Impact on the Living Standards of Households


Chapter 2

Impact on the Living Standards of Households

Compensation - An Introduction

2.1 The Government's proposed Goods and Services Tax is a regressive tax. It is a flat rate tax and like all flat rate taxes the lower one's income, the greater the negative impact of the tax on the person's living standards. Put simply, a household earning $100,000 pays exactly the same amount of GST on the same goods and services as a household earning $10,000.

2.2 The Government's proposed Goods and Services Tax is even more regressive. This means that lower income households will pay the same rate of tax as high income households, and will pay it on a higher proportion of their spending - a double tax whammy.

2.3 The Government acknowledges the GST is regressive in the document Tax Reform: not a new tax, a new tax system (ANTS). They propose a complex system of compensation comprising tax cuts and increases in social security payments. The compensation is also highly regressive. The tax cuts for higher income households far outweigh the increases in social security payments for lower income households. A single person earning $100,000 gets an extra $64 a week – twenty five times the weekly benefit of the poorest single person. A couple with no children earning $100,000 gets $80 a week, five times the benefit that the poorest single income family with three children gets.

2.4 Under the Government's proposed tax changes, the top 20 per cent of income earners get 50 per cent of the benefits from the Government's compensation package.

2.5 The Government's tax package claims that there are no households that are made worse off. [1] Evidence presented to the Committee leads us to strongly question the validity of this claim.

2.6 Indeed the Treasury has revised its estimate of the real price effect of the GST in the first year from 1.9 per cent to 3.1 per cent. However, Treasury uses the 1.9 per cent to produce the compensation package which means many low income individuals and families become losers. Treasury has presumed prices will fall because of a 100 per cent pass through of tax reductions. Witnesses to the Committee said that a 70 per cent pass through was a more realistic assumption. Therefore a more reasonable estimate of the price impact of the GST is between 4–5 per cent.

2.7 The St Vincent de Paul Society estimates of how much lower income households spend on essentials means that many families and individuals are worse off – up to $21 a week worse off.

2.8 The Treasury has also failed to take into account different housing costs of different households, the higher costs experienced by households living in regional and remote areas, and the different levels of spending on health care across households.

2.9 Further, families are inadequately compensated for the costs of children. The Government's tax package assumes that a child will only cost a family an extra 30c a week in GST costs. Professor Peter McDonald has concluded that the package discriminates against families with children.

2.10 As well as problems with the modelling assumptions upon which the compensation is based, there are also serious flaws in specific compensation mechanisms, particularly for pensioners.

(a) Inadequacy of modelling of compensation

2.11 A number of groups including ACOSS expressed concerns that the Treasury modelling:

2.12 ACOSS identified a number of flaws in the Treasury modelling that gave rise to these results:

2.13 The Select Committee on a New Tax System noted in its First Report that one of Treasury's assumptions has drawn `considerable comment'. The Select Committee reported that:

2.14 The Treasury used the Consumer Price Index (CPI) data for the basis of its modelling. It did not use the Household Expenditure Survey (HES) data despite evidence from witnesses to the Select Committee that it would be more accurate to do so. The Select Committee stated that the `wider modelling community', while recognising some flaws in the HES data set, `makes adjustments to allow for those flaws and then uses it as an invaluable resource, which has no equivalent in this country'. [5]

2.15 ACOSS noted that an alternative approach to modelling the consumption tax changes which takes account of variations in spending and saving across households using the HES data will produce `significantly higher estimates of the price increases faced by low income households'. [6]

2.16 The Council on the Ageing (COTA) noted that there is strong evidence that the structure of the basket of goods consumed by older retired, low income people is quite different from wage and salary earners. [7] For example, single and retired couples spend 21 per cent of their incomes on food and non-alcoholic beverages, compared with 14-15 per cent for a single person or couple (non retired). Single retired people spend 18 per cent of their incomes on fuel and power, medical care and household services, compared with 11 per cent for a non-retired single person. Retired couples spend 16 per cent of their incomes on these items, compared to 11 per cent for non-retired couples. [8]

2.17 The St Vincent de Paul Society noted that projections for price increases are `unrealistically low' where they relate to low income earners. People on low incomes spend a disproportionately higher proportion of their incomes on goods which are not subject to wholesale sales tax (WST). The Society noted that the impression is sometimes given that the WST applies to all items, including food, vegetables and clothing –`whereas it affects very little of what low income earners purchase'. [9] The Australian Consumers Association (ACA) expressed great concern at the increase in the cost of fresh fruit and vegetables which have zero tax at present –`an unfortunate consequence of a GST on food is that low income families may be forced to purchase cheaper and poorer quality foods in order to make ends meet'. [10]

2.18 Evidence indicates that families will be particularly disadvantaged under the new tax arrangements. Professor Peter McDonald argued that the method used by the Government to calculate the price effect of the GST does not give due regard to families with children, particularly middle income families (on incomes between $30,000 and $70,000 per annum). Professor McDonald argued that `the effect is that, at the same income level, families with children fare relatively less well from the proposed tax reform than people without children'. [11]

