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Environment, Communications, Information Technology and the Arts Legislation Committee - 10/06/99 - AUSTRALIA POST

Senator MARGETTS —What will be the estimated effect, after any savings due to the abolition of existing indirect taxes, of the introduction of the GST on Australia Post?

Mr Ryan —We are still doing some modelling. It is relatively early days and the legislation may change yet before it is passed. I start with that qualification, and also advise you that we are still having discussions with officials, including the tax office, about aspects of the package. So any of the figures I give you need to be highly qualified. Perhaps I could give you cost savings and the net effect on our letters business. The costs we think would range from $80 million to $100 million in terms of revenue impacts. It may be slightly more than
$100 million. For savings, the range of estimate could be in the order of $20 million to $30 million.

There is an unknown factor in all of this which could then affect the bottom line impact. With reduced prices for the basic letter service as a result of the government's requirement for us to absorb the GST on the basic letter rate and because of likely flow[hyphen]through to lower prices in our bulk area, there may well be some growth. If there is growth, that will reduce the impacts of the package in total terms on the corporation. Again with that qualification, the profit impacts could be of the order of $50 million to $80 million, depending upon all of those variables. They may indeed be lower than that.

Senator MARGETTS —The CEPU has made quite different estimations. Have you seen their estimations of costs?

Mr Ryan —No, I have not, Senator.

Senator MARGETTS —I will be putting some questions on notice, and I would be interested in the answers on those. What is the estimated administrative cost to Australia Post of becoming GST compliant?

Mr Ryan —It will be what we would call a one[hyphen]off transition cost. Again, a ranged estimate of that could be $35 million to $40 million. That would be, as I said, a one[hyphen]off cost. There would be some ongoing costs. I do not have a figure for that, and I will take that on notice.

Senator MARGETTS —Have you worked out how the potential cost implications of the GST will affect Australia Post's revenue and overall profitability?

Mr Ryan —As I indicated before, the bottom line effect could be in the range of, I think I said, $50 million to $80 million. But I think there is a very important point for us to make as a GBE here and being fully owned by the government. What the government, I think, has done is decide to provide a benefit up[hyphen]front to postal users, because under the GST package those postal users will be able to claim input tax on their postage cost, which will effectively reduce their postage costs from 45c to 40.9c. Clearly, there will be a flow[hyphen]through effect on our profit, but what the government is really doing is providing an up[hyphen]front benefit, through its policy directions, to postal users rather than the government getting a benefit later on in the form of tax and dividend.

Senator MARGETTS —Would that up[hyphen]front benefit be separate from the other calculations you have just made? Wouldn't that impose another cost on you?

Mr Ryan —No. The reduction in revenue that I spoke of will in fact translate directly to a saving to our postal customers. We do not need to accommodate both of those. One occurs as a natural consequence of the other.

Senator MARGETTS —Are you expecting any difference to the charges?

Mr Ryan —No, we have indicated that we intend to maintain the basic postage rate at 45c until 2002. We have always had a rider, `subject to no unforseen circumstances', but there is no intention on our part at this time to increase the basic postage rate.

Senator MARGETTS —What about other services? Will you be able to maintain the price only on the postage rate or will you have to absorb some of those extra costs in other services?

Mr Ryan —There will be some impact on our bulk rates. Our bulk rates are lower than 45c. Because the 45c rate will be effectively reduced to 40.9, the bulk rates that currently exist between 40c and 45c will have to come down and there will be some spin[hyphen]off effect into the lower levels of bulk rates. So there will be some other price reductions as a result of us
complying with the government decision that we absorb GST on the basic postage rate. As regards other services that are in the competitive arena, our pricing policies there will have regard for our position in the market and costs in those areas. We have certainly not ruled out cost increases in other areas of the business.

Senator MARGETTS —What are the implications for the continuation of existing service levels, such as post office outlets, delivery frequencies, range of services and employment, of the GST on Australia Post if you have to make checks and balances in other areas?

Mr Ryan —I think the check and balance, if you like, that will emerge out of this will be lower profit and dividends but not lower service and not closures, as a result of the GST decisions.

Senator MARGETTS —How will Australia Post recoup the impact of the GST on international mail services, given the restrictions placed on Australia Post on international postage rates due to the international universal postal union agreements?

Mr Ryan —That is a matter we are discussing with the tax office at the moment to see if there is any way those costs can be ameliorated under the legislation.

