Intergovernmental Agreement Implementation (GST) Bill
The Hon. J. J. DELLA BOSCA (Special Minister of State, Assistant Treasurer, Minister Assisting the Premier on Public Sector Management, and Minister Assisting the Premier for the Central Coast) [6.08 p.m.]: I move:
As a second reading speech on the bill has already been delivered by the Minister in the other Chamber, I seek leave to have it incorporated in Hansard.
That this bill be now read a second time.
The primary purpose of this bill is to implement the Government’s commitments under the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations—the agreement—and other GST related changes to State legislation. Under the agreement the Commonwealth, States and Territories have undertaken to attach the agreement to a suitable piece of legislation and to use their best endeavours to ensure their legislation complies with the agreement. Clause 4 of the bill implements that commitment. A copy of the agreement is attached as schedule 1 of the bill.
States have also undertaken in the agreement to legislate to enable State entities to pay the GST in respect of transactions that would otherwise be outside the scope of the GST. This is designed to ensure that State entities will be treated the same as any other entity under the GST legislation. Clause 5 of the bill will enable State entities to make GST equivalent payments where necessary to honour this commitment. Local government is not covered by this clause. However, administrative arrangements are to be put in place to ensure local government will pay GST or equivalent payments where appropriate.
Under division 81 of the Commonwealth’s GST legislation a determination will be issued by the Federal Treasurer listing the taxes, fees and charges that will not be subject to the GST. Some of the fees and charges imposed by the Commonwealth, State and Territory will not be listed in this determination. For these fees and charges, GST will need to be added. However, many of these fees and charges are set by regulation. To amend them all individually would be a cumbersome process. Clause 6 of the bill enables fees and charges that are not exempt from the GST either because of division 81 or the exemptions contained in division 38 for certain health services, education services, child care services and water, sewerage and drainage services, to be increased to take account of the tax.
This authorisation is subject to the fee increase complying with the guidelines issued by the Australian Competition and Consumer Commission in relation to cost savings. This means agencies that will need to increase a fee or charge to take account of the GST will also be required to reduce regulatory fees and charges to reflect any cost savings achieved as a result of associated tax changes. Where a good or service is partly funded by the budget and partly by a regulated fee or charge, cost savings are to be passed on to the fee in proportion to the level of funding provided by the fee.
Many fees and charges in this State are indexed to the consumer price index [CPI]. As I have just indicated, a number of these fees and charges will also be subject to the GST. The GST is expected to push up the CPI in 2000-01. To index fees by the GST-affected CPI could result in the fee being affected twice by the GST. Consequently, the Government has decided that, when fees are indexed using the CPI, the CPI will be discounted to remove the effect of the GST. Indexation this year uses the CPI for 1999-2000. Clearly, this CPI index will not be affected by the GST. Clause 7 of the bill implements this policy.
Under the agreement, States and Territories have also agreed to abolish a number of their taxes. Specifically, States and Territories undertook to abolish "bed taxes" from 1 July 2000, financial institutions duty from 1 July 2001 and marketable securities duty on securities traded on a recognised exchange from 1 July 2001. New South Wales has already legislated to abolish the accommodation levy from 1 July 2000. Schedule 9 of this bill abolishes financial institutions duty from 1 July 2001 and part 1 of schedule 2 abolishes marketable securities duty on securities such as shares traded on a recognised stock exchange from 1 July 2001.
The Federal Government’s GST legislation will apply to the net revenue of gambling operations. This is the total amount spent by gamblers on bets less prizes paid to gamblers. States and Territories have agreed to take into account the fact that the GST will also apply to gambling. The New South Wales Government is to take a two-step approach to this issue. First, the Government will reduce the rates of taxation for the following: gaming machines operated in hotels; gaming machines operated in registered clubs; gaming machines and table gaming at Star City casino; TAB Limited totalisator operations; Keno games; and New South Wales Lotteries products. Schedule 4 of this bill amends the Liquor Act 1982 to reduce the rate of State tax on hotel gaming machines to account for the GST.
Schedule 7 of this bill amends the Public Lotteries Act 1996 to reduce the rate of tax on lotteries to account for the GST. It will also enable the State tax on lotteries to be levied on net revenues—the same basis as the GST—rather than on the total turnover, as is presently the case. The existing provisions allowing for the calculation of duty on the basis of subscriptions will, however, be retained. Schedule 8 of this bill amends the Registered Clubs Act 1976 to reduce rates of duty on poker machines in registered clubs. Because it is not possible to effect a full GST offset by adjusting State tax rates, registered clubs still will pay more in total tax—including the GST—under the revised State tax structure than they do currently.
While the State Government is not obliged under the intergovernmental agreement to provide additional assistance to clubs to offset this increased tax burden, the Government recognises that this burden could cause financial difficulties for a number of clubs in the short-to-medium term. Therefore, the Government announced in the budget papers that it would provide registered clubs with transitional assistance payments. To avoid ongoing administrative costs, these payments will take the form of a single payment to each club representing the estimated present value of additional tax liabilities to 30 June 2004 based on each club's gaming profits for the assessment year to 30 November 1999. A discount rate of 8.2 per cent will be used. The budget papers estimated that these payments will total $68.3 million.
Schedule 10 of this bill amends the Totalisator Act 1997 to reduce the rate of taxation of TAB Limited to take account of the effect of the GST. Bookmakers will be reimbursed the amount of GST paid on their fixed-odds betting operations, both racing and sports betting. This reimbursement will not exceed the State tax payment by bookmakers. A tax rate adjustment is not possible because bookmakers are currently taxed on a turnover basis and it is not possible to make a reasonably accurate adjustment to the tax to take account of the GST. Small race clubs that operate non-TAB totalisators and that currently receive a full rebate of State tax will receive GST transitional assistance in the form of a single payment representing the present value of GST tax liabilities to 2004 based on totalisator profits for the year to 30 June 1999. A discount rate of 8.2 per cent will be used. It is estimated that these payments will total about $100,000.
