenomenon and will be increased by the levy of GST. This may see ACE providers forced into more formal arrangements with VET providers, at the expense of their `real' clients, as ANTA has warned. The problem was recognised in the second of the Committee's reports into ACE, tabled in 1997, which had this to say:

What is doubly frustrating for the ACE sector is that, on the one hand, its vitally important business of general, non-accredited adult education remains undervalued and unfunded by the Commonwealth, while, on the other hand, a small portion of its programs not only receive Commonwealth dollars but gobble up a disproportionate amount of administrative resources and ACE workers' time – through the need to tender for funds, track students, report on outcomes and maintain statistics. [18]

9.36 The problematic nature of distinguishing between personal enrichment and vocational programs was also pointed out to the Committee in a submission and oral evidence by the National Centre for Vocational Education Research (NCVER). Currently the definition is based on the intention of the curriculum or the course, rather than the intention of the student at enrolment. The inclusion of some vocationally useful content in a program does not necessarily result in it being classified `vocational'. Compared to publicly funded vocational courses, the annual hours given to personal enrichment programs are small (about 3 per cent) but a large number of people are involved (about 380,000). This is about 21 per cent of the delivery reported in the national VET provider data collection. [19]

9.37 DETYA, in an answer to a question on notice, argued that the GST must be applied to defined types of goods and services, rather than with regard to individual intentions of those who purchase goods and services. There is no mechanism to determine the intention of the person undertaking a `recreational' or `hobby' course. Nor is any distinction made within Stream 1000 courses, so that there can be no competitive advantage for segments of the market.

9.38 One of the problems to be faced by the Government if it determines to press ahead with a GST on ACE is determining the extent of courses delivered for this purpose. Large numbers of non-government bodies deliver such services on a non-profit basis. Currently, the only data collected in this field is limited to organisations in receipt of public funding. There are obvious compliance issues to be considered here. [20] It is difficult to believe that the Government has any idea about the magnitude of risk to ACE providers, or much idea of the task it is asking them to take on.

9.39 The NCVER confirmed other evidence given to the Committee of the important social function undertaken by the ACE providers. Its submission pointed out that:

Courses classified as recreation and leisure courses can be a source of education and training for disadvantaged groups who have limited access to government services. Many programs in Aboriginal communities are delivered by community providers in courses that are classified as personal enrichment. Aboriginal communities are often remote and isolated from TAFE colleges and other providers. Aboriginal communities often feel the need to control the type and nature of training provided to their community particularly when people are living contemporary traditional lifestyles. [21]

9.40 There are two strong arguments which can be put forward for rejecting the imposition of a GST on discretionary educational expenditure.

9.41 The first reason is that self-initiated learning, either for the purposes of vocational training through skills improvement, or for social or personal enrichment demonstrates a commitment to community advancement and involvement. If the result of re-training through discrete, uncertificated units is increased income, the community and public tax revenue is the beneficiary. If units of recreational study for personal enrichment are undertaken the community benefits in less tangible ways through the accumulation of social capital.

9.42 The second reason is that adult and community learning offers many young people a pathway to further learning. A second chance is offered for people who dropped out of school early to enter the workforce, and for women re-entering the workforce having left for family reasons. This point was stressed in the submission from ALA, where it was stated that the principal flaw in the proposal for a GST was the undermining of the `pathway' character of adult education.

…Because it is open access, learner centred, locality based, locally managed, and affordable, ACE offers the ideal path back to learning and working for tens of thousands of adult Australians. Arguably, no other aspect of ACE has been so extensively researched and documented in the past ten years…Learners can experiment with new interests, test themselves in a learning environment, begin to rebuild self-confidence and self-esteem in a supportive atmosphere, with no fear of `failing'. [22]

9.43 The substance of this argument is reiterated in the submission of the Australian Vice-Chancellors' Committee (AVCC). Here it was stated that many students of ACE courses progress to more formal courses. The submission argued that in a era when the need for lifelong learning is recognised by all concerned with Australia's future it was senseless to exclude some courses from GST because they do not have accreditation, when that accreditation is focussed on direct vocational value rather than longer term educational gain. The Vice-Chancellors' Committee recommended that all courses provided by recognised providers across the university, vocational education and training and adult and community education sectors be recognised as GST-free. [23] This Committee supports that recommendation.

