Chapter 6
The Health Sector
Provisions of the legislation relating to health care
Health and medical services
6.1 According to the Government's proposals, generally, medical and hospital
care services and health insurance are GST-free. In its deliberations
on the health sector, the Vos Committee noted the Government's rationale
for making most medical and hospital services GST-free:
6.2 Although many submissions to the Vos Committee argued that health
was a `public good' and therefore deserving of even more concessionary
treatment than that proposed by the Government, the Committee could only
acknowledge the intrinsic merit of health and confine its considerations
to the guidelines established by the Government. To frame recommendations
on the basis of the `merit' argument would have gone beyond the Committee's
terms of reference. [2] Within these restrictions,
the Vos Committee made a number of recommendations expanding on the Government's
policy outlined in Tax Reform: not a new tax, a new tax system
which were accepted and included in the subsequent legislation.
6.3 A New Tax System (Goods and Services Tax) Bill 1998 (the Bill) provides
that a supply of a medical service is generally GST-free if it is provided
by or on behalf of a `medical practitioner' or an `approved pathology
practitioner', who are defined as a person who holds the same title for
the purposes of the Health Insurance Act 1973. The medical service
will be GST-free if it is a service that is `generally accepted in the
medical profession as being necessary for the appropriate treatment' of
the patient. [3] Examples of GST-free health
services include:
- health services covered by Medicare;
- general practitioner and specialist consultations; and
- diagnostic, surgical and therapeutic procedures (for example, opthalmology,
neurology, optometry, radiation oncology, anaesthetics, radiology, ultrasound
etc) and pathology.
6.4 A supply of a medical service is not GST-free if it is provided in
prescribed circumstances within the meaning of regulation 14 of the Health
Insurance Regulations. This would include the removal of tattoos and injection
of prescribed substances in the management of obesity. Medical services
provided in relation to cosmetic surgery or other cosmetic procedures
will not be GST-free unless a Medicare benefit is payable for such a service.
For example, a nose reconstruction for purely cosmetic reasons would not
be GST-free but a nose reconstruction that alleviated a breathing difficulty
or was performed following an accident would be GST-free.
6.5 Goods that are supplied in the course of a medical service will also
be GST-free, for example bandages, dressings and antiseptics, as is the
supply of goods if it is made at the premises at which the medical service
is supplied.
6.6 Other health services will be GST-free if they are provided by the
following health practitioners as listed in section 38-10 of the Bill.
The services originally proposed by the Government in their tax reform
policy were expanded on the recommendation of the Vos Committee. As
noted above the services must be necessary for the appropriate treatment
of the patient and be of the type normally supplied in that profession.
The listed services are:
- Aboriginal or Torres Strait Islander health;
- audiology, audiometry;
- chiropody;
- chiropractic;
- dental;
- dietary;
- nursing;
- occupational therapy;
- optical;
- osteopathy;
- paramedical;
- pharmacy;
- psychology;
- physiotherapy;
- podiatry;
- speech pathology;
- speech therapy; and
- social work.
6.7 The practitioner must be a `recognised professional' – a member
of a relevant professional body subject to State or Territory government
professional registration or uniform national professional self-regulation.
In certain hearing related services the practitioner must be an accredited
service provider under the Hearing Services Administration Act 1997.
6.8 The original tax reform policy had proposed that `commonly used health
services' such as dental and optical be GST-free. The Vos Committee therefore
restricted its consideration of GST-free health services to those that
were very similar in nature to, or fitted the general characteristics
of, those listed in the original Government policy. The Vos Committee
noted that these health services `would generally be considered by the
community to be mainstream rather than complementary or alternative, and
have been available as a specialist service, with specific qualifications
for some time'. [4]
6.9 A supply is GST-free if it is provided by an ambulance service in
the course of the treatment of a patient. Other government funded health
services will be GST-free where:
- a supplier receives funding from Commonwealth, State or Territory
governments in connection with the supply of the health service;
- the supply is connected with the supply of a health service; and
- the health service is approved by the Minister as essential for patient
welfare.
For example, coordinated care services where a care provider coordinates
medical and other health services on behalf of a patient.
6.10 The Bill also provides a list of medical aids and appliances specifically
designed for people with an illness or disability, supplies of which will
be GST-free. These medical aids and appliances are discussed in the chapter
on disability services.
Hospital treatment
6.11 Hospital treatment in both private and public settings will be GST-free
except when providing cosmetic and other, limited, services as outlined
in the section on medical services. Hospital treatment includes meals,
accommodation and nursing services in addition to any medical treatment
that an individual may receive while in hospital. It also includes goods
used as part of the treatment of an individual (eg drugs and medicines,
crutches and wheelchairs) and services such as hospital in the home, outpatient
and community outreach services.
6.12 Goods and services that are not integral to the treatment of an
individual will have a GST applied, including television and phone rental
services. Food served in hospital cafeterias would also come within this
category. [5]
Pharmaceuticals and health remedies
6.13 The Government originally proposed that prescription only pharmaceuticals,
and pharmaceuticals supplied on prescription and listed on the Pharmaceutical
Benefits Scheme (PBS) or the Repatriation Pharmaceutical Benefits Scheme
(RPBS) would be GST-free. This policy was subject to advice from the Vos
Committee.
6.14 The Vos Committee indicated that the issue of whether certain drugs
and medicines possess meritorious qualities, was not one that was used
as the basis for the Committee's decision. Instead, the Vos Committee
considered the competing objectives of simplicity in administration and
compliance, clear and definitive boundaries, and limits to concessional
treatment for revenue protection, as the basis for drawing boundaries
on this issue. [6]
6.15 The Vos Committee recommended, and the Government accepted, that
drugs and medicines to be GST-free should be limited to:
- drugs and medicines that can only be provided on prescription (S4
and S8 items on the Standard for the Uniform Scheduling of Drugs and
Poisons);
- drugs and medicines that can only be sold within a pharmacy under
the advice of a pharmacist (S3 on the Standard for the Uniform Scheduling
of Drugs and Poisons); and
- PBS and RPBS products provided on prescription.
