Chapter 16
ConclusionsWeaknesses
of the Natsem Analysis - Conclusions Of Democrat And Labor SenatorsThe
NATSEM analysis fails to deliver the data in the form required by the Committee.
The result of this is that the impact of the GST on low income households is significantly
understated, with many shown as "winners" who, with full analysis, would
have been losers. This point was acknowledged by Harding in her presentation to
the Senate Committee. In its discussions, the Committee members were under
the clear understanding that the data provided by NATSEM would present the results
for the first year of the ANTS package rather than the second. Further, the Committee
had expected that the data be adjusted to take into account the differing expenditure
patterns in the HES not just of each cameo group, but of income levels within
groups. This was in line with the advice to the Committee provided by NATSEM in
the December report on modelling which stated that: "Low income people
spend their income in different ways to those on high incomes. For example, most
food and clothing items are currently not taxed under wholesale sales tax, but
will be taxed under the GST. Analysis using the STINMOD-STATAX model for 1996-7
suggests that the average Australian family spends 18 per cent of total expenditure
on food. However, the picture does differ significantly by income level. Thus,
households with incomes below $450 a week spend 22.5 per cent of their total current
expenditure on food, while those with incomes above $450 a week spend 17.7 per
cent of their total expenditure on food." Warren and Harding in that
report also informed the committee that: "There is also an issue about
the timing of price rises. It appears that the expected price increase in 2000-01
is greater than that expected in 2001-02, and that the latter has been used in
the construction of the cameos." It was the Committees clear
understanding that both of these issues would be addressed in the NATSEM modelling.
Indeed, it was commissioned for that primary purpose. However, it appears that
NATSEM had legitimate doubts about whether the HES data was sufficiently robust
to model the cameos with their detailed income levels. This concern was
never passed on to the members of the Committee. If it had been , the
Committee would have commissioned modelling looking at quintile or decile distributions
which would allow the income effect to be reflected. It was never the intention
of the Committee that NATSEM should assume an average spending pattern for each
income group. To assume that an unemployed person has the same spending pattern
as a person on $150,000 a year as is assumed in Cameo One is a complete fiction,
and discredits the validity of the analysis. It is a pity that while NATSEM
focused (without discussions with the Committee) on the issue of how the inclusion
of tobacco and housing in the analysis affected outcomes, they failed to provide
a sensitivity analysis of how inclusion of income effects affected the overall
outcome. This failure, which seriously affected the validity of all estimates
on low incomes, brings into serious question the validity of the modelling exercise
and the independence of the report. The Committee notes that Harding in
her evidence to the Committee acknowledged that the failure to include income
effects would result in the understating of the impact of the GST on low income
earners, and that the figures provided are only an indication. Indeed, she suggested
that any figure showing a gain of 1% or less was suspect on that basis. It
is a pity that the NATSEM analysis is so incomplete in terms of providing the
impact of the GST on low income earners as at July 2000. Were the following issues
taken into account, the analysis may have been more complete: a. Expenditure
patterns change with income levels: While the HES data was inadequate
to support disaggregation to the level required to replicate 21 income levels
of the hypothetical cameos, it has been seen to be robust enough to provide analysis
on a quintile or decile basis for different household groups. David Johnson of
the Melbourne Institute and Neil Warren of ATAX have both produced such analysis.
The impact of a GST by quintile is summarised in the following table: Quintile | Melbourne
Institute Price Effect* | % variation from average | ATAX
price effect@ | % variation from average |
Bottom 20% | 3.77% | +54.6% | 4.77% | +54.9% |
Second 20% | 2.68% | +10.0% | 3.66% | +18.8% |
Third 20% | 2.63% | +8.0% | 2.91% | -5.6% |
Fourth 20% | 2.37% | -2.8% | 2.75% | -10.7% |
Top 20% | 2.06% | -15.4% | 2.43% | -21.% |
All | 2.44% | | 3.08% | |
(*Average price effect as percentage of average household
expenditure. Johnson has modelled the ANTS package in 1993-4 dollars assuming
the inclusion of tobacco and housing. @ ATAX modelling for ACOSS of a 10%
GST abolishing WST,FID and BAD in 1996 dollars, excluding tax cuts, modelled as
a percentage of average expenditure. ATAX and the Melbourne Institute provide
different income ranges for the quintiles. The table shows a striking similarly
between the two modelling proposals in terms of the much higher impost of a GST
on the bottom two quintiles (incomes of less than about $318 a week in year 2000
figures). It suggests that the bottom quintile (incomes below about $213 a week
in year 2000 figures) faces a price impost from the GST that is 54% greater than
the average. That would be enough to make all unemployed singles and couples
losers in the cameos, and all singles and couples on low incomes without any social
security payments losers as well. b. The impact of higher CPI in
year 2000 is not accurately replicated in year 2 NATSEM assumes that
the lower CPI effect of 2% in 2000/01 offset with compensation of 3.5% replicates
a higher CPI of 2.5% in 2000-01 with higher compensation of 4%. However, this
simply does not happen as a matter of course. Comparing Option 3B with its CPI
of 2.0% with Option 4B with its CPI effect of 2.6% (which is very close to Treasurys
first year estimate of 2.5%) for three social security beneficiary groups shows
the extent to which the tables understate the GST impact by focusing on the second
year. | 2000 4%
comp. | 2000 GST impact | 2000
diff. | 2001 3.5% com | 2001
GST impact | 2001 diff. | Unemp.
