The Arts – Impact of the Tax Package

The Arts – Impact of the Tax Package


5.1 Submissions to the Committee identified a range of concerns about the impact of the new tax system on the arts and cultural industries. They included:

5.2 The projected impacts would affect different organisations or creators in varying ways, depending on the nature of their business, their artwork and their particular mix of costs and revenues. Evidence also suggested that these financial impacts would affect the nature of work produced and performed, along with its accessibility. Evidence was also submitted which suggested that, at its worst, the impact could cause the failure of some key arts companies. For the purposes of this report the potential impacts have been examined separately, although in practice they would combine to create a total impact on the arts business in question.

The New Tax System and Costs in the Arts


5.3 The impact of the tax package on arts costs is likely to occur through a combination of changes to taxation and market conditions. Submissions and evidence presented to the Committee strongly suggested that these changes would affect particular kinds of artists and arts organisations differently.

5.4 The Government has indicated that it will abolish Wholesale Sales Tax (WST) and nine other indirect taxes, including Financial Institutions Duty and a range of stamp duties. These will be replaced by a Goods and Services Tax levied at a flat rate of 10 per cent. The GST will apply to a range of business inputs used by the arts, including many which were exempt from, or which did not previously attract, WST. These payments of GST levied on inputs (termed `creditable acquisitions') can in turn be rebated if the artist or organisation is registered with the ATO for GST purposes. [1]

5.5 The Treasury estimates a general reduction in business input costs for the libraries, museums and arts sector of 1.9 per cent as a result of the removal of indirect taxes and their replacement with a 10 per cent GST. This compares with their estimate of the reduction of costs for the motion pictures, radio and television industry of 4.5 per cent. [2]

5.6 In its report to the Australia Council, KPMG suggested that where `libraries, museums and the arts' were competing for consumers with the `motion pictures, radio and television' and `sport, gambling and recreational services' sectors, they might be at a greater disadvantage as a result of reform than their competitors, particularly when `the higher estimated increase in prices for this sector, relative to the other industries' was taken into account. [3]

5.7 These relative price increases are estimated by Treasury at 7.7 per cent for libraries, museums and the arts; 5 per cent for motion pictures, radio and television services; and 0.9 per cent for sport, gambling and recreational services. The Australia Council commented that this relative disadvantage was `the third-highest estimated price increase [as a result of the new tax system], exceeded only by Tobacco Products and Government Administration'. [4]

From Wholesale Sales Taxes To GST

5.8 The Arts Industry Council of Victoria stated that the cost impact of a GST would depend largely on the extent to which an organisation's inputs were currently exempt from wholesale sales taxes (WST). They expressed concern that current sales tax exemptions would disappear with the abolition of WST, and that they would then be subject to the impact of 10 per cent GST on those inputs. [5]

5.9 Professor David Throsby stated that there are fewer offsets for arts and cultural organisations as result of the abolition of other taxes:

5.10 The National Theatre said that the abolition of WST and other government charges would be of no benefit, as they (and hundreds of other similar non-profit community organisations) were currently WST exempt, and also exempt from government bank charges:

5.11 Mr Robert Taylor, on behalf of the National Theatre, was also sceptical about the extent to which the arts might be able to take advantage of decreased costs to other sectors of the economy as a result of the abolition of sales taxes:

5.12 Mr Taylor did state that, uniquely, the National Theatre functions without government grants or subsidy, apart from the current tax exemptions available to them as a non-profit organisation. Any change in this situation, he said, would bring the Theatre's continued viability into question, particularly when combined with the impact of the price increases to the bulk of their services such as drama classes, music theatre, ballet and dance. However, he added that the Theatre was not asking for direct financial support, simply a continuation of the current exemptions or some alleviation of the price effects of the GST on their clients. Alternatively, he said, the Theatre pays $30,000 in payroll tax each year, and that if it `were lifted that would go a long way to solving part of our problems'. [9]

5.13 The draft legislation does provide for businesses to reclaim the GST paid on their inputs. Division 11 of the A New Tax System (Goods and Services Tax) Bill 1998 (the Bill) provides for the rebate of the full amount of GST paid by businesses on goods and services acquired for the purpose of `carrying out their enterprise'. [10]

5.14 While welcoming these available tax credits, witnesses raised the problem of the GST registration thresholds. Individuals or companies who are carrying on an enterprise are required to register for GST purposes if their annual turnover is $50,000 or more. For non-profit bodies, the registration threshold is $100,000. Below these amounts registration is not compulsory but can be applied for. If registered, GST must be charged on all sales, and GST paid on inputs can also be claimed. If unregistered, GST does not have to be charged on sales but cannot be reimbursed either. [11]

5.15 KPMG, for The Australia Council, suggested that for artists below the threshold registration would be beneficial if they provided goods and services to those who were themselves registered for GST, or if they make a high volume of tax inclusive purchases in the course of their work.

5.16 Artists who were not registered would be considered end-consumers for GST purposes and not eligible for input tax credits on the purchase of goods and services. KPMG estimates that `the costs of these purchases is likely to increase (except for any goods where the sales tax currently charged happens to exceed the GST rate to be imposed)'. They suggest that generally, `the cost of purchases (inputs) for individual (unregistered) artists may increase as a result in the increase in the price of outputs of other industries'. [12]

5.17 Many submissions pointed out that artists or organisations below the threshold face a dilemma: to claim GST paid on inputs requires them also to charge GST for their services. If these services are provided to final consumers, the 10 per cent would be passed on as an immediate, unrefundable price increase and thus change the conditions under which they were marketing their product or services.

5.18 NAVA observed that:

5.19 For individual artists to register for GST purposes would also force them to bear additional compliance costs in the tracking of expenditure and the submission of GST returns, in addition to the accounting loads they might already bear in preparing income tax returns. Compliance costs are discussed in more detail in the following section of this chapter.

5.20 Some witnesses, particularly those from non-profit organisations, also expressed concerns about the negative cashflow implications of the replacement of WST with GST. Walter and Turnbull, on behalf of the Australian Dance Council (Ausdance), stated that having to wait to submit quarterly returns would create serious cashflow problems, given that Ausdance's income was mainly in the form of grants, rather than cash received from sales. Thus, they could not balance GST paid on inputs against the GST received on sales as other businesses might. Given that Ausdance had previously been WST-exempt, the result would be a cashflow situation worse than that which existed under the sales tax regime. One alternative, the remittance of monthly GST returns, would involve additional compliance costs. [14]

5.21 Ms Delia Browne, Executive Director of The Arts Law Centre of Australia, raised definitional concerns about some artistic practices which the ATO might not define as being for the purposes of good and supply:

5.22 The Entertainment Industry Employers Association raised the input taxation of some financial services as a problem, given the heavy reliance by arts companies on such services in raising capital and sponsorship. They claimed that:

5.23 A reading of the Bill suggests that while such services would be subject to GST, they should also be able to be rebated as `creditable acquisitions'. This arises from the particular definitions of input-taxable `financial supplies' in the Bill. `Financial supplies' include the advancement of credit and dealings with money, accounts, securities, equities, unit trusts, futures, superannuation and life insurance, and exclude services such as advice, other insurance, legal, accounting, taxation and payroll.

5.24 Such services defined as `financial supplies' would not include GST in their sale price, while those excluded from the definition would attract GST but should also be rebatable. Thus where GST is paid on such inputs by arts organisations, the major implications arising should relate only to cash flows where advice or brokerage charges are significant.

