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Program 7—Insurance and Superannuation Commission
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Economics Legislation Committee
DEPARTMENT OF THE TREASURY
Program 7—Insurance and Superannuation Commission
Senator GEORGE CAMPBELL
ACTING CHAIR (Senator Watson)
ACTING CHAIR (Senator Chapman)
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Economics Legislation Committee
- Start of Business
DEPARTMENT OF THE TREASURY
- Program 6—Australian Competition and Consumer Commission
- Program 5—Productivity
- Program 8—Business affairs
- Program 2—National Competition Council
- Program 1—Treasury
- Program 4—Taxation administration
- Program 7—Insurance and Superannuation Commission
- Senator Kemp
Content WindowEconomics Legislation Committee
DEPARTMENT OF THE TREASURY
Program 7—Insurance and Superannuation Commission
Senator Kemp —Mr Chairman, before we start—the committee I think is aware of this but just so there is no confusion: I think Mr Henry and Mr Greg Smith cannot be with us tomorrow.
CHAIR —That has been announced.
Senator Kemp —It would be of great advantage if we could deal with the issues that they are involved in.
CHAIR —We will bear that in mind, but it is entirely up to senators as to which questions they want to ask. Senator Faulkner.
Senator FAULKNER —I ask about the Department of the Treasury's part in relation to the $10 million advertising campaign. In relation to the Australian Taxation Office, we were informed in the consideration of the estimates of the Department of the Prime Minister and Cabinet that there was an ATO officer who had been seconded to work with the Department of the Treasury on this project. I wondered at the outset if you could let me know who that was, please.
Mr Smith —The officer's name is Mary O'Neill.
Senator FAULKNER —Thanks very much. I gather there is a working group that is being coordinated by you, Mr Smith, for this advertising campaign. It includes Ms O'Neill and also Mr Vaughan from the Department of the Prime Minister and Cabinet. I wondered if you could just quickly let us know who else is involved in that and perhaps your own role, which I gather is the key coordinating role in the group.
Mr Smith —I am responsible for the executive oversight of the project. Other key participants are Dr Henry, Karen Chester and Mr Vaughan. Beyond that the people involved essentially are people from the Tax Reform Group, spending varying amounts of time on the project. This could extend over time to any number of people going forward.
Senator FAULKNER —Could you explain to the committee the nature of Mr Vaughan's involvement in this operation?
Mr Smith —Mr Vaughan has been engaged as project leader.
Senator FAULKNER —I gather that, as he acts in that capacity as project leader, he does so, effectively, not as an officer of the Department of the Prime Minister and Cabinet—correct me if I am technically wrong here—but as something along the lines of a seconded Department of the Treasury officer. Is that a fair explanation of how this is working?
Mr Smith —He reports to me, Senator.
Senator FAULKNER —Yes, but in his role as project leader, as he undertakes that role is he, effectively, working as a PM&C official or does he have another status?
Mr Smith —He works to me, which means that he essentially is employed or engaged by the Treasury in that role. The Department of the Prime Minister and Cabinet has made him available on a part[hyphen]time basis for that purpose and is still responsible for him as a public servant, but he reports to me and is subject to my direction in respect of this project.
Senator FAULKNER —Was he offered up to your team, or did you go looking for him?
Mr Smith —He was offered up.
Senator FAULKNER —Who offered him up?
Mr Smith —His name was put to me. I believe the name was given to the Treasury by the Treasurer's office.
Senator FAULKNER —Do we know, Senator Kemp, how the Treasurer's office came up with up with the name of an officer of the Department of the Prime Minister and Cabinet to be project leader here?
Senator Kemp —I have not got any particular information. I will seek that information for you.
Senator FAULKNER —I would be pleased if you could perhaps find that out over the dinner break so we might be able to—
Senator Kemp —I will see what can be done.
Senator FAULKNER —Thank you very much. I would appreciate that because I would like to follow that through. The Treasurer's office had an involvement here in determining the project leader. It is starting to sound a bit like there is a political involvement in this, isn't there, Mr Smith?
Mr Smith —There certainly is. It is perfectly standard for us to work to the Treasurer and other ministers on a project like this. In fact, under our legislation, we work under the minister in all respects.
Senator FAULKNER —Can you explain to me what your role, in terms of executive oversight, is for the project team? Is that a reasonable term? I would like to know what I am talking about so let me use the correct terminology.
Mr Smith —The Treasury is charged with giving effect to this program. I have been asked to oversight the management of the program.
Senator FAULKNER —What does the project leader do?
Mr Smith —His job is to give effect to the project.
Senator FAULKNER —Did you determine that Mr Vaughan would be the project leader?
Mr Smith —Yes, I did.
Senator FAULKNER —Could you tell us why?
Mr Smith —As I say, the name was suggested to us and, I presume, as a result of discussions which occurred at the time, the decision was made to establish the project. The Treasury does not have much experience recently with projects of this kind so I was very keen to get someone with the relevant experience and was very pleased to take up the suggestion.
Senator FAULKNER —I see. As I understand it, we have a situation where we now have a research contract having been let for this $10 million advertising campaign. I know the name of the company is Worthington Di Marzio. You can tell us whether that information is correct.
Mr Smith —Yes, the company was Worthington Di Marzio.
Senator FAULKNER —Was that a $200,000 research contract?
Mr Smith —That is not correct.
Senator FAULKNER —That was the evidence given to us in another estimates committee so I would appreciate your telling us what the facts are about that.
Mr Smith —I understand that the information you were given in another committee was, in fact, information given about our estimate of what this contract would cost but, in fact, we managed to get this contract on a significantly less expensive basis than that figure. It was less than $100,000, in fact.
Senator FAULKNER —Could you tell us what the figure was?
Mr Smith —The contract is ongoing and we do not have any invoices at this point. The limit on the contract is a little under $97,000.
Senator FAULKNER —Under $97,000?
Mr Smith —Yes.
Senator FAULKNER —That is the limit on the research contract. Are there limitations for qualitative research only or is there a capacity for Worthington Di Marzio to engage in qualitative research also?
Mr Smith —It is a qualitative research project.
Senator FAULKNER —You would appreciate that we have had evidence from OGIA and also from the Department of Prime Minister and Cabinet. I appreciate that the Department of the Treasury is the client department so some of the information may not be entirely accurate. I think we were advised that there was a capacity for quantitative work in the contract. All I am asking you is whether it is clear that the Worthington Di Marzio contract is limited to qualitative work?
Mr Smith —I believe so. I think the confusion may be that we may do other research. We are still looking at the variety of research and contracts that we may let. The type of involvement that OGIA have in this type of project is to give us advice in these areas. They have been asked to give advice of a broader kind and I think that may be the explanation. At this point, all we have done is go for this particular contract that I have referred to.
Senator FAULKNER —Did you go to an open competitive tender for this or was there a selective tendering process?
Mr Smith —I can confirm the information you have been given in the other committees, that we had a selective tender and there were six names put forward by OGIA for our consideration.
Senator FAULKNER —Who made the decision as to the successful tenderer?
Mr Smith —I did, Senator.
Senator FAULKNER —With the advice of your group?
Mr Smith —That is correct.
Senator FAULKNER —The project leader and so forth?
Mr Smith —Yes.
Senator FAULKNER —When did the project leader take up those responsibilities?
Mr Smith —I think effectively we could say 4 May.
Senator FAULKNER —That is when Mr Vaughan started spending some time working with the Treasury on a part[hyphen]time basis?
Mr Smith —Yes, Senator. I spoke to Mr Vaughan before that date. That was the first Monday in May and we began work that week.
Senator FAULKNER —Have you had any discussions with the Secretary to the Department of the Prime Minister and Cabinet about this matter?
Mr Smith —No, Senator.
Senator FAULKNER —Thank you for that. In relation to the research contract, perhaps you could just tell us a little bit about what you are driving at with this qualitative research. I am sure that would be helpful to the committee.
Mr Smith —The purpose of the research is to assist us in the development of the program, to provide us with information about the understanding of the tax system and views of taxpayers and so on about the tax system as it is, and their understanding of reform issues to help us in the development and design of the community education and information program.
Senator FAULKNER —So it is not limited to attitudes to the existing tax system? It goes beyond that, does it?
Mr Smith —Yes, Senator.
Senator FAULKNER —Can I explore that a little with you and what types of areas?
Mr Smith —I think I am willing to give you that much information at this point, Senator, but given that we are in the middle of a process, I think that is probably as much as I could give you at this point.
Senator FAULKNER —I would be interested in knowing whether you are looking at changes to the tax system. Is that part of the brief for this particular agency? I cannot imagine why that question would cause you any consternation. After all, we have heard this is not a politically motivated campaign, I think it would be in the public interest for us to have a better understanding about the types of issues you have asked your research company to consider.
Senator Kemp —Mr Smith has expressed his view that he thinks they are still in the process of dealing with this matter and he does not wish to go any further.
Senator FAULKNER —In the selective tendering process, I assume you had some broad criteria that you would be asking the research company to examine on behalf of Treasury. Would that be right?
Mr Smith —I am not quite sure of the precise question you are asking. Are you seeking information about the tender or are you seeking information about the process subsequent to the tender?
Senator FAULKNER —I am asking: in the tender process what framework was provided to the research company about the nature of the research tasks they were being asked to undertake—what they were tendering for?
Mr Smith —They were given a request for a tender in a fairly standard form, including identifying what the subject matter was.
Senator FAULKNER —Could you make that available to the committee?
Mr Smith —As I say, it was a research project in the terms that I have already described. It was to look at the understanding of the community about the tax system and the need for tax reform.
Senator FAULKNER —Mr Smith, that does not actually answer the question that I asked. I appreciate the information that you have given us and that is helpful. But I actually ask that you make the request for tender available to us so that we may see in more detail how the research company was tasked.
Mr Smith —I do not think that it would be appropriate to release any information of that kind during the project that we are currently midway through.
Senator FAULKNER —But why would that be? Surely, the tender processes have been completed. The agency has been appointed.
Mr Smith —Yes. But the project is—
Senator FAULKNER —It is not normally the practice of the Department of the Treasury, is it, to keep these sorts of things as secret documents? It is not often for other government departments. I suppose I am not completely familiar with the way the Department of the Treasury works on these sorts of things.
Mr Smith —It is more a proposal in relation to that question. I will take it on notice and see if the minister wishes to release anything further.
Senator FAULKNER —Can you explain to us what possible implications there would be and what possible reason you could have for not providing such information?
Senator Kemp —I think that is a matter for the minister. Minister Costello will make a decision about what information will be made available.
CHAIR —Senator Faulkner, if the officer at the table chooses to take a question on notice, he is entitled to take it on notice.
Senator FAULKNER —I agree that it is appropriate often for officers to take questions on notice. But there are some times when these sorts of matters are properly pressed by committee members and at times, when it is more appropriate, given the sensitivity of the issues being canvassed and the answers to questions asked, there is at least an attempt made by officers at the table to answer them.
This is a matter of judgment. I accept that. Certainly there are times when it is reasonable for questions to be taken on notice, but it is not as if Mr Smith, in this instance, is not well aware, and he has a close involvement here as the person with the executive oversight of the actual process. I think we are talking to an officer very directly involved and probably able to assist the committee quite extensively, given his formal responsibilities.
CHAIR —I understand the point you are making, Senator Faulkner, but if the officer chooses, for whatever reason he may have—and he does not have to divulge his reasons—to take a question on notice, he is entitled to do that. And he has asked to take the question on notice.
Senator FAULKNER —Mr Smith, has Worthington Di Marzio been tasked to undertake research into, if you like, brand names for a GST?
Mr Smith —I think that you are now pressing the earlier question, Senator. I have nothing further that I can add to my previous answers regarding the content of the brief.
Senator COOK —I, too, am very interested in the line of questioning that has just now developed.
CHAIR —I understand, Senator Cook. Senator Faulkner has the call if he chooses to allow you to ask a question.
Senator FAULKNER —We are a pretty cooperative bunch in here. There is nothing wrong with a tag team in the estimates committee. We have found it has worked pretty successfully.
CHAIR —I understand that but we have got close to free[hyphen]for[hyphen]alls a couple of times in the past couple of days. I am quite happy for Senator Cook to break into the questioning.
Senator FAULKNER —And so am I.
Senator COOK —When you say that you will take the question that you have been asked by Senator Faulkner on notice, will you be able to get us an answer after dinner?
Mr Smith —I very much doubt so, Senator. It is my view, which I will reiterate, having already expressed it, that since we are in the middle of a sequence of processes for a community education program in relation to a matter that has not yet been announced by the government, it would be quite appropriate for us not to disclose at this time details in relation to the project.
Senator FAULKNER —I am sorry, what has not been announced by the government, Mr Smith?
Mr Smith —Its proposals for tax reform.
Senator FAULKNER —So the government has not announced its proposals for tax reform, but you do not see any inconsistency with the fact that you are presiding over and having executive responsibility for a qualitative research campaign about a matter that has not been announced. This is a pretty reasonable point, I think, that you are raising and I think that there is a very important public policy issue involved in it.
Senator Kemp —I think there are some precedents for this, I understand, and you will be aware of them, as well. I think they were rather well expressed by the Treasurer in question time today.
Senator FAULKNER —I have no idea what the Treasurer did in question time and I could not care less. I am asking about this campaign.
Senator Kemp —You are asking questions to the Treasury. The Treasurer is the responsible minister. He has dealt with this sort of issue in question time. You have shown a great interest in this issue so I would have imagined that you would have been interested in what the Treasurer had said.
Senator FAULKNER —If you can provide me with a Hansard copy, I am happy to read it.
Senator Kemp —We shall certainly see if we can provide you with a copy. It deals with the sorts of precedents which have occurred in this area and the instance, from memory, of the 1985 campaign, which the former Labor government ran.
Senator FAULKNER —When was the next federal election after 1985, Senator Kemp? You are a man with an interest in history.
Senator Kemp —This is not a trivia show, Senator. I am telling you—
Senator FAULKNER —It is not a trivial issue.
Senator Kemp —The question you raised was whether there should be an education campaign.
Senator FAULKNER —I did not raise that question at all.
Senator Kemp —Yes, you did: when the government had not announced its proposals. That is what you asked. I think the Hansard will show that that is correct. I said that there was a precedent, and I referred to the precedent that was developed by the previous Labor government.
Senator FAULKNER —Senator Kemp, what I am asking is in relation to an advertising campaign. We will talk about the advertising campaign a little later. At the moment, we are talking about the research company that is doing preparatory work in relation to the advertising campaign. I think that is a fair statement, isn't it, Mr Smith? We are talking about a research company that has been engaged to do work prior to the development of the advertising campaign. Is that correct?
Mr Smith —Prior to the development of the community education and information campaign, which, I would expect, would include advertising.
Senator FAULKNER —Okay, prior to the community education program, which I am calling an advertising campaign. But that is just shorthand; I am more than happy to use whatever terminology you care to use yourself. We are talking here about the qualitative research that is being undertaken. Senator Kemp apparently is talking about advertising; I am talking about research. I know he is not that sophisticated when it comes to these sorts of things, but you have to get it clear: there is actually a difference. This is work that is occurring prior—
Senator Kemp —Senator, if you want to have a political debate, the truth of the matter is that the Labor Party got creamed in question time today on this issue and you are trying to recover some ground. We understand that. If you want to have a political debate, we will have one, but we have some very distinguished officers from the Treasury here who are happy to answer questions.
CHAIR —Order! Minister, I think we ought to allow Senator Faulkner to continue. If I am going to ask senators not to interrupt when officers are answering questions, I think it is only fair that the minister does not interrupt when the senator is asking questions. Senator Faulkner—
Senator COOK —Can I just ask a question on this point?
CHAIR —I have called Senator Faulkner.
Senator COOK —I am just asking, through you, Mr Chairman, whether I can ask a question on this point that Senator Faulkner is examining at the moment.
Senator FAULKNER —By all means; feel free to do it now.
Senator COOK —Mr Smith, you have said this qualitative research is—and I think I took the note correctly—what taxpayers think about reform, and their knowledge of taxation. Am I right in thinking that is what the qualitative research is going to cost—$97,000, about?
Mr Smith —I have expressed it in general terms, Senator.
Senator COOK —But, in general terms, that is accurate?
Mr Smith —As I think you are aware, it is qualitative research—focus group type research—which tests the knowledge of taxpayers, and their understanding and views of various matters.
Senator COOK —The evidence we have had before this committee, not in its present convening but convening for earlier estimates, is that the Gibson committee—the parliamentary committee chaired by Senator Gibson—has exactly the same task: to obtain community opinion about taxation, taxation reform—whatever that word means—and to gain community understanding. Have you talked to Senator Gibson about his findings on this very matter?
Mr Smith —I have not, Senator.
Senator COOK —Do you intend to?
Mr Smith —I do not intend to, Senator.
Senator COOK —Why not?
Mr Smith —The purpose of this research is communications based. My job is to conduct this research; it is not my job to understand the views of Senator Gibson's committee or the views put to Senator Gibson's committee. As I say, I have executive responsibility for this program.
Senator COOK —But Senator Gibson's committee—we will come to the cost of it later—has been convened for some time. We understand it has taken extensive evidence. We understand it has travelled widely and has obtained a broad cross[hyphen]section of community view—and particular business view—about a GST and other tax issues. We are not sure what is going to happen. I understand we are not going to actually have provided to us publicly the findings of the Gibson committee, and I also understand we are not going to get a report.
We were advised by Dr Henry, in a previous hearing of this committee, that his task force would consult with and talk with the Gibson committee task force. It seems to me your job arises from the work of Dr Henry's committee. Why would you not consult the Gibson committee and the extensive work they have done on this subject over a long time throughout Australia, when what they are doing coincides with the information that you are looking for?
Mr Smith —I took your question, Senator, to be directed at me personally, and I did not have a personal intention to speak to Senator Gibson—which was your question. Whether or not that material is used to inform, or help inform, this project, I am not in a position to say at this time whether or when it may be. It is not something that I have addressed at this point.
Senator FAULKNER —You certainly could say to us, could you not, Mr Smith, whether the qualitative research that Senator Cook asks about is going to the issue of the effectiveness of advertising—in other words, what people take notice of in an advertising campaign? I do not think that is an unreasonable thing for you to at least inform us about.
Mr Smith —I think that that type of thing is intrinsic to the type of answer I have given. As I say, I do not propose to get into the details of the project. When I say that the purpose of it is to inform a communication exercise, then clearly one can list dozens of possible elements of informing a communication exercise.
Senator FAULKNER —Are there plans for quantitative research to take place at a later stage?
Mr Smith —We have not made any decisions about that at this stage. The only contract that we have let for research is the one that you are aware of.
Senator FAULKNER —I appreciate that that may be the only one you have let for research, but evidence to another estimates committee indicated that quantitative research was certainly being contemplated. You are not aware of that?
Mr Smith —Yes, I am aware of the types of projects that are contemplated but, as I say, at this stage the range of things that is contemplated has not been taken to the point of decision and so I do not propose to answer questions of a hypothetical nature about what we may or may not do.
Senator FAULKNER —When will the qualitative research project conclude, please?
Mr Smith —It is close to conclusion now, Senator.
Senator FAULKNER —When will it conclude?
Mr Smith —I cannot give you a precise date, but it will be very shortly.
Senator FAULKNER —Have you received preliminary reports from Worthington Di Marzio?
Mr Smith —Yes, we have.
Senator FAULKNER —Have they been verbal or have they been written?
Mr Smith —They have been both, Senator.
Senator FAULKNER —I appreciate that you have said that the qualitative research will conclude shortly, and so I appreciate that you have not given a specific date, but you might be able to indicate to me how long after the conclusion of the qualitative research you would expect to have a written report made available to your department by Worthington Di Marzio.
Mr Smith —As I have already indicated, we have both verbal and written reports now. There are some outstanding. I do not have a firm date but I expect shortly to have all of the material.
Senator FAULKNER —You are expecting the research to end shortly and the report to come shortly? I thought you would have a bit of an idea—in fact, I am surprised you are not able to be a little bit more definitive—about how long after the conclusion of the qualitative research the report would be forthcoming.
Mr Smith —As I have said twice so far, I already have verbal and written reports from the consultant.
Senator FAULKNER —I have heard that, Mr Smith, but I have also heard you say that the qualitative research has not concluded so I am making the assumption—I suppose I am jumping to a conclusion—that you have not received a final report.