9.44 It is clear to the Committee that definitions in the bill as they relate to a wide range of educational provisions are so vague as to leave many educational groups in doubt. There are no adequate definitions or legislative provisions that make clear the GST liability of many educational services. This point is highlighted by the submission of the International Board of Lactation Consultant Examiners. Their submission states:

As currently drafted, the bill does not appear to recognise the special nature of this exam and the certification process, even though it should clearly fall within the Government's promise of making education GST-free. There is no difference in principle between this education activity and others covered by the exemption (sic) clauses. It would be anomalous if it were not to be included as GST-free. [24]

9.45 About 250 people sit for this exam each year and those who are successful are given certification. The Committee was unable to find out whether a certification process was GST-free under the proposed legislation in the same way as a certified course would be. Like many other areas of the education provision, the legislation appears to be inadequate and as it currently stands the International Board of Lactation Consultant Examiners will need to await an ATO ruling should the legislation pass.

Impact on Professional Associations

9.46 Several submissions and appearances were made by representatives of teacher professional associations. They appeared as non-profit organisations, run primarily on voluntary labour, but in some cases augmenting association finances through the sale of curriculum materials written gratis by members. Two issues arise from consideration of the evidence from these organisations. The first is the likely impact of the GST upon the membership and level of activity to be expected from these organisations. The second relates to their indispensable work in undertaking the organisation of teacher professional development programs.

9.47 The Reference Committee heard that a GST will affect professional associations in every avenue of their revenue raising activities, including membership fees, publication sales, conferences and seminars. Another area of activity affected will be the provision of teacher professional development. The various subject associations are closely linked to the provision of such courses, to the extent that they are the sole providers of such training opportunities in most States and Territories. They receive formal recognition for this work from State education departments and with the near disbandment of curriculum branches in some State education department have become de facto curriculum support agencies.

9.48 The major source of concern for teacher professional associations is the likely impact of GST on membership. The Reference Committee heard evidence in Sydney that most teacher professional associations ran an annual deficit, or are living off accumulated resources from previous years. Subscription bases are low and liable to spiral downwards. [25]A high proportion of secondary teachers attend professional development courses but disincentives for teacher professional development are increasing, with teachers having to pay increased fees for discrete units in university courses in order to extend their knowledge base, and with the removal of Commonwealth funding under the National Professional Development Program. Over half of the professional development courses for teachers run in New South Wales are provided by the associations, and according to their representatives, these were now under siege by the GST.

9.49 The Reference Committee's 1998 report of its inquiry into the status of the teaching profession referred to the parlous condition of teacher professional development. While teachers, on the whole, took seriously their responsibility to upgrade their skills and subject knowledge throughout their careers, there were obstacles in the path to proper professional development. One major criticism was the lack of serving teachers to plan and implement these courses. Best practice is best demonstrated by classroom teachers because they have credibility. The Committee reported that much professional development was badly planned and poorly executed. [26] Yet it is recognised that without good professional development, knowledge and skill levels will decline, and teachers will become more isolated, resulting in increased stress and diminished morale. The role of professional associations is to counteract these debilitating tendencies and to involve more teachers in continuing learning. The imposition of a GST will not assist this work.

9.50 Evidence given to the Reference Committee by the Tasmanian branch of the AEU lamented the lack of GST zero-rating for teacher professional development and described its current provision as `absolutely woefully inadequate'. Teachers in Tasmania received only one to two days professional development each year, and this would be further restricted by the GST. It was considered to be highly unlikely that State governments, certainly in Tasmania, would make additional funding available to schools to cover this extra cost. [27]

Impact of Compliance Demands

9.51 School principals, along with the heads of other educational institutions are often heard to lament that their `corporate leadership' role is a far more burdensome responsibility than their educational leadership role. This results from the increased expectation that schools will recover a higher proportion of their running cost from the community. This responsibility will widen further if and when schools become subject to the GST.