5.25 The Printing Industries Association of Australia (PIAA) stated that it was broadly in support of tax reform, and endorsed the replacement of WST with GST, but appealed for the sales of books, magazines and newspapers to be GST-free so that the benefits of its removal could be fully realised. They cited Econtech modelling commissioned by them which suggested that such a step would increase the benefits to the printing industry from the new tax system by 3.4 per cent:

5.26 The PIAA told the Committee that Ireland, the UK and the USA have zero rates for books, and that the UK also exempts newspapers, journals, printed music, maps and charts. It also said that the imposition of GST on wastepaper collection and processing is likely to further reduce the viability of paper recycling. [18]

Compliance and Administration Costs

5.27 The Government has acknowledged that the shift to a GST-based taxation system would impose significant compliance costs on businesses. Business would be required to keep records of GST charged on sales and paid on inputs, and to remit regular returns to the ATO along with the monetary balance of GST levied on sales and rebatable on business inputs. With the aim of easing these burdens, the Government has delayed the introduction of the GST until July 2000 and has pledged `financial incentives of up to $500 million for small and medium sized businesses to upgrade their record keeping capacity through software and hardware, so that the start-up costs of a GST are minimised'. [19]

5.28 The Government expects that such compliance problems would only be transitory and that the fund would provide adequate support for businesses adjusting to the new system. The ANTS document says that businesses would be consulted through a `small business consultative committee' to `ensure that the financial incentives are targeted and delivered in the most effective way'. [20]

5.29 The Committee heard concerns about the compliance burden placed on individual artists. NAVA cited estimates that visual artists' median income in 1993 was between $17,000 and $18,000, with a quarter earning less than $10,000 a year from all sources. Most supplement their arts-related income from other forms of employment, including teaching. The Australia Council estimated the median gross income of artists (across all forms) to be $20,000, with writers and visual artists earning even less. [21]

5.30 Ms Tamara Winikoff, Executive Director of NAVA, suggested that compliance costs for individual artists would be relatively far greater than for larger organisations with `standard accounting packages and staff allocated to do that kind of compliance work':

5.31 The Australian Dance Council (Ausdance) underlined the precarious position of individual dancers, many of whom live under the poverty line: `While compensation may be adequate to cover any loss of income, we feel that the cost of compliance will be beyond most of them.' [23] Ausdance expressed particular concern over the administration load imposed on small businesses, such as studio teachers, which form a large part of the dance industry:

5.32 Other witnesses suggested that larger organisations might also have problems with compliance, given their unfamiliarity with taxation administration. Mr Stephen Adrian for the Entertainment Industry Employers Association, stated that: `Arts organisations are not geared to this kind of system and are relatively financially unprepared.' [25] Mr David Cox, Executive Officer of the Arts Industry Council of South Australia, told the Committee that:

5.33 Mr Cox also suggested that the $500 million earmarked by the Government for start-up assistance to small and medium-size businesses might not be adequate. He suggested that his organisation, Lee Warren and Dancers, would be `looking for some significant recurrent support for that extra burden through something like the Australia Council'. He also expressed fears that compliance costs would shift jobs from artistic product to administration. [27]

5.34 Mr Michael Lynch of the Sydney Opera House Trust expressed similar concerns about the performing arts sector:

5.35 The Arts Industry Council of Victoria stated that small arts businesses would face both initial, transitional compliance costs and ongoing compliance costs. They cited a 1988 OECD study, Taxing Consumption, which found that smaller firms have costs, in proportion to turnover, more than thirty times those of the largest. Initial costs included self education, new equipment and related professional advice. Ongoing costs would include the time taken with GST returns, record keeping and audit costs. [29]

5.36 The Australian Society of Authors (ASA) told the Committee that the compliance burden of the new tax system would reduce their ability to provide services to their members – writers who earn a median income of $2,000 a year from their work – as it would for many other non-profit arts organisations:

5.37 Concerns about compliance problems thus contributed to the calls by many organisations for further funding assistance, either through the Australia Council or other donors, or for the legislation to be amended to exempt non-profit organisations. The Arts Industry Council of South Australia was fearful that the additional compliance costs would require recurrent funding above and beyond the provisions of the Government's small/medium business package. NAVA and the Australian Writers Guild appealed for individual artists and non-profit arts organisations to be granted GST-free status for their arts-related practice, and for additional compensation. Michael Lynch suggested that while his own organisation might be able to deal with compliance costs, it had been unable to quantify them. Compliance was an `issue that the [broader performing arts] sector needs to give some attention to'. [31]

GST Groups as a Means of Easing Compliance Burdens

5.38 Witnesses were asked about possible ways of easing the compliance burden through the provisions in the draft legislation which provided for individuals who are members of an umbrella organisation to form into `GST groups'. Division 48 of the Bill provides for the formation of companies into GST groups, wherein they can be treated as a single entity for the claiming of input tax credits and GST adjustments, and in which one of their members will act as the `representative member' for the group. [32]

5.39 Section 48-10 (2) states that arts organisations or companies may be able to form GST groups if:

5.40 If arts organisations were able to satisfy this criteria, and their umbrella organisation were able to assume the bulk of compliance responsibilities, this option might provide some relief from the projected compliance costs of administering the GST, at the price of additional costs to the peak organisation. However, the requirements of Section 48-10 (2) would exclude many arts companies if they could not demonstrate that they are `non-profit bodies'. They would then also be likely to be excluded from the Section's provisions relating to ordinary companies, of which paragraph (1) sets out conditions for membership of a GST group as being that the company:

5.41 In any case, where the formation of a GST group is possible, additional compliance costs would still be borne in part by the branch organisation or member and substantially by the peak organisation who would act as the GST Group's `representative member'. Such costs would need to be calculated in relation to the possible other impacts of the new tax system on the peak organisation concerned.

The New Tax System and Arts Revenues


5.42 The Government has indicated its belief that for the new tax system to have optimal efficiency, it should apply to as broad a base as possible, with few exemptions. Those exemptions have been defined as health, educational and religious services, and charities. Thus, under the proposals, the 10 per cent rate of GST would be levied on all arts products and services sold by registered suppliers, with the exception of goods and services which are `input taxed' or GST-free. Artists whose income is less than $50,000 per annum would not be required to register, and thus their sales would be GST-free. However, they could register voluntarily, in which case GST would be levied on their sales, but they would be able to reclaim GST paid on inputs.

5.43 Non-profit arts organisations whose annual income is greater than $100,000, and artists or companies whose income is over $50,000, would be required to register. GST would be levied on their sales, including ticket sales, and on other activities such as courses, training and workshops.

5.44 Arts organisations expressed a range of concerns about the potential impact of the GST on their revenue base. Concerns which were mentioned by virtually all witnesses included:

5.45 The studies carried out by the Australian Major Performing Arts Group (AMPAG), and by Econtech for The Australia Council, suggest that the potential impact could be very grave, with sharp downturns in patronage for larger companies, and the viability of some being jeopardised.

5.46 Evidence based on previous studies by Professor Throsby also suggests that individual artists and creators would strike serious difficulties. The common factor here is the widespread view that arts and culture prices are highly inelastic, and that spending by consumers on arts and cultural activities is discretionary. Many witnesses thus expressed a fear that artists and companies would not be able to pass on the full amount of the GST without a corresponding fall in sales and revenue.

5.47 A further element constraining price increases would be the low and highly vulnerable incomes of many arts workers and trainees, who in turn are significant consumers of services, such as courses, workshops and performances, from arts organisations and companies. For youth arts organisations this was a particular concern.

5.48 The Treasury estimates that under the tax proposals prices across the 'Libraries, Museums and Arts' sector would rise by 7.7 per cent, in comparison with the estimated cost fall of 1.9 per cent and a general CPI increase of 1.9 per cent, and an economy-wide fall in industry costs of 3.2 per cent. [35] The Australia Council remarked that this was the third-highest estimated price increase after those projected for tobacco products and government administration. The Council's Executive Chair, Ms Margaret Seares, argued that:

5.49 Econtech modelling commissioned by the Australia Council further broke down the 'Libraries, Museums and The Arts' category into eight separate commodities. This enabled calculations for music and theatre productions, creative arts, sound recording studios, performing arts venues and services to the arts to be made independently. (The Treasury had included them with competing forms of entertainment such as gambling, sport and other forms of recreation.) Using its MM303 model, Econtech thus estimated a general price increase across the arts of 7.4 per cent, with the exception of creative arts where the price increase would be 6.6 per cent. [37]

5.50 Assuming a general increase in price across the arts of 7 per cent, Econtech calculated this would produce a fall in sales of between 10-12 per cent as `households switch some spending to other forms of entertainment such as sports, gambling, movies and electronic media, as well as to other areas of consumption unrelated to entertainment and recreation'. These competing areas would see smaller relative price increases of between one and five per cent. [38]

5.51 Econtech then modelled the impact of price changes onto consumer behaviour and thence onto sales. The results predicted dramatic falls of nine per cent ($26 million) for music and theatre productions, eight per cent ($24 million) for performing arts venues, and four per cent ($12 million) for creative arts. [39]

5.52 In submissions and evidence there was some disagreement as to the severity and longevity of these impacts, views which also influenced the recommendations made to the Committee by various groups. Some organisations, such as the Australia Council, thought the downturn would last for up to three years as consumers adjusted to the new environment and readjusted their spending patterns. The Council thus appealed for transitional funding to cover the projected loss in revenues and for further taxation reforms which would encourage sponsorship and other philanthropic activity towards the arts. [40]

5.53 Other submissions argued that the impact, though most severe in the first three years, would be more drawn out in nature and that organisations needed greater protection. They therefore appealed for various exemptions from the GST regime, most commonly for arts and cultural activities to be given GST-free status.

