A New Tax System - Additional Statement
Senator Dee Margetts
for Western Australia
The Greens (WA)
the Treasury modelling
The Greens (WA) concerns regarding the economic
theories, assumptions, calculations, projections, estimates and modelling which
underpinned the Government's proposals for taxation reform can be usefully divided
into two broad areas:
- microeconomic (household/distributional) modelling
- macroeconomic (economy wide) modelling issues.
Before elucidating these specific micro and macroeconomic modelling
concerns, it is useful to comment on two broader issues relating to A New Tax
System (ANTS) and tax reform:
- The Review of Business Tax.
Philosophical Issues Underlying the ANTS Package.
Review of Business
The Greens (WA) have major concerns that the Review of Business Tax
(the Ralph Review) is not integrated with the Senate's consideration of the rest
of the tax package. Last year, I moved a motion to ensure that the results of
the Ralph Review were known before the Senate debated the rest of the tax package.
This motion, however, was defeated.
The Greens (WA) have strongly argued
that business tax should not be siphoned off into a separate review for the following
- Implications for Modelling: Despite the requirement
that any changes in the business tax arena are revenue neutral, the Ralph Review
may result in significant changes that have implications for the economic modelling
- Holistic analysis: It is difficult for the Senate to
examine the proposed changes to the tax system as a whole and assess its merits.
- Access: It is difficult for lobby groups, especially those with
stretched financial and human resources, to engage comprehensively in two reviews.
- Transparency: It is difficult for the Senate to assess and compare
the Government's concessions and subsidies in the business tax arena versus other
changes that may benefit low income people, charities, community organisations
or the environment. This point is especially relevant in light of the Treasurer's
threats to abandon the whole tax package if the Senate makes any substantive changes.
Philosophical Issues Underlying the ANTS Package
(WA) have consistently argued that `economic' decisions need to be made holistically
rather than on narrow conception of `economics'. Concepts of ecological sustainability
(ESD) and equity need to be valued as highly as narrow and traditional economic
views to highlight the fact that we don't live in an economy, but we live in a
society which is established in the natural environment. Concepts of ESD and equity
need to be fully integrated into the consultation and policy making process rather
than assessed as mere afterthoughts or forgotten entirely.
There have been
many criticisms both domestically and internationally of the narrow economic approach
that underscores the ANTS package. The focus on economic growth and the use of
the narrow economic indicator, gross domestic product (GDP) or gross national
product (GNP) as a primary measure of national well-being has been widely attacked
as inadequate and reductionist.
The flaws in GDP have generated international
moves to develop a better index to measure national well being. Most international
work is aimed at developing the Index of Sustainable Economic Welfare (also known
as the Genuine Progress Indicator) that appropriately incorporates concepts of
environmental sustainability and social justice alongside economic progress. Indeed,
the Government has paid at least lip service to this concept by developing Green
Accounting systems in the Australian Bureau of Statistics that the Greens (WA)
were active in promoting.
The Committee has received significant amounts
of evidence regarding narrow, economic measures of GDP, CPI, export performance,
national debt, distribution of wealth, budget revenues, expenditures and surpluses.
The Greens (WA) submit that in order to analyse the full range of impacts on individual,
community and national well being it is necessary to analyse a broader range of
indicators. Such a major change to our taxation system should have incorporated
principles of ESD and social justice from the outset. It seems, however, that
the Coalition and Treasury have completely ignored environmental impacts and only
marginally considered issues of equity.
The Greens (WA) believe that the
taxation system is one of the most powerful policy tools available to the Government
to effect positive social, environmental and economic outcomes. In this context,
the Greens (WA) are highly concerned about many aspects of the tax package.
The distributional analysis by Treasury in ANTS is presented
via 25 cameos to illustrate the different effects of the package on different
types of households. The salient assumptions in the cameos and compensation calculations
are that all hypothetical family types:
- have identical expenditure
- spend all disposable income therefore do not save or dissave;
- face the same rise in prices of 1.9%.
The use of cameos
and the underlying assumptions have been strongly criticised by a number of expert
witnesses to the Committee . The theme behind their
criticisms was that the use of the Household Expenditure Survey (HES) data was
a preferable data source than the Consumer Price Index (CPI). Many witnesses acknowledged
that there were a number of deficiencies in the HES data, but essentially suggested
that with adjustments HES data produced significant advantages, as it was able
to provide a more accurate analysis for the following reasons:
CPI measure excludes tobacco prices and the home owners rebate which can distort
the distributional effects on low income families. In addition, the CPI relies
on a more restricted base of households than HES (essentially only wage earners
in capital cities) thus it is less representative.