2.19 Professor McDonald argues that the Government's approach to the calculation of the price effects of the GST on households is flawed. He submitted that:

2.20 Professor McDonald stated that the Government's estimated price effects on the costs of children provided in the cameos in the Tax Reform document are `implausible' as they are `impossibly low' and `impossibly uniform'. Professor McDonald stated that:

2.21 Professor McDonald concluded that if the Government's estimates of the GST-related price rises for a child were correct at 30 cents a week, then the compensation of $2.69 per week is generous `but no one would seriously believe that the price effect of the GST for a child will be 30 cents. And this 30 cent figure is used in estimating the final column in the Cameos tables, that is, the amount by which the family will be better off in the Government's package'. [14]

(b) Inadequacy of compensation

2.22 Evidence to the inquiry strongly indicates that the effects of the proposed tax changes will be detrimental to the overall living standards of many Australian households.

2.23 ACOSS emphasised to the Committee that `we believe that many low income earners will be worse off under the package as it currently stands and that the government cannot give assurances that in fact that is not the case and that everybody is better off'. [15]

2.24 Other community and welfare groups expressed similar concerns. The St Vincent de Paul Society noted that `millions of Australians, mostly families and individuals on lower incomes, could be substantial losers from tax reform if Treasury and its modelling end up getting it wrong as regards the GST impact on the cost of living'. [16] NCOSS also argued that the tax package delivers the greatest level of income tax cuts to middle and higher income earners. [17]

2.25 TasCOSS referred to the research undertaken by Professor McDonald and argued that in Tasmania the compensation will not go as far as it does in other States because of the higher costs of food and goods as well as limited competition in retail outlets. Therefore, children from low income households in Tasmania will be disadvantaged to a greater degree than children in the rest off Australia. [18]

2.26 The Australian Catholic Social Welfare Commission (ACSWC) raised concerns about the tax package in relation to low income families, in particular, unemployed people and families with children over 16 years. The Commission noted that while sole parents and pensioners will lose 40 cents of their benefit for every dollar earned over $100 per fortnight under the tax changes, a single unemployed person who earns only $60 per fortnight will continue to lose 50 cents of their benefit for every dollar up to $140 per fortnight and 70 cents for every dollar of earned income over this amount –`this is unfair in terms of distributing the benefits of tax reform to all sections of the community'. [19] ACSWC also noted that under the Family Tax Payment, a family on $27,000 per annum with a child aged 15 years will receive a maximum payment of $143.92 per fortnight. However, when the child turns 16 the family will receive a decrease in that payment of $21.72 per fortnight under the Youth Allowance. The Commission noted that this indicates that families with children over 16 will be `disadvantaged relative to the rest of the community as a result of the proposed reforms'. [20]

2.27 A number of illustrative comments reflect the deep community concerns about the compensation package:

2.28 Groups were concerned that not only was the compensation inadequate, but it would be eroded over time as the GST rate rose, as governments cut budget spending, and, in the case of pensioners, because the commitment to maintain pensions at 1.5 per cent above CPI is simply not enough to give pensioners more than what they would have received anyway. Evidence presented to the Committee reported that in both New Zealand and Canada, GST compensation has dwindled away leaving the poor poorer. In the case of New Zealand, St Vincent de Paul warned that St Vinnies Food Bank gained a substantial middle class clientele after the GST was introduced.

2.29 Many pensioner and other groups questioned whether the measures would adequately compensate pensioners and other social security recipients for the impact of the GST and whether the compensation would be maintained over time.

2.30 Pensioner and other groups expressed concerns about the adequacy of the 4 per cent pension increase. COTA argued that the cameos provided by the Government overestimate the benefits to older persons of the tax package –`it is quite conceivable that for some older people the price effect of the GST will be significantly greater than 1.9 per cent'. [29] The National Seniors Association (NSA) also submitted that `there is sufficient evidence to suggest that that [1.9 per cent] figure may well be an understatement of the likely impact of a GST on living expenses'. [30]

2.31 COTA noted that:

2.32 The Australian Pensioners' & Superannuants' League also stated that the League has `no faith that the compensation package, especially for aged pensioners will be adequate to compensate for dramatic increases in essential goods and services'. [32]

2.33 Anglicare Australia commented on the inadequate size and coverage of the compensation package, submitting that `just as there is pressure on governments to allow compensation packages to be eroded over time, there is pressure on them to make them as small as politically feasible and to restrict their coverage as much as possible. Both these tendencies are obvious in the Government's proposed compensation package'. [33]

Erosion of compensation

2.34 Pensioner and other groups also raised concerns that the value of the compensation package will be eroded over time. COTA stated that the package is `far more fragile and at risk of erosion over the long term' arguing that it was important that the value of pension and other income support payments are maintained in relation to cost of living increases in perpetuity and that the maintenance of the value of the pension in relation to Male Total Average Weekly Earnings (MTAWE) or revised benchmarks take account of lower income tax rates proposed in the tax package. The New Zealand experience where compensation measures only lasted a few years was referred to as a salutary lesson for Australians. [34]