Single* | 6.68 | 4.65 | +2.03 | 5.85 | 3.25 | 2.59 |
Unempl. Couple@ | 12.05 | 9.18 | +2.87 | 10.55 | 6.03 | +4.51 |
Pensioner | 7.66 | 8.01 | -0.35 | 6.80 | 6.43 | +0.37 |
* Cameo 1 Single income earner with no private
income; @ Cameo 10 Dual income earner 50/50 split no children) Looking
at these two simulations of the CPI effect forecast for Treasury by 2000 and 2001,
the use of cameos for 2001 appear to understate the impact of the GST by $0.72
a week (or 0.4%), on single unemployed by $0.56 a week (or 0.4%) and for unemployed
couples by $1.64 a week (or 0.5%). That suggests that the use of 2001 figures
for compensation purposes understates the need for compensation by about 0.4%. c.
Tobacco and housing effects: NATSEM argues that tobacco and housing
should not be included in the calculation of CPI used for compensation. This position
is not supported by ACOSS or by David Johnson of the Melbourne Institute in his
modelling, nor earlier evidence given to the committee by Professor Harding. Pensions
and social security benefits have always been adjusted for movements in CPI. This
has occurred after each increase in tobacco excise has fed into the CPI. It would
be an appalling precedent if CPI were to be discounted for social security beneficiaries
on the basis of an adhoc unrelated policy consideration. Further, the tobacco
increase raises about $300 million which is part of the funding for the other
tax cuts and compensation. Housing is an important cost for low income earners.
Yet, the benefit from the First Home Buyers scheme will not benefit low income
earners because they do not have the income to support home purchases. According
to the ABS, about 6 per cent of households in the bottom two quintiles have a
mortgage, as compared to 40 per cent of households in the top two quintiles. Indeed,
three quarters of all home buyers are in the top two quintiles. This highlights
how it is inappropriate to discount the cost of housing services to low income
earners for the benefit of a scheme that benefits almost exclusively higher income
earners. From the point of view of calculating the impact of a GST on low income
earners, the First Home Buyers Scheme is largely irrelevant. In recognition
of these weaknesses, Professor Harding and Warren both concede three are many
hidden losers from the tax package. LABOR
SENATORS CONCLUSIONS Summary After making a full and thorough
assessment of the evidence given to the Inquiry, and in considering that evidence
against three criteria, those being: The universally accepted principles that
underlie a progressive taxation system, the Governments own declared rationale
for the proposed GST, and the committees terms of reference; we conclude
the Governments GST to be: - Irredeemably unfair;
- Excessively
and inherently complex; and
- Without such benefits elsewhere as might
render those disadvantages tolerable.
Measures which involve genuine
tax reform are supported by Labor. Two of the Bills referred to the committee
have already been passed by the Senate with the support of Labor. The evidence
to the committee has shown that: - The inflationary impact of the GST
package will be at least 4% in the first year, not 1.9% claimed by the Government
before the election;
- As a result, workers are likely to seek wage rises
to compensate for this higher inflationary effect;
- Up to 120,000 jobs
will be lost;
- The most severe job losses will be experienced in Tasmania,
Queensland and regional Australia;
- Estimates of the number of Australians
made worse off by the package range up to 2 million;
- The promised compensation
for pensioners, veterans and disability pensioners will rapidly erode to nothing;
- Many self-funded retirees will be worse off;
- The GST discriminates
against credit unions and other competitors to the big banks - it will cause interest
rates and fees and charges to rise;
- The GST package will damage the capacity
of local government to provide vitally needed community services;
- The
disparity between country and city petrol prices will increase;
- The GST
package will encourage business to use more heavily polluting fuels at the expense
of more environmentally friendly fuels;
- Many health and education costs
of families will rise;
- Charities, community groups and sporting associations
will face higher costs and have to cut their activities;
- House prices,
rents and the cost of home renovations will rise;
- As well as being unfair,
the GST has been condemned as devilishly complex;
- The GST will reduce
the competitiveness of small businesses and increases their paperwork burden;
and
- Professional taxation bodies have called for the GST legislation to
be re-written and delayed.
Introduction The ANTS package
is an extensive and complex package of proposed changes to the Australian taxation
system. In the first instance then, it raises the question, how should such
far-reaching changes be judged ? In order to make a decision, Labor
has set out three criteria against which the committee evidence should be assessed.
The first comprises the universally accepted principles of sound taxation. The
second criterion is the Governments own declared rationale for the GST package.
The third comprises the obligation placed on the Inquiry by its terms of reference. First,
over the more than 200 years since Adam Smith, the universally accepted principles
of a sound taxation system have been equity, efficiency and simplicity.
- Equity meaning taxes are raised in a fair and progressive manner according
to the capacity of the taxpayer to contribute;
- Efficiency, referring
to the ability of the taxation system to promote economic efficiency in the allocation
of resources across the wider economy and;
- Simplicity, meaning that the
tax system is easily understood and therefore tax obligations are not costly for
taxpayers to comply with, or for Government to administer and police effectively.