- HES data can be used
to estimate the real extent of dissavings.
- HES data can take into account
household composition and relevant expenditure patterns.
- Whereas the
cameos represent the results for typical or hypothetical families,
the use of HES data allows the total number of winners and loser to be modelled
The Greens (WA) share these concerns
with the limitations of cameos and the calculations behind the `compensation'.
The Greens (WA) place high importance on issues of social justice, equity and
reducing the gap between the rich and poor in Australia. Consequently, the Greens
(WA) are particularly concerned by the view expressed by a number of welfare organisations
that the deficiencies in the Treasury's distributional analysis underestimate
the impact on those who can least afford it - low income earners .
In light of the exposed inadequacies in
Treasury's cameo/CPI based approach, further distributional analysis based on
HES is to be presented to the Committee by Professor Harding and Professor Warren
in the near future. The Greens (WA) will monitor this analysis in light of the
principles of social justice and equity.
Macroeconomic modelling issues
Greens (WA) broadly agree with the Democrats comments on macroeconomic modelling
in relation to the account of the evidence on tourism, housing, the flow-on issue
and wage growth, and do not seek to duplicate these comments.
two main issues, however, worthy of brief discussion:
- the impact
on employment; and
- the impact on the environment.
or economy wide modelling done by Treasury was completely inadequate. In evidence
to the Committee, the Treasury admitted that it had not comprehensively modelled
any macroeconomic variables except the CPI .
the Committee has had to fund an independent macroeconomic modeller, Professor
Peter Dixon to undertake certain aspects of this analysis.
In evidence to the committee, Treasury officials admitted that the Treasury
had not modelled the impact of ANTS on employment .
Rather, in assuming no change to employment, the Treasury, in its own words, was
"simply hitting that broad direction of change" .
It seems extraordinary that the Treasury
did not consider employment impacts to be worthy of comprehensive modelling when
the ANTS package imposed a tax on the employment oriented service industries.
Professor Dixon highlights that the impact on employment is sensitive to
two critical issues:
- whether businesses pass on indirect tax reductions;
- wage bargaining/growth .
the ACCC's policing role, there was considerable doubt expressed as to whether
there would be full flow through in taxation reduction from business . For instance, the National Farmers' Federation
President, Mr Donges expressed considerable doubt in the following exchange.
Senator CONROYI probably have not explained myself clearly. You
are saying that farms are going to have all these extra cost savings. What I am
asking is: are you not passing them onto your consumers?
would like to, but it is not that simple. We live in a competitive environment
In addition, Ms Jenny
George, President of the ACTU suggested that if workers have a sense of injustice,
unfairness and inequality as a result of any tax changes it is likely that they
will bargain for wage increases. She highlighted that it would be likely that
workers would see the changes as unfair by saying,
First of all,
they know that the impact is going to be more than 1.9 per cent on prices and,
secondly, I think the average punter does not believe that the compensation will
be permanent or will be sufficient to offset the price increases. But they do
know, quite clearly, and my constituency know because I have told them, that the
highest beneficiaries are those that are at the top end of the income scale. They
know that very clearly .
In addition, in
a response to a question from Senator Campbell, Ms George indicated that if the
ANTS package remained unchanged the union movement would seek wage growth. She
To the extent that I have already outlined that this (the ANTS
package) is clearly inadequate, we would seek to redress that inadequacy either
through arbitral proceedings for those who have no capacity to bargain or through
the bargaining mechanism .
In light of these
comments, the Greens (WA) are not confident that the ANTS package will not involve
significant loss of jobs in the short term. The impact of job losses will be magnified
in rural and regional areas and for relatively unskilled workers. The Greens (WA)
believe that the transitional costs of job losses requires much greater attention
by the Government.
The Treasury modelling did not attempt
to model any impacts of the ANTS package on the environment. In addition, the
Treasury did not attempt to have this modelling done by either an independent
consultant or another Government department.
When questioned as to whether
any kind of environmental impact analysis had been undertaken by Treasury, Mr
Greg Smith, Executive Director of the Budget Group, claimed that it was
up to another Department to do that kind of analysis.
I think essentially those are matters that are the portfolio responsibility
of others. I think I have heard Senator Hill give answers along those lines, where
he says that he and his portfolio are responsible for that type of work. Certainly,
the Treasury cannot do all of those things .