Senator MARGETTS —What are the various implications?

Mr Ryan —The implications are pretty straightforward. If we cannot recover the costs of GST on incoming mail, that will have an effect on our profit.

Senator MARGETTS —What sort of ballpark are we talking about?

Mr Ryan —I do not have that available, but I would like to take that on notice and provide that to you.

Senator MARGETTS —What steps is the government taking to ensure that tax savings are passed on? How effective can they be? You have mentioned a requirement for an extensive supply base, which is obviously particularly relevant to Australia Post.

Mr Ryan —I guess what the government is doing is a matter for the government. For our part, when we are renegotiating supply contracts, we will be seeking to include in those contracts an assurance that our suppliers are passing on any savings that they render out of the GST package in their pricing to us.

Senator MARGETTS —How will the GST affect the wider postal services sector, including the private sector? Obviously, you have some special arrangements, but how do you think it is going to affect the private sector?

Mr Ryan —I think that is a matter for them. We can certainly speak for ourselves.

Senator MARGETTS —How big is the private sector now?

Mr Ryan —There is a very large network operated by a couple of competitors for the delivery of unaddressed advertising material. That provides some scope later on as the reserve service protection levels come down for those companies to move into personal addressed mail, subject to certain price and weight restrictions.

Senator MARGETTS —Are postal services part of the necessities of life? Is that the way Australia Post tends to see them?

Mr Ryan —We certainly regard it as a fundamental part of the communications infrastructure for all Australians, yes.


Senator MARGETTS —These are obviously very important issues. Why didn't Australia Post make a submission to the Senate inquiry into the GST, given that one of these committees was investigating the impact of the GST on the communication sector?

Mr Ryan —As far as I know—and this is only, I guess, half an answer—the committee did not seek a submission from us, which perhaps might be as equally surprising as your comment about us. I do not think a submission was sought, but I would need to check that.

Senator MARGETTS —One would assume that Australia Post would have something important to say on a big issue like the impact of a GST on communications. I do not know that it was necessarily the case that nobody on the committee wanted Australia Post to attend, or that no communications were sent that way, but even if that was the case, why didn't Australia Post automatically think, `We can be helpful here in presenting the impacts on communications'?

Mr Ryan —I guess we looked at it from the point of view that, in terms of our customers, the impacts are likely to be pluses rather than negatives, and therefore any concerns for our customers that the Senate committee might otherwise have been interested in were really not there.

Senator MARGETTS —Did Australia Post receive any directives from the government in relation to presenting information to the Senate committee?

Mr Ryan —No, none at all.

Senator MARGETTS —No directives one way or the other at all?

Mr Ryan —No, none at all.

Senator MARGETTS —Thank you.

CHAIR —Have you finished, Senator Margetts?

Senator MARGETTS —Yes, thank you. I am just going to put a series of further technical questions on notice.

Senator MARK BISHOP —I have a few questions on the GST also. Has Australia Post undertaken any modelling to examine the impact of the GST on the postal industry?

Mr Ryan —We have done some modelling in respect of ourselves, Senator, but not on the postal industry generally.

Senator MARK BISHOP —In respect of the business of Australia Post?

Mr Ryan —Yes.

Senator MARK BISHOP —Can you tell the committee what that modelling has revealed?

Mr Ryan —As I indicated to Senator Margetts, the revenue impacts are in the range of $80 million up to $100 million. We generate some savings out of the package of around $20 million to $30 million. So there is a bottom line effect ranging from, I think I said, $50 million to $80 million. But I would qualify that by saying that we are still modelling. We are still having discussions with officials, including the tax office, about aspects of the package, and the legislation itself of course is not framed and the supporting regulations are still awaited. So I would have to heavily qualify those figures.

I did make the point earlier, and I should make it again, that, in terms of the bottom line, because part of the impact of this package is going to be lower postage prices, that may lead to some volume increase, which would mitigate the losses that I spoke of earlier. The other qualification is that the government has decided, through its policy directions, to offer a benefit
to our postal customers now, rather than the government taking the benefit later by way of tax and dividends.

Senator MARK BISHOP —Understood. I think we have gone as far as we can on that. I just have some basic questions on postal outlet numbers, and I think they are fairly accessible from your annual report. If you cannot tell me off the top of your head, just take it on notice: what is the current number of postal outlets in metropolitan areas, rural areas and remote areas? Which postal outlets, if any, have been closed to date in the current financial year, and what was the reason for these closures? I am happy for you to take that on notice, Mr Ryan.

