CHAPTER 1
EMPLOYMENT
Introduction
1.1 One of the key principles underlying the perceived need to reform
the current tax system is that a system of new arrangements would help
to improve Australia's global competitiveness, thereby generating investment
and employment. The Government's Tax Reform: Not a New Tax, a New Tax
System (ANTS) document argues that the current tax system is failing
Australia, and that, inter alia, it penalises Australian exports
and discourages investment by distorting business decisions and imposing
excessive compliance costs on businesses. These factors are said to reduce
the total gains to Australia from investments, thereby hindering employment
growth and restricting gains in living standards. [1]
1.2 The ANTS guide describes many potential benefits for Australia flowing
from the new tax system proposal, suggesting that it will `fix the problems
of unfairness, uncompetitiveness and complexity that plague the existing
system' and `encourage job-creating investment in our businesses, both
large and small'. [2]
1.3 The Government claims that the tax reform package will deliver substantial
long-term improvements in the operation of the economy, to the benefit
of all Australians. In his second reading speech in the House of Representatives,
the Treasurer, Mr Costello, made the following claims:
This is a plan not for a new tax but for a new tax system. It encapsulates
those changes necessary to make our great country more productive and
more competitive. It will help our exporters, deliver more jobs and
increase standards of living. [3]
1.4 The Minister for Employment, Workplace Relations and Small Business,
Mr Reith, has also made clear in the Parliament the Government's belief
that the ANTS package will provide a boost for employment, claiming that
`the [proposed] new tax system is very good for jobs'. [4]
1.5 The ANTS document makes similar claims:
These improvements will be reflected in higher economic growth as a
result of stronger, more productive investment which, together with
the lowering of industry costs, will yield better export outcomes. Such
changes will be crucial in relaxing the balance of payments constraint
that has for so long held back Australia's growth performance. The combination
of higher growth and improved work incentives will deliver more jobs
and lower unemployment. [5]
1.6 Evidence and information gathered from nearly 1,500 submissions to
the Senate's inquiries into the Goods and Services Tax (GST) and other
new tax system proposals, a range of economic models and numerous public
hearings, have discussed the validity of these and other assertions by
the Government about the proposed new tax system. It is the issues in
relation to employment and unemployment that this chapter seeks to examine
in more detail.
Economic Modelling of the ANTS Proposals
Introductory Comment
1.7 The Select Committee commissioned a project involving the macroeconomic
modelling of the effects of the ANTS package. The Select Committee commissioned
Professor Peter Dixon and Dr Maureen Rimmer from the Centre of Policy
Studies at Monash University to undertake this work, and, so as to maximise
the information to the Committee, it also requested that another private
sector forecaster comment on the findings. Mr Chris Murphy of Econtech
was selected for this role and he also reported back to the Select Committee.
The Monash Model
Description [6]
1.8 The Monash model, developed by the Centre of Policy Studies, is a
dynamic, computable general equilibrium model of the Australian economy.
The designers of the model describe their model as being designed for
forecasting and for policy analysis. The model incorporates information
from a wide range of sources, such as macroeconomic forecasts from the
Department of the Treasury and other analysts, forecasts of tourist numbers
from the Bureau of Tourism Research and export volume and price forecasts
from the Australian Bureau of Agricultural and Resource Economics.
1.9 From this information, the model generates forecasts for 113 industries
and 115 commodities. The results can be transformed into forecasts for
860 sub-commodities, 341 labour occupations, 56 regions and many types
of households.
1.10 Of specific interest to this Committee's terms of reference are
the forecasts for the various key industry sectors, covering such issues
as growth in Gross Domestic Product (GDP), exports and investment, with
the linkages to employment and employment growth. Also relevant to the
Committee's terms of reference is the effect on inflation, which has important
linkages to wages growth. Additionally, the Dixon and Rimmer paper focuses
specifically on the effect of exempting tourist packages that are purchased
overseas from the GST.
The Results of the Monash Modelling [7]
1.11 The central simulation with the Monash model found that:
- the long run resource allocation gains flowing from the proposed tax
changes will be negligible;
- the package will harm tourism and benefit more traditional exporters,
eg iron ore;
- the effects on consumer-goods industries will be mixed;
- employment will be stimulated in the short-run by about 30,000 jobs;
- investment will be increased, especially in the short-run; and
- the package will produce a long-run increase in capital stock in Australia,
but little change in economic welfare. [8]
1.12 In addition to the central simulation, a series of `sensitivity'
simulations were conducted and analysed in the January paper by Dixon
and Rimmer. The first is concerned with the labour market. In the central
simulation, an assumption was adopted that workers make their wage bargains
in real after-tax terms. This means that workers accept the income tax
cuts in the ANTS package as compensation for the increase in inflation
that occurs with the imposition of a GST. In the first sensitivity simulation,
it is assumed that workers bargain in real before-tax terms. Under this
assumption, the GST-induced jump in inflation produces a corresponding
jump in wage demands. This causes a significant short-term negative impact
on employment a loss of 100,000 jobs.
1.13 If food is removed from the GST and an assumption of after-tax wage
bargaining is adopted (the fourth sensitivity simulation conducted by
Dixon and Rimmer), the lowering of food prices causes a dampening of wage
demands which leads to a gain in jobs of 38,000 in the short-run (up from
30,000 in the central simulation). If an assumption of before-tax wage
bargaining is adopted (the fifth sensitivity simulation conducted by Dixon
and Rimmer), the lowering of food prices again dampens wage demands to
the extent that instead of employment declining in the short-run by 100,000
as in the first sensitivity simulation, short-run job losses are now restricted
to 68,000.
1.14 Although the modelling found that in the short-run there are positive
effects for welfare consumption, employment, real GDP and export volumes
of exempting food from a GST, it was also found that exempting food has
a negligible, but negative, impact on overall economic welfare under either
labour market assumption. [9]
1.15 A further issue concerns the source of the employment gains in the
central simulation. Dixon and Rimmer's paper makes the following observations:
We can think of the move from the central simulation to the fourth
sensitivity simulation as combining a reduction in consumption taxes
with a compensating increase in income taxes. According to the fourth
sensitivity simulation this leads to an increase in employment. The
question arises as to how the imposition of consumption taxes combined
with a reduction in income taxes generates a short-run gain in employment
in the central simulation. Employment is stimulated in the central simulation
(after-tax wage bargaining) only because the Government's tax package
involves a net movement towards deficit, allowing large reductions in
income taxes. More generally, in an environment of after-tax wage bargaining,
the Government could achieve short-run employment gains simply by cuts
in income taxes without changing indirect taxes. [10]
1.16 The model therefore suggests that the short-run gains in employment
are a result of the fiscal stimulus associated with the proposed reductions
in personal income tax; it is not influenced by the change in the indirect
tax system from a wholesale sales tax to a GST.
1.17 In a sixth sensitivity simulation, Dixon and Rimmer introduced different
`pass through' rates [11] for increases and
decreases in indirect taxes. They make the following points in relation
to their modelling of this issue:
In the central simulation we assumed that all changes in indirect taxes
are passed on immediately. In the sensitivity simulation, we continue
to assume immediate passing on of increases in consumption taxes but
we assume that it will take two years to complete the passing on of
reductions in taxes on inputs. The long runs effects of a delayed pass
are negligible. However, the short-run effects could be quite severe.
In the sensitivity simulation, a short-run effect of the package is
to reduce employment by 15,000 jobs whereas in the central simulation
employment in the short-run increased by 30,000 jobs. As recognised
by the Government, it will be important to ensure that tax reductions
pass through quickly to reduced input prices. [12]
1.18 That is, the modelling found that if there is delay in passing on
the full savings from reductions in some indirect taxes, this could lead
to an estimated 15,000 job losses in the short-run.
1.19 The Monash model simulations also find that the ANTS proposals will
have little effect on Australia's long-run macroeconomic performance.
Dixon and Rimmer note that:
They [the ANTS proposals] add a new dimension by illustrating two short-run
down-side risks: the package will cause job losses in the short-run
if wage earners refuse to allow before-tax wage rates to fall relative
to inflation or if increases in indirect taxes are passed on more quickly
than reductions. [13]
1.20 In relation to tourism, the Monash modelling found that there is
little difference in the long-run as to whether tourism packages are exempted
from the GST or not. The model finds that exempting packaged tours purchased
overseas (so-called `in-bound tourism') would improve tourism exports
by about 3 per cent in the short-run. However, with tourism doing better
in the package-exempt case than in the central simulation, other exports
fare worse because the better performance of tourism strengthens the real
exchange rate (which has a negative effect on other exports). So apart
from the change in the composition of exports, there is little difference
between the results in the central case and the package-exempt case. [14]
1.21 In summary, the Monash modelling found that:
- up to 100,000 jobs could be lost in the early years after the implementation
of the ANTS package if wages rise in response to the higher cost of
living under a 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;
- a delay of just one year in passing on the full savings from reducing
some indirect taxes will lead to an estimated 15,000 job losses;
- any economic efficiency gains will be negligible even under the most
favourable assumptions; and
- the package will cause a small decline in average Australian living
standards. [15]
The Murphy Models
Description
1.22 The latest version of the Murphy model is MM303, which is described
in some detail in a recent paper by Mr Murphy. [16]
The model distinguishes over 300 different commodities in the Australian
economy. MM303 complements the long-standing MM2 model. It provides a
fine level of commodity disaggregation but deals only with the long-run
outcomes from policy changes. MM2 on the other hand provides only a broad
range of commodity disaggregation to the 18 industry divisions of the
Australian and New Zealand Standard Industry Code (ANZSIC) system. MM2
is a quarterly model and is able to trace quarter-by-quarter effects until
the long-run outcomes are realised. However, both models employ similar
long-run equilibrium assumptions and can be successfully used in parallel.
1.23 MM303 can provide a detailed picture of the long-run effects of
quite specific economic reforms, including the size of any economic gain.
MM2 can offer insights into the adjustment processes set in train by such
reforms, including the length of time required for the gains to fully
accrue and the short-term adjustment pain that may be involved.
1.24 The main source of data for the Murphy models is the Australian
Bureau of Statistics' (ABS) input-output table, which is useful for long-run
equilibrium outcomes for models such as MM303 but is very limited as a
source of information on adjustment processes.
1.25 The 300 commodities modelled by MM303 fall within 107 industries.
This highly detailed commodity classification means that many microeconomic
reforms can be analysed without the need for any further disaggregation
and the gains from some reforms can be more fully captured.
1.26 The treatment of taxation is particularly detailed in MM303. The
model distinguishes 25 different indirect taxes on industry production
and commodity outputs. These can each be varied either universally or
as they apply to each industry or commodity or end purchaser. In addition,
MM303 provides for a GST, under which each commodity or industry can be
classified as taxable, input-taxed or zero-rated.
1.27 MM303 allows for the following substitution possibilities, between:
- labour and capital in each of the 107 industries;
- broad consumption groups;
- imported and local sources of supply for each importable commodity;
- exports from Australia and other sources of supply (that is, a substitution
by foreigners);
- different types of business investment goods;
- items within broad consumption groups; and
- the different forms of primary energy (for each industry).
1.28 MM303 conforms to the neutrality principle that is that economic
welfare would be maximised if it were possible to remove all economic
distortions. For a long-run equilibrium model, such as MM303, this requires
carefully designed model closure assumptions and special treatment for
private savings. MM303's main closure assumptions are:
- labour supply is assumed to be fixed, so balance in the labour market
is achieved by fixing the level of total employment;
- external balance is achieved by setting the trade balance to equal
the cost of servicing payments on foreign capital (the real exchange
rate needed to achieve this is determined by the model); and
- budget balance is achieved by designating a swing fiscal policy instrument
to achieve that outcome: for instance, the rate of tax on labour income
or the rate of value added tax.
1.29 In the case of private savings, MM303 assumes that the private sector
owns a fixed quantity of physical capital. This assumption rules out any
meaningful analysis with MM303 of the distorting effects of changes to
the taxation of the property income of Australian residents. However,
it does mean that the model can be used for a wide variety of other purposes.
1.30 Gains in economic welfare are assessed using the exact measures
of welfare change - the compensating variation and the equivalent variation.
In this type of model these measures of welfare change virtually equate
with changes in real supernumerary (that is, non-essential) consumption.
Effects on vertical equity are also measured by calculating movements
in real supernumerary consumption for consumers at different income levels.
[17]
Results of the Murphy Modelling [18]
1.31 Under the MM303 model specification, there are four points noted
in the analysis of the impact of the ANTS proposals on employment. They
are:
- National employment is held fixed as an assumption of the model. This
means that a simulation of ANTS or any economic policy will generate
exactly balancing job gains and losses between sectors. This can be
characterised as job shifting.
- The assumption of fixed national employment is conservative in the
case of ANTS because the Government's proposals reduce poverty traps,
leading to higher national employment. This means that in reality the
employment effects will be more positive than the model finds.
- The employment shifts are largely the consequence of a move to a more
neutral tax system. That is, jobs migrate from sectors that were under-taxed
in the past to sectors that were over-taxed.
- The migration of jobs is important in generating the gain in annual
consumer welfare, which is conservatively estimated at $607 million.
[19]
1.32 The Murphy paper makes the following claims in relation to job shifting:
- There will be an extra 12,000 jobs in the manufacturing sector. This
will be concentrated in the motor vehicle industry, with a gain of 6,000
jobs, and the electronic equipment industry, with a gain of 4,000 jobs.
- There will be a loss of 8,000 jobs in the cultural and recreational
services sector. This loss is spread thinly throughout this sector.
The estimated employment loss for accommodation, cafes and restaurants
of 7,000 jobs shows that claims made by the Tourism Task Force of a
jobs loss in the tourism industry of 59,000 jobs are highly exaggerated.