6.16 A crucial issue for the Vos Committee to determine was the treatment
of over the counter non-prescription drugs and medicines. The Vos Committee
concluded that if GST-free treatment were to be extended generally to
over the counter drugs, it would add complexity by imposing a burden on
general retailers, requiring them to separately account for sales of these
products. [7]
6.17 The Department of Health and Aged Care (DHAC) submitted that individuals
who have a medical reason to be high users of some over the counter drugs,
such as stroke victims who may require small doses of aspirin daily, generally
receive prescriptions from their medical practitioner for these medicines,
and take these preparations under strict medical supervision. As is appropriate
in these cases, the prescription will be GST-free. [8]
6.18 DHAC referred to some confusion about why particular medicines may
be listed on more than one Schedule of the Standard for the Uniform Scheduling
of Drugs and Poisons, and consequently will have a different tax treatment.
There are some products that are available on Schedule 2 (S2) or Schedule
3 (S3), or in prescription form, depending on the amount of active ingredients
and the volume of the drug that may be sold. DHAC argued that there are
sound medical reasons for this scheduling. For example, excessive usage
of some ingredients, such as pain relievers, may have adverse effects
or mask and hide long term symptoms about which individuals should consult
a medical practitioner.
6.19 The Vos Committee also considered submissions seeking GST-free treatment
for natural remedies and suggestions that the Australian Register of Therapeutic
Goods (ARTG) schedule be used as the basis for regulating the types of
drugs that would qualify for GST-free treatment. However, the Vos Committee
`felt that such proposals had significant adverse revenue implications
and would not be simple to administer and could significantly add to compliance
burdens on business'. [9]
6.20 DHAC noted that pharmaceuticals listed on the PBS have been through
an evidence-based safety and efficacy process. [10]
While the Department commented that a similar efficacy process does not
apply to natural therapy goods, the Committee notes that the Government
recently introduced amendments to the Therapeutic Goods legislation to
regulate and manage complementary medicines to ensure that these medicines
are safe, effective and of a high quality.
General issues arising in relation to health and medical services
Modelling
6.21 Both the Departments of Health and Aged Care, and Family and Community
Services told the Committee that they had not undertaken any analysis
on the impact of the new tax changes. There had been no modelling to examine
how the GST would affect the health and community sectors. The evidence
provided at the hearing stated that that was a matter for Treasury. [11]
6.22 The Committee notes the discussion in the First Report of the Select
Committee on a New Tax System on macro and micro economic modelling. [12]
The Select Committee noted that microeconomic models can incorporate individual
economic units such as households or firms which may then be grouped into
individual markets or industries, including the relationship between them.
6.23 The Treasury model, PRISMOD (which was used to create the cameos
in Tax Reform: not a new tax, a new tax system), drew considerable
comment in evidence before the Select Committee. One of the assumptions
used in the Treasury calculations was to assign the same cost of living
measure to all households, ie an average. Most other modellers disagree
with this approach and prefer to assign different cost of living measures
depending on household income levels.
Department of Health and Aged Care: no assessment of health impact
of imposing
GST on pharmaceuticals and fresh food
CHAIR – Has the department undertaken any research, or are
you aware of any research, that indicates what might be the impact of
taxing fresh food in terms of health outcomes?
Ms Briggs – No, Senator. To my knowledge no research on that
matter has been
undertaken.
CHAIR – Is it something the department might do?
Ms Briggs – At this stage we have no intention of doing so.
CHAIR – Equally, have you done any research or made any calculations
about the
impact of the GST on Aboriginal and Torres Strait Islander people in terms
of increased costs, particularly of food, for example, and particularly
for those living in remote areas?
Ms Briggs – Certainly these are issues that we have considered,
yes, and provided advice on in the appropriate fora.
CHAIR – Is that advice available to the committee?
Ms Briggs – That was advice to our minister in cabinet contexts.
CHAIR – Just to be clear, the answer to the question is that,
no, there has been no
research done on the impact of fresh food but that there has been some
advice around similar issues about the impact on remote Aboriginal and
Torres Strait Islander people?
Ms Briggs – Certainly those were among the issues we considered,
yes.
CHAIR – Thank you.
Senator CHRIS EVANS – What is the effect on those people?
Ms Briggs – I am sorry but, as I explained to Madam Chair,
that was advice to the
minister.
Senator CHRIS EVANS – I am not asking you what you advised
the government; I am asking you, as the department for health, what you
think the impact of those changes will be on those people.
Ms Briggs – As I think Ms Davidson explained earlier, issues
to do with price effects
and compensation are really a matter for Treasury.
Senator CHRIS EVANS – I was not asking about price effects;
I was asking about
health effects. I am asking you as the health department about health
outcomes. You have, in glowing terms, endorsed the package in this submission
to us. I am asking you what work you have done on health outcomes arising
from the changes to the taxation regime on food, pharmaceuticals and other
things.
Ms Briggs – As I explained to you, we have done no detailed
work in that area.
Senator CHRIS EVANS – So we do not know what the impact will
be in that area?
Ms Briggs – No, we do not.
Source: Committee Hansard, 2.2.99. pp. 41-42.
6.24 The Select Committee referred to the belief of key social welfare
groups that Treasury's modelling underestimates the impact of the GST
on the living costs of low income households because it does not take
account of variations in savings and expenditure patterns among different
households. [13] Similar criticism of the use
of an average in being unable to account for variations in low income
households' savings and expenditure patterns was also made in evidence
to the Community Affairs Committee.