Mr Smith —The materials that we will obtain under the contract have not all been received.
Senator FAULKNER —Yes.
Mr Smith —But I do have a substantive report on the research.
Senator FAULKNER —Are you planning to make that report publicly available?
Mr Smith —It is not my intention to make it publicly available, no.
Senator FAULKNER —Will you make it available to the committee, please?
Mr Smith —I believe the standard requirement of me is never to refuse, Senator, but to indicate that I will take that question on notice and put it to the minister to see if he wishes to provide the committee with further information.
—I do not know about that being a standard response, because I think we have had some experiences now where particular material has been made available to
estimates committees. I could run through the precedents, but why should I bore everyone by doing that? Of course, other qualitative reports have been made available through the FOI process. Because this is a community education campaign and I am sure there would be no reason for partisan political advantage being gleaned from it, it seems to me that it would be perfectly reasonable that the material be made available to a Senate committee.
Senator Kemp —Senator, we have heard your views. Mr Smith has given a response and the question has been taken on notice.
Senator FAULKNER —Mr Evans might be able to tell me whether it is normal standard operating procedure for the Department of the Treasury to refuse to make these qualitative research reports available. I am not sure what your practice has been, but that is not necessarily—as you are probably aware, Mr Evans—the approach that all government departments take.
Mr Evans —On the particular question you asked of Mr Smith, I endorse his response.
Senator FAULKNER —Thank you for that, but I actually asked you a different question, Mr Evans, which was about the practice in the Department of the Treasury.
Mr Evans —We would treat such issues on a case by case basis, Senator.
Senator FAULKNER —So there is no standard operating procedure then. It is just dealt with on a case by case basis.
Mr Evans —It would be a matter of attempting to assist the committee as best we could in the circumstances.
Senator FAULKNER —Wouldn't you think in something as important as a community education campaign on tax reform that there would be a public interest in making such qualitative research available for the benefit of parliament?
Mr Evans —I do not want to go over the same grounds you have already covered with Mr Smith.
Senator FAULKNER —Mr Smith, where are we up to in terms of the process for selecting an advertising agency to conduct the $10 million campaign?
Mr Smith —The point we have reached is that a request to tender has been issued on a selective basis and I believe the information provided in other committees is correct, which is that the number of firms involved is seven.
Senator FAULKNER —Did you see a press article that went to the issue of at least one advertising company not progressing? Let me quote it to you directly. It was in the Financial Review of 2 June. I will find it in a moment.
Mr Smith —I have seen the article.
Senator FAULKNER —You are in front of me. I have seen the article but I do not have it with me, unfortunately.
Mr Smith —I do, Senator. I have it with me.
Senator FAULKNER —Is the Treasury aware of Mr Mark Pearson?
Mr Smith —I do not know Mr Mark Pearson. That article, if I could circumvent this a little, is outside my knowledge.
Senator FAULKNER —The article was outside your knowledge?
Senator FAULKNER —I thought you had seen it.
Mr Smith —Yes, but the information in it was all news to me. What I know of the information in the article was what I read in the article. I did not know anything about those companies or the persons that were named.
Senator FAULKNER —The names mentioned were a group of experienced advertising executives better known as the `team' who included Mr Mark Pearson, Mr Ted Horton and Mr Toby Ralph. I assume, from what you are saying to us, that the comments you made in relation to Mr Pearson are also the case in relation to the other two gentlemen.
Mr Smith —Yes. It is not a field in which I have much background in recent years.
Senator FAULKNER —Given that seven advertising agencies have been invited to tender for this work, can you tell us where the tender process is up to?
Mr Smith —The tenders have been let and they will be considered in the near future. I should point out that the contracts for advertising will not, in fact, be Treasury contracts. They are as per standard procedures, OGIA contracts, and the decision on the advertising agent will not be a Treasury decision but will be a ministerial committee decision.
Senator FAULKNER —Made by a ministerial committee.
Mr Smith —Yes. I think that has been explained previously and you are aware of that.
Senator FAULKNER —Yes. As you know, OGIA do always suggest that we ask these sorts of questions of the client department. I would prefer not to be here tonight, I can assure you, Mr Smith, if OGIA were willing to answer these sorts of questions, but they always pass the buck to the client department, as you probably know, hence I have to be here.
I think it is reasonable to ask the Treasury whether you are aware of the sorts of sensitivities that exist in relation to campaigns like this. Obviously, given the timing—the possibility of this being on the eve of a federal election campaign—are these sorts of ethical considerations uppermost in your mind and the mind of those working on the project with you?
Mr Smith —Yes, they are uppermost in my mind.
Senator FAULKNER —I see. How are you dealing with that sensitivity?
Mr Smith —I have complete confidence that it is appropriate, based on precedent, that there be a community education information program for a major government proposal of this kind. I am equally certain that there should not be the conduct of that program during the caretaker period.
Senator FAULKNER —What is the proposal?
Mr Smith —For tax reform.
Senator FAULKNER —Can you be more specific?
Mr Smith —No, I cannot.
Senator FAULKNER —You are quite confident that there are substantial precedents and you have checked this out, because this is an important issue. I would appreciate that you take care over it. There are some clear precedents in relation to this particular type of campaign in the absence of—I think it is fair to say—any legislation or prospective legislation. I think that is fair to say, isn't it?
Mr Smith —Yes, Senator, I am aware of and have been personally involved in the past in situations of that kind.
—Are you aware of the sorts of sensitivities that are raised in the article that I do not have available to me, but you have available to you, of certain individuals
running a campaign if they have a very close association with, say, the government parties—an election advertising campaign? Would that be an issue that you would take account of?
Mr Smith —I believe the article refers to advertising.
Senator FAULKNER —It does.
Mr Smith —I have already mentioned the decision[hyphen]making process for the selection of the advertising company. I have no knowledge of the advertising situation, apart from what I have read in the newspapers, of various political parties. It is outside my knowledge other than what I have read in the newspapers. We do as a matter of standard practice in government contracts take account of conflict of interest questions, but this would be a matter for OGIA and the ministerial committee on this occasion.
I took note of Senator Ray's comments yesterday that he felt it appropriate that bureaucrats not make these decisions. I think he used the phrase `bumbling bureaucrats' and felt that these decisions should be made through the types of processes where they will be made. I gather that that is a bipartisan position. Beyond that, the committee has not selected the agency so there is not much further I can add.
Senator FAULKNER —The statement in the article which I have now found says:
At least one of the agencies approached to work on the tax campaign has declined to participate because of agency policy on political work.
Is that an accurate statement?
Mr Smith —As I say, Senator, I do not know about that information.
Senator FAULKNER —But you would know whether it was true or not, surely. You said that there are seven agencies which have been invited to tender for this work. I would have thought, having executive oversight responsibilities for the project, you would have an idea if one of them said: look, sorry, we are not going to do this because our agency has a particular policy on political work.
Mr Smith —I believe it is standard practice not to disclose whom we have gone to tender with.
Senator FAULKNER —I am not asking whom you have gone to tender with. I think it is fair to say, Mr Smith, I have not asked you yet that question. I have in fact asked you: have one of the agencies, unnamed—and it is unnamed in the article, I might say—declined to participate because of agency policy on political work?
Mr Smith —I am not privy to that information. I do not know.
Senator CONROY —Could you make a phone call?
Senator Kemp —I think the question has been answered, Senator Conroy.
Senator FAULKNER —Would someone who is working on the project team actually know? I am surprised you do not, but appreciate you may not. Would Mr Vaughan be able to tell us that, as the project leader?
Mr Smith —I would be very surprised, Senator. As I say, this process is not a Treasury process.
Senator FAULKNER —What process is not a Treasury process?
Mr Smith —The selection of the advertising agency. We will participate in assisting on this, but the decision has been made by the ministerial council.
Senator FAULKNER —Yes, but it is fair to say that the selective tender process is the responsibility of the client department, isn't it, Mr Smith?
Mr Smith —No, Senator, I think the selective tender process is the responsibility of the ministerial committee in OGIA. They will be the ones who sign that contract.
Senator FAULKNER —They will be the ones, I appreciate, to make a decision. But isn't it true that your project team are the ones that are responsible for conducting the tender process?
Mr Smith —No, Senator.
Senator FAULKNER —Who would you say has responsibility for that?
Mr Smith —As we have already discussed, the ministerial committee essentially conducts the tender process.
Senator FAULKNER —In whose name were tenders called for this?
Mr Smith —My understanding is that the legal situation is that the contract is actually a contract let by OGIA.
Senator FAULKNER —Thank you for that. That is not the question I asked. I just asked in whose name the tenders were called.
Mr Smith —I will have to take that on notice.
Senator FAULKNER —I think, with respect, this is an occasion I must say, Mr Chairman, where I think we perhaps could have an answer.
Mr Smith —The reason I am taking it on notice is that I do not know exactly what you mean by the phrase `in whose name it was issued'. It was clearly issued for the purposes of a campaign which has been run by the Treasury but the legal entity that people are being asked to tender to is OGIA. It is the language you are using. I will have to have a look at the tender documents.
Senator FAULKNER —Who wrote the letters to the advertising agencies inviting them to tender?
Mr Smith —It was not me, Senator, so I am afraid I have to find out for you. I do not know.
CHAIR —The officer says he wishes to take that on notice, although you may wish to get an answer now. If he chooses to take it on notice, Senator Faulkner, he must be allowed to.
Senator FAULKNER —I am not arguing that, Mr Chairman. I think there might be other officers in the room who may well be able to provide that information.
CHAIR —The officer has said he wishes to take it on notice and if he wishes to take . . .
Senator FAULKNER —He did not say that, he said he did not know.
Senator Kemp —He indicated that he would take it on notice and we will try to find the answer for you.
Senator FAULKNER —What can you tell us about the selective tending process, Mr Smith? When where agencies invited to tender for this work.
Mr Smith —On 22 May, I believe.
Senator FAULKNER —On 22 May. Was that a responsibility of the Department of Treasury, Mr Smith?
Mr Smith —I believe that on that date it was OGIA that contacted the agencies.
Senator FAULKNER —Do you know when the tenders closed, or whether they have closed.
Mr Smith —I believe they have closed.
Senator FAULKNER —Could you tell us the date they closed.
Mr Smith —I think we sought the tenders by today. That is the best of my knowledge. As I say, this has not been done by me. The process is in the hands of the ministerial committee in OGIA.
Senator FAULKNER —The tenders closed today.
Mr Smith —That is the best of my knowledge. I will check that in case that was not the time in the documentation. To the best of my knowledge that is what it was.
Senator FAULKNER —I am sorry, what do you mean it was not the time in the documentation?
Mr Smith —I am not quite sure what date was given in the documentation to the tenderers.
Senator FAULKNER —Who prepared the documentation for the tenderers?
Mr Smith —As I have already said, Senator, I did not do this and I believe it was OGIA, but I will have to check that for you. I am taking this question on notice.
Senator FAULKNER —I would be surprised if that were the case, Mr Smith, and I think you might find that some of the evidence that you are providing is significantly conflicting with some of the information that has been provided to us previously. I know the chairman is keen to pull stumps at this very point, but you might be able to find some detail out about that over the dinner break and we can return to it.
Proceedings suspended from 6.25 p.m. to 7.30 p.m.
ACTING CHAIR (Senator Watson) —The committee will resume. Senator Cook, have you any questions?
Senator COOK —I know that Senator Faulkner has not concluded his line of questioning but I have a few questions on this subject and I wonder whether I could ask those now and when Senator Faulkner arrives I will yield the floor to him.
Firstly, I have a question about the ethical considerations of the timing of the qualitative research that has been undertaken and the imminent and likely advent of an education/promotional/advertising campaign on tax reform. Mr Smith, you said you are confident in your mind—
ACTING CHAIR —That would have to be a question for the minister, I think.
Senator COOK —Through the minister, if I may, to Mr Smith. This is about an answer he gave to Senator Faulkner.
Senator Kemp —I understand.
Senator COOK —Mr Smith, you said on the ethical considerations you are confident in your mind, `based on precedent'. Were you in 1985 associated with an effort by the government to undertake tax reform?
Mr Smith —Yes, Senator.
Senator COOK —And did you have a $10 million budget to educate the community on tax reform?
Mr Smith —That was not the capacity in which I was engaged.
Senator COOK —Was there a $10 million budget to educate the community on tax reform?
Mr Smith —I do not have any information with me about that period.
Senator COOK —You do not have any information with you? Would you care to take that question on notice, or would you care to accept the assertion that there was no $10 million budget to educate the public on tax reform when you were last associated with it in 1985?
Senator Kemp —Senator, if you want detailed figures we will take it on notice. I think that is fair enough.
Senator COOK —Okay. I have a few other questions. In the tax reform effort by the government in 1985, were the considerations of the government published? Was a tax paper brought forward?
Senator Kemp —I do not know how many people here were involved in 1985. I do not think I was here at that time. We can find this information out I suppose, unless there is anyone here who can offer assistance.
Senator COOK —Is that the official answer?
Senator Kemp —Senator, you asked me for some detailed figures about the 1985 campaign and if you put those on notice we will see what we can provide you with.
Senator COOK —No. I was just following up the answer by Mr Smith about the ethical considerations raised by Senator Faulkner where Mr Smith said he was confident in his mind, `based on precedent'. The precedent on tax reform was an effort by the government in 1985. What happened in 1985 was markedly different from what happened now. Since the officer at the table, Mr Smith, was involved in that I thought it would be appropriate to get some information from him about that. Are you preventing him from answering, Minister?
Senator Kemp —No, I never prevent officers from answering. All I am saying is that 1985 is a long time ago. I heard Mr Smith say `based on precedent'. I did not hear him actually quote any particular date or campaign, I have to say.
Senator COOK —No, but the point is if it is `based on precedent', the precedent for a government to be involved in tax reform on a major scale was 1985.
Senator Kemp —The former government was involved in a lot of major campaigns and advertising. Again, I do not know if the Treasury would have those figures. The fact is the former government was very active in advertising. There were many campaigns, One Nation, if I remember, was one.
Senator COOK —Was there an advertising campaign in 1985?
Senator Kemp —I am aware that there was quite a bit of work done in 1985. I have not studied 1985 particularly but I am aware of ads that were put out in 1985.
Senator COOK —Are you?
Senator Kemp —I may even have one.
Senator COOK —A 1985 tax ad?
Senator Kemp —I have a nice ad here that is called, `You've heard the rumours. Now get the facts'. This is from the Financial Review of Wednesday, 19 June 1985. It reads:
A guide to Tax Reform.
A Guide to the Government's Draft on Tax Reform presented to the National Taxation Summit Conference.
Almost all of us believe the present tax system is unfair. Well, here's the story that proves it.
. . . . . . . . .
So read the facts.
Another ad I have here, which looks like it is dated September 1985, although I may be corrected, reads:
To end an unfair and antiquated tax system we had to take some tough decisions. . . why tax reform is necessary . . . The road to tax reform.
I am not sure what date that is but that is another ad. There are quite a few ads in relation to this.
Senator COOK —I wish to take you through some of those but I see that Senator Faulkner is back.
Senator Kemp —I do not think there is any doubt that Labor did conduct a campaign around 1985. Are you arguing that they did not?
Senator COOK —I am arguing that they did not operate a campaign in 1985 and I am arguing that they did not operate an advertising campaign equal to $10 million. I am also arguing that there was a document published for public debate and consideration in 1985. I am further arguing that 1985 was a long time before the next election, and I am further arguing that there was a tax summit—
Senator Kemp —You have no idea, unless you are better informed than me, when the next election will be called.
Senator COOK —I hear what you say.
Senator Kemp —You have no idea and I have no idea.
Senator COOK —I am sure you have no idea.
Senator Kemp —I am sure you don't either.
Senator COOK —I have a healthy suspicion, as has everyone else in Australia.
Senator Kemp —The trouble with your healthy suspicions are they have often been wrong.
Senator COOK —I do not think you know anything about my healthy suspicions at all.
Senator Kemp —You had a healthy suspicion that R&D syndicates were all right, and you were wrong.
Senator COOK —That is a matter of debate.
ACTING CHAIR (Senator Chapman) —Order! I think we are drifting away from the subject of the estimates.
Senator COOK —Yes, but the minister has raised this point and, of course, he always misrepresents my position.
Senator Kemp —That is another debate.
ACTING CHAIR —Further questions?
Senator FAULKNER —Mr Smith, could I be clear of the date in April that you were informed that Mr Vaughan would be seconded to the Department of the Treasury for this campaign. I think you gave us the date but I would like to be sure.
Mr Smith —I was not informed that Mr Vaughan would be the project leader for this campaign. I selected Mr Vaughan, as I advised you earlier.
Senator FAULKNER —I am sorry, I should have said when you were informed of Mr Vaughan's availability.
Mr Smith —I was advised of his availability, I believe, about three or four days before I approached him which, I think, was 30 April.
Senator FAULKNER —So you approached him on 30 April. Did you appoint him on 30 April?
Mr Smith —The commencement date that I gave you, I believe, was Monday, 4 May.
Senator FAULKNER —So he became project leader. Is that the correct terminology?
Mr Smith —Yes, that is the term that I used.
Senator FAULKNER —So he became project leader on 4 May. So he had no formal or official responsibilities in relation to the campaign until you, Mr Smith, appointed him project leader on 4 May. Is that correct?
Mr Smith —I invited him on 30 April but he first commenced working with us in Treasury on 4 May.
Senator FAULKNER —So he had no official responsibilities until 4 May? You appointed him. You would know that.
Mr Smith —I think that is a reasonable conclusion.
Senator FAULKNER —Thank you. Now how come OGIA provided evidence last night that Mr Vaughan informed them in April—it might have been 30 April—that he would be engaged in the campaign, before you had appointed him?
Mr Smith —As I say, I approached him on the 30th. I believe that is when he approached OGIA.
Senator FAULKNER —Yes. But he was not appointed until the 4th.
Mr Smith —As I say, he commenced on 4 May.
Senator FAULKNER —You approached him and asked him about, one assumes, his availability. You appointed him. You said that you were responsible. You just made a telling point to me that you—
Mr Smith —When I approached him I discussed with him the urgency of the whole thing and I think he took it upon himself to get in touch on a preliminary basis with OGIA.
Senator FAULKNER —Did you authorise that, as the person with executive responsibility? That just happened, did it?
Mr Smith —I think it just happened.
Senator FAULKNER —Oh, it just happened. You did not know about it?
Mr Smith —Not at that time.
Senator FAULKNER —I see. So you have got executive responsibility and Mr Vaughan, a few days before he actually has got the job as project leader, is out on the job?
Mr Smith —You say he is out on the job. It seems to me that he informed—
Senator FAULKNER —Well he was talking to OGIA. We know that. You have just confirmed it.
Senator Kemp —Mr Chairman, I think if a question is put to an officer, then the officer should have the right to reply to that question without being interrupted.
Senator FAULKNER —Absolutely.
Senator Kemp —But you interrupted him.
ACTING CHAIR —That is correct, Minister. I was about to intervene and suggest that it is appropriate to allow the witness—
Senator FAULKNER —I did not intend to interrupt.
ACTING CHAIR —Order! Senator Faulkner, I am speaking.
Senator FAULKNER —I notice you interrupted me—
ACTING CHAIR —Senator Faulkner!
Senator FAULKNER —Yes?
ACTING CHAIR —I am speaking.
Senator FAULKNER —Yes.
ACTING CHAIR —I think it is appropriate to allow the witness to answer the question which has been asked before you put to him further questions.
Senator FAULKNER —Yes. I agree with you.
Mr Smith —Given the informality of the arrangement, Senator, I have no difficulty at all with—
Senator FAULKNER —You should concentrate on your preselection.
Mr Smith —with Mr Vaughan approaching Mr Williams at that time. As I say, I had spoken to him and made it clear that he would be coming on board, he had made it clear that he would be coming on board. It seems perfectly reasonably to get started with those sort of preliminary inquiries, which I understand is all they were.
Senator FAULKNER —What was the nature of the preliminary inquiries?
Mr Smith —I believe he informed Mr Williams that he was coming on board and that we would be having a relationship with OGIA.
Senator FAULKNER —Oh. So in your original approach of 30 April you indicated to him that he would be coming on board?
