GOVERNMENT SENATORS' REPORT
Government Senators do not agree with the emphasis placed on some
of the information contained in the Majority Labor Senators' report. We
therefore have provided this separate report.
INTRODUCTION
The Employment, Workplace Relations, Small Business and Education References
Committee Inquiry into A New Tax System (ANTS) is one of
three Reference Committee Inquiries concerning various aspects of the
impacts of the Government's tax reform proposals.
This Committee's terms of reference saw submissions received and evidence
taken mainly in relation to employment and education services.
The findings of this Committee are to be drawn on in the final Senate
Select Committee's report on A New Tax System which is due to be
presented by 19 April 1999.
EMPLOYMENT
Introduction
The Opposition majority report has focussed on several issues relating
to the possible effect of a goods and services tax (GST) on employment
and job creation in the Australian economy. The Government's employment
policies are well known and evidence shows that they are working. The
number of unemployed Australians is at its lowest point since December
1990. The unemployment rate is also continuing to decline, reaching 7.4
per cent in both seasonally adjusted and trend terms in February 1999.
Evidence to the Committee has overwhelmingly supported the case that
the ANTS package is a substantial job creator. The Opposition Senators
have attempted to use the GST inquiry to mount a case that the taxation
reform package will be harmful to employment opportunities. Clearly the
evidence to the Committee has not supported this view.
The Government's employment policies have been endorsed by the Australian
electorate. The Government's Better Pay for Better Work policy,
taken to the federal election in October 1998 outlines several initiatives
aimed at generating employment in Australia. There is value in noting
some of the initiatives that have been consistently opposed by the Opposition
and minor parties in the Senate, and outlining the benefits that these
initiatives could have for employment creation.
Reform of Unfair Dismissal Laws
The Government has already removed, as promised, the previous Government's
job destroying unfair dismissal law and replaced it with a new system
based on the concept of `a fair go all round'. It is the Government's
assessment, however, that unfair dismissal laws are still holding back
job creation and deterring employers from taking on new employees. In
the Government's view, the reform of unfair dismissal laws need to go
further if unemployed Australians and young people are to get new job
opportunities.
If this were to occur, small business estimates that up to 50,000 new
jobs would be created, particularly for young people, if small business
was exempt from unfair dismissal claims by new employees. Already the
Government has twice proposed this initiative to Parliament, but it has
been blocked on each occasion by the Opposition and Senate minor parties,
which have allowed union ideology to prevail over the interests of small
business and unemployed Australians. [1]
Youth Employment
The Government has taken the view that the workplace relations system
can contribute positively to the creation of job opportunities for young
Australians. In that context, it is also an important part of the Government's
policies to combat youth unemployment.
To this end, the Government has sought to amend the Workplace Relations
Act 1996 to include provision for junior rates of pay. Junior rates
are inherently conducive to youth employment and any perceived inequity
occasioned by junior rates is greatly outweighed by the inequities consequent
on their removal.
The exclusion of the Government's proposed provisions from the Workplace
Relations Act 1996 will severely damage the youth labour market in
Australia, and would be likely to result in many young people experiencing
protracted unemployment. This could permanently damage their prospect
of labour force integration and reduce their career prospects over the
longer term. The Government does not want to see this happen. In the Government's
view, the legislation of junior rates should be supported on the basis
that they represent a positive assistance to youth employment.
The Government has already proposed this initiative to Parliament since
the election. However, the Opposition and minor parties in the Senate
once again displayed gross hypocrisy on the issue of unemployment by blocking
the Government's job-generating youth employment initiative.
A New Tax System
The proposed taxation reforms are a central plank of the Government's
program to create an economic environment that is more conducive to job
creation. The taxation reform package can work in concert with the Government's
proposed changes to unfair dismissal and youth employment arrangements
to create genuine jobs for Australia's unemployed.
The publication Tax Reform: Not a New Tax, a New Tax System, taken
to the electorate for its endorsement at the election in October 1998,
lays the Government's proposals for reforming Australia's taxation system
on the table. The ANTS document outlines the benefits that tax
reform will have for employment:
…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. [2]
The current tax system is failing Australia and it is penalising Australian
exports and discouraging investment by distorting business decisions and
imposing excessive compliance costs on businesses. These factors are reducing
the total gains to Australia from investments, thereby hindering employment
growth and restricting gains in living standards. [3]
ANTS is a comprehensive policy approach to taxation reform which
brings together:
- reductions in personal income taxes totaling $13 billion a year;
- better integration between the tax system and the social welfare system
to remove poverty traps and increase incentives to work;
- increased pensions and allowances;
- the introduction of a broad-based GST to replace wholesale sales tax
and nine other indirect taxes; and
- a more sustainable approach to Commonwealth-State financial relations.