2.35 Anglicare Australia stated that:

2.36 Concerns were also raised in relation to the impact of the GST on the Government's intention to maintain the pension rate at 25 per cent of MTAWE. The Tax Reform document states that pensions will increase by 4 per cent and that `in addition' the Government will ensure that the single rate of pension does not fall below 25 per cent of MTAWE. [36] CPSA/APSF argued that while it appeared that pensioners would benefit from increased community living standards `pensioners will only receive CPI-related increases, rather than CPI and wage benchmark rises. So the promise to make sure older people benefit in real increases in community standards will not be met'. [37] CPSA/APSF argued that the Government should quarantine the 4 per cent GST-linked pension increase from regular pension increases. [38]

2.37 This is a very important point and it goes to the heart of the inadequacy of the compensation for pensioners. Geoff Carmody from Access Economics made the point clearly in testimony to the Senate Select Committee that it would only be a matter of time before the compensation would be eroded to zero. So the Government is misleading pensioners in this pretence that the GST compensation is on top of existing pension increase entitlements.

2.38 The Committee raised this issue with the Department of Family and Community Services (DFaCS) during the inquiry. The Department stated that:

2.39 The Department further advised the Committee that:

2.40 Groups looking after the welfare of the aged raised concerns about the adequacy and the scope of the Aged Persons Savings Bonus and the Self-Funded Retirees Supplementary Bonus. These groups were concerned that these one-off payments do not compensate for the ongoing devaluation of older persons' financial assets as a result of the GST. Older people in the income ranges that attract the bonuses will not be significant beneficiaries of the income tax cuts and yet they have paid income tax on their savings over their lifetime. [41]

2.41 These groups were also concerned that there is no compensation for retired people under 60. COTA noted that `this is a serious anomaly given that early retirement is commonplace'. [42] NSA also noted that considering the payment is a one-off, it is hard to justify denying a bonus to a self-funded retiree aged 59 and granting the bonus to a person in the same age category but one year older. [43]

2.42 In addition to the concerns expressed by these groups, the Committee received a large number of submissions from people who were close to retirement or retired and aged between 55 and 59. These people were also greatly concerned about the likely devaluation of their savings and income and believed the GST would significantly disadvantage them in the absence of reasonable compensation. [44]

(c) GST price exploitation

2.43 The Committee heard evidence from many witnesses who challenged the government's assumption that business would remove all of the pre-GST taxes (ie there would be 100 per cent pass through to consumers of tax reductions). This situation could be exacerbated in rural and remote areas where there is limited or no competition in the delivery of goods and services. Of deep concern to the Committee were examples of businesses which are already increasing charges to community groups in anticipation of the introduction of the GST.

2.44 Car leasing firms have put up prices to child care centres and other community services in New South Wales and Western Australia. They argue that as the prices of second hand cars will fall after the GST comes into effect, they need to price that factor into lease agreements now. Some funeral directors have also added the GST to the price of pre-paid funerals. The NRMA has also indicated that it will start charging a GST on premiums. Now in these cases, the GST has been added to the final price. Businesses have not taken into account the reductions from the repeal of wholesale sales tax or other taxes in these cases. This is a signal of just how open to price exploitation the system will be if the GST is implemented.

2.45 Protection from price exploitation will focus on large one-off purchases (like televisions or cars), rather than everyday items like food. The St Vincent de Paul Society suggested that because of this, higher income earners would get more protection from GST price exploitation than lower income earners.

2.46 There was recognition that the legislation expands the powers of the Australian Competition and Consumer Commission (ACCC) to enforce compliance and provides significant financial penalties for transgressors. However, details of how the ACCC will be able to effectively undertake this monitoring have yet to be determined. Many doubts were expressed, as people simply could not accept that the ACCC will have the capacity to monitor every corner store.

2.47 The Committee is aware that in evidence before the Select Committee, the ACCC acknowledged that there was `no way' it could police every business and that it would be relying on the marketplace, ex-employees providing secrets and 18 million people to keep an eye on GST prices. [45] By responding to complaints the ACCC will be reliant on individuals or communities having a detailed level of knowledge in relation to prices and tax changes. The ACCC also conceded in evidence that if there was perfect competition in the marketplace, it would not exist.

2.48 The Committee is very concerned lower income earners will be forced to pay higher prices and will receive little protection from an under-resourced ACCC.

(d) Food and the GST

2.49 The issue of imposing a GST on food raised strong views both for and against in evidence. Many submissions argued that the inclusion of the GST on food would have significant health considerations for low income earners and the aged in particular, while others submitted that to exempt food would create an administrative nightmare through a range of compliance and regulatory problems. The complexities and costs which would necessarily arise from treating some food items as GST-free and others with a GST included would need to be balanced against the social benefit of such differentiation. However, the Committee is of the view that in prioritising the principles of tax reform, equity and fairness should be given far greater priority than simplicity and cost issues.