The rate of taxation of Keno is set out in the licence agreement with the game’s operators. This agreement will be amended to reduce the rate of taxation to take account of the impact of the GST. The rate of tax on casino gaming operations is also set out in the licence rather than in legislation. The rate of tax on gaming machines in the casino will be reduced from 22.5 per cent to 13.41 per cent. The marginal tax rate on tables will be reduced such that the minimum tax rate is reduced from 20 per cent to 10.91 per cent and the maximum rate is reduced from 45 per cent to 35.91 per cent. The amount of GST paid on the casino's international high roller program will be reimbursed. A tax rate adjustment was not possible in this case due to the fact that the casino pays a fixed non-refundable amount of $6 million each year on the first $60 million in high roller revenue.
In addition to giving effect to initiatives required by the agreement and the gambling tax adjustments I have just outlined, the bill implements a number of other GST-related changes to State legislation. Generally, stamp duty is a tax on purchasers, while the GST is a tax on suppliers. As a result, the GST and stamp duty are able to be calculated separately. Hire of goods duty is an exception, however. For reasons of compliance and administration, all States and Territories impose hire of goods duty on the hirer rather than the customer. As a result, the GST and hire of goods duty will apply simultaneously to the same tax base, resulting in each tax applying to the other. In the absence of action by the State or the Federal Government this would result in a "cascading" of tax and an increased overall tax burden on the hire of goods.
The States and Territories requested the Federal Government to take action at a national level to resolve this problem, as they had done in the case of insurance, where the same problem arose. The Federal Government refused to act on this request. As a result, the New South Wales Government has decided to take action to eliminate the cascading of hire of goods duty and GST for hirers in New South Wales by amending the Duties Act to exclude any GST payable by the hirer from the tax base when calculating hire of goods duty. This initiative is contained in part 2 of schedule 2 of the bill.
People with disabilities who purchase a new motor vehicle currently receive a sales tax exemption from the Federal Government. This Government amended the Duties Act to give a concession to people with disabilities so that where a motor vehicle is purchased free of sales tax, duty will only be charged on the actual price paid, not the full price including notional sales tax. The Federal Government’s GST legislation provides that people with disabilities will be able to purchase motor vehicles GST-free. To maintain the concession introduced by this Government, part 2 of schedule 2 of this bill amends the Duties Act to provide that, where a motor vehicle is purchased GST-free, stamp duty will not be payable on the notional GST.
Under the GST legislation, the Federal Government has imposed GST on all pre-paid funerals purchased after 1 December 1999 where the funeral is supplied on or after 1 July 2000. The GST collected in respect of pre-paid funerals purchased after 1 December 1999 and still to be supplied on 1 July 2000 is required to be paid by funeral fund directors when they complete their first GST return after 1 July 2000. The Funeral Funds Act currently requires that all moneys received for a pre-paid funeral must be deposited into a trust account. This is to ensure the money paid in advance for funerals is kept safe until the funeral needs to be provided. Schedule 3 of this bill amends the Funeral Funds Act 1979 to enable funeral fund directors to meet their obligations under the Federal Government’s GST legislation without disturbing the existing consumer protection provided by the Act.
The Federal Government’s GST legislation will apply to supplies of labour under labour hire contracts. The definition of "wages" in the Pay-roll Tax Act 1971 will, unless amended, apply payroll tax to the total amount under the contract, not just the wages paid. To maintain the principle that payroll tax only applies to the wages actually paid, schedule 5 of this bill amends the Pay-roll Tax Act 1971 to exclude any amount representing GST from the amount subject to payroll tax.
When the States and Territories imposed business franchise fees on petroleum and diesel products, New South Wales did not impose a tax on diesel for off-road use. With the loss of these taxes, the Commonwealth imposed "safety net" surcharges on its taxes and returned the money to the States and Territories. For constitutional reasons, the Commonwealth could not exempt diesel for off-road use from its surcharge. As a result, the State Government provided subsidies to avoid an increase in the price of diesel for off-road use.
With the introduction of the GST, States and Territories will no longer receive the "safety net" payments from the Commonwealth, as the Commonwealth will no longer impose surcharges on its taxes on tobacco, alcohol and petroleum products on behalf of the States and Territories. This means the States will no longer be required to pay subsidies to off-road diesel users. Schedule 6 of the bill abolishes these subsidies. the subsidies currently paid by the Government for on-road use of petroleum products and diesel in Northern New South Wales will not be abolished by this bill. Those subsidies will remain while ever Queensland provides subsidies for on-road use of petroleum and diesel products.
The GST will apply to the rent paid on commercial premises. Retail leases in New South Wales are controlled by the Retail Leases Act 1994. The legislation is aimed at ensuring that all parties are fully aware of their obligations under a lease so that conflicts can be avoided. Section 18 of the Act restricts changes to base rent in any 12-month period. Schedule 9 of this bill amends the Retail Leases Act to ensure that clauses inserted into leases to enable landlords of commercial premises to pass their GST liability on to commercial tenants are effective. This will ensure that where landlords and tenants have attempted to deal with the impact of the GST will be able to rely on those clauses.