Mr Smith —As I say, I rang him to ask him if he would come on board on 30 April. I actually saw him the very next day. But, for the sake of your earlier prescription of `when did he commence duties', he first came over to do some material work with us on the Monday, but there could have been any number of phone calls in that period, and I saw him on 1 May, the Friday. You are attaching a formality to the commencement which I am afraid I did not attach.
Senator FAULKNER —Okay. The thing is, Mr Smith, when you give evidence to this committee that Mr Vaughan commenced as project leader on 4 May and I hear evidence at another committee that he has had discussions with OGIA on 30 April, I do not think it is unreasonable that I question you about it.
Mr Smith —I am giving you an answer, Senator.
Senator FAULKNER —You have given me an answer, yes. As I said to you, I do not think it is unreasonable that I question you about it, and we have established that before he was appointed project leader he was having discussions with OGIA. So thank you for that information. Is there any interdepartmental committee on this at all, IDC or equivalent, or task force, for want of a better description?
Mr Smith —There is not.
Senator FAULKNER —Thank you. So what is Mr Vaughan's role as project leader, please?
Mr Smith —To manage the project under my direction.
Senator FAULKNER —You have indicated to us, I think, the nature of the project team. Are many of the project team members full[hyphen]time at this stage? It is a comparatively small team, the one you have outlined to us, but I just wondered are many full[hyphen]time?
Mr Smith —I think one or two of them are working pretty well full[hyphen]time on it.
Senator FAULKNER —What is the total number of officers on the team at the moment?
Mr Smith —I am told there are four that we would regard as full time. As I said earlier, the situation is that we are calling on the resources, materials and people of the whole group in the tax reform exercise. So it is pretty difficult to state the number of people who are or will be involved in preparing materials for community education. Obviously, it is going to involve a very large number of the officers who are working on tax reform.
Senator FAULKNER —With the exception of Ms O'Neill, from the ATO, and Mr Vaughan who is on secondment, are all the other officers Department of Treasury officers?
Mr Smith —No, there are other tax office people there, and I think from one or two other departments. In the tax reform group there is someone from DSS, and there are other tax office people there, including working on this project.
Senator FAULKNER —Some of these would be full time and some part time; would that be right?
Mr Smith —They are full time on tax reform but not on the community education program. That is the distinction I am drawing.
Senator FAULKNER —So there are four full[hyphen]time officers. Could you tell us how many part[hyphen]time officers there are?
Mr Smith —As I said, different people are being asked to prepare materials right through the group. I am not sure how many but we are talking about potentially dozens of people. I am not quite sure how many people we currently have in the whole tax operation, but it is a significant number.
Senator FAULKNER —We received evidence from OGIA that at the 30 April meeting there were other Treasury or ATO officials present. That was described by Mr Williams from OGIA as a meeting to get things moving. Can you tell us who the other Treasury or ATO officers were?
Mr Smith —On 30 April?
Senator FAULKNER —Yes. I think I am correct; that is my recollection of evidence that was given to us last night. I am sorry, but there is no Hansard record of last night's hearing yet. It has not been electronically generated, so I am going a bit on memory.
Mr Smith —That is not my recollection. So given that we have different recollections and we will have to check the record, I will have to take that on notice. I am aware of a meeting on 4 May.
Senator FAULKNER —The meeting to get things moving may well have been on 4 May. That may well be right. So could you tell me the Treasury or ATO officers who were involved in that? That was a meeting with OGIA?
Mr Smith —The meeting that we are referring to was a first meeting of everybody that we could gather together who may be involved initially in the exercise.
Senator FAULKNER —No, but that included OGIA.
Mr Smith —It was not a meeting with OGIA; OGIA attended the meeting. I invited Greg Williams to that meeting. There were the people that I referred to earlier as the senior Treasury people, Mr Vaughan, I mentioned Mary O'Neill's name before, there were also junior officers, and for some of the meeting there was also representation from the Treasurer's office.
Senator FAULKNER —What decisions have been made at the moment about a PR campaign?
Mr Smith —We have not made any decisions about a PR campaign. That is under consideration.
Senator FAULKNER —It is under consideration, but there has certainly been an involvement of OGIA in this, as I understand it. The Treasury has spoken to OGIA about this.
Mr Smith —As I said, the people that we have involved in this have not got a great deal of expertise in this area, and it is usual practice that we rely quite heavily on advice from OGIA. That is the approach we take with these things to get the expertise.
Senator FAULKNER —But they have been informed that there is a possible PR campaign to be—
Mr Smith —There is a possibility of a PR campaign, yes.
Senator FAULKNER —Yes, and I think they are at least examining some organisations that might be appropriate to be involved in that.
Mr Smith —They would give us the group that we could tender to for that, just as they do for the advertising and the research.
Senator FAULKNER —In relation to the advertising campaign, we have research, advertising and PR, and I think you indicated to us that tenders close today.
Mr Smith —That was my thought. I gather that in fact it is tomorrow, so I will correct that one.
Senator FAULKNER —Thank you. In relation to the advertising element of this process, you would be aware of the evidence of OGIA that seven advertising agencies have been asked to tender for this particular work. I think Mr Williams from OGIA stressed, at the finance and public administration estimates committee, that this had been an iterative process between OGIA and Treasury. I wonder, from the Treasury perspective, whether you can help us by outlining a little more about that process.
Mr Smith —Basically, we did not have—and do not have—any names to contribute. What we did was provide as many details as we could to OGIA about what we were seeking. So there were some discussions about what we were seeking that went back and forth.
Senator FAULKNER —When you say `what we were seeking', you are talking about the nature of the advertising campaign?
Mr Smith —For the contract that we were seeking. The process works like this, and I gather this is the standard procedure: the requests for tender are let by OGIA and the contract is signed by OGIA, but we are the client department. We take the approach of—
Senator FAULKNER —With advertising, yes.
Mr Smith —We are talking about the advertising?
Senator FAULKNER —Yes, but we were talking before about research.
Mr Smith —No, that is not the process for research.
Senator FAULKNER —No, I know. We may be at cross[hyphen]purposes here.
Mr Smith —Is that what happened? We are talking now about the advertising?
Senator FAULKNER —We are.
Mr Smith —As I say, it is essentially an OGIA request for tender and an OGIA contract in which the Treasury, or whoever it is—in this case the Treasury—is named as the client department. So we are specifying what it is that we seek to achieve through the program. It is through that that we contribute to OGIA's thinking about the short[hyphen]list, if you like.
Senator FAULKNER —I appreciate that, but—
Mr Smith —We did not, and do not, have any contribution to make about the particular firms that—
Senator FAULKNER —So you did not suggest to OGIA that, given the nature of the advertising task, a particular firm might be appropriately placed on the short[hyphen]list?
Mr Smith —No, we did not, because it is outside our knowledge and experience.
Senator FAULKNER —Yes, it may be in the case of Treasury, but it is not impossible that you could have a client department obviously that considered itself fairly experienced and expert in these matters.
Mr Smith —I cannot speak for other clients, Senator, but I can for our department.
Senator FAULKNER —I think Mr Williams from OGIA did talk about what he described as an iterative process that took place between Treasury and OGIA.
Mr Smith —All I can say is that, from our point of view, from Treasury's point of view, the process essentially revolved around describing what was required.
Senator FAULKNER —Thank you for that. That is helpful. In relation to the MCGC, I assume there has been a meeting—I think we have probably had evidence about that; I just cannot recall. But I certainly think it is reasonable to assume there must have been at least one meeting of the MCGC in relation to this prospective advertising contract. Who is representing the client department for the advertising on the MCGC, please?
Mr Smith —The members of the MCGC—we are not a member of the MCGC. The normal practice is that the Treasurer may be seconded to the MCGC if that is the portfolio involved or he can put someone from his office on the MCGC. But as a department we do not participate in that way.
Senator FAULKNER —As you say, it is certainly possible that the Treasurer himself or a nominee of the Treasurer would be a member of the MCGC for the purposes of the decision making processes in relation to this particular advertising contract. All I am asking you is if you can inform the committee who it is in this particular case. Is it the Treasurer or is it a nominee of the Treasurer? If it is a nominee of the Treasurer, who is it?
Mr Smith —I actually do not know, so I will have to take it on notice and see if I can find out for you. I did not attend and have not attended an MCGC meeting myself, so I will have to find out for you.
Senator FAULKNER —I would appreciate that, but I think that is something that ought not to take too long. It is probably something that I could equally have asked OGIA and I am sure that there would not have been a problem in them informing me. But I do not think that particular evidence was given to us when OGIA estimates were being examined. In terms of discussions between OGIA and Treasury—the ongoing day[hyphen]to[hyphen]day or week[hyphen]to[hyphen]week tick[hyphen]tacking that I assume takes place in this regard: who at the departmental level has responsibility for that?
Mr Smith —Sorry, this is between the Treasury and OGIA?
Senator FAULKNER —This is between the Treasury and OGIA, yes.
Mr Smith —The project team led by Peter Vaughan is doing most of that.
Senator FAULKNER —There is obviously a need for a reasonable degree of liaison between the client department and OGIA—no[hyphen]one would argue that—and I accept it is obviously a member of the project team. I am just wondering if you could be a little more specific about who is handling most of those negotiations or discussions—or liaison work, if you like.
Mr Smith —As I say, members of the project team led by Peter Vaughan. I would have thought Peter would have done most of it. I have spoken to Mr Williams once or twice.
Senator FAULKNER —I asked you prior to the dinner break about the qualitative research. We may have got our wires crossed here. Obviously there is a different process in relation to research from the one in relation to advertising. I do not think there is any question that the client department, in this case the Treasury, owns the research. The research is yours; it is not OGIA.
Mr Smith —That is correct.
Senator FAULKNER —You obviously have a fairly direct relationship between the research company and there is a direct relationship between the research company and Treasury.
Mr Smith —The contract with the research firm is a Treasury contract. The contract with the advertising firm is an OGIA contract with Treasury named as the client.
Senator FAULKNER —Yes, precisely. Given that Treasury has that contract and it is Treasury research, Treasury has the call on whether that particular research is made available, whether it be to a parliamentary committee or more publicly available. I would be interested in your view or Mr Evans's view on this. I think everyone would argue—it does not really matter what side of politics you come from or whether you are particularly interested in politics—that there would be public interest in this. It would seem to me that it would not be an unreasonable thing to ask Treasury to make available that qualitative research on the issues being examined so there is a broader benefit in the research work that is being undertaken.
Senator Kemp —I think a similar question was asked at about 6.15 p.m. I think the answer given then was that, noting Senator Faulkner's interest, we would take it on notice and it would be a matter which the Treasurer might wish to consider.
Mr Smith —I do not have anything to add to the earlier answer.
Senator FAULKNER —Yes, but on this occasion, given that it is Treasury's research, one would assume that Treasury would ordinarily provide the Treasurer with advice on such a matter.
Mr Evans —Would you like me to answer that?
Senator FAULKNER —I just wonder about it as a process issue; that would be helpful, Mr Evans.
Mr Evans —We undertake a lot of research in Treasury as part of our core function of policy advising. Some of that research we do ourselves; others, like on this occasion, we contract out. Whether or not we publish that is a decision we will take ourselves on some occasions. On other occasions, we will do so in consultation with the Treasurer. It depends on the nature of the work and what stage of the advising process it is at. In this case—and you asked me this very similar question earlier—I said we would treat it on a case by case basis. On this one, I am not prepared to make a judgment on that. It would be a matter for the Treasurer.
Senator FAULKNER —So this would be one, Mr Evans, on which you would seek advice or certainly consult the Treasurer? What you are saying is that this would not be a call for Treasury without a decision made by the Treasurer himself?
Mr Evans —No. In my judgment this would be a decision for the Treasurer. That is why we can only take it on notice.
Senator FAULKNER —Has any decision been made to date in relation to the type of advertising medium that you are looking at using, whether it be television, radio, print, cinemas, magazines, et cetera? Does Treasury have any view about that?
Mr Smith —We have not made any of those decisions yet.
Senator FAULKNER —Obviously, one of the issues for you is testing which form of that is the most effective. In relation to PR, which we spoke about a moment ago—I appreciate that you have indicated it is a matter under consideration—have you got any timetable in relation to either a prospective advertising campaign or a prospective PR campaign?
Mr Smith —I do not have any firm timetables at all.
Senator FAULKNER —I hear you say that you do not have any firm timetables. Do you have any timetables that are less than firm—prospective or shaping up?
Mr Smith —We have thought about timetables, but we do not have anything decided.
Senator FAULKNER —Could you let us know what your current thinking is?
Mr Smith —I am unable to assist you on that. It is more a case of having contingencies than a case of having anything that you would call a timetable.
Senator FAULKNER —Is the possible federal election timing part of the contingencies you are taking into account?
Mr Smith —I have no information whatsoever about a possible federal election.
Senator FAULKNER —But you indicated to us before, obviously given the caretaker provisions and the like, that that is something that you have to take some account of.
Mr Smith —What I said before, and I am happy to reiterate it, is that in the event that an election is called, whatever stage we are at with this process ceases.
Senator FAULKNER —You also, I think, advised the committee that you are comfortable with, from your own perspective as the officer of the Treasury with executive oversight, the timing of such a campaign. I understood you to say that you are comfortable with the timing of such a campaign immediately prior to an expected election. You did mention the caretaker provisions obviously applying.
Mr Smith —From my point of view, I know nothing about the timing of the federal election so I am in a position where as an official I am aware of a caretaker convention, and I am aware of established practice outside of a caretaker period, namely the rest of the time. I cannot really distinguish beyond those two times. I have no information about when a federal election will be held, other than of course the end point of its constitutional requirement, which is next year.
Senator FAULKNER —Would you accept that some of the research material that has already been generated by Treasury and also prospective research material, be it qualitative or quantitative, of itself, given the political process, might well have a great deal of sensitivity in the broader political context? Perhaps Mr Evans would prefer to answer that, but I am happy with anyone answering it.
Mr Evans —I cannot judge those sensitivities.
Senator FAULKNER —Well it seems to me that it is not difficult to come to the conclusion, or unreasonable to come to the conclusion, that such material could have quite significant benefit to a political party that might have access to it—that is a political party of government; in this case the Liberal party—in the circumstance that the major political party, particularly of the alternative government, did not have access to such material that is being generated at taxpayer expense. I suppose that is the issue I am canvassing Mr Evans. It is an important issue for the Treasury.
Senator Kemp —I note that you probably have not finished so, being a man of courtesy, I suggest you keep going.
Senator FAULKNER —Please, I don't mind being interrupted.
Senator Kemp —The point I was making is that you may well have those views and can express them, but I do not think these are the sorts of questions that are appropriate to be put to officers of the Treasury.
Senator FAULKNER —The trouble is that what you did there, Minister, was to interrupt me, which I do not particularly mind, before I was actually able to ask a question. It is a bit difficult to judge whether you feel this question is a reasonable or unreasonable one until you have heard it. I think you will probably find it reasonable and I would be surprised if you did not think it was in order for the Secretary or Acting Deputy Secretary to answer.
To conclude my remarks, Minister, do you think in this circumstance it might be reasonable for the Treasury to put in place some mechanisms whereby it either ensured that no political party had the advantage of access to such material, or that all political parties and the public have the advantage of access to such material? I take the view, Mr Evans, that that is an important issue in terms of probity in public administration. I do not know whether you share those views but I would be interested to hear you comment upon them.
Mr Evans —That is a very big topic. We are talking here about a normal period of government where the Public Service is advising the government of the day. It is quite obvious that the government of the day has different access to the Public Service than do other members of parliament. This is just a case of that—no more, no less.
Senator FAULKNER —Is it? Or do we have a situation here where preparatory work, including quite extensive and expensive research projects—at least qualitative, and probably both qualitative and quantitative—have been done, with creative work paid for by the public and with a very serious risk, I would have thought, that this work would be taken over and used by a political party during an election campaign for partisan political purposes when access to that material is only available to one of the major parties or the parties of government?
Mr Evans —You can make that comment, but just to reiterate responses on the very same issue given to you by Mr Smith earlier, we have already made the judgment, having been asked by the government to undertake this work, that it was a legitimate request and that, as has been done in the past, we will pursue that request. That is as far as we can go with it.
Senator FAULKNER —But as you determine the legitimacy or otherwise of such a massive advertising campaign, do you take into account factors like the fact that there is no government decision in relation to changes to the tax system and there is no legislation? Are these important issues in your consideration as you come to these conclusions?
Mr Evans —Is there a question there, Senator?
Senator FAULKNER —I said: are these important considerations—I am sorry if you think I did not put a question mark at the end of the sentence—as you make decisions in relation to your approach on these issues? I use, for example, the fact that there is no government decision in relation to the so[hyphen]called tax reform having been announced and there is no legislation, pending or otherwise. These are a couple of criteria; there may be many more. I would be interested in knowing what criteria you would apply, and specifically interested to know whether those two criteria are ones that you have given attention to as you have come to these conclusions?
Mr Evans —Those are considerations, Senator. They have been considered and we have made the judgment, as I said, that this is a legitimate function of the public service.
ACTING CHAIR —Any further questions?
Senator FAULKNER —In a little while perhaps I might come back to it.
Senator COOK —Just looking at budget paper No. 2, on page 1[hyphen]103 the appropriation appears for the community education campaign—or, to be starkly honest, no appropriation appears other than the explanation that the Department of Treasury was allocated $10 million in 1997[hyphen]98 and that $10 million is being rolled over for this year, unspent last year. That is a correct understanding of what that entry means, is it not?
Mr Smith —The funds were allocated, as it says, in 1997[hyphen]98. Whether they are expended in 1997[hyphen]98 or in a subsequent year is then a question of fact. We expect to spend some of it this year, but with the way time is now going and the processes, we would expect that most of it will be spent, in fact, in the subsequent year. So the moneys will carry through.
Senator COOK —The subsequent year being 1998[hyphen]99?
Mr Smith —Yes.
Senator COOK —How much money have you spent this year?
Mr Smith —If we can just be a little bit precise about `spent'. I mentioned earlier that the contract that we have let was a little under $97,000. We have not actually spent that yet in the sense of disbursing it, but that was that contract.
Senator COOK —That is it?
Mr Smith —No, that is not it. There are some other contracts and, of course, there is the cost of the people working on the project, and so on. But that is by far the bulk of what we have spent in the sense of `committed' at this point.
Senator COOK —So a layman would regard you as having hardly touched the $10 million at this point?
Mr Smith —That is correct.
Senator FAULKNER —Can you tell us what the other contracts are?
Mr Smith —We have one other contract for the services of an individual—Interactive Consultants Pty Ltd, which is a person providing us with communications; a communications consultancy assisting the team.
Senator FAULKNER —Just so we are clear: what is that consultancy about?
Mr Smith —The cost there is $6,600 for completeness.
Senator FAULKNER —Yes, but what is that Interactive consultant doing? What sort of work are we talking about there? I accept it is a small consultancy, but what are they doing for it?
Mr Smith —Essentially, providing advice to us on the processes that are required of us to develop the communications program. As I say, we have very little experience on our own staff, so we have engaged someone through a consultancy to help us.
Senator FAULKNER —This is advice that you do not think is available to government through OGIA or other government agencies?
Mr Smith —This is more to work with the team itself in the development of our thinking and in the development of our internal work. As you can see, it is not a very big contribution, but it is something that we felt we needed to complement our range of skills.
Senator FAULKNER —So at this stage, apart from Worthington Di Marzio and Interactive Consultants Pty Ltd, that is it?
Mr Smith —They are the only ones that we have done to date.
Senator FAULKNER —Have you earmarked an amount for quantitative research out of the $10 million?
Mr Smith —Not a precise figure, but that is where I think the figure that you had from OGIA came from when they referred to $200,000 or so.
Senator FAULKNER —Which would be what—both quantitative and qualitative?
Mr Smith —That possibly would have included very indicative thinking. I must say that is not a firm allocation by any means. It is an indicative figure if we do further research, but we have not actually decided yet to do that further research.
Senator FAULKNER —I think Senator Cook is in the process of asking you what the further breakdown of costs in that $10 million might be. That might be useful from our point of view. I do not want to interrupt him too much.
Senator COOK —I was coming to that point, but I was going to ask you: when the figure of $10 million was appropriated last year, you obviously had an intention to spend it this current year—why didn't you?
Mr Smith —The allocation was made without certainty as to the timing of the project and, as it has turned out, the timing of the project has not required us to spend all that money this year.