2.50 The Committee notes that the Select Committee is examining the overall economic impact of the inclusion or exemption of food from the GST under its terms of reference. The Community Affairs Committee has focused its examination on the health and welfare implications of imposing a GST on food, especially the impact for the aged and people on low or fixed incomes.

2.51 The Committee understands that the Select Committee has commissioned Professors Neil Warren and Anne Harding to model the extent to which different types of households are compensated for the impact of the GST. Their modelling will estimate the effects of exempting food as an alternative to compensation as a means of reducing this undeniably regressive and unfair aspect of the GST. They are due to provide a report to the Select Committee on 1 April, after the Community Affairs Committee has reported.

2.52 Adopting a healthy, nutritious diet is a vital component of achieving and maintaining good health. Government and NHMRC guidelines advocate the consumption of a wide variety of breads, cereals, vegetable and fruit and the avoidance of foods with a high content of fat, sugar and salt. Currently a range of foods, particularly fresh food, are not subject to WST. However, under the tax changes all foods would be subject to the imposition of the GST at 10 per cent.

2.53 The Australian Consumers Association has estimated that the impact on the cost of a typical supermarket basket of foods would be 8.8 per cent or $355 per annum more expensive. [46]

2.54 From a public health perspective, the consequence is that foods that are currently not taxed will become more expensive – and these include the very foods advocated in the government guidelines as vital for good health.

2.55 The major concern arising from this consequence, was that these changes in the price relativities of foods create the anomalous situation that nutritious foods such as breads, cereals, fruits, vegetables and certain dairy products become more expensive and will be less affordable relative to many less nutritious foods. [47] The inadequacy of the compensation for low income families will provide an added pressure to buy cheaper, less healthy manufactured food.

2.56 Low income older people and aged pensioners spend a large proportion of their total income on food. Any increase in food prices would have a significant impact on the expenditure patterns of these older people. Many of the groups representing older people reiterated the concerns about the GST increasing the price of foods, especially fresh foods, while less nutritious foods may become cheaper, and the negative effects this anomaly would have on the health of older people. [48]

2.57 COTA noted that there has been concern for some time about the nutritional deficits of older people especially those living alone. COTA believes that habits of frugality in terms of essential, healthy food items will be exacerbated by the imposition of the GST.

2.58 The impact of the GST on food will also impact on people in rural and remote areas who, on average, are less well off than their urban/metropolitan counterparts. They already have more limited access to a range of nutritious foods due to greater cost, poorer quality and reduced availability. The consequences of imposing the GST on all foods are likely to lead to deterioration in the dietary situation of people living in these areas.

2.59 TasCOSS and Anglicare Tasmania indicated that due to a combination of lower incomes and higher grocery prices Tasmanians spend a greater proportion of their income on food than the population of any other State. Tasmanians, particularly those on low incomes, would be especially disadvantaged by the application of the GST on food. [49]

2.60 Concerns were also expressed that this measure would impact detrimentally on the health of Aboriginal communities, especially those in remote areas. These communities are already subject to excessive price differentials for fresh food. The Australian Consumers Association noted that in Aboriginal Community Stores in the NT, bread, cereals, fruit and vegetables were on average 26-35 per cent more expensive than the supermarket in the nearest regional centre. Similarly, in North Queensland a basket of `healthy' foods was found to cost 175 per cent more than Brisbane prices. The highest prices and the poorest quality were found in the remote communities of the Gulf and Cape in Queensland. [50]

2.61 ATSIC referred to a survey of expenditure patterns for indigenous households in rural and remote communities of WA and NT which showed that these households spent on average 39.3 per cent of their income on food which increased to about 54 per cent for larger sized households. [51] These figures compare with ACOSS figures which show that low income earners spend about 24 per cent of their income on food, while wealthier people spend only about 13 per cent. Again, the GST is shown to be a regressive tax because people with the lowest incomes will pay relatively more than the people with the highest incomes, with indigenous people being even further disadvantaged.

2.62 The Public Health Association of Australia (PHAA) submitted that a further consideration was the impact of a GST on specially modified food products necessary for the health of people with specific medical conditions, eg arthritis, and on services which provide nutritious food to disadvantaged groups (such as meals on wheels). PHAA was concerned that these foods and services, which are currently tax free, would increase in price substantially if the GST is applied to them.

2.63 The Dietitians Association of Australia made reference to the recently released ABS National Nutrition Survey: Foods Eaten which found that people living in socio economic disadvantage already consume less of the foods which constitute healthier choices (eg fruit, meat, fish and milk) than higher income households. They also experience poorer health. The imposition of the GST on these nutritious foods is likely to have an even greater impact on the health inequity of at risk groups in the population. [52] As Anglicare Australia simply stated, imposing a GST on food `is an extremely regressive tax which bears much more heavily on people with low incomes than on those with high incomes'. [53]

2.64 The Dietitians Association of Australia submitted that `dietitians, and many other professionals in the public health and health care sectors, believe that a GST on basic foods will make it harder to protect the nutritional health of Australians and could impact on the already overburdened health care system'. [54] A number of groups noted such an impact would run contrary to the Government's public health programs of encouraging healthier eating to reduce the human and dollar cost to the community of many preventable diet-related health problems.