Impact on users of over the counter medications and health products
6.25 The weight of evidence received by the Committee indicated that
the application of the GST on over the counter medications and health
products would be felt mostly by those who can least afford it, specifically:
- those on low incomes;
- the elderly;
- residents of rural and remote areas;
- the chronically ill; and
- families with young children.
(a) Low income households
6.26 Households with the lowest income levels spend a much greater proportion
of their disposable income both on health care generally, and non-prescription
medication than households in the highest income levels.
6.27 The lowest 20 per cent of households, which have an average weekly
income of $151.66, spend $14.81 per week or 9.7 per cent of their income
on total medical care and health expenses. Households in the highest 20
per cent bracket on an average weekly income of $1608.77 spend $45.73
a week or 2.8 per cent of their income. [14]
6.28 In the lowest household income group, $2.84, or 19.2 per cent of
the total expenditure on medical and health expenses, is made up of non-prescription
medicines and products defined in the ABS Household Expenditure Survey.
6.29 In addition, low income earners tend to encounter a higher level
of health problems than higher income earners.
6.30 The imposition of a 10 per cent GST will mean that low income earners
will have the harsh choice of whether to devote a higher percentage of
their income to maintain the same level of self medication for themselves
and their children, or to reduce this important aspect of health treatment
and suffer from even greater health inequalities compared with those who
can afford to look after themselves adequately.
(b) Older people
6.31 The use of medication generally increases with age, with about 92
per cent of people aged 75 and over using medications regularly. [15]
The application of a GST on over the counter medication will mean increasing
costs for treatments upon which these older people rely. Important products
used by older people include bandaids, paracetamol, creams and stretch
bandages to treat painful arthritic conditions (a very common health problem
amongst older people), medicated creams as well as gels, and antifungal
creams, and creams for the treatment of ulcers. In a double blow, some
of these treatments were recently de-listed from the PBS leading to higher
`out of pocket' costs for those older people dependent on the therapeutic
effects of these medicines. [16]
(c) Residents of rural and remote areas
6.32 Australians living in rural and remote areas have unequal access
to health services due to the concentration of many services and doctors
in larger urban areas. People in rural and remote areas travel considerable
distances to access health services. Despite incentives programs, it has
been difficult to attract and retain GP's to practice in rural areas.
There has been a parallel decline in the number of rural pharmacies.
6.33 As a consequence rural and remote residents tend to visit the doctor
less frequently and self-medicate with non-prescription medications. The
effect of the proposed definitions for which items would be GST-free will
discriminate against rural people who rely more heavily on those items
excluded from the definition of health products.
(d) People with chronic illness
6.34 Research provided to the Committee by the Chronic Illness Alliance
and Consumers' Health Forum [17] shows that
many chronically ill people cannot afford the required medication for
all their health needs, particularly when encountering added minor acute
illnesses such as coughs and colds. Many are forced to choose which of
their illnesses to purchase medicines for, or to go without medication
in order to buy medicines for their children. Many may also be forced
to take medication only when the symptoms become extreme, or to only take
part of the required dosage.
6.35 The Chronic Illness Alliance's research found that the costs of
both medication and associated needs are a major contributor to hardship
for all people with chronic illness, regardless of income. They are high
users of S2 products bought at a pharmacy. The Committee shares the concern
expressed by a number of groups that on top of a range of other expenses
encountered by the chronically ill, the GST on over the counter medication
will only increase their hardship. [18]
(e) Families with young children
6.36 For families with young children, the consumption of pharmacy items
is greater due to the common ailments incurred by children. A range of
baby and younger children's products such as infant paracetamol and cough
and cold medication will be taxed.
6.37 Families with young children also require large amounts of sunscreen
to protect them properly from skin cancer. For a family this can quickly
escalate into an expensive outlay. It is imperative that in order to reduce
the incidence of skin cancer in adults, childhood protection from dangerous
levels of exposure to the sun is an absolute priority.
6.38 As a result of this increased hardship for those who can least afford
it in the Australian community, the government will collect $80m from
the imposition of a GST on over the counter products. Despite this increased
revenue for the government, the Committee considers that discouraging
people from purchasing over the counter medication will increase the number
of people visiting GP's to obtain prescriptions for more expensive medications
for ailments which could be self-treated. When appropriate, over the counter
medicines are more efficiently obtained, and have proven safety.
6.39 It was argued in evidence that the revenue gained from applying
a GST to over the counter or complementary healthcare products is outweighed
by the savings in the health budget achieved by their widespread use [19].
The Committee is of the view that the imposition of a GST will increase
the strain on the public health system by, on the one hand, unnecessarily
increasing demand for publicly funded GP and PBS services, and on the
other hand, discouraging the prevention and treatment of illness through
responsible self-medication.
Impact for public health programs
6.40 A number of organisations drew attention to the conflict where the
application of a GST on various products was contrary to important public
health measures currently funded by government. The GST will create a
disincentive for people to adopt improved health behaviours advocated
by these public health campaigns. The Committee notes this significant
policy conflict whereby the introduction of the GST runs contrary to broader
public health and protection issues and public health policy.
6.41 The National Cancer Control Initiative is an especially important
example of this contradiction. It is an identified National Health Priority
Area. Australia has the highest rate of skin cancer in the world, with
the incidence of melanoma increasing dramatically since the early 1980's.
Over 270,000 people have a skin cancer removed each year and nearly 1,000
Australians die of skin cancer every year. [20]
This high incidence has placed a huge demand on preventive and curative
services.