More recently a fourth principle has evolved: certainty. This could
be taken within the meaning of "simplicity" as set out above, but has
force in its own right in the sense that taxpayers or tax-paying entities are
able to determine with certainty what their tax liabilities are, and arrange their
behaviour with confidence accordingly. The GST package failed all of
these tests and should be rejected on the basis of tax principles. The
Government argues in support of the need for the GST on the basis that the current
tax system is broken and in need of far-reaching change. The Prime Minister has
announced that the GST needs to meet the criteria he describes as: incentive,
security, consistency and simplicity. (ANTS p.15) - Incentive to work,
save, invest and compete;
- Security of future revenue growth to provide
sounder finance for Government services;
- Consistency in the treatment
of different business structures, investments and sectors of the economy so as
to avoid distortions to investment decisions and/or consumer choices; and
- Simplicity
in the traditional sense as defined earlier.
Evidence to the committee
clearly demonstrates that the GST does not fulfil the Prime Ministers own
criteria. Thirdly, the Inquirys terms of reference require the
Select Committee to report on "..the broad economic effects of the Governments
taxation reform (sic) legislation proposals with regard to the fairness of the
tax system, the living standards of Australian households (especially those on
low incomes), the efficiency of the economy, and future public revenues". The
overwhelming evidence presented to the committee is that the GST will reduce the
fairness of Australias tax system, reduce the living standards of large
numbers of Australian households, will have negligible or nil impact on the efficiency
of the economy and will reduce, in total, aggregate future public revenues. Clearly
the GST package fails these tests as well. UNFAIR The
GST is a Regressive Tax The GST is a flat rate tax and like all flat
rate taxes the lower a persons income, the greater the impact of the tax
on that persons living standards and hence their personal well being. This
basic dictum makes the GST regressive by its nature. This is why compensation
is necessary even the Government acknowledges that fact. As well
as a flat tax being inherently regressive, the Governments broad GST proposal
is doubly unfair as it brings into the indirect tax net the essentials of life
which are currently untaxed. Low income households will pay much more GST as a
proportion of their income than will high income households. This will hit hardest
those least able to afford it, those on low incomes such as the unemployed, the
retired and low paid workers with children. In response to the regressivity
of the package, the Government proposes a complex system of compensation comprising
income tax cuts and increases in social security payments. This so called compensation
is also highly regressive and totally inadequate for large numbers of low and
middle income Australians. The tax cuts for higher income households far
outweigh the increases in social security payments for lower income households.
Examples from the Government's own ANTS calculations show: - A single
person earning $100,000 gets an extra $64 a week twenty five times the
weekly benefit of the lowest income single person.
- A couple with no children
earning $100,000 gets $80 a week; five times the benefit that the lowest income
single income family with three children gets.
Under the Governments
proposed income tax changes, the top 20 per cent of income earners get over 50
per cent of the benefits from the proposed income tax cuts. That leaves 80% of
income earners with less than 50% of the proposed benefits. Compensation Evidence
to the committee confirms there are significant losers from the tax package even
after the so called compensation is taken into account. ACOSS has estimated these
losers to total at least one million households Even Treasury has confirmed
that many people cannot be compensated due to the fact that they do not have a
relationship with Government that provides a channel for compensation. Those in
this situation include: - Retirees living off their own savings or
superannuation;
- Working-age people supported by workers compensation or
transport accident compensation;
- The widowed bringing up children by drawing
down life insurance payments they received upon bereavement;
- New migrants;
- Many
students living off non-government funded scholarships;
- Young Australians
up to the age of 21 living at home; and
- Low income farmers.
It
is estimated that these groups comprise up to another one million Australians
who will not be able to be compensated for the effects of the GST The
Compensation Erodes Away On top of this evidence, respected academics
Professors Warren and Harding, business economists Mr Geoff Carmody and Mr Mitch
Hooke and the Treasury have each independently confirmed that the already inadequate
compensation for aged pensioners, veterans and disabled pensioners will erode
to nothing within a few years. This is considered unconscionable by Labor,
and is grounds in itself for the rejection of the GST and related legislation.
This attempted sleight of hand is clear proof that the Prime Minister has no intention
of maintaining so called compensation into the future. Put simply, no compensation
can ever be guaranteed to endure permanently and therefore the regressive GST
should be rejected. Cost Savings will not be Passed on in Full Furthermore,
the basis of the Governments published calculations of the impact of its
proposals on various groups in the Australian community have been shown to be
absurd. In particular, the notion that the benefit from abolishing wholesale
sales tax will be fully and immediately passed on to consumers is totally discredited.
This might be how Treasurys model works. It is definitely not how the real
world economy works. Evidence by the ACCC completely refuted the Treasury assumption.