Senator COOK —The allocation was made without there being a clear idea of timing. Who sought the allocation? Did Treasury seek this allocation?
Mr Smith —The allocation was determined by government decision.
Senator COOK —Why was $10 million chosen, not $11 million or $9 million or $2 million? It is a round number, but why was that figure chosen?
Mr Smith —I am not in a position to answer that question. Essentially, it is the number that the government chose to spend. I am not privy to the information behind their thinking.
Senator COOK —Did Treasury offer any advice to government about what the number should be?
Mr Smith —You are asking me about Treasury advice. I think all that is traditionally provided in response to that question is confirmation that the Treasury did participate in the provision of advice to the government in relation to community education information. I cannot give you any further details as to the content or nature of the advice, but I can confirm that we provided some advice.
Senator COOK —But you are not going to tell me what it was.
Mr Smith —No. I am not going to tell you.
Senator COOK —That is what you are saying. You have had this $10 million allocated to you for the best part of a year now. How do you intend to budget it? What portion of it is for the sorts of processes you are going through now—communications consultant that we know of from Interactive, whatever it is—and your $97,000 for your qualitative survey? What amount of the $10 million have you put aside to pay advertising costs?
Mr Smith —I have not put aside any amount at this stage. As far as the current position is concerned, it is an open question from now on.
Senator COOK —You have had this money for the best part of a year.
Mr Smith —No, Senator. I do not quite understand where you draw that conclusion.
Senator COOK —I draw this conclusion from the note that the Department of Treasury was allocated $10 million in 1997[hyphen]98 for an information and education campaign to inform the public, et cetera.
Mr Smith —That is correct. That year is still current, Senator.
Senator COOK —I know.
Mr Smith —It does not say when in the year it was allocated. It says it was allocated in the year. It is a post[hyphen]budget decision. It was not allocated in the previous year's budget, or it would have appeared in the previous year's budget papers, but it did not.
Senator COOK —So when was it allocated, then?
Mr Smith —It was allocated as part of this year's budget process.
Senator COOK —I might be a little slow here, and perhaps you will help me over this hurdle, but it says here in the note that $10 million was allocated in 1997[hyphen]98 for an information campaign. You say it was not allocated in the last budget; that is why it appears in an appropriation in this budget.
Mr Smith —Of course it could not have been allocated in last year's budget because the concept of having a tax reform package had not been announced at that time. That was a subsequent decision of government during 1997[hyphen]98. So obviously this is a post[hyphen]budget decision of government.
Senator FAULKNER —The concept has now been announced, Mr Smith. That is the difference.
Mr Smith —Yes.
Senator FAULKNER —The concept. This is a $10 million advertising campaign about a concept.
Mr Smith —That is your comment, Senator. You are not asking me to confirm it, I trust.
Senator COOK —Here is where I have a bit of a problem. On page 40 of the portfolio allocations there is a table showing how the subprogram is resourced—this is after taxation—and, under that program, it has the first one, running costs, 1997[hyphen]98 budget, $4,644,000. Then, 1997[hyphen]98 revised, $17,900,000. Do I take it that that sharp increase from the budget of 1997[hyphen]98 to the revised 1997[hyphen]98, and the estimated outcome 1997[hyphen]98, from $4.6 to $17.9 and $17.2 million respectively, includes the $10 million?
Mr Smith —As we look across to the other side of page 41, the variations are described there, and one of them is the $10 million.
Senator COOK —Is that the same $10 million we are talking about?
Mr Smith —I guess so. It is described in the same terms—community education information program.
Senator COOK —So in what appropriation bill is the $10 million allocated?
Mr Smith —I am afraid I do not know. It is a detail I do not have in my head, Senator. I am not sure what it is.
Senator COOK —It seems someone is looking it up. Perhaps they could intervene on this discussion when they have found it.
Mr Smith —We will get back to you on that.
Senator COOK —So what I am trying to establish is when did you know that you were going to get $10 million. Was it on budget night this year or earlier?
Mr Smith —I think I became aware in late April.
Senator COOK —If I can return to my question, you have known since late April that there would be $10 million for this sort of effort. Have you undertaken a notional distribution of that—how much goes to research, how much goes to advertising and how much goes to running costs?
Mr Smith —We have no firm allocation. It is too early for us to make judgments about that. We wanted to do this research to find out what type of communication strategy was most appropriate. We really are treating the $10 million as a global pot, if you like, for the program at this stage. It will take a bit of time before we can firm up exactly how it is allocated.
Senator COOK —But you do not intend to eat up the whole $10 million on your research?
Mr Smith —That is certainly true.
Senator COOK —Do you have any limit on what you would spend on your research?
Mr Smith —I do not have any firm figures at all. To help you, I am willing to say that I would expect perhaps 80 per cent, in that ballpark, if that can be plus or minus any number of per cent, which could go in advertising[hyphen]type expenditures. But we expect a number of other programs as well to be part of the community education exercise. Even that figure is, at the moment, just a broad guesstimate without any status at all.
Senator COOK —Do you have any notional disbursement of that 80 per cent, as to what will go on electronic advertising as opposed to print media as opposed to promotional literature, seminars and things of that nature?
Mr Smith —The 80 per cent, plus or minus an unknown amount, is completely a guesstimate. Beyond that, I have no idea at this stage.
Senator COOK —Can I conclude from that that you are really not in an organised position yet to commission advertising or book time for advertising?
Mr Smith —We will not be in that position until we have gone a bit further with the process.
Senator COOK —When might you be in that position?
Mr Smith —I expect to be in that position reasonably soon but, as of right now, I have not even seen the written report from the researchers, let alone anything from advertising agencies, et cetera.
Senator COOK —Reasonably soon. Is that a couple of days, a week or two, or a month?
Mr Smith —I would not care to be any more precise than reasonably soon, other than perhaps to say that I would hope to be in that position in this financial year.
Senator COOK —Before 30 June.
Mr Smith —Definitely before 30 June.
Senator COOK —I think you said you have not decided on a distribution of what we are talking about as the ball point $8 million between electronic print, promotional and so forth. Can you tell us over what period of time you expect to spend this money? Is it over a couple of weeks, a month or over the whole 12 months?
Mr Smith —No. I have no information to give you on that. There has been no decision taken on the timing.
Senator COOK —When might you make that decision?
Mr Smith —I cannot make that decision until I know more about the government's proposals in relation to a tax reform program.
Senator COOK —You need to make the decision knowing how difficult a job it is to promote this package.
Mr Smith —We are putting ourselves in a position to know as much as we can. Final decisions will be taken at the appropriate time, but I cannot tell you today what the time frames will be.
Senator COOK —But you would not be intending to spend any of this money between, say, April 1999 and the end of June 1999, would you?
Mr Smith —No, I would not be expecting to do that.
Senator COOK —So it will be spent some time between then and now?
Mr Smith —I would expect so.
Senator FAULKNER —But you are expecting, Mr Smith, that this will be expended before the election.
Mr Smith —My expectation is based on the public statements of the Prime Minister that he proposes to announce a tax reform. This exercise is clearly associated with that announcement. He has announced that he intends releasing a tax reform proposal before the next election. My expectations are formed by public statements of the government.
Senator FAULKNER —The inextricable link between the timing of this particular advertising campaign and the election, which is—
Mr Smith —You cannot ask me questions about the elections.
Senator FAULKNER —I am just saying that is one of the reasons why there is such enormous concern about its nature and hence the sort of questioning that we have had at this committee and a range of others. I just made an editorial comment.
ACTING CHAIR —We are not here to make editorial comments. We are here to ask estimates questions.
Senator FAULKNER —You are, but I am not.
ACTING CHAIR —You are not either, Senator.
Senator FAULKNER —I will if I want to.
ACTING CHAIR —You will ask questions appropriate to the estimates that are before us. You might find you are called out of order.
Senator COOK —Mr Smith, when might you be in a position to know over what time span you intend to conduct this advertising and promotional campaign?
Mr Smith —I do not know when this statement is to be made.
Senator COOK —You do know that it will be before April next year.
Mr Smith —I know that it is before the next election. I presume you are referring to April because of the constitutional limit on the term of the present parliament.
Senator COOK —You do know that it will be done before then and that you will need to do it before then.
Mr Smith —That is right.
Senator COOK —Do you have a work program between now and then as to when you intend to spend this money? This is normal administrative management surely.
Mr Smith —Sometimes we have to be very flexible.
Senator COOK —Why?
Mr Smith —Because we do not always know the answer to the question.
Senator COOK —When the election will be?
Mr Smith —No, I do not care when the election is other than within that time frame you have referred to. I only care about when the tax reform is going to be announced for the purpose of this exercise, and I do not know that, so therefore I need to flexible in preparing this material.
Senator GEORGE CAMPBELL —I think you said you knew it was going to be fairly soon.
Mr Smith —You know as much as I do about that because you have no doubt heard the Prime Minister's remarks about that. That is what I know about.
Senator GEORGE CAMPBELL —I am only repeating what you said.
Mr Smith —Yes, and I am basing it on the Prime Minister's remarks, which are that he expects to do that soon. I do not know, however, when that is. Nor do I know how long it will run.
Senator COOK —I take your remark as it is given. You need to be flexible. In terms of my understanding, you are a prudent administrator, thus the preparatory work that is the completion of the qualitative soundings that you are now taking. The engagement of a communications person and the completion of the working up of a campaign by the end of this financial year is going to go ahead.
Mr Smith —We were working on that basis to give us this flexibility. Obviously it starts with getting the things ready as quickly as we can. After that, it is just impossible for me to give you any information because I just do not know.
Senator COOK —You will be ready to roll by 30 June, but you will not know when to start rolling until the government says, `Here is our package'.
Mr Smith —I have not actually said we will be ready to roll on 30 June. I have said that I am working as fast as I can and could achieve things by 30 June. Whether we do is still to be seen.
Senator FAULKNER —Would it be possible to bring that timetable forward? Is 30 June as early as you would be able to roll?
Mr Smith —I am not in a position to say how quickly we can roll. I am giving you that figure. I said this financial year. That was not the target though.
Senator FAULKNER —No, but you have also said to us that it is for the reasons you have outlined. I suspect there might even be some other reasons in the mind of the Prime Minister. You need flexibility. I think we hear what you say in relation to flexibility. Flexibility can push a timetable out; flexibility can contract a timetable also.
Mr Smith —It all depends on what is involved, doesn't it, Senator? Since none of those decisions have been taken there is a range of possibilities.
Senator FAULKNER —I appreciate that. What I am asking is: do you have sufficient flexibility to go before 30 June?
Mr Smith —The answer to that question would depend on what we go with, so there is no single answer to that question.
Senator COOK —I presume you have talked to Dr Ken Henry. I presume you know the nature of his considerations to some extent. I assume that you were privy to any cabinet submissions that may have been considered on this matter. It is not as if you are entirely in the dark. You have an idea of the shape of things that are within the government options.
Mr Smith —I am not in a position to give you any information about those matters at all.
Senator COOK —I am not asking for it, but I think you have just established that.
Mr Smith —Including confirming whether or not I know anything about those matters. I am not in a position to assist you.
Senator COOK —How do you define education? You have all this money—$10 million for education. I am very interested in your definition of what education is. What sort of educational campaign can we expect from you?
Senator Kemp —I think that is explained in budget paper No. 2. I think the Department of Treasury was allocated $10 million in 1997[hyphen]98 for an information and education campaign to inform the public of the nature of the Australian taxation system and changes required to reform it. This is designed to assist taxpayers understand the nature of reform to the tax system which will result in better compliance and development of a more efficient revenue base.
Senator COOK —Yes, but you appreciate the word `reform' is a subjective word and it is interpreted any way. This is why I want to know what the meaning of `education' is. Are you going to look at an education campaign which canvasses options or are we just going to look at some crass selling of a government proposal?
Senator Kemp —I think you can make an editorial if you like.
Senator COOK —I am not. I am just asking.
Senator Kemp —And I am responding. If Mr Smith would like to add to it that is fine, but that is what the government has stated in the budget paper No. 2.
Senator COOK —Do you have any additional comment, Mr Smith?
Mr Smith —Most certainly not, Senator.
Senator COOK —So we cannot get from you, tonight or at any time, until we actually see it, your understanding of what an education campaign looks like?
Mr Smith —My understanding of an education campaign is as described in the document that the minister has just mentioned.
Senator FAULKNER —Mr Smith, did you provide a copy of the budget paper to Worthington Di Marzio, so they are fully apprised of this?
Mr Smith —I would say that I do not actually know, but I would think that similar words were used in the request for tender.
Senator FAULKNER —The reason I ask is that those words are the best we can do. I assume that they would, at a minimum, have been provided to them. You cannot confirm that?
Mr Smith —As to a photocopy of the budget paper—
Senator FAULKNER —Whether that same most generous contribution that has been provided to committee members has been provided to Worthington Di Marzio. I do hope they have the budget paper so they can design the research program most effectively.
Mr Smith —I understand they have been given that description of the program.
Senator FAULKNER —That is a relief.
Senator COOK —If you will not go and describe for me—and you said you will not, so I accept your answer—what you think an education campaign is, the standard television advertising format is the 30[hyphen]second ad. Precious little education can go on that—it is usually a selling ad. Will you rule out now that there will be 30[hyphen]second television ads as part of the education campaign?
Senator Kemp —Oh, come on, Peter!
Senator COOK —It is a serious question. It goes to whether it is selling a product or explaining an issue.
Senator Kemp —I think that, in answer to a range of questions, Mr Smith has indicated what he is able to indicate and what he is not able to indicate, Senator, so I would think it would be unlikely things will be ruled in or ruled out.
Senator COOK —Can you rule it out, Mr Smith?
Mr Smith —I certainly will not be ruling anything in or out, Senator. I might make the observation, in making that comment, that we do not see advertising as the only part of the information program, and one purpose for short or small advertisements can be to direct people to other sources of information, so the pedagogy of a press advertisement may be in what it directs people to rather than what it conveys itself.
Senator FAULKNER —Are you looking at a direct mail campaign, Mr Smith? Is that one of the possibilities?
Mr Smith —They are all possibilities, but there are no decisions on the techniques at this time.
Senator FAULKNER —Have you considered the possibility of a call centre?
Mr Smith —Yes, that is a possibility.
Senator FAULKNER —Can you let us know some of the other possibilities that you are canvassing? That is two, but I think—
Mr Smith —As far as I am concerned, everything is a possibility. You understand we are waiting for further results and advice and so on. I think it would only be speculative for me—you put them up but I will agree to them as possibilities.
Senator FAULKNER —No, I do not want to do that.
Mr Smith —I may even think of some that I have not thought of.
—I do not want to do that, but I do note from your previous evidence that you have a near to final written report and certainly verbal reports from your qualitative
research company. I just wondered if you might be able to help us because you indicate, in my view quite properly in answer to Senator Cook's question, that there is more to advertising obviously than just 30[hyphen]second television advertisements. I think we would all accept that.
I just wondering at this stage, given that you have had both written and verbal reports from the qualitative agency, whether you might be able to provide us with a little more information about some of the options—not options about the tax reform; this is some of the options that might have been flagged in terms of a prospective advertising campaign.
Senator Kemp —Mr Chairman, I do not want to break the fascinating flow of questions but, noting the time—a quarter to nine—we have a lot of officers here and we have limited time, I understand, for the committee to consider other programs. I do not know whether the committee has made a decision on what it wants to do and what it does not want to do. My understanding is that we finish tonight at 11 and we resume tomorrow at 9. We have another department on tomorrow and we will finish that department before we come back on to what remains of Treasury and the tax office.
ACTING CHAIR —In fact, Minister, I think we might have two departments to finish tomorrow before we go back to Treasury. And we are finishing at a quarter to four tomorrow.
Senator Kemp —We have some very senior people here from a range of areas. I think the committee could extend the courtesy to allow those that are not going to be needed to go home. We only have now just two and a quarter hours remaining this evening.
Senator COOK —I do not know that there is any firm decision about closing at 11 o'clock. I was rather hoping we could go through until we complete the whole tax section.
Senator Kemp —No, I think certainly not. We have a fixed standing order: there is a standing order which requires us to finish at 11.
Senator COOK —Well we are told that certain officers are only available to us for today.
Senator Kemp —You have got the officers here.
Senator COOK —Yes, and we will examine them. But if we have not completed our examination—
Senator Kemp —All I am saying, Senator, and I do not wish to argue with you, is that there are time limits. This committee has used up heaps of time in a whole host of areas today. That is your decision, that is not mine, and we are happy to assist. All I am saying is that we are pressing into some time limits which, my understanding is, cannot be extended.
ACTING CHAIR —That is correct.
Senator Kemp —Therefore the committee should address itself to what it wants to do. If it does not feel that it could be examining particular sections of the department or the tax office, I think they should be released to go home.
Senator COOK —Can I just comment, Mr Chairman?
ACTING CHAIR —You may comment, Senator Cook.
Senator COOK —We are proceeding with all due haste, given the complexity of the material that we have before us. Minister, you have told us that certain officers are not available tomorrow, which is a normal sitting time for this committee. We take note of that. We will try and examine them within the available time. If we are unable to complete that we will seek leave to extend the sitting of this committee at a time in which those officers are available.
I note estimates committees are sitting next week—I am attending one of those—and it may well be that there is some time available then. If we are unable to complete any of this because
the government insists on sharp timetabling that prevents us from fully examining witnesses, we will have to do it in the Committee of the Whole.
Senator Kemp —Senator, you will have to do what you wish to do. But let me point out to you that this committee has already sat, I understand, for three days. They will be sitting tomorrow, so it will be four days. By any reasonable standard it has sat far longer, I suspect, than comparative committees have sat in previous budget years.
Senator FAULKNER —Standard operating procedure.
Senator Kemp —I am speaking, Senator. You keep quiet, please.
Senator FAULKNER —I am just telling you it is standard operating procedure.
Senator Kemp —I am speaking, so would you mind keeping quiet. My understanding is that times will not be extended. The committee has been well aware that these officers are only available. They made decisions today to examine at great length the ACCC and the Productivity Commission. That is the committee's decision. So my understanding is that it will not be extended. All I am suggesting is that we turn our minds to what the priorities of senators are. If you wish to continue on like this, that is okay with me, but—
Senator COOK —No, I want to get on with the proceedings. This is delaying them, and I notice that you have instituted that. We dealt with out of Canberra agencies today at the request of the government and they went first—it was not my desire to do that, but we acceded to a request by the government to do that.
ACTING CHAIR —That has often been the practice in the past.
Senator COOK —It has often been. But we are being called up to say—
Senator Kemp —It is a decision of the committee. It is not a decision of the government, it is a decision of the committee.
Senator COOK —It was put to us that it was desirable—
Senator Kemp —Different matter.
Senator COOK —on behalf of the government and on that basis we made a decision to accede to a request. I do not intend to debate you. I have just said what the situation is from my perspective.
Senator Kemp —The final point I would make is if we cannot get a decision out I would point out to the committee that there have been few questions asked by government senators, to clear the space for non[hyphen]government senators who wish to ask questions. The government has been more than generous. But my understanding is that the committee time will not be extended. Therefore I ask whether it is possible for the committee to look at what its priorities are so that we can decide which officers need to stay and which officers can go home.
ACTING CHAIR —I would suggest that is an appropriate course of action—it was done last night in relation to another department at about this time of night—if members of the committee can work out their priorities that they want to explore over the next couple of hours or so and relieve the other officers.
Senator COOK —As far as I can answer that, being constructive here, we would want to conclude the examination of those sections of the estimates that are before us that relate to taxation. It may well be that that will take the rest of the evening. It may well be that it will take longer. At this stage my best guess is that we will take the rest of the evening on tax but I cannot be sure of that.
Senator Kemp —We are now doing the Treasury area.
Senator COOK —Yes, we are doing taxation within the Treasury. We are doing a whole block of things, one of which is tax.
Senator Kemp —Are you saying that the tax office is not required tonight?
Senator COOK —No, I am not saying that. I think the tax office is required tonight.
ACTING CHAIR —It appears to me from what you are saying, Senator Cook, that the Australian Bureau of Statistics may not be required, the Insurance and Superannuation Commission, Business affairs, but you want the Taxation Office to remain as part of the tax—
Senator COOK —Unless you are going to rule that we cannot examine the tax office until such time as we complete all the other issues that are before us.