The ANTS publication outlines the many benefits for Australia
that will flow from the new tax system proposal, noting 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'. [4]
Modelling
The Senate Committees have been presented with a large amount of evidence
on the employment effects of the ANTS package. This evidence included
separate modelling conducted for both the Select Committee and this References
Committee by Professor Peter Dixon and Dr Maureen Rimmer of the Centre
of Policy Studies at Monash University (the `Monash' model), and
modelling for the Select Committee by Mr Chris Murphy of Econtech.
Both the Monash and Econtech models use long term computable general
equilibrium models, which assume that employment is held constant in the
long run. Therefore they do not forecast long term employment outcomes.
In the case of the Monash model, it is set up to follow the transitional
path of variables including employment.
In the central case modelled by Professor Dixon, “…employment
will be stimulated in the short-run by about 30 000 jobs…” [5]
In research undertaken by the Melbourne Institute, modelling the tax
package on the basis of no change in pre-tax real wages showed the number
of jobs could increase by 50 000 [6].
Access Economics, in their AEM Model Forecast Report of December 1998
indicate that as a result of the tax package , an additional 190 000 jobs
would be created in the long term, consistent with their view of increased
GDP as a result of the tax package.
The Monash Model
The Monash model has in the past been used to simulate the effects
of changes to barriers to international trade like tariffs and their distorting
effects on the pattern of industry activity in Australia. It does not
directly model the GST.
For the purpose of modelling tax reform, the shortcomings of Dixon's
model were comprehensively outlined to the Senate Select Committee in
January.
One concern in particular with Monash is that export elasticities
have recently been revised with the effect of greatly increasing the fall-off
in export prices when export volumes expand as a result of increased competitiveness
through tax reform. It is this questionable increased export responsiveness
assumption that drives a lot of the Monash employment results for
rural areas (and tourism).
The tourism industry itself predicts the price elasticity of tourism
to only be minus 2 in the absolute extremes. Commenting on the Tourism
Task Force figure of minus 2 [7], Mr Geoff Carmody
of the Tourism Council of Australia stated that “the average elasticity
that you should apply to inbound tourism is way less than two”.
Carmody went on to say quite categorically that “claims of elasticities
of two or three applying to all tourists overstates and gives a misleading
impression of the impact of the ANTS package on tourism.” [8]
Professor Dixon was commissioned by this References Committee to present
research on the short term impact of the ANTS package on unemployment
for the following demographics: national rates; States and Territories;
industry; gender and age; youth and; Aboriginal unemployment. For reasons
outlined in evidence by Dixon the report instead dealt with the employment
short-term effects of ANTS (as opposed to un-employment)
[9]. This further report used the same two scenarios
used in his 25 January report to the Senate Select Committee.
Dixon's Central scenario, which is widely considered to be the most realistic
of the two, assumes that wage bargaining post-implementation of ANTS
will be based on after-tax wages. That is, due to income tax cuts across
all income groups, workers will have significantly more real disposable
income after all GST effects have been taken into account. Knowing this,
workers will not seek further wage increases to `compensate' for the introduction
of a goods and services tax. The Central case scenario predicted an increase
of jobs of 30 000 in the short-term.
An alternative scenario was also modelled by Dixon on assumptions specified
by the Senate Select Committee. Dixon did not use this scenario in his
original report of December 10 [10]. This assumption
that workers will seek wage claims on the basis of the one off increase
in price levels associated with ANTS, completely ignoring the increases
in real disposable income and bargaining solely on before-tax wages. We
find the proposition that workers completely ignore their tax cuts to
be preposterous. It also assumes that employers will accept this rationale
and will completely acquiesce to these demands, or are completely powerless
to do anything about these wage claims anyway.
The Government Senators agree that the Central case of the Monash
model is the far more accurate of the two scenarios. Even Dixon, when
questioned by Government Senators, refused to defend the wages assumption
in his sensitivity.
Senator FERRIS— … You, yourself, have assumed that
real after-tax wages will improve after year one. I think you said that
in the first year they would be 0.3 per cent higher under ANTS than
otherwise, then 0.6 per cent, 0.7 per cent, 0.8 per cent, 0.9 per cent
and then one, one, one. Where do you get to the point that you say there
is a real chance that there could be a wages blow-out? You have agreed
that wage earners are going to be better off.
Prof. Dixon—I do not want to defend the blow-out scenario
strongly. I have never said that that was the more likely thing. [11]
In the Government's view, there is no case for such increases as the
real take home pay of wage earners will significantly rise.
In a continuing low inflation environment and, given the enhanced credibility
of monetary policy flowing from the Reserve Bank's independence, the Government
considers it will be able to continue a policy framework that will accommodate
some or all (depending on the circumstances at the time) of the small
one-off increase in consumer prices but not to permit further flow through.