6.42 The Australian Cancer Society advised the Committee that skin cancer
is the most expensive burden on the health system of all cancers, with
over $300m spent annually on the treatment and management of skin cancer
by hospitals and general practitioners. [21]
6.43 The Melanoma and Skin Cancer Research Institute submitted that:
There are a large number of products available `over the counter'
which are effective both in preventing skin diseases and in treating
established skin diseases. These include sunscreens, soap alternatives,
anti-fungals, treatments for psoriasis and seborrhoeic dermatitis,
treatments for baby rashes and cradle-cap and, of course, analgesics
which are vital to the management of many people with chronic pain
or even acute problems such as headache and muscular damage. These
conditions should not necessitate a visit to the doctor in order to
gain relief. [22]
6.44 The Committee believes that applying a GST to sunscreen, which is
currently tax exempt, runs contrary to public health measures aimed at
reducing the incidence of skin cancer.
6.45 As the Australian Cancer Society said `the continuation of having
no tax on sunscreen will provide considerable health benefits to the general
public and in the long term potentially reduce considerably the costs
of the public health system'. [23]
6.46 Lung cancer remains a major killer in Australian society. Anti-smoking
campaigns such as Quit are aimed at reducing smoking levels, a primary
risk factor for lung cancer. Yet, major aids in quitting smoking, the
use of tobacco patches or gum such as Nicorette [24],
will have a GST applied.
6.47 As noted in the earlier sections on food and the GST, it was argued
that the application of a GST on basic foods will make it harder to protect
the nutritional health of Australians due to nutritious fresh foods becoming
more expensive relative to less healthy manufactured foods. This effect
of the GST runs contrary to government efforts to encourage healthier
eating as a cost-effective way of achieving better health as promoted
through the Dietary Guidelines for Australians and the NHMRC strategies
from Acting on Australia's weight: a strategic plan for the prevention
of overweight and obesity. [25]
6.48 The application of the GST on previously tax exempt products, such
as sanitary items and condoms, will increase the cost of these items.
The Australian Federation of AIDS Organisations (AFAO) argued that access
to the means of prevention of HIV transmission, including condoms, water
based lubricants and clean syringes, should be as freely available as
possible and accessible to all members of the Australian community. AFAO
commented that `a tax on these items would adversely affect the public
health outcomes of the Third National HIV/AIDS Strategy'. [26]
6.49 Concerns over the future funding and viability of government public
health programs were also raised in evidence. The Public Health Association
of Australia (PHAA) raised concerns about the impact that transferring
GST revenue to the States and Territories would have on the future funding
and operation of public health programs. The PHAA asserted:
That national initiatives in public health would thus be threatened
with the States and Territories then not taking necessary public health
initiatives or operating in isolated, fragmented ways which result
in programs and activities which are much less effective than they
would be through national approaches and consistency. [27]
6.50 The Committee considers that this would lead to a move away from
national programs, just at a time when their importance is being recognised
by government. For example the Federal government was recently forced
to intervene with a national immunisation campaign due to the inadequate
funding being provided at the State and Territory level.
Pharmaceuticals and pharmacies
6.51 The Committee received evidence that the limitation of GST-free
pharmaceuticals both between schedules and with the anomalous distinctions
between similar items on different schedules could adversely impact on
treatments and result in general confusion.
6.52 The Pharmacy Guild of Australia (the Guild) typified the problem
when it submitted that the Vos recommendations, now enshrined in the legislation,
ignored a significant group of products, the GST status of which would
be a source of confusion to consumers. These products are restricted to
sale through pharmacies only, albeit not necessarily under the supervision
of a pharmacist, and are classed in Schedule 2. [28]
6.53 Groups representing pharmacies and the pharmaceutical industry advised
the Committee of many items where confusion arises because the same item
will be available both as GST-free and GST-inclusive depending on the
circumstances of supply or depending upon product strength and/or pack
size, eg Panamax, Panadeine, Nicorette. This current scheduling of products
between S3 and S2, with only S3 proposed to be GST-free will also create
a high degree of administrative complexity. [29]
6.54 The concerns expressed by these groups were that not only are these
situations extremely confusing for the average consumer, they will also
directly encourage unnecessary purchases of larger quantities or higher
strength products and promote inappropriate use and/or hoarding of medications.
The exclusion of S2 products from GST-free status could create an incentive
for consumers to seek to avoid the extra GST costs by visiting a doctor
and obtaining those items on PBS prescriptions, thereby putting further
strain on public funding of medical services. These outcomes would conflict
with the measures and initiatives undertaken in recent years to promote
quality use of medicines.
6.55 Medicines are often re-scheduled from prescription only (S4) to
S3 or S2. Down scheduling of these products does not mean that they are
not required for a legitimate medical complaint. Where a product is rescheduled
as S2, it would incur a GST and may cause some patients to discontinue
their use of medicines, leading to medical conditions remaining untreated.
Older people particularly lose the ability to purchase these medicines
at concessional rates and prices increase even without the GST. Evidence
was given that considerable down stream costs could be incurred by rescheduling
medicines through, for example, additional doctor visits and possible
time off work. [30]
6.56 The Committee believes that the application of a GST on over the
counter products will create unnecessary complications, anomalies, and
price distortions on medications.
6.57 Non prescription medicines are made easily accessible at present
not only because of their health benefits, but also their proven safety.
Imposing tax on products that have proven health benefits and may be used
with safety, will have the perverse effect of reducing their accessibility
and usage, thereby increasing demand for alternative products which may
have harmful side effects requiring a controlled usage through prescriptions.