5.54 Witnesses were also asked to consider whether the projected increases in disposable incomes produced by the new tax system, coupled with compensation provisions for low income earners and pensioners, could mitigate the impact of potential price rises and thus soften or eliminate falls in patronage. These issues are discussed in more detail at the close of this chapter.

The GST, Arts Prices and Consumption

5.55 Estimates of the impact of the new tax system on arts revenues rest substantially on how the changes would affect prices and consumer behaviour, given that sales are the major component of arts revenues. Questions of accessibility, artist and company viability, and artistic content and development flow from these effects.

5.56 The Econtech modelling, when combined with the already parlous state of the performing arts sector, also suggests that the viability of a some companies is under threat – and with it crucial employment and artistic development opportunities – if the new tax system is implemented unchanged.

5.57 A number of organisations presented evidence that arts prices are highly inelastic, that is, existing sales volumes were unlikely to be maintained as prices increased. The main reason for this was that arts spending is highly discretionary on the part of consumers, and would quite easily flow to other sectors of entertainment and recreation or other discretionary consumer goods. In an environment marked by major tax and price changes, and unpredictable impacts on incomes and perceived incomes, it is assumed that consumers would exhibit caution, particularly in discretionary spending, and that relative price increases would also redirect consumer spending.

5.58 The Australian Major Performing Arts Group (AMPAG), in its model of the impact of the new tax system on the performing arts, assumed a 50 per cent (0.5) elasticity in the first year (a 10 per cent price rise causing a 5 per cent fall in sales). Taking into account the relatively lower price falls faced by competing entertainment sectors and other areas of the economy more generally, the MM303 model used by Econtech produces even higher elasticities, well over 100 per cent, with a 7 per cent increase in prices producing between 10 and 12 per cent falls in demand. [41]

5.59 The Australia Council stated it that had evidence to demonstrate the poor price elasticity which existed in the arts market:

5.60 AMPAG Chairman Mr Rowan Ross stated that while it was difficult to calculate price inelasticity in the arts market exactly, they did `have evidence to suggest that it is high, anything up to 100 per cent':

5.61 Ms Fran Bryson submitted international evidence, from Canada and Finland, of the impact on book sales of the introduction of a value added tax. This evidence suggested that the price elasticity of books was between 1.0 and 2.5, thus producing sales falls of between one and two-and-a-half times the rate of GST imposed. This situation, she suggested, would be compounded by the loss of WST exemptions which would be experienced in Australia. She also said that Finland had since reduced its tax rates on books and planned to remove them entirely, while Canada had kept the tax rate steady for books while increasing it for other goods. [44]

Individual Artists and Small Arts Businesses

5.62 Many kinds of arts and cultural workers fall under the category of the individual artist, whose business model corresponds to that of a contractor or sole trader. They include writers across a variety of forms, visual artists, dancers, actors, and many others. The Arts Law Centre, using Australian Bureau of Statistics (ABS) data, estimated that the average annual income of artists was $20,000, with the median incomes in 1992-93 of dancers being $12,400, visual artists $17,000, writers $18,500 and actors $18,000. [45]

5.63 Professor Throsby, on behalf of NAVA, stated that `professional practising artists enjoy, if that is the right word, extremely low incomes':

5.64 Ms Tamara Winikoff explained to the Committee that visual artists were particularly vulnerable because they were:

5.65 She suggested that there was a great deal of uncertainty about how price increases due to the imposition of GST would be handled by the commercial gallery sector:

5.66 Ms Winikoff also pointed to the way in which artists would be disadvantaged by the anomalous situation which arises when artists works are sold a second or third time, which would in turn put pressure on first sales:

5.67 When considering the possibility of price increases affecting the livelihood of artists, the registration dilemma reappears. An artist below the $50,000 threshold might choose to register in order to claim GST rebates on inputs, but would then face the risk of their work being more difficult to sell because the market cannot absorb the increase in price. In such a case, they might simply have to absorb the GST themselves to preserve sales, or deregister and be unable to reclaim the GST they have paid on inputs.

5.68 The Committee believes that a further dilemma occurs here because, whether or not the artist had chosen to register for GST, if a gallery sold their work the ATO might levy GST on the sale on the assumption that the gallery was the seller. Neither artist nor gallery would then be able to avoid the price effect of the GST. The Committee believes that further clarification should be sought from the ATO as to how these cases would be treated.

5.69 Ms Fran Bryson pointed out that if a ten per cent GST were levied on books, the Commonwealth would make more from the sale of the book than its creator; writers currently receive only ten per cent of the recommended retail price, an amount which is in turn reduced with the effect of income tax. She suggested that the provisions for the rebate of GST paid on inputs would be of no benefit to writers whose greatest input is their own labour, often at the opportunity cost of other income. She suggested that one impact of the GST would be that writers could be forced to give up their work in order to earn income elsewhere. [50]

5.70 Ms Jane Haley, President of the Arts Industry Council of Victoria, acknowledged that Treasury estimates suggest that individual artists would receive benefits from changes to income tax thresholds and marginal rates. However, she said that:

5.71 Another concern expressed by NAVA related to the impact of GST levied on the copyright sales of artists work. While registered artists and registered buyers of copyright might be able to reclaim the GST paid on inputs as a partial offset, there was still concern about the negative price effects and the weak bargaining position of individual artists in that situation:

5.72 Non-profit organisations, such as the Australian Society of Authors, Ausdance, the Arts Law Centre and Backbone Youth Arts reminded the Committee that artists, many of whom were on low incomes, would be further disadvantaged if the non-profit sector were forced to increase their charges.

5.73 Backbone Youth Arts pointed out that access to arts and cultural experiences was particularly difficult for those already disadvantaged as consumers. Youth in particular had significantly lower incomes than other sectors of the community due to high rates of youth unemployment, their involvement in education and the lower wages paid to young people. Those with special needs, such as the intellectually disabled, were particularly disadvantaged:

5.74 Backbone Youth Arts and Ausdance also expressed concern that their members would be disadvantaged by the anomalous status of the education and training that non-profit arts organisations carried out. In particular, they fear that these courses would be subject to GST. There is a lack of clarity in the legislation as to the status of the education and training performed by arts organisations and tutors. The Tax Consultative Committee recommended that `private tuition' be taxed, while the Bill states that GST-free status is restricted to tertiary or professional trade courses which are carried out by either an institution recognised in the Student Assistance Act 1973 or which are an essential prerequisite for entry to a profession or trade. [54]

5.75 These definitions mean that the status of much arts training remains ambiguous, even if, as Backbone Youth Arts point out, `the dynamics of the arts industry are such that most arts and cultural sector training occurs outside formal education and training processes'. [55]

The Book Industry

5.76 If the overseas experience with the price elasticity of books were repeated in Australia, the book industry would be likely to suffer a significant downturn, of at least five per cent, and quite possibly between ten and twenty per cent. Using the Treasury's own PRISMOD model, the Australian Publishers Association estimated a minimum fall in demand of 4 per cent, which would `have adverse effects for the industry, including a potential reduction in profits and reduction in employment'. [56]

5.77 The Australian Publishers Association, the University Co-operative Bookshop and the Australian Society of Authors have all drawn the Committee's attention to the anomaly in which sales of books to educational institutions would be classified as GST free, while those to students or their parents would be liable to GST. The APA stated that 62 per cent of books purchased for educational purposes ($210 million) are sold to parents or students, rather than to institutions. [57]