Against this background, and the improved cost structures inherent in
the package, the introduction of a GST is unlikely to lead to an increase
in inflationary expectations and on-going inflation.
Econtech in its report of 14 February 1999 said
"The chances of ANTS producing a wages blowout are remote. This
assessment takes into account the generally favourable experience of
other countries in introducing this type of tax reform, and that Australia
has the advantage of having available a Budget surplus that is used
to boost income tax cuts to over-compensate workers for the CPI effect
of ANTS." [12]
And
“You could just as equally argue that it might help secure wage
restraint as result in a wages blowout.” [13]
Mr Murphy also noted in his evidence and report that the employment effects
arising out of economic models was likely to be an underestimate because
they could not capture the employment gains that would occur from the
alleviation of poverty traps.
International experience with the implementation of a GST in New Zealand,
Canada, and Japan showed no wages blowout with the introduction of a GST.
The experience of those developed countries which have introduced a
GST since that mid-1980s - New Zealand, Canada and Japan - supports
the expectation of no necessary boost to wages. In each of those countries
there was a once-off lift in the price level, which did not get built
into underlying inflation. Had there been a flow-on to wages, the price
effect would have been ongoing. [14]
The Democrats (Senator Murray, Select Committee Report) have also discounted
the likelihood of a wages blowout. They say that the ACTU's ability to
push such an agenda with only 28% of workers would be limited; that the
AIRC is obliged to consider impacts on productivity, inflation and employment;
and that in any case, with the growth in enterprise bargaining, wage claims
follow productivity rather than CPI.
The Department of Employment, Workplace Relations and Small Business
(DEWRSB) in their evidence to this Committee, also discounted the wage
blowout assumption:
The Government has developed a package aimed to more than adequately
protect the living standards of wage and salary earners, including the
low paid, from the price effects of the GST. Employees and wage negotiators
should take this into account when they enter into the agreement making
process. The adequacy of the compensation package should also be understood
and taken into account by the Australian Industrial Relations Commission
and State industrial tribunals when they periodically review the level
of the minimum award safety net. Government submissions in relevant
cases can be expected to provide information explaining these considerations.
As a result, there should be no expectation that the introduction of
the proposed changes to the tax system should lead to any upward effect
on wages.
In this regard, it is relevant to note that Australia now has a wage
fixing system where the primary focus is on decentralised agreement
making at the enterprise and workplace level.
… In addition, the transmission mechanisms in legislation and
tribunal wage fixing principles, which in the past have facilitated
the flow-on of wage outcomes across industries and occupations, have
essentially been severed. Coupled with the competitive environment in
which firms now operate, this should ensure that wage outcomes continue
to be predominantly productivity based and reflective of the circumstances
of individual enterprises and workplaces [15].
Accordingly, Dixon's model provides only one relevant result, which is
that there will be an expected short-term increase of 30,000 jobs. Econtech's
Chris Murphy agreed, saying “the Monash estimate of a short-term
gain of 30,000 jobs … is in the right ballpark” [16].
Tourism
A very large part of the adverse effects within Dixon's model are due
to his calculations on tourism, and these results are highly contingent
on the elasticities (price sensitivities) that he used. The Dixon report
spends a significant amount of time attempting to model the effects of
the ANTS package on the tourism industry. The Government Senators
believe that Dixon has significantly overstated the demand elasticity
for Tourism and consequently that the employment effects in the tourism
industry are also overstated.
Specifically, Dixon has assumed that the foreign elasticity of demand
for tourism is minus 3. We believe that the weight of evidence shows that
this figure is wrong. Dixon has used other elasticity figures, for instance
in his January 25 report, when he used an elasticity for tourism of minus
two. This saw considerably improved results for the tourism sector, and
the economy more generally, under this assumption.
Mr Geoff Carmody, Tourism Council Australia, also expressed major concerns
about the validity of modelling demand elasticity for tourism as a whole,
given the great diversity of tourism sectors.
My concern with that is that the problem with modelling in tourism
is that the data on the customer, which is critical, is not sufficiently
differentiated in the modelling to get you to where you want to be.
Let me explain what I mean in terms of inbound tourism. Inbound tourism,
roughly speaking, is 52 per cent recreational travellers. Then there
are significant chunks of travellers who are coming here to visit friends
and relatives. There are chunks who come here for business reasons and
there is a small chunk who come here for conventions and so on. It seems
to me that in making judgments—and that is all we can do at the
moment because our data is just hopeless—about the price sensitivity
of inbound tourism you need to look at each of those components.
If someone said to me, `What's the price responsiveness of business
travel to Australia?' I would say that I would expect it to be extremely
low. It is basically a deductible expense for the business. They are
not going to feel it the same way. They have got to come here for business
reasons anyway. They are not going to feel it the same way as a recreational
traveller.