The bill also amends the definition of "outgoings" in the Act to include the GST. In many cases leases require the tenant to reimburse the landlord for outgoings, which often include taxes. There is some uncertainty in the industry as to whether the GST is included in the current definition of "outgoings". This provision will clarify the position. Some retail leases base rent on the level of sales, or turnover. There is uncertainty as to whether, in assessing liability for turnover rent, turnover is to be assessed on a GST inclusive or exclusive basis. To clarify the situation, schedule 9 of the bill amends the Retail Leases Act to provide that the GST is to be excluded when calculating turnover to assess liability for turnover rent.
This bill also contains a number of provisions that address the impact of GST legislation on workers compensation insurance arrangements. The most significant amendments address the compliance problems that arise for small to medium businesses. Under the Commonwealth’s GST legislation, employers are liable to pay 10 per cent GST on claim settlements if they do not notify their workers compensation insurer of their entitlement to an input tax credit under the GST legislation. On a claim totalling $1 million, the GST liability could be as high as $100,000 if the entitlement to an input tax credit is not notified by the employer to the insurer. Such a liability could put many small to medium enterprises out of business.
The practical issues involved in complying with GST legislation for business are well known. The New South Wales Government is concerned that the requirement to notify an input tax credit entitlement for workers compensation insurance purposes could be overlooked, particularly given the automatic policy renewal process provided for under workers compensation legislation. The bill addresses this problem. Schedule 12 will amend the Workers Compensation Act 1987 so that the New South Wales WorkCover Authority will be appointed as the agent and attorney of employers for the purposes of providing notification under the insurance provisions of GST legislation. The authority will be able to act on behalf of those employers that do not provide notice under the Commonwealth legislation. The provisions do not stop employers providing notification to the insurer of their own volition. It simply ensures that where an employer has omitted to do so they will not run the risk of a crippling tax liability emerging.
The bill also clarifies the scope of the statutory insurance policy under the Workers Compensation Act 1987. In some cases, employers may elect to retain liability on claim settlements by understating the extent of their input tax credit entitlement. To avoid any doubt as to whether such costs are passed on to the managed fund scheme, the bill clarifies that the statutory insurance policy does not cover these liabilities. This does not prevent employers obtaining separate insurance for these amounts if they choose. The remaining provisions of the bill relating to workers compensation legislation are amendments which will minimise the impacts of GST. These include regulation-making powers in respect of the Dust Diseases Board and the Sporting Injuries Commission to enable changes required as a result of the GST legislation to be made. I commend this bill to the House.
The Hon. J. F. RYAN [6.08 p.m.]: The Opposition supports the bill, but will make a few points in response to comments that the Treasurer has made in the past few days with regard to the implementation of the goods and services tax, particularly as it affects New South Wales taxation. The bill basically will implement the deal that has been struck between the Commonwealth and the States with regard to the introduction of tax reform from 1 July this year. Government members, of course, have been inclined at every opportunity to state their opposition to various aspects of the GST.
I simply say that the Opposition has the same view as that of the Commonwealth Government: that the whole purpose of tax reform is to create a better economic climate in our country; that it is about putting the national interests first; and that it is not the sum of tiny little parts, but the sum of the whole, in a package that is meant ultimately to improve the economic circumstances of every Australian. It is designed to produce economic growth in the this country, resulting in people receiving more in their pay packets, with more people being employed through the creation of jobs and a better business climate. All political parties, even the Labor Party, recognise that our country sorely needs changes to our taxation policies. This time last year Barry Jones was reported in the Age as saying:
It's odd that a Kit Kat is subject to wholesale sales tax and a ballpoint pen is, and tickets to the Opera are not. It seems that there are some anomalies that have to be looked at very seriously.
This tax package is about looking at those anomalies. The Special Minister of State was sent on a special mission to ensure that the Federal Opposition, under the leadership of Kim Beazley, did not get in the way of the implementation of the GST. The Special Minister of State is reported in the Australian as saying to journalist Glenn Milne:
Kim's bogged down in the marshes on the GST. They think they're making headway, but they've become obsessed with the minutiae.
Evidently the Premier sent the Special Minister of State to Canberra to ensure that the Federal Labor Party did not get in the way. Of course, the Labor Party got in the way. Many of the problems that the Labor Party is complaining about in relation to the GST originated from the fact that the Labor Party blocked the GST in the Senate. It was necessary for the whole package to be reconfigured to rescue some of it. One of the results was that the GST was taken off certain food items. A report produced by the intergovernmental conference—which made certain recommendations which resulted in the introduction of this bill—pointed out that, had the exemption not been taken off basic food items, it was possible that New South Wales and other States would have experienced real growth from the tax take of the GST from the year 2003. Now, as a result of changes to the tax, New South Wales will not see any growth in the tax take from the GST until the year 2006-07.
All the revenue from the GST goes to the States. New South Wales gets its share. So there is no reason for any Labor Party representative in this place to criticise the Howard Government's tax reform. This bill does not contain an important provision: the State Government had an opportunity to fix an anomaly with regard to how the GST would impact on stamp duty. The stamp duty take in New South Wales will increase as it will be imposed on the price of products after the GST has been imposed. The Labor Party in New South Wales will not only collect all the GST; in certain circumstances it will tax the GST when stamp duty is applied. When the GST is added to insurance policies and new houses and stamp duty has to be paid, the State Government will benefit from a tax on a tax.
New South Wales is already in receipt of enormous tax revenue. However, the Government cannot brag in this regard as it has imposed a host of new taxes and charges. This Government has imposed a bed tax, which will now go because of the GST. It has increased prices for dog and cat licences. The Government has introduced a septic tank tax and a land tax on residential homes. It has increased payroll tax on superannuation, increased national parks entry fees, and doubled car parking levies and extended their application in other places. The Government has imposed a tax on electricity and introduced a sports betting tax, a stamp duty on intellectual property, new fishing taxes, and coastal fishing taxes. It has introduced a host of other taxes, including a tax on poker machines, health insurance levies, and general insurance duty.