In fact, the ACCC could not name a single industry that was perfectly competitive
in the way the Treasury model assumes. A more realistic assumption of a
70% benefit pass-on to consumers conducted by Professors Warren and Harding and
based upon the NZ experience showed that all pensioners, most self funded retirees
and many families with children will lose heavily under the ANTS package. There
is only one possible conclusion: The proposed compensation is inadequate, and
it is irredeemably inadequate, because any compensation offered cannot be guaranteed
to last permanently. UNDULY COMPLEX AND WITH UNINTENDED CONSEQUENCES. Business
Many business organisations who appeared before the committee asserted
their support for the GST package, but simultaneously many claimed that changes
are required to the legislation to protect against adverse consequences. There
is also evidence that many of these groups are privately pursuing significant
amendments to the package whilst publicly proclaiming support for it. This evidence
supports what we know to be the complexity and widespread unintended consequences
of the legislation. Why else would business be lobbying for amendments to the
GST if this was not the fact ? It cannot therefore be claimed by the Government
that it has "broad" business community support for the GST legislation
before the Senate. This presents a unique dilemma for the Senate. When the
Senate comes to vote on the package it is still not clear what it is being asked
to do by a number of important organisations. Many organisations pointed to the
need to change the bills to overcome difficulties in implementation or to avoid
unanticipated costs to consumers. The following three examples highlight this
dilemma. Further, if reputable organisations are believed the Government
itself will be further amending its own Bills. 1. The Society of Certified
Practising Accountants amendments to the Bills This body gave evidence
that it fully endorsed the Governments tax package, and that its members
who would deal with the implementation and application of the taxation law on
a daily basis, were reviewing the legislative expression given to ANTS in the
27 bills before the Senate. The Society indicated that although its review was
not complete there would be a number of amendments it would seek. It undertook
to notify the Senate Committee of these amendments. At the time of writing this
report, no notification of those desired changes had been received. 2.
The Insurance Council of Australia - $2 billion Unintended and
Uncompensated Costs to Consumers. This body identified what it deems
to be an unintended consequence of the legislation as it currently stands. This
will see an added cost imposed on insurance consumers of $2 billion. The Insurance
Council stated that if the bills were passed as they stand their member insurance
companies will have no choice but to fully pass on the $2 billion in the form
of higher insurance premiums for policy holders. In fact the Insurance Council
informed the committee that insurance premiums will begin to rise from July 1999
to take into account the $2 billion Government revenue grab. If the Government
tried to prevent the insurance companies recovering the $2 billion from policyholders,
this massive retrospective tax bill would land on shareholders in companies such
as GIO and AMP. At the time of giving evidence the Insurance Council stated
that it was in negotiation with the Treasury over whether this $2 billion unintended
consequence would be rectified by amendments. They were arguing that as it was
unintended the rectification would not harm the revenue estimates in the announced
package. Just before going to print the Insurance Council has notified the Committee
that their negotiations have not settled any of the issues and they are reconsidering
their support for the Governments measures. This will now ensure that insurance
premiums will rise from July of this year in response to the GST. 3.
The Taxation Institute of Australia Delay Bill to sort out devil
in the detail. The Tax Institute argued that the best result for
supporters of the Governments package would be to defer the operational
date of the new measures for six to twelve months in order to overcome what they
call "the devil in the detail". They emphasised that they had
not taken a position on the issue of whether the package should be supported or
not but had directed their expert attention to whether the bills effectively delivered
the announced intent of the Governments ANTS package. They indicated there
were so many flaws in the legislation that the safest course would be to defer
the implementation date in favour of getting the legislation right. In fact
the Tax Institute recommended that the entire GST related package of legislation
be the subject of review by an expert panel. In giving this evidence they
also indicated they were holding extensive talks with Treasury and that they believed
the Government of its own motion would want to amend some of the bills when they
came on for debate in the committee stages. If a pre-eminent body such as
the Tax Institute has such major concerns over the GST detail and believes it
should be deferred, then so should the Senate. This devil in the detail
is grounds in itself to reject the GST package. A proper consideration of
the Governments bills can only be undertaken when they are presented in
their final form and after a fuller deliberation of the implications. Given the
examples set out above this means after the Senate has seen any further amendments
that the Government intends, or which expert organisations believe are desirable,
and after there has been an opportunity to measure the so-called compensation
to be delivered by the mooted tax cuts against the such issues as the unadvertised
$2 billion hike in insurance premiums. Local Government Uncompensated
Extra Costs There are a number of organisations in a similar position
to the Insurance Council of Australia but who are undecided as to how they will
deal with the apparently unintended extra costs imposed on them by this tax package.