If someone talks to me about the price sensitivity of someone visiting
friends and
relatives, I will say that, whatever their price sensitivity, there
is a sort of emotional pull which is going to drive them as well, and
for that reason the observed price sensitivity of those people again
would be low.
If we look just at the recreational side, that is where I would expect
most of the price responsiveness action to be. But even there, the inbound
tourist covers a very wide range of people, from people who fly first
class in Concorde to people who buy package tours. It is the package
tour part which is the price sensitive part. If that is about two-thirds
of roughly half of all inbound tourism, and the package component of
the total expenditure by the package tourist is a fraction of that,
then it seems to me that the average elasticity that you should apply
to inbound tourism is way less than two.
For that reason, I think claims of elasticities of two or three applying
to all tourists overstates and gives a misleading impression of the
impact of the ANTS package on tourism. I think it is important for the
credibility of the industry not to overclaim. [17]
Structural Employment Changes
The ALP report seems to imply that large scale dislocations will occur
as a result of the tax reform package. This is a totally unrealistic and
misleading conclusion. To the extent that there may be some minor structural
employment changes, they will not exceed those which occur naturally in
the economy at the moment.
For example, Dixon's work for this Committee states that the employment
effects under the central case for East Gippsland will be 36 new jobs.
According to the Department of Employment, Workplace Relations and Small
Business' Small Area Labour Markets publication, the town of Bairnsdale
in East Gippsland there are large variations in unemployment currently.
In the June 98 quarter unemployment rose by 105, in September 98 unemployment
rose by 79, and in December 98 unemployment fell by 490.
This shows that Dixon's Tax Reform effect of 36 jobs for East Gippsland
are negligible compared to ongoing movements in the labour force and regional
migration. As Dixon says
We figure that there will be 36 new jobs in East Gippsland. Please read
that as a tiny number. I would be thrilled if I was right, that there
was fewer than 1,000 either way, or whatever it was. [18]
Food Services and Hospitality Sector
The Committee received a considerable amount of evidence from the food
services and hospitality sector on the effect of any move to exempt food
from the GST. All sectors of the food industry were categorically opposed
to partially exempting food from the GST – for example, the exemption
of `basic foods' such as bread, milk, meats, etc only.
The issue of exempting food was widely canvassed in the first report
of the Senate Select Committee.
Further, many of the witnesses who made submissions to the Select Committee
targeted the issue of exempting food, raising many valid concerns. A general
summary of most of the concerns raised was provided by Mr Fergus Ryan,
Chairman, Business Coalition for Tax Reform.
In summary, excluding food would add significant compliance costs,
particularly for small business; tend towards creating a culture of
non-compliance and activity that seeks tax avoidance; increase the administrative
costs and the time spent by tax administrators and the courts in deciding
what is and what is not food for the purpose of tax; and reduce the
general competitive advantage of a single rate, broad based indirect
tax.
… would reduce the amount of GST paid by the wealthiest 20 per
cent of households by double the reduction for poorest 20 per cent of
households. In other words, for every dollar of benefit received by
the poorest 20 per cent of households, granting a GST-free status for
food would deliver a benefit of $7.60 to the rest of the population.
[19]
McDonalds Australia, in evidence to the Committee called for “a
single treatment of all food.” [20] NARGA,
the National Association of Retail Grocers of Australia, who represent
some 10 000 small to medium businesses mostly from the food category,
were absolutely adamant that there should be no exemption for any food
at all. Any attempt to do this would, in NARGA's opinion, cause an “administrative
nightmare” [21].
NARGA noted, “that the GST in New Zealand is an absolute non-event.”
[22] They added a further warning, noting that
New Zealand includes food in its GST:
New Zealanders reacted with a combination of absolute horror through
to derision that we would be even remotely considering the removal of
food from GST. [23]
NARGA's principal position is that the additional compliance costs to
small business of dealing with exemptions to the GST would be enormous,
and that “small business viability, in many businesses, could be
threatened if you start removing food.” [24]
The Government Senators strongly reject any move to exempt food, either
wholly or partially and agree with NARGA that it would create a massive
administrative and compliance burden which will affect small businesses
more proportionally than big business.
Under the current Wholesale Sales Tax (WST) regime, NARGA correctly notes
that there is a “fundamental design weakness in the wholesale sales
tax” because it “allows different taxing points.” [25]
This effectively results in small businesses paying significantly more
WST than the large chains. The value-added nature of the GST will remove
this structural disadvantage that small businesses face. NARGA notes that:
… we are so badly hurt by the current sales tax regime that we
are prepared to look at the GST and give it broad acceptance, provided
that it is introduced in a way that is simple to administer. [26]
NARGA state that “if we end up with a GST system that exempts food,
we could actually be worse off as a sector than we are under the current
discriminatory wholesale sales tax regime.” [27]
It is worth stating that this will be further exacerbated by exemptions
of other goods or services, such as books.