9.52 Currently, the making of a simple statement on a school order form exempts them from wholesale sales tax. No accounting is required for this process. Evidence was given to the Committee in Melbourne by representatives of the Australian Secondary Principals Association which gave an estimate of staff costs of GST compliance at Wangaratta High School. This school of 1,200 students made around 1,000 payments each month, and processed around 400 income transactions each month. The Committee heard that a GST compliance factor would require between half and one additional administrator to deal with it. [28] The cost of this would need to be absorbed from the education program.

9.53 One submission dealt with the particular plight of small schools having to deal with the burden of compliance, for which they would not be adequately staffed.

9.54 The burden for small schools is particularly significant. Currently there are approximately 484 schools with fewer than 100 students and 903 schools with fewer that 200 students in the non-government sector in Australia. On average, these schools have a principal (with a teaching load), four to five teaching staff and a part-time clerical staff member whose duties include being secretary to the principal, receptionist, bookkeeper, secretarial support for teaching staff and general assistant to parents and students. The administration of the GST in such a school setting with such stretched human resources will certainly have a major impact on the workload of staff and will skew the focus of work disproportionately away from those tasks which support the education of students to those which are bureaucratic and administrative. It is this kind of work re-organisation which demoralises dedicated teaching and support staff in schools. [29]

9.55 The Committee noted that in an answer to a question put on notice at the second Canberra hearing DETYA had not sought estimates of the start-up compliance costs for educational institutions. The Committee believes that it is necessary to have such information as a basis for making tax policy.

9.56 Compliance costs are also a concern for the teacher professional associations. As a representative of the Institute of Technology Education told the Committee at its Sydney hearings:

I am concerned that, with the changing HSC, the school certificate, it is professional teachers' associations who support the teachers out there to address those changes. Any GST on top of what we do voluntarily in supporting the others will mean that we may have fewer people involved in the professional teachers' associations. [30]

9.57 Compliance costs will affect universities as much as the largest businesses. Administrative systems will need extensive modification. It was reported to the Committee that in its first year of implementation, it would cost universities as much as dealing with the millennium bug. [31] Concern was also expressed by the AVCC that too much discretion was left to the ATO, although this was unavoidable in the circumstances. It was possible that taxation rulings would result in the making of fine distinctions in all the details of university operations. If this occurred it would be at odds with what the AVCC believed to be the Government's intention to rely upon broad interpretations of policy.

9.58 The Committee considers this view to be unrealistic. The ATO will almost certainly embark upon the making of a large number of public and private rulings and that there will be no recession in the tax minimisation industry with the coming of the GST, although the Committee has some faith in the likely result of the courts setting limits to any interpretive adventures of the ATO.

9.59 Compliance difficulties were also raised before the Committee at its Melbourne hearings by Kindergarten Parents Victoria. The Committee was told that monthly reporting of the GST was possible only where facilities for electronic lodgement with the ATO existed. Only six per cent of kindergartens had access to such facilities: all the rest had to submit quarterly returns. This presented cash flow problems for these kindergartens. Another dimension to the problem was a human element, as the Committee heard:

…as an organisation, our fairly obvious concern would be that we rely on skilled people to operate the services and provide quality education for children. It would be very counterproductive if the outcome was that parents believed that being on the committee was so daunting that they did not put their hand up. If you do not have volunteer committees then there is simply no service because the Government will not fund the incorporated association that does not have a viable committee. [32]

9.60 Parents' associations appeared to be particularly concerned about their additional compliance responsibilities in view of the relatively small proportion of `active' parents in any school who are prepared to serve on Parents and Citizens or Parents and Friends executives. Yet they have no doubts about the role they must play. As a representative of the Tasmanian Council of State School Parents and Friends Association told the Committee:

Consider the impact on education if these [Parents and Friends] funds and parent volunteer support were to be withdrawn. Schools would not function and the entire education system would collapse. In addition, many school parent organisations would have some difficulty filling the voluntary position of Treasurer considering the time and expertise that will be required to comply with the new tax requirements. [33]

9.61 The issue of compliance was raised with DETYA by the Reference Committee at its second Canberra hearing. The senior DETYA officer present agreed that compliance costs were a potential problem. It was agreed that `this is certainly an area where I think we can offer some help, and it is right that we should do so.' [34] The Committee noted, however, that reference was made to the availability of funds for this purpose coming from the $500 million made available to cover transitional costs incurred by taxpayers, and which is referred to by some on the Reference Committee as the `magic pudding'.

9.62 The derisive comment that has greeted the Government's decision to make $500 million available to small businesses to minimise start-up costs associated with the GST is not difficult to explain. The `gross inadequacy' of this amount has been so described in the submission to the Select Committee by Arthur Andersen. [35] This amount equates to approximately $300 each for the estimated 1.6 million taxpayers who will register for the GST. The amount was originally targeted at small business, but the Government and its officials are now saying that the fund should be stretched to include educational institutions, there being around 9000 of them in need of compliance funding.

9.63 The Committee expects that the education sector, not least the State and Territory education departments through the Ministerial Council on Employment, Education, Training and Youth Affairs (MCEETYA), will seek to extract such funds from the Commonwealth as to ensure that compliance arrangements, including additional staff in schools and minimal cost software for all other institutions are made available. The Reference Committee will, in the course of its normal oversight of national educational issues monitor the compliance costs of a GST to the education system should the legislation pass.

School Fundraising

9.64 The issue of school fundraising was on the list of concerns of some parent groups appearing before the Committee. There was some confusion about the extent of GST liability on funds raised, and some advice was given – in general terms – by Committee members in relation to these matters.

9.65 The submission from the Australian Secondary Principals' Association expressed concern that secondary school projects often require the raising of amounts in excess of $100,000 and might therefore be liable to a GST. They would therefore need to engage in `creative arrangements' to limit funds raised by particular groups associated with the school to $100,000 or less. [36] Issues related to the potential impact of the GST on charities and not for profit organisations was examined by the Community Affairs References Committee.

Higher Education and the Tax Reform Package

9.66 The Reference Committee received submissions and heard evidence from the four principal stakeholders in higher education: the AVCC, the National Tertiary Education Union (NTEU), the Council of Australian Postgraduate Associations and the National Union of Students (NUS). Their particular sectoral concerns were overlaid by one common view of the GST: that it should not be based on the notion of taxed and untaxed activities, but on taxed and untaxed institutions and enterprises.

University Colleges and Halls of Residence

9.67 The compliance difficulties to be faced by university colleges and halls of residence contain a number of complications which warrant some detailed treatment by the Committee. They were touched upon both in the submission of the AVCC and in evidence given to the Reference Committee by the AVCC at its first Canberra hearing, and in the submission and supplementary information from the Association of Heads of Australian University Colleges and Halls. The Committee heard from representatives of the Association at its second Canberra hearing.

9.68 Both the AVCC and the Association of Heads of University Colleges and Halls drew the Reference Committee's attention to the anomalous situation of having residential college accommodation subject to an input tax under Subdivision 40B of the bill. The Committee notes that the Vos Committee reviewed the argument that residential accommodation at university colleges should be GST-free in the same way as secondary boarding schools are GST-free under the provisions of Subdivision 38B. This was rejected for reasons that are not clear. [37] The Committee also notes, however, the Prime Minister's letter of 24 September 1998 in which he explained to the AVCC that the granting of GST-free status to residential colleges was inappropriate because they directly compete with accommodation provided outside the institution. [38]

9.69 In the eyes of the people who work in halls and colleges … and in the eyes of the parents and of the students who use their services, the halls and colleges are engaged in a quite different undertaking from simply the provision of accommodation. Our institutions in the eyes of all those people are more like the secondary boarding colleges, which are being dealt with separately under the legislation, and less like the boarding house or flat or house for rent down the road, with which we have been categorised. We are being treated as chiefly housing providers. [39]

9.70 The Vos Committee did, however, accept the argument that because university colleges often provide tutorial assistance to students as well as pastoral care and other support, these elements should be GST-free. As the AVCC told the Committee at its first Canberra hearing, this exclusion would result in some `fairly detailed and complicated administrative burdens' on residential colleges.