- There is also job shifting within some industries. For example, in
the construction industry, there is a jobs loss of 8,000 in residential
building, largely offset by job gains throughout the rest of construction
totalling 7,000, leaving a net jobs loss of 1,000. [20]
1.33 The Murphy paper also makes the following observations in relation
to the differential impact of the ANTS proposal across the Australian
States:
While there are small shifts in employment between industries, within
each state economy these shifts are largely offsetting because most
states have fairly diverse industrial bases
While there is a very
small shift in the state distribution of economic activity, there is
no shift in the state distribution of living standards. Living standards
are higher not just at the national level, but also at the level of
each individual state and territory. [21]
1.34 In summary, the Murphy modelling claims that while there will be
no overall gain in employment as a result of the implementation of the
ANTS package, there will be a significant degree of job shifting as resources
are reallocated and labour redistributes itself between industry sectors
as an outcome of the changes in the tax system.
1.35 However, the Labor senators consider the notion that workers who
lose their jobs in one sector because of the ANTS package will find alternative
employment in other industries and / or other regions to be unrealistic.
This is particularly so in the case of predicted job increases in the
manufacturing sector. Other economic indicators suggest that a decline
in demand for locally manufactured motor vehicles in the short to medium
term will see considerable pressure on that industry.
1.36 The Labor senators take the view that labour does not exhibit a
high degree of mobility. For example, it can not be assumed that workers
who lose their jobs in the cultural and recreational services sector (such
as tourism) will pick up work in the mining or manufacturing sector. As
the Select Committee report notes:
The absence of any resources in the tax package for re-skilling or other
retraining initiatives, relocation assistance or regional development
initiatives to assist dislocated workers, their families or their communities
demonstrates that this assumption is totally implausible. [22]
Additional Monash Modelling
1.37 The Committee commissioned Professor Peter Dixon from the Centre
of Policy Studies to undertake additional modelling of the employment
effects of the ANTS package. The Committee was particularly interested
in the impact of the package on employment by sector, by region, by occupation,
by age and by gender.
1.38 Professor Dixon's report contains two sets of conclusions. First,
a set of results based upon the central simulation, which assumes that
workers bargain for wages in real after-tax terms. Second, a set of results
based upon the first sensitivity simulation, in which workers are assumed
to bargain for wages in real before-tax terms.
1.39 Professor Dixon found that the sector that will be hardest hit by
the ANTS package is the tourism industry. The central simulation predicts
job losses of 4.3 per cent, or 19,880 jobs, in the entertainment sector
as a whole. This includes a loss of 16,420 jobs in the hotels industry.
In the first sensitivity simulation, job losses of 6.3 per cent are projected,
which equates to 28,952 jobs, including 19,098 jobs in the hotels industry.
Additionally in relation to tourism industries, the report projects job
losses of 4,607 jobs (8.1 per cent of all jobs) in the air transport sector
in the central simulation, and a loss of 5,127 jobs in the sensitivity
simulation (9.0 per cent of all jobs). [23]
1.40 Other industries that the report predicts will suffer large job
losses include:
- transport and communications (a loss of 10,255 jobs in the central
simulation and 21,118 jobs in the sensitivity simulation);
- agriculture, forestry and fishing (a loss of 6,916 jobs in the central
simulation and 5,492 jobs in the first sensitivity simulation);
- food, drink and tobacco (a loss of 3,731 jobs in the central simulation
and 3,806 jobs in the sensitivity simulation); and
- textiles, clothing and footwear (a loss of 1,836 jobs in the central
simulation and 1,977 jobs in the sensitivity simulation). [24]
1.41 The regional results of Professor Dixon's analysis indicate that
the ANTS package will have similar results across all of the States and
Territories. This is indicative of the fact that all States and Territories
have increasing similarities in economic profile, but with key industries
in particular States providing variation (such as manufacturing in Victoria
and South Australia and tourism in Queensland and the Northern Territory).
However, the results do reveal that the ANTS package will, on balance,
have negative implications for employment in regional areas as compared
to the capital cities. In the central simulation:
- employment is projected to increase by 12,412 jobs (0.4 per cent)
across New South Wales (NSW), including 10,944 jobs in Sydney. However,
declines of 0.4 per cent and 0.3 per cent are predicted for far-west
NSW and north-west NSW, respectively; and
- there will be an increase of 5,444 jobs (0.3 per cent) in Queensland,
with 4,916 of these new jobs in Brisbane. However, there will be declines
of 1.2 per cent and 1.1 per cent in central-west Queensland and south-west
Queensland, respectively. [25]
1.42 In the first sensitivity simulation, all regions across Australia
(except north-west Queensland and the Goldfields-Esperance region of Western
Australia) experience a decline in employment. The worst hit areas, however,
are again in the regions. For instance:
- employment in NSW is predicted to fall by 1.4 per cent (26,844 jobs).
The model predicts a larger fall in regional NSW a 1.8 per cent
decline in both the Richmond-Tweed and mid-north coast regions; and
- there will be a loss of 22,681 jobs (1.4 per cent) in Queensland.
However, the model predicts a 2.0 per cent decline (4,868 jobs) in the
Moreton region and a 1.8 per cent decline in both south-west Queensland
and far-north Queensland (a total of 2,060 jobs lost). [26]
1.43 The loss of jobs in tourism and hospitality and the agriculture,
forestry and fishing industries was reflected in the occupational results
as well. The report found that the occupations that will suffer the heaviest
job losses under the ANTS package will be:
- waiters, with a loss of 1,996 jobs (5.2 per cent) in the central simulation
and 2,459 jobs (6.4 per cent) in the first sensitivity simulation;
- mixed crop and livestock farmers, with a loss of 1,775 jobs (2.3 per
cent) in the central simulation and 1,436 jobs (1.9 per cent) in the
sensitivity simulation;
- hotel and motel managers, with a loss of 1,580 jobs (5.3 per cent)
in the central simulation and 1,924 jobs (6.4 per cent) in the sensitivity
case;
- bar attendants, with a loss of 1,509 jobs (4.9 per cent) in the central
case and 1,880 (6.2 per cent) in the sensitivity simulation;
- livestock farmers, with a loss of 1,477 jobs (2.3 per cent) in the
central simulation and 1,209 jobs (1.9 per cent) in the sensitivity
simulation;
- cooks, with a loss of 1,189 jobs (3.6 per cent) in the central case
and 1,583 jobs (4.8 per cent) in the sensitivity case; and
- tourism and travel agents, with a loss of 1,007 jobs (2.2 per cent)
in the central simulation and 1,538 jobs (3.4 per cent) in the sensitivity
simulation. [27]
1.44 The age and gender results of Professor Dixon's modelling indicate
that Australia's youth and women will be hit hardest by the impact of
the ANTS package. The modelling in the sensitivity simulation finds that
3,726 (1.9 per cent) of all females aged 18 to 24 in employment will lose
their jobs. Similarly, 3,597 (1.4 per cent) of all working males in this
age group will no longer be employed. In total, the modelling concludes
that 1.2 per cent (67,997 jobs) of all males in employment will lose their
jobs. The modelling projects that an even greater percentage of females,
1.4 per cent, or 50,180 people, will become unemployed as a result of
the ANTS package being implemented. [28]
1.45 Although the more conservative central simulation predicts that
there will be a gain of 30,000 jobs in the short-run, the Committee notes
that this will involve some significant employment losses. There will
be a loss of nearly 50,000 jobs in the sectors that experience a net decline
in employment. The Committee believes that this highlights the serious
oversight of the Government in failing to commit any resources in the
tax package for re-skilling, retraining and relocation assistance for
people in regional areas, to assist the tens of thousands of workers who
will be dislocated upon the implementation of the ANTS package.
1.46 Professor Dixon also undertook some limited work on the costs of
adjustment of the ANTS package. It was noted in evidence that costs of
adjustment are all about whether people will lose their jobs as a result
of the implementation of the tax package. [29]
This work highlights the negative implications of the ANTS package for
employment. For instance, in the current environment the number of waiters
is forecast to grow by 3.7 per cent between 2001 and 2008. Under the ANTS
package, the number of waiters will decline by 5.2 per cent over that
period in the central simulation, and decline by 6.4 per cent in the sensitivity
simulation. As Professor Dixon explained in evidence, this represents
a net loss of over a year's growth in jobs for waiters. [30]
The result is even worse for aircraft engineers; the number of aircraft
engineers in employment is forecast to decline by 0.4 per cent over the
2001 to 2008. After the implementation of the ANTS package, prospects
for aircraft engineers are even worse; the model finds that there will
be a 5.0 per cent decline in jobs in the central simulation and a loss
of 5.4 per cent of all jobs in the sensitivity case. [31]
The net result is that the tax package will lead to the loss of over ten
times the number of jobs for aircraft engineers that would have been lost
between 2001 and 2008 under current conditions.
1.47 Whilst in the first sensitivity simulation the model demonstrates
that there will be less structural change than in the central simulation,
the number of jobs that would be lost is significantly higher. The sensitivity
simulation projects a loss of 120,156 jobs after the implementation of
the ANTS package. It is difficult to assess the likely unemployment and
adjustment costs because no forecasting work is available.
1.48 Both simulations reveal that there may be significant unemployment
as a result of the implementation of the ANTS package. Professor Dixon
noted in evidence that this illustrates the definite short-run risk associated
with the ANTS package for not much long-run benefit. [32]
In the Committee's view, Professor Dixon's analysis also emphasises the
Government's serious oversight in neglecting to assess this short-run
risk by looking at forecasts and adjustment costs. The Committee recommends
that the Select Committee seek to address this oversight.
Usefulness of the Modelling
1.49 The Committee heard a number of reservations about the modelling
that has been done on the effect of the ANTS package on the Australian
economy. Several witnesses pointed out that the modelling did not fully
capture the `dynamic benefits' of the ANTS package, particularly in relation
to its capacity to deliver greater competitiveness, higher economic growth
and flow on employment benefits for Australia.
1.50 The Committee heard evidence from several witnesses to the effect
that the findings of the models, particularly in relation to economic
growth and employment forecasts were conservative. As an official from
the Department of Employment, Workplace Relations and Small Business noted:
Many of the estimates by private organisations of changes in employment,
especially estimates of long-term employment changes, are in our view
likely to be underestimates because they fail to take account of all
the dynamic efficiency effects of the new tax system
[33]
1.51 However, the Department had not undertaken any research of its own
on the employment effects of the ANTS package. In response to questioning
by the Committee on the issue of sectoral employment changes that might
occur if the ANTS package is implemented, DEWRSB indicated that:
[they] are not in a position to comment on the validity or otherwise
of the particular estimates that have come before the Committee with
regards to the various sectoral impacts, and so on. [34]
1.52 Representatives from the South Australian Employers' Chamber of
Commerce and Industry (SAECCI) suggested that observers should not place
too much faith in the modelling results:
We are in dangerous country when we put too much faith in an economic
model. I am not criticising the profession of modelling because it is
important
But you end up writing a series of assumptions from which
your econometric modelling proceeds. It is important for us to have
that, but if we relied on modelling to the exclusion of what is basically
a gut feeling although that is not a good term about what
the impact of a proposal is, then we start to take larger risks than
might be appropriate. [35]
1.53 Despite their stated concerns with the modelling, the SAECCI representative
revealed in response to questioning by the Committee that he did not have
any empirical evidence to support his concerns about the modelling results.
[36] The witness appeared to be relying on
anecdotal evidence when he suggested that the ANTS package will deliver
a more favourable climate for investment and job creation:
the view of the people that are making these investment decisions,
is that when they decide whether they will invest in this state or another
state, or in this country or another country, the tax system is a very,
very important determinant in those decisions. And those decisions are
happening every day. The view that they have put to us is, `Give us
a better tax system and we have got a better chance of leaving money
in this country that is already here, or, in fact, bringing back into
this country money that is somewhere else.' [37]
1.54 The Business Coalition for Tax Reform (BCTR) also questioned the
usefulness of the modelling in their appearance before the Select Committee,
noting in evidence that `most of the models that are around do not factor
in the dynamic benefits of tax reform' and that this `is a shortcoming
of models'. [38]
1.55 However, the BCTR also indicated, in response to questioning by
the Select Committee, that they have not commissioned any formal analysis
of the ANTS package, preferring instead to rely on their own interpretation
of the economic impacts of the proposed changes in the ANTS package. They
stated that `we have thought through the economic impacts of the proposed
changes in [ANTS] with the aid of the insights of economic science'. [39]
1.56 The Committee is concerned that none of the organisations have undertaken
any formal studies of their own to support the claim that the models are
conservative in their estimates of the effect of the ANTS package on the
Australian economy. The Committee prefers to consider models and other
evidence, which provide a robust assessment of the overall effect of the
ANTS package, rather than relying on the orthodox, laissez faire
economic theory and word-of-mouth that is being emphasised by some of
the more strident business and academic proponents of indirect tax reform.
Issues raised in Submissions and Evidence
Sectoral Analysis
Introduction
1.57 The Committee received submissions and heard evidence in nine public
hearings on employment and related issues from a range of stakeholders
in the Australian economy. Broadly speaking, it is possible to categorise
the witnesses according to the industries that they represent. For this
reason, this section of the chapter is primarily a sectoral analysis of
the impact of a GST and the new tax system proposals on the industry parts
that make up the Australian economy.
1.58 The key industry sectors heard by the Committee (and it is recognised
that there is some overlap between industries and the concerns that are
raised) were:
- entertainment and the arts;
- food services and quick service restaurant industry;
- hospitality and catering;
- the printing, publishing and book-selling industries;
- small retailers and the small business sector generally;
- tourism (encompassing both domestic and inbound / international tourism);
and
- the wine industry.
1.59 Additionally, the Select Committee has heard witnesses in relation
to the impact of the ANTS package on the retailing and hospitality sectors
more generally, and this section will draw upon that evidence where appropriate.
1.60 The Committee heard evidence that the ANTS package will have a deleterious
impact on the performance of many industry sectors. This will be particularly
the case in relation to employment outcomes in the individual sectors.
It is the Committee's view that the industry sectors it heard from have
a large number of valid concerns, and that the effect of the package for
these industries (particularly in the services sector) will be overwhelmingly
negative.
Arts and Entertainment Industries
1.61 The nature of the arts and entertainment industries are such that
it has not been subject to a great deal of taxation in the past, given
that it is a services sector industry. This means that the industry will
be among the most severely affected if the ANTS proposals are introduced.