Performing Arts Companies

5.78 The impact of the new tax system will come at a time when the major performing arts are acknowledged to be in a parlous state. With its announcement of the Nugent Inquiry, the Government has acknowledged the need to explore strategies that will deliver renewed creative vitality and growth to the sector. The Australia Council's Major Organisations Fund report, Managing The Future, found that the sector had suffered losses of $12 million over the previous four years. In this context AMPAG told the Committee that the impact of the GST would come at a time when the financial reserves of many major organisations were extremely low. [58]

5.79 Further evidence of the tightening nature of the arts market was provided by the recent announcement that Cameron Mackintosh, the producer of musicals such as Rent, Les Miserables and Phantom of the Opera, will close its Sydney offices at the end of 1999, retrenching 23 staff. Mackintosh was quoted as saying that he would still mount productions in Australia, but in the form of co-productions with organisations like The Sydney Theatre Company or Opera Australia. These would not begin until 2001 at the earliest. Andrew Lloyd Webber's Really Useful Company has also scaled down its production business since the early closure of Sunset Boulevard in late 1997. The MEAA's Michel Hryce was quoted as saying that Mackintosh was instrumental in promoting local talent and building a local star system:

5.80 The Entertainment Industry Employers Association told the Committee that the entertainment industry was currently suffering a `marked downturn in sales and production':

5.81 Views about the impact of the new tax system on performing arts companies were put by a range of witnesses; in particular, the Australia Council, AMPAG and Company B Belvoir Street presented the Committee with detailed modelling which projected the monetary impact of the changes on both particular companies and on the sector as a whole.

5.82 AMPAG has members drawn from the 25 major performing arts companies in Australia, listed below. [61] AMPAG conducted a study to quantify the impact of the new tax system by using a sample group of seven companies including the Sydney Symphony Orchestra, Opera Australia, The Australian Ballet, Bell Shakespeare Company, Musica Viva, Sydney Dance Company and The Sydney Theatre Company. Each company provided an annual financial profile against which the impact of the GST could be estimated. The submission explained that while `this sample group is primarily Sydney based the effects would be felt nationwide, with those companies based in smaller markets likely to experience an even greater negative impact'. [62]

5.83 The initial model assumed a fifty per cent price elasticity (that prices would rise by ten per cent and sales fall by five per cent), with no fall in sponsorship. Results which assumed a ten and fifteen per cent fall in sales were also calculated, along with figures which combined those falls in sales with a five per cent fall in sponsorship. [63]

5.84 The results of the more conservative model predicted that a five per cent fall in sales, with no fall in sponsorship, would produce a $3.4 million loss across the seven companies in the first year. The effect would be to push two more performing arts companies into deficit, which when added to the two currently in deficit, would leave only three in surplus. A ten per cent fall in ticket sales (as predicted by Econtech) would produce a $6.4 million loss across the seven companies, leaving only one marginally in surplus. A fifteen per cent fall in ticket sales would increase the loss to $9.1 million, leaving six companies in deficit and one at break even. [64]

5.85 When those three results were combined with a five per cent fall in sponsorship, the losses became $4 million, $6.9 million and $9.6 million respectively. This, added to a ten per cent fall in ticket sales, would produce a situation in which all companies would slip into deficit:

5.86 In a supplementary submission to the Committee, AMPAG released further results of the study, now extended to 22 of the 25 companies they represented. At the time of the study only eleven of the 22 companies were in surplus. Assuming no falls in sponsorship, a five per cent fall in sales would cause of loss of $7.1 million and force fourteen companies into deficit; a ten per cent fall in sales would see a $14.1 million loss and eighteen companies going into deficit; and a fifteen per cent fall see a loss of $21.1 million. When a five per cent fall in sales was combined with a five per cent fall in sponsorship the losses increased to $8.1 million (fifteen in deficit), and when added to a ten per cent fall in sales, the losses were $15.2 million (eighteen in deficit). [66] A chart summarising these results is included as Appendix 4. After presenting the Committee with these figures, Mr Ross commented that:

5.87 The Econtech study conducted for the Australia Council included an analysis of the impact of price changes across the performing arts sector as a whole. Econtech's model, having built in the likely movement of consumers to competing entertainment and consumption goods which would enjoy lower price increases, produced price elasticities for the performing arts of well over 100 per cent. Thus Econtech's projected price increase of 7.4 per cent from the package would produce a twelve per cent fall in sales each for performing arts venues and music and theatre productions. [68]

5.88 These results were then mapped into projected falls in production. Econtech predicted that music and theatre productions would fall by nine per cent ($26 million), and performing arts venues would experience a fall of eight per cent ($24 million). Related figures were falls of four per cent ($12 million) for the creative arts, and of one per cent ($1 million) for services to the arts. [69]

5.89 Company B Belvoir Street Theatre, which manages (but does not own) the Belvoir Street Sydney venue, and also runs a successful independent theatre production company, submitted an analysis of the impact of the GST on their operations using their 1999 budget as a template. The Company estimated that if it were forced to increase ticket prices by five per cent, its box office income would fall by $56,571, and if its ticket prices increased by 7.5 per cent (in line with the Econtech estimates) box office would fall by $28,286. These figures were totals of the amount of GST the company would have to absorb (five per cent and 2.5 per cent) given that low price elasticities would prevent them passing on the full amount of the tax to subscribers. [70]

5.90 Using Treasury's general estimates of a cost fall for the arts of 1.9 per cent Company B estimated its net loss on its subscription season would be $18,000 annually. Modelling the impact of the GST across its operations, Company B estimated a net loss of $16,200 for the financial year, excluding GST liable on asset purchases ($8,700):

5.91 Witnesses from the performing arts were also asked to consider factors which might mitigate the impact of the package. These included the rising real incomes of many Australians over the past few years and the compensation measures contained in the package, such as pension and social security increases and cuts to income tax rates. While accepting these points, witnesses replied that the gravity of the situation facing the performing arts would overwhelm these positive effects. [72]

5.92 Mr Michael Lynch of The Sydney Opera House Trust and AMPAG's Mr Duncan Peppercorn suggested that a price increase across the sector of 7.4 per cent, four times that estimated by the Treasury for the whole economy, went well beyond the Government's provisions for compensation, which are based on the lower figure. Mr Derek Watt, General Manager of Symphony Australia, suggested that the demonstrated price sensitivity in the sector prevented companies from passing on increased costs or maintaining sales levels with large price increases. [73]

5.93 Mr Lynch argued that this price sensitivity would prevent the performing arts from taking advantage of any increases in disposable incomes:

5.94 In response to questioning which asserted that the sector had prospered in the face of a general pattern of price increases over the past twenty-five years, Mr Watt pointed to the parlous position of the performing arts, which sees eleven of AMPAG's twenty-five members currently in deficit. Mr Rowan Ross, AMPAG Chair, pointed out that the sector was now showing a consistent pattern of losses:

Non-Profit Arts Organisations

5.95 The GST also has revenue (and access) implications for non-profit arts organisations and their clients.

5.96 Ausdance submitted that having to charge GST on their memberships would disadvantage members who already earned low incomes. A further concern was the impact on members and dancers of any increase in prices for Ausdance services. Ausdance's Executive Officer, Ms Julie Dyson, told the Committee that few would be GST registered, and thus could not reclaim any amounts of GST paid for the services of a non-profit organisation such as Ausdance:

5.97 Ms Dyson also told the Committee that while membership fees paid to Ausdance by major companies might be able to be rebated, its state branches, which are very dependent on membership fees, would probably not be able to pass on price increases to their members and would be forced to absorb them. [77]

5.98 Backbone Youth Arts also expressed fears that, if they registered for GST purposes they would be out of pocket some $1,600, the difference between the GST paid on inputs and GST collected on sales. However, Section 35-1 of the Bill appears to state that the Tax Commissioner must rebate all the GST tax paid on creditable acquisitions and that if that amount exceeds the GST collected on sales, the difference must be refunded. While the company's concern can be largely allayed, they would suffer cashflow difficulties while waiting for refunds. They stated that the $1,600 would cover the salaries of two young arts workers in a project. [78]

5.99 The Arts Law Centre told the Committee that given that its annual turnover exceeded the $100,000 threshold, it would be required to register and charge GST on its services. These include subscriptions, publications, and a lecture and seminar program. While they provided legal advice free in many cases:


5.100 Corporate and other sponsorship of the arts takes the form of donations, in-kind sponsorship (in which goods or services are provided in lieu of funds), and sponsorship in exchange for consideration, such as naming rights, tickets and entertainment. Donations would not be subject to GST, but most other forms of sponsorship would be. The General Manager of Cameron Mackintosh, Mr Matthew Dalco, told the Committee that in-kind sponsorship such as advertising, air travel and accommodation, was also a grey area which needed clarification. [80]

5.101 The Australia Council told the Committee that eleven per cent of Australian Companies give $65 million to the arts:

5.102 The Council said that most of the major companies, to whom sponsorship is an important source of revenue, have:

5.103 Mr David Andrew, from the Arts Industry Council of South Australia, expressed concern about the current ability of companies in smaller cities to attract corporate sponsorship, independent of any impact the new tax system might have. In Adelaide, in particular, he cited the movement of head offices interstate and the coming Sydney 2000 Olympic Games as factors making sponsorship funds less available. [83]

5.104 Ms Tamara Winikoff suggested that sponsorships volumes could fall by the proportion of GST levied on them:

5.105 Many sponsors would be able to reclaim the GST paid on sponsorships by way of input tax credits. However, companies which provide `financial supplies' which are input-taxed might not be able to reclaim the GST paid on sponsorships. KPMG suggests that this would be the case where `the sponsorship is an expense connected with their financial services activity'. [85]

5.106 The Bill's definitions of financial supplies, which provides, for instance, that money-handling and credit are input-taxed while advice and brokerage is not, clearly creates some grey areas when it comes to determining the extent to which input tax credits could be claimed in relation to GST paid on sponsorship by financial service providers. KPMG suggests that a merchant bank (which provides most of its services offshore) would be able to obtain input tax credits for the GST paid, whereas a retail bank would not, and `may be less willing to increase its sponsorship by the value of the GST':

5.107 As creative as such approaches might be, they would depend entirely on how the ATO felt it was bound to interpret the provisions of the Act, and how it would view the strategies KPMG suggests. Further complexity is provided by the way in which section 40-5 of the Bill distinguishes certain financial supplies from other services provided by financial institutions. In any case, the Bill provides that most core retail banking services, including life insurance and superannuation, would be input-taxed. [87]

5.108 The Committee feels that there are real grounds for concern about the impact of the new tax system on corporate sponsorship, especially given the dependence of many companies on it for revenue, but believes that further information is required to assess the impact properly. Clarification is needed from the ATO as to how it would seek to apply the legislation to corporate sponsorship by financial service providers. When this becomes clear the impact can be estimated using current sponsorship revenues as a base and through further canvassing of sponsors. If a third of the sponsorship dollars to the arts are provided by financial institutions, as the Australia Council estimates, the impact could be substantial.


5.109 The Government has stated that grants, including grants to arts organisations, would be GST-free. However the Committee heard a great deal of concern that the draft legislation is unclear on the matter. [88] The Australia Council submitted that it was open to interpretation whether the ATO would classify grants as `gifts' (which are GST-free) or a `taxable supply' which `is made for consideration…in the course or furtherance of an enterprise'. Many witnesses pointed out that the increasing exchange of grants for performance agreements and services could make grants classifiable as taxable supplies. It might well be that this issue hinges on an interpretation of whether the donor organisation is classified as `carrying on an enterprise'. The Committee feels that this still leaves the status of grants highly ambiguous and supports the Council's call:

5.110 A problem with the draft legislation, for example in the area of GST groups, is its failure to allow for the unique nature of arts businesses and revenues. In the Committee's view any clarification of the legislation should involve consultation between the arts community, the Government, the ATO and DOCITA to clarify how grants to arts organisations can be most effectively defined in legislation so as to protect their GST-free status.

Overall Impacts Of The Tax Package On The Arts


5.111 This chapter has sought to understand the potential impact of the new tax system on the arts by assessing at its impact on costs and revenues, with specific focus on the particular impacts likely to be felt by individual artists, companies and non-profit arts organisations. This section of the chapter attempts to aggregate those core financial impacts, while suggesting their broader ramifications for employment, artist development and the quality of Australia's arts and cultural life.

5.112 The proposed new tax system would impact significantly on an arts sector which currently faces difficult circumstances. Individual artists still suffer very low incomes, the performing arts face the difficulties associated with a tightening market, and non-profit organisations face a difficult transition from a system in which they have enjoyed extensive tax exemptions.

5.113 It is clear that to implement their responsibilities for GST accounting, reporting and compliance would load the arts with significant costs. The small size of arts businesses, unfamiliarity with sales tax accounting and a focus on production rather than administration has meant that many artists and arts organisations would be poorly prepared for the transition to the GST-based system. Non-profit organisations who often rely on volunteers or whom employ few staff would be particularly disadvantaged.

5.114 Serious questions have been raised about the adequacy of the Government's measures to ease this burden. Arts organisations would be prevented by the legislation from forming GST-groups to pool resources, while it remains to be seen whether the $500 million set aside by Government for small to medium sized businesses would be enough, or whether the solutions provided and the administration of the program would be adequate to the task. In its submission to the Select Committee Arthur Anderson argued that:

5.115 Added to the compliance burdens would be the negative impact of the GST on revenues, which would impact as the much higher price rises experienced by the arts, compared to those predicted for competing entertainments and other parts of the economy, flow through as a competitive disadvantage and falling sales. Where these impacts have already been modelled, for the performing arts, the impact is likely to be disastrous.

Individual Artists

5.116 Citing the very low incomes of individual artists, many witnesses have demonstrated the enormous costs that compliance would load onto a crucial sector of the arts economy. While their actual incomes might be small, their significance as a creative engine for the whole sector, and more broadly the nation, is considerable. As David Throsby and Beverley Thompson noted in their 1993 economic study of individual artists, So What Do You Do For A Living?:

5.117 With the abolition of WST and the imposition of GST (rebatable on inputs), individual artists would be struck by the registration dilemma, which NAVA accurately described as a `catch-22': registering would allow them to reclaim GST paid on expenses, yet expose them to a possible fall in sales; while not registering would protect them from the backlash of a tight market, yet load them with ten per cent higher costs in materials and other production-related expenses. The Committee feels that this raises some important questions:

5.118 The Committee feels that these anomalies are a product of the failure to consult adequately with the arts and cultural community. The assumptions in the draft legislation of generic models of business activity have thus failed to account for the unique nature of arts businesses and their economic circumstances.

5.119 Witnesses also identified the increased cost and administrative burdens that accounting and compliance would produce for individual artists. The Committee was told of their very low incomes, and of the far greater relative costs of compliance for individuals as compared to better resourced larger organisations. It is unclear whether resources from the $500 million small business fund would be available to individual artists, and whether this would be adequate to cover the complexities introduced by the new system. An Australia Council study of individual artists found in 1994 that 18 per cent of artists had reported difficulties with the current system.

5.120 A number of witnesses, including the Arts Law Centre and NAVA, also expressed concerns that the current provision for the averaging of income tax over a number of years for artists would disappear with the new system. They stated that inquiries to the Government and the ATO had not enabled them to clarify the situation. [92]

5.121 The evidence presented to the Committee suggested that a combination of increased market pressures and higher administrative costs would see a worsening of the position of individual artists. The fragility of artists' incomes certainly suggests that there is little room to absorb a negative impact. However, there is virtually no detailed financial analysis available to quantify reliably these potential impacts.

5.122 The Committee feels that rather than being a cause for complacency, this suggests an urgent need to gather information about how individual artists would be affected by the new tax system. Despite being crucial to the growth and vitality of the whole sector, the circumstances of individual artists would only be dealt with in passing by efforts like the Nugent Inquiry into the Major Performing Arts. The Committee feels that this should be an important priority if the Government's own cultural policy objectives in the support and encouragement of emerging artists are not to be unwittingly damaged.