The Hon. J. J. Della Bosca: We didn't say "never ever".
The Hon. J. F. RYAN: Court fees have gone up, motor vehicle registration fees have increased, driver's licence fees have increased at more than the rate of the consumer price index, and water rates have been increased. The Government has increased the level of dividends that it gets from Sydney Water. Waste disposal charges have been increased and, as a result of that increase, dividends have been returned to consolidated revenue. A host of development fees have been increased, for example, hospital charges, workers compensation premiums and stamp duty collections. Last year the State Government gained an extra $700 million in stamp duty, which it did not budget on receiving. There have been increases in the rates of land tax, taxes on taxi fares, and the price of freedom of information applications.
The Carr Government does not have clean hands on the taxation issue. It is the biggest taxing State in the Commonwealth. It has increased a host of taxes across the board in this State. Frankly, this Government has nothing to brag about. The Special Minister of State said a few moments ago, "Never ever." John Howard told the public that he was going to introduce this tax. This Government campaigned against John Howard at the last election because it opposed the tax. The people of Australia elected the Howard Government on the basis of this tax. The Special Minister of State said that the Federal Government's mandate should be respected. During estimates committee hearings the Treasurer made a number of allegations with regard to the decision to remove the tax subsidy on low alcohol beer.
I must confess that I am not a heavy drinker, so to some extent the tax on low alcohol beer is something of an academic issue. I drink such a small quantity of beer that I prefer to drink full alcohol beer and to have one glass rather than several. The tax on low alcohol beer was intended to be a road safety measure. It was intended to encourage those who drive to drink less full alcohol beer. It was introduced in an attempt to save people's lives. The Carr Government decided to play crass and gross politics by threatening to withdraw the subsidy on low alcohol beer.
As I understand it, the Government has already withdrawn it. Every other State in the Commonwealth has recognised that, because revenues from the abolished taxes are fully subsidised and recompensed to the States—guaranteed by the Commonwealth as a result of the intergovernmental agreement on which this legislation is based—New South Wales will lose no money whatsoever as a result of the abolition of the excise on low alcohol beer. The Government still has the funds with which to retain the subsidy. But it has decided, for crass political purposes, to withdraw the subsidy. I will quote at length from a letter written to the New South Wales Treasurer by the Federal Treasurer, in which he responds fully to all the allegations that have been made.
The Hon. J. J. Della Bosca: How did you get it?
The Hon. J. F. RYAN: The letter, which was given to me by the Federal Treasurer, is a public document. The Commonwealth Government is not about secrecy, unlike the Carr Government. I thought it would have been reasonable for the Carr Government to table this letter. The Federal Treasurer states in the letter:
The GST revenue and budget balancing assistance … the States and Territories will receive, provides funds to continue existing subsidy arrangements in their entirety. Any attempt to take revenue which funds these subsidies while abolishing the subsidies themselves is an attempt to take a financial windfall at the expense of public health. Moreover, the Commonwealth considers that a decision by any State or Territory Government to remove their subsidies for low alcohol beer to be at odds with the basis of the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (IGA).
There could not be a clearer statement from the Federal Treasurer. He has said—and this has never been denied by the Treasurer of New South Wales—that New South Wales has been fully compensated to continue that subsidy. If the New South Wales Government withdraws that subsidy, it is gaining a potential windfall and that financial windfall will be paid for by the lives of people on the State's roads as a result of people not using the safer alternative and drinking low-alcohol beer.
Under the IGA, States and Territories are compensated for the loss of revenue replacement payments for alcohol. As you know, the revenue replacement payments returned the uniform 15 per cent WST surcharge the Commonwealth put in place after the High Court decision in Ha and Lim v NSW and Walter Hammond & Associates v NSW in 1997. A single WST surcharge rate was applied to both full and low strength beer to ensure that all States and Territories were fully compensated for the loss of BFF revenue, reflecting varying BFF rates across jurisdictions. If the surcharge had not been applied to low alcohol beer, then some States would have been undercompensated, particularly Queensland where the full BFF applied to all beer. When the revenue replacement payments were introduced, the States and Territories indicated that they would retain an amount from the Commonwealth payments equal to forecast BFF collections under the then applicable fees. The balance—or excess revenues—would be refunded to manufacturers or wholesalers in order to avoid as far as possible price increases for consumers. The result was to retain the situation where there had been differential State treatment to reduce the cost of light beer vis-à-vis full strength beer.
At no stage in formulating the IGA did the States and Territories canvass an intention to remove their low alcohol subsidies. If they had, they would not have been compensated for the full revenue replacement but the revenue replacement less the subsidy saving.
The Special Minister of State should be very concerned about this because of his portfolio responsibilities. First, he should applaud and support any initiative that encourages the reduction of people's intake of alcohol. Second, as the Minister responsible for the motor accidents scheme in New South Wales, he should equally be an advocate for the continuation of the subsidy on low-alcohol beer to ensure that there is a reduction in the number of accidents on our roads. Finally, as the Minister responsible for workplace safety in the State, he would know that many workers consume alcohol during their lunch break. Obviously it would be beneficial if they consumed low-alcohol beer. It is a good initiative, it is a good subsidy, to maintain workplace safety.