9.71 High compliance costs result from the application of different sections of the proposed legislation depending on the nature of the activities to be undertaken and the categories of people involved. As one witness described it:

…When some one rings up and asks, `What is your rate to stay for a week?' or `What is your rate?' we are going to have to analyse the situation and ask the question, `Well, are you on a GST-free course or not?' When it comes to someone finishing their academic year of 34 weeks and then deciding to stay on a few extra days to show their friends around Canberra, the extra days will effectively come under section 87-10 rather than section 40B, which relates to the residential rent.

…where we have a very large conference revenue during term time – students are on a GST-free course and, therefore, are going to come under section 40B. Because our conference guests are not going to be on GST-free courses, our conference income will have to come under 87-10. If we have people staying in the long vacation, then section 87-10 has another watershed, namely. `Have you stayed 28 days or over?' …so I can imagine my bursar switching eight times every year in relation to which part of the bill we are applying. [40]

9.72 The Association argued before the Reference Committee for adjustment to the proposed legislation which would see the removal of anomalies which disadvantaged colleges and halls in comparison with private lodgings and rental accommodation. As it currently stands, the legislation will require such `accounting acrobatics' as to add considerably to the compliance costs of these institutions. Some colleges and halls spent less than $50,000 annually on upkeep and expansion and in these cases input taxing would yield the Government less than $50,000 in accommodation related GST receipts. The Association sought relief under the `$50,000 or five per cent rule' contained in the provisions of subsection 11-30(2). This would avoid a situation where additional compliance costs exceeded the additional tax to be collected. The Association used research done by the Chamber of Commerce and Industry of Western Australia to estimate incremental compliance costs of $6,240 per annum for a typical college. [41]

9.73 The Association further argued that the framing of the current legislation did more than ensure that private off-campus accommodation was not disadvantaged in comparison with university colleges. It tilted the playing field in their favour. University colleges and landlords who supplied rental property to students, often `negatively geared' investment properties, would do so under the provisions of Division 40, and those offering private board were not required to be GST registered entities because of their small turnovers. On the other hand, student hostels and long-term commercial accommodation came under Division 87. For reasons of both equity and efficiency the Association argued that university colleges be permitted to choose between being taxed under only one Division.

9.74 At its second Canberra hearing on 12 March the Reference Committee put the anomalous nature of university college fees to DETYA for comment. The Department explained that no anomaly existed: that all types of accommodation likely to be used by university students were input taxed. [42] In view of evidence presented by the Association of Heads of Australian University Colleges and Halls the Committee is confirmed in its view that an anomaly does exist, at least to the extent that the legislation does not take account of the unequal treatment of colleges and halls in their compliance obligations.

9.75 Another consideration with regard to residential accommodation at universities is the element of relative isolation. The Vos Committee's recommendation relies to a great extent on an urban perspective: of students living in accommodation close to the campus, or commuting each day from their boarding houses in the suburbs. As the AVCC told the Committee, some students do not have any option but to choose to live in a university college, either for reasons of cost or location. The Committee recognises that for students in some regional centre accommodation can present a difficult problem. Some universities are well out of town, particularly the newer universities established on campuses distant from the provincial cities to which they are connected, if at all, by infrequent bus services: James Cook University at Townsville, Charles Sturt University at Wagga, the Roseworthy campus of Adelaide University, the Australian Maritime College near Launceston, the University of Ballarat and the Gippsland campus of Monash University are among such institutions.