1.62 The Government has acknowledged that in comparison with other sectors
the arts, entertainment and cultural industries will be disproportionately
affected by the introduction of the GST. The Government has noted, in
its White Paper on the New Tax System, that the arts will experience price
increases of 7.7 per cent and for motion picture, radio and television
services, increases of 5 per cent. [40] These
price increases will most likely translate into reduced demand for products
in the industry, thereby threatening the continuing employment of a large
number of Australian artists. As the Media, Entertainment and Arts Alliance
(MEAA) notes in its submission:
The arts and entertainment industries are dominated by small business.
The Alliance is of the view that the introduction of a goods and services
tax will have a negative impact on the financial viability of many companies
in the sector with consequent loss of jobs. [41]
1.63 The Committee heard evidence at its public hearings in Sydney that
the arts and entertainment industry is a significant and growing employer
of Australians. Representatives from the MEAA made the following comments:
what is self evident if you look at the arts is that the arts
is a heavily labour intensive industry
The arts industry, as you
will be aware, is a very significant employer of labour in this country.
ABS statistics reveal that over 150,000 people are involved in the arts
and cultural sector. [42]
1.64 In response to questioning by the Committee on the issue of what
the employment impact of a GST might be in the arts and entertainment
sector, the industry representatives were unsure. However, they were of
the view that it would be overwhelmingly negative for the artists involved:
The answer is that we do not know. But what we do know is this: say
we were to see production levels reduced by 25 per cent, it would not
be as crude as we would therefore lose 25 per cent of jobs. This is
not 25 per cent of factories closing down; this is a freelance industry
where people are earning modest incomes. If there were to be, say, a
net decline of 25 per cent in production levels, we would see a whole
lot of people who would be obliged to leave the industry and find alternative
sources of employment because they could not survive with a 25 per cent
decrease in income when they are looking at an average income of about
$14,500. [43]
1.65 Additionally, the Committee was informed of the negative impact
for Australian society as a whole over the course of the longer term.
Not only would a reduction in employment levels in the industry have a
negative impact in terms of the job losses and the human cost that is
involved with those individuals, it would have a serious impact on the
arts industry in general. The diversity of people, performers, writers
and directors who are required to preserve the vibrant nature of the arts
and entertainment industry would be diminished if people were progressively
forced from the sector. [44]
1.66 The Committee also heard that any diminution of the nature of the
arts industry in Australia would result in reduced investment in the sector,
leading to a further loss of employment opportunities over time.
1.67 The industry representatives told the Committee that they saw value
in exempting the arts and cultural industries from the application of
the GST for a period of five years:
we are saying zero-rate the arts and review it in five years.
Let us look at what we do know. We do know that there will be a severe
impact on the industry in the short term. No one I think questions that.
Government has been very up-front about it, to their credit. They have
said, `This sector will be heavily hit by the imposition of a GST'.
So in five years time, let's review it. [45]
1.68 They argued that an exemption for a five-year period would allow
consumers to adjust to the new taxation arrangements and re-adjust their
spending patterns. This would mean that the arts and entertainment sectors
would not be caught up in the overall adjustment of consumer spending
patterns as the industry would be insulated from the initial impact of
a GST. The Committee was told that the arts industry is not like any other
industry and was given the following example:
A shoe company closes down and it can be rebuilt. Close down the Australian
Opera and you do not just pick it up in a few years time. You lose a
wealth of repertoire, a wealth of artists
Those people are built
over a very long period of time. The Sydney Symphony Orchestra has built
up its international position over decades. [46]
1.69 The Committee is of the view that the ANTS proposals would have
a negative impact on the arts and entertainment sectors, both in terms
of the impact on current employment and future employment opportunities
in the sector and also on the future of the arts industry in general.
The Committee recognises the fragile nature of the arts industries, and
its vulnerability to pressures likely to be placed upon it by a GST.
Food Services and Quick Service Restaurant (QSR) Industry
1.70 The Committee heard evidence from two of the main players in the
food service and quick service restaurant (QSR) industry in Australia,
Tricon Restaurants International (South Pacific) and McDonald's Australia.
1.71 The food service industry in general supports the need for reforming
Australia's taxation system. If there is to be a GST, it supports the
consistent treatment of all goods and services that is, a tax with
the broadest possible base. In particular the industry asserts that all
food, be it food sold in a supermarket or food sold in a QSR outlet, should
receive the same tax treatment, in order to negate the possibility of
demand distortions arising in the market for food and the consequent significant
employment losses that would result under a system of differential tax
rates on different types of food.
1.72 In its submission of support for the consistent treatment of all
food supplies, McDonald's Australia address the likely impact on the food
service industry if a differing GST treatment is applied to basic groceries.
The main focus of the submission is on likely employment consequences
and the impact generally on small to medium-sized businesses. In its submission,
McDonald's claims that it:
does not seek a special treatment for the food service industry,
just an equal and fair treatment (that is a level playing field) which
avoids so far as is possible, competitive distortions and negative impact
on retail sales and employment in the food service sector. [47]
1.73 Even if all foods are taxed for GST purposes, McDonald's argue that
they are already at a competitive disadvantage compared to the grocery
retailing industry. It is claimed that `the disadvantage arises from the
value which is added by operators in the food service industry in preparing
food for consumption'. [48]
1.74 McDonald's argue that the introduction of a GST will cause the majority
of food prices to rise, since most foods are not taxed under the current
wholesale sales tax arrangements. The submission states that:
a GST will cause the price of prepared foods to rise by a larger
amount than the price of groceries, due to the value added to prepared
foods (home labour is not subject to GST). As a consequence, demand
for prepared foods may decline in favour of lower priced groceries,
thus affecting sales in the food services industry. [49]
1.75 The McDonald's submission relies on the experiences of the company
in New Zealand when a GST was introduced in that country in 1986. On the
basis of this experience, McDonald's claims that because demand for its
products is extremely price sensitive, any increase in price under a GST
will lead to a reduction in sales growth, lower levels of investment in
the food services industry and decreased employment in the sector. The
submission contends that this chain of events will lead to an increased
reliance on the social welfare system, particularly by young people, who
represent a significant proportion of the McDonald's workforce. On these
issues, the submission states that:
When a GST of 10 per cent was introduced in New Zealand in 1986 with
very few exemptions or zero-rating, it largely replaced the existing
sales tax regime which had existed. Nevertheless, McDonald's in New
Zealand still experienced a reduction in sales growth. It is probable
that a similar reduction in sales growth will be experienced by operators
in the food service industry in Australia when the GST is introduced.
Small businesses generally are unlikely to be in a position to absorb
the GST related price increases particularly given the higher relative
overheads.
The reduction in sales growth will also have indirect consequences.
Unemployment is expected to rise as operators in the food service industry
are forced to retrench staff. This will of course place a greater burden
on the social welfare system. Since the food service industry is highly
labour intensive, the failure of businesses in the food service industry
is likely to significantly impact upon employment. Youth unemployment
is likely to rise as the food service industry is a major employer of
young people.
Investment in the economy will also fall with the failure of businesses
in the food service industry. [50]
1.76 In evidence to the Committee, McDonald's representatives attempted
to quantify the projected fall in employment upon the introduction of
a GST in Australia:
The food service sector in Australia employs 288,000 people; 60 per
cent of its $14 billion annual sales is made by small to medium sized
businesses
A GST that taxes all food at 10 per cent is expected
to result in 7,000 jobs lost in the food service industry
[51]
1.77 It is also important to note that a significant proportion of employees
in the food service industry are young, entry-level and / or unskilled
employees. McDonald's claim that it is unlikely that there would be any
significant increase in employment in the supermarket sector if jobs are
lost out of the food service industry. This would worsen the level of
youth unemployment:
The people working in [the food services] sector tend to be young;
they are often entry-level employees. Often the job is of a transitional
nature while they are on their way to some other job. There are also
quite a number of full-time employees, but they tend to be the lower
skilled entry-level people in the labour market. So, again, they are
the ones who can least afford to lose their jobs; they are quite vulnerable.
[52]
1.78 In light of the estimates of job losses in the food service industry,
the Committee questioned whether McDonald's had factored in any reduction
in demand resulting from reduced spending power if compensation is not
adequate. McDonald's conceded that they had not specifically considered
this issue. [53] The Committee believes that
the loss of jobs under a GST system could be greater than the quantum
estimated by McDonald's, particularly given that low income earners comprise
a large component of their customer base.
1.79 Further, McDonald's contend that if food is to be exempted from
the application of a GST this would create demand distortions in the food
market, leading to a further reduction in employment. According to their
submission, evidence from the United Kingdom (UK) of the discriminatory
effect of the Value Added Tax is stark. When differential rates of tax
on food were introduced in 1984, [54] Kentucky
Fried Chicken alone lost 15 per cent in sales, which had deleterious flow
on effects for employment.
1.80 The McDonald's analysis suggests that if food purchased in a supermarket
is exempted from GST, while food purchased from a quick service restaurant
is GST liable, this could result in an additional 14,000 jobs being lost
due to the demand distortions that are created.
1.81 Similar evidence was heard by the Committee from Tricon International
(South Pacific), the parent company for Kentucky Fried Chicken, Pizza
Hut and Taco Bell outlets in Australia. Tricon put the view that they
support tax reform generally, and do not oppose the introduction of a
GST provided it is fair and equitable across the food industry.
1.82 Like McDonald's, Tricon emphasised the importance of the food service
industry as an employer of young Australians. Tricon described how they
employ 35,000 young people and pay more than $300 million in wages and
salaries each year, a significant contribution to the Australian economy.
[55]
1.83 Also like McDonald's, Tricon quoted overseas experience when describing
the likely impact of a GST in Australia on their operations. Tricon claim
that if a discriminatory (in terms of discriminating between food purchased
in a supermarket and food purchased in a QSR) GST is introduced, this
would `drive more than 7,000 job losses across the quick service industry
as a whole.' [56] They conclude:
Based on the Canadian experience, we would expect a $600 million reduction
in industry sales if supermarket food was exempt from GST and our restaurants
were not. That $600 million drop in sales means a minimum of 7,000 jobs
lost in our industry alone. A $600 million drop in sales also means
a flow on $200 million reduction in purchases from our industry suppliers,
and that means real job losses within the organisations of our suppliers.
A GST which is not fairly and equitably applied would also severely
curtail investment in our industry. Each year the QSR industry spends
hundreds of millions of dollars on new restaurants and facility upgrades.
This investment would be dramatically reduced, leading to fewer jobs
in both the construction industry and the QSR industry. I will illustrate
this with an example. Tricon is currently testing Taco Bell in Australia.
We have 2 stores open, with another 3 planned this year. In the US there
are 7,000 Taco Bell outlets. So it is not unreasonable to expect that
Australia could support well over 200 units. Anything less than a level
playing field in terms of a GST could destroy this opportunity, eliminating
a capital spend of tens of millions of dollars over the next few years
plus the thousands of jobs created by these new restaurants. [57]
1.84 Tricon concludes that the market distortions that will arise under
a system of differential GST treatment of various types of food will result
in a playing field that is not level. This will result in job losses for
Tricon employees, job losses for Tricon franchisees, job losses for Tricon
suppliers and reduced investment overall in Australia. [58]
Reduced investment in Australia will eventually flow through the economy
and restrict future employment growth and prosperity.
1.85 The burden of administrative and compliance costs will also increase
if different food items are treated differently under a GST. A given item
of food would need to be classified for a particular tax treatment and
accounted for in a particular way. Higher compliance costs `will be most
pronounced in businesses which sell mixed supplies of groceries and prepared
foods, such as delicatessens, take-away shops and corner stores'. [59]
1.86 The additional administration created by a GST will be felt to the
greatest extent by small business. The Labor senators note that Dr Neil
Warren has reported that a UK study for 1992-93 found that net compliance
costs for small businesses were over 30 times larger than for big businesses.
[60] McDonald's Australia submits that:
Small business already has higher overheads than large business and
will be least able to absorb increased costs. In an era of reducing
the administrative burden upon small business, a differing GST treatment
of food would impose substantial administrative and compliance costs
on small businesses. Increased compliance and administrative costs for
the Australian Taxation Office will also be significant. [61]
1.87 The Labor senators take the view that, as a significant employer
of youth in the Australian economy, the fast food industry needs to have
its concerns recognised by the Government. The Labor senators share the
industry's concerns about job losses in the industry at a number of levels.
First, if there is any GST on food (even if it is applied uniformly across
the food sector), it will cost jobs. Second, if food from supermarkets
is GST-free while food from QSRs is deemed GST-liable, an even greater
number of jobs will potentially be lost.
1.88 The Labor senators are particularly concerned about the types of
jobs that will be lost. As already noted, a large majority of employees
in the sector are young Australians, and many of the rest of the employees
are unskilled workers. The Labor senators accept McDonald's argument that
these jobs will be lost to the Australian economy. Certainly it is unlikely
that there will be any compensating increase in employment in the retail
sector, and given the skills base of the workers it is unlikely that they
would easily find employment in another sector.
Hospitality, Restaurants and Catering Industry
1.89 The Committee heard evidence from one of the main players in the
hospitality and catering industry in Australia, Restaurants and Catering
Australia. Restaurants and Catering is the peak employer group in the
hospitality industry. Additionally, the Community Affairs References Committee
heard evidence from the Western Australian Branch of the Australian Liquor,
Hospitality and Miscellaneous Workers' Union (ALHMWU) in relation to the
impact of the ANTS package on the hospitality sector workforce.