I would advise workers operating machinery not to consume any alcohol during their lunch break. But if they do so, it is far better that they choose the cheaper and more attractive alternative of low-alcohol beer. The withdrawal of the subsidy in New South Wales puts at risk road safety, workplace safety, and other initiatives that the Government has in place to counter and reduce the health impacts of the consumption of alcohol. On 8 June the Federal Treasurer pointed out in a press release:
He also said:
NSW is now isolated in its attempt to gain a financial windfall at the expense of public health by pocketing the revenue it receives to fund low alcohol beer subsidies.
I urge the Government to heed that advice. We need another bill in this House or an initiative from the Government to ensure that there is no risk to the subsidy on low-alcohol beer. It is not an issue that should be the subject of partisan political comment. It should not be the subject of crass politics. For my part, as a member of the Opposition, I am perfectly prepared to forget that the whole issue occurred if the Government restores the subsidy, because I believe it would be in the interests of the people of New South Wales for it to do so.
NSW is now the only State acting in bad faith by attempting to withdraw the subsidy and pocket the money at the expense of public health. NSW should now fall into line with all the other States and maintain its subsidies.
The Government is fully compensated by the Commonwealth Government to do this. In an estimates committee hearing in this Chamber, at which I was present, the Treasurer said that the Commonwealth Government had indicated that an amount was set aside in its budget to continue that subsidy. It has honoured that commitment, despite the mischievous nonsense that has been perpetrated by the New South Wales Treasurer. The Commonwealth Government continues that subsidy in the form of payments to New South Wales to compensate for the loss of other taxes as a result of the intergovernmental agreement that has been drawn up to implement the GST. Naturally the Opposition supports the bill. We have a couple of concerns with regard to the way the Government is reacting in other places, but every measure in this bill is worthwhile, and we commend it to the House.
The Hon. Dr A. CHESTERFIELD-EVANS [6.25 p.m.]: This bill implements the GST at a State level. It effectively implements the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations, as it is called. That document is signed by the Commonwealth and all the States as the basis for the changes in the taxation system of Australia that were negotiated between the Prime Minister and the Leader of the Australian Democrats, Meg Lees. Part 2 of the Commonwealth-State reform measures provides:
This guarantees the States an income that is totally inflation-proof in the sense that it relates to activity in the economy. At last the State has a solid basis for financing its spending. This is the greatest gift the States could ever have. They do not have to go cap in hand year after year to the Commonwealth. They have a tax that will probably grow more rapidly than income tax and, strangely, they are ungrateful for that. I think that says a lot about partisan politics rather than economics. They know they will get an increased share of revenue and a guaranteed flow, but they are too churlish to acknowledge it. I cannot believe that the State Government's economics are that bad. I know that sometimes I believe bad things about the Government, but I do not believe its economics are so bad that it does not know it will be much better off financially under this new arrangement. The agreement states, at point 10, Transitional Arrangements:
The Commonwealth will legislate to provide all the revenue from the GST to the States and Territories.
So the States are guaranteed to get all the revenue and they are guaranteed that they cannot be worse off. They are immensely better off, but one would not think so. Whenever the Treasurer is asked a question that in any way relates to the GST, he says that the States will get less money for seven years, after which they will go ahead. He does not wish to acknowledge that all GST revenue—for example, the 10 per cent on fares, for which he blames the Federal Government—will come straight back to him. That is a lovely way of getting revenue, placing the blame for it elsewhere, and putting it quietly in one's back pocket. What a clever little trick! The Treasurer does not acknowledge when the Australian business numbers show 20 per cent more businesses than expected, which is likely to lead to more revenue. He does not acknowledge that revenue was 20 per cent higher than expected in New Zealand.
In each of the transitional years following the introduction of the GST, the Commonwealth guarantees that the budgetary position of each individual State and Territory will be no worse off than it would have been had the reforms set out in the agreement not been implemented.
That means that the period of seven years, which is the pessimistic prediction he keeps coming back to, is likely to be reduced because increased revenue is likely to flow back and the State will have a lot more money than expected. The line of the Australian Labor Party [ALP] that it will be seven years before it gets the money back is simply nonsense, and Labor members know it. Ironically, before the last election—and I have this from within the ALP—the ALP decided that it would not have a serious tax policy; its policy would be "We are anti GST." The ALP would not be specific on where it would get the money. It was willing to acknowledge privately what Paul Keating had acknowledged when he was Treasurer: that a GST was needed.
The Hon. J. J. Della Bosca: That's not true.
The Hon. Dr A. CHESTERFIELD-EVANS: Paul Keating acknowledged that major tax changes were needed to make the system more equitable. Of course, that proved unpopular. Hawke—or old jelly back, as he was referred to by one well-known ALP backbencher—
The Hon. J. J. Della Bosca: He was one of the greatest Prime Ministers Australia has ever had.
The Hon. Dr A. CHESTERFIELD-EVANS: At that time the Federal Labor Government did not have the courage to introduce a GST so it was suggested by John Howard. In fact, as Beazley went into the election—
The Hon. J. J. Della Bosca: It wasn't. It was a different tax. It was an ordinary tax, not a GST.
The Hon. Dr A. CHESTERFIELD-EVANS: The ALP did not have the courage to have a serious tax policy. The Australian Democrats were looking at what should be done about the tax system. We had a policy if Labor won the election or if Mr Howard won the election. Our policy if Mr Howard won the election ran to 16 pages, but our policy if Labor won the election was only seven pages, because Labor had not been specific and it was impossible to comment on its non-policy. Labor did not have the guts to produce a policy. Its policy was glib convenience: it would be anti GST, and it would work out later what it would do. That was Labor's policy. Later I will talk about what the actual position was and what tax changes were made by the Australian Democrats.