The capacity of Local Government to provide a range of services to local
communities and their ability to respond to future community needs and expectations
will be compromised as a result of the proposed GST. The GST will impose
additional costs on Local Government at a time when there is increased demand
for community services. The ability of Local Government in rural and remote Australia
to continue to supply much needed community services will be jeopardised. Compliance
costs for Local Government will be significant. Currently Local Government is
exempt from the WST. Complying with the GST will require new accounting systems,
new equipment and no doubt staff training. Of particular concern is the
GST treatment of community services supplied by Local Government for a nominal
fee. Because a fee is charged, these services are to be subject to GST. The outcome
of this can only be to the great detriment of those using Local Government services
- prices will have to rise or services cut. Compliance costs will increase or
services must be subsidised a full 100 per cent. Either of these outcomes will
have a detrimental impact on Local Government revenues. Regional Local
Government Even Higher Extra Costs The Kalgoorlie-Boulder Council
gave evidence to this effect and stated it was undecided as to how it should meet
this extra imposition. Its options were charge the same fee and increase
rates to cover the GST, reduce staff or close and/or reduce the service, or pass
on the cost of the GST. Many local governments and quite a few other organisations
are in a similar situation. Until decisions are made by them about these extra
costs it will remain unclear whether there will be price rises, although the clear
practical implication is that there will be. Due to these costs it is also inevitable
that the GST will also result in employment losses in communities that can least
afford them, mostly situated in rural and regional areas. Local Government
Security of Funding A further major concern is the security of
funding of Local Government activities. Government grants have declined markedly
over the last few years. The proposed devolution of local government funding to
the States adds another element of uncertainty. The Government has proposed that
this funding will be secure under a Memorandum of Understanding. Given the Governments
broken promises to Local Government on the exclusion of nominal fees from the
GST, the simple fact is that this Government cannot be trusted. The Governments
guarantee that local government funding will be maintained, is as reliable as
its "guarantee that GST compensation for pensioners will endure. Small
Business Fearful of Compensation Cost Burden The Council of Small
Business Organisations of Australia (COSBOA) told the committee: "A
central position that COSBOA would take is that small business needs these costs
(compliance) quantified by the public sector in order to explain them. We have
gone way beyond the position where anecdotal or descriptive measures of these
taxes are acceptable to small business. They need to see the numbers. They need
to know exactly how much these processes are going to cost them, and neither public
debate nor the government is producing that at the moment." This
one statement in many ways encapsulates the single biggest problem facing small
business. What will be the compliance costs they will face under the GST ? To
date the Government has not been willing to quantify the impact small business
will face arising from the compliance costs of the GST. At best all we have is
the Governments Regulation Impact Statement that forecasts just on $2 billion
of recurrent gross compliance costs for all businesses, which after adjustments
is estimated to be $210 per business per year on a recurrent basis. Small
Business Compliance Costs Proportionately Higher It is totally
unrealistic that companies from the size of BHP to the local corner store will
each face an annual GST compliance cost of only $210. This is dishonest and totally
misleading. It is further misleading to claim as Mr Langford-Brown of the Institute
of Chartered Accountants did that: "The additional costs simply to comply
with the GST legislation would be a software package of approximately $150.".
The year one cost to small business if the GST is introduced, will be such
as to drive many operators out of business. If the GST is
such a simple piece of legislation to comply with, why are a number of business
groups seeking amendments to the legislation due to its complexity and the impact
it will have on their business members? The evidence is overwhelming that
it will be small business that will bear proportionately more of the GST compliance
burden relative to big business. Small businesses simply do not have the economies
of scale over which to spread the GST compliance cost burden as opposed to big
business. Small business will suffer the most under the GST and it is for
this reason that the Government is refusing to provide costings of how much the
GST compliance burden will be for them. Health GST on Non-Prescription
Pharmaceuticals Symptomatic of the proposed GST as a whole is
the complexity of the legislative provisions dealing with the GST treatment of
health. This is clearly demonstrated by the complex, confusing and contradictory
GST treatment of pharmaceuticals, certain complementary medical services and ancillary
services provided in hospitals. For example, under the proposals some pharmaceuticals
will attract a GST while others will not. This will lead to patients seeking GP
provided GST-free prescriptions rather than purchasing taxed medicines over the
counter. Given this anomalous situation one must question the manner in
which the Government has sought to make health GST free. Quite simply the Governments
oft quoted claims of simplicity in administration and compliance fail
in the manner in which they have applied the GST system to health. Health
Low Income Earners Most Effected Of further concern are the Household
Expenditure Survey (HES) figures which show that low income earners spend considerably
more on health care than wealthier Australians. With the compensation package
for low income earners having been shown to be so woefully inadequate, low income
earners will not receive any compensation for their increased health costs. Thus
low income earners and people on fixed incomes and pensions will be financially
worse off as a result, irrespective of healths supposed GST-free status.
Unlike the Government, we are concerned over the impact upon the general health
of low income Australians as a result of the GST treatment of health services
and products. Many Services Taxed for the First Time Contrary
to claims that health will be GST free, many health care services and products
will be taxed for the first time and this cannot be supported. Education
A Tax on Learning The GSTs impact on education means that
it is a tax on learning. The Governments claim that education will
be GST-free has been shown to be fraudulent. The proposed application of the GST
to activities in the education sector indicates that the Government views education
as a cost to be recovered rather than as an investment in the future of the nation.
The GST will apply to: - School books;
- School bus fares;
- Tuckshop food;
- The food component of boarding fees;
- School
uniforms;
- School shoes;
- School equipment hire;
- School
recreational programs;
- Holiday camps;
- School sporting clinics;
- School stationery;
- Much private student tutoring;
- Many
Adult Education courses and short skills training;
- Educational software.
The
GST represents an attack by the Government on the right of ordinary Australians
to receive a decent education. The GST impacts severely on those educational
programs which draw heavily on community participation for support, and those
least able to either absorb the costs or assume the additional accountancy responsibilities
which will be needed to keep school and community education programs operating
effectively. Education Funding Cuts Hurt The GST should be
seen in the context of several years of serious decline in government funding
of the education sector. The education community has been under siege since 1996,
with program cuts aimed at re-orienting all segments of the education sector
schools, colleges of technical and further education and universities toward
greater reliance on corporate finance sources. The GST on top of these developments
will see a decline in participation rates in adult and community education. There
will be a heavy compliance burden which will divert scarce human resources from
the chalkface into administration. This will add additional responsibilities
to the workloads of many people engaged in voluntary, but essential, work in the
education sector. Cost Impacts on Students The GST will have
a disproportionately heavy impact on those at the lower end of the income spectrum.