6.58 Consistent with the basic objectives of simplicity and clarity,
both the Guild and the Pharmaceutical Society of Australia submitted that
the GST-free treatment of medicines should be extended to S2 products
as well as S3. This proposal received broad support from welfare and consumer
agencies with ACOSS, among others, making the same recommendation. [31]
The Australian Consumers Association (ACA) noted that including `pharmacy
only' S2 products `would impose no burden on general retailers and would
not further complicate the compliance of pharmacy businesses who are already
selling a mixture of taxable and GST-free products'. [32]
6.59 A number of organisations, including the Proprietary Medicines Association
of Australia (PMAA) and the Complementary Healthcare Council of Australia,
carried the argument a step further. They argued that because the `pharmacy-only'
S2 medicines and `unscheduled' medicines are either registered or listed
on the Australian Register of Therapeutic Goods (ARTG) and with few exceptions
are currently not subject to sales tax, the GST legislation should adopt
the policy of the sales tax law and all medicines on the ARTG should be
GST-free. [33]
6.60 All products making therapeutic claims or containing prescribed
substances must be included on the ARTG. These products have been subject
to various levels of scrutiny to establish their therapeutic benefit.
The purpose of the Register is for public safety and protection. The PMAA
advised the Committee that the Australian Taxation Office decided to accept
the ARTG as the practical industry benchmark for determining the sales
tax classification of drugs and medicines. Thus only a very small number
of medicines included on the ARTG are not automatically exempt from sales
tax. [34]
6.61 The PMAA argued that all those same products should be classified
within the GST context, in the same manner as they were when the ATO accepted
the ARTG as the benchmark for sales tax exemption. They considered that
the net impact on the tax revenue generated from wholesale sales tax compared
to that from a zero rated GST when applied to all medicines, would be
minimal. [35]
6.62 While, as noted earlier, the Vos Committee rejected using the ARTG,
the PMAA believed that such an approach would have `beneficial public
health policy outcomes' and argued:
In particular, responsible self-medication, rather than resort to
doctor and prescribed medicines for every common ailment, is efficient
and cost-effective. Medicare and PBS costs would also be reduced –
plainly an offset against the revenue losses of which the Vos Committee
made so much. [36]
6.63 Ironically, the Government itself has acknowledged the `growing
use and acceptance of complementary health care products in this country
and throughout the world'. [37] The Government
recently introduced into Parliament amendments, to the Therapeutic
Goods Act 1989 designed to provide a new and appropriate framework
for the regulation and management of complementary medicines. [38]
This new framework for complementary medicines proposed by the Government
addresses key issues related to market access, the regulatory environment
as well as allowing for greater expert and industry participation in the
regulation of complementary healthcare products.
6.64 The PMAA also drew the Committee's attention to what it considered
to be a serious drafting defect in clause 38-50 of the Bill stemming from
a failure to define `drug or medicinal preparation' for the purposes of
the Bill. The PMAA held that an unintentional effect of the present drafting
will be to exclude many S3 medicines from GST-free status, which was not
the Government's stated intention. [39]
Impact on pharmacies
6.65 The Pharmacy Guild of Australia also commented upon the impact the
GST proposals would have on a pharmacy. The Guild noted that a pharmacy
would be placed in the unique position of being required to deal with
products falling within the three tax classifications of GST-free, GST-inclusive
and input taxed. The Guild argued:
The administrative complexities and costs associated with the handling
of these three product groups fall on a business sector already beset
with an onerous, government-generated, clerical load which, in most
cases, can only be handled by one person, namely the pharmacist. [40]
6.66 DHAC has acknowledged that as a result of selling a combination
of GST-free goods and goods that attract a GST, pharmacists will need
to have adequate administrative arrangements in place prior to the implementation
of the GST. The Department advised that Treasury estimates have put the
figure for ongoing compliance costs for the GST in 2001-02 at $1195 per
registrant. [41]
6.67 Significant cash flow problems, an even more complex administrative
burden and onerous compliance costs for pharmacies created by the new
tax system were also discussed by the Guild. [42]
The Committee believes that these impacts will be exacerbated for smaller
rural pharmacies, possibly leading to a further decline in the number
of rural pharmacies.
6.68 Evidence demonstrated to the Committee that compliance costs for
pharmacies would clearly increase, a situation which is contrary to the
Government's stated intention of down grading compliance costs for small
businesses.
Complementary health services
6.69 As noted earlier the legislation provides a list of health services
which will be GST-free. These services are commonly used health services
generally accepted within their profession as being necessary for the
appropriate treatment of a patient, and performed by a recognised professional
who is registered and possessing specific qualifications. The listed services
included what are generally considered mainstream services, such as chiropractic,
osteopathy and physiotherapy, although many complementary or alternative
health services such as acupuncture and traditional chinese medicine,
remedial massage, and naturopathy will be subject to the GST.
6.70 Organisations representing alternative therapists and therapies
argued that they should not be subject to a GST. They contend that they
are already penalised in contrast to medical services provided by GPs
and argue that it is a cost saving measure for people to utilise the preventive
health measures such as they offer. As the United Consumer Awareness Network
submitted:
6.71 To impose a GST on complementary health services will discriminate
against those who choose this form of medicine. Currently, the cost of
mainstream medicine is largely covered by Medicare. Yet despite this massive
economic incentive, millions of Australians are choosing complementary
health services, thereby reducing the burden on the public health system.
The Committee supports consumers having that choice and not being penalised
for taking responsibility for their own health.
6.72 Evidence was received that many of those who choose to use complementary
health therapies and medicines are low income earners and the disadvantaged.
For example, many carers and people with care needs use alternative health
therapies and over the counter products which they regard as absolutely
essential. [44]
6.73 The Committee received evidence from a number of organisations pleading
their case for inclusion in the GST-free list.
