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A New Tax System (End of Sales Tax) Bill
Date Introduced: 2 December
House: House of
Commencement: The day after
specified goods and services tax legislation(1) proposed to
commence 1 July 2000 has received Royal Assent.
The purpose of
the A New Tax System (End of Sales Tax) Bill 1998 (the Bill) is to
remove the sales tax liability currently imposed on certain goods.
In the Second Reading Speech to the Bill on 2 December 1998, the
Treasurer, Mr Costello, said the 'Bill abolishes the wholesale
Sales Tax: A
The existing sales tax in Australia is,
generally speaking, a tax, levied on an ad valorem [ie a
proportion of the value of the goods] basis on sales of certain
identified goods by manufacturers and wholesalers to retailers. It
is a wholesale sales tax, defined in the Hawke Government's draft
White Paper, 'Reform of the Australian Tax System' (RATS) published
in June 1985, as a 'tax levied on goods at the point of last
A brief history of Sales Tax in
The Commonwealth first introduced sales tax in
In the Budget Speech on 9 July 1930, the then
Prime Minister and Treasuer, Mr Scullin, said that in formulating
the 1930-31 budget the Government was 'faced with a financial
depression without parallel in the 30 years' life of the
Commonwealth.'(3) Prices for Australia's primary produce, and hence
revenue from exports, had fallen considerably. Overseas loans to
Australia had ceased. Drought was adversely affecting agricultural
production. Imports were restricted, or in some cases prohibited,
with the result that customs revenue was much reduced.
In an effort to balance the budget Mr Scullin
announced, among other things, the imposition of a sales tax of
21/2 per cent, on the sale prices of commodities sold in Australia
other than those which are to be exempted.(4) Exemptions included
sales by primary producers and sales of goods for export. Food was
also exempt from the tax.
During the second reading debate to the Sales
Tax Assessment Bill (No 1) Mr Scullin again noted the loss of
customs revenue and the need for the Commonwealth to look to other
sources of revenue. He noted that the tax was often introduced as
an emergency measure and 'the first important country to impose the
tax was Germany, in 1918.'(5)
In response to a question from Mr Francis,
Nationalist Party, United Australia Party and then Liberal Party
Member for Moreton, as to whether the sales tax was a temporary
measure, Mr Scullin said that he did not know how long it would
operate. Further he said:
I do not assert that it is temporary or
emergency legislation. We have to face the fact that we cannot
continue to depend on customs duties from imports artificially
stimulated by borrowing abroad. We have not been conducting our
affairs on sound lines. It is sounder to impose indirect taxation
of this kind on goods sold in the country, than to depend on
customs duties upon imports artificially swollen by placing our
country in debt to the foreign money-lenders. The Government hopes
that in the course of time the rates may be reduced and the
On 28 July 1930 in recommending to the House the
imposition of the wholesale sales tax, Mr Riley, ALP Member for
South Sydney, said that it was a preferable tax to a retail sales
tax. A retail sales tax, Mr Riley said would mean all shops would
need to keep close accounts of all sales and that 'an army of
inspectors' would be required to 'police the working of the
scheme.'(7) Further, Mr Riley said a wholesale sales tax is easily
collected and although it is 'one of the soundest methods of
taxation', he prophesied that its imposition would not be
Dr Earle Page, Australian County Party, first
noted that the Labour [sic] Party 'has been renown in the Federal
Parliament as the pioneer of new taxation'.(9) He then stated that
the 'sales tax is essentially undemocratic':
Its operation is inverse to that of the income
tax, which makes a progressively higher levy as the income
increases. The sales tax is a consumption tax, purely and
Dr Page continued:
Being a consumption tax, the burden of taxation
is to be shifted from persons with large incomes to those whose
incomes are small.(11)
In his criticism of the proposed sales tax
legislation, Mr Parkhill, Nationalist, later United Australia Party
Member for Warringah, queried why the tax was not to be collected
at the point of last sale. In answering his own question, Mr
Parkhill said to impose the tax at the point of last sale would be
to continually remind the public that they are paying a tax. Thus
'in order to avoid the political consequences of the resentment
that would inevitably arise, the Treasurer is adopting the
circuitous method of making the wholesaler a tax collector for the
In the event, a single rate of tax was imposed
and this rate remained in operation until 1940, 'when the Second
and Third Schedules were included in the Sales Tax (Exemptions and
Classifications) Act.(13) At the time of the Asprey Report, the
early 1970s, there were three rates of tax, 271/2 per cent on
consumer durables such as televisions and stereos as well as
cosmetics and furs; 21/2 per cent on furniture and 271/2 per cent
on cars. Food, clothing and services were exempt from the tax, and
the Asprey Report noted this meant that 'sixty per cent of personal
consumption expenditure ... is not directly subject to
At present there are various classifications and
rates. Examples of these different rates are:
- exempt goods such as wool packs, fencing, pest killers, certain
food and drink for human consumption, clothes, drugs and medicines,
contraceptives, books, imported antiques, raffia and imported
- household goods such as soft furnishings, baths, sinks toilets,
confectionery, flavoured milk, and maps: 12%
- general rate goods: 22%
- luxury goods such as furs, watches and televisions: 32%
- cars up to $36,995: 22%
- cars over $36,995: 45%
- alcoholic wine and cider: 26%
The wholesale sales tax has been much
criticised. In the Reform of the Australian Tax System,
published in 1985, for example, it is stated that the lack of
comprehensiveness of the tax and its multiple tax rate structure
lead to various problems including:
- the narrow tax base means that higher tax rates are required to
generate a given level of revenue.