[The Deputy-President (The Hon. H. S. Tsang) left the chair at 6.33 p.m. The House resumed at 8.00 p.m.]
The Hon. Dr A. CHESTERFIELD-EVANS: Earlier I promised that I would speak about the position taken by the Australian Democrats on the GST part of the new tax system and what was promised. This bill enacts the State's component of the new tax system. One of the misconceptions is that the Australian Democrats broke a commitment not to bring in the GST component. That is a complete nonsense that has been fanned, I believe, by the Labor Party, which wants simplistic answers but is unwilling to do the policy work itself. The position of the Australian Democrats on tax was stated before the last Federal election in a document entitled "Fairer Tax System, More Jobs—The Australian Democrats Taxation Policy Response", dated 18 September 1998. It is a very detailed document, 39 pages long. At the conclusion of my contribution I will seek leave to table the document, but I wish to read portions of it. The document reads:
This document reflects the result of extensive work within the party and extensive consultation with business, welfare and church groups. The document is in three parts. Part A provides an overview of the Democrats' general approach to taxation, with an exposition on our contention that Australia's current tax is inadequate, and a presentation of the case for reform on both the direct and indirect side of the taxation equation.
Part B is the Democrats' policy response to the Coalition's tax policy. Part C is the Democrats' policy response to the Labor tax package. This approach reflects our realistic recognition that the Democrats, in the balance of power role, cannot set the entire tax agenda. Rather, we will have to respond to the present package. But we claim a right to put forward a series of proposals to modify the package as set out by the ALP and the Coalition. We also claim a right to reject both packages as they fail to meet our benchmark tests, they provide adequate revenue to fund the level of services demanded by the Australian people, they are economically affordable, they are fair, and they create conditions that lead to the creation of jobs. The Australian Democrats' response to both packages is clearly outlined in the document. It is this position that we took to the Australian people on 3 October.
Part A of the document speaks about the basic principles for taxation, why Australia's revenue base is not adequate to deliver services, the case for income tax reform, and the case for direct and indirect tax reform. Part B refers to the Australian Democrats' response to the Coalition tax package, which extends over 16 pages. The response to Labor's tax package is considerably shorter, only seven pages long—basically because Labor did not have a serious tax package to take to the election. As I said earlier, Labor's tax package was largely that it did not want the GST; it had an anti-GST policy. Part B sets out the Democrats' response to the Coalition's tax package in the following terms:
Australia needs tax reform. Our income tax system is creaking, with a heavy burden on low income earners, and payment of tax becoming virtually optional for many wealthy Australians. Our indirect tax system is also outmoded and inefficient, with nearly half of all sales taxes falling on business inputs and exports, and with heavy tax on limited, "low-growth" basket of goods.
Our taxation system as it stands is also failing to pay for the services that Australians need. Australia is one of the lowest taxed countries in the OECD. Yet, Australia's citizens expect Governments to provide a world class, quality infrastructure, health, education and other services. Our creaking tax system is failing to provide adequate revenue to do this, and substantial reform is needed to ensure that our generation pays its way.
The Australian Democrats have long recognised the need for wide ranging tax reform. We have engaged in a full debate within our party on the best way forward, as well as trying to broaden out the national debate beyond the issue of a GST.
The Coalition's tax package is unacceptable in its present form. Unless it is substantially amended, the Democrats will not support it.
Problems with the package include:
• It makes the indirect tax system more regressive by taxing more food than under the existing WST [wholesale sales tax] system;
• It provides inadequate compensation for low income earners affected by the GST;
• It contains tax cuts which overwhelmingly favour high income earners and which are largely paid for by raiding the surplus rather than broadening the base;
• It fails to properly address the worst tax loopholes in the income tax system, particularly those that benefit the wealthy;
• It provides inconsistent treatment of export industries such as tourism; and
• It does not pay for itself, relying on raiding surpluses which may or may not exist to the tune of $27 billion in its first four years.
Having said that, the Coalition package has a number of very significant positives:
• It broadens the available sources of tax revenue;
• It provides a comprehensive overhaul of indirect taxes with the potential for significant economic benefits to Australian business, jobs and investment in the longer term;
• It contains a number of important base broadening and equity measures on the income tax side;
• It radically overhauls the collection of business income, substantially addressing long-held concerns that the Democrats and small business have about provisional tax;
• It provides a restructuring of the income tax scales with long overdue reviews of thresholds and rates; and
• It significantly reforms family payments and assistance, with real benefits for families regardless of income source.
The Democrats believe that the Coalition's tax package can and must be significantly amended to be made fairer. The following amendments will be non-negotiable (detail of all these areas follows):
• Taking the GST off food;
• Taking the GST off books;
• Restructuring the tax cuts to reduce the benefits to high income earners;
• Recalculating the compensation needed for different "cameos" of households to ensure that compensation is genuinely fully adequate with a generous cushion as a margin for error;
• Restructuring the new tax concessions on diesel and petrol;
• Reducing the drain on the Budget surplus by broadening the attack on tax loopholes.
The Australian Democrats also wanted the following issues placed on the table during negotiations: taking the GST off tourism packages sold offshore; carefully reviewing the definitions of health, education and charitable activities to ensure that they are as broad as possible; tighter targeting of family assistance to maximise benefits for low income families by reducing benefits for higher income families; introducing a rebate of payroll tax for firms prepared to take on new employees; reducing the claw-back on unemployment benefits for employees who take on casual and part-time work; reducing the very high effective marginal tax rates faced by graduates on low incomes; not proceeding with the extended rebate for private health insurance; restoring the full 150 per cent research and development tax concession; and maintaining direct Federal funding of local government but with a fixed percentage of income tax collections. I list those matters to provide further details on the points I have already made.
