Mr BEAZLEY (3:21 PM) —At this stage in a parliament I think it is useful to lay down a few markers for how things are likely to proceed over the course of the next few years if a particular course of action that the government suggests or determines is actually followed by the parliament and it becomes a matter of law.

I want to take two quotes today from a speech that was made some weeks ago—in a ministerial statement, in fact—by the Treasurer of Queensland. I would like to read them into Hansard as things to bear in the back of our minds as time passes. The first was a quote from a Treasury analysis of the government's GST proposals. It said:

Beyond the three-year guarantee period the states are accepting all the risk if the GST revenue projections are flawed—in particular the size of the base, the assumptions about the size of the black economy that will be brought into the tax net—$18 billion per annum—and the estimated level of enhanced revenue flowing from the improved compliance.

That was from his Treasury. The second quote is directly from him on the basis of his relationship with the Commonwealth ministers, and nothing in question time would have assuaged his fears on this. He said in the course of his remarks there would be `no guarantees to individual states regarding their revenue streams, no guarantee on the distribution of the GST pool, no guarantees that at some stage in the future income taxes won't rise and no guarantee about the future of existing special purpose payments to the states'.

Those two quotes bear a bit of marking, reading and contemplating. We have had 2½ years of this government and what we have learned from those years is this: any major public policy area in which much is claimed will invariably be bungled. There is in fact no example of this government acting in any way on any major policy area where public administration and policy have come together to deliver an outcome that achieves either the government's objective or an efficient outcome—not one—and this particular set of propositions is far larger in its impact on public administration than anything that has been proposed at this point.

I ask you to think back over the course of the last 2½ years and reflect on that. Firstly, nursing homes: 15 separate changes and still not an outcome—nursing homes in capital crisis. The second is the labour market programs: a complete collapse of employment programs, scandal associated with employment programs and complete failure to achieve objectives. That is another one for us to contemplate in that regard. Then we take their levy, their rebate, associated with health care: every cent of it claimed back effectively from those who are members of the funds by the owners of the funds—every red cent of it claimed back by them—and a continuing fall in participation in health care; and like ignorant generals they seek to reinforce that.

As for what they trumpeted in this place about doing over high income people as far as superannuation is concerned, two points arise. Firstly, they did over a hell of a lot more than simply high income people—a couple of very low income people found themselves caught up in that—and, secondly, the administration costs associated with it have been almost as much as they have got back from it.

This group—and I could have gone through a whole range of other public policy areas that demonstrate the same appalling outcome—now wish to convince us that they are going to be able to produce a tax shift from the Commonwealth to the states of some $30 billion, an amount based on complete confidence that the revenues that they predict will be revenues that they receive, that they will be able to deliver an outcome in those states that will ensure that the states can sustain their services, that they have a set of taxation arrangements that they guarantee will broaden the base effectively of the tax system in this country and keep up essential social spending, as though this ever mattered to a government which has already cut in two budgets some $24 billion on a four-year basis from social spending and not a cent of it restored. Instead the surplus built on it was given away in tax bribes associated with this.

They are about to achieve this, they say, from their taxation arrangements. I say this: if it is achieved it will be a world first for introduced GSTs, because the universal experience in the rest of the world is that, firstly, GSTs do not produce the revenue that is anticipated from them by treasurers and, secondly, GSTs are massively avoided. So, from a situation where at least in the indirect taxation area levied by the states and the Commonwealth at the moment there is minimal avoidance, they are going to move to a set of taxation arrangements under which, on the experience elsewhere, evasion and avoidance is optimised, and they are going to be interlinking.

As you evade income taxes, be it in the form of business taxes or direct personal taxes, so you will be encouraged to evade GST as well. If you do not think this is a problem, take a look at Europe. At the heart of the black economy in Europe are their value added taxes. They are the principal area evaded. Value added taxes are the centrepiece of the black economy in Europe. More than $1 billion is the worth of the black economy in Europe. In fact, something like 28 million people are employed in that black economy. It is 13 per cent of the GDP of Europe or the equivalent of the total British GDP. British Treasury studies show that one in three VAT-able tax transactions are evaded. That is the experience of Britain.

Now look at the recent experience of those countries that have introduced taxes. I refer to a very interesting article from a source not necessarily devoted to labour—Alan Reynolds, the Director of Economic Research at the Hudson Institute. This is what he says about Japan's experience with the GST:

Japan's total tax revenues have declined in real terms ever since the value-added tax and various investor taxes were introduced. Without the increase in social security tax, which depends on it remaining attractive for employers to employ and for workers to work, the budget would be in much more serious shape than it is. All these ambitious new taxes have been killing revenues.

