Chapter 4

Conclusions

Labor Senators Report

Labor Senators are very disappointed that the Committee was not able conduct specific hearings on this particular reference.

The Government has not provided any detailed information on the longer-term Commonwealth/State financial outcomes that are projected under the new proposals, and the Labor members wanted to obtain more specific information to properly assess the proposals.

Unfortunately, it was not possible to gain Government support to extend the reporting deadline of the Committee to facilitate a detailed public examination of these bills, nor to obtain testimony from affected stakeholders in the wine and motor vehicle industries.

Commonwealth-State Relations

True Position of Labor Premiers

The Government has consistently and fraudulently claimed that Labor Premiers support its GST package. Nothing could be further from the truth.

First, Labor Premiers insisted upon the insertion of a specific provision into the Intergovernmental Agreement executed at the April 99 Premier's Conference. The preamble to that agreement (see attached), states

“…the agreement of NSW, Queensland and Tasmania to the reform of Commonwealth-State financial relations does not imply their in principle endorsement of the GST;”

Secondly, each of the Labor Governments have specifically and publicly denied any support for the GST. For example, on 14 April 1999 the NSW Government confirmed that Premier Carr did not support the GST but recognised that it was necessary to negotiate funding arrangements with the Federal Government.

On the same day, Mr David Hamill, the Queensland Treasurer, stated in the Queensland Parliament [1]

“Certainly, I saw the Prime Minister last night on television asserting that the Senate should now pass the goods and services tax because Peter Beattie, Bob Carr and Jim Bacon were all supporting it. Nothing could be further from the truth.”

Similarly Mr Jim Bacon, Premier of Tasmania, in his 1999 Premiers Conference outcome statement to Parliament stated:

“We approached the negotiation on the Commonwealth-State financial arrangements of the National Tax Reform package on the basis of ensuring that Tasmania's financial interests are fully protected in the event that the package, including a GST, becomes a reality. My Government remains opposed to the GST on principle, we believe that it is not in the interests of Tasmania. At our insistence, a position we share with NSW and Queensland, the preamble to the Inter-Government Agreement signed last Friday makes our objection the GST very clear.” [2]

The Prime Minister's claims of Labor States' support for the GST are patently untrue and simply represent the continuation of a pattern of deception by the Government, to the public, about the GST.

GST and the Growth Tax Myth

The second issue that need to be clarified is the so called growth tax issue. The Government is claiming two contradictory outcomes from its' tax package:

• That aggregate taxes are to be reduced; and
• That over time, more money will be available to finance essential services expenditure.

Both of these statements cannot be correct.

Less not More Services Over Time

In fact, if the general purpose revenue available to state governments grows over time relative to the current arrangements, this merely signifies that revenue which would otherwise be available to the Commonwealth Government, will instead flow to the State Governments.

This will not provide higher levels of public services.

Rather, the other type of Commonwealth financial assistance to the states, ie Specific Purpose Payments (SPPs), will undoubtedly be reduced as the Commonwealth Budget has less capacity to finance these payments.

The ideological underpinnings of which is to force the Commonwealth to withdraw from its national financing role of core government services and pass this responsibility to the states. This will lead to an erosion of national standards of basic services such as health, education and housing.

Labor rejects this proposal as it will undermine the minimum national standards achieved over decades of Commonwealth involvement in providing and maintaining these vital public services.

The Real State Budget Story

The following table has been prepared by the South Australian Government on behalf of all the States and Territories. The figures contained in the table have been confirmed by the Commonwealth Treasury.

Incredibly, this data had to be released by the Federal Opposition as the Commonwealth Government has refused to do so. In keeping with this trend of secrecy, the Government members of this committee opposed the table's incorporation into the main body of the report. This is surely an unprecedented situation, but is indicative of the Government's sensitivity to the truth about its' tax package being made public.

Impact Of National Tax Reform State By State Cwlth Guarantee ($m): 2,098.4

$million

Guarantee in Aggregate Plus State-by-State Redistribution for first 3 years than State-by-State Guarantee

As the table shows, rather than being a bonanza for state budgets, the GST package is projected to improve aggregate state budgets by only $1.15 billion by the end of year six.

This comprehensively demolished the pre-election claim by the Prime Minister that the GST will yield around $25 billion in additional funds for the states over the first ten years of operation. In fact, even on the Governments optimistic figures the actual gain will be around $8 billion cumulatively over ten years, and that is conditional upon the following heroic assumptions:

• That the Commonwealth maintains its level of SPP effort;
• That the GST grows in line with future economic activity as is assumed; and
• Economic growth continues at high levels uninterrupted for a further 7 years.

It is simply not credible for these conditions to be indefinitely maintained into the future.

In these circumstances Labor rejects the continual assertions by the Government that this proposal will provide significantly more revenue to state governments over time.