1.90 The Committee was told that the industry employers supported the
need for tax reform, including a GST, despite the fact that they `clearly
recognise that, as part of the services sector, we are not exactly going
to be one of the winners out of the broad agenda.' [62]
1.91 The Committee heard that the restaurant and catering industry is
a major, and growing, employer of Australians and covers every part of
Australia from the large cities to the regional and rural areas
with unemployment problems. Importantly, the industry is also a significant
employer of Australia's youth. Restaurant and Catering made the following
comment in relation to employment in the industry:
The restaurant and catering industry is a major contributor
obviously, from our perspective, it is a huge contributor to
the economy of Australia and it is a major employer, with over 160,000
people employed in cafes and restaurants Australia wide. The growth
in the last few years in our industry has been fantastic. From 1994
to 1997, that growth in employment has been well over 10 per cent in
our industry. The positive benefit in our industry is that it is geographically
diverse; it is all over the place. In fact, growth has been even more
spectacular in some of the smaller states such as Tasmania and
the territories where growth in employment has been over 50 per
cent in the last few years
we are the type of industry that Australia
needs more of in our view: labour intensive, growing, willing to employ
young people and we certainly employ them, with over 25 per cent
of our employee population being youth
[63]
1.92 The Committee was informed that Restaurant and Catering Australia
has concerns about the impact of the ANTS package on the level of employment
in the industry. The Committee was told by a representative of the organisation
that:
we do not believe that there are not going to be any job losses
in our sector. I think it is very clear from the overseas evidence that
our sector is going to be greatly affected by it. If they are making
up the jobs in other sectors, it is not going to be in a sector that
is small business, geographically spread, employing and returning profits
into Australia
For small businesses the employment effects are
quite different. [64]
1.93 Restaurant and Catering Australia is strongly opposed to exempting
any food items from the GST. Their submission notes that:
It is readily accepted that the labour involved in producing food for
consumption in food services sectors is far greater than that to sell
it as a grocery item. If, as was the case with Canada, there is a shift
away from buying food prepared outside the home and back to groceries,
then the employment effects will be great and the economy will be far
worse off, as will the prospect of many young people who otherwise could
find a job in our industry. [65]
1.94 Restaurant and Catering's submission suggests that if the Canadian
experience were repeated in Australia, then Restaurant and Catering estimate
that over 11,000 jobs will be lost from their sector alone, and over 20,000
jobs would be lost across the entire food services industry. [66]
In order to preserve these jobs, it is submitted that a GST should be
applied uniformly across all food items.
1.95 However, despite the expressed concern about the employment implications
of the ANTS package on the restaurant and catering sector, the industry
organisation is supportive of the Government's proposals. Restaurants
and Catering state in their submission that they `have long recognised
the need for comprehensive tax reform' [67]
despite being concerned about the negative impact on the restaurant and
catering industry of taxing services.
1.96 Restaurant and Catering remains `hopeful that the tax package will
deliver economic benefits to our industry in terms of increasing per capita
income and higher disposable income' [68].
Presumably the industry is hopeful that if in fact that ANTS package does
generate higher disposable income levels for Australians, this will translate
into demand for restaurant and catering services and employment in the
industry.
1.97 The Committee questions whether judgements can be made about how
people will spend additional disposable income generated by the ANTS package,
if indeed the package generates extra income at all. The Committee considers
it a large step to predict that the (at best) marginal benefits generated
by the package in terms of disposable income levels will translate into
additional employment opportunities in the restaurant and catering sector.
1.98 The ALHMWU raise the issue of industrial relations in the hospitality
and catering industry. The union submits that as margins in the industry
becomes tighter under a GST, the industry will be forced to cut labour
costs in an effort to maintain profit margins. The union foresees `a far
more competitive and cut throat approach to industrial relations as
employers
seek to reduce their labour and other costs'. [69]
The ALHMWU go on to state that:
We believe that Hospitality
workers are already disadvantaged.
The industry employs its workforce on a predominantly part-time and
casual basis. The majority of these workers are women, often supporting
families and earning wages below the Henderson poverty line. [70]
1.99 The Labor senators share the concern that already marginal workers
will be negatively affected as the impact of the GST flows through to
the hospitality and catering sector.
1.100 In addition, the Committee is concerned about the nature of the
employees in the restaurant and catering industry. As with the QSR industry,
it would seem that the majority of these workers are young, generally
unskilled, entry-level employees. The Committee has doubts as to whether
large numbers of these types of workers could be readily absorbed into
other sectors, should employment levels in the hospitality sector be severely
affected by the ANTS package.
Printing, Publishing and Book-selling Industries
1.101 The Committee heard evidence from a number of stakeholders in the
printing, publishing and book industries. The Printing Industries Association
of Australia (PIAA) was heard in Canberra, while witnesses from the Australian
Publishers' Association (APA) appeared at the Melbourne public hearing.
1.102 The industry representatives expressed a degree of concern about
the possible impact of the GST on their respective industries. In the
case of the printing industry, the PIAA has commissioned some modelling
by Econtech as to the impact of the ANTS package on the industry. The
modelling found that the package would increase printing output by 2 per
cent, which would translate into increased employment in the industry
over the long term. The Monash modelling found similar effects, strong
growth in commercial printing (with a 1 per cent increase in employment),
but well below average employment growth in newspapers and books (an increase
of 0.1 per cent).
1.103 However, the analysis also reveals that if areas currently not
subject to sales taxes (books, magazines and newspapers) are subject to
a GST, there will be declines in each of these areas. Consumer prices
in these areas will rise by 5 per cent, causing a marginal decline in
newspaper output, a 3 per cent fall in book printing and a 5 per cent
reduction in magazine printing. [71] These
reductions would translate into corresponding falls in employment in these
parts of the printing industry.
1.104 The PIAA analysis found that if books are GST-free, the ANTS package
would have the potential to increase output in the printing industry by
2.5 per cent, equating to an additional 410 new jobs in the industry as
a whole. If books, magazines and newspapers are all determined to be zero-rated
under a GST, the output in the printing industry as a whole increases
by 3.4 per cent, translating into an increase in employment in the industry
of 1,150 jobs. [72]
1.105 In summary, the PIAA considers that the industry will benefit from
the proposed taxation reforms, but that exempting certain areas that are
currently not subject to sales taxes could improve the outcomes for the
printing industry by 70 per cent. [73]
1.106 The PIAA also gave evidence in relation to the overseas treatment
of books, magazines and newspapers to support its case that these areas
should be GST-free. The PIAA made the following observations:
The Federal Government's determination to levy the GST on all printed
matter does not compare favourably with international experience. Both
the UK and the US have a zero-rate for books. The UK also exempts newspapers,
journals, periodicals, printed music, maps and charts. The justification
for the zero-rating is to avoid a tax on reading. In Ireland printed
matter, such as books, is also zero-rated. [74]
1.107 While the printing industry appeared generally supportive of the
ANTS package as a whole, the APA was more concerned about the possible
impact on their industry. The APA quoted figures from the Treasury's PRISMOD
analysis of the ANTS package, which found that book prices will increase
by 4 per cent, likely to result in a 4 per cent reduction in demand for
books in Australia. [75] However, in evidence
the APA went on to note that:
We [the APA] would suggest it is more like 7 per cent. Price elasticity
studies here and overseas suggest that for every percentage point of
price increase we will see a decline in demand of 1 per cent. A 7 per
cent increase in the price of books will see a 7 per cent decline in
the use of books. [76]
1.108 The APA went on to note the impact that such a decline in the demand
for books will have on employment in the publishing industry:
It is beyond question that the publishing industry is one area that
will suffer and it is one area where there will be a decline in demand
and it will negatively impact employment and our future investment
[77]
1.109 In response to questioning by the Committee about the size of the
employment impact in the publishing industry, a witness from the APA noted
that there could be `hundreds of jobs' involved and that `it would be
a substantial impact on our industry'. [78]
Another witness agreed with the Committee that there could be thousands
of job losses involved. [79]
1.110 The Committee also took evidence from an individual witness who
has conducted substantial research on overseas evidence of the impact
of a GST on the book and publishing industries. The witness made the following
comment about the potential impact of a GST on employment in those industries:
Higher prices
will have flow-on effects not only to local booksellers
but also publishers. The UK National Book Committee estimated [that
there would be a] 15 per cent decrease in industry employment if there
was a 20 per cent drop in sales. In December 1995, book publishing companies
alone employed 4,513 full-time staff and many other persons in a part-time
or freelance capacity. There will be a reduction of employment in the
industry with all the costs to the community that unemployment entails.
Also there would be a gradual loss to the nation of the services and
skills associated with the workers in the production chain (typesetters,
printers, artists, authors, etc.). [80]
1.111 The Committee also heard concerns from the Australian Society of
Authors (ASA) about the possible impact of the GST on the book industry.
Similarly to the arts and entertainment industry, the ASA is concerned
about the possible impact of the GST on the future of writing in Australia.
One author, appearing with the ASA, made the following observations:
If this GST goes ahead and if my books become more expensive and if
publishers are taking fewer risks publishing books, this will impact
disastrously on me. I think it would virtually destroy the likelihood
that we will get a new generation of authors who are willing to take
risks. We have a literary culture to be proud of in this country
It
would be a terrible thing to see it undermined by, in my opinion, an
unnecessary and punitive tax. [81]
1.112 The Committee recognises the valid concerns expressed by the PIAA
and the APA about the negative employment consequences if the ANTS package
were to be implemented. Additionally, the Committee shares the concerns
of the ASA that the ANTS proposals could have a negative impact on Australia's
literary culture, in particular because of discouragement of future generations
of authors.
Retail Sector
1.113 The Select Committee heard evidence from the Shop, Distributive
and Allied Employees' Association (SDA) in relation to the impact of the
ANTS proposals on the workforce in the retailing sector. The SDA's submission
contends that the ANTS package will have a negative impact on the retail
sector, particular on the workforce of that sector.
1.114 The SDA submits that the real price impact of the GST will be far
greater for most workers than the 1.9 per cent one-off increase in the
consumer price index claimed by the Government. It is claimed that consumers
would reduce or restructure their spending as a result of price increases
under the GST. The decrease in demand in the retail sector would flow
through and lead to reductions in staffing levels.
1.115 As a result of reducing staff levels in the retail industry, unemployment
will increase. This will particularly be the case among Australia's youth,
who comprise a significant proportion of employees in the retail sector.
The SDA attempts to highlight an inconsistency on the part of the Government
when it claims that:
The Government has recently made great play of its concern for young
workers, yet it will be that very same group who bear the brunt of any
fall in retail employment which results from the introduction of a GST.
[82]
1.116 The Select Committee was further informed of the impact on youth
employment at its public hearing in Melbourne when the SDA representative
stated that:
In our view a GST will cost young people their jobs. A GST will lead
to lower employment levels in the retail industry, and some people will
experience reduced hours or no hours as a result. [83]
1.117 In evidence to the Select Committee, the SDA also expressed concern
about the impact of the GST on part-time and casual labour in the retail
sector, when its representative stated that `
it would probably lead
to part-time and casual workers having their hours cut'. [84]
This Committee notes that a majority of part-time and casual workers would
be young people or women, two groups already seen as being disadvantaged
in the workplace, even without the GST.
1.118 This Committee heard evidence from the Australian Retailers' Association
(ARA) at its Sydney public hearings. The Committee was informed that the
industry did not foresee significant changes in employment levels as a
result of the introduction of a GST. This is because the industry takes
the view that employment levels are fairly closely linked to retail sales
levels, and that the industry expects that the tax package will have `a
benign impact on retail sales'. Consequently, the industry anticipates
that the ANTS package will also `have a benign impact on retail employment'.
[85]
1.119 In relation to this issue, the ARA's representative went on to
state that:
the ARA does not and, as the Committee will observe, has not
relied on changes in employment as a reason for supporting the tax package
in its submission. If I were to be pressed on the issue, I would suggest
to the Committee, without the benefit of any economic modelling, that,
if the tax package has any effect on retailing, a positive effect is
probably more likely than a negative effect, but it is highly likely
that on balance across the whole retail industry the impact on retail
employment would probably be neutral. [86]
1.120 In response to questioning by the Committee, the representative
stressed the point of employment neutrality further when he stated that
`
overall, we think that the impact on employment, as I said, will
be mildly benign or, at the very least, neutral'. [87]
1.121 The Labor senators note the Econtech modelling results, which suggests
that the retail industry will be one of the industries to suffer a decline
in employment upon the introduction of the GST. The modelling finds that
there will be a loss of 5,000 jobs in the retail trade sector. [88]
This is somewhat at odds with the prediction of the ARA that the impact
of the GST on retail employment will be neutral.
1.122 The Committee shares the concern of the SDA that any negative impact
on employment in the retailing sector will most likely affect younger
workers, given the high proportion of people employed in the sector who
are aged under 25. The Committee is also concerned that part-time and
casual workers generally will be adversely affected by the impact of the
ANTS package on the retail sector, given that these workers also comprise
a significant proportion of employees in the industry.
1.123 The Committee is also concerned about the possible impact of a
reduction in retail employment in regional and rural Australia. The Committee
recognises the importance of the retail sector as an employer in the Australian
economy, particularly outside of the major cities. The Committee is of
the view that the Government should be wary of the possible impact on
the employment prospects of country people when considering the future
of the ANTS package.
Small Retailers and Small Business
1.124 The reaction of the small business and small retailing sector to
the GST has been mixed. The Committee heard evidence from the National
Association of Retail Grocers of Australia (NARGA) at its Sydney public
hearings and it heard from the Tasmanian Independent Wholesalers (TIW)
in Hobart.
1.125 The main concern of NARGA, which represents some 10,000 members
around the Australia who are principally in the small to medium food selling
category, is that a GST be applied as uniformly as possible, with as few
exemptions as possible. The Association's concern is about compliance
costs for small business. The view was put to the Committee that the more
exemptions that are created, then the higher will be the compliance and
administrative costs for small business. As one witness lamented, `there
seems to be very little discussion or debate about the consequent compliance
costs that would arise from exempting food.' [89]
1.126 In response to questioning by the Committee on the possible employment
impact of exempting food from the GST, the industry representatives were
equivocal. One witness stated:
All I can say to that is that, if we have a lot of exemptions, particularly
in relation to food, a lot of our retailers will not survive because
of the compliance costs. We have a lot of micro-businesses in our membership
and a lot of small to medium retailers who are relatively unsophisticated
I
think that the viability of many of our stores which are hanging on
at the moment would be at risk. I could not put a figure on how many
and I could not put a figure on the employment that would be involved.