ACTING CHAIR —I am not ruling anything. If the committee likes to make a decision that it wants to excuse the other divisions but retain the tax office here, that is a decision for the committee.
Senator COOK —I would be in favour of that.
Senator SHERRY —Does that include superannuation tax? It is listed as part of this block of four that we are considering.
Senator COOK —No, keep those.
ACTING CHAIR —We are talking about the separate bodies—the Australian Bureau of Statistics and the Insurance and Superannuation Commission—but not the tax policy aspect of superannuation. That is 7.4. We will excuse the Australian Bureau of Statistics, the Insurance and Superannuation Commission and Business Affairs. That is programs 3, 7 and 8.
Senator COOK —Earlier, Mr Smith, I raised with you the question of the last occasion on which there was major government tax reform, in 1985, and your association with it. The minister then produces some ads. Is it not true that those ads that he has produced were not associated with promoting a package of tax reform but were promoting the discussion paper and the national tax summit?
Mr Smith —On the advertisements that the minister referred to, I am afraid that you will have to ask him questions about those. I have not sighted them.
Senator Kemp —What was the question, Senator?
Senator COOK —Those ads promoting the discussion documents set out a series of—
Senator Kemp —The first one—
Senator COOK —Hang on, I have not finished the question, Minister. I think you may wish to have the whole question. Those ads draw attention to, or promote, the tax document issued by the government, the discussions on tax options, and promote and direct attention to the national tax summit, but they are not ads that promote or `educate' people about a particular set of tax proposals.
Senator Kemp —Before I answer that, Mr Chairman: there are a couple of other areas of Treasury that are here—domestic economy, international economy and structural. If we are going to be dealing with tax matters tonight, including the tax office, are those sections of Treasury needed?
Senator COOK —I do not think so, but I cannot be absolutely certain.
CHAIR —Minister, I think it is reasonable to expect that those officers should stay for at least another half an hour or three[hyphen]quarters of an hour and then we will decide.
Senator Kemp —Okay. The first one, as I said, was in the Australian Financial Review of Wednesday, 19 June. This was to do with, `You've heard the rumours. Now get the facts'. It said:
Almost all of us believe the present tax system is unfair. . . .
It goes on:
The free booklet is clearly and simply presented. It explains that tax reform is mainly about making a fairer tax system—about reducing the rates of income tax on wages and spreading the burden more widely . . .
So read the facts. Read the proposed solutions. And make up your own mind about whether you can afford our present tax system. Or whether it's about time to give honest tax payers a fairer go. About time for tax reform.
"A Guide to Tax Reform" is available free at all Official Post Offices . . .
Senator COOK —With respect to that, the booklet being promoted canvassed a series of options for reform. Is it your intention this time, Minister, to canvass a series of options for reform?
Senator Kemp —Senator, I am not going to make any comments further than those the Prime Minister has made, that the electorate will have a very clear idea of what the government's proposals are.
CHAIR —I got back just in time to hear Senator Cook make a comment which I want to clarify. He said that the interstate agencies were heard at 2 p.m. at the request of the government. In fact, that is not the case. It has been the practice, for the last number of estimates committees, to hear the interstate agencies early in the afternoon of the portfolio day that they are on, so that they are not held in Canberra overnight.
The program of today's estimates was put out in advance. I checked with the secretary of the committee, and at no stage were any suggestions or complaints made about the order of the program as it was set out on the circular that was sent around, which showed immediately after lunch, at 2 o'clock, interstate agencies being held. So it was not at the request of the government; it was an agreed program. Senator Sherry.
Senator COOK —In light of that explanation—if I may, Mr Chairman—I think it is a matter that ought now to go on record, in view of what you have said, that on a couple of occasions you approached me about variations to the program—
CHAIR —Yes, but—
Senator COOK —to assess whether I would be satisfied with those variations.
Senator COOK —When you approached me about them you provided explanations as to why those changes would be made.
Senator COOK —Some of those changes were related to the timing of the out of Canberra agencies.
CHAIR —No, not the out of Canberra agencies.
Senator COOK —Well, it might be that you are right and I am wrong, but my recollection is that they were and that we acquiesced in those proposals you put to expedite this hearing.
CHAIR —We will sort those facts out at a later date, Senator Cook. In fact, the members of this committee are Senator O'Brien and Senator Bishop; I approached you out of courtesy. But at no stage were the interstate agencies ever changed from the program of 2 o'clock.
Senator FAULKNER —I can think about something on which there will probably be unanimous agreement—
CHAIR —And that is to get on?
Senator FAULKNER —which is that you will probably be able to get on with the work best if I leave, so that is what I am going to do.
Senator Kemp —I second the motion!
CHAIR —I would not pass that sort of judgment, Senator Faulkner. Senator Sherry.
Senator SHERRY —Mr Smith, are you aware that the Business Council of Australia have announced an advertising campaign? I think the figure $10 million looms in my memory—surprise, surprise. Have you discussed or do you know of any officers in Treasury who have discussed any of the work you have done thus far with the Business Council of Australia?
Mr Smith —In reply to your first question, which is whether I am aware of that proposed campaign, I am, through the usual sources—media and so on. I think you then mentioned $10 million. I must say that that is not a figure I am aware of. Perhaps if you could repeat the third question, because I am not sure I have quite got it.
Senator SHERRY —Have you discussed or are you aware of any officers in Treasury having any discussions with anyone from BCA, or their advertising agency, about the research you have done thus far?
Mr Smith —No, I am not. I would have no intention of talking to the Business Council or anyone else about our research, and I do not even know who their agency is. I am not even sure they have got an agency. That is all information that is not in my knowledge.
Senator SHERRY —That was to be my next question, to ask whether there is any intention to liaise with them in any sense on their campaign or provide any information.
Mr Smith —I did contemplate that but have not done so. The usual process is to consider conflict of interest with the tenderers. When you say the Business Council, for all I know there may be many other people contemplating campaigns in relation to taxation from various points of view. I do not think I would necessarily know what all of those were, and we would be asking about conflicts of interest if there were any. That is standard.
Senator SHERRY —But they certainly, from my observations of the media, are the most high profile and financed organisation to date. You said that you had contemplated it. Why did you contemplate it?
Mr Smith —Probably for the same reason as you raised it. I thought, `I wonder if there are any risks there,' but I decided not to because then I looked at the form of our contracts and decided that that was the better way to go.
Senator SHERRY —So you rule it out?
Mr Smith —Consulting with the Business Council about what they are doing? Of course, the only thing I contemplated was the issue of conflict of interest, and I decided that it was not something that I needed to address in that way.
Senator SHERRY —Can I ask the same question to Mr Evans that I asked Mr Smith, in relation to the advertising campaign research and liaising with the Business Council of Australia?
Mr Evans —I am not aware of any liaison with the Business Council of Australia over advertising campaigns.
Senator SHERRY —Would you rule out joint work, cooperation or sharing of information?
Mr Evans —It would be a decision for government, Senator.
Senator SHERRY —Dr Henry, can I ask you the same questions?
Dr Henry —Senator, I would give the same answer.
Senator SHERRY —Mr Smith, at the Senate Committee on Finance and Public Administration estimates hearings held on 25 February this year, I put on notice the following question to the Office of Government Information and Advertising:
Would you provide a list by department and agency of all advertising programs, including draft programs and the costs undertaken and proposed for the current financial year and for the financial year 1998/99?
I think you indicated earlier that you became aware of the campaign that we have been discussing in late April. I received the answer to that question on notice on Tuesday late afternoon, 2 June. I will quickly read for you the list of proposed spending for the Department of the Treasury programs: Royal Australian Mint, Olympic coin program, Australian Taxation Office, superannuation education, Taxtime Ethnic, the Taxpayers' Charter, superannuation mini campaign, Australian Securities Commission, services to the public, and Superannuation Business Line ATO. Could you indicate to me, please, which one of those 10 programs is the program we have been discussing so far this evening?
Mr Smith —I did not hear reference to that program, Senator.
Senator SHERRY —The Department of the Treasury. This is money to be spent in the 1997[hyphen]98 financial year—as provided to me on Tuesday evening. Which of those 10 programs that I have read covers the campaign we have just been discussing?
Mr Smith —Who is that information from?
Senator SHERRY —It was provided to me by the Senate Finance and Public Administration Estimates Committee at our meeting on Tuesday of this week.
Mr Smith —Sorry, I am missing that altogether. Was that meant to be information current at the time you asked the question? I heard you say it was 25 February of this year.
Senator SHERRY —I asked the question on 25 February. I will read it to you again:
Would you provide a list by department and agency of all advertising programs, including draft programs and the costs undertaken and proposed for the current financial year and for financial year 1998/99?
I have just read to you the list of 10 programs under the Department of the Treasury, and I am asking you this: which one of those 10 is the program we have been discussing so far this evening?
Mr Smith —As I have answered, I did not hear any reference to our program and I can only assume that that answer was one that was linked to the date that you asked the question, because this program did not exist on that date.
Senator SHERRY —I was provided with this information on 2 June, the Tuesday of this week. I did not say in my question, which was put on notice, `as at 25 February.' I said, `and proposed for the current financial year and for financial year 1998[hyphen]99.' It is pretty clear to me.
Mr Smith —If you are asking me, I do not know which department provided you with that information but I think you should address the question to them. Was it OGIA?
Senator SHERRY —It was OGIA, through Finance. But I have read out to you the 10 programs listed under the Department of Treasury. Which of those 10 covers the campaign we have been discussing so far tonight?
Senator Kemp —Could I get this clear? This is an answer provided to you from the Department of Finance, is it?
Senator SHERRY —That is correct.
Senator Kemp —It relates to a question you asked in February, but the answer was provided to you on 2 June: is that right?
Senator SHERRY —That is correct.
Senator Kemp —You read out a list of programs, and, as far as I am aware, Mr Smith and I have not heard the program which is currently before this committee.
Senator SHERRY —I have read out 10 programs that I am informed by Finance are the list. Which one of those 10 covers the program that we have been discussing?
CHAIR —You may have to ask Finance, Senator Sherry.
Senator SHERRY —I am asking Treasury.
CHAIR —Finance provided the information.
Senator SHERRY —This is the list for the Department of the Treasury. Which one of the 10 is it?
Mr Smith —I know nothing of the list, nor the answer, nor the basis upon which it was prepared. What I can tell you is that I did not hear you read out, as part of that 10, this program. That is all I know.
Senator SHERRY —Thank you. I assume then that you have no idea why the list is incomplete.
Mr Smith —I am not willing to concede that it is incomplete, because I do not know the basis upon which it was prepared.
Senator SHERRY —So, of the 10 I read out, first was Royal Australian Mint: I think I can rule that one out.
Senator Kemp —So that we can move it along a bit, because we are going at a dreadfully slow rate, what is the point you are making?
Senator SHERRY —I am supposedly provided with a list from a very clear question asked for this financial year and for the next financial year of advertising. I look down the list for this financial year and I do not think that the program we have been discussing is listed here. I would be interested to know why.
Senator Kemp —You do not think it is listed there and, as far as we can tell from listening to you, we do not think it appears to be listed there. Someone else has prepared the answer. We will check the list if you want us to, I guess, but it seems to me that it would be more sensible to put it to the people who provided the answer to you.
Senator SHERRY —Could I ask if OGIA discussed this with the Department of Treasury, or asked them for the various programs? Was this supplied by the Department of Treasury?
Mr Evans —We will have to take that on notice and check. The fact is that the program that we are discussing here was announced in the budget some weeks before that answer is dated, so there is no doubt about the existence of the program, even if we cannot recognise it on that list.
Senator SHERRY —That is right. At the end of this list, which is comprehensive and appears to cover all other government departments, the Office of Government Information and Advertising, OGIA, is unable to give an estimate of advertising programs for 1998[hyphen]99.
Senator Kemp —Why don't you put it to OGIA?
Senator SHERRY —Presumably Treasury provided the information in respect of its own department.
Senator Kemp —The program we are discussing, as the Secretary said, is emblazoned on page 1[hyphen]103 of the budget paper No. 2. There is nothing hidden about this program. In fact, I think it was mentioned in some of the press articles the day after the budget. It has been relentlessly discussed. I do not know what you have there. It may be incomplete, for all I know; but, not having seen it, I am not in a position to make a judgment. If you are saying that we have hidden the program, the program is there on that page.
Senator SHERRY —I am endeavouring to find out, firstly, whether it is incomplete—and it appears that it is—
Senator Kemp —All right.
Senator SHERRY —And secondly, who is responsible for it being incomplete.
Senator Kemp —The people who presumably have given it to you are responsible.
Senator SHERRY —And presumably they would have asked Treasury, and—
Mr Evans —Presumably not, Senator. I suggest that you will have to put the question to them.
Senator SHERRY —Can you take it on notice, please, to check this matter out?
Mr Evans —No. I think they should take it on notice. It is a response given to you by the Department of Finance.
Senator SHERRY —Thank you.
Senator GEORGE CAMPBELL —I have a couple of quick questions and maybe we will all go on to something else.
CHAIR —Here's hoping.
Senator GEORGE CAMPBELL —Mr Smith, to your knowledge, are you aware of any advertising time being booked, in respect of this campaign, with any television or radio outlets?
Mr Smith —No, Senator, I am not aware of that.
Senator GEORGE CAMPBELL —Are you aware of any machine time being booked with any printers, in respect of preparation of material associated with this campaign?
Mr Smith —I am not quite sure what machine time is, but I think we have been contemplating printing materials and I would expect that we have already begun discussions with possible printers for that purpose. But I am not aware of any firm bookings.
Senator GEORGE CAMPBELL —Normal practice in the printing game is that, if you have got to produce a publication, you usually book time on the machines for the printing of that publication.
Mr Smith —Yes. Well, we are certainly looking at printing some publications.
Senator GEORGE CAMPBELL —Have you any time frame for when those publications will be produced?
Mr Smith —No. As I have said before, I cannot help you with the time frames at this point. We are waiting for further developments.
Senator GEORGE CAMPBELL —And you are not aware of machine time having been booked?
Mr Smith —I am personally not, but I do know we are looking at printing documents, and there may have been discussions with printers.
Senator GEORGE CAMPBELL —Where are the interactive consultants based?
Mr Smith —I think they are a local Canberra firm.
Senator GEORGE CAMPBELL —Lastly, what is the name of the individual that is working on the project from that company?
Mr Smith —I do have that, if you will just bear with me while I find the name: Wendy Hamilton.
Senator COOK —Can I go to the tax reform task force? We know that the budget paper has disclosed $10 million for the education campaign. I am right, I think, in saying that they disclosed $4.2 million for the work of the tax reform task force.
Dr Henry —That is correct.
Senator COOK —I think that on a question on notice to you, Dr Henry, you indicated that last year you spent $1.2 million.
Dr Henry —I believe that is correct.
Senator COOK —So your total notional budget at this point is $5.4 million: the $1.2 that you spent, and the $4.2 that is being appropriated. Why the big increase this year over last year?
Dr Henry —I think the budget papers indicate what the $4.2 million is for. But in general terms, continuation of our work, developing options, that would include engaging consultants and preparing options for government consideration. I am not really able to be any more specific than that in relation to the $4.2 million.
Senator COOK —Can you tell us the number of consultants, and what they are working on?
Dr Henry —We have engaged quite a number of consultants. I would have to take on notice just how many consultants we have engaged and exactly what it is that they are working on. But certainly they have been assisting us with the development of policy options for consideration by government.
Senator COOK —I just want to put together what all the costs in tax reform thus far are. We have $10 million for the education campaign and $5.2 million for your task force. In budget paper No. 2 page 1108 we have funding to develop systems for implementing tax reform, $25.2 million this year, which I presume is provision to implement the cost of changing systems for whatever reform package is finally decided on.
Dr Henry —My understanding is that those funds have been provided to the Australian Taxation Office and the Australian Customs Service for preliminary systems development.
Senator COOK —But it says on page 103 that, when we talk about the $10 million for your advertising and education campaign, we should see related Treasury's outlays measure entitled `Funding to develop systems for implementing tax reform'. So one presumes that that explanation is right. This $25.2 million is for implementing systems changes due to tax reform.
Dr Henry —I think that is what I indicated. It is preliminary systems development.
Senator COOK —It may be that there is more than that, but that is what has been provided for thus far.
Dr Henry —Yes, that is correct.
Senator COOK —I am advised that the government from two sources has provided a total of $300,000 for the Gibson committee, $150,000 of it from Treasury. Is that right?
Dr Henry —My understanding is that to date the costs associated with the Gibson committee, as you refer to it, which have been borne by the Treasury department, amount to $18,500.
Senator COOK —That is the costs thus far expended?
Dr Henry —Correct.
Senator COOK —But my question goes to the amount provided, and just to help you I am trying to work through the total thing. I have here a Hansard , page 116, from these budget estimates. The question, from Senator Faulkner, asked:
I understand that there was a very significant difference of opinion between DoFA and Treasury as to whether TA should be paid—
that is irrelevant.
If you can throw any light on that, it would be helpful. I am mainly interested in which department is footing the bill. Can you tell me that?
The Department of the Treasury and the Australian Taxation Office each received supplementation for their running costs of $2.5 million for tax reform. This included a notional $150,000 each for the administration of the government members task force on taxation.
The government members task force on taxation is the Gibson committee.
Dr Henry —Correct.
Senator COOK —And this answer tells me that Tax and you kicked in the tin $150,000 each.
Dr Henry —Yes, but perhaps I did not do a good job of explaining it. There was a certain sum allocated, exactly as you described it, but that is certainly not what has been spent. You would note as well that a sum of $2.5 million was allocated to the Treasury. You subtract $150,000 from that $2.35 million but, as I have indicated, we actually spent $1.2 million. So the fact that funds have been allocated does not imply that the funds have actually been spent and I would repeat that the funds which we have expended in relation to the government members task force amount to $18,500.
Senator COOK —I understand your answer. You could talk about the half of the $10 million dollars that Mr Smith has at his disposal but thus far he has expended $97,000.
Dr Henry —Correct.
Senator COOK —But we are in imminent expectation that before April of next year he will have spent the lot. So the point is that the government has made a provision of $300,000 for the Gibson committee. Whether they spend it all is to be seen but that is the provision that has been made and $150,000 of that is from Treasury?
Dr Henry —One qualification on that, Senator: the fact that funds are made available in a particular year does not automatically imply that if those funds are not spent in that year they will be available in subsequent years.
Senator COOK —No, I was not going to that.
Dr Henry —It does not follow that those funds remain available. Some part may, and that is something that I would have to check. But it does not follow that because $300,000 was made available in one year it would automatically be available in the next year if it was not spent in the year in which it was made available.
Senator COOK —Was it rolled over or not?
Dr Henry —As I say, I would have to check.
Senator COOK —Please do that. For the sake of my sums, I can lick my pencil and write down $300,000 made available for the tax reform process going to the Gibson Committee. Why does Treasury kick in $150,000 for a government backbench committee?
Dr Henry —We were asked to administer the funds.
Senator COOK —So if Mr Beazley rocked along and said, `How about $150,000 for a backbench opposition committee,' you would say, `Fine, we will administer the funds. Here is the money.' Is that right?
Dr Henry —No.
Senator COOK —This is not the executive wing of government; it is the backbench. That is the point I am making.
Dr Henry —Sure, an appropriation was made and there is then a question of which agency should administer the appropriation. In this case, the appropriation was duly made and it was decided that Treasury should administer the appropriation. The appropriation related to—
Senator COOK —Decided by whom?
Dr Henry —By the government. The appropriation was made in the context of the development of tax policy. Tax policy is our portfolio responsibility; it falls to us to administer the program.
Senator COOK —I accept your explanation. I just make the distinction that this is not the executive wing of government to which you are answerable. This is a parliamentary backbench committee of the governing party. I also make the observation that Mr Smith has not talked to them, but he is interested in finding out more information about qualitative understandings of citizens' attitudes to tax reform and the types of things that this committee is investigating. Has this committee reported to you since you are paying its freight?
Dr Henry —No it has not, Senator.
Senator COOK —Does it intend to?
Dr Henry —I have no knowledge on that matter. I do not know whether there is an intention that the committee report to me. My understanding is that the committee is reporting to the Treasurer and the Prime Minister.
Senator Kemp —I think the original press release indicated that the task force will submit to the government its summaries of submissions later in the year and then list a full membership. It has conducted its hearings and we are fortunate that we do have a member of the committee with us at the table.