Retail Sector
The Committee heard evidence from the Australian Retailers' Association
(ARA) at its Sydney public hearings. The Committee was informed that the
industry did not foresee any negative effect on employment levels as a
result of the introduction of a GST.
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. [28]
The witness went on to note that the effect of the ANTS package
on employment `is more likely to be plus than minus'. [29]
Printing Industry
The Committee heard evidence from the Printing Industries Association
of Australia (PIAA) at its second public hearings in Canberra. The PIAA
notes in its submission that it supports `the need for comprehensive and
genuine reform of the taxation system' and that it agrees with the Government
that `in the interests of economic efficiency the rate [of a GST] should
be as uniform and the coverage as wide as possible'. [30]
The submission from the PIAA goes on to discuss the benefits of taxation
reform:
Some of the valid arguments stress the need to broaden the indirect
tax base to capture the services sector; the benefits in terms of economic
efficiency, resource allocation and administration that stems from a
uniform and simpler tax; and the increased international competitiveness
afforded to our exporting, import competing and manufacturing industries.
[31]
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.
Small Business
The ANTS package is broadly recognised as being good for small
business. The tax changes will result in a far simpler, more efficient
tax system for small business and the compliance costs and administrative
burden associated with the new system will be drastically reduced. Additionally,
the Government has made available a $500 million fund as assistance to
small business to compensate for the start up costs associated with the
introduction of the ANTS package.
NARGA indicated to the Committee that the association's main concern
is about the compliance costs and administrative burden 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.' [32]
In response to questioning by the Committee on the possible employment
impact of exempting food from the GST, the industry representatives were
expressed concern that a large number of small businesses would not survive
due to the additional compliance costs and administrative burden that
would be created. 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. [33]
The Government senators note the small business community's broad support
for the ANTS package in its current form. The Government agrees
that the employment consequences for small business of creating unnecessary
and complicating exemptions to the GST are very serious, and for this
reason the Government would oppose the implementation of such exemptions.
Employment Services
The Committee heard evidence from the Department of Employment, Workplace
Relations and Small Business (DEWRSB) at its final public hearings in
Canberra. In relation to the impact of the ANTS package on the
employment services market, the submission from DEWRSB makes the following
comments:
Overall, the new tax system is expected to reduce slightly the cost
of providing Job Network services, the Work for the Dole program and
other similar labour market programs, mainly through the removal of
embedded wholesale and State-based sales taxes. Since eligible job seekers
are not charged for [Job Network] services, there should be no question
of them having to pay GST on these services. Job seekers should be easier
to place in jobs, as the reductions in income tax rates should increase
their incentive to search actively for work. [34]
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:
There is an urban myth around that all Job Network members charge employers
for their services. That is not the case. Quite a few do not; in fact,
I imagine the majority of them do not…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. [35]
The Committee also questioned the Department on the impact of a GST on
the purchase by Job Network providers of different forms of education
and training. DEWRSB's submission notes that tuition that is purchased
by a Job Network member for a job seeker from a college of technical and
further education, university or other recognised institution that leads
to a formal qualification will be GST-free. [36]
In relation to educational and training services that do not lead to a
formal qualification 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'. [37]
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.
[38]
Conclusion
The Government senators are of the view that the ANTS package
will be very positive for employment. Improvements in the Australian economy
as a result of the implementation of the ANTS package 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. This combination of higher growth, increased investment
and greater competitiveness will deliver more jobs and lower unemployment.
EDUCATION
Enactment of the tax reform Bills would make the provision of tuition
in the following courses GST-free:
- pre-school, primary, and secondary school courses recognised by the
States and Territories;
- technical and further education courses recognised by the States and
Territories (excluding recreation and “hobby” courses);
- undergraduate and post graduate courses at recognised higher educational
institutions (excluding recreation or “hobby” courses);
- professional or trade courses necessary for entry into the practice
of a profession or trade;
- education services provided in Special Education Centres for people
with a disability;
- State/Territory recognised English language courses for overseas students;
and
- tuition provided by university residential colleges in respect of
higher education courses.
The recognition of prior learning through assessment or issue of qualifications
necessary for access to education or employment would also be GST-free.
Enactment of the Bills would also see:
- “administrative services” directly related to the supply
of a GST-free course and provided by the supplier of the course being
GST-free; but the supply of membership of a student organisation will
not be GST-free;
- “excursions or field trips” directly related to the curriculum
of the course provided they are not predominantly recreational, being
GST-free.
- Accommodation costs for school field trips will be GST-free but
accommodation for field trips associated with courses other than
school courses (eg tertiary courses) will not.