All I can say is that it would be a very serious issue for our members
to deal with. [90]
1.127 The representative from the TIW expressed his concern to the Committee
about the compliance costs for small business of introducing a GST. The
Committee was informed of the importance of the small business sector
as an employer in Tasmania:
Over the last 13 years in Tasmania, small businesses have employed
an extra 26,600 people, which represents a 50 per cent increase in small
business employment from 55,300 people in 1983-84 to 81,900 in 1996-97.
During that same period the number of small businesses in Tasmania grew
from 14,100 to 21,000. [91]
1.128 The TIW submission further underlines the importance of the small
business sector to the Tasmanian economy when it quotes ABS figures which
show that 55 per cent of Tasmania's private sector workforce are employed
in small businesses. The submission goes on to note that this constitutes
one of the highest small business proportion mixes in Australia and that
`in Tasmania small business pays out a wages bill well in excess of $1.5
billion each year.' [92]
1.129 The Committee also recognises the importance of the small business
sector as an employer in otherwise depressed regional and rural communities,
as noted by the TIW when it states in relation to Tasmania that:
71 per cent of its grocery [is] transacted outside the four major
cities of Burnie, Devonport, Launceston and Hobart. Hence, it can be
seen that many people and families in rural and regional areas rely
very heavily on the continuing viability and competitiveness of this
important Tasmanian small business sector. [93]
1.130 In general, the small retail sector supports the ANTS proposals,
including the GST. However, this support is dependent on fair and adequate
compensation to the small business sector to cover the start up costs
of a GST. The witness from the TIW noted that the GST is something that
the sector would like to see occur, if there was adequate compensation
for small business as well as for low income earners and the disadvantaged.
[94]
1.131 The TIW are concerned that the impact of the compliance costs and
administrative burden associated with the introduction of a GST will be
too great for many small businesses to bear. The Committee heard that
the $500 million assistance package that the Government is offering to
assist small business to help cover the start up costs of a GST is completely
inadequate. The TIW is concerned that small business carries a disproportionately
high burden of compliance costs relative to turnover. It notes that:
If [a] GST
is to be introduced, then governments need to be very
sensitive to its implications and [the] burden on small business. The
costs of the maintenance of records and compliance with government's
regulatory requirements could prove crippling to many job-rich small
businesses. [95]
1.132 The Committee heard evidence that overseas experience points to
the fact that the burden of compliance falls disproportionately upon the
small business sector. The TIW believe that the Government should consider
overseas evidence in determining the level of compensation to be offered.
The submission cites evidence from New Zealand in relation to the cost
for small business of compliance with the GST. [96]
1.133 The submission also quotes from a report by the National Tax and
Accountants Association, which estimates that a GST in Australia `is likely
to cost over 900,000 small businesses some $6.4 billion in its first year
of introduction.' [97] The Committee notes
that this makes the $500 million being offered by the Government seem
totally inadequate.
1.134 Similarly to NARGA, the TIW told the Committee of their opposition
to exempting food or other grocery items from a GST. The TIW was of the
view that this could lead to `an increase of at least 50 per cent in compliance
costs if a multi-rated GST system is implemented.' They suggest that if
a GST is to be implemented, it should have the broadest base possible,
because `such an approach would in effect minimise the time, paperwork
and other costs associated with administering the tax.' [98]
1.135 The Committee recognises the concerns that small business, particularly
small retailing, has in relation to the introduction of a GST. The Committee
views the $500 million assistance fund being offered by the Government
as compensation for small business as being completely inadequate. The
Committee notes that the additional compliance costs could result in many
small businesses being forced to close, resulting in the loss of large
numbers of jobs, particularly in regional areas.
Tourism Industry
1.136 The Committee believes that the tourism industry will be severely
affected by the introduction of a GST. As a services sector industry,
products offered by tourism operators have generally not been subjected
to any form of sales tax in the past. Significant price increases that
flow from the introduction of a GST will most likely lead to a substantial
drop in demand in the sector, something that would inevitably cost jobs.
1.137 The economic modelling performed for the Select Committee found
that there would be a reduction in inbound tourism in the short term as
a result of the package. This could cost a significant number of jobs
in Australia's tourism industry. The models also found that if inbound
tour packages are zero-rated under the GST, then the position is somewhat
improved. However, both of the main models contend that over the longer
term, there is not a great deal of difference between employment outcomes
in the sector if the in-bound industry is zero-rated.
1.138 The Committee heard representatives from the three major tourism
lobby groups, the Tourism Task Force (TTF), the Inbound Tourism Organisation
of Australia (ITOA) and Tourism Council Australia (TCA), as well as the
Commonwealth's Office of National Tourism (ONT), in its schedule of public
hearings. The TTF and the ITOA tended to be more pessimistic about the
impact of the ANTS package on the tourism sector. The TCA was only mildly
pessimistic in comparison with the other two bodies.
1.139 All of the organisations heard by the Committee noted their support
for taxation reform. However, the industry has two major concerns. All
three of the industry groups contend that inbound tourism should be treated
as an export for GST purposes, and therefore zero-rated. The point was
made that inbound tourism was a significant contributor to Australia's
balance of payments. Secondly, tourism is a large (and growing) employer
of Australians in all areas. Any reduction in employment generated by
the GST will result in major job losses in regional areas. The TTF make
the point that `at $16 billion earned per annum, tourism is our largest
export industry' and that `tourism contributes to the employment of 1.028
million Australians of whom 627,000 are employed due to the direct
impact
of tourism spending.' [99]
1.140 The TTF representative made the following observations in relation
to the possible employment effects of a GST on the tourism industry:
Our chief findings are that the impact of the reduction in spending
across the tourism sector as a result of this package will costs Australia
59,500 jobs of which 34,100 will fall in the domestic sector and 25,400
in the inbound sector. In comparison to the size of their work forces,
the Northern Territory, Tasmania and Queensland will be most disadvantaged
by job losses. Importantly, regional tourism will also be heavily impacted.
I cannot understate to you the importance of job losses in rural and
regional Australia. If you lose your tourism job in Sydney or in Melbourne,
you have a good chance of picking up a job elsewhere in any number of
other industries. If you are a waiter in a [bed and breakfast] in south
western Tasmania or if you are a retrenched miner and you have put your
redundancy pay out into a barra boat in Cairns, you have all your nest
egg in one basket. One tourism operator in Cairns, who unfortunately
cannot appear before you tomorrow, told me that if you do not have a
job in tourism in Cairns you do not have a job. That is a bit colourful,
but it does not understate the impact of the package. [100]
1.141 The suggestion is that not only is tourism a large employer in
the Australian economy, it is a large employer of the normally high unemployment
groups, such as youth and Australians living in regional and rural areas,
including indigenous Australians.
1.142 On the question of treating inbound tourism as an export and hence
giving it a zero-rating, tourism, as with other export industries, would
appear to have a very strong case. The importance of income from tourism
to the Australian economy cannot be overstated. Tourism is one of Australia's
largest sources of revenue, and yet it is not afforded the same GST treatment
as other, more traditional, export industries such as coal, wheat and
wool. As the TTF notes:
Given that tourism is exposed to more competition than these other
exports, and given that we employ more people than these industries
and given that we do it with relatively minimal Government assistance,
we think it is fair enough to ask a simple question `why?' [101]
1.143 According to the ITOA, the Government has yet to `satisfactorily
explain why it has chosen not to recognise tourism as an export for GST
purposes', and quotes the World Travel and Tourism Council's tax policy,
which states that:
Policy makers should apply the same standards to travel and tourism
exports that are applied to exported manufactured goods. International
travel and tourism is essentially an export industry. Taxing inbound
travel is equivalent to taxing an export product. [102]
1.144 The ITOA go on to express concern at the inconsistency of the Government
on this issue, noting that the ABS deems expenditure in Australia by non-residents
(that is, inbound tourists) as being part of Australia's export income.
Additionally, for many years the Government has recognised inbound tourism's
export status by encouraging the export of tourism services under the
Export Market Development Grants Act 1974. [103]
1.145 The TCA also recommends that the tourism industry be treated equally
to other traditional export industries and zero-rated for GST purposes.
[104] When questioned by the Committee as
to whether inbound tourism could be treated as an export, a representative
at the public hearing in Cairns had the following to say:
I would be very surprised if the Government or the Opposition or any
economist would seriously suggest that we exclude tourism exports from
our national accounts, for example. Our national accounts would look rather
sick if you suddenly did not treat tourism exports as what they are. [105]
1.146 When further questioned by the Committee on the issue of whether
to be considered an export a product should be consumed overseas (in the
same way as coal, wheat and wool), a representative of Tourism Tropical
North Queensland, who appeared with the TCA in Cairns, made the following
observation:
That is a convenient argument if you want to argue against the zero-rating.
There is no doubt that, if we as a country are looking to be competitive,
we must be looking at our exports, that is, basically the things we are
selling to people offshore, and tourism and holidays is one of those things.
However complicated you want to make it, in the simple sense it is bringing
foreign exchange into the country and it is improving our balance of payments.
If we choose as a country to argue against that and not allow that to
happen, I think we are cutting our own throats. [106]
1.147 The TTF cites overseas evidence of the concessional treatment that
is given to the tourism industry with a value added tax framework. The
comment is made that:
Europeans as pioneers of broad based consumption taxes, are the most
reliant on them and have gone furthest in providing concessions recognising
tourism's special significance. Importantly, most European jurisdictions
recognise the importance of tourism exports and import competition by
imposing a lower value added tax rate for tourism related services such
as accommodation, meals, sightseeing and entertainment. [107]
1.148 The various tourism industry groups also made reference to the
negative impact that the Government's ANTS proposals may have for domestic
tourism. Indeed, the Committee heard evidence from the TTF that the job
losses as a result of a decline in domestic tourism may outweigh job losses
that are incurred as a result of a GST being applied to inbound tour packages.
1.149 Analysis quoted by the TCA shows that, under a GST, prices for
Australians travelling at home will rise by 5.2 per cent if the trip includes
an air component and 4.8 per cent if travel is by car. [108]
From this evidence, the only conclusion that can be drawn is that domestic
tourism will fall. Industry representatives informed the Committee that
the domestic tourism industry is already stagnating. According to the
TTF:
Even without the GST, domestic holiday tourism is set to perform poorly,
with the Government's own Tourism Forecasting Council predicting that
it will grow by a total of only 2.8 per cent from 1997-98 to 2006-07.
[109]
1.150 The TTF state that `while domestic tourism fails to grow, the Tourism
Forecasting Council (TFC) predicts that overseas holiday travel [by Australians]
will grow by 43 per cent over the same period'. [110]
The stagnation in domestic tourism will be exacerbated by the introduction
of a GST. The TTF conclude that reductions in domestic tourism as a result
of the introduction of the GST could lead to reductions of 34,100 jobs
in the industry.
1.151 The Committee also took evidence from a number of tourism operators
at its public hearings in Brisbane and Cairns. A representative of Omni
Leisure Operations, which operates a number of theme parks across Australia,
expressed concern that the imposition of a GST could lead to serious employment
problems in the industry. The Committee was told that the majority of
employees in Omni's operations were young, semi-skilled, entry-level employees.
The witness from the organisation made the following observations:
these venues pay nearly $18 million in wages and salaries and provide
employment for up to 1,500 staff. The occupations represented at the venues
range from professional staff, such as engineers and accountants, to shop
assistants, catering attendants and ride operators in the semi-skilled
and entry-level roles. The great majority of staff employed by Omni
perhaps 75 per cent - are included in the latter categories. [111]
1.152 The Committee received a submission from the Tjapukai Aboriginal
Cultural Park in Cairns. The submission notes that the park is possibly
`the largest private enterprise employer of Aboriginal people in Australia'
[112] and that these jobs could be at risk
if the GST is applied in its current form.
1.153 The submission from Tjapukai also noted that its visitors largely
come from overseas, and have purchased tickets as part of inbound tour
packages. The submission expresses concern that any increase in admission
prices would result in fewer inclusions in tour packages [113]
and cost the jobs of the indigenous people employed at the park.
1.154 The Queensland Government also has concerns about the possible
employment effects the ANTS package, noting that this effect is `of major
concern for the Queensland Government'. [114]
It notes the importance of tourism as an employer in the State of Queensland,
particularly in the regional areas.
1.155 The Queensland Government commissioned the Centre of Policy Studies
at Monash University to undertake analysis of the impact of the ANTS package
on Queensland. The submission draws on that analysis while making the
following observations about the overall employment effects of the ANTS
package:
The [Centre of Policy Studies] analysis indicates that the employment
outcome in the short-run varies significantly between the best-case and
worst-case scenarios. In the best case scenario, the implementation of
the tax package would cause a slight improvement in employment in the
short-run of 0.26 per cent. Under the worst-case scenario
the tax
package will lead to a reduction in employment of 1.4 per cent.
In Queensland, the short-run gain in employment in the best case is projected
to be 0.21 per cent, slightly less than the national figure. This is predominantly
due to the fact that the tax package imposes a larger negative impact
on tourism, which is a major source of employment in Queensland. In the
worst case, the tax package is projected to lead to a reduction in employment
of 1.4 per cent
or approximately 22,900 jobs. [115]
1.156 Given the concerns that were expressed to the Committee by several
major stakeholders about the possible impact of the ANTS package on the
tourism industry, the Committee also invited the Commonwealth Government's
ONT to give evidence. However, the ONT indicated that it had not undertaken
any specific studies of its own on the impact of the ANTS package on the
tourism industry, suggesting instead that this sort of analysis had been
done by Treasury.
1.157 The ONT's lack of research about the possible impact of the ANTS
package on the tourism industry was further highlighted when it was revealed
to the Committee that they were still working on industry forecasts that
did not even factor in the impact of the proposed taxation changes. For
example, the ONT suggested that the TFC has projected increases in inbound
tourism over the next few years but that these forecasts do not take into
account the tax changes under the ANTS package. In response to questioning
by the Committee, the ONT revealed it did not have any forecasts that
took into account the impact of the proposed taxation reforms. [116]
1.158 The Committee expresses its disappointment that the Commonwealth
Department with specific policy responsibility for the tourism industry
has not done any work on the impact of the ANTS package on the industry.