We know that the Governments compensation measures are totally inadequate.
The GST as it applies to education fails to address the full range of important
and necessary educational costs facing students and families, and in particular
fails to recognise the costs associated with schooling. Further, we note
the evidence of the Australian Education Union (AEU) on the potential impact of
a GST on low-income families with children at school. A survey by the Australian
Scholarships Group identifies the items which such families most frequently report
as difficult to afford. These items are those most affected by a GST. Educational
opportunities will be limited and cost burdens on low income families will increase.
The quality of education available to the less well off will be reduced. Added
to the GST burden on education is the fact that there are many students ineligible
for a full Youth Allowance who nevertheless exist on extremely small incomes.
The impact of a GST on these students and their families will be much greater
than that applying to high-income families and individuals. 17-24 Years
Age Group It is interesting to note in evidence given to the Select
Committee that no compensation was available to parents of any child aged between
17 and 24 years despite the fact that a very high proportion of young people are
dependent or semi-dependent on their parents. At the Committees Canberra
hearing, a senior officer of the Department of Family and Community Services was
reminded that youth allowance legislation was passed by the Senate on a promise
to Senator Brian Harradine that the new tax package would address the issue of
families with dependent children aged between 17 and 21. The officer disclaimed
any knowledge of how this undertaking given by the Government to Senator Harradine
had failed to be honoured. The simple fact is this Government cannot be
trusted as has been shown by its broken commitment to Senator Harradine. Equity
and Access The GST will impact severely on the quality, accessibility
and equity of education. The GST will ensure that the educational opportunities
for the less advantaged will be stymied due to the immediate impact of cost increases
in education-related expenses. The GST as it applies to education is complex unfair
and cannot be supported. Non-Profit Organisations Lifeguards and
Scouts Taxed The impact of the GST on the non-profit and charitable
sector would be nothing short of devastating. Overwhelming evidence was presented
to the Select Committee and the Senate Community Affairs Committee on the damage
the GST would cause the non-profit sector. The non-profit sector by its
nature is reliant upon the good will of community members who volunteer their
time to assist other less fortunate members of the community. The GST represents
the most vicious attack on the ability of this sector to provide these much needed
community services. Charities in particular fill a much needed service in the
community through their humanitarian role in relieving human suffering and misery.
This altruism is now under attack from the GST. The most persuasive evidence
as to this attack came from the Government itself in a letter from the Office
of the Assistant Treasurer Senator Kemp, to the Chief Executive of Scouts Australia.
The letter of the 22 February 1999 states "During Jobs week,
Scouts appear to be acting on behalf of Scouts Australia as any payments goes
to Scouts Australia. These activities are taxable in the same manner as if they
were provided by a private sector organisation." Despite subsequent
denials from the Government, the fact is that under the legislation where a non-profit
organisation performs a service which has a payment equivalent to 50% or more
of a similar service provided by the commercial sector, that service will attract
the GST. This is why many non-profit bodies argued that the market value test
should be raised from 50% to 75% in order not to disadvantage services performed
by the non-profit sector in the way that was confirmed by the Office of the Assistant
Treasurer. Further evidence from Mr Nance representing The Surf Life Saving
Association (an Aussie icon) stated, "
from a Surf Life Saving
perspective. Currently, if you hold your hand up off a beach in Australia and
we are patrolling it, you get that service for freeyou are rescued for free.
If one of our helicopter services is called upon to rescue someone, the community
gets that for free. To lose revenue through a tax reform like this will restrict
our ability to provide those services for free. We are never going to charge for
them, so they will be naturally reduced." This is damning evidence
on the impact the GST will have on an organisation that is dedicated to saving
peoples lives. Rather than doing what the Surf Life Savers do best, saving
lives, scarce resources will now be diverted to the administrative compliance
burden they will now face due to the GST. Instead of patrolling beaches, surf
life saving personnel will be filling in GST forms for Mr Howard and Mr Costello.