Arts Companies

5.123 While arts companies were not likely to suffer the same compliance burdens as individual artists, some witnesses claimed that the new system would present them with cashflow problems. This was of particular concern in the performing arts, where GST on ticket sales could be liable for payment before the funds from those sales were released to the production company. [93]

5.124 The performing arts, in particular, are likely to be seriously damaged by the price impacts of the new tax system. Treasury figures for `libraries, museums and the arts' predict a 7.7 per cent price increase, well over the general CPI estimate of 2.2 per cent, while Econtech predicts a 7.4 per cent price increase. Assuming a shift of consumption to competing areas of entertainment and other consumer goods, Econtech predicts a massive fall in sales of between ten and twelve per cent across the sector, which would produce production falls of $26 million in music and theatre productions, $24 million in performing arts venues, and $5 million in libraries, museums and art galleries. [94]

5.125 AMPAG's study, which used the recent balance sheets of its own companies, allowed the Committee to estimate the real impact of the dramatic falls in sales that Econtech predicts. AMPAG suggested that a ten per cent fall in sales across 22 of the 25 major companies in Australia, with no fall in sponsorship, would see a $14.1 million loss and eighteen of those companies slip into deficit. However if a third of all sponsorship dollars flow from the financial sector, as the Australia Council estimates, sponsorship might well be affected also. AMPAG's estimate of a five per cent fall in sponsorship (which is only half the rate of GST but allows for the impact being restricted to a third of the sponsorship revenue) predicts the loss in sales rising to $15.2 million. [95]

5.126 AMPAG suggested that these limited impacts could see between six and eight of their member companies facing bankruptcy. Their estimates of price increases and revenue falls are supported by Econtech's analysis, which in turn predicts losses across the performing arts of $50 million. Even if the real figure after the system's implementation was only half this, it would provoke an enormous contraction across the sector and see a number of major company failures, with devastating losses of employment, training, diversity and morale.

5.127 The Committee believes the figures revealed by the AMPAG and Econtech studies are extremely disturbing, predicting far worse impacts than have already been experienced by the performing arts. The gravity of the situation can be seen by comparing the projected $50 million losses to the sector to the four-year losses of $12 million uncovered by the Australia's Council's Major Organisations Fund and which led to the establishment of the Nugent Inquiry. Coming on the already fragile position of many arts companies, tightening market conditions and competition for sponsorship, they present compelling evidence for the tax package to be altered, or at the very least, for increased funding to allow the arts to survive the transition to a value added tax based system.

Non Profit Arts Organisations

5.128 Evidence to the Committee showed that under the Government's tax proposals, non-profit arts organisations would experience difficulties both in their own operations and in maintaining previous levels of service to their clients. The smaller organisations expressed concern that they would be ill equipped to cope with new administrative burdens and complexities, while others have said that they would expect to make few gains from the transition to a GST given that they already enjoyed many WST exemptions.

5.129 Under the proposed tax reforms, however, in order to reclaim GST paid on inputs those organisations would be forced to register with the ATO and charge GST on their sales and services. This would present them with cashflow problems and also threaten the level of service they could give to clients. Organisations such as Ausdance and Backbone Youth Arts emphasised that the low incomes of their clients prevented them from passing on price increases.

5.130 The Committee believes there are compelling reasons to protect non-profit arts organisations from changes to the tax system which would disadvantage them. Rather than continuing the advantages they had enjoyed by remaining sales tax exempt, the threshold arrangements in the draft legislation threaten to remove those exemptions entirely unless they are willing to levy GST on their services. In that case either the organisation or its clientele would be in a worse position than previously, an outcome which appears to be counter to the Government's declared intentions in introducing the broader changes to the tax system.

Artistic Content

5.131 The Committee received evidence that any negative impacts from the transition to the new tax system would also affect the nature of artistic work. While it can be appreciated that an aggregate fall in production would result in fewer productions, witnesses suggested that diversity and innovation could also be a casualty. AMPAG Chair Mr Rowan Ross suggested that:

5.132 Ms Teresa Crea, the Artistic Director of the South Australian theatre company Doppio Parallelo, also expressed fears that financial pressures would erode their ability to innovate:

5.133 The Australia Council also stated that new artists and innovation were important to the health of the whole sector, with their Director of Strategy and Policy, Ms Sarah Gardner, stating that:


5.134 The AMPAG and Econtech studies of the performing arts, which predict such dramatic falls in production, suggest that one result of the introduction of the new tax system in its present form would be substantial falls in employment in the arts.

5.135 Econtech, using its MM303 analysis, predicts that `job shifting between sectors' as a result of the tax changes would see a loss of 7,800 jobs in `cultural and recreational services'. This loss would include 2,500 jobs from `libraries, museums and the arts' and, within that, 800 jobs in music and theatre productions and 400 in creative arts. [99]

5.136 Backbone Youth Arts suggested that the loss of employment opportunities would have broader ramifications:

5.137 Backbone suggested that such impacts would then prejudice the important role the arts can play in community development:

5.138 The Committee believes that dramatic falls in employment would do substantial long-term damage to the skills base, creative resources and diversity of the arts. They would come at a time when the numbers entering arts training is at an all time high, destroying morale and laying the seeds for a longer-term skills shortage as arts training falters. As new opportunities dry up, that most important part of the arts process, its creative development, would also falter. This would cut directly across the Government's declared aim to encourage emerging artists and thwart the Australia Council's own efforts in this area.

5.139 Even if those jobs were simply transferred to other sectors of the economy, the long-term damage to the arts, in its financial strength, creative vitality and pool of expertise, could take many years to reverse. In this sense, the arts can ill-afford to suffer the effects of even a three-year period of transition unsupported.

5.140 Such a weakening of the arts would have further ripple effects on the support the arts provides for our economy, our cultural life and our international image. Tourism, arts-related support industries, publishing, advertising, broadcasting and media would all suffer, through falls in activity and the loss of expertise, talent and high quality cultural content.

Positive Impacts

5.141 During hearings, witnesses were asked to consider whether elements of the new tax system, and other economic factors, might soften or assuage their concerns about its impact on the arts. These included a general pattern of rising real incomes in Australia over the past thirty years, compensation measures in the ANTS package such as increases to pensions and benefits, and sweeping cuts to income taxes.

5.142 The Department of Communications, Information Technology and the Arts also suggested to the Committee that general business costs would be reduced by over three per cent as the result of the abolition of WST and other indirect taxes, and that income tax cuts of over $13 billion would provide consumers `with greater disposable income to counter-balance the effect of any one-off price increase'. [102]

5.143 The Committee endorses the views expressed by many witnesses that the gravity of the problems facing the arts would overwhelm these more positive elements of the proposals. Of particular note here are the demonstrated price sensitivities in the sector, the highly discretionary and mobile nature of entertainment spending, and the very low reserves of many companies.

5.144 Witnesses pointed out that the price increases predicted for the arts, of 7.4 per cent, are almost four times the estimated CPI increase, and are greater than those expected for competing areas of entertainment expenditure and other discretionary consumer goods. Increases on this scale far exceed the provisions of compensation (which are based on the lower CPI figure) and create further access barriers to the arts for low income consumers and artists.

5.145 Similarly, the design of the tax system would deny to the arts many of the positive effects of the new system which would be available to other sectors of the economy. Many artists and arts organisations could not take advantage of the cuts to wholesale sales taxes because they currently enjoy exemptions. Under the new system, however, they would either lose WST exemptions entirely or suffer sales losses due to unsustainable price increases on their services.

5.146 The wording of the draft legislation also denies arts organisations measures available to others to reduce the costs of compliance, such as GST Groups, while the effect of the threshold provisions would be to trap artists and small organisations in a catch-22. Corporate sponsorship from financial services providers, which the Australia Council estimates to be 32 per cent of the total, would also be placed under pressure because of the anomalous effects produced by the input-taxation of those companies' services.

5.147 The Committee believes that there are many negative consequences of the new tax system on the arts which arise because of its design using generic business models, many of which are not applicable to the arts, and projections across the whole of the economy. In part, these problems have occurred because of a failure to consult adequately with the arts community during the design phase of the new system. The very parlous nature of artists incomes, the fragile state of the performing arts, the very tight markets for arts production, and the inability of the arts to benefit from major changes such as the abolition of WST, mean that the overall impact would be far more damaging than might otherwise have been the case.