1.159 Although the Committee heard reservations that ONT held about the
TTF and TCA estimates of job losses in the industry (because of the estimates
of price elasticity of demand used in the TTF and TCA analyses), it had
no contrary information to provide based on its own research.
1.160 The jury is still out on the issue of price elasticity of demand
in the tourism industry. Industry analysts are of the view that the tourism
market should be analysed in three parts: holiday-makers, visiting relatives
and business visitors. As these three groups tend to have different elasticities
of demand, the question of the average elasticity in the tourism industry
is somewhat uncertain. The Committee believes that this is something that
can only be resolved by careful econometric work, which has not yet been
undertaken, and therefore shares the concerns of the tourism industry
about the effect of the GST on its operations.
1.161 The Committee notes the importance of tourism as an employer in
the Australian economy, particularly in rural and regional areas. The
Committee also recognises the role the tourism industry plays in employing
Australia's youth and indigenous people, groups that traditionally have
higher unemployment rates than the community generally.
1.162 The Committee notes the European evidence, which shows that most
countries offer a concessional rate of GST for tourism packages. The Committee
also recognises the special circumstances of Australia in the world tourism
market, in that it is far distant from other destinations and that this
distance can deter overseas visitors.
Wine Industry
1.163 The wine industry will not be subject to the same rate of taxation
under the ANTS package proposals as is the case across the other industry
sectors from which the Committee heard evidence.
1.164 In general, wine sales are currently subject to what is effectively
a 41 per cent sales tax. The 41 per cent is made up of two components,
the 26 per cent wholesale sales tax that is levied by the Commonwealth
and 15 per cent in sales taxes that were levied by the states prior to
a High Court decision in 1997. [117] That
decision determined that certain state business franchise fees were prohibited
by the Constitution; that is, the states were prevented from levying duties
and taxes on various products such as wine. After the decision, the Commonwealth
increased the tax on wine and then distributed it to the states in an
attempt to prevent any shortfalls in state revenue that may have resulted
from the removal of the state-based taxes in accordance with the High
Court decision.
1.165 It is the view of the Winemakers' Federation of Australia that
the current system:
distorts resource allocation in the economy, thereby reducing economy-wide
efficiency and consequently tax reform is seen as essential for the continuing
viability of the industry in what is an increasingly competitive global
economy. [118]
1.166 Under the proposed new tax system arrangements, wine sales will
still effectively be subjected to 41 per cent in sales taxes. The government
has decided that, from 1 July 2000:
Wine, and beverages consisting primarily of wine, will become subject
to a Wine Equalisation Tax to replace the difference between the current
41 per cent wholesale sales tax and the proposed GST. The Wine Equalisation
Tax will be levied at such a rate that the price of a four-litre cask
of wine need only increase by the estimated general price increase associated
with indirect tax reform; that is 1.9 per cent. The concessional taxation
treatment of the alcohol content of cask wine will therefore be preserved.
[119]
1.167 The wine industry is a significant employer of Australians, particularly
in the regional areas. As the Winemakers' Federation notes in its submission
to the Committee:
With close to 1,000 wineries in Australia, ranging from boutique wineries
to large multinational companies located in 45 defined grape growing regions
in Australia, in all Australian States, the grape and wine industries
play a vital role in regional economic development and are a major source
of regional employment. The Population Census of 6 August 1996 identified
7,400 people whose main occupation was grape growing and 8,300 whose main
occupation was in the manufacture or blending of wine. At almost 16,000
employees, direct employment has increased by more than 6,000 full-time
employees since the 1991 census. Furthermore, casual and part-time employment
is estimated to provide another 3,500 full-time equivalent jobs. A further
4,900 people are employed in wholesaling (beer, wine and spirits) and
7,600 in retailing. [120]
1.168 The wine industry is concerned that any price increases that occur
under the new Wine Equalisation Tax (WET) arrangements will result in
a significant number of these jobs being lost, particularly in the smaller
wineries across regional Australia. Available evidence estimates the price
elasticity of demand for wine to be in the range of 0.4 to 0.5; that is,
a 10 per cent increase in price will lead to a 4-5 per cent reduction
in demand for wine. [121]
1.169 If the WET is set at such a rate so as to reduce demand, small
wineries may become unviable and large numbers of employees will become
unemployed, thereby adding to the problem of regional unemployment. As
the Winemakers' Federation notes, there are 800 wineries across Australia
that crush less than 50 tonnes of grapes each vintage. They argue that
the pressures on these wineries to reduce costs, usually in the form of
reducing labour costs, will increase, [122]
thereby creating additional regional unemployment.
1.170 Consequently, the industry proposes that a revised WET system should
be applied in such a way that it should reduce the distortions of the
current sales tax system and the proposed WET arrangements, on the smaller
end of the wine industry, thereby helping to ensure the continued viability
of that section of industry. The Winemakers' Federation proposes that:
the WET tax [sic] should only be applied on cellar door sales after
a $500,000 sales threshold has been reached. This will reduce the distortionary
effect of the additional WET tax [sic] and minimise the possible employment
damages to those areas of the wineries. It will also demonstrate support
for regional Australia and recognise the importance of small wineries
to the whole industry. [123]
1.171 Also important are the indirect employment opportunities created
by the wine sector, particularly in the area of tourism. Wine industry
tourism continues to gain importance, both as a drawcard for the domestic
tourism market and for overseas visitors. Ensuring the continued viability
of Australia's wine industry, particularly among the smaller wineries,
is crucial to enabling the level of employment, both directly in the wine
industry and in associated tourism activities, to be maintained.
1.172 The Vineyards' Association of Tasmania recognises the importance
of the wine industry as a direct employer and an indirect employer in
the area of tourism:
The small regional wine producer is providing significant employment
in rural areas, a role which is extended by the tourism `cluster' which
forms around wineries: often the areas are otherwise depressed rural regions
with high unemployment. [124]
1.173 The submission from the Vineyards' Association of Tasmania goes
on to describe the example of Pipers Brook Vineyard, which is still a
small (but expanding) Tasmanian winery that employs:
200 employees with field workers mostly drawn from neighbouring and depressed
communities of George Town, Lilydale and Bridport; [another] 25 people
work in the hospitality arm of the business. A tax regime which impacts
adversely on this end of the wine industry, as will be the case with GST/WST,
will impact adversely on many rural regions. [125]
1.174 In summary, the winemaking industry is a highly labour intensive
industry. If a number of vineyards become unprofitable under the proposed
WET arrangements, there will be significant pressure to reduce labour
costs in the industry, which will lead to a reduction in employment. This
will add to the problem of regional and rural unemployment. Additionally,
there will be an impact on tourism in the industry, leading to a further
loss of jobs in regional Australia.
Other Matters Relevant to the Committee's Inquiry
Effect on Employment Services
1.175 The Committee heard evidence about the impact of the ANTS package
on the provision of employment services, and is concerned about the degree
of confusion that seems to exist among employment service providers on
the question of how they will be affected by the ANTS proposals.
1.176 At its public hearings in Brisbane, the Committee heard from the
Brisbane South Area Consultative Committee (BSACC), who had surveyed 24
Job Network providers in their region. Their submission notes that there
exists a `high degree of confusion, skepticism and sometimes misconception
about the impact and implementation of the proposed new tax measures'.
[126]
1.177 The BSACC survey results support the view that there is a `total
lack of information available as to how the proposed tax measures would
impact on employment service providers.' The BSACC suggest that clarification
on the issue had been sought from the Department of Employment, Workplace
Relations and Small Business (DEWRSB), yet conflicting information was
supplied and so providers are `none the wiser'. [127]
1.178 The BSACC submission makes note of the following comments that
were received from the surveyed Job Network providers and the National
Employment Services Association, an organisation that represents some
94 per cent of all Job Network providers:
- There are questions such as whether providers will pay a GST on purchased
services from ancillary providers (such as health professionals and
trainers). Also, with the next Job Network tender and new contracts
due to commence in March 2000, prospective tenderers are uncertain whether
provision needs to be made for the GST in the tendering process.
- Employment services should be exempt from a GST as it is considered
to be detrimental if an agency gets taxed for putting people into jobs.
- [It is too early to] make a judgement on the effect of the new tax
measures until further information is forthcoming. However, if a GST
is to apply to employment services, it should be applied uniformly to
all providers regardless of whether they are community, private enterprise
or government [providers].
- [The] administrative burden faced by providers to `collect' the GST
on behalf of the government. Job Network providers already have a lot
of paperwork and this will add to the burden and make them less competitive
Job
placement fees from the government would need to increase to cover the
additional administrative workload.
- If employers are faced with additional fees for staff recruitment,
they may abandon job placement agencies in favour of advertising and
other self-recruitment methods. [128]
1.179 It is apparent to the Committee that there is a high degree of
confusion as to how the GST will apply to the provision of employment
services. The Committee is of the view that the Government should make
it clear that if a GST is introduced, it will not apply to employment
service providers, or to the provision of ancillary services to those
providers.
1.180 The Committee also heard evidence from Group Training Australia
(GTA) and a group training company, Apprentices Trainees Employment, at
its public hearing in Melbourne. GTA is the national association for over
110 group training companies across Australia who employ apprentices and
trainees and place them with host employers for varying periods until
they complete their contract of training. The network collectively employs
over 26,000 apprentices and trainees, making it the largest employer of
this group in Australia. [129]
1.181 GTA informed the Committee that a large majority of the host employers
are small to medium sized enterprises. GTA are concerned that if these
employers have to pay GST on the cost of hiring apprentices or trainees
from group training companies, then demand for apprentices and trainees
could decline. GTA estimate that around 5,000 apprentices and trainees
face a loss of employment opportunities under this scenario. [130]
The witness from Apprentices Trainees Employment suggested that the figure
could be as high as one third of the 26,000 apprenticeships currently
undertaken by GTA; that is, up to 8,500 apprentices and trainees could
lose their employment opportunities. [131]
This will occur notwithstanding the fact that the enterprises will be
able to claim all GST paid back as an input tax credit. A representative
of GTA noted that:
The latest data we have is that 89 per cent of our host employers are
small to medium sized employers and 50 per cent of our group training
host employers, currently nearly 34,000, employ fewer than five people
in total. They are the micro-businesses which simply need the service
of an external organisation to deliver that which group training does
and
they are the
people who will walk away from apprentice and
trainee training. [132]
1.182 In relation to this issue, the representative from Apprentices
Trainees Employment noted that:
We put our clients into basically three categories. There is one group
that are highly committed apprentice employers; they will employ apprentices
no matter what well, within reason. There is a middle group that
are a little ambivalent about it but you can sell it to them, and there
is a third group that would never employ an apprentice in their own right,
but because of the service we offer we can convince them to take an apprentice.
[133]
1.183 In evidence to the Committee, GTA noted that there is an element
of discrimination in the application of GST to the cost of the services
that they provide, because the service is an essential part of the eventual
achievement of a trade qualification by an apprentice or a trainee:
[Our argument is that] courses that are provided by registered training
organisations are GST-free, that apprentices and trainees are engaged
in courses and that employment is an integral part of the achievement
of the qualification
all of the services associated with the placement
and support of apprentices and trainees should also be GST-free, otherwise
it is discriminatory. [134]
1.184 By declaring that group training companies be completely GST-free,
GTA envisages that the potential problems with the proposed arrangements
could be overcome. GTA considers that the employment services that they
provide for apprentices and trainees is too important to have it threatened
by the imposition of a GST, irrespective of whether host employers will
be able to claim any GST payments as input tax credits.
1.185 The Committee also heard evidence from an employment service provider
for people with disabilities in its first public hearing in Canberra.
The witnesses noted that their organisations are already poorly resourced
and could not afford the additional costs that would arise if a GST were
to be implemented.
1.186 The Committee heard evidence that notwithstanding the fact that
disability employment service providers will be able to register and claim
any GST incurred as an input tax credit, they can not afford the cash
flow pressures that such procedures create and would be better off not
having to pay GST at all. The witness from Advance Personnel made the
following comments:
[if] there is a credit system involved, then there will be a cash
flow problem within our agency. If we pay for those services and pay the
GST and there is a mechanism to reclaim them back, our agency and our
budget is such that that would affect the cash flow ability of our operations.
[135]
1.187 The Committee heard evidence from DEWSRB at its final public hearing
in Canberra. In response to questioning from the Committee on the impact
of the GST on charges to employers by employment service providers, DEWRSB
made the following comments:
In relation to those Job Network members who are charging an employer
for filling their vacancy, under the tax reforms the GST will be applied
to that and then remitted through the Taxation Office. We believe that
there would be no real effect, in fact a neutral effect. [136]
1.188 The Department also made note of the fact that Job Network providers
would have access to the $500 million assistance package that the Government
will be making available to small business to assist in covering the compliance
costs and administrative burden associated with the start up of the GST.
[137]
1.189 The Committee expresses its concern that the Government has not
adequately clarified the treatment of employment service providers under
the ANTS proposals. The employment services market is an essential service
for the community. It is an area that has undergone significant change
in the past year, from being a function that was universally provided
by the Government under the Commonwealth Employment Service umbrella to
a system of private provision, under the Job Network arrangements. The
Committee is concerned that the Government is now intending to tax the
provision of these employment services.
1.190 The Committee again questions whether the assistance package will
be adequate to cover the GST start up requirements of small businesses
(including Job Network providers) across Australia. The Committee also
notes that Job Network providers can ill afford the additional compliance
costs of a GST, given that they are generally poorly resourced and already
operating on tight margins and subject to a high administrative burden.
Effect on Training
1.191 The Committee is also concerned about the potential impact of a
GST on training and tuition that is provided by employment service providers
for job seekers. The submission from DEWRSB suggests that tuition purchase
by a Job Network member for a job seeker from a college, university or
other recognised institution that leads to a formal qualification will
be GST-free. [138]
1.192 In response to questioning by the Committee, DEWRSB was unable
to provide an estimate of the proportion of tuition purchased by Job Network
providers that leads to a formal qualification:
it is a bit early for us to have that sort of data at this stage.
