Bills Digest No. 106  1998-99 A New Tax System (End of Sales Tax) Bill 1998

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This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.


Passage History
Main Provisions
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Passage History

A New Tax System (End of Sales Tax) Bill 1998

Date Introduced: 2 December 1998

House: House of Representatives

Portfolio: Treasury

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.'


Sales Tax: A Definition

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 wholesale sale.'(2)

A brief history of Sales Tax in Australia

The Commonwealth first introduced sales tax in 1930.

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 exemptions increased.(6)

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 permanent.(8)

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 simply.(10)

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 Government.'(12)

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 tax.'(14)

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 horses
  • 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)

Main Provisions

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.


  1. 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.

  2. Reform of the Australian Tax System AGPS 1985, p. xiv.

  3. Hansard, House of Representatives, 9 July 1930, p. 3888.

  4. Ibid., p. 3902.

  5. Ibid., 30 July 1930, p. 4930.

  6. Ibid., p. 4935.

  7. Ibid., 28 July 1930, p. 4771.

  8. 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).

  9. Ibid., 5 August 1930, p. 5275.

  10. Ibid., p. 5276.

  11. Ibid., p. 5279.

  12. Ibid., 5August 1930, 5287.

  13. Taxation Review Committee, Full Report, 31 January 1975 (the Asprey Report), AGPS, Canberra 1975, p. 523.

  14. Ibid., p. 513.

  15. Reform of the Australian Tax System AGPS 1985, p. 117.

  16. N Warren Tax Facts and Tax Reform Australian Tax Research Foundation 1998, p. 28.

  17. 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.

  18. Ibid.

  19. refer endnote 1.

Contact Officer and Copyright Details

Max Spry, Consultant
8 February 1999
Bills Digest Service
Information and Research Services

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