(e) Impact on specific groups and communities


2.65 It was argued that the impact of the tax reform proposals will fall more heavily on women because:

2.66 The Women's Economic Think Tank (WETTANK) stated that `as women are the low income earners and the managers of household finances, the gender issue is that many more women will be unfairly taxed than men'. [56]

2.67 Professor Patricia Apps of the University of Sydney argued that the Government's shift to a `joint tax' system would impact adversely on women. Under the proposals, the tax burden is shifted from single to dual income families and this `means higher taxes for the second earner, typically the female partner on lower pay'. This impacts on:

2.68 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. [57]

2.69 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. [58]

2.70 The YWCA also noted that the legislation proposes that, in future, Family Tax Allowance may be either paid directly to the primary carer or used to reduce the employed partners' tax. The YWCA stated that the payment should be vested in the primary carer to ensure that children are the full beneficiaries of the family subsidy.

2.71 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. [59] 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:

2.72 The Liquor, Hospitality and Miscellaneous Workers Union (LHMU) also expressed concern for the employment prospects of its members in two areas traditionally employing high numbers of women: aged care and child care. The LHMU noted that many women working in aged care work part-time, on average about 30 hours per week. A substantial number of women are the main breadwinner for their families. [61] The majority of workers in the child care industry are women and are some of the lowest paid workers in Australia. The child care industry has already seen the impact of government funding changes which have led to the closure of services and loss of employment. [62] Any diminution of services in these two areas because of the impact of the GST and FBT changes will impact more heavily on women workers.

2.73 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. [63]

2.74 The special case of women in Tasmania was highlighted. TasCOSS stated that more women in Tasmania are on lower incomes than in any other area of Australia. TasCOSS argued that they will be disadvantaged under the GST:

2.75 As women live longer than men, there are a greater number of older women than men. They are more likely to be dependent on pensions. [65] The Older Women's Network pointed to a number of problems arising for older women as a result of the tax reform package:

2.76 The Older Women's Network stated:

2.77 The Sole Parents Union expressed concerns about the impact of the GST on sole parents. Eighty eight per cent of sole parent beneficiaries are women. Sole parents and their children are among the most disadvantaged groups in Australian society. Many have no capacity to save and are living beyond their means. Any increase in the cost of living will exacerbate an already difficult situation.

2.78 Those sole parents who work rely more heavily on services than do couple families. Any increases in costs, or decline in accessibility of child care services, will impact adversely on a sole parent's ability to remain in the workforce. The Sole Parents' Union also noted that sole parents have a much higher reliance on personal services and that a tax on these services will act `as a further disincentive for sole parents to take up paid work, and therefore increase their reliance on social security. This fuels the vicious circle which keeps sole parents dependent on welfare and prevents them from breaking out of the cycle of poverty and welfare'. [68]

Households in regional areas

2.79 A number of organisations expressed concern that the tax reform proposals will adversely effect rural and remote communities particularly in the areas of health, food pricing, and community services. It was also argued that the tax reform proposals would further exacerbate the disparity between rural and metropolitan living standards.

2.80 VCOSS noted that the number of low-income households in non-metropolitan Australia has increased. [69] Some regions have a concentration of low-income households and people on government support. TasCOSS stated `Tasmania has, on a per capita basis, the highest unemployment, the lowest average weekly wage, the oldest population and lowest dependency ratios, the greatest number of people dependent on government income support and the most de-centralised population'. [70]

2.81 As well as lower incomes, communities in rural and remote Australia also face higher living costs. Higher transport costs of goods are built into prices, services are fewer and some services that are provided to urban dwellers by government or for-profit businesses must be provided by the rural or remote community itself.

2.82 Submissions from rural and regional Australia expressed concern that these factors have not been considered in the tax reform proposals. From a Western Australian perspective it was seen that:

2.83 Many submissions highlighted the difference in the incidence of taxes between rural and metropolitan areas, and in particular the impact of a tax levied on the retail price of goods and services. It was argued that, as the proposed GST will fall on the retail price of goods and services, the impact on prices in rural and remote Australia will be greater than in metropolitan areas. That is because prices of goods in regional areas incorporate higher transport, handling and distribution costs as well as the normal profit margins in the final price to consumers.