After the election the Australian Democrats held the balance of power and, as clearly stated before the election, pursued their objective. Many lies have been told—particularly by the Australian Labor Party—about the Democrats promising to totally reject the GST, but in fact that was not at all true. Through the negotiation of a policy known as "A fairer, greener tax system—delivered", the following exclusions from the GST were obtained. The purchase of food, other than in restaurants and as takeaway, were exempted. Health exemptions were broadened to include natural therapies. Education exemptions were broadened to include adult education. Charities were given the widest zero rating in any Organisation for Economic Co-operation and Development [OECD] country. Child care and aged care services and local government were included in the negotiations. Rents and financial services were to be input taxed. To take the pressure off country motorists, diesel rebates were arranged for regional areas and some revenue was to be directed towards decreasing pollution in cities.
As a result of those negotiations, a $400 million greenhouse gas abatement program was established and $198 million over three years was to be allocated to encourage remote communities to replace diesel-based power generators. In addition, $16 million over three years was provided to promote commercialisation of renewable energy sources. The European diesel standard was introduced earlier than planned to ensure that the purchase of new plant resulted in reduced pollution. Local government retained funding by direct grants. Assistance for homeless people worth $15 million was arranged through the Supported Accommodation Assistance Scheme. Although not all books will be exempt from GST, 41 per cent of books sold to universities, schools, libraries and businesses will be exempt from GST. In addition, a package worth $240 million, which represents one-third of the cost of making books GST-free, will reduce the price of books and encourage the purchase of Australian-made books by Australian writers.
An exemption on health products worth $86 million was also negotiated. As I mentioned earlier, education and charities remain exempt from GST. Inbound tourism packages will be exempt from GST but overseas tourism packages will not be exempt. Self-funded retirees will receive compensation and families that have been disadvantaged by the parental means test in the common youth allowance will also receive additional income. Low income earners have been compensated by changes in the tax threshold and also by changes in marginal tax rates. The Australian Democrats forced a huge number of changes in the GST package in the interests of fairness. As a result of enactment of this legislation, the States will benefit immensely from an increasing and inflation-proof apportionment of revenue which will be unencumbered by Federal interference which will become a reality.
In case someone wants the facts as opposed to foolish rhetoric from the Government on what has been achieved by the Australian Democrats in negotiating a better tax deal for New South Wales and Australia as a nation, I seek leave to table the document entitled "Fairer Tax System, More Jobs—The Australian Democrats Taxation Policy Response", dated 18 September 1998, and the document entitled "A fairer, greener tax system—delivered", which is an analysis of the changes that were achieved by Meg Lees for the Australian Democrats after negotiation with the Howard Government.
The Hon. J. J. DELLA BOSCA (Special Minister of State, Assistant Treasurer, Minister Assisting the Premier on Public Sector Management, and Minister Assisting the Premier for the Central Coast) [8.15 p.m.], in reply: I thank honourable members for their contribution to the debate. I feel an irresistible temptation to respond to a number of matters, and I will do so, but I will not test the patience of the House by labouring too long. I assume that when the Hon. Dr A. Chesterfield-Evans made his comments during the debate they were intended to elicit a response from the Government, so I will turn to him first. It is complete nonsense to suggest that Federal Labor did not have a tax policy during the most recent Federal election, and I think the honourable member knows that. The honourable member also well knows that Kim Beazley presented a comprehensive plan for a tax credit system which was both fair and tailored to the needs of people who needed taxation relief.
Given the claim by the Australian Democrats to being the conscience of politics and social justice, I find it extraordinary that in spite of the innovative nature of Labor's tax proposition—regardless of its currency in the context of the most recent Federal election—and given the importance of Labor's innovative taxation policy as an anti-poverty trap measure, which would supplement existing social justice and welfare schemes, a member of the Australian Democrats, the Hon. Dr A. Chesterfield-Evans, should allege that Labor did not have a tax policy worth taking seriously. Perhaps members of the Australian Democrats did not take the tax policy of the Australian Labor Party seriously; but if that is the case, they did so at great peril to themselves and their rather nebulous and somewhat incredible but oft-quoted claim to be the conscience of national politics.
Labor's tax credit system was aimed at lower and middle income working families. It was designed to provide approximately 1.6 million one-parent and two-parent families with a tax credit, including 1.43 million two-parent families with children and 165,000 sole-parent families. It was aimed at substantially reducing the income tax burden on those families—families that were being hardest hit, as it became evident, by the most serious cuts in the history of post-war federation to health, education and the new era of child care. The tax credit system would have addressed the problem of high effective marginal tax rates that are experienced by families earning relatively low incomes, that is, below $35,000 a year. Labor's tax credit would have reduced the high effective marginal tax rates experienced by a one-child family in receipt of an income of less than $30,000 by 10¢ in the dollar. Labor's extended family allowance payment would have reduced the high effective marginal tax rate by a further 15¢ in the dollar.
Those tax credits were designed to assist families who were making the transition from welfare to work, which is a critical component of the modern social policy. The current Federal Government struggled to follow through and provide various options to assist families making that transition. After the most recent Federal election—the one that the Hon. Dr A. Chesterfield-Evans and the Australian Democrats choose to ignore—the Australian Labor Party sought to reward families and parents who are making the transition from welfare to work and produced a policy that was designed to assist parents to re-enter the work force rather than penalise them for doing so. In many respects, the taxation system still penalises the people who are making that transition and, regardless of the imposition of the GST—the so-called new tax system—will continue to do so.