6.74 The acupuncturists and practitioners of traditional chinese medicine,
in addition to the above arguments of choice and saving to the health
system, also argued that they currently met the criteria used by the Government
in determining the GST-free list. Their services are commonly used and
widely accepted, mainstream health services. Private Health Insurance
Administration Council statistics reveal that acupuncture is a more frequently
used health service than many on the GST-free list, including speech therapy,
dietary services and occupational therapy. Indeed, acupuncture and traditional
chinese medicine are mainstream therapies in some of Australia's major
Asian trading partners, including China, Japan, Singapore and Taiwan.
6.75 The Committee's attention was also drawn to the anti-competitive
and discriminatory arrangement existing between acupuncture and traditional
chinese medicine services as provided by qualified professionals, and
those provided by GST-free medical practitioners. Acupuncture is a recognised
Medicare service when performed by a doctor, but is not when provided
by a professional acupuncturist. Often medical practitioners may only
have completed short courses in acupuncture, whereas a qualified acupuncturist
will have undertaken an accredited degree or higher degree program.
6.76 While Victoria is currently drafting legislation for the registration
of acupuncturists, about 80 per cent of practitioners belong to the peak
professional body subject to national professional regulation. A large
number of private health insurers already provide rebates for acupuncture
services provided by qualified practitioners (even if Medicare does not).
The accreditation standard set by the Australian Acupuncture and Chinese
Medicine Association has been the benchmark for providing recognition
by all the major insurers. [45]
6.77 Massage therapy was also a health service where issues overlapped
services on the GST-free list. The National Council of Massage and Allied
Health Practitioners submitted that massage therapy is recognised by the
medical professions as an integral part of overall health services, especially
in the treatment of stress and soft tissue injury. Massage therapists
work with physiotherapy, chiropractic and osteopathy (all on the GST-free
list) as part of a comprehensive treatment of patients in hospitals, hospices
and geriatric homes. [46]
6.78 These examples demonstrate further anomalous aspects of the proposed
GST which in these examples are not just inconsistent but arguably discriminating
and anti-competitive.
Hospital services
6.79 The Australian Private Hospitals Association (APHA), which represents
60 per cent of all private hospitals, was concerned that the reference
to `treatment' in the definition of `medical service' could limit the
definition to curative procedures and impose GST on preventive procedures.
APHA believed the definition of medical service should explicitly include
diagnostic, preventative and education services. [47]
The Ramsey Health Care Group, one of the largest private hospital operators
in Australia, expressed similar definitional concerns. [48]
6.80 APHA argued that the scope of hospital treatment to be GST-free
should be defined, like medical services, as broadly as possible. The
definition of `hospital treatment' used in the Bill is derived from the
National Health Act which refers only to accommodation and nursing care.
APHA noted that in addition to a range of other goods and services that
may be included in a hospital episode, such as pharmaceuticals, medical
care, allied health care and prosthetic devices, private hospitals provide
a range of community care health services outside of the hospital facility,
which do not include accommodation and may not include nursing care. While
some of these services must rely on other sections of the Bill to be GST-free,
APHA believes the definition should be clarified to ensure that any services
provided as part of a supply of `hospital treatment' should be GST-free.
[49]
6.81 APHA also referred to the administrative difficulties of separating
hospital services which are GST-free from those which are not, particularly
television and phone rental and food served in cafeterias. According to
DHAC, in most cases, these are optional services within a hospital, and
are already charged for separately, which will mean that the system will
be relatively easy for hospitals to administer. [50]
APHA disagreed with this view submitting that personal services and other
non-medical goods and services, such as television rental, are included
into the daily nursing/accommodation charge and are not always separately
billed. These services are provided as an intrinsic part of hospital operations.
APHA argued that to administer this arrangement would substantially increase
administrative costs for a minimal amount of revenue from the application
of the GST. [51]
6.82 APHA agreed that any increase in non-treatment costs for private
hospital care would to some extent be borne by private health insurance
(or the patient, depending upon whether or not they were insured). While
these cost increases may not be substantial for hospitals, they would
most likely flow on and result in an increase in private health insurance
premiums. [52]
6.83 The Australian Catholic Health Care Association (ACHCA) commissioned
Arthur Andersen to undertake economic modelling to assess the impact of
a GST on the services they provide. The original modelling provided to
the Committee was revised to factor in calculations of cost savings from
indirect tax reform and on-going sector compliance costs, and additional
motor vehicle costs.
6.84 The analysis demonstrated that the impact of the indirect tax changes
on the Catholic health care sector will be substantial, especially in
the first year. The sector will face additional costs on an on-going basis.
Compared to the Government's projection that costs to the health care
sector as a whole would decrease by 1.7 per cent, the Arthur Andersen
analysis found that the Catholic health care sector is likely to be almost
2.5 per cent a year worse off on an on-going basis and about 4 per cent
worse off in the first year. It was estimated that the indirect tax changes
alone will add $36-$56 million to costs in the first year with on-going
annual additional costs of about $5 million. [53]
Further details of the findings are discussed in the aged care chapter.
6.85 Services provided in Catholic hospitals are often directed more
towards medical patients, rather than surgical patients. The length of
stay is less predictable for their patients; often they are elderly and
in many cases people who are not well off. In a purely competitive, cost
recovery world, church and charitable hospitals would be unable to continue
providing services at the same levels to some groups, particularly those
most in need. These elderly, disadvantaged and needy people would be particularly
vulnerable to any reduction in service level or quality.
6.86 A smaller yet significant component of private hospitals –
the Church and Charitable Private Hospitals – was especially concerned
at the impact that the imposition of a GST would have on their sector.
They believe that the taxation of charities, and charitable hospitals
in particular, is quite unacceptable to the Australian community. The
important role of charities in Australian society and the argument for
their exemption is discussed in an earlier chapter.