- The supply of food on excursions or field trips will not be GST-free;
- “course materials” supplied by the provider of a GST-free
course and necessarily consumed or transformed by the students undertaking
the course (for example, photocopied lecture notes, cooking materials
for home economics or materials for wood working) being GST-free; but
supply by way of sale, lease or hire of goods other than course materials
will not be GST-free; and
- GST-free treatment of boarding accommodation (including the supply
of services such as cleaning, maintenance, heating, and electricity)
by primary and secondary schools and hostels providing accommodation
to school students from rural and remote areas; but the supply of food
in such accommodation will not be GST-free.
The GST treatment of education is based largely on the policy the Government
took to the last election and the recommendations of the Tax Consultative
(Vos) Committee, which was established by the Government after the election
to determine the scope of the GST-free areas nominated in ANTS.
A mechanism for defining GST-free courses and institutions
The Vos Committee did not accept the proposal by a number of organisations
that some form of `blanket' GST-free status be granted with reference
to a class of institution, including the desire by some organisations
that such institutions be exempted from having to pay GST up-front on
their purchases (or inputs) as is the case under the current Wholesale
Sales Tax provisions. To do otherwise would run counter the overall design
of the GST, where tax is levied at each point in the supply chain and
where those entities who are GST-registered are then able to claim a tax
credit for the GST paid on their inputs.
GST-free courses and institutions
In determining the scope of GST-free courses and institutions, the Vos
Committee took the approach of using existing legal definitions.
Such an approach is more likely to result in the Government receiving
recommendations which are in a form that is readily transferable into
legislation. It also adds to simplicity and clarity in understanding
the Committee's recommended scope of GST-free education.
After due consideration, the Committee came to the view that an appropriate
way to define the scope of many of the courses and institutions qualifying
for GST-free treatment is by reference to the Education Minister's Determination
of Education Institutions and Courses under Subsections 3(1) and 5(D)
of the Student Assistance Act 1973.
The Minister for Education, Training and Youth Affairs Minister retains
the power, under the Student Assistance Act 1973, to make
determinations identifying approved education institutions and courses.
These determinations are referred to in the Social Security Act 1991
to identify courses which qualify for particular types of assistance
(for example, Youth Allowance). [39]
While the Determination forms a useful basis for defining those courses
and institutions which should attract GST-free treatment, the Vos Committee
identified additional courses and institutions warranting GST-free treatment
(the ANTS legislation has been drafted accordingly):
- recognised kindergartens, pre-schools and primary schools;
- private-for-profit schools delivering curriculums recognised by the
relevant State/Territory Education Department;
- special education centres;
- These centres cater to the severely disabled and their prime focus
is on providing therapeutic assistance but they also offer some educational
instruction which might be either curriculum-based or preparatory to
schooling.
- Government and non-government centres are defined in Schedule 9
to the State Grants (Primary and Secondary Education Assistance)
Act 1996.
: Government centre means a place conducted by or on behalf of the
Government of a State at which special education is provided.
: Non-government centre means a place in a State that provides special
education, is conducted by a non-government body, is not conducted for
profit, and is not a school.
- Masters and Doctoral level courses and other post-graduate qualifications
from recognised universities; and
- English language courses for overseas students (for example, those
provided by ELICOS centres), or combination English language and other
courses for overseas students provided by an approved provider accredited
to provide English language courses to overseas students by the designated
State or Territory authority.
Overseas Students
Education services that are GST free to Australian citizens and residents
will be GST-free to overseas students studying in Australia.
Private tuition
The TCC considered the GST status of the services of private tutors,
pointing out that:
- private tutors are outside the “recognised education sector”;
- the government's intention was to tax such things as private sports
tuition or ballet or music lessons that are not necessarily curriculum
related; and
- it is practically difficult for a private provider of tuition to link
private tuition to a school curriculum.
The Government accepted the TCC recommendation that private tuition be
taxed unless the tutor is engaged by a recognised educational institution
to provide tuition on behalf of the institution.
Where private tutors, whose services are GST liable, are engaged by an
educational institution the institution will pay GST on the tutoring services,
but can claim input tax credits from the ATO, and GST should not be included
in any tuition charges to students. In practice many private tutors will
have few taxable inputs and those with incomes from tutoring below the
threshold ($50,000 a year) may choose not to register for GST purposes
and, therefore, not charge GST.
Courses in the Adult and Community Education sector that are provided
by State/Territory-recognised education organisations and accredited as
vocational educational education and training courses or higher education
courses will be GST-free.
Other Issues
Recreation, leisure, personal enrichment or “hobby” courses,
such as some of the courses offered in the Adult and Community Education
sector be subject to GST. Such courses are not included as GST-free under
the legislation.