- the tax impacts differentially on various commodities and so
interferes with consumption and production decisions
- individuals with the same income bear different tax burdens
merely because they have different consumption patterns, and
- the extent of commodity exemptions and the multiple tax rates
lead to greatly increased administrative costs.'(15)
Similarly, Dr Neil Warren, Associate Professor
of Economics at the University of New South Wales has observed that
the existing sales tax is not broadly based, it is not transparent
and which goods are taxed is not well understood.(16)
In response to the often quoted criticism of the
wholesale sales tax that certain luxury goods, such as caviar, are
exempt while children's toys are taxed, Mr Damien Walsh, National
Practice Leader, Indirect Taxes, Arthur Andersen, states that the
simple answer is to tax caviar and exempt children's toys. This
criticism of the wholesale sales tax, Mr Walsh continues 'cannot
seriously be presented as a rationale for the introduction of a
major new, complex and costly tax system into Australia.'(17)
Further, Mr Walsh observes that many of the stated deficiencies of
the wholesale sales tax apply equally, if not more so, to the goods
and services tax.(18)
Clause 3 repeals sales tax on assessable
dealings if the dealing occurs on or after the commencement of the
Act. The Act will not commence unless other specified goods and
services tax legislation has first commenced.(19) This avoids the
possibility of abolishing sales tax without first having introduced
a goods and services tax.
An 'assessable dealing' is defined in section 5
of the Sales Tax Assessment Act 1992 as meaning any
dealing covered by Table 1 of that Act. For example, a 'wholesale
sale by a person who manufactured the goods in the course of any
business' is an assessable dealing.
- The Act commences after section 1-2 of the A New Tax System
(Goods and Services Tax) Act 1998; section 2 of the A New Tax
System (Goods and Services Tax Imposition - Excise) Act 1998;
section 2 of the A New Tax System (Goods and Services Tax
Imposition - Customs) Act 1998; section 2 of the A New Tax System
(Goods and Services Tax Imposition - General) Act 1998; and section
2 of the A New Tax System (Goods and Services Tax Administration)
Act 1998 commence, that is on 1 July 2000.
- Reform of the Australian Tax System AGPS 1985, p. xiv.
- Hansard, House of Representatives, 9 July 1930, p.
- Ibid., p. 3902.
- Ibid., 30 July 1930, p. 4930.
- Ibid., p. 4935.
- Ibid., 28 July 1930, p. 4771.
- Ibid., Mr Riley also prophesied that:
'The time is not to far distant when the State
Parliaments will have to go, and we shall have one national
Parliament for the whole Commonwealth. That would be a true
economy' (p 4770).
- Ibid., 5 August 1930, p. 5275.
- Ibid., p. 5276.
- Ibid., p. 5279.
- Ibid., 5August 1930, 5287.
- Taxation Review Committee, Full Report, 31 January 1975 (the
Asprey Report), AGPS, Canberra 1975, p. 523.
- Ibid., p. 513.
- Reform of the Australian Tax System AGPS 1985, p. 117.
- N Warren Tax Facts and Tax Reform Australian Tax
Research Foundation 1998, p. 28.
- D Walsh 'Comment on "Why have so many countries adopted VAT?"'
in Binh Tran Nam (ed) Tax Reform and the GST: An International
Perspective Prospect 1998, p. 81.
- refer endnote 1.
Max Spry, Consultant
8 February 1999
Bills Digest Service
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