6.87 The Church and Charitable Private Hospitals Association was concerned
that the increasing administrative burden, compliance and labour costs
imposed by the tax charges will adversely impact upon the services church
and charitable hospitals can offer. This would exacerbate the situation
whereby these hospitals currently find themselves under increasing pressure
from profit centered commercial concerns. The Association stressed that
the tax package needed to be seen in a broader context, at least as far
as hospital care is concerned:
We do not wish to see the commercialisation of hospital care in this
country totally overwhelm the spirit of charitable service which has
distinguished the church and charitable sector. Rather than employing
tax accountants to tell us that we should not make separate charges
for GST-taxable televisions and telephones but rather pad it into
patient bills, we would prefer to concentrate on our central commitment,
that is, providing quality care with compassion to as much of the
Australian public as we can. [54]
Impact upon indigenous health
6.88 In relation to health issues, Aboriginal people start from a position
of disadvantage at the outset. It is well documented that Aboriginal people
suffer from by far the worst health status of any group in Australia.
The enormous burden of morbidity and mortality experienced by Aboriginal
people in all age groups and all settings is strongly related to underlying
chronic poverty and disadvantage.
6.89 The National Aboriginal Community Controlled Health Organisation
(NACCHO) expressed major concerns regarding the potential impact of the
proposed tax reforms on Aboriginal health and Aboriginal community controlled
health services. [55] NACCHO argued that the
imposition of the GST would potentially have a negative impact on the
standard of living, and consequently the health and well-being, of Aboriginal
people. Price increases for essential goods and services needed by families
are likely to outweigh increases in benefits and other forms of income.
The effect on Aboriginal people in remote areas will be greater because
the base cost for essential goods and services is much higher in these
areas. This argument was expanded by ATSIC which outlined the cost of
living impact of the GST on food, clothing and footwear, housing, transport
and other items for rural and remote Aboriginal communities. [56]
6.90 NACCHO, while acknowledging that Aboriginal health services will
have GST-free status, was also concerned at the administrative burden
being placed on these services and the potential negative effect of the
proposed FBT changes on the ability of Aboriginal health services to recruit
and retain a professionally skilled workforce, particularly salaried doctors
and nurses.
Proposed limit on Fringe Benefits Tax (FBT) concessions
6.91 Currently, public hospitals that are public benevolent institutions
are exempt from FBT. Under the proposed tax changes, the FBT concessions
will be capped at $17,000 of grossed-up taxable value per employee. Any
amount above this limit will be subject to the normal FBT treatment and
taxed at 48.5 per cent. For a discussion of the impact of the proposed
changes on charitable and community organisations, see Chapter 3.
6.92 Evidence to the Committee indicated a need to limit the existing
FBT concessions. Further regulation will be required to ensure transparency
in the use of the concessions and provide guidance on the appropriate
use of salary packaging.
6.93 In its evidence, the Australian Healthcare Association (AHA) noted
that the proposed changes to FBT concessions could result in the loss
of $150 million from the public hospital sector. The AHA noted that the
existing funding arrangements between the Commonwealth and the States
were agreed on the basis that the FBT exemptions would remain in place.
Governments have been reducing health funding levels with the expectation
that public hospitals would use the FBT exemption in order to maintain
service levels.
6.94 The AHA argued that unless the proposed changes to FBT concessions
are accompanied by compensation, the already stretched public health care
system would suffer a significant loss that it cannot afford. [57]
Conclusions
6.95 The Committee notes that the Government has generally made the medical
and hospital care services GST-free. However, evidence to the Committee
has argued that the tax reform proposals in this sector do not meet the
competing objectives of `simplicity in administration and compliance',
with `clear and definitive boundaries' and limiting concessional treatment
`for revenue protection'.
6.96 The legislation is far from simple as demonstrated by the complex,
confusing and contradictory GST treatment of pharmaceuticals, certain
medical services and ancillary services provided in hospitals. The burden
on the public health system will increase both financially and in relation
to the availability of services. Further contradictions emerged with the
imposition of a GST on some health products conflicting with the objectives
of a number of government funded public health campaigns and initiatives.
6.97 The Committee notes the contradictory arrangements whereby some
pharmaceuticals will attract a GST while others will not. Ironically,
this could lead to an increase in health costs as patients seek medical
appointments to obtain GST-free prescriptions rather than purchasing taxed
medicines over the counter.
6.98 The Committee concludes that the treatment in the tax package of
complementary medicines is discriminatory. Implicit in the proposed tax
treatment of health is that traditional medicine is health promoting,
but complementary medicines and natural therapies are regarded as outside
the health system. This contradicts the approach adopted with the classification
therapeutic goods, a situation that the Committee believes is an artificial
distinction that creates a market distortion in the health industry.
6.99 Overarching all of these contradictions and complexities are the
Household Expenditure Survey figures which show that low income earners
spend considerably more on health than wealthier Australians. With the
CPI being used to calculate `an average' for compensation purposes, the
significantly higher health costs of low income earners have not been
factored into the compensation package being offered by the Government.
The Committee considers this situation to be inequitable.
6.100 Low income earners and people on fixed incomes and pensions will
be financially worse off in the health area, irrespective of its supposed
GST-free status. There are also significant concerns over the impact upon
the general health of these people as a result of the GST treatment of
health services and products.
6.101 The Committee concludes that the imposition of the GST on fresh
food is likely to have a harmful effect on the health of low income earners,
including Indigenous Australians. The Committee also considers that the
health of low income earners will be adversely affected by a GST on commonly
used non-prescription pharmaceuticals and health care products.
6.102 Finally, the Committee notes that existing funding levels in the
public health system have been set on the assumption that the existing
FBT concessions will be used by public hospitals in order to attract and
retain staff on packages below the market rate. The Committee agrees that
unless the proposed limit on FBT concessions is accompanied by compensation,
the change would represent a significant cut to public health funding.