Defining `tuition'
The Government accepted the Vos Committee recommendation that the GST-legislation
reflect the notion that `tuition' provided by an educational institution
extends to include any activity undertaken by the educational institution
which occurs during the delivery of a course and is directly related to
the curriculum. This would include goods and services (as listed below)
for which no GST would be payable, even if a separate charge is made in
respect of these:
- teaching the course;
- activities associated with the course, such as library and computer
access; and
- course materials such as photocopied educational materials, taped
lectures, lecture notes.
The Vos Committee also recommended that materials which are essentially
consumed as a part of the activity of undertaking an approved course of
study and which are integral to the teaching of that course of study should
be GST-free.
- Examples of such materials would be the provision of cooking ingredients
in a home economics class or the supply of wood in a manual arts course.
The Vos Committee considered a number of other related matters requiring
consideration. It recommended that activities associated with the following
be GST-free:
- the assessment and issuing of qualifications relating to the course;
- curriculum related field trips and excursions;
- This would apply to payments for primary and secondary school excursions
(including travel but excluding the food component) and to tertiary
excursions (excluding the food and short-term accommodation components).
Both must directly relate to the curriculum being undertaken.
: The Vos Committee rejected the notion that GST-free status not apply
to those field trips and excursions undertaken outside the school term
as many of these are in furtherance of the curriculum.
: However, again the Vos Committee was cognisant of the Government's
concern that activities not be GST-free simply because a school acts
as a purchasing agent. To this end, the Government should make clear
to schools that this is the intent of the policy, and should `non-educational'
activities be arranged, then GST is payable.
- compulsory administrative charges, including general service fees
(other than fees for membership to an association); and
- the assessment and issuing of qualifications by an organisation or
education institution that is registered by the relevant State or Territory
training recognition authority in accordance with the Australian Recognition
Framework to provide skill recognition (assessment only) services.
Research activity
Some concerns were raised that research activities undertaken within
a university may be subject to GST. However, the Prime Minister's letter
to the Australian Vice Chancellor's Committee of 24 September 1998
made it clear that such activities will be GST-free.
As the Vos report pointed out, typically such research is simply carried
out and there is no `supply' of this research to another agent for a `consideration'.
That is, the research is not sold to another party and therefore no GST
is payable. DETYA pointed out in their submission that:
Much of the research undertaken by universities is funded by grants
from outside bodies or from their own resources, and does not give rise
to a chargeable output. In such cases, there is no taxable supply, and
no GST is payable. Where research is undertaken as part of a commercial
transaction, it is subject to GST (including where a university contracts
to do research for a consideration) but the research purchaser would
normally be able to recover the GST paid on such contracts as an input
cost. [40]
The GST will only have a net impact when there is a sale to an unregistered
entity, which may include private individuals. Where a transaction occurs
between registered entities, then while GST is paid, it will simply be
a credit for the entity paying the GST-inclusive amount.
Compliance impact
In response to claims that the education sector could potentially have
additional compliance costs should institutions have a significant mix
of input-taxed, GST-free and taxable activities, DETYA responded in its
submission to the Committee that:
… modern business systems should moderate these costs, and education
providers will benefit from the fact that under a GST the tax paid at
all stages of production and distribution is recovered, whereas they
now pay embedded Wholesale Sales Tax.
The TCC recommended that the education sector have access to the Government's
$500 million GST “start-up fund” to address the administrative
impact on educational institutions of implementing the GST. The Treasurer
announced, on 2 December 1998, that the government had accepted this
recommendation. [41]
Commonwealth State financial arrangements and education services
Under current arrangements, the allocation of funding for government
schools and vocational education and training is undertaken by the States
and Territories. After the introduction of the new tax package the States
will continue to receive substantial support from the Commonwealth for
the provision of education and training. GST revenue will replace Financial
Assistance Grants (FAGs) and a range of inefficient State taxes. Because
it is estimated that GST revenue will grow at a faster rate than these
existing State revenues, there will be more money available to the States
and Territories for the delivery of services, including education and
training.
The Commonwealth also provides financial assistance to the States and
Territories for the specific purpose of assisting public schools to provide
a better education for their students. These are primarily the General
Recurrent Grants and the Capital Grants to the State governments referred
to as Special Purpose Payments (SPPs). The Commonwealth also provides
funds to the States and Territories, through the Australian National Training
Authority, to contribute to the provision of vocational education and
training.
The Government has announced that the Commonwealth will continue to provide
SPPs to the States and Territories, and has no intention of cutting aggregate
SPPs as part of the tax reform process; that would defeat the objective
of the States and Territories being better off under the new arrangements.
CONCLUSIONS
Employment
Overall the Government's tax package will lead to improvements in incentives
to employ and be employed.
The modelling evidence and forecasts by other respected economists, overwhelmingly
support the Government's view that the tax package will substantially
increase employment.
Even the generally pessimistic analysis by Professor Peter Dixon showed
that the most likely impact on employment in the short run would be an
increase of about 30 000 jobs.