Ms Schultz speaking on behalf of the Port Adelaide Central Mission, the
Adelaide Central Mission and Lutheran Community Care stated the following on how
the GST would result in a reduction of services these three organisations provide:
"So the GST adds another process that is going to create an administrative
burden for the sector and impose additional costs. Once again, we are going to
see more pressure and reduction in services. For those who rely on community services,
this means increasing frustration at being able to obtain needed services, being
placed on waiting lists, being charged fees for services that they cannot afford
and ultimately going without the supports that may assist them to escape the cycle
of poverty
" There are many more examples of how the GST
will affect the charitable sector. What is clear though is that the GST will result
in this sector having to reallocate scarce resources to the implementation of,
and compliance with the GST - Resources that could be far better utilised in servicing
the needs of the most disadvantaged members of our community. The GST represents
a double hit on the most vulnerable members of our community. Firstly, the Government's
failure to provide adequate and lasting compensation. Secondly, charities and
other non-profits will be forced to reallocate resources to cope with the costly
administrative and compliance burden the GST will impose on them. That burden
will ultimately be borne by the disadvantaged and needy, through reduced services
and assistance. This provides more than adequate justification to oppose the GST. Financial
Services Aussie Homeowners Mortgage Rates Up The most damning
evidence on the impact the GST would have on the financial services sector came
from the Mortgage Industry Association and in particular Mr John Symonds of Aussie
Home Loans. Given the input taxing of financial services, mortgage originators
such as Aussie Home Loans will be faced with an added cost impost not faced by
much bigger major financial institutions such as banks. The result in short
will be higher interest rates, fees and charges for consumers, and a lessening
in competition between the big banks and the mortgage originators. The GST in
this context will destroy the only substantial competition that the banks now
face. The GST will do for the banks, what the banks have been unable to do themselves,
rid the market of non-bank competition in the mortgage home loan sector. This
is not in the interest of Australian home buyers. Credit Unions Disadvantaged
Banks Favoured The same problems faced by the mortgage industry
association equally apply to Credit Unions and Building Societies the other two
major sources of competition to the banks. They too like mortgage originators
will have no choice but to increase interest rates, fees and charges. The
Governments ANTS document asserts that the banking and financial services sector
will benefit by some $1.6 billion a year through the proposed removal of Whole
Sales Tax and certain other taxes. No evidence was presented to the committee
in support of this claim, quite the contrary was the case as has been shown from
the impact the GST will have on mortgage originators and credit unions. Superannuation
funds and life insurance offices will also face additional costs under the proposed
GST. None of Australias largest banks presented a submission to the
committee and when their representative body the Australian Bankers Association
was asked to appear so that the committee could take evidence on their submission,
they declined the invitation. It is worth noting the statement by Mr Frank
Cicutto the National Australia Bank Managing Director, "
.We have
a GST impost as I said, that will in effect increase our tax rate here in Australia,
with no other offsets, by between 8 and 10 per cent." If Australias
largest bank cannot identify any savings from the GST, then the Governments
estimate of $1.6 billion in cost savings is more an exercise in wishful thinking
than objective economic analysis. The reality is the GST will ensure that
the major banks regain their stranglehold over the Australian home loan market,
which will see them free of competition and thus able to price their products
accordingly. This guarantees higher home loan interest rates and fees and charges
for Australian banking consumers. This cannot be allowed to happen and is yet
another reason why the GST needs to be rejected. Women and the GST* It
is arguable that the impact of the GST will fall more heavily on women because
women in Australia earn less than men and will therefore benefit less from the
proposed income tax cuts ie the large reductions on individual incomes above $38,000
give higher income individuals (mostly men) a greater proportional reduction in
average tax rates while rate reductions between $6,000 and $38,000 (mostly women)
imply much smaller reductions in average rates. Professor Apps concluded
that the proposed tax reforms will introduce impediments and inflexibility
into the labour markets where none need exist. Moreover, a fall in the female
labour supply implies a decline in the future tax base for funding the age pension.
Further, evidence suggests that if female workforce participation falls household
savings would drop dramatically. The YWCA also expressed concern that women
who choose to participate in the paid workforce, particularly those members of
single income families with children under five, dual income families and those
with children over five, are disadvantaged by the proposed tax reform package.
The YWCA argued that the tax reforms should recognise that women mostly will continue
to choose to seek to remain in the workforce, recognising that those who work
part-time often do as much parenting and voluntary work as those with no paid
work. In Australia, women hold around 42 per cent of the jobs but they remain
clustered in industries with low pay rates, particularly in the services industry.
76 per cent of women undertake casual or part-time work. Concerns were expressed
that the tax reform proposals would impact in such a way as to reduce employment
in areas where women make up a large proportion of the workforce. WETTANK stated: Particularly
the areas that will lose work, according to the Chris Murphy model or possibly
the Monash model, are those which are very high employment areas for women, such
as personal services, communications, public services, retail, entertainment,
cafes and hospitality. The areas where there are many women in low paid jobs
are
also those which are most likely, according to the models, to have been put up
to show reduced employment. The YWCA also expressed concern about the flow-on
effect of the tax reforms on the community sector. In particular, the YWCA noted
that the sector is dominated by women as paid employees, as volunteers and as
recipients of services. Any adverse impact on the community sector will have an
impact on women. (*NB: This is taken from the report of the Senate Community
Affairs References Committee) ECONOMIC OVERVIEW Many
Australians know that the GST will hurt their own families or the families of
their friends or relations. But they have been repeatedly told by the Prime Minister
and his colleagues that that represents a price that has to be paid for the greater
good of the Australian community as a whole. This argument is not borne
out by the evidence. There are no big picture gains that can be viewed as justifying
the undoubted costs the GST would generate in terms of unfairness, complexity
and collateral damage. The suffering that would be imposed on
the victims of the GST would be all pain for no gain. Employment The
Government has produced no credible economic modelling to corroborate its repeated
assertions that its GST will unleash a surge of employment growth across Australia. At
the same time, respected non-government economic modellers have found that the
Governments proposed ANTS measures would destroy large numbers of jobs across
Australia. Monash modelling found: - Up to 120,000 jobs could
be lost in the early years of the tax package if wages rise in response to the
higher cost of living from the GST;
- Any jobs that are created in the early
years will be due entirely to the fiscal stimulus associated with the income tax
cuts and not the GST; and
- A delay of just one year in passing on the full
savings from reducing the wholesale sales tax will lead to an estimated 15,000
job losses.