Footnotes
[1] The Report of the Tax Consultative Committee
(Vos Report) p.25.
[2] Vos Report p.26.
[3] Section 38-5 of the Bill.
[4] Vos Report p.28.
[5] Section 38-20 of the Bill.
[6] Vos Report p.37.
[7] Vos Report p.37.
[8] Submission No.682, p.11 (DHAC).
[9] Vos Report p.38.
[10] Submission No.682, p.11 (DHAC).
[11] Committee Hansard, 2.2.99, for
example pp.22, 24, 65-6, 75 (DHAC) and pp.81-2, 124-5, 130 (DFaCS).
[12] Senate Select Committee on a New Tax System,
First Report, February 1999, Chapter 2, pp.7-32.
[13] Senate Select Committee on a New Tax System,
First Report, pp.29-30.
[14] Household Expenditure Survey: Detailed
expenditure items, ABS, Cat No.6535.0, pp.3,10.
[15] Submission No.928, p.25 (Australian Consumers
Association).
[16] Submission No.850, p.34 (CPSA/APSF).
[17] Submission No.254 (Chronic Illness Alliance);
Cost of Chronic Illness and Quality Use of Medicine, Consumers'
Health Forum, April 1997, tabled at hearing 3.2.99.
[18] Submission No.254, p.1 (Chronic Illness
Alliance); Submission No.273, p.2 (Pharmaceutical Society of Australia);
Submission No.609, p.2 (Consumers' Health Forum).
[19] Submission No.637, p.4 (Complementary
Healthcare Council of Australia).
[20] Details on the incidence of and mortality
from cancer may be found in Australia's Health 1998, AIHW, pp.85-94.
[21] Submission No.873, p.1 (Australian Cancer
Society).
[22] Submission No.422, pp.1-2 (MSCRI).
[23] Submission No.873, p.1 (Australian Cancer
Society).
[24] Nicorette will be GST-free when sold in
4mg strength (S3), but taxed when sold in 2mg strength (S2) which is the
more widely available form and easier for consumers to access - Submission
No.273, p.2 (Pharmaceutical Society of Australia) and Committee Hansard,
10.2.99, p.558 (PMAA).
[25] Submission No.796, p.2 (Dietitians Association
of Australia).
[26] Submission No.680, p.2 (AFAO).
[27] Submission No.895, p.8 (PHAA).
[28] Submission No.622, pp.8-9 (Pharmacy Guild
of Australia).
[29] Submission No.273, p.2 (Pharmaceutical
Society of Australia); Submission No.622, p.9 (Pharmacy Guild of Australia).
See also Committee Hansard, 4.2.99, pp.283-86 and 10.2.99, pp.556-57.
[30] Submission No.622, p.11 (Pharmacy Guild
of Australia); Committee Hansard, 3.2.99, p.140 (CHF).
[31] Submission No.68A, p.17 (ACOSS); Submission
No.609, p.3 (Consumers' Health Forum).
[32] Submission No.928, p.26 (ACA).
[33] Submission No.794, p.4 (PMAA); Submission
No.637, pp.1-2 (Complementary Healthcare Council of Australia); Submission
No.226, p.5 (National Herbalists Association of Australia).
[34] Committee Hansard, 10.2.99, p.559
(PMAA). See Taxation Ruling SST 12 – Sales tax: classification of
drugs, medicines and sunscreen preparations, 12 August 1998, p.18.
[35] Submission No.794, Attachment 1, p.6 (PMAA)
and Committee Hansard, 10.2.99, p.559.
[36] Submission No.794, p.4 (PMAA).
[37] Therapeutic Goods Legislation Amendment
Bill 1999, Minister's second reading speech.
[38] Therapeutic Goods Legislation Amendment
Bill 1999, Explanatory Memorandum, p.2.
[39] Submission No.794, pp.5-6 (PMAA).
[40] Submission No.622, p.7 (Pharmacy Guild
of Australia).
[41] DHAC, Additional information dated 5.3.99,
p.4.
[42] Submission No.622, pp.12-16 (Pharmacy
Guild of Australia).
[43] Submission No.847, p.2 (U-CAN).
[44] Committee Hansard, 11.2.99, pp.665,
672 (Carers Association Victoria and Gippsland Carers Association).
[45] The arguments outlined in these paragraphs
have been drawn from Submission No.662, pp.3-34 (AACMA); Submission No.337,
pp.2-8 (Mr Stephen Janz) and evidence Committee Hansard, 5.2.99,
pp.461-71.
[46] Submission No.40, p.4 (NCMAHP).
[47] Submission No.607, p.2 (APHA).
[48] Submission No.548, pp.4-5 (Ramsey Health
Care Group).
[49] Submission No.607, p.3 (APHA) and Committee
Hansard, 3.2.99, pp.164-5, 173.
[50] Submission No.682, p.10 (DHAC).
[51] Submission No.607, pp.3-4 (APHA) and Committee
Hansard, 3.2.99, pp.165-66.
[52] Committee Hansard, 3.2.99, pp.175-6
(APHA).
[53] Submission No.683A, p.3 (ACHCA) and attached
Tax Reform Impact Study, March 1999, pp.i, iii.
[54] Submission No.668, p.4 (CCPHA).
[55] Submission No.510, pp.1-2; Committee
Hansard, 3.2.99, pp.177-78, 183, 186-87.
[56] Submission No.810, pp.7-12 (ATSIC) and
Appendix A - Aboriginal Communities and the GST in the North, a
study by Owen Stanley from James Cook University.
[57] Submission No.657, pp.4-6 (AHA) and Committee
Hansard, 4.2.99, p.333, 337-8.