Mr Ryan —I can give you some figures for December 1998. That is the latest set of figures I have for that dispersion.

Senator MARK BISHOP —For December 1998?

Mr Ryan —Yes, so it is about—

Senator MARK BISHOP —You provided me some figures in the February estimates, did you not? Would they be the same figures?

Mr Ryan —Yes.

Senator MARK BISHOP —We already have those.

Mr Ryan —We will take that on notice.

Senator MARK BISHOP —I want to turn to the complaints review mechanism investigations. We had a discussion back in February—they are on about page 195. Can you tell me what results, if any, have been received from the investigations into major supply contracts raised in those February 1999 estimates hearings?

Mr Ryan —I need to be clearer: are we talking here about security in mail centres, and in particular in relation to bulk mail lodgments? I can recall—

Senator MARK BISHOP —Yes. As I recall, we had a lengthy discussion about a range of fraudulent activities that were being engaged in. You advised me that they were under current review and current investigation at that time. I am just asking where we are at on that. If you want to take that on notice, I am comfortable with that, Mr Ryan.

Mr Ryan —I can indicate that, first of all, there were two AFP investigations under way. One of those has resulted in several people being committed for trial. We do not expect the matter to be finalised until some time in the year 2000. There is another matter that is ongoing, and the AFP investigation is continuing.

Senator MARK BISHOP —If there is any other information you can provide, take it on notice.

Mr Ryan —Yes.

Senator MARK BISHOP —How many employee complaints have been directed to the independent board of reference during the current year? Do you know the answer to that off the top of your head?

Mr Ryan —Not off the top of my head, Senator.

Senator MARK BISHOP —Could you take that on notice?

Mr Ryan —Yes.

Senator MARK BISHOP —Could you also take on notice the general nature of those complaints and how many outstanding complaints are currently before that independent board of reference?


Mr Ryan —Yes.

Senator MARK BISHOP —What are the likely implications—as to waste and cost—for Australia Post of the government's decision to deregulate the postal industry?

Mr Ryan —Whilst we do have the government's policy announcements, we are still waiting on the legislation.

Senator MARK BISHOP —We know their policy position, don't we?

Mr Ryan —Yes, we do, but in broad terms that will result in around 88 per cent of our revenue being exposed to competition. At present, around 55 per cent is exposed to competition. So it is quite a significant increase. Clearly, there will be some impact on revenue and profit. It is difficult for me to give you an assured figure at this stage. It really will depend on what we do in the market and what our competitors offer.

Senator MARK BISHOP —Have you done any modelling of likely effects?

Mr Ryan —There has been some early modelling work done. I could probably provide you with some indicative figures. I think we would need to spell out the underlying assumptions with those figures.

Senator MARK BISHOP —Yes, you would.

Mr Ryan —Could I raise one issue in relation to that, Senator. If we were to provide that information, we would want it handled on a commercial[hyphen]in[hyphen]confidence basis. We would not want our competitors to have access to that material.

Senator MARK BISHOP —I understand the point you are making there, but my understanding is that information supplied to questions on notice is in the public domain and is accessible by anyone.

CHAIR —There are other ways of dealing with it.

Senator MARK BISHOP —The secretary of the committee advises me there are ways to achieve your purpose. She will be in correspondence with you.

Mr Ryan —Thank you.

Senator MARK BISHOP —Going back to those investigations, the matter I am referring to can be found in the second paragraph of the Hansard of 11 February, page 195. When you give your response, we are particularly referring to that issue there.

Mr Ryan —When I gave that earlier response, I was referring to issues that were current.

Senator MARK BISHOP —That is fine. Now I want to turn to the Ellicott matter. We had discussions on that during the last two rounds of estimates. I think we were advised in the May hearings that Mr Ellicott had recommended his review of procedures to date. He had been working for two or three days and had spoken to witnesses. It was anticipated that there would be another couple of days work before he delivered his report to Australia Post. Can you bring us up to date with where that is at?

Mr Ryan —Yes, I can. Firstly, to correct a couple of points, I think I indicated that four to five days work had been put into interviewing and inspections. I am not sure that I was all that confident it would be another two or three days. That is really a matter for Mr Ellicott's judgment. We are awaiting his report. He has a number of matters on, as I indicated previously. The latest advice I have is that we expect to have his report by around the middle of this month.