The various economic modelling results presented to the
committee did predict employment gains in some industries such as mining, non-residential
construction and certain pockets within the manufacturing sector. But major employment
losses were predicted from the GST package in areas such as residential construction,
fast-food, tourism, entertainment services, arts and culture. The job losses
are predicted to hit rural and regional Australia with particular severity. The
Prime Ministers preferred modeller Mr Chris Murphy found that Queensland
will lose 5000 jobs and Tasmania 1000. For Tasmania this is particularly devastating
given that it has continued to lag behind the rest of the nation on all the major
leading economic indicators and has not been a beneficiary of the current buoyant
national economy. Demographically the employment losses will impact most
heavily on the 18-24 age group, on women and on indigenous Australians. It
would be unrealistic to expect that workers who lose their jobs in one industry
sector because of the GST will automatically be able to find alternative employment
in other industries and/or other regions. The ANTS package totally ignores the
economic and social costs such displaced workers will face as a result of the
GST. It is obvious the Government does not propose to devote any resources
to the re-skilling or other retraining initiatives, relocation assistance or regional
development initiatives to assist workers or their families who will lose their
jobs. On 15 April 1999 the latest Consumer Inflation Expectation figures
were released by Westpac bank and the Melbourne Institute. They reported further
increases in their trend series for inflation expectations. Having stood at 3.2%
in late 1997, expected inflation now exceeds 4.5%. Inflation expectations
were highest among those supporting the ALP or minor parities. The Melbourne Institute
said "..this is most likely due to divergent views about the impact of
the GST." Westpacs chief economist argued, "This is important
because a possible threat to on-going low inflation outcomes is rising inflation
expectations. In terms of the consumer, this will filter through to final process
via an acceleration in wage claims. The introduction of a GST and the associated
inflationary impact will put upward pressure on nominal wages if consumers feel
that the compensation package is insufficient and real disposable incomes will
fall.". The next step in the chain of GST consequences would be
for the Reserve Bank to increase rates in order to dampen down inflation. The
simple fact is that on the single most important test for the GST being will it
generate one more job? The answer is NO. As one of Australias most respected
economists, Professor Dixon stated "
.the introduction of the consumption
tax in a balanced situation is job-destroying". Given the Governments
proposed new tax system results in the destruction of jobs it cannot be supported
and should be rejected on this basis alone. Balance of Payments The
Governments proposed changes to Australias indirect tax arrangements
would remove some relatively small amounts of tax which are currently embedded
in the prices of Australias traditional goods exports. But at the
same time, the GST would worsen the international competitiveness of many of Australias
new more modern and rapidly growing export industries such as tourism, education,
health services and motion picture production. At the same time the GST
would stimulate additional imports of certain types of capital equipment which
can only be sourced from overseas. Treasurys PRISMOD model does not
predict an improvement in Australias balance of payments following an implementation
of the ANTS package. Not one piece of credible evidence was put before the
committee from any source that the GST is the answer to Australias chronic
current account deficit problem that has worsened under this Government. On
the question of promoting national saving, the GST package consists in the Government
raiding future surpluses in order to fund income tax cuts thus resulting in substantial
national dissaving. The GST on any objective macroeconomic analysis will
have negligible if any benefit to the Australian economy and will destroy jobs Efficiency
of Resource Allocation The Monash modelling found: - Any economic
efficiency gains from the tax package will be negligible even under the most favourable
assumptions;
- The package will cause a small decline in average Australian
living standards; and
- The existing tax system will collect revenue faster
than growth in GDP, so the need for a GST to meet Australias future revenue
needs has not been proven by the Government..
What is clear
is that the GST is not an economic panacea the Government would have the Australian
public believe. Even the Prime Ministers own preferred modeller Mr Chris Murphy
on the most favourable assumptions for the Government was only able to find a
total welfare gain from the package of $607m or 1/500th of total consumption
expenditure. Black Economy Tax/Evasion Contrary to the Howard
Governments repeated assertions, a GST is not an effective remedy
for tax evasion, or to the growth in the cash economy. In a major study
of GST tax systems around the world, the International Monetary Fund (IMF) identified
a range of methods by which such VAT-type taxes can be evaded. The simplest
techniques involved failure to register, or exaggerated claims for GST input credits
and/or failure to report or fully report taxable sales. More complex techniques
involved the forgery of GST invoices, trade in GST invoices between registered
and non-registered buyers, barter and the creation of short lived bogus companies. The
IMFs conclusion was, "Like other taxes, VAT is evaded
..increasing
rates for VAT make the tax conspicuous and makes successful evasion all the more
valuable to trader and public alike." TRANSPORT
AND THE ENVIRONMENT The Governments proposed tax changes will
encourage business to use the more heavily polluting petroleum fuels at the expense
of LPG, LNG and other more environmentally friendly fuels. They will encourage
private cars at the expense of public transport. They will encourage more
heavy transport vehicles onto Australias road, by shifting freight away
from railways. But for Australian consumers the prices of transport services
other than airfares (which fall by only 0.8%) are predicted to rise, even on the
Governments own modelling: road transport up by 2.6%; rail up by 5.8%. The
Australian Conservation Foundation (ACF) told the Committee: "This
tax reform package is the only example in recent years of an OECD country introducing
a net reduction in fuel and energy related taxes and charges. Even the conservative
International Energy Agency has urged Australia to increase fuel taxes to curb
energy consumption." Recommendation The Senate should
reject the GST in its entirety.
Top
|