Senator COOK —Very fortunate. I think you are very fortunate, too, to have been subsidised to the tune that you have.
CHAIR —If there has been $300,000 allocated, I seem to have missed out somewhere, Senator.
Senator COOK —I am not suggesting that it is going to you, personally. On 20 November 1997, I asked you this question in Treasury estimates:
Can you tell me what relationship there is between your committee and the Gibson Committee.
Dr Henry —there is no operational relationship at this stage. As I indicated earlier, the government members task force has called for submissions to be lodged by the end of February next year, and it may be at that stage that a more operational relationship is developed. But certainly at this stage there is no operational relationship between the two task forces.
You were in expectation back in November 1997 that a closer relationship would develop. Has that not occurred?
Senator Kemp —I do not think that is what was said. That is not what I think you read out.
Senator COOK —And it may be at that stage a more operational relationship—
Senator Kemp —It was the word `may'; it `may' be.
Senator COOK —That is an expectation—that it could happen, surely.
Dr Henry —I think it was more recording a possibility.
Senator COOK —Let's not split hairs.
Senator Kemp —Hairs are important.
Senator COOK —I will come back to that remark, because hairs may well be important later on; I do not think they are particularly important now. Dr Henry, did you or did you not establish a relationship with that committee?
Dr Henry —There is no progress report on that front, Senator.
Senator COOK —Why not? You said that after all the submissions that had been called for were lodged by the end of February next year—that is, February this year—it may be that at that stage a more operational relationship is developed. What hindered the development of a more operational relationship?
Senator Kemp —Nothing hindered it, Senator. It was, as was explained to you rather well, I thought, by Dr Henry, that there may be. Dr Henry is saying that that has not occurred and I would draw no further conclusions. It is a committee set up to report to government and it has done the work that it was set up to do and it is now, as I understand, reporting to government on this matter. So the government is receiving the summaries of the submissions and the nature of the consultations which have occurred.
Senator COOK —Thank you, Minister; I understood that all from the earlier answers. My question is to Dr Henry. Back in November last year, he thought there was a possibility that an operational relationship would be developed. It has not happened, on the evidence. My question is: why not?
Dr Henry —Senator, I have nothing to add to the minister's response.
Senator COOK —So it did not happen because it did not happen?
Dr Henry —As far as I am concerned.
Senator COOK —Okay. Do you know at all what that committee has heard and what findings, if any, it has made?
Dr Henry —No, I do not, Senator.
Senator COOK —This is a backbench committee that was taking public expressions of view about tax reform widely around Australia and from all sorts of people in Australia that had views on the matter. Is that not germane to your task force on tax reform?
Senator Kemp —Senator, it is one of the areas that provide information to government and, in the consideration of what the government may decide, the work of the task force is very important and is one of those factors. It has done what it was set up to do, and as far as I am aware it has done it very well, and it now either has briefed the Prime Minister and the Treasurer or is about to do it.
CHAIR —Is in the process of doing it.
Senator Kemp —Or is in the process of doing it. So it is doing exactly what it was set up to do.
Senator COOK —Minister, I am not going to that at this stage; I will come to that in a moment. At this stage what I am saying is that the Department of the Treasury is putting $150,000 up for a backbench government committee to examine tax reform and the tax office is putting up another $150,000. This is taxpayers' money. I am simply asking, since it was inquiring into exactly the project that Dr Henry is the chairman of in terms of the Treasury: does he know what it has found out? The answer seems to be, no, he does not.
Senator Kemp —Dr Henry has answered that question. This is a committee which reports to government and it is one of those areas which provides important and valued sources of information to government.
Senator GEORGE CAMPBELL —We are just asking Dr Henry whether he is aware of its findings, has he been apprised of its findings?
Senator Kemp —As I said, it is a committee which was reporting to government. I think Dr Henry explained the allocation, that the government made the allocation, and it was administered, in part, by Treasury. That is the nature of the way these things are done and it is no less or no more than that.
Senator COOK —So, hearing you again on the subject, it is fair to conclude that Dr Henry does not know the findings of this committee?
Senator Kemp —I think, as a matter of courtesy, I would have expected the committee to have done what it was set up to do and to brief the Prime Minister and Treasurer first. That is apparently exactly what has happened.
Senator COOK —Dr Henry is part of the government administrative structure; this committee is part of the governing party structure. I guess that question is to you, Minister: does the government not consider that the findings of the Gibson committee are at all relevant to the activities of the government tax reform task force in the Department of Treasury?
Senator Kemp —The government listens very carefully to what the Gibson task force has discovered and the information it has provided to government. As I said, it is one of the sources which will have an important effect on the government's final decisions. It seems to be so blatantly obvious and such a natural process, I am amazed it has become an issue with you. Frankly, I cannot understand the point that you are trying to make.
Senator COOK —The point that I am trying to make I thought was blindingly obvious, but I am obviously not getting it through to you or you do not want to hear. The point is, the government has got this investment in finding out what people think about tax reform going on through Senator Gibson, and it has got a task force, at a cost of $4.2 million this year, under Dr Henry, developing tax options for it.
I would have thought that, as a simple matter of good administration, both these wings could somehow share their knowledge at some point. You are saying that they are not, it is all going
to the government, which is the ministers, and Dr Henry may not know what the Gibson task force finds out.
Senator Kemp —As you said, Dr Henry is looking at options, and the government considers those options, and it considers options that have been provided in the light of other information it may well have access to, and the task force has provided an important source of information.
That is how governments make decisions. They listen carefully to what the community has said, and one of the vehicles for that is the Gibson task force. In the light of the knowledge that the government has gleaned from this task force, it is in a better position to assess options put to it.
Senator COOK —Okay. I note your determination not to answer the point of the question. Can we go on to the next part of it, then. Is there any duplication between the work of Dr Henry and the Gibson task force?
Senator Kemp —Presumably the Treasurer uses the information that he has gleaned from the Gibson task force, and he uses it in his discussions with Dr Henry. I can go no further than that. I am not going to look at the nature of the discussions between Dr Henry and the Treasurer, nor am I going to go into any detail on the nature of the discussions between the Gibson task force and the Treasurer. But that provides, I think, the linkage that you are so concerned about.
Senator COOK —You make the point it all comes through to the Treasurer, and is all sorted out in the Treasurer's head.
Senator Kemp —In a sense, it is his task force.
Senator COOK —Was the task force paid for by taxpayers, and when will it report to taxpayers?
Senator Kemp —It is reporting to government. That is what it was designed to do. It is reporting to government.
Senator COOK —So it is not going to report publicly.
Senator Kemp —Senator, you are paid by taxpayers but you do not report to me, and I do not report to you.
Senator COOK —But if I am doing anything of importance you can be damned sure that the public will know about it, Minister. The point is it is not going to report publicly.
Senator Kemp —It reports to the Treasurer and the Prime Minister. That is its nature, and that is what we said when we set it up, and we can add no further than that. I quote from the Prime Minister's press release on the government members' task force:
The task force will submit to government summaries of submissions later in the year.
That is what it was about.
Senator COOK —You are quoting from the press release, Minister.
Senator Kemp —From the press release.
Senator COOK —Where in the press release does it say that it will be publicly funded by taxpayers to the tune of $300,000?
Senator Kemp —Senator, the information is readily available. You have the information. Dr Henry has indicated where the information has come from. Taxpayers know that politicians are publicly funded. That is how we are funded. So what is the heavy point you are making?
Senator COOK —The heavy point is that Treasury and the tax office are funding not the executive wing of government but a governing party backbench parliamentary committee. That is the heavy point. That committee is not reporting to the people who are funding it, only to the government.
Senator Kemp —Senator, you had caucus backbench committees which were supplied with permanent staff, were funded by the taxpayer, and I am not aware I ever saw any report from the caucus backbench committees. I just think it is a somewhat laborious point you are making, and without much validity. You are welcome to use up the time if you like, but we have—
Senator COOK —No. I am going to pass on because I find your repetitious answers unedifying, Minister.
Senator Kemp —It merely reflects the question, Senator Cook.
Senator GEORGE CAMPBELL —Could I just ask the question I asked before which got sidetracked between Senator Cook and Senator Kemp? Dr Henry, in the work you have been doing with the taxation task force, have you become aware of or have you been appraised of the findings of the Gibson committee?
Dr Henry —No, I have not, Senator.
Senator COOK —The Independent member for Lowe, Mr Paul Zammit, said in a press release on 1 June that the Treasurer directed this task force not to make any recommendations. Is that right?
Senator Kemp —Senator, the Treasurer has answered this at length in the parliament and I will do no more than use his words. This is what he said on 1 June:
The question is whether that advice, whether that consultation, whether that report can also be characterised as recommendations. Of course there is going to be advice in that report. I have not been privileged enough to see it as yet, but it was always entirely clear as the Prime Minister said that this group was going to have a free hand to consult, that this group was going to have a free hand to report, and that was the whole essence of this group and it was going to work in tandem with the task force group.
That is what the Treasurer said.
Senator COOK —I understand that, but did he direct them not to come up with any recommendations?
Senator Kemp —That is what the Treasurer said. I have not seen what Mr Zammit has said, but this is exactly what the Treasurer said.
Senator COOK —Could I have one of the attendants give you a copy of his press release so you can see what he said?
Senator Kemp —You can do that, but I am reporting exactly what the Treasurer said in his usual exuberant and effective manner.
Senator COOK —I know, but it does not answer my question.
Senator Kemp —It does answer your question, and that is the answer that I propose to give. You asked me what the Treasurer said about it, and this is what the Treasurer has said in the Hansard , and that is the answer I am giving you.
Senator COOK —That is the only answer you are giving.
Senator Kemp —It is the answer, and it is the one I am giving you.
Senator COOK —It does not answer the question. I just make that note for Hansard .
Senator Kemp —I make this note for Hansard : it does answer the question.
Senator COOK —I have got a bill thus far for $10 million for the education campaign, $1.2 million for Dr Henry's task force for last year, $4.2 million for this year, $25.2 million for systems changes arising from alterations to tax, the tax reform systems changes, and $300,000 for the task force. That makes $40.9 million so far of public money spent on tax reform or so far appropriated of public money on tax reform. Is the government seriously asking the parliament, without knowing what this money is being spent on, to approve these appropriations? That is $40.9 million of taxpayers' money that you are asking us to approve without knowing what the proposals are.
Senator Kemp —Senator, the government's intentions are well known. It is addressing an important concern that the community has about reform of tax, and the details of that tax reform package will be made available before the election. So I think that people in the community welcome the fact that this government is taking a serious approach to tax reform.
Senator COOK —Will they be made available before the Senate votes on the appropriations?
Senator Kemp —Senator, the timing of the release of the tax reform proposals is a matter for the Prime Minister. It is not a matter for me.
Senator COOK —I know, but do you happen to know whether—
Senator Kemp —I do not know when it is going to be released, no. That is a matter for the Prime Minister.
Senator COOK —So you do not know if the Senate will be advised of what the money is to be spent on.
Senator Kemp —Senators will know when the government makes its announcement. I suspect it will be front[hyphen]page news.
Senator COOK —I expect it will, too.
Senator Kemp —It will lead all the television programs, so people will know.
Senator COOK —We are expected to vote on these appropriations by the end of the month. All I am asking is: will we know by then? Your answer appears not to be. Your answer appears to be that you do not know.
Senator Kemp —I have answered. You asked me whether I know when the package will be released, and the answer is I do not know, and that is a matter for the Prime Minister.
Senator COOK —My question is to Dr Henry. You said earlier that there were a number of consultants employed by your task force. That explained in part why there was a $4.2 million appropriation for your task force. I do not anticipate you have this information readily to hand, so I am happy if you do take it on notice, as long as we can have a prompt reply. I do not mean that offensively. Who are the consultants that you are employing? When were they appointed, on what types of contracts and for how long? What are the costs of consultancy? What are the issues that they are consulting to you on?
Dr Henry —I am happy to take that on notice.
Senator Kemp —While we have a pause in the proceedings, I wonder if we could review the program again for this evening to see whether there are any other sections of the Treasury that we can now release.
CHAIR —I will check to see who has been released. We released the Bureau of Statistics.
Senator Kemp —We have Treasury, subprogram 1.1, domestic economy, subprogram 1.2, international economy and subprogram 1.3, structural.
CHAIR —I am not sure of the length of questioning by senators in relation to the current matter. They are the only ones who can give me an indication of whether we are likely to get down to domestic economy, international economy and structural.
Senator COOK —I do not think we are likely to get down to domestic economy tonight at this rate.
CHAIR —It is not my decision; it is your decision. I would suggest that, with your concurrence, officers from program 1 could go. What about the Australian Taxation Office and the Child Support Agency?
Senator COOK —I would like them to remain. I wish I could say they could go, but in all honesty I cannot.
CHAIR —That means that officers from program 1 are released for tonight. Thank you.
Senator COOK —Dr Henry, in the Canberra Times it was recently reported that up to 20 per cent of the Australian Taxation Office staff have been involved in some form of work pertaining to your task force. What percentage of Taxation Office staff have been engaged in providing information to your task force?
Dr Henry —I really do not know. Did you say 20 per cent of tax office staff?
Senator COOK —Yes.
Dr Henry —Certainly, I could say that I have not personally interfaced with 20 per cent of tax office staff on tax reform matters.
Senator COOK —I am not suggesting that you personally have done so. How do you characterise the extent of the involvement of the ATO providing information or backing to your task force?
Dr Henry —We have had the assistance of people in the tax office on a wide variety of issues. Some of those people for some period of time have been physically located with our people in the Treasury. From time to time, that could be a number varying between 10 and 15. On other occasions it is somewhat less.
We have been discussing policy options with other officers in the Australian Taxation Office who have not been physically located with us. I would not be able to give you a figure for the total number of tax office staff with whom we have held discussions in relation to tax reform, but it is certainly tens of officers.
Senator COOK —Tens of officers?
Dr Henry —With whom we have had direct conversations on tax reform.
Senator COOK —Tens of officers would be more than 20, wouldn't it?
Dr Henry —Yes, I would say so.
Senator COOK —Would it be 40 or 50?
Dr Henry —As I say, I find it hard to put a number on it. I certainly would not rule out 40, but I doubt that it would be going much above that.
Senator COOK —Coming back to the consultancies that you let, is it true that one of those consultancies is about finding a name for a GST which is publicly acceptable, that is, a new name for marketing a GST?
Dr Henry —Certainly not in any consultancy that we have let.
Senator COOK —So you could rule that out. You would call a spade a spade.
Dr Henry —I say that we have not let a consultancy on that subject.
Senator COOK —Have you let a consultancy on that subject, Mr Smith?
Mr Smith —No. The only consultancies I have let are the two that we have disclosed.
Senator COOK —In your educational campaign, do you have any intention to let a consultancy on that subject?
Mr Smith —I do not have any intention of letting a consultancy on that subject. I have not formed a thought about the issue.
Senator COOK —Then we can expect it to be called what it is, a consumption tax, can we?
Senator Kemp —I know you have a great interest in all this, but the best thing you can do is to wait until the tax reform package is announced.
Senator COOK —Dr Henry, the time before last when I spoke to you on this matter, you were the chairman of the tax reform task force committee. You are still that?
Dr Henry —That is correct.
Senator COOK —But you do not keep an agenda?
Dr Henry —That is correct.
Senator COOK —You do not keep minutes?
Dr Henry —That is correct.
Senator COOK —There are no records of the proceedings of this task force?
Dr Henry —That is correct.
Senator COOK —You employ consultants and you were going to tell us about that. Have you written any cabinet submissions?
Dr Henry —That is a matter that I would not discuss in this forum.
CHAIR —I do not think you would expect him to answer that question, having been in that position before.
Senator SHERRY —What do you call this tax?
CHAIR —That question was asked a minute ago.
Senator SHERRY —I am asking Dr Henry. What do you call this thing that you are doing all this work on that there are no records for?
Dr Henry —Tax reform package.
Senator SHERRY —Tax reform package. You do not call it a bobbit or a bibbit or a VAT or a GST or what?
Senator Kemp —Dr Henry has answered the question.
Senator COOK —Then, by extension, he does not call it any of those things in Senator Sherry's question.
Senator Kemp —You will just have to wait until it is all announced.
CHAIR —We are getting into the realms of speculation, Senator Cook. Perhaps we had better get back to some facts.
Senator SHERRY —That is what I am trying to get at, some facts.
CHAIR —You may keep trying, Senator Sherry. You may get some and you may not.
Senator COOK —On the question of accountability and the Charter of Budget Honesty, how do you square the fact that we are proposing to spend this amount of taxpayers' money without telling them why we are spending it?
Senator Kemp —We are developing our tax reform package. That is what we are doing.
Senator SHERRY —We do not even know the name of it.
Senator Kemp —We are developing a tax reform package.
Senator COOK —Will that package have options or put one particular view?
Senator Kemp —Dr Henry is working on options which I understand have been put into the government. The government will assess those options assisted by the work of the Gibson task force.
Senator COOK —Going on to the $20 million that is provided for the development of new systems to cater for new collection methods as a result of tax reform, can you say what collections will be affected by these changes?
Dr Henry —I suspect I am not the best person to direct that question to. I do not have responsibility for tax collection.
Senator COOK —It is then a question for Mr Carmody, I imagine, or at least for the tax office.
Dr Henry —Much as I do not like to pass the buck, I suspect that you would get a better answer.
Senator COOK —On this occasion the buck is not stopping here; it is stopping somewhere else.
Senator Kemp —I am not sure quite what answer you will get. You will have to wait with eager expectation until we finish this so we can have the pleasure of the tax commissioner.
Senator COOK —Just running through your herculean task of not keeping records, agendas or minutes, perhaps I should also ask you if you will memorise the consultants' reports, or will they be making written reports to you?
Dr Henry —Some of the consultants that we have engaged have provided written reports; others have provided oral reports. There is a mixture.
Senator COOK —When you provide me with the list of who they are and what they are doing, would you indicate which ones have provided written and which ones have provided oral reports?
Dr Henry —I will see if that is possible.
Senator SHERRY —Have they dared to name it?
CHAIR —That question has been asked a number of times now.
Senator SHERRY —When I asked Dr Henry before, I was trying to find out what he was calling it. I am just wondering what the consultants call this question mark. We cannot seem to find out what it is called.
Senator Kemp —Senator, we have come at this in a variety of ways tonight. I really put to you that the time is running out and there are a lot of questions in other areas that you may wish to ask. If you do not have something of substance, I urge the committee to move on, because I know that people will be very annoyed at the end of the day when they have not been able to complete their task.
Senator COOK —How many times has your committee met since November, Dr Henry?
Dr Henry —On numerous occasions, Senator. I would not be able to put a precise number on it.
Senator COOK —Are you in the habit of weekly meetings?
Dr Henry —Weekly is not a bad approximation, but I could not say that we have met every week, and on some weeks we have met more than once.
Senator COOK —Are you considering a mega tax package? Is that a way of characterising what you are considering?
Senator Kemp —Senator, I do think that we do not want to speculate on a tax package. We know there is one that is going to be announced. I think it makes sense to wait for it, as we await with eager expectation to see what the Beazley[hyphen]Evans tax package is.
Senator COOK —Have you done any modelling on the impact of a GST on exports?
Senator Kemp —Again, I do not think this is an appropriate question for Dr Henry. I am not trying to stop any answers, but it seems to me to be looking in some detail at the particular work of the task force, and I do not think that is appropriate.
Senator COOK —Do you have an answer, Dr Henry?
Dr Henry —I am happy with the minister's answer, Senator.
Senator COOK —Are you aware of work that has been done on the impact of a GST on exports?
Dr Henry —Senator, I am aware that work has been done which addresses or attempts to quantify the impact of the existing indirect tax system on exports and, by implication therefore, the impact on exports of replacing the existing system of indirect taxes by one which does not apply to exports nor to inputs to export activity such as a GST.
Senator COOK —Are you aware that the Prime Minister said on Monday that a GST would remove up to $5 billion in wholesale sales tax?
Dr Henry —Yes, I have seen reports to that effect, Senator.
Senator COOK —Is that true? Is that what it will do?
Dr Henry —I believe that the figure of $5 billion goes beyond the wholesale sales tax.
Senator COOK —Do you believe it includes payroll tax and fuel excise, as well as wholesale sales tax?