Greens (WA) believe that this failure to have any regard for the environmental
implications is a fundamental omission. It seems that the Government has forgotten
the comments by Senator Hill at a conference and in a subsequent press release
as long ago as 30 September 1996,
... it is 4 years since
the "World Scientists Warning to Humanity" was released. You will recall
that this warning was signed by 1700 of the worlds leading scientists, including
the majority of Nobel laureates in the sciences. The warning stated that
many of our current practices put at serious risk the future that we wish for
human society, ... and may so alter the living world that it will be unable to
sustain life in the manner that we know".
message that I would leave with you today, is that we are well past the warnings,
and we are well past the theoretical arguments. We are now into the most critical
phase of all - action and implementation .
Greens (WA) agree with this comment and would like to point out that this omission
is also in direct contrast to commitments made by Senator Hill at the same conference
and press release. In the press release he announced that the government was committed
to linking the environment to the economy through indicators and accounting systems
Senator Hill's commitment on behalf of
the Government included an emphasis on the National Strategy for Ecologically
Sustainable Development (ESD) that the Commonwealth, all States and Territories
and Local Government endorsed in 1992.The primary guiding principles in the National
ESD Strategy are:
- decision making processes should effectively integrate
both long and short term economic, environmental, social and equity considerations,
- cost effective and flexible policy instruments, such as improved
valuation, pricing and incentive mechanisms should be adopted.
Treasurer, reaffirmed Senator Hill's commitment to the National Strategy for ESD
in a press release announcing the Productivity Commission's Inquiry into the Implementation
of Ecologically Sustainable Development by Commonwealth Department's and Agencies.
He commented that,
Economic, social and environmental well being are strongly
linked. It follows that economic, social and environmental goals must be pursued
in an integrated manner .
The Greens (WA) believe that the tax
reform debate provides the Government with an excellent opportunity to heed the
warning of leading scientists around the world and to get on with the job of implementing
a tax system which addresses both the economic, social and environmental needs
of Australians. The Government has clearly failed to take this opportunity to
While not strictly relating to modelling issues,
it is important to note two other broad considerations that the Government has
failed to take into account when constructing the ANTS package:
with international obligations; and
- consistency with other Government
does not seem to have taken into account whether any changes proposed in ANTS
will interfere with the fulfilment of Australia's international obligations. For
example, the Australia Institute pointed out that the proposed reductions in diesel
excise proposed by ANTS undermines the commitment made in Article 2 of the Kyoto
Other Government policy initiatives
Government seems to have disregarded whether elements of the ANTS package are
in contradiction with other initiatives. For instance, in September 1998, the
Government announced the Living Cities Program as part of its environment platform
that it would take to the election. In this program, the Government announced
an allocation of $16 million to reduce air pollution in major cities. The inclusion
of a reduction in fuel excise is likely to nullify any health or environmental
benefits gained .
The Greens (WA) will
continue to monitor the progress of the Senate Standing Committees that are investigating
specific aspects of the Bills and reserve the right to amend the Bills.
The Greens (WA)
 Professor Peter Saunders Submission 614 p.5; Professor
Peter Macdonald Evidence. Hansard, p.307-8; Professor Ann Harding, Evidence. Hansard,
p.222, Professor John Quiggin Evidence Hansard, p. 593, ProfessorNeil Warren Evidence
pp.91-3, Associate Professor David Johnson Evidence. Hansard, pp.114-5
Professor Ann Harding and Professor Neil Warren, NATSEM Introduction to Tax Reform
Microsimulation Models NATSEM 15 December 1998, p26.
Mr Terry McCarthy and Mr John Wicks of St Vincent de Paul, Evidence. Hansard,
p257-259, Mr Michael Raper of ACOSS, Evidence. Hansard, p696.
Greg Smith, Evidence. Hansard, p.363
Dixon and Maureen Rimmer, The Government's Tax Package: Analysis based on the
MONASH Model. 1998. Centre of Policy Studies, Monash University.
Ray Reagan of the National Tax and Accountants' Association. Media Release, 15
 Evidence. Hansard, p246.
Evidence. Hansard, p677.
Hansard, p. 391.
 Hill, Senator Robert, Tracking
Progress:linking environment and economy through indicators and accounting systems.
1996 Fenner Conference on the Environment 30 September 1996.
Hill, Senator Robert, Tracking Progress:linking environment and economy through
indicators and accounting systems. 1996 Fenner Conference on the Environment 30
 Costello, The Hon Mr, Productivity
Commission Reference - Inquiry into the Implementation of Ecologically Sustainable
Development by Commonwealth Departments and Agencies. Press Release No 83, 24
 Australia Institute, Submission
120. p. 36.
Australia Institute, GST Package
is the real environment issue. Media Release, 24 September 1998.