We have the same piece of research now associated with Canada:

After Canada added a value added tax in 1990, revenues from all taxes virtually stopped growing. Revenues rose by 19 per cent from 1990 to 1995, only 1.2 per cent if measured in US dollars, compared with a 52 per cent rise from 1985 to 1990 and 59 per cent from 1980 to 1985.

Those are very interesting statistics which the states will bear in mind when they contemplate what is going to happen to them tomorrow because, when you sit down and logically think through the issues related to a goods and services tax, it does not take you very long to work out how much evasion is likely to take place.

But I will tell you the principal difference between Australia and those other countries that have value added taxes. Virtually all of them have some form of social security tax which is substantially complied with by all concerned; a tax which underpins their social spending. Virtually all of them have that. In Japan, it saves them. In Europe, it saves them.

The value added taxes are a matter of scandal because they are routinely evaded. There are all sorts of interesting mechanisms that are developed, including VAT police who in Italy pursue people out of ice-cream parlours to check whether or not they have got a value added chit. Of course, the capacity of the Inland Revenue Service of Italy to pursue every single ice-cream parlour has been discovered to be somewhat limited. An Italian business friend of mind tells me this: the VAT in Italy has risen to 20 per cent. But when you approach even a hotel and ask for a price they will say a price if you agree to pay the value added tax, which is in fact not 20 per cent above the price that you would pay if you decided not to pay a value added tax but 30 per cent. Commonsense tells you this: the relationship between the income tax system and the value added tax system means that, if you are not actually declaring it for value added tax purposes, you will not be declaring it for income tax purposes either. So a very much lower receipt is obtained by the Italian government via that process. Precisely the same thing will happen here.

You were so proud of the New Zealand record of everybody registering. What Australian small business will find very quickly is this: it is useful to register in this arrangement. You will be able to establish under your registered company a loss-making company that will effectively enable you to claim back all your inputs under the GST arrangements—but do not register another company which will be your profit making company which operates outside both systems.

The wholesale sales tax system and all the FID, BAD and stamp duty that the states now impose—whatever objection there may be to the inequities or otherwise of those—have one characteristic: they are all paid, the whole lot of them. Unlike the income tax system, compliance there is complete.

What the states are now buying is essentially a pup. They are surrendering virtually all their revenue raising powers to a tax that they cannot raise themselves but which the Commonwealth has promised they will get control over. It is no wonder, in those circumstances, that the state premiers now are demanding of this government not only guarantees about the receipts that they will continue to get from that, not only some sort of indication about what their share of that particular revenue is going to be, given that Premiers Conferences are going to be abolished, but also some concessions from the Commonwealth in determining that special purpose payments will not in any way be tampered with and will be there for negotiated rises as time passes.

It is very important that they do that, because they will have learned from this government that they have achieved very high levels of incompetence in public administration in comparison with some of those governments that I have been discussing or drawn attention to so far. If those governments have not been able to grapple with that problem, you can bet your bottom dollar this government will not be able to either. It is well that they therefore ask for some guarantees as far as special purpose payments are concerned.

But the Commonwealth's intention is otherwise. Those special purpose payments cover virtually all the Commonwealth's contributions to education, all the Commonwealth's contributions to health and all the Commonwealth's contributions to aged care. The states know this: that in all these three areas there are massive inadequacies and crises mounting, particularly in the area of health where the states have been underfunded in terms of increases by an amount that they would claim is fourfold—which is, of course, an ambit claim, but somewhere between what they were given by the Commonwealth and what they actually wanted is the answer. What they will get from the Commonwealth when this crisis hits them and the regional services are closed down and the wards go empty—we get a story a day these days about somebody's confrontation of inadequacy in the hospital system in the states—is not a determination to increase the payments as far as the Commonwealth is concerned but an invitation to the states to raise the rate of the GST. That is precisely what will happen from this point on.

So at the heart of the taxation system there will be a tax that will reflect these characteristics. Firstly, there will be massive unfairness because it is a tax that has no equity associated with it. Secondly, there will be a tax with total unreliability on the basis of the experience of everybody else who has imposed it. Nobody in Europe regards value added taxes as modernising the taxation system. When they talk about base broadening they talk about hypothecated taxes associated with things like social insurance. That is what they talk about when they talk about base broadening measures; not value added taxes, which are the subject of humorous television shows as far as Europe is concerned. They talk about massive avoidance.

You have gone back to a very old-fashioned European tax. But the problem, my friends, is that you have put at the heart of the tax system two massively avoided taxes with virtually nothing guaranteeing support around them, but with a dynamic in the system whereby every time a social crisis occurs in this country you will go to the states and say to them, `Raise the GST. Reinforce failure. Stick it up if you want more for your schools, more for your hospitals and more for aged care.' It is a doll! (Time expired)