Dr Henry —I suspect that is the case, Senator.
Senator COOK —Are you saying then that, if the Prime Minister says it will remove $5 billion from the wholesale sales tax, he has got it wrong? It will not remove that amount?
Dr Henry —I am not saying that, Senator. I believe that, where I have seen a $5 billion figure previously reported, the figure has referred to wholesale sales tax, payroll tax and petroleum excise. That is what I am saying.
Senator COOK —Are you aware of any work done by Treasury that says the impact of a wholesale sales tax on exports is 1.24 per cent or 1.25 per cent of the value of those exports?
Dr Henry —Yes, Senator. I believe that work was done in 1991[hyphen]92.
Senator COOK —That would translate at $1.36 billion, would it not?
Dr Henry —That sounds about right.
Senator COOK —Not $5 billion?
Dr Henry —That figure 1.24 per cent of exports does not translate to a figure of $5 billion.
Senator COOK —Am I right in believing that the second officer in charge of your tax committee is an officer by the name of Matthew Ryan?
Dr Henry —Matthew Ryan certainly works with my group.
Senator COOK —And he is an extremely competent person and expert in tax matters clearly.
Dr Henry —He certainly is, Senator.
Senator COOK —Are you aware of a publication by Matthew Ryan in Treasury research paper No. 10 1995, entitled What future for payroll taxes in Australia?
Dr Henry —I am, Senator.
Senator COOK —We now descend into a fair bit of technical jargon if we are going to talk about this and I am a layman. I would like to try and keep it simple. When he talks about a payroll tax, he is talking about an indirect origins based tax, isn't he?
Dr Henry —That is correct.
Senator COOK —Which can be characterised as the ultimate embedded tax. It therefore appears at all stages.
Dr Henry —No, not necessarily at all stages. Being an origin based tax, it applies at the point at which goods and services are produced and in the geographical location in which those goods and services are produced, rather than the geographical location in which those goods and services are consumed. That is perhaps the best way I could explain it.
Senator COOK —Thank you. You are more competent in this than I am and I accept that explanation. A goods and services tax is in the jargon characterised as an indirect destinations tax. Is that right?
Dr Henry —Typically goods and services taxes apply on the destination basis. They do not have to in principle, but typically they do.
Senator COOK —Now I have here the paper that I am referring, to naturally and unsurprisingly enough. I think you said you are familiar with it.
CHAIR —I hope you are paying your TAFE fees, Senator Cook. You said that you are listing information and learning.
Senator COOK —Thank you, Mr Chairman. On page 7 of his paper, 2.3 on origins versus destinations bases and the tax on exports argument, he says that there can be no presumption that origins based taxes, such as payroll tax, will necessarily impose competitive disadvantages vis[hyphen]a[hyphen]vis destination based tax such as VATs. It has been long understood that there is essentially no trade effect resulting per se, although there may well be transitional effects.
Are you familiar with that proposition?
Dr Henry —Yes, Senator. I am familiar with that proposition.
Senator COOK —Do you agree with it?
Dr Henry —Yes, but there are some qualifications. Firstly, there may well be transitional effects, as Mr Ryan notes. Secondly, there is the point that the adjustment mechanism that would achieve this result includes exchange rate adjustment.
Senator COOK —Yes. In fact he goes on to say that rather the chief advantage of a destinations tax—that is, a goods and services tax—appears to be in the popular appeal that a destination tax has in offering the illusion that exports are exempt while imports are taxed. Do you agree with that proposition?
Dr Henry —That goes beyond a purely technical judgment. That goes to really a value judgment about the way in which a particular tax might be presented as opposed to the way in which another tax might be presented. That is a judgment that the author has made.
Senator COOK —On page 8 of his pamphlet, this Treasury research paper No. 10 1995, in box 4 he has a box of eminent economist and tax experts. The heading of the box is `Trade impacts and origins versus destinations taxes' and he has a series of quotes of quite eminent people. I will not read them into the record. I am happy to table this document for the record. All of them, on a plain reading, agree with his conclusions. Are you familiar with that box in this paper?
Dr Henry —In fact, I have it in front of me.
Senator COOK —So we are both looking at the same document. Am I right in assuming that all of the people whose names appear under the quotes he has got in this box are well regarded among economists as authoritative figures?
Dr Henry —That is correct.
Senator COOK —And am I right in reading this as a consensus of opinion among those well[hyphen]regarded, authoritative figures that essentially agrees with the conclusions of Matthew Ryan?
Dr Henry —Yes. I understand—just for clarification—that the conclusion is that an essentially broad based tax applied on a destination basis would in the long run, after all the adjustments including through the exchange rate had taken effect, not be expected to have an economic impact much different from a similarly broad based origin based tax. That is the conclusion. That is what the authors have been looking at.
Senator COOK —I think I am about to venture into a province in which you may decline to answer me, but let me ask you anyway and you can say if you do decline to answer me. Are you looking, in your tax package, at abolishing payroll tax?
Dr Henry —As you predicted, Senator.
Senator Kemp —Senator, I think you judged it well.
Senator COOK —I asked the question because there is a lot of public speculation that you are not going to abolish payroll tax.
Senator Kemp —We are not going to outline here, in any shape or form, the nature of the tax reform package which will be released. I know you have come at it from a number of directions, and at times your attempt to discover more aspects of it has been quite creative—
Senator COOK —Please do not flatter, Minister. I will be shocked!
Senator Kemp —and at times you have not been very creative. But the fact of the matter is that the truth remains.
CHAIR —Had you asked that question first instead of last, we could have saved 10 minutes.
Senator COOK —I come back then to Mr Matthew Ryan's paper. I understand that Matthew Ryan is not only a respected Treasury officer but a former staffer of the current Treasurer, Mr Costello. Is that right?
Dr Henry —That is correct, Senator.
Senator COOK —I am a layman and I am trying to comprehend this. Does the theory that is being developed—this is an argumentative theory, but from an authoritative source backed up by eminent people—tell us that, at the end of the day, the effect of removing a wholesale sales tax and replacing it with a goods and services tax is neutral, because it is corrected by adjustments to the exchange rate?
Dr Henry —No, Senator, that is reading too much into it. What it is saying—I think this was the intention of the paper, in fact—is that a broadening of the payroll tax base would have an economic effect in the long run not much different from a comprehensive value added tax. That is what it is saying. It would be quite dangerous to draw from this document a conclusion that replacement of the existing wholesale sales tax, which is not an origins based tax, with a value added tax would have no implications for exports, or no economic implications. That would be a rather long bow to draw, and I would not be prepared to draw it myself.
Senator COOK —Are you aware, Dr Henry, of a Treasury note dated 28 November 1991, from a Mr Jim Wright to the then Treasurer's office? It stated:
I attach a table of industry cost burdens estimated to arise from the wholesale sales tax after the business inputs measures. On a separate sheet are estimates of the cost burdens on investment, both public and private, and on exports. I also include a copy of some information sent to DHHCS on the costs of residential construction.
This note concludes that the effect of the abolition of the wholesale sales tax on the cost of exports is minus 1[frac14] per cent. Are you aware of that Treasury document?
Dr Henry —Could I ask for some clarification, please. Has this document been publicly released? Is this in a set of documents that was tabled in parliament? I ask the question because if it has not been publicly released, in that form or any other form, then I am not prepared to comment on it.
Senator COOK —I do not know the answer to your question. I think the answer to the question is that it has not been publicly released.
Dr Henry —Then I am not prepared to comment on it, Senator.
Senator COOK —This is from a Mr Jim Wright, on 28 November, to the office of the Treasurer at the time; it contains extensive modelling and comes to that conclusion.
CHAIR —The officer has already indicated that he does not intend to comment on it, Senator Cook, so I cannot see the point in continuing.
Senator COOK —Mr Chairman, may I incorporate this document into the records of this hearing?
CHAIR —No. We have not seen it and it would need to be authenticated before it could be incorporated. It is not a public document.
Senator WATSON —You have not seen it before, have you?
Senator COOK —I can hand it to you and you can have a look at it.
CHAIR —I would need to authenticate it.
Senator Kemp —The reality is that it may well be a stolen document.
Senator COOK —Oh, really, another one!
Senator WATSON —We do not know. We do not know its status.
CHAIR —The procedure is normally when any document is to be—
Senator CONROY —You are wasting so much time in the committee, Senator Kemp, objecting to these things.
CHAIR —Order! Senator Conroy!
Senator Kemp —You have not made much of a contribution tonight and you are maintaining your record.
CHAIR —Order! That may be an advantage. It is normal procedure when a document is tabled and incorporated to show it to members of other parties. That has not been done and so leave is not granted.
Senator WATSON —That is right. We do not know the status of it or its source.
Senator COOK —Mr Chairman, I present you with the document and I will ask again at the conclusion of the hearing.
CHAIR —It will not matter.
Senator CONROY —It does not matter about the source. You have got no right to ask the source, absolutely no right.
CHAIR —Order! Continue with your questioning, Senator Cook. Are there any further questions?
Senator SHERRY —Dr Henry, I refer to a public document, budget paper No. 1. At page 311, in respect of issues on private saving, it says:
More generally, the tax reform now in prospect has the potential to enhance private saving.
Could you outline what that means. It is in the second of the four dot points.
Dr Henry —I would only note that tax reform does have the potential to enhance private saving. I am afraid that, until the tax reform package is made publicly available, I would not care to speculate on which possible elements of that tax reform package may have the effect of enhancing private saving.
Senator SHERRY —In a system with a shift to whatever the indirect tax is called, can you point me to a correlation between a new indirect tax and an increase in saving? Do any articles come to mind?
Dr Henry —There is quite a deal of academic literature on the question of the impact on private saving, and indeed on national saving, of changing the structure of taxation. The literature, both theoretical and applied, typically considers the replacement of some part of an income tax with a tax on consumption. That literature goes back many decades.
The theoretical literature indicates that the impact of such a change in the structure of taxation is ambiguous—that is, it is not an issue which can be settled at a theoretical level. I am quite prepared to go into details there but I do not wish to bore the committee. The question, therefore, if it is going to be resolved, needs to be resolved at an empirical level.
Empirical studies on the issue are mixed. Some studies indicate that there is some evidence of a positive impact on saving. The magnitude of the impact varies among studies, even among those that conclude that there is a positive impact. Some find a large impact, some find a reasonably small impact and some studies find that there is no real impact. So it really depends upon the particular empirical analysis, and the various analyses use different data sets and quite different methodologies. It is a rather complex, if not even turgid, area of economic literature.
—Senator Sherry, before you continue, I have had a chance to look at the document that Senator Cook has given me. I note that it is a document from 1991 and it would take
some time for me to determine whether the document is authentic because I am not aware of the people involved. What I do notice is that the fact that it is a 1991 document means that it may not be as relevant today because it includes tables of wholesale sales taxes as they were prior to the massive increases that were made by the Labor government in the 1994 budget, and I would think they may give a distorted view of the effect of wholesale sales tax if we were to use this document. So I will not give leave for it to be incorporated.
Senator COOK —On the last point, the document is what it is: it is a document relevant to its time.
CHAIR —I have to check the authenticity of it.
Senator COOK —Whatever argument you might say about it, it is relevant to its time and it purports to be nothing more or less than that.
CHAIR —But it is prior to the massive increases made by the Labor government to wholesale sales tax and so I would not want it to be used perhaps or misconstrued in the effect that it may have. Certainly at this stage we will not be giving leave to have it incorporated.
Senator SHERRY —I do not want to keep the time of committee too much. I actually find this quite a fascinating issue, Dr Henry. Maybe one day, in different circumstances, we could have a good talk about it.
CHAIR —We seem to be having a good talk about things tonight. There are not many estimates questions, so let us continue the big talk.
Senator SHERRY —I am referring to budget paper No. 1, the issue of savings and tax reform. I think it is relevant. Isn't it true, Dr Henry, that in the 23 OECD countries that have introduced whatever we call it, GST, VAT, over the last couple of decades, and 21 have increased the rate of the tax, there does not appear to be any correlation between the increase in taxes on consumption and an increase in saving?
Dr Henry —On that point the theoretical literature is not ambiguous. The theoretical literature, as I said, looks at the effect of replacing part of an income tax with a consumption tax. There is no reason to suppose that simply increasing the rate of a consumption tax would have any impact on savings—no reason theoretically to suppose that, and I do not think there is any empirical foundation for it either.
The question is, rather, whether cutting income tax can increase private saving. The proposition, theoretically, is that a consumption tax is neutral in its impact on saving; it does not affect it. To the extent, then, that a consumption tax provides additional funds which can be used to cut income tax, then there is the possibility that private saving can be increased because the proposition is that the income tax discriminates against saving and in favour of consumption.
So I would not expect to observe an increase in saving following an increase in consumption tax rates. However, if the increase in consumption tax rates were accompanied by reductions in income tax rates, then it would be interesting. It would be interesting to have a look and see exactly what has happening to private saving.
Senator SHERRY —Interesting, but can you point me to a country where a consumption tax has been introduced and income taxes have been cut and there has been an increase in private saving? Isn't the evidence mixed?
—Off the top of my head I cannot think of a country that has increased a consumption tax rate and cut income tax rates at the same time. That is not to say that that has not happened—I just cannot think of one off the top of my head. My understanding is that
in most cases in which consumption tax rates have been increased they have been increased either because they have been required by a European Union directive or a European Commission directive, or because there have been fiscal reasons to increase consumption tax rates. That being the case, one would not expect increases in consumption taxes to be associated with income tax cuts in those cases.
Senator SHERRY —Do you believe that, in Australia's case, tax reform will increase private saving?
CHAIR —Senator Sherry, you are asking for an opinion. We are in estimates. To ask a question, `Do you believe—' I think is scarcely an estimates question, hypothetical questions, and if the officer chooses not to answer that he does not have to.
Senator SHERRY —I think we have had plenty of hypothetical questions in estimates.
CHAIR —I think we have had too many, quite frankly.
Senator SHERRY —It is a pretty important issue.
CHAIR —No, it is hypothetical and is not an estimates question.
Senator SHERRY —I just draw your attention, Chair, to budget paper No. 1 where on the very important issue of increasing private saving over the medium term it says:
A number of factors suggest an improved outlook for private saving.
And one of those suggested is:
. . . the tax reform now in prospect has the potential to enhance private saving.
I think it is an important issue. It is right on the agenda.
Dr Henry — If you are asking me do I agree with those sentiments which are in budget paper No. 1, I do; I agree with those sentiments.
Senator COOK —Can I go to the appropriation in budget paper No. 2 on page 1[hyphen]107, the appropriation on the high wealth individuals task force—an appropriation of $9.5 million this year and next year. Under that heading, can I ask first of all, through you, Minister, if you are aware, Dr Henry, of the work of the high wealth individuals task force.
Dr Henry —I have some familiarity with it, but it is, of course, a tax office task force not a Treasury task force.
Senator COOK —Yes. My layman's understanding of what this high wealth individuals task force is about is looking at whether high wealth individuals pay their full measure of tax. You have the responsibilities of coming up with a tax reform package. Whether high wealth individuals pay their full level of tax is a matter that I am sure you have considered when you have considered the general question of tax reform.
Dr Henry —I do not wish to be unhelpful, but I really do not feel that I can discuss with this committee what we may or may not have looked at in relation to tax reform.
Senator COOK —I am not wanting you to discuss it. I mean, as a rational person, tax reform would be in part about making sure that all those who ought to pay tax do pay tax, and an examination of the system would surely be as to whether there is any group or sector or individual that escapes paying tax. It seems to me, rationally, that this would be an issue that you would look at.
—I am not wishing to contest the proposition and I am not wishing to be unhelpful, but all that I can really indicate to the committee about our objectives, our terms of reference if you like, is to refer to the Prime Minister's press release of 13 August 1997
which set out essentially the terms of reference of our work. I am sorry, that is all I feel comfortable to discuss.
Senator COOK —I accept that. You have acknowledged that you are aware of this task force and the work that it is doing. When I say `I accept that', I accept the answer. I do not accept the general proposition that we would not be told, but I accept that is what you are able to tell me.
Mr Chairman, this does attach on the general issue of taxation and this is a tax office issue to some extent. Therefore, could we have the tax office people at the table for the sake of this discussion?
CHAIR —You can when you finish the others. We are trying to get some programs out of the way.
Senator Kemp —Time is running out rapidly. All right, you are not worried, that is your business.
Senator COOK —I am just trying to expedite the thing on taxation.
CHAIR —I said we will conclude what we are doing with subprograms 1.4, 1.8, 4.1 and 7.4 and then when you want to ask questions of the tax office people we will do it after we have finished with these subprograms. We are not going to have a higgledy piggledy little bit of everything.
Senator COOK —So that means I go through the domestic economy and international economy, all of those issues?
CHAIR —You already said earlier that you could send the domestic economy home, and the international economy. I have said that if you have finished with the subprograms on taxation, financial and currency, income and other taxes, and superannuation, we can then move to the Australian Taxation Office provided you have finished with those other matters
Senator CONROY —I think—
CHAIR —Not before you have finished with those.
Senator CONROY —I think—
CHAIR —I'm sorry, Senator Conroy, you may not have been here but I said when we have finished with subprograms 1.4, 1.8, 4.1 and 7.4 we will then move, if you wish, to the Australian Taxation Office program because I understand that the other people have been sent home.
Senator COOK —Had I known you were going to rule like this I would have said the Australian Taxation Office people could go home because we will not get to them.
Senator Kemp —Mr Chairman, just to get a clarification, I am always in blazing agreement as you know but I do notice on the running sheet it says subprogram 4.1, which I think is the Australian Taxation Office.
CHAIR —`Income & Other Taxes' is subprogram 4.1.
Senator Kemp —On the running sheet they are to be heard together.
CHAIR —It does say `Income & Other Taxes', yes, but you asked specifically for the Taxation Office.
Senator CONROY —We cannot help it if you have not worked out that is the Taxation Office.
Senator Kemp —All I am trying to do is assist the committee. I have as much interest as anybody here in making sure we wind up quickly.
CHAIR —Do you wish to ask questions under 4.1, Senator Cook?
Senator COOK —Yes.
CHAIR —Certainly, ask the question and if desired the officer will come to the table.
Senator COOK —If it is an officer of the tax office?
CHAIR —If it comes under subprogram 4.1.
Senator CONROY —Subprogram 4.1 is the Taxation Office.
CHAIR —Senator Conroy, we can do without your gratuitous comments at this time of the night.
Senator Kemp —It is way past your bed time, Senator Conroy!
CHAIR —Senator Cook, ask your questions under subprogram 4.1. Ask the question and then the officer will come to the table after the question is asked.
Senator COOK —It says on page 186 of the PBS that the Australian Taxation Office has allocated $9.5 million of these appropriations:
. . . to extend the activities of the High Wealth Individuals Task Force. The Task Force was established in 1996[hyphen]97 to investigate the tax minimisation practices of some high wealth individuals. The extension of funding over 1998-99 and 1999[hyphen]00 will enable the ATO to continue to develop strategies and take action to address undesirable tax minimisation practices and to improve high wealth individuals' compliance with tax laws.
Can someone tell me where the work of this committee is up to?
Mr Carmody —Round about May 1986 I indicated that we had concerns, given the difference between the apparent wealth of some people and the taxes paid by them and their associated entities. I indicated then that we intended to pay particular attention to determine why that is so and whether it is valid under the tax laws. In the subsequent budget the then government allocated some money towards that task force and, as you have indicated, it has been extended.
The task force has undertaken extensive action. It has identified a range of people where there is a very large gap, as I have indicated, between their apparent wealth and the income tax paid by them and associated entities. We have undertaken a range of activities, including extensive questionnaires and extended information from tax returns, and I think we have more than 50 audits under way at the moment. In addition, we have gained some understanding of where there might be concerns as to the application of the law, and they are being brought to the attention of the government and the task force.
Senator COOK —Thank you. Mr Carmody, you appeared on the Sunday program recently, I understand, dealing with this subject. Is that right?
Mr Carmody —Well they showed some clips from me on the Sunday program, yes. I will not say what I thought of the program.
Senator COOK —Well you might—I might invite you to in a moment. I have what I understand is a transcript of the interview that was conducted with you on that program. The reporter, according to this transcript, asked you:
REPORTER: The Tax Office gave advice to the previous Government that there was tax avoidance in the area of $800 million for just a few taxpayers.