Access Economics in their December 1998 AEM Model Forecast report say:
“The good news is that the tax cuts sweetening the GST are expected
to stimulate renewed job growth, perhaps sending unemployment down to
7% in 2001.”
and
“In the long run the impact of the tax package raises national
output by 2.5% and there is an additional 190 000 jobs.”
Looking at forecasts of unemployment, Access Economics has the unemployment
rate falling by 0.9 of a percentage point in 2000-2001 [42],
while Chris Murphy of Econtech has it falling by 0.6 of a percentage point
[43].
Education
The education sector does extremely well under the Government's tax reform
package, with the sector costs expected to fall by about $240m.
When the tax package was released in August last year it was outlined
that virtually all education would be GST-free, with the overall scope
to be subject to post-election consultation.
After the election, the Tax Consultative (Vos) Committee was established
and charged with the task of making recommendations on the appropriate
scope of four key GST-free areas, including education.
The Vos Committee reported on 13 November, commenting that
The Committee is satisfied that its recommendations in relation to
the application of a GST to educational services represent a comprehensive
and workable framework for the Government to implement its taxation
policy. [44]
The Government either accepted the Vos recommendations, or went further,
with more generous treatment for professional education for example.
Families will also be better off with the cost of many education related
items including computers and stationary, falling following the removal
of wholesale sales tax.
The tax package includes major reductions in family income-tax and a
compensation package for low income families, and substantial reforms
and improvements to the various forms of assistance provided to families
through the social security and income tax systems.
The education sector will benefit from a combination of falling costs
to the sector, a generous GST-free treatment, and increased real disposable
income for families as a result of personal income tax cuts and increased
government benefits.
The Government senators recommend that the ANTS package be passed
by the Senate without delay.
Senator Karen Synon
Deputy Chair
Senator Jeannie Ferris
Footnotes
[1] Hon Peter Reith MP, More Jobs, Better
Pay: The Federal Coalition's Workplace Relations Policy, September
1998, part D.
[2] Tax Reform: Not a New Tax, a New Tax
System (ANTS), Australian Government Publishing Service, Canberra
1998, p. 155.
[3] ibid., p. 7.
[4] ibid., p. 9.
[5] Dixon. P.B, and Rimmer, M.T, 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.
[6] David Johnson and Rosanna Scutella, “Long
term effects of the governments tax package”, Melbourne Institute
of Applied Economic and Social Research, 18 September 1998, p.1-2.
[7] Tourism Task Force submission to the Senate
Inquiry into the GST and A New Tax System, p22
[8] Carmody, G. Evidence to Select Committee.
Hansard 5 February 1999, p.799
[9] Dixon(1) and Rimmer, "The Government's
Tax Package: short-run implications for employment by industry, region,
occupation, age and gender", 22 March 1999, Section 6.1, p7.
[10] Dixon(3), P.B. and Rimmer, M.T "The
Government's Tax Package: analysis based on the MONASH model", paper
presented to the Forum for Modelling Australian Taxation, December 10
1998, Sydney.
[11] Evidence p.897
[12] ECONTECH, Murphy, C, Modelling a New
Tax System (ANTS) – Comparing Monash and MM303, report for the
Senate Select Committee on a New Tax System, 14 February 1999, p.21.
[13] Evidence p.768
[14] DEWRSB “Effects of the New Tax System
on Employment Services, Wages Costs and Employment”. Submission to
the Senate Select Committee, February 1999, p.4-5
[15] ibid. p.4
[16] Evidence, p.746
[17] Evidence, p.799
[18] Evidence, p.904
[19] Evidence, p. 608
[20] Evidence, p.25
[21] Evidence, p.278.
[22] ibid.
[23] ibid.
[24] ibid, p282.
[25] ibid.
[26] ibid.
[27] ibid, p280
[28] ibid.
[29] ibid.
[30] Printing Industries Association of Australia,
Submission No. 567, p. 2.
[31] ibid. p. 4.
[32] Evidence, p.280.
[33] ibid. p. 286.
[34] Department of Employment, Workplace Relations
and Small Business, Submission No. 1338, p. 2.
[35] Evidence, p.874.
[36] Department of Employment, Workplace Relations
and Small Business, op. cit., p. 3
[37] Evidence, p.875.
[38] Department of Employment, Workplace Relations
and Small Business, op. cit.
[39] The report of the Tax Consultative Committee,
p.49
[40] DETYA submission, 15 February 1999, p.4
[41] DETYA submission, 15 February 1999, p.6
[42] Access Economics, AEM Model Forecast
Report, 7 December 1998.
[43] ECONTECH, (Murphy Model MM2), Australian
Economic Outlook, 13 December 1998.
[44] The Report of the Tax Consultative Committee,
p.58