The evaluation of Job Network will cover such issues, but that is some
time off. Under the intensive assistance service, which is the major one
for disadvantaged job seekers under Job Network, it is too early for us
to even have an indication of the extent to which Job Network members
are providing those sorts of services. [139]
1.193 In relation to other forms of education and training (that do not
lead to formal qualifications) that may be purchased by Job Network members,
DEWRSB informed the Committee that providers `will pay GST on that and,
of course, will claim that back'. [140]
1.194 The Committee is concerned, however, that irrespective of whether
Job Network providers, or indeed employers, can claim back any GST that
is paid, they will be discouraged from purchasing training services because
of the cash flow pressures that are created by having to pay GST.
1.195 The Committee believes that this will discourage the use of external
tuition and educational services by employers and Job Network providers
and make up-skilling and reskilling workers more difficult in a climate
of labour market adjustment.
Contractual Employment Issues
1.196 The Committee is concerned that the ANTS package does nothing to
address the very real concerns of a number of groups about contract employment.
The Committee heard evidence on this issue from the Transport Workers'
Union of Australia (TWU) at its public hearing in Melbourne.
1.197 In evidence to the Committee, the representative from the TWU noted
that there are two sorts of members of his organisation; actual employees
and owner-drivers. The witness concentrated his evidence on the issue
of owner-drivers. Although owner-drivers are employed by large firms as
independent contractors, they are essentially in the same situation as
normal employees, because:
They are tied to single transport companies and by that I mean they drive
trucks which have transport company colours on the side of them, they
will wear a uniform of the transport company and their hours are set by
transport companies
you would not be able to tell the difference
between an owner-driver and an employee. [141]
1.198 The TWU's representative went on to suggest that the ANTS package
will cost employment in the transport industry:
I need to say to this Committee today that this new tax system
is going to cost jobs among owner-drivers. Without a doubt it will cost
jobs
for two pretty simple reasons. The first is that there is going
to be a very significant administrative burden placed upon owner-drivers
by this new tax system in the form of asking them to be the tax collectors
for the GST.
The second point
is the effect that this is going to have on the
bargaining relationship, at least the first time round, between the union
and these people and the transport companies. On 1 July 2000 these people
are going to add to their rates a component for GST. The system assumes
that the burden of paying that will completely be borne by the transport
company. It assumes that because that money can then be claimed back by
transport companies when they indeed remit their own GST that they collect
from their customers.
But it is simply not the case that the entire burden will be borne by
the transport companies. In the next twenty months we will go to the transport
companies and make two asks, which involve an increase in the owner-driver
rates. The first is for the GST and the second will be for a wage increase
which would occur in the ordinary course of events. Already we are having
transport companies say to this that, `This time round you've got to leave
us alone because we're going to have to bear the burden of the GST'. It
may be said that that must be a fallacy because they can claim it [as
an input tax credit], but it is the reality and it is going to affect
the dynamics in terms of bargaining for these people. [142]
1.199 The TWU claim that this scenario would result in a shift in transport
work from the owner-driver sector of the industry to smaller contractors.
This is of concern for the industry workforce because the small transport
company sector of the industry is the least regulated component of the
industry. As the witness noted:
that is the sector of the industry in which the worst abuses of
transport occur. That is the sector of the industry in which you have
the greatest drug use; it is the sector of the industry in which you see
the greatest abuse of long driving hours; it is the sector of the industry
where you see the unsafest trucks; and it is the sector of the industry
which gives rise to the most accidents on the road. It is in that part
of the industry that people are working longer for less; a person needs
to do the job of two people in order to earn a living wage. [143]
1.200 The Committee heard similar evidence from the Taxi Industry Council
of Australia (TIC), who also noted that the additional costs associated
with being an owner-driver with a GST in place will result in a shift
in the taxi industry from owner-drivers to small contractors. As with
the transport industry generally, this sector of the taxi industry is
the most unsafe, the least regulated and the least rewarding for employees
in terms of possible earnings.
1.201 The Australian Taxi Industry Association (ATIA), in its submission
to the Select Committee takes this point further, lamenting that the longer
term effects of the ANTS package could be that large-scale shortages of
taxi drivers and operators could emerge. [144]
1.202 Both the ATIA and the TIC are concerned that the draft legislation
for the GST requires that taxi drivers be registered collectors of the
GST, irrespective of whether earnings are greater than the more general
registration turnover threshold of $50,000 per annum. The TIC are `opposed
to any requirement for tax drivers to be singled out under the legislation'.
[145] The ATIA are of the view that substantial
assistance to the taxi industry should be provided to compensate for the
start up costs of a GST on the industry. [146]
1.203 The Committee also heard evidence from the Recruitment and Consulting
Services Association (RCSA) at its public hearings in Melbourne. RCSA
is the peak organisation representing the recruitment consulting industry
in Australia and New Zealand. The submission from RCSA expresses concern
that:
employment agents will suffer a competitive disadvantage in relation
to their ability to supply labour to input taxed entities, compared with
the direct engagement of labour by such entities. [147]
1.204 The submission notes that under the proposed legislation:
employment agents will be making taxable supplies in relation to
the provision of labour resources to their clients. The consideration
for this supply will be the total fee charged by the employment agent
to their client. That consideration will be subject to GST at the rate
of 10 per cent.
In contrast
where a person is engaged as an employee, or other [pay-as-you-earn]
earner, that person is not undertaking an enterprise and is not required
to account for GST in respect of the supply of their labour to their employer.
[148]
1.205 The submission suggests that the outcome of the legislation will
be to make labour that is engaged through an employment agent more expensive
(as a direct result of the imposition of a GST), when compared to the
alternative of direct engagement of employees by employers (which is not
subject to a GST). [149] That is, the GST
will put labour hire companies in an uncompetitive position compared to
the direct recruitment of employees by employers.
1.206 The Select Committee heard evidence from the Construction, Forestry,
Mining and Energy Union (CFMEU) about the impact of the ANTS package on
employment arrangements applying in the building and construction industry.
In evidence to the Select Committee, a representative of the CFMEU noted
that:
tax rorting is spiralling out of control in the Australian construction
industry today and the decision of the government to embark upon a tax
reform package and all that that entails including scrapping the current
system of tax collection in the industry, known as the prescribed payment
system, or PPS, does open up a significant window of opportunity to get
this problem or epidemic in our industry under some sort of control. [150]
1.207 The CFMEU believes that when the PPS system was introduced in 1983,
it went some way towards addressing the tax rorting that was occurring
in the construction industry. However, eventually employers and workers
saw advantages in switching the workforce over to the PPS away from the
pay-as-you-earn (PAYE) system. According to the CFMEU, PPS workers:
are able to claim a vast range of deductions, split the income
with their partner and use all sorts of techniques to pay very low amounts
of tax in comparison to the PAYE worker. [151]
1.208 The CFMEU's concern stems from the fact that the PPS promotes the
use of contractual labour in the building industry. Similarly to the transport
industry, this is the least regulated part of the industry. As the witness
from the CFMEU explained:
This trend is having a very serious effect on a whole range of conditions
and standards in the industry. Contractors who switch all their workers
to the PPS invariably do not train anybody. They cannot take on apprentices
because they are trying to operate at very cheap rates and undercut the
more bona fide businesses in the industry. They have little regard for
safety because PPS workers are only paid when they are working; they are
not paid to stop and fix up safety. There are a whole range of bad and
damaging effects that this whole trend is having on the industry in terms
of dragging the industry down. [152]
1.209 The CFMEU are concerned that there is little detail available about
the operation of the proposed pay-as-you-go (PAYG) scheme. If the PAYG
system is merely mechanism to allow businesses to minimise their administrative
dealings with the Australian Taxation Office, then the CFMEU does not
oppose its introduction. However, the union is keen to confirm that a
PAYG scheme would continue to involve the withholding of tax from payments
to contractors in the construction industry. [153]
1.210 The CFMEU is concerned at the prospect of the introduction of a
minimum turnover of $50,000 for a business to qualify for an Australian
Business Number (ABN). The CFMEU's suggests that a turnover of $50,000
per annum is `not adequate to measure whether or not a bona fide
business is being operated in the construction industry'. [154]
1.211 If the GST pushes workers in the direction of incorporation to
ensure their capacity to obtain input tax credits, this should not automatically
mean that there is no scrutiny of the substance of their working arrangements.
The CFMEU submission concludes that:
More information is required before it can be decided that the GST will
assist in monitoring the activities of contractors and reducing the cash
economy. For example, it is not clear whether the new system will be designed
to record the ABN of contractors purchasing materials. If this were done
the data collected may assist in differentiating between bona fide
contractors and employees. Such a capability would also be pivotal in
reducing the cash economy. [155]
Payroll Tax
1.212 The Committee heard evidence from a number of witnesses about the
issue of payroll tax. The current payroll tax arrangements that apply
in each State and Territory will not be affected by anything in the ANTS
proposals.
1.213 The submission from the SAECCI notes that the `major disappointment
in
the package is that it did not include the abolition of payroll tax' and
that it `is our strong belief that payroll tax should be abolished as
part of any general reform of the tax system'. The submission continues,
suggesting that payroll tax should be abolished at the time a GST is introduced
because a `GST in conjunction with a payroll tax would effectively tax
the labour component twice' and that `removing payroll tax will reduce
the cost of labour relative to the cost of capital, thereby encouraging
employment.' [156]
1.214 A representative from the SAECCI reiterated these observations
about the failure of the Government to abolish payroll tax in the ANTS
package:
The major disappointment we have with the tax package announced by the
government was that it did not include the abolition of payroll tax
To
us, it is a discriminatory tax. It feeds into the costs of our goods and
services and therefore detracts from our competitiveness. If we abolished
it at the time a GST was introduced we would reduce the cost base in our
business and, therefore, would offset some of the inflationary impact
that might otherwise occur. If we have it in conjunction with the GST,
the labour component of value-add will effectively be taxed twice.
If you remove payroll tax, you will reduce the cost of labour apropos
capital. Economic modelling would say that that ought to enhance employment
jobs. It certainly will reduce the displacement of labour that
takes place because of the capital-labour substitution. The chance of
getting rid of it is at its strongest at the time of the major changes
to the tax system. [157]
1.215 In response to questioning by the Committee on the issue of payroll
tax, the witness from the SAECCI indicated that his organisation would
have preferred to see payroll tax abolished and a lower level of income
tax cuts offered as part of the ANTS package. [158]
1.216 While other witnesses were not as unequivocal as the SAECCI, most
indicated that they would have preferred payroll tax to be abolished as
part of the ANTS package. Organisations such as the BCTR note that they
would have preferred issues such as payroll tax to have been addressed
in the ANTS package, and that it is not ideal that States and Territories
`will continue to impose a range of selective indirect taxes including
payroll tax.' [159]
1.217 The Australian Food and Grocery Council, in its submission to the
Select Committee, also called for payroll tax to be abolished, in preference
to providing large income tax cuts to the well-paid, or to reducing diesel
fuel excises. [160] Submissions from Australian
Business, the Australian Chamber of Commerce and Industry and the Council
of Small Business Organisations also argued that taxes on employment should
be reduced. [161]
1.218 In general, payroll tax was considered to be a hindrance to job
generation. For instance, the PIAA suggested that there is potential for
employment growth of 1.6 per cent in the printing industry if payroll
tax were to be abolished. For this reason, the PIAA noted that payroll
tax was an `an impediment to employment creation' and that they saw the
ANTS package as an opportunity for payroll tax to be abolished. [162]
Impact on Workers' Compensation Arrangements
1.219 The Committee heard evidence from the Heads of Workers' Compensation
Authorities (HWCA) at its public hearings in Brisbane. HWCA is a group
comprising the Chief Executives of Australia's ten workers' compensation
authorities (comprised of eight State and Territory and two Commonwealth
bodies).
1.220 The HWCA's concern with the ANTS package is that there is some
doubt as to its application to workers' compensation accident insurance.
HWCA's contention is that workers' compensation schemes be treated the
same as general insurance arrangements are treated in the ANTS package.
As the HWCA noted in evidence:
I think the consensus in the practitioner community is that the intent
is for workers' compensation schemes to be treated as for general insurance
companies. Whether in fact that is truly the intention of the government
is uncertain. [163]
1.221 The HWCA express the view in their submission that the legislation
establishing the GST needs to be amended to clarify the treatment of workers'
compensation accident insurance under the GST:
Workers' Compensation accident insurance is conceptually analogous to
general insurance business. The application of the GST Bill, in particular
[section] 78 is fairly clear in respect of general insurance where there
exists two parties, the insurer and the indemnified party. However, in
workers' compensation schemes, payments can be made directly to a third
party. The treatment of such payments under the GST regime requires clarification
and the legislation amended to reflect the desired intent. [164]
1.222 The HWCA are concerned that if the draft legislation is not amended,
there is the possibility that the GST will lead to higher workers' compensation
accident insurance premiums. The HWCA suggests that this `would impact
particularly on small businesses that are not readily able to absorb such
increases to the extent that this may affect employment levels'. [165]
1.223 The Committee is of the view that the Government needs to make
its intentions clear with respect to the GST treatment of workers' compensation
accident insurance premiums. The Committee recommends that these premiums
should be treated in the same way as general insurance arrangements are
treated under the proposed legislation.
An Additional Comment on Compliance Costs in Small Business
1.224 The Committee notes that much has been made of the $500 million
that the Government is offering as assistance for small business to help
cover the start up costs of a GST after it is introduced. The Committee
has heard a great deal of evidence from industry, and they seem to suggest
that the compensation package that is proposed by the Government is completely
inadequate.
1.225 The Committee is of the view that if small business is not adequately
compensated for the compliance costs associated with the introduction
of a GST, then a large number of businesses could become unviable and
forced to close. This could result in large numbers of jobs being lost
across Australia, particularly in regional and rural Australia, areas
that are already hit hard by high unemployment. The Committee also recognises
that a substantial proportion of the small business workforce are women
and young Australians, two groups traditionally disadvantaged in the work
place.