2.84 For those consumers in rural and remote Australia, these elements of the price of a good are substantially higher than in metropolitan Australia. Costs are higher not only because of additional transport costs but because these costs and margins are spread over smaller volumes and so add more to individual unit prices. For example:

2.85 While it was acknowledged that diesel fuel prices will fall as a result of the tax reform proposals, the National Rural Health Alliance (NRHA) argued that it is unlikely that this will fully offset the price increases in goods for rural and remote areas. Further, not all transport is via road, with many remote areas being supplied by aircraft and barges. The Australian Consumers Association also expressed concern that `savings will not be passed onto consumers, especially in remote areas where there is little competition between transport companies'. [75]

2.86 It was also argued that the CPI is based on capital city prices and therefore the relatively larger increases in prices in rural areas due to the GST will not be captured by the index. As VCOSS stated:

2.87 It was argued that the changes to personal income tax will be of less benefit to rural and remote Australians: these residents earn, on average, lower taxable incomes than city dwellers, with incomes being some 15 per cent higher in the city. NRHA stated that `because of the structure of the proposed income tax changes, this means that the change in disposable incomes is higher in metropolitan areas (4.9%) than in rural and remote areas (3.9 per cent)'. [77]

2.88 The Regional Development Council of Western Australia also noted that the income tax regime does not take into account location and thus has a built-in bias against regional earners. The Council argued that zone rebates are an effective means of redressing this bias and that the real value of zone rebates should be restored to 1993 levels. [78]

2.89 The NRHA stated that the problems for rural health can be encapsulated in two facts: the health of rural and remote people is worse than that of those living in urban areas; and they have access to a narrower range of health services. The Alliance noted that the life expectancy of people in rural areas was lower than that of metropolitan dwellers and that for people in remote areas it was lower again. Rural and remote Australians are more likely to stay at home than to seek hospital or nursing home admission; more likely to seek the advice of a pharmacist, nurse or friend than to visit a doctor and more likely to use medicines available at a general store than those only available in pharmacies.

2.90 NRHA expressed concern that the proposed tax reform would not assist those living in rural and remote Australia in terms of improved health care. While it noted that there would be some cost reductions, NRHA believed that the Government had overstated the extent of the reductions. NRHA was also concerned that the health care exemptions `will be to the relative disadvantage of less formal types of health care'. Of particular concern to rural Australians will be the changes to the pharmaceutical provisions. Many of those living in rural and remote areas have less ready access to a pharmacy and rely on general stores for purchases. [79]

2.91 In evidence DHAC indicated that it had not undertaken any research on how the GST administrative costs will impact on small aged care providers in rural and remote areas. It also indicated that at this stage there was no intention to do so. [80]

2.92 Concerns were also expressed for older women in rural and remote areas, particularly in regard to the issues of transport and telephones. It was noted that older women who live alone need these two services because many suffer from isolation and loneliness. Any price rises resulting from the impact of the GST in these areas will only exacerbate these problems for older women.

2.93 The Australian Local Government Association (ALGA) expressed concern about the impact of the GST on the provision of services by regional councils. ALGA noted that in rural areas local government provides a range of basic community services such as community halls, swimming pools, library services `that would not be there if they were not being provided by the council and subsidised'. [81]

2.94 The GST is to be charged on services provided by local government. However, ALGA noted:

The impact of the GST on Local Government is discussed in Chapter 5.

Remote Aboriginal communities

2.95 ATSIC, the Northern Land Council (NLC), NRHA and the National Aboriginal Community Controlled Health Organisation (NACCHO), among others, argued that the different circumstances involved in operating remote Aboriginal communities mean that they will be uniquely affected by the impact of the tax reform package. In particular:

2.96 ATSIC concluded that `the implication of these characteristics is that Indigenous people in rural and remote communities are possibly the most disadvantaged in Australian society and are least able to adjust to any additional costs and disincentives imposed on them'. [84]

2.97 The NLC highlighted the impact of the GST on goods and quoted a study by Australian Economic Consultants which had concluded that the Indigenous communities will pay GST on a final price of goods and services which is many times higher than for comparable products elsewhere in Australia. The NLC further stated that `given that community people have a consumption pattern which is intense in highly taxed items (relative to the pre-GST state) and they live in very remote and high cost places, it would be surprising if they will not become the most heavily GST taxed group in the nation, measured by the proportion of their incomes paid in GST'. [85]

2.98 A study commissioned by ATSIC supported the view that Indigenous households spend more on food (39.3 per cent) compared to low income non-Indigenous households (24 per cent). For large Indigenous households this increases to 54 per cent, reflecting the higher costs of food due to transport costs, and in some instances, that the supplier is in a monopolistic position. [86]

2.99 The NLC concluded `this will impact adversely on the standards of living of Indigenous communities by leaving less of their incomes available for other goods and services after spending on food, or by reducing food purchases'. For example, a basket of vegetables costing $100 in a capital city currently costs $212 in the East Arnhem district. To add GST onto this base may have serious nutrition and health implications. A further matter noted was that the elimination of WST and replacement with the GST will impact on the relative price of foodstuffs. As noted earlier, processed food such as soft drink, biscuits and sweets will become cheaper while fresh foods such as fruit and vegetables will become more expensive. This will only add to health and nutrition problems in Indigenous communities.