Senator MARK BISHOP —So he has concluded his investigations and it is now a matter of writing up his conclusions and delivering same to Australia Post?

Mr Ryan —That is correct, unless in the course of writing up his conclusions he wishes to seek further information, but that is a matter for him.

Senator MARK BISHOP —Has Mr Ellicott indicated to you his line of thinking in the inquiry?

Mr Ryan —No, he has not.

Senator MARK BISHOP —When you receive that report, will you make a copy of it available to the committee?

Mr Ryan —I would like to take that on notice. What we have undertaken to do is advise the minister of the outcome.

Senator MARK BISHOP —Yes. Will you be making a copy available to Mr Cook?

Mr Ryan —Again, I would like to take that on notice.

Senator MARK BISHOP —He is the complainant in this matter.

Mr Ryan —He has acted as the representative of the employee against whom action was taken, yes.

Senator MARK BISHOP —He is the representative of the employee who was aggrieved in this matter.

Mr Ryan —Who claims to have been aggrieved, yes.

Senator MARK BISHOP —Okay, who claims to have been aggrieved. Acting on behalf of this employee Mr X, Mr Cook has written to the minister. The minister has responded by communicating with Australia Post and Australia Post, in its wisdom, has chosen to go down the path of an independent inquiry conducted by Mr Ellicott QC. That inquiry is near conclusion and a report will be delivered to Australia Post, you say, by the middle of the month. A number of parties are interested in that: obviously Mr X is interested; obviously Mr Cook, who has complained on behalf of Mr X to the minister, is interested; the minister's department are interested; Australia Post are interested; the relevant Postal Workers Union are interested; and the various management people who have been involved in this process are interested. What reason could there be for maintaining confidence or privacy on a report commissioned by Australia Post arising out of its own internal disciplinary procedures?

Mr Ryan —Frankly, I am not saying there is. What I am saying is that I need to take your request on notice. I cannot commit absolutely today to providing this committee with a copy, and that is all I have said.

Senator MARK BISHOP —Fine. I take your point, Mr Ryan. It is an entirely proper response. I am just advising you that the committee has a continuing interest in the matter because of the many tens of thousands of dollars of public moneys that have been expended in this area. We will be interested in Mr Ellicott's report. As I recall, either you or your colleagues advised the committee on two occasions that the relevant employees subject of complaint were men of considerable integrity and you, having internally reviewed the facts of the case, had no cause to doubt the veracity of their findings at first instance.

The second point I draw to your attention is that you do have in your award a disciplinary process at first instance and then review to an independent tribunal. You have gone through that process, and all of those materials are in the public domain and are properly accessed by interested parties. We will be interested in pursuing this matter.


Mr Ryan —To be frank, I am not sure that our disciplinary procedures are in the public domain in the sense that anyone can access them. Certainly the parties directly involved access materials relating to disciplinary matters and tribunals, if they get involved in reviewing any disciplinary cases, would have access.

Senator MARK BISHOP —Yes.

Mr Ryan —But I am making the point that I am not sure that that means they are in the public domain for anyone to view.

Senator MARK BISHOP —Isn't part of the award appeal system an appeal to an independent tribunal chaired by an independent commissioner and a rep from Australia Post and a rep from the union?

Mr Ryan —Yes, a board of reference.

Senator MARK BISHOP —That is a public administrative body and its material and decisions can be accessed by any person for fee.

Mr Ryan —That is an assertion you make. I am not sure if that is correct or not. I will check that.

Senator MARK BISHOP —You might check that. It is my experience from having worked in the field for 15 years that boards of reference decisions are accessible by members of the public. They are no different to a court decision for fee.

Mr Ryan —As I said, I will check that.

Senator MARK BISHOP —I suppose the point here is that we would ask for a copy of the report from Mr Ellicott to be delivered to the committee as soon as possible after it has been received by Australia Post. If you are unable to deliver that report to the committee, I would also request you to advise the committee in writing as to why you choose not to deliver that report.

Mr Ryan —Yes. As I said, Senator, I will take that request on notice and I will have it considered.

Senator MARK BISHOP —I did have some propositions to put to the minister on this issue, but I think I might leave it until we have a copy of the report and then come back to it in four or five weeks time. I apologise if I have caused the minister any inconvenience. That concludes my questions for Australia Post.

CHAIR —Thank you very much, officers of Australia Post.

[11.46 a.m.]