The transcript says that your answer was:
CARMODY: Well, no that is not exactly right. We did not have specific arrangements. We had illustrations of some arrangements that we'd come across, but it wasn't a matter that we had labelled twenty to thirty people with this many hundred million in specific tax schemes.
I apologise for my reading of your words—I am sure you delivered them with greater elan that I have just read them—but is that right?
Mr Carmody —That is an accurate representation, yes.
Senator Kemp —Mr Chairman, can I just ask senators: we seem to have now got on to the tax office, do we need the other officers at the table?
Senator COOK —I just want to establish some things about high wealth individuals—
Senator Kemp —And then you will come back?
Senator COOK —Yes.
Senator Kemp —Okay.
Senator COOK —So we understand that is an accurate statement. Do you stand by that answer? Is that your preferred answer to the question?
Mr Carmody —If you are getting to figures about amounts at risk in relation to high wealth, there is a statement in 1996[hyphen]1997 budget papers which indicates that the revenue at risk from aggressive tax planning minimisation arrangements used by some—and I stress `some'—high wealth individuals has been estimated at $800 million. It goes on to say that this figure is an estimate of an order of magnitude estimate of the revenue potentially at risk rather than the sum of gains from particular measures.
Senator WATSON —What do you refer to as high wealth individuals, what sort of incomes—just a ballpark figure?
Mr Fitzpatrick —There is no hard and fast rule, Senator, but individuals who control about $30 million.
Senator WATSON —How much?
Mr Fitzpatrick —$30 million.
Mr Carmody —And above.
Mr Fitzpatrick —Yes, and above.
Senator COOK —I would just prefer to call them rich people. It is shorter way of explaining it.
CHAIR —I do not know a lot of them.
Senator COOK —They are the benefactors of your party, Mr Chairman.
CHAIR —I still do not know them.
Senator COOK —My understanding is, and I have this understanding from the former Treasurer, Mr Willis, that the $800 million is in fact hard money, not indicative money.
Mr Carmody —All I can tell you is my understanding of the basis of the estimate of that $800 million, which is that it was not a figure based on identified people and attached to those identified people specific arrangements that, if addressed, add up to $800 million. We do a lot of work on determining where the risk areas are so that we can direct our resources and energies.
My understanding of the $800 million was taking a wide field of people of high wealth and was based on a figure determined by reference to the apparent discrepancy—that is, the level
of wealth and the increments to that wealth—and a reasonable estimate of what sort of income you would expect to be derived from that, and therefore a reasonable estimate of the amount of tax. It was in that nature that it was an estimate of the amount at risk.
Senator COOK —I see.
Senator WATSON —What are the sorts of practices that people get up to to minimise their income, despite such massive increments in wealth?
Mr Fitzpatrick —I do not think it is appropriate for us to discuss here, Senator, the type of planning techniques which we have identified.
Senator COOK —Mr Chairman, I wonder if an attendant could show this document that I have in my hand to Mr Carmody. I would like him to identify it, if he could.
Senator Kemp —What is the nature of the document that you have there?
Senator COOK —It is entitled, `Treasury executive minute 10 February 1996—the Treasurer', and it reads:
Taxation of high wealth individuals revised revenue estimate.
In reference to Mr Cox's letter of 10 February 1996, I can confirm oral advice provided to you on 23 January 1996, that revenue figure of $500 million contained in the minute of 19 January had been revised upward on the basis of ATO advice of 22 January to $800 million.
(2) The revised estimate is subject to the caveat set out in the minute on 19 January.
That is the document.
CHAIR —What are you asking?
Senator COOK —I just want to show it to—
Senator Kemp —That would not be a publicly released document, would it?
Senator CONROY —It has been.
Senator Kemp —Has it?
Senator CONROY —He has just read the entire thing.
Senator Kemp —What is the nature of it? We had this discussion before. I do not know if anyone at the table can shed any light—
Senator COOK —The nature of it? It goes to this question of the $800 million.
Senator Kemp —No, the nature of the document.
Senator COOK —The document is what it says—a Treasury executive minute.
Senator Kemp —It seems, from what you have said—and I have no expertise in it—not to be a public document. It is a document which belonged to the former government.
CHAIR —Can I suggest that I have no objection to the document being shown to the officials, but they may choose not to comment in any way on that document when they have seen it.
Senator COOK —Can it then be shown to them?
CHAIR —It can be shown to them, but the officials have no need to comment on it if it is not a public document.
Mr Carmody —I have seen the document, Senator. I can only repeat: the advice to me, on the basis of the estimation of the $800 million, is as I have indicated. Caveats are mentioned there, and I think any advice on estimates would have included, and did include, the fact that there are issues of levels of losses that might be available for utilisation and other arrangements. But I repeat: the advice to me, on the basis of the calculation of the $800 million, is as I have given to you.
Senator COOK —Thank you. I wonder if Mr Evans could view the document.
Mr Evans —I have the document.
Senator COOK —You have the document. Do you recognise the document, Mr Evans?
Mr Evans —Not from memory, but I do not intend to comment on it in any case.
Senator COOK —I see. Thank you. Mr Chairman, I ask that this document be included in the record of this hearing.
CHAIR —Not if it is not a public document, no.
Senator COOK —You are ruling me out?
Senator COOK —If we can have it back I will show it to you.
CHAIR —No. I have no knowledge of whether it is a public document. At this stage I have no intention of allowing it to be incorporated or tabled.
Senator COOK —Accepting your answer, Mr Carmody, which obviously I do, dealing with the question of how this level of avoidance by high wealth individuals can be combated, is it true that there would need to be a change in the law as it now stands to succeed in recovering these taxes?
Mr Carmody —We have always viewed the work of this task force as having a number of objectives. One of those is that, where we come across arrangements that we do not accept achieve their claimed effect under the law, we will address that and, if necessary, take it to the court or other means. We also have understood that there will be occasions where it will raise questions about the policy, or the law itself, and what that law should be and, as I have said, we have raised some issues with, and made them available in discussions with, the task force.
Senator COOK —I see.
Mr Carmody —Of course, there have been a number of measures by the government already, for example with losses in trusts and section 108 and other issues that would impact on this field.
Senator WATSON —Why do you not take action under part 4A?
Mr Carmody —We will do that where it is appropriate.
Senator COOK —In taking comprehensive steps to find a solution to recovering this sort of tax level of avoidance, wouldn't one of the things to do be to introduce a test of common control or common business for sets of trusts which are related in their operation? Wouldn't that be one of the things that you would want to do?
Mr Carmody —Any issues of what the law should be and our advice on that are issues that go to government.
—Just to add, if I may, to one of the answers by Mr Carmody, I think you mentioned trust losses and section 108. There are also moves, of course, on the franking credit
trading, R&D syndicates and infrastructure bonds. They are very important measures where there were major loopholes opened up in the law where this government has taken very strong action.
Senator COOK —I have just asked the question about whether what I read to you is one of the steps that could be taken, and you have said that is a matter of advice between the ATO and the government.
Mr Carmody —Yes.
Senator COOK —It is a matter of fact, though, is it not, that that has not happened?
Senator Kemp —I have just listed a whole range of measures that we have taken.
Senator COOK —I am not talking about those measures at the moment, Minister.
Senator Kemp —My understanding is that the question was: what action has been taken against high wealth individuals to ensure that loopholes in the law were closed? I mentioned five or six measures. There are, of course, others as well that could be mentioned, but two of the more important ones were the R&D syndicates and the infrastructure bonds.
Senator COOK —Yes I hear what you say. I am pursuing high wealth individuals from this perspective at the moment. I am quite happy to come around and talk to you about those other matters when I come to them. Is it not true that the law has not been changed to introduce a test of common control or common business for sets of trusts which are related in their operation?
Mr Carmody —That is true.
Senator COOK —Is it also true that the law has not been changed in treating a change in control of a discretionary trust which involves a change in its likely beneficiaries as a disposal of the trust's assets for capital gains tax purposes? That has not been done either.
Mr Fitzpatrick —No, not to my knowledge, but the government did announce a review of the taxation of trusts, you might recall, last year. It announced it later last year to be part of the tax reform process.
Senator COOK —I am aware of that.
Senator Kemp —I am pleased to hear that you are aware of it. It did not sound as though you were aware of it.
Senator COOK —I am aware of it. One of the other legislative changes that could be made would be reducing the scope for non[hyphen]assessable distributions of capital or income from discretionary trusts. That has not occurred either, has it?
Mr Carmody —That has not occurred, but that sort of issue goes to the fundamentals of the approaches to the taxation of trusts, which, as has already been pointed out, is an issue that the government has taken on board in the context of tax reform.
Senator COOK —Is that the same answer that you would give to the next point, that is, taxing all of the net income of discretionary trusts in the trustees hands at the top of the top marginal tax rate?
Mr Carmody —That is a fairly fundamental change to income tax law as it applies to trusts, yes.
Senator COOK —That is a fundamental change, but it has not occurred.
Mr Carmody —No.
Senator COOK —Alternatively, taxing all trusts or some types of trusts, for example those conducting a business or dealing in property or other assets, in a similar way to companies is another way of tackling it.
Mr Carmody —If you were looking at trusts and the taxation of trusts, that is something that could be considered. But, as I say, the government has announced that it is looking at the taxation of trusts and I really cannot say any more on that.
Senator COOK —But, if that were done, would that help reduce the level of tax avoidance among high wealth individuals?
Mr Carmody —I do not know whether I can go into specific measures in the context where the government has announced a review of trusts and whether I can go any further into that.
Senator COOK —I think you have gone some way into it already.
CHAIR —Is it also true that none of those measures were taken in the 13 years between 1983 and 1996? This government has been in for 2[half ] years and there was a previous government of 13 years that did not change those laws.
Senator Kemp —I think the point is well taken, although not by Senator Conroy.
Senator COOK —Let me go to a couple of other possible things and get your reply. I will go to the other four points en bloc: improving the way in which the interest of residents in non[hyphen]resident trusts is taxed; countering the recharacterisation of trust income through loan arrangements with non[hyphen]resident beneficiaries; making assessable a range of lifestyle benefits provided through informal arrangements for offshore trusts; and more systematic prevention of the creation of artificial capital losses in corporate groups and in groups of trusts.
Senator WATSON —This sounds like tax avoidance to me.
Senator COOK —I am talking about measures that can be taken to prevent tax avoidance.
CHAIR —These are also measures that were not taken in the previous 13 years.
Senator COOK —That would suggest that the issue with trusts was as endemic then as it is now.
CHAIR —Tragically it was not.
Senator COOK —Let us ask the tax office. Were the difficulties with tax avoidance by high wealth individuals using trusts as endemic now as it was 13 years ago?
Senator Kemp —You mentioned the creation of artificial losses. In fact action was taken in that area in the 1997 budget. Of course, there was action taken in the area of charitable trusts as well. There is quite a range of measures that we have been able to rapidly move on which were left open. We closed the holes, particularly in two big areas which the former government had opened up, R&D syndicates and infrastructure bonds. We moved rapidly to close those major gaps which made the paying of tax for a range of people virtually optional. These were opened up by your government and we closed them.
Senator COOK —We are talking here about $800 million of possible tax avoidance that can be recovered. The aiding of the recovery of that would be, as I understand it, to take all or most of the steps that I have just read out. Do you agree that that amount of funds requires some action for recovery by government and that, if legislative change were necessary, it should be made?
—This government has been very rapid in moving on areas of major tax avoidance and I have run through a very comprehensive list. We have closed a number of areas which were opened up by the previous government. These were areas where there was
deliberate action and the former Labor government opened them up. This was in infrastructure bonds and R&D syndicates, the two which I draw the committee's attention to.
We have mentioned the issue of the taxation of trusts which has been rolled into the tax reform program and that, of course, is being considered by the government as well. We have a very fine record at moving strongly in tax avoidance in areas which the former government found it was unable to move in and to close loopholes which the former government had opened up.
Senator COOK —So the answer to my question is, yes, is it?
Senator Kemp —The answer to your question is that this government has a very good record at moving on tax avoidance. We have a high wealth task force which is looking very closely at these issues and is well funded and measures in this area were announced in the budget. This government is second to none in moving in these areas.
Senator COOK —I assume the answer to the question is yes, because when I asked you that you just repeated your earlier answer.
Senator Kemp —You assumed that the answer I gave to you is the answer I gave. That is the answer I gave and the answer is that we have moved very rapidly in these areas. We are looking at other issues, as a result of the work of the high wealth task force. We have also dealt with the tax reform program and the taxation of trusts.
Senator COOK —I wonder if Mr Carmody can tell us how allowing trading and trust losses amongst family members will help close down trust rorts and increase revenue?
Mr Fitzpatrick —I will answer that as best I can for you. Certainly, the recent amendments to the trust loss provisions will, in my view, have an impact on some high wealth individuals' tax planning arrangements.
Mr Carmody —I quoted in a speech the example of one person—
Senator CONROY —An excellent speech.
Mr Carmody —Which one?
Senator CONROY —That one. They are all excellent.
CHAIR —Senator Conroy, how about letting Mr Carmody continue without interruption?
Mr Carmody —I did quote in this area, for example, that even after the announcement—I think it was by the former government—on the transfer of losses we seemed to have evidence of one of these people being prepared, although I do not want to impute motivations, to bank on the fact that the measure would not come in backdated to when it was announced by the former government. The person acquired some tens of millions of dollars in losses, apparently with the effect of shielding other income from it.
Mr Fitzpatrick —That is correct.
Senator WATSON —What was the effect? Did it have that retrospective effect? Did it go back to that date?
Mr Carmody —The sequence of events was that the former government announced measures about the exchange or trading of losses. Subsequent to those measures being announced, a particular individual sought to and did acquire trust losses—as I said, I cannot impute motivations, but apparently on the basis of a bit of a gamble that the measure would not be carried through with effect back to the original date of announcement. If that was going on then, you can see why it would impact on the tax affairs of these individuals.
Senator Kemp —But in relation to the fencing off of family trusts, my memory is that that was supported by the Labor Party in the parliament. Is that not right?
Senator COOK —Trading in trust losses?
Senator Kemp —Trust losses, but included was the fencing off of family trusts. My understanding was that you, Senator Conroy and Senator Bishop voted for that measure. If I am wrong you can correct me, but that is my memory.
Senator COOK —The legislation you brought through was not exactly the same legislation as we had proposed.
Senator Kemp —No, but you voted for it.
Senator COOK —You changed the legislation.
Senator Kemp —But you voted for it. I do not think you even moved an amendment to remove that fencing[hyphen]off. It is all very well to raise it—
Senator COOK —I would want to go back to the record on that, Minister.
Senator Kemp —As I said, that is my memory.
Senator COOK —I do remember the point making very strongly to you at the time, as the minister with carriage of the bill, that while the bill that was before us was characterised as a former Labor bill, in fact it was not a former Labor bill. It was a bill that bore resemblance to a measure that we announced we would take, but you had ducked away from some of the key provisions in it.
Senator Kemp —But, Senator, you did not try to amend it. You supported the bill. If you want to make a political point, at least make it a good one. It is no good attacking a measure which you voted for.
CHAIR —Senator Cook.
Senator COOK —So that the record is straight: we supported the bill because it was some measure of improvement.
Senator Kemp —But you did not even try to amend it.
Senator COOK —Hang on. It was some measure of improvement.
CHAIR —It is getting a bit late in the night, and I do not want us to reach a stage where we—
Senator Kemp —If I am wrong, convince me.
Senator COOK —We at all times—I would just go to the Hansard to check this, and I am happy to do this checking with you tomorrow, Minister—did express the view to you, directly, that the bill did not go far enough and we—
Senator Kemp —Yes, you might have expressed that view.
Senator COOK —What were we to do—knock out a measure that was going to—
Senator Kemp —Senator, you did not move an amendment to that because you recognised the serious problems which would occur if we dealt with the issue of family trusts in the way you originally proposed. That is the reason.
Senator COOK —That is not true at all.
CHAIR —Could we move on, please.
Senator COOK —You will need to show me where I or the shadow Treasurer ever said that, Minister. I do not think you will find it.
CHAIR —Let us move on, please.
Senator COOK —To come back to the answer that you have given me, Mr Carmody, I think it is true that in the 1995[hyphen]96 budget the former government announced that it would deal with trafficking in trust losses. A family trust concession was introduced into those measures. That was a very significant concession since it means, effectively, that there can be tax loss transfer and income streaming within the family by use of a family trust. Most of the trusts used by high wealth individuals can be loosely described as family trusts. The former government went on to say that a family trust concession in any broader legislative changes could seriously undermine the effectiveness of those changes, and in the debate on the trust loss draft legislation we put that view. Is that a true recollection of what happened?
Mr Carmody —I cannot comment on the debate but certainly the legislation introduced included, for reasons explained by government, no doubt to deal with the impact on family trusts, that there was a carving out of a specific family group.
Mr Fitzpatrick —My recollection is that there was a family concession in the original bill introduced by the former government.
Senator COOK —But that was the concession that the legislation to which Senator Kemp has referred broadened considerably by direct intervention of the Treasurer. That provision did not continue through in the legislation the government presented to us.
Mr Fitzpatrick —There were some amendments to the original bill. I accept that.
Senator CONROY —Extra family members were inserted as being eligible to—
Mr Fitzpatrick —I do not think so, Senator.
CHAIR —Senator Conroy, Senator Cook has the call. Perhaps you should let your colleague continue to ask questions.
Senator WATSON —Weren't these the sorts of things debated in the committee?
Mr Carmody —I would just point out that, in the example I gave, I do not believe that was a family trust issue. The example I gave of the person who acquired losses subsequent to the original announcement was an example where it applied.
Senator COOK —Minister, the Treasurer is on the record as saying that the government is committed to continued action against tax evasion and blatant tax avoidance, and will be taking such steps as are necessary to ensure that high wealth individuals pay their fair share of tax. That is true, isn't it?
Senator Kemp —It sounds to me to be quite accurate.
Senator COOK —Does that mean that we can look forward to the measures I referred to earlier tonight being enacted by the government?
Senator Kemp —In terms of the tax reform package, you will have to wait to see that. In terms of our record in moving against blatant tax avoidance, this government is second to none. We will continue to move against areas of blatant tax abuse and avoidance. Sometimes we have the support of the Labor Party in this area and sometimes we do not, but we plough on regardless.
—Could I make an observation, seeing that you asked about the high wealth task force. There are issues to do with the law but, as I have indicated already, there are cases where in our examinations we will not agree with the position put by the particular taxpayer. You would notice from those budget papers that expected results from the investment in the
high wealth individual task force also include direct results from our activities apart from the law, and we believe those commitments are being and will be met also.
Senator COOK —On your pursuit of high wealth individuals so far, I think the figure is that you have collected $100 million or thereabouts.
Mr Carmody —Actually, in a press release in response to the Sunday program I quoted some substantial figures. The commitment was to $100 million for 1997[hyphen]98 and, with the additional funding 1998[hyphen]99 and 1999[hyphen]2000, a further $100 million in each of those. As I have indicated, I believe we are meeting and will continue to meet that commitment.
Senator COOK —Is it true that you have issued only 19 assessments in this field and that there are only 50 audits that have been undertaken of high wealth individuals?
Mr Fitzpatrick —I am not sure how many assessments we have issued, whether it is 19 or more than that. I suspect it is more than that. We have undertaken and are undertaking about 50 audits at the present time. We have issued a number of assessments; we have issued a number of what we call position papers which outline our view of the law to the taxpayer—as part of a process before we resolve the case, issue amendment assessments and maybe litigate the issues in court.
CHAIR —Order! It being 11 o'clock, the committee will be adjourning. For the information of members of this committee, a detailed program of the programs that have not been heard—on Tuesday, in the industry, science and tourism portfolio; on Wednesday, in the workplace relations and small business portfolio; and the extra programs in the Treasury portfolio—have been drawn up by the secretariat and are available. Just for housekeeping purposes: the program for tomorrow morning is that we will firstly be dealing with Industry, Science and Tourism. When senators have completed that it will be Workplace Relations and Small Business, and we will then return to Treasury. We will try and give officials as much notice as possible but they will be required to come at reasonably short notice should any of the programs higher up the list collapse. The budget estimates for the Senate Economics Legislation Committee will conclude at 3.45 tomorrow afternoon. I declare the committee adjourned until 9 a.m. tomorrow.
Committee adjourned at 11.01 p.m.