Solving the Problem – Strategies

5.148 The Committee believes that it is important that the potential impact on the new tax system on the arts be considered in relation to the Government's broader cultural policy objectives, which most in the arts and the broader Australian community share. Professor David Throsby has argued that the GST proposals `will change the relative economic environment in which the arts and cultural industries operate' and that it `upsets the balance of the delivery of cultural policy in Australia. A conflict is raised between the assertion of economic policy and the assertion of cultural policy':

5.149 Mr James Giles, Chair of the Arts Industry Council of South Australia, told the Committee that `the tax system is a powerful tool for transmitting social values. The current wholesales sales tax system recognises that certain goods and services are essential to a civilised and educated society.' [104]

5.150 Many submitters, including the National Association of Visual Arts, Backbone Youth Arts and The Arts Law Centre of Australia, recommended that the arts and cultural industries be granted GST-free status to preserve them from the adverse impact of the new tax system. `GST-free' is the term used in the draft legislation to denote goods on which GST is levied, but at a rate of 0 per cent (often referred to as zero-rating). [105] Other witnesses, notably the Australia Council, have not called for GST-free status but for increased funding from the federal government to cover the estimated losses which would be caused by the implementation of the tax package.

5.151 In assessing these recommendations, and framing its own, the Committee has attempted to balance a series of objectives. It wishes to preserve the arts as much as possible from any adverse impact, particularly given the fragile nature of artists' incomes, the very parlous state of the performing arts, and the unprecedented growth in arts training. While acknowledging the principles of economic efficiency in the design of the tax system, it also regards efficiency in the delivery of cultural policy as an important objective.

5.152 Where arts industries suffer effects different from those intended for other parts of the economy, the legislation should be amended. Efforts to promote a reconciliation of widely accepted economic and cultural policy objectives are here preferred to theoretical neatness in the design of the taxation system. It seems palpably unfair that the arts should be unwittingly denied the extra growth and incentive which the Government intends to flow to other sectors of the economy.

5.153 An approach which acknowledges the diversity of businesses, revenues and activities in the arts is also an important guideline. As the Australia Council comments: `[The arts] is a diverse and sometimes fragile industry. It comprises many genres and sectors from individual practitioners and small ensembles to multi-million dollar flagship companies'. [106] Similarly, Ms Teresa Crea suggested that measures to ease the impact of the new tax system on the Arts should benefit the whole sector:

5.154 The Committee feels that the catch-22 dilemma faced by smaller artists and non-profit organisations (caused by the GST registration thresholds) should be eliminated and the effect of the existing WST exemptions be preserved. This could be achieved, not by altering the threshold provisions as such, but by providing arts and cultural organisations with GST-free status on legitimate business inputs below the current GST thresholds.

5.155 This would have the effect of preserving the current WST exemptions in another form, and eliminate cashflow problems which might otherwise have arisen. It would also have the effect of making the thresholds a meaningful measure to ease the tax burden on individuals and non-profit organisations. Given that the intention of the system appears to be that businesses should all be able to reclaim GST paid on inputs, the measure should have a negligible impact on the budget.

5.156 Among other measures, the Australia Council strongly recommended that the Government introduce tax reform measures `that will encourage sponsorship and other philanthropic activity'. [108]

5.157 Corporate sponsorship is an area where the design of the legislation has unwittingly created an anomalous situation for the arts. While GST would be levied on all sponsorship, most of that could be rebated as legitimate business expenses. However the (quite possibly unrebatable) levying of GST on sponsorship from financial institutions threatens a significant revenue stream for the arts at little benefit to the budget. A general exemption of corporate sponsorship to the arts could remove this anomaly, along with ambiguities about in-kind sponsorship, while protecting the sector from revenue losses which could worsen the already fragile situation of many companies. Using Australia Council figures, the Committee estimates this measure should cost the federal budget approximately $1.2 million in revenue foregone.

5.158 The Committee feels that the appeals of many organisations for a more general exemption for the arts and cultural industries should be given serious consideration. Thus in addition to exemption for business inputs, this would involve the granting of GST-free status to arts sales. As a measure to protect the sector from the large relative price increases, and the disastrous predicted fall in sales volumes, this would be a failsafe strategy.

5.159 It would also be potentially more efficient, as a cultural policy mechanism, than a fixed grant to compensate the arts for losses incurred during the transition. The correct level of a grant would be difficult to accurately quantify, while its distribution could be administratively complex and difficult to match with need. It would also fail to compensate those artists or organisations who do not rely on grant income. The granting of an exemption would also free the arts from expected compliance burdens.

5.160 Definitional issues obviously arise with such an exemption. An important goal would be an adequate definition of arts sales (which might include ticket sales for instance, but exclude food and beverage sales) and an adequate definition of the artistic or cultural activity which is sold. The Arts Law Centre of Australia suggested that the definitions used to provide income tax exemptions for the arts in Ireland may provide a useful model. The Irish definition requires that work be `original and creative' and possess `cultural or artistic merit'. Such a definition might need to be modified so that it includes the performance or display of work which may not be new but is of contemporary value and interest. [109]

5.161 Using 1993-94 figures provided by Econtech, the Committee estimates that providing GST-free status to arts sales could cost the budget approximately $183.8 million in revenue foregone. [110]

5.162 The Australia Council, rather than appeal for a general exemption of the arts and cultural industries from GST, has appealed for an increase in funding with which it might be able to mitigate some of the effects of the new tax system on the arts and cultural industries. In evidence to the Committee, the Council's General Manager, Ms Jennifer Bott, suggested that this should be directed to the performing arts sector, `in particular to deal with what will inevitably be a downturn in box office'. [111]

5.163 In a supplementary submission the Council appealed for a five per cent increase in its budget, which currently stands at $63 million – that is, an amount of $5 million added to its base budget for at least three years. They also suggested that State and Territory Arts funding agencies should receive similar support, and signalled that it would seek to discuss with Treasury other measures which might assist the arts sector. These include:



[1] Tax Reform: not a new tax, a new tax system, pp 16-22.

[2] ANTS, p 169.

[3] Australia Council, Submission 298, p 4.

[4] Australia Council, Submission 298, Cover Letter from Dr Margaret Seares; ANTS, p 172.

[5] Ms Jane Haley, Arts Industry Council of Victoria, Hansard, Melbourne, 23 February 1999, p 76.

[6] Hansard, Sydney, 2 March 1999, p 380.

[7] Australian National Memorial Theatre Ltd, Submission 934, p 1.

[8] Hansard, Melbourne, 23 February 1999, p 92.

[9] Hansard, Melbourne, 23 February 1999, p 93.

[10] A New Tax System (Goods and Services Tax) Bill 1998, pp 21-24.

[11] A New Tax System (Goods and Services Tax) Bill 1998, p 44.

[12] The Australia Council, Submission 268, p 23.

[13] Ms Tamara Winikoff, NAVA, Hansard, Sydney 2 March 1999, p 381.

[14] Ausdance, Submission 820, p 4.

[15] Hansard, Sydney 2 March 1999, p 386.

[16] Entertainment Industry Employers Association, Submission 948, p 9.

[17] Mr Peter Lane, Printing Industries Association of Australia, Hansard, Sydney, 2 March 1999, p 479.

[18] Mr Peter Lane, Printing Industries Association of Australia, Hansard, Sydney, 2 March 1999, p 480.

[19] ANTS, p 81.

[20] ANTS, p 81.

[21] Ms Tamara Winikoff, Hansard, Sydney 2 March 1999, p 447.

[22] Hansard, Sydney 2 March 1999, p 392.

[23] Ms Julie Dyson, Ausdance, Hansard, Canberra, 1 March 1999, p 363.

[24] Ms Julie Dyson, Ausdance, Hansard, Canberra, 1 March 1999, p 364.

[25] Hansard, Melbourne, 23 February 1999, p 84.

[26] Hansard, Adelaide, 24 February 1999, p 188.

[27] Hansard, Adelaide, 24 February 1999, pp 191, 197.

[28] Hansard, Sydney, 2 March 1999, p 473.

[29] Arts Industry Council of Victoria, Submission 1016, p 2.

[30] Ms Libby Gleeson, The Australian Society of Authors, Hansard, Sydney, 2 March 1999, p 478.

[31] Hansard, Sydney, 2 March 1999, p 473; NAVA, Submission 828; The Australian Writers Guild, Submission 851.

[32] A New Tax System (Goods and Services Tax) Bill 1998, pp 108-109.

[33] A New Tax System (Goods and Services Tax) Bill 1998, p 109.