2.100 NACCHO stated `if there is to be some sort of commitment to changing the lifestyle and the sickness rates out there, then they must seriously consider subsidising getting those sorts of good foods out to these places'. [87]

2.101 Housing was another area of concern. The NLC submitted that with the GST the costs of housing will rise and this will result in less housing being built in Indigenous communities. The housing backlog is already extensive with cascading effects on health, education, employment, etc. [88] See further discussion in Chapter 4.

2.102 The NLC expressed concern that the Government's proposed compensation measures would not adequately address the effects of the GST on remote Indigenous communities. The Council also noted that it was unaware of any detailed modelling of the effects of the GST and of the proposed offsetting measures on remote Indigenous communities.

2.103 NACCHO expressed concern about the administrative impact of the GST on Aboriginal health services:

2.104 NACCHO went on to state that the administrative structure of Aboriginal medical services are underresourced, that `the resources will not stretch any further' and:

2.105 Another area of concern was the changes to the FBT arrangements. NACCHO indicated that FBT arrangements were used to attract doctors and people to remote health services:


2.106 The Committee concludes that the Government's claim that no households are made worse off is wrong. In fact, evidence before the Committee shows that the tax package will reduce the living standards of many low and middle income households. The compensation is not adequate. It is based on incorrect assumptions. It fails to take into account the different spending and saving patterns of low income households, the different housing costs and the different impacts on households in regional Australia. The Government has only allowed an extra 30c a week for the GST costs per child.

2.107 The Government has grossly overestimated the reduction in prices from the removal of the WST and other State indirect taxes, at least in the short-term.

2.108 The Government price watchdog, the ACCC, is unlikely to have the resources to guarantee protection for low income expenditure.

2.109 The Committee concludes that the compensation package is inadequate to begin with and will be eroded over time, and that living standards of low income and disadvantaged Australians will deteriorate.


[1] Tax Reform: not a new tax, a new tax system, Chapter 5.

[2] Submission No.68, pp.2-3 (ACOSS); Submission No.848, pp.14-15 (Brotherhood of St Laurence).

[3] Submission No.68, pp.3, 6-7 (ACOSS). See also Submission No.848, pp.13-14 (BSL); Submission No.300, pp.13-14 (St Vincent de Paul Society).

[4] Senate Select Committee on a New Tax System, First Report, February 1999, p.15.

[5] Select Committee, First Report, p.17.

[6] Submission No.68, p.3 (ACOSS).

[7] Submission No.795, p.5 (COTA).

[8] Submission No.795, p.6 (COTA). The figures are based on HES data. See also Submission No.928, pp.16-23 (ACA).

[9] Submission No.300, pp.14, 22 (St Vincent de Paul Society).

[10] Submission No.928, p.22 (ACA). See also Submission No.795, p.8 (COTA).

[11] Submission No.79, p.1 (Professor McDonald).

[12] Submission No.79, pp.1-2 (Professor McDonald).

[13] Submission No.79, p.4 (Professor McDonald).

[14] Submission No.79, p.5 (Professor McDonald).

[15] Committee Hansard, 10.2.99, p.494 (ACOSS).

[16] Submission No.300, p.31 (St Vincent de Paul Society). See also Submission No.783, pp.9-12 (Council for Homeless Persons Australia); Submission No.1006, p.2 (Federation of Ethnic Communities' Councils of Australia); Submission No.483, pp.1-2 (Adelaide Justice Coalition); Submission No.405, pp.1-4 (Adelaide Day Centre for Homeless Persons).

[17] Submission No.640, p.1 (NCOSS).

[18] Submission No.872A, p.33 (TasCOSS).

[19] Submission No.1034, p.14 (ACSWC).

[20] Submission No.1034, p.14 (ACSWC).

[21] Submission No.1034, p.29 (ACSWC).

[22] Submission No.624, p.4 (Anglicare Australia).

[23] Submission No.364, p.3 (ACA).

[24] Submission No.604, p.3 (VCOSS).

[25] Submission No.640, p.1 (NCOSS).

[26] Submission No.872A, p.5 (TasCOSS).

[27] Submission No.922, p.2 (SACOSS).

[28] Submission No.801, p.v (ATSIC).

[29] Submission No.795, p.12 (COTA). See also Submission No.850, pp.11-17 (CPSA/APSF); Submission No.734, p.5 (NSA); Submission No.624, p.6 (Anglicare Australia).

[30] Submission No.734, p.4 (NSA). See also Submission No.861, p.1 (Older Women's Network); Submission No.239, p.2 (ARPA Over 50s Association); Submission No.1304, p.2 (Goldfields Age Pensioners Association).

[31] Submission No.795, p.17 (COTA).

[32] Submission No.106, p.3 (APSL).

[33] Submission No.624, p.6 (Anglicare Australia).