Effects on University Students

9.76 There are around 600,000 students in Australia's 36 universities. The circumstances of university students are highly diverse, although the NUS, whose representatives appeared before the Reference Committee in Melbourne, gave evidence of increased hardship likely to be experienced by many students living on the margins. As the Committee was told:

Not only do a lot of students miss out on the tax breaks that are part of the new tax system package, but they also miss out on many of the compensation packages. As our submission shows, students who do not rely on Youth Allowance or any other living allowances to sustain their lives, and do so through part-time work and are thus low-income earners, would be disadvantaged by the GST. [43]

9.77 The NUS, along with a number of other organisations which appeared before the Committee, also argued that books be excluded from GST on the grounds that the cultural and intellectual life of the nation needed to be encouraged rather than penalised, but in particular the NUS argued for textbooks to be zero-rated under the GST.

9.78 The Committee raised with the AEU the issue of tapering arrangements applying to the Youth Allowance and the impact this change would have on students. It was put to the AEU that the Government's policy on GST compensation is to deny the full four per cent compensation payments made to other recipients of social welfare in order to maintain work incentives. The AEU saw this measure simply as another device to reduce expenditure under the Youth Allowance scheme.

9.79 At its Melbourne hearing, the Committee pursued with the NUS the issue of the impact of GST on student union refectory services in view of confusing or possibly conflicting information from the Government on this matter, possibly as a result of its anticipating the successful passage of a bill promoting voluntary student unionism. The NUS was firm in its advice to the Committee that DETYA had given a written assurance that amenities and service charges levied by universities would not be subject to a GST. Subsequently, the Reference Committee requested clarification from the Department.

University Research

9.80 As the AVCC notes in its submission, the status of government grants to universities has not been made entirely clear. While the Prime Minister has clearly stated that the full range of university research and scholarship will be GST-free, the status of research funding grants has been left open. [44] Such funding is usually tied to particular research in an area related to the function of the funding body, though usually without the expectation of any financial return to the funding body.

9.81 The submission of the NTEU noted that there is a problem with categorising research projects by reference to funding source. [45] This is because many projects carried out in universities are actually funded from a range of different sources, often exclusively from public, even Commonwealth funds.

9.82 According to the NTEU this problem is exacerbated by the fact that university operating funds are now made up not only of Commonwealth funds, but also of large amounts of funding generated commercially (through consultancies etcetera) and from student fees. It would be difficult, if not impossible to identify the appropriate proportion of the funds flowing to any research project that emanated from commercial sources. [46]

9.83 The Vos Committee report set out the procedures whereby universities would add 10 per cent to their contract prices, remit the GST and the business would then claim the GST as an input tax credit. [47] The Government argues that there are no losers in this process. The Committee argues, nonetheless, that with regard to compliance costs alone, the application of a GST to university research is extremely problematic. It explains why those responsible for the administration of universities, and indeed all stakeholders in higher education favour what they term a “blanket exemption” from a GST extended to all educational institutions.

Foreign Students

9.84 The Committee's terms of reference include an examination of the impact of GST on foreign students enrolled in Australian educational institutions. In most respects the increased costs to be born by foreign students is similar to those which local students will face. The NUS submission notes that all foreign students live in paid accommodation whose costs will rise. International telephone charges, a normal burden for students from overseas countries, will increase, For instance, a 15 minute off-peak call to Malaysia will rise from $10.50 to $11.55. The NUS reports research that once off cost increases for foreign students will be 1.7 per cent. [48]

University Scholarships

9.85 The AVCC drew the Committee's attention to the increased costs to be incurred by universities as a consequence of the Government agreeing to index Australian Postgraduate Awards at the same four per cent as pensions and benefits. Universities will need to match this for those on university postgraduate awards, but there is no indication that universities will receive additional funding to cover these costs. This also raises the issue of privately funded scholarships, and the compensation that is owed to those who sponsor them.

Extension and Non-Award Courses

9.86 Reference has already been made to the additional burden that a GST will place on teachers wishing to update their skills and knowledge by taking discrete units of university courses. A great many other professionals will also be affected. The Committee's observations about the value of life-long learning in the ACE sector apply equally to university extension courses and non-award courses.