1.226 It is evident that the Government's estimates of the start up costs
for small business of a GST are grossly understated. The Government has
made much of its concern for the small business community, however it
does not seem to appreciate the scope of the administrative burden that
will be placed on that same community with such a fundamental change to
the tax system as the introduction of a GST.
A Tax on Employment
1.227 From the available evidence, it is impossible to conclude that
the implementation of the ANTS proposals will be beneficial for employment.
The Labor senators are of the view that evidence received by the Committee
has been overwhelmingly negative. The Labor senators believe that the
imposition of the new tax system on the Australian economy is effectively
a tax on employment.
1.228 The Labor senators consider that the services sector has special
cause to be concerned about the potential impact of the ANTS package.
It is important to note that the services sector is one area of the economy
that has undergone significant growth in employment over the few years,
as shown in the following table:
Employment Growth in the Services Sector [166]
ANZSIC Industry Division |
Annual Employment Growth |
|
May 1997 |
November 1997 |
May 1998 |
November 1998 |
Accomodation, cafes and restaurants |
8.24% |
2.12% |
2.74% |
2.12% |
Property and business services |
4.13% |
4.33% |
8.80% |
7.15% |
Health and community services |
0.56% |
1.45% |
5.83% |
2.34% |
Cultural and recreational services |
11.58% |
14.55% |
1.47% |
0.72% |
Personal and other services |
5.04% |
10.19% |
0.06% |
1.66% |
Total services sector |
4.42% |
4.68% |
5.31% |
3.76% |
Total all employment |
0.64% |
1.48% |
2.07% |
1.51% |
1.229 It can be seen from the table that job growth in the services sector
industries has been considerably stronger than growth elsewhere in the
economy. The Labor senators do not believe that it is appropriate for
a Government that claims to be concerned about employment issues to start
taxing job creation in the sector that is leading the way as far as employment
growth in Australia is concerned.
1.230 In the Labor senators' view, each of the industries from which
the Committee heard evidence expressed some degree of concern about the
impact of the Government's ANTS proposals on their sector. The majority
of the industry representatives were of the view that the effect of the
GST in their sector would be reduced employment. Further, some witnesses
put the view that it would not only mean a fall in employment in the short
term, but that future employment prospects would also be negatively effected
as a result of continuing decline in investment in their sector as effective
demand dwindles under a GST regime.
1.231 The Labor senators are of the view that the GST and new tax system
package being proposed by the Government will not have a positive impact
on employment, as claimed in some quarters. The Labor senators are very
concerned that the overall impact of the package on employment could be
negative, particularly at a time when unemployment remains unacceptably
high.
1.232 The Labor senators are also concerned about the areas that will
be most severely affected by the cuts in employment as a result of the
ANTS package. The Labor senators believe that the Committee has taken
evidence from a large number of witnesses, particularly in the services
sector, who claim that the greatest effect will be felt by regional and
rural areas, and among Australia's youth and indigenous people. The Labor
senators are very concerned about this prospect. These sectors of the
community are already highly disadvantaged by above-average unemployment
rates, and it is the Labor senators' view that the plight of these groups
should not be further worsened by an unfair and regressive tax on employment.
Recommendation
1.233 The Labor senators recommend that the GST and new tax system
proposals not be passed by the Senate because of the deleterious effect
that the proposals will have on employment.
Footnotes
[1] Hon Peter Costello MP, Tax Refor7m: Not
a New Tax, a New Tax System, Australian Government Publishing Service,
Canberra 1998, p. 7.
[2] ibid., p. 9.
[3] Hansard (House of Representatives),
2 December 1998, p. 1087.
[4] Hansard (House of Representatives),
9 December 1998, p. 1722.
[5] Hon Peter Costello MP, op. cit., p. 155.
[6] This description is drawn from the first
report of the Senate Select Committee on a New Tax System.
[7] For a full analysis of the results of the
Monash model analysis, refer to Peter B. Dixon and Maureen T. Rimmer,
The Government's Tax Package: Analysis Based on the Monash Model,
paper presented to the Forum for Modelling Australian Taxation, held in
Sydney on 10 December 1998 and Peter B. Dixon and Maureen T. Rimmer, The
Government's Tax Package: Further Analysis Based on the Monash Model,
report prepared for the Senate Select Committee on a New Tax System, 25
January 1999.
[8] Peter B. Dixon and Maureen T. Rimmer, The
Government's Tax Package: Further Analysis Based on the Monash Model,
report prepared for the Senate Select Committee on a New Tax System, 25
January 1999, p. ii.
[9] ibid., p. iv.
[10] ibid.
[11] The term `pass through' rates is referring
to the length of time that it takes for the price changes that result
from the switch from wholesale sales taxes to a GST to be passed on to
the consumer.
[12] Peter B. Dixon and Maureen T. Rimmer,
op. cit.
[13] ibid., p. v.
[14] ibid., pp. 19-20.
[15] Senate Select Committee on a New Tax System,
First Report, Senate, Canberra, February 1999, p. 38.
[16] This description is derived from a paper
entitled: MM303 (as at 29 August 1998). The paper was provided to the
Select Committee during the course of its inquiry into a GST and a New
Tax System by Mr Chris Murphy of Econtech.
[17] Senate Select Committee on a New Tax System,
op. cit., pp. 10-11.
[18] For a full analysis of the results of
the Murphy modelling conducted by Econtech, refer to Chris Murphy, Econtech,
Modelling a New Tax System (ANTS) Comparing Monash and MM303,
report prepared by Econtech for the Senate Select Committee on a New Tax
System, 14 February 1999.
[19] Chris Murphy, Econtech, Modelling a
New Tax System (ANTS) Comparing Monash and MM303, report prepared
by Econtech for the Senate Select Committee on a New Tax System, 14 February
1999, pp. 27-29.
[20] ibid., p. 29.
[21] ibid., p. 33.
[22] Labor Senators' findings in the Senate
Select Committee on a New Tax System, op. cit., p. 42.
[23] Peter B. Dixon and Maureen T. Rimmer,
The Government's Tax Package: Short-Run Implications for Employment
by Industry, Region, Occupation, Age and Gender, Report Prepared for
the Senate Employment, Workplace Relations, Small Business and Education
References Committee, 19 March 1999, p. 15.
[24] ibid., pp. 12-15.
[25] ibid., pp. 16-17.
[26] ibid.
[27] ibid., pp. 18-26.
[28] ibid., p. 27.
[29] Hansard, Canberra, 25 March 1999,
p. 886.
[30] ibid., p. 889.
[31] These results are from additional material
provided to the Committee by Professor Dixon at his appearance before
the Committee in Canberra on 25 March 1999.
[32] Hansard, op. cit., p. 888.
[33] Hansard, Canberra, 12 March 1999,
pp. 868-869.
[34] ibid., p. 869.
[35] Hansard, Adelaide, 2 March 1999,
p. 485.
[36] ibid., p. 487.
[37] ibid.
[38] Select Committee Hansard, Melbourne,
3 February 1999, p. 612.
[39] ibid.
[40] Media, Entertainment and Arts Alliance,
Submission No. 921, p. 1.
[41] ibid.
[42] Hansard, Sydney, 23 February 1999,
p. 241.
[43] ibid., p. 243.
[44] ibid.
[45] ibid., p. 252.
[46] ibid.
[47] McDonald's Australia, Submission No. 552,
p. 2.
[48] ibid.
[49] ibid., p. 3.
[50] ibid.
[51] Hansard, Canberra, 19 February
1999, p. 27.
[52] ibid., p. 27.
[53] ibid., p. 30.
[54] The (then) 15 per cent value added tax
applied to take out food but not supermarket food.
[55] Hansard, Sydney, 23 February 1999,
p. 231.
[56] ibid.
[57] ibid., p. 232.
[58] ibid.
[59] McDonald's Australia, op. cit., p. 5.
[60] Dr Neil Warren, Food: Staple of Life
or Staple of the GST, Paper for the ATAX GST Law Conference, University
of NSW, Sydney, 16 December 1998.
[61] McDonald's Australia, op. cit., p. 6.
[62] Hansard, Sydney, 23 February 1999,
p. 219.
[63] ibid., pp. 215-216.
[64] ibid., p. 227.
[65] Restaurant and Catering Australia, Submission
No. 697, p. 17.
[66] ibid.
[67] ibid., p. 8.
[68] ibid., pp. 8-9.
[69] Australian Liquor, Hospitality and Miscellaneous
Workers' Union, Western Australian Branch, Submission No. 1122, p. 2.
[70] ibid.
[71] Printing Industries' Association of Australia,
Submission No. 567, p. 5.
[72] Hansard, Canberra, 12 March 1999,
p. 836.
[73] Printing Industries' Association of Australia,
op. cit.
[74] Hansard, op. cit.
[75] Australian Publishers' Association, Submission
No. 1037, p. 3.
[76] Hansard, Melbourne, 3 March 1999,
pp. 640-641.
[77] ibid, p. 641.
[78] ibid, pp. 649 and 650.
[79] ibid., p. 650.
[80] Ms Fran Bryson, Submission No. 466, p.
5.
[81] Hansard, op. cit., p. 643.
[82] Shop, Distributive and Allied Employees'
Association, Submission No. 553, p. 16.
[83] Select Committee Hansard, Melbourne,
2 February 1999, p. 395.
[84] ibid.
[85] Hansard, Sydney, 22 February 1999,
p. 108.
[86] ibid.
[87] ibid., p. 120.
[88] Chris Murphy, Econtech, op. cit., p. 28.
[89] Hansard, Sydney, 23 February 1999,
p. 280.
[90] ibid., p. 286.
[91] Hansard, Hobart, 4 March 1999,
p. 766.
[92] Tasmanian Independent Wholesalers, Submission
No. 782, p. 5.
[93] ibid.
[94] Hansard, op. cit., p. 769.
[95] Tasmanian Independent Wholesalers, op.
cit., p. 7.
[96] ibid., pp. 10-11.
[97] ibid., p. 11.
[98] ibid., p. 12.
[99] Tourism Task Force, Submission No. 472,
pp. i-ii.
[100] Hansard, Brisbane, 24 February
1999, pp. 411-412.
[101] Tourism Task Force, op. cit., p. 3.
[102] Inbound Tourism Organisation of Australia,
Submission No. 471, p. 7.
[103] ibid.
[104] Tourism Council Australia, Submission
No. 718, p. 16.
[105] Hansard, Cairns, 25 February
1999, p. 447.
[106] ibid., p. 448.
[107] Tourism Task Force, op. cit., p. 20.
[108] Tourism Council Australia, op. cit.,
p. 15.
[109] Tourism Task Force, op. cit., p. 9.
[110] ibid.
[111] Hansard, Brisbane, 24 February
1999, p. 413.
[112] Tjapukai Aboriginal Cultural Park, Submission
No. 1391, p. 1.
[113] ibid.
[114] Queensland Government, Submission No.
1088, p. 8.
[115] ibid.
[116] Hansard, Canberra, 12 March 1999,
p. 864.
[117] The relevant High Court decision is
Ngo Ngo Ha and Anor. v. State of New South Wales and Ors.; Walter Hammond
and Associates Pty. Limited v. State of New South Wales and Ors. (1997)
146 ALR 355.
[118] Winemakers' Federation of Australia,
Submission No. 938A, p. 8.
[119] Hon Peter Costello MP, op. cit., p.
87.
[120] Winemakers' Federation of Australia,
op. cit.
[121] ibid., p. 9.
[122] ibid.
[123] Hansard, Adelaide, 2 March 1999,
p. 551.
[124] Vineyards' Association of Tasmania,
Submission No. 84, p. 3.
[125] ibid.
[126] Brisbane South Area Consultative Committee,
Submission No. 1025, p. 2.
[127] ibid, p. 3.
[128] ibid.
[129] Group Training Australia, Submission
No. 263, p. 1.
[130] Hansard, Melbourne, 3 March 1999,
p. 684.
[131] ibid., p. 685.
[132] ibid., p. 686.
[133] ibid., pp. 689-690.
[134] ibid., p. 687.
[135] Hansard, Canberra, 19 February
1999, p. 18.
[136] Hansard, Canberra, 12 March 1999,
p. 874.
[137] Department of Employment, Workplace
Relations and Small Business, Submission No. 1338, p. 3.
[138] ibid.
[139] Hansard, op. cit., p. 875.
[140] ibid.
[141] Hansard, Melbourne, 3 March 1999,
p. 709.
[142] ibid., pp. 709-710.
[143] ibid., pp. 710-711.
[144] Australian Taxi Industry Association,
Submission No. 1268, p. 3 of covering letter.
[145] Taxi Industry Council of Australia and
Taxi Drivers' Association of Victoria, Submission No. 236, p. 14.
[146] Australian Taxi Industry Association,
op. cit., p. 2.
[147] Recruitment and Consulting Services
Association, Submission No. 687, p. 2.
[148] ibid., p. 3.
[149] ibid.
[150] Select Committee Hansard, Sydney,
5 March 1999, p. 1690.
[151] ibid., p. 1691.
[152] ibid.
[153] Construction, Forestry, Mining, Energy
Union, Submission No. 1089, p. 15.
[154] ibid.
[155] ibid., p. 16.
[156] South Australian Employers' Chamber
of Commerce and Industry, Submission No. 881, p. 2.
[157] Hansard, Adelaide, 2 March 1999,
p. 483.
[158] ibid, p. 498.
[159] Business Coalition for Tax Reform, Submission
No. 104A, p. 11.
[160] Australian Food and Grocery Council,
Submission No. 340.
[161] Australian Business, Submission No.
870; Australian Chamber of Commerce and Industry, Submission No. 864;
and Council of Small Business Organisations, Submission No. 1368.
[162] Hansard, Canberra, 12 March 1999,
p. 839.
[163] Hansard, Brisbane, 24 February
1999, p. 389.
[164] Heads of Workers' Compensation Authorities,
Submission No. 1022A, p. 1.
[165] ibid., p. 5.
[166] Australian Bureau of Statistics, Australian
Economic Indicators, Catalogue Number 1350.0, Australian Government
Publishing Service, Canberra, February 1999, pp. 95-96.