[34] Submission No.795, p.16 (COTA). See also Submission No.850, pp.10-13 (CPSA/APSF); Submission No.624, p.6 (Anglicare Australia); Committee Hansard, 3.2.99, pp.240-41 (Carers Association).

[35] Submission No.624, p.6 (Anglicare Australia). See also Submission No.269, p.1 (Retired Union Members' Association of SA).

[36] Tax Reform Report, p.56.

[37] Submission No.850, p.12 (CPSA/APSF). See also Submission No.795, p.13 (COTA).

[38] Submission No.850, p.13 (CPSA/APSF).

[39] Committee Hansard, 2.2.99, pp.83-84 (DFaCS).

[40] DFaCS, Additional Information, 28.2.99, p.3.

[41] Submission No.795, p.24 (COTA); Submission No.734, p.6 (NSA); Submission No.305, p.1 (Association of Independent Retirees).

[42] Submission No.795, p.15 (COTA).

[43] Submission No.734, p.6 (NSA).

[44] See, for example, Submission Nos.25, 32, 42, 46, 51-52, 54, 72, 81, 108, 128, 134, 151, 165-66, 211, 245-247, 271, 382, 486, 576.

[45] Select Committee Hansard, 11.2.99, pp.849, 853 (ACCC).

[46] Submission No.928 (ACA), p.21 and Appendix 1, p.37.

[47] For example Submission No.227 (Ms Rosemary Stanton), pp.1-2 and Committee Hansard, 12.3.99, pp.1223-26; Submission No.928 (ACA), p.22; Submission No.895 (PHAA), p.5; Submission No.796 (DAA), p.1; Submission No.655 (The Smith Family), p.5.

[48] Submission No.795 (COTA), pp.8-9; Submission No.850 (CPSA/APSF), p.18.

[49] Submission No.872A (TasCOSS), pp.27-31; Submission No.237 (Anglicare Tasmania), pp.1-2.

[50] Submission No.928, p.24 (ACA).

[51] Submission No.801 (ATSIC), pp.6-9.

[52] ABS Survey referred to in Submission No.796 (Dietitians Association of Australia), p.2; Ms Rosemary Stanton argued similarly, see Committee Hansard, 12.3.99, pp.1229-30.

[53] Submission No.624 (Anglicare Australia), p.5; Submission No.928 (ACA), p.18 argued similarly.

[54] Submission No.796 (DAA), p.2.

[55] Submission No.74, pp.5-6 (Professor Patricia Apps).

[56] Submission No.1007, p.12 (Women's Economic Think Tank).

[57] Submission No.74, p.6 (Professor Patricia Apps).

[58] Submission No.611, p.4 (YWCA of Australia).

[59] Submission No.1007, p.8 (Women's Economic Think Tank).

[60] Committee Hansard, 23.2.99, p.860.

[61] Committee Hansard, 23.2.99, p.1066.

[62] Issues relating to child care workers and changes in the child care industry are discussed in the Committee's Report on Child Care Funding, December 1998.

[63] Committee Hansard, 3.2.99, p.194.

[64] Submission No.872, p,4 (TasCOSS).

[65] Submission No.861, p.1 (Older Women's Network).

[66] Submission No.861 (Older Women's Network).

[67] Committee Hansard, 10.2.99, p.535.

[68] Submission No.1048, p.1 (Sole Parents' Union).

[69] Submission No.604, p.8 (VCOSS).

[70] Submission No.872, p.3 (TasCOSS).

[71] Submission No.1042, p.3 (Regional Development Council of Western Australia).

[72] Submission No.732, p.14 (National Rural Health Alliance); Submission No.1042, p.14 (Regional Development Council of Western Australia).

[73] Submission No.872, p.3 (TasCOSS).

[74] Submission No.928, p.24 (Australian Consumers Association).

[75] Submission No.928, p.24 (Australian Consumers Association)

[76] Committee Hansard, 11.2.99, p.714 (VCOSS).

[77] Submission No.732, p.15 (National Rural Health Alliance).

[78] Submission No.1042, p.4 (Regional Development Council of Western Australia).

[79] Submission No.732, p.4 (National Rural Health Alliance).

[80] Committee Hansard, 2.2.99, p.48.

[81] Committee Hansard, 12.3.99, p.1207.

[82] Committee Hansard, 12.3.99, p.1208.

[83] Submission No.732, p.21 (National Rural Health Alliance); Submission No.801, p.2 (ATSIC) Submission No.1387, p.3 (Northern Land Council); Submission No.510, pp.1-2.

[84] Submission No.801, p.4 (ATSIC).

[85] Submission No. 1387, p.4 (The Northern Land Council).

[86] Submission No.801, p.6 (ATSIC)

[87] Committee Hansard, 3.2.99, p.191.

[88] Submission No.1387, p.6 (The Northern Land Council). See also Submission No.801, p.10 (ATSIC).

[89] Committee Hansard, 3.2.99, pp.177-78.

[90] Committee Hansard, 3.2.99, p.183.

[91] Committee Hansard, 3.2.99, p.178.