Libraries

9.87 The Committee also heard from representatives of the Australian Library and Information Association whose concern about the GST was its impact on cash flow. Libraries expected their costs to rise by 10 per cent, and although this would be returned in the form of a GST rebate every quarter, libraries would be `out of pocket' for these periods. These tax arrangements did not sit well with zero based budgeting. [49] A number of other `grey areas' were identified for the consideration of the Committee: whether or not municipal libraries were zero rated because they were local government instrumentalities; whether inter-library loans were a transaction rather than a service which would attract a GST if an existing service fee applied; whether other services currently charged for to recover costs, like photocopying or Internet use would be subject to a GST.

9.88 On more general considerations, the Association described the users of libraries as people who are unlikely to obtain any advantage from tax breaks promised as part of the new tax policy. Clients included a high proportion of school-aged children and older people on retirement incomes of some kind. If books and magazines become too expensive as a result of a GST, increased demand for library services will be felt. [50]

9.89 The Committee believes these concerns should be addressed immediately. It fails to understand why the Government is unable to clarify matters like these. The Committee's view is that, should the GST proceed, all municipal libraries should be zero-rated.

Increased Cost Burden for Families

9.90 A number of submissions and witnesses drew the Committee's attention to an increase in the cost of providing education because of the application of the GST to school uniforms, books and other types of school supplies not currently subject to a wholesale sales tax. The AEU, among other stakeholders, has quoted studies in its submission to estimate the increased costs resulting from the GST at $200 per student. It scarcely needs restatement that many families are finding `free' education an expensive commitment even before this tax is imposed. The Smith Family recently indicated that of financially disadvantaged families it surveyed, 62 per cent could not afford a blank computer disk, 50 per cent could not afford the cost of a school camp, 24 per cent could not afford the cost of participating in sports activities, and 15 per cent could not afford school excursions. [51]

9.91 The Government has given assurances that the abolition of the wholesale sales tax will offset part of the GST effect on prices. The Committee notes the advice it received at its Brisbane hearing from veteran financial commentator, Mr Austin Donnelly, who observed that `some Sir Humphreys in the public service happened to make the politically correct but nonsensical assumption that every cent of benefit from other tax reductions would be passed on to consumers.' [52] It notes also the likelihood that low-income families have less to gain from the GST package because their personal income tax rates are already low. The cycle of disadvantage will find an echo in increased schooling costs for this strata of the community.

Commonwealth-State Education Agreements

9.92 One issue of substantial concern to the education sector was expressed in submissions by unions representing both government and independent sector teachers that the Commonwealth may be signalling at least a partial withdrawal from school policy and funding as a consequence of transferring the proceeds of GST revenues to the States and Territories.

9.93 The AEU submission expressed the fear that the increased financial independence of the States and Territories may result in them being more reluctant to maintain the policy-making partnership with the Commonwealth which has become closer over the past three decades. [53]

9.94 The Independent Education Union of Australia expressed a similar view, although from a different perspective. It opposed the introduction of a GST as the basis for tax reform for the reason that:

…the changed Commonwealth, State and Territory arrangements in relation to the receipt of the GST by States and Territories may impact detrimentally upon the stability and predicability of federal-funding arrangements for non-government schools in the future. Further, it is now strongly contested by a significant number of expert economists that the GST, at the proposed rate of 10 per cent, will not provide a sufficient revenue base to meet the increasing needs of a modern education system in the twenty first century. The implications in this shift in Commonwealth-State and Territory arrangements on education has received little, if any, comment, in the public debate since the policy's announcement. [54]

9.95 This concern extended beyond the school sector. The submission of the NTEU also drew attention to a possible shift in relationship between the Commonwealth and the States with regard to the funding of universities. The NTEU's basis for concern was the medium term projection of a decline in Commonwealth revenue from income tax. Under current GST arrangement proposals the States and Territories would have access to an increasing tax revenue base at the expense of the Commonwealth. The submission argued that universities were particularly susceptible to any decline in the total public resources available to the Commonwealth. [55]

9.96 A continued lack of confidence by the teaching profession in the capacity and commitment of the State and Territory governments in relation to school policy and funding is evident from the submissions of teacher unions. It appears that even a less than sympathetic participation by the Commonwealth is preferable to none at all.