The States' Budget Independence Compromised

In keeping with the false claims about the tax package, the Government pretends that it is providing more financial independence to the States. In fact, the opposite is true.

Critics have often commented on the relatively high level of fiscal imbalance in the Australian federation. This so called vertical fiscal imbalance (VFI) describes the situation where the national government raises more revenue than it directly spends, and the states have a higher level of spending responsibilities than their level of direct revenue raising.

The Commonwealth simply provides some of its (excess) revenue to the states to correct this imbalance. Labor does not consider VFI as a major problem, as there are also efficiency benefits that arise from the current arrangements.

However, the ANTS package significantly worsens VFI. Accordingly, those who claim that VFI is a problem in Australia cannot logically support the tax proposals as it actually exacerbates the existing situation.

State Governments are not reducing their reliance on the Commonwealth-in fact they are becoming more reliant. The fact that the Commonwealth is misleadingly classifying GST revenue as state revenue, does not change the reality that the Commonwealth Parliament retains the legal power to alter the claimed automatic on-passing of the GST revenue to the states.

The Commonwealth Parliament can at any time alter these arrangements.

In addition, even under the proposed legislation the Commonwealth Treasurer retains the absolute discretion to determine the amount of GST revenue that is actually provided to the States.

For these reasons Labor Senators conclude that the states are losing even their current level of long term budget independence from the Commonwealth.

The Lock-In Fraud

In order to attempt to mislead the Australian people into believing that the GST rate will not rise in the future, the Government is pretending that has developed a mechanism to limit future GST rate increases.

This so-called lock in mechanism has no legal validity. It is not disputed that the Commonwealth Parliament cannot pass a law which limits the ability of future parliaments to amend that law. Any provision which purports to bind future parliaments can simply be removed or amended at any time by a future parliament.

Accordingly, clause 10 of A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999 has absolutely no legal affect in protecting consumers from future rate rises, nor from future removal of the GST free status of particular categories of expenditure.

Put simply, the provision is a mirage. The only way to guarantee that the GST rate will not rise is to enshrine that proposal in the Australian Constitution.

Wine Equalisation Tax (WET)

The WET proposal only arises because of the proposed introduction of a single rate GST. Labor is endeavouring to defeat the GST proposal. If this is successful, the WET will not be proceeded with by the Government as it is contingent on the passage of the GST.

Notwithstanding the above, we note that:

• There is no industry support for the Governments WET proposals;
• The proposed rate of WET will increase the aggregate taxation burden on the wine industry by an estimated $146m per annum from current levels;
• This is estimated to cost 500 jobs, mostly in regional Australia; and
• The WET will apply to wine used for promotional, tasting and sampling purposes, which creates an anomaly as the GST, does not apply to these transactions.

The WET proposal arises because the Prime Minister and Treasurer refuse to acknowledge that a multi rate indirect tax is more efficient and equitable than multiple different indirect taxes applying to the same goods.

The world renowned accounting firm, Arthur Anderson, eloquently described the situation in its submission to the committee:

“As a third general comment, we note that the Governments gaol of single rate GST has been meet artificially. The WST has been replaced with three new taxes-GST at 10%, a new “luxury” car tax at 25% and wine equalisation tax at a rate yet to be announced. Simplicity should dictate that a multi-rate GST would be preferred. The strongest objection to this structure, is of course, that these taxes compound. GST will be payable on the wine equalisation tax itself….” [3]

Secondly, the use of multi tax regime must increase compliance costs for taxpayers relative to a single tax regime. This is especially so as the WET base differs from the GST base.

The committee heard much evidence of the growth and importance of wine tourism throughout the many and varied wine producing regions of Australia. Wine tourism underpins many thousands of jobs throughout Australia. Labor considers that the taxation system should encourage the further growth of this important emerging industry. The best way to assist the future growth of wine tourism is to encourage growth in cellar door sales. The proposed WET does not achieve this.

Accordingly Labor proposes that a significant exemption for cellar door sales should be provided in order to assist the development of small and medium sized wineries.

Luxury Car Tax (LCT)

As with the WET the proposal for a separate LCT is flawed. Compliance costs are being unnecessarily raised for taxpayers with no offsetting benefit derived.

Due to the Government not agreeing to an extension, Labor members regret not having the opportunity to pursue in public hearings the many anomalies facing the motor vehicle industry from the LCT and the denial of input tax credit over the transitional period.

Again, the LCT is contingent on the passage of the GST which Labor is committed to defeating.

Conclusions

The defeat of the GST bills will result in these bills not being proceeded with by the Government.

Accordingly, Labor members reassert their opposition to the GST.

Footnotes

[1] Qld Parliament Hansard, 14/4/99, P 1036

[2] Tasmanian Parliament Hansard

[3] Sub 927 p3