It all relates back to what I regard as a critical point about the new taxing system. Most important—again largely in response to the comments of the Hon. Dr A. Chesterfield-Evans about the bill rather than in relation to the substantive balance of the debate—the tax credit system would have delivered a benefit to low and middle income families through the tax system rather than primarily through the social security system. As we know, a critical area of public microeconomic reform remains the need to develop a better relationship between the income tax system and the various taxing, welfare and social support systems.
For the benefit of the House and for the public record I correct the furphy peddled earlier by the Hon. Dr A. Chesterfield-Evans that Labor went to the last election without a credible income tax or, indeed, general tax policy. In the end it does not matter what sort of proposal the Australian Democrats claim they had with regard to reform of the tax system; they have lined up with the Coalition to support the GST, a tax which remains the unfairest tax system of all. I will correct another furphy, from the point of view of the historical record, in respect of the contribution to debate by the Hon. Dr A. Chesterfield-Evans. I do not think his view was supported by the Coalition but it may have been supported by the Hon. J. F. Ryan. It may be that he had his own reasons for doing so. The GST as proposed by this Government, either in its current form or the pre-Democrats mangled form, is not the same as a C-tax proposition. It never was the same as a C-tax proposition, the so-called option C from the Tax Summit in the early 1980s that so often is regarded as some kind of an indication of support for the GST by the former Labor Prime Minister Paul Keating—or even when he was Treasurer in the Hawke Government. That is not so. It is an historical furphy which I will quickly deal with.
It is a matter of public information, a verifiable and historical fact, that a C-tax is a broadly based consumption tax. It is a world away, administratively, functionally and operationally, from a GST. Admittedly, it does not raise as much revenue as a GST. I concede that point. A C-tax is about the real job of indirect tax reform which was flattening out the wholesale and retail tax system, something which the Labor Government subsequently took on and substantially achieved.
The Hon. J. F. Ryan: No, you didn't! You had three rates of tax, including a 33 per cent tax on toothpaste!
The Hon. J. J. DELLA BOSCA: You had your go. The Hon. J. F. Ryan is hastily defending the GST yet again—something his party will suffer for.
The Hon. J. F. Ryan: No, you are defending the old wholesale sales tax—a 33 per cent tax on toothpaste, orange juice, ice cream and soap powder. The battlers paid all of that, too.
The Hon. J. J. DELLA BOSCA: No, I made the point that the C-tax debate was about repairing faults in the wholesale and retail sales tax systems. If I might continue with my remarks; it is very difficult with this clatter. The key and significant real tax reforms, the ones that really affected the way the economy worked—capital tax reform, fringe benefits tax reform, company tax reform, including the massive cut in the real effective rate of company tax that put Australian companies on a globally competitive basis—were all things taken on by a much-maligned Treasury of Paul Keating at the time. They were the real tax reform achievements, the really substantial things that actually made a difference to the competitiveness of the economy—not the nonsense peddled around the traps as tax reform by the expensive advertising campaigns we see now.
Picture this: The Commonwealth Government is applying the GST to the post-excise price of petrol and alcohol—a tax on a tax. Not only is it applying a tax on a tax, the excise rates are linked to the consumer price index [CPI] and the Commonwealth has said it will use the full GST whammy CPI when it next adjusts excise rates. That commutes in 2001 to a CPI of approximately 6 per cent. This is the economically sensible approach of the introduction of a GST. As this bill sets out, New South Wales will discount the CPI for the GST impact. Any CPI-linked government charges will rise by the GST-free tax rate of approximately 3 per cent, a very responsible action by this Government. Not only is the Federal Coalition levying a tax on a tax, it is levying a tax on a super-inflated tax. It is amusing tonight to see the Coalition defending the indefensible: a tax on a super-inflated tax and a tax on just about everything else to boot. In relation to stamp duties, the New South Wales Government is taking the same approach as every other State: it is continuing the current policy in levying stamp duty on the purchase of a house on the post-Commonwealth tax price. It is as simple as that.
In relation to the new tax system—the so-called "a new tax system", or ANTS—as I said, the GST and the introduction of a GST is not a defensible proposition. Although it has been alleged to the contrary, the Government has consistently respected the fact that the Commonwealth Government has a mandate to introduce this new system. Our officers have co-operated in the introduction of the new tax system and have been as positive as possible in a circumstance where they are forced to implement a tax when this Government does not agree with the broad philosophy underlying it or the economic wisdom or lack of wisdom behind it. The Hon. Dr A. Chesterfield-Evans should not suggest that this Government has done nothing. It has been reasonable and co-operative with respect to the many aspects of this new tax system which are an impingement on and a breach of faith with the people of New South Wales and the Commonwealth of Australia.
The caravan rolls on; the dogs are barking. A member of the National Party is in the House. In reality that is another example going back to the never-never when the Commonwealth Government said specifically that people paying domestic rents would not be subject to the GST. Quite simply that has been proven to be untrue in the case of permanent caravan park residents. Those people have unexpectedly risen and embarked upon a grassroots campaign to make the Government honest and true to its word, but they have not been successful in getting some kind of relief from the Commonwealth Government. They are not getting any help or sympathy from the barbecued chicken Coalition, the GST Democrats who persist in what I think will be proved to be one of the great frauds against the Australian body politic—the introduction of the GST disguised as tax reform. It is nothing more than a tax designed not to confront any of the real social issues, substantial tax reform issues either from an economic or social point of view, but simply designed to fulfil what seems to be the pernicious obsession of a Prime Minister, driven by accounting principles, rather than concerns for public policy. I commend the bill to the House.
Motion agreed to.
Bill read a second time and passed through remaining stages.