Footnotes

[1] Australian Bureau of Statistics, 1993-94 Household Expenditure Survey, Catalogue Number 6535.0, Australian Government Publishing Service, Canberra, p. 14.

[2] Submission No. 773.

[3] Hansard (House of Representatives), 7 December 1998, p.1464.

[4] Hon Peter Costello MP, Tax Reform: Not a New Tax, a New Tax System, Australian Government Publishing Service, Canberra 1998, p. 94.

[5] ibid., pp 2-4.

[6] Hansard, Canberra, 19 February 1999, p.100.

[7] ibid, p.101.

[8] Australian Secondary Principals' Association, op. cit., p.4.

[9] Submission No. 824, p.12.

[10] Hansard, Canberra, 12 March 1999, p.815.

[11] Senate Committee on Employment, Education and Training, Come in Cinderella: The Emergence of Adult and Community Education, Senate, Canberra, 1991 and Beyond Cinderella: Towards a Learning Society, Senate, Canberra, April 1997.

[12] Submission No. 627.

[13] Submission No. 852.

[14] Hansard, op. cit., p.814.

[15] Australian National Training Authority, Think Local and Complete. The Role of ACE in the Implementation of a National System for VET, Australian Government Publishing Service, Canberra 1996, Appendix 1.5.

[16] Adult Learning Australia, op. cit., p.9.

[17] ibid., p.10.

[18] Senate Committee on Employment, Education and Training, Beyond Cinderella: Towards a Learning Society, Senate, Canberra, April 1997, p. 25.

[19] Submission No. 787, p. 4.

[20] ibid, p. 5.

[21] ibid.

[22] Adult Learning Australia, op. cit., pp 7-8.

[23] Submission No. 827.

[24] Submission No. 224.

[25] Hansard, Sydney, 22 February 1999, p. 134.

[26] Senate Committee on Employment, Education and Training, A Class Act – Report on the Status of the Teaching Profession, Senate, Canberra, March 1998, p. 218.

[27] Hansard, Hobart, 4 March 1999, p. 783.

[28] Hansard, Melbourne, 3 March 1999, p. 719.

[29] Submission No. 930.

[30] Hansard, Sydney, 22 February 1999, p. 133.

[31] Hansard, Canberra, 19 February 1999, p. 53.

[32] Hansard, Melbourne, 3 March 1999, p. 621.

[33] Hansard, Hobart, 4 March 1999, p. 780.

[34] Hansard, Canberra, 12 March 1999, p. 818.

[35] Submission No. 927.

[36] Australian Secondary Principals' Association, op. cit., p. 2.

[37] David Vos, Peter Tannock and Judith Whitworth, Report of the Tax Consultative Committee, Australian Government Publishing Service, Canberra, November 1998, p. 60.

[38] ibid., Appendix A

[39] Hansard, Canberra, 12 March 1999, p. 849.

[40] Hansard, Canberra, 12 March 1999, p. 850.

[41] Submission No. 689.

[42] Hansard, op. cit., p. 823.

[43] Hansard, Melbourne, 3 March 1999, p. 695.

[44] Submission No. 827.

[45] Submission No. 1095.

[46] Ibid.

[47] The Report of the Tax Consultative Committee, p.55.

[48] Submission No. 1073, pp 7-8.

[49] Hansard, Canberra, 19 February 1999, p. 41.

[50] ibid, p. 47.

[51] Submission No. 626.

[52] Hansard, Brisbane, 24 February 1999, p. 400.

[53] Australian Education Union, op. cit., p. 7.

[54] Independent Education Union of Australia, op. cit., p. 4.

[55] National Tertiary Education Industry Union, op. cit., p. 3.