[34] A New Tax System (Goods and Services Tax) Bill 1998, p 109.

[35] ANTS, p 158.

[36] Australia Council, Submission 298, p 1.

[37] The Effects of A New Tax System (ANTS) on The Arts – Modelled using MM303, Report for the Australia Council, Submission 298B, pp 14-19.

[38] The Effects of A New Tax System (ANTS) on The Arts – Modelled using MM303, Report for the Australia Council, Submission 298B, p 19.

[39] The Effects of A New Tax System (ANTS) on The Arts – Modelled using MM303, Report for the Australia Council, Submission 298B, p 21.

[40] Ms Jennifer Bott, The Australia Council, Hansard, Sydney, 2 March 1999, p 449.

[41] Australian Major Performing Arts Group, Submission 1038, p 2; The Effects of A New Tax System (ANTS) on The Arts – Modelled using MM303, Report for the Australia Council, Submission 298B, p 19. Further detail about how price elasticities – and the substitution of consumers' spending between commodities – are calculated within the model, is contained in the Econtech document Background Information To Modelling A New Tax System – comparing Monash and MM303.

[42] Ms Jennifer Bott, The Australia Council, Hansard, Sydney, 2 March 1999, p 450.

[43] Hansard, Sydney, 2 March 1999, p 465.

[44] Ms Fran Bryson, Submission 466, pp 2-3.

[45] The Arts Law Centre of Australia, Submission 941, p 3.

[46] Hansard, Sydney, 2 March 1999, p 381.

[47] Hansard, Sydney, 2 March 1999, p 381.

[48] Hansard, Sydney, 2 March 1999, p 382.

[49] Hansard, Sydney, 2 March 1999, p 381.

[50] Ms Fran Bryson, Submission 466, p 9.

[51] Hansard, Melbourne, 23 February 1999, p 76.

[52] Ms Tamara Winikoff, NAVA, Hansard, Sydney, 2 March 1999, p 393.

[53] Backbone Youth Arts Inc, Submission 890, p 3.

[54] Report of the Tax Consultative Committee, pp 6-7; A New Tax System (Goods and Services Tax) Bill 1998, pp 257, 270.

[55] Backbone Youth Arts Inc, Submission 890, p 5.

[56] Australian Publishers Association, Submission 1037, p 3.

[57] Australian Publishers Association, Submission 1037, p 3; The University Co-operative Bookshop, Submission 593, p 1.

[58] AMPAG, Submission 1038, p 1.

[59] Katrina Strickland, `Its Curtains for Cameron', The Australian, 12 March 1999.

[60] Ms Jan Stoneham, Entertainment Industry Employers Association, Hansard, Melbourne, 23 February 1999, p 78.

[61] AMPAG represents the Bangarra Dance Theatre, the Melbourne Symphony Orchestra, Opera Australia, Circus Oz, The Australian Ballet, the Bell Shakespeare Company, the Adelaide Symphony Orchestra, the Black Swan Theatre Company, Meryl Tankard Australian Dance Theatre, Playbox Theatre Centre, Queensland Theatre Company, State Opera Company of South Australia, Sydney Symphony Orchestra, Symphony Australia, West Australian Ballet, West Australia Symphony Orchestra, Australian Chamber Orchestra, Melbourne Theatre Company, Musica Viva, Opera Queensland, Queensland Ballet, State Theatre Company of South Australia, Sydney Dance Company, Sydney Theatre Company and the West Australian Opera. See AMPAG, Submission 1038.

[62] AMPAG, Submission 1038, p 1.

[63] AMPAG, Submission 1038, p 2.

[64] AMPAG, Submission 1038, pp 3-5.

[65] AMPAG, Submission 1038, pp 3-4.

[66] AMPAG, Supplementary Submission 1038A, p 2.

[67] Hansard, Sydney, 2 March 1999, pp 465-466.

[68] The Effects of A New Tax System (ANTS) on The Arts - Modelled using MM303, Report for the Australia Council, Submission 298B, p 19.

[69] The Effects of A New Tax System (ANTS) on The Arts - Modelled using MM303, Report for the Australia Council, Submission 298B, p 21.

[70] Company B Belvoir Street, Submission 1050, p 4.

[71] Company B Belvoir Street, Submission 1050, p 5.

[72] Mr Michael Lynch, The Sydney Opera House Trust and Mr Duncan Peppercorn, AMPAG, Hansard, Sydney, 2 March 1999, pp 469-470.

[73] Hansard, Sydney, 2 March 1999, pp 469-70.

[74] Hansard, Sydney, 2 March 1999, p 471.

[75] Hansard, Sydney, 2 March 1999, p 471.

[76] Hansard, Canberra, 1 March 1999, p 367.

[77] Hansard, Canberra, 1 March 1999, p 368.

[78] Ms Alison Chappell, Hansard, Brisbane, 3 March 1998, p 568; A New Tax System (Goods and Services Tax) Bill 1998, pp 73-74.

[79] Ms Delia Browne, The Arts Law Centre of Australia, Hansard, Sydney, 2 March 1999, p 386.

[80] Hansard, Melbourne, 23 February 1999, p 83.

[81] Ms Jennifer Bott, The Australia Council, Hansard, Sydney, 2 March 1999, p 448.

[82] Ms Jennifer Bott, The Australia Council, Hansard, Sydney, 2 March 1999, p 450.

[83] Hansard, Adelaide, 24 February 1999, p 192.

[84] Hansard, Sydney, 2 March 1999, p 383.

[85] The Australia Council, Submission 298, p 8.

[86] The Australia Council, Submission 298, p 8.

[87] A New Tax System (Goods and Services Tax) Bill 1998, p 103.

[88] See, for example, the Australia Council, Supplementary Submission 298A and the evidence presented by Ms Delia Browne of the Arts Law Centre, Hansard, Sydney, 2 March 1999, pp 384-6.

[89] Australia Council, Supplementary Submission 298A.

[90] Arthur Anderson, Submission 927, p 5.

[91] David Throsby and Beverley Thompson, So What Do You Do For A Living?: A New Economic Study Of Australian Artists, Redfern, 1994, p 1.

[92] The Arts Law Centre, Submission 941.

[93] Ms Jan Stoneham, Entertainment Industry Employers Association, Hansard, Melbourne, 23 February 1999, p 78.

[94] The Effects of A New Tax System (ANTS) on The Arts – Modelled using MM303, Report for the Australia Council, Submission 298B, p 21.

[95] AMPAG, Supplementary Submission 1038A, pp 1-4.

[96] Hansard, Sydney, 2 March 1999, p 476.

[97] Hansard, Adelaide, 24 February 1999, p 190.

[98] Hansard, Sydney, 2 March 1999, p 454.

[99] The Effects of A New Tax System (ANTS) on The Arts – Modelled using MM303, Report for the Australia Council, Submission 298B, p 23.

[100] Backbone Youth Arts, Submission 890, p 4.

[101] Backbone Youth Arts, Submission 890, p 5.

[102] Department of Communications, Information Technology and The Arts, Submission 1350, p 3.

[103] Hansard, Sydney, 2 March 1999, pp 379-80.

[104] Hansard, Adelaide, 24 February 1999, p 188.

[105] A New Tax System (Goods and Services Tax) Bill 1998, p 77.

[106] The Australia Council, Submission 298C, p 1.

[107] Hansard, Adelaide, 24 February 1999, p 195.

[108] Ms Jennifer Bott, Hansard, Sydney, 2 March 1999, p 449.

[109] The Arts Law Centre, Submission 941, p 6.

[110] This figure has been calculated by dividing an economy-wide total for arts sales, excluding exports, by the GST rate of 10 per cent. Using tables from the Australian National Accounts, Econtech cites a total of $2,449 million in total sales for library, museum and art gallery services in 1993/94. From this is then subtracted totals for exports (not subject to GST) and zoological and botanic gardens, recreational parks and gardens and sound recording studios. The remainder ($1,838 million) was then divided by ten. (A margin for error would need to be allowed for these being 1993-4 figures and for definitional effects). See The Effects of A New Tax System (ANTS) on The Arts – Modelled using MM303, Report for the Australia Council, Submission 298B, p 19.

[111] Hansard, Sydney, 2 March 1999, p 449.