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Tuesday, 23 November 1999
Page: 12442

Mr KELVIN THOMSON (10:04 PM) —The first comment I ought to make about A New Tax System (Indirect Tax and Consequential Amendments) Bill (No. 2) 1999 is to reflect on the volume of tax legislation that has come from this government. This is, after all, the government which was going to make tax legislation simpler. We have here 151 fresh amendments to the new tax system. That now brings the total to 907 amendments. We could have a millennium of amendments before we see in the new millennium. After all, this is from a government which said that they would cut red tape for small business by 50 per cent. If they had said that they would increase the red tape for small business by 50 per cent, we could say that they had delivered. It is not possible for me to cover all 151 amendments in the 20 minutes available to me. However, there are a number of different areas that I wish to canvass.

The first is that of insurance, which is one of the main themes of the bill. The insurance industry has faced major costs as a result of the government's inadequate transitional arrangements. The industry was reported in the Australian Financial Review of 17 November to have lost more than $200 million over the transitional impact of the GST. The NRMA is facing an $81 million expense; for HIH, it is $50 million. General insurers are reported as increasing their premiums on more than 30 million policies to recoup part of a $1 billion shortfall once the GST takes effect.

This bill tries to sort out a couple of GST and insurance issues. First, it proposes to exclude from the GST state stamp duty on insurance policies. But I point out that, if the states levy the stamp duty on the GST, as they appear to be in the process of now doing, the effect will be the same.

There is also an amendment to ensure that businesses registered for GST purposes will not be able to claim input tax credits on compulsory insurance schemes. An example is compulsory third party insurance for motor vehicles. That saves the potential disaster of an insured small business having to pay GST on a payout under a policy—that is the kind of thing which causes a small business to go broke—but it also increases the overall cost structure for small businesses by tens of millions of dollars per year. This is from the government which is supposed to be looking after small business.

Furthermore, many questions regarding insurance and GST have still not been answered. Let me raise what is really a basic common-or-garden insurance situation. I pose the question: a shopkeeper loses $1,000 from the till in a burglary; he makes a claim on the insurer; the insurance company pays the shopkeeper $1,000. Must the shopkeeper pay one-eleventh of that to the tax office? I have been told that they would have to. I would greatly appreciate the minister providing a response. Let me point this out against the background that an insurance claim payment is never a purchase of value added. It is compensation for already owned value that has been lost. You can see from that example that, if you have $1,000 taken from your till and you are able to get it back on the insurance claim, it would be manifestly unfair to be required to pay an amount of money to the tax office.

In terms of the issue of clarification, I turn to life insurance. The Treasurer's answer to a question that I put on notice some time ago was that life insurance would be GST exempt but input taxed, while other forms of insurance would be subject to the GST. The Treasurer's answer went on to say that other forms of insurance, for example disability insurance, would not be subject to the GST if they were included in a life insurance policy which `retains the character of life insurance'. I am very concerned that that is a recipe for complexity, abuse and litigation. Most lawyers I know, if they read words like `retains the character of', start thinking about a new car. This could become as complex as the Treasurer's well-known gingerbread man. I remember discussing this issue with people in the insurance industry, who agreed that the situation was unclear and complex. They anticipated that there would be further GST bills amending legislation if the first lot of GST bills managed to make it through the Senate. As we can see from the legislation before the House, with its hundreds of amendments, they were and are absolutely right.

What has been the actual impact in the real world on insurance premiums? First, let me draw to the attention of the House correspondence from the Royal Automobile Association of South Australia to South Australian Senator Crowley. They refer to correspondence from her concerning the transitional implications of the goods and services tax on membership renewals. Their letter says:

We have had no alternative but to accept the situation. . . Our calculations indicate that because a high percentage of our costs are labour related, savings resulting from input tax credits will not be sufficient to offset other increased costs and therefore we will need to charge the full 10% GST.

Nowhere in its calculations was this government suggesting that insurance companies might be charging the full 10 per cent GST.

An example I have had brought to my attention from a Geelong family is even worse. They have provided the full details of the insurance on their house, on their contents, on the valuables and on two motor vehicles. They have adopted what can only be described as standard insurance practice in increasing the sum insured on the house and contents by just under two per cent to allow for increased costs. But with valuables the sum insured has not changed, and yet in that case the premium has increased by 10 per cent. The premium on one of the motor vehicles, a six-year-old car, increased by 10.9 per cent, the fire services levy increased by about 22 per cent, the stamp duty increased by about 14 per cent and the GST was added on the basis of 10 per cent on a calculation for five months. It was just five months of the premium because this was a policy which is going from December this year through to December in 2000. Overall, the family's insurance premium on the exact same items, which are 12 months older and subject to depreciation in the case of motor vehicles, has leapt by just under 14 per cent—some 13.8 per cent; an overall premium increase of over $239. This is an extraordinary hike and it raises the critical issue about this kind of premium increase, its implication for GST price rises overall and the reliability of the government's calculations about what impacts the GST is going to have.

Those who have made their way through the ANTS documentation will know that that original figure of a 1.9 per cent increase in prices was predicated on an 0.8 per cent increase in insurance premiums. So a less than one per cent increase in insurance premiums was predicted by the government prior to the election and prior to it bringing its legislation into the House, but in the real world we see insurance premiums increasing by 14 per cent. What we should have been doing, perhaps, was taking out insurance against the GST. Of course, over 51 per cent of Australians did that last year but unfortunately the Howard government was re-elected nonetheless.

I think it is the case that we can see GST already pushing up prices and we can see the hand of GST behind the recent interest rate increase. We saw prices rising by, as I recall, 0.9 per cent in the last quarter. In January this year, the three-year fixed rate on bank loans was 6.45 per cent. By the end of September, before the Reserve Bank had raised interest rates, the three-year fixed rate on bank loans had risen to 7.3 per cent, an 0.85 percentage point increase before the latest increase. So you see the GST behind interest rate increases, you see it behind increased bank fees and charges, and we saw the head of the Commonwealth Bank, David Murray, recently stating that his bank alone will be passing on to consumers via higher bank fees some $70 million per year in GST costs.

These interest rate increases are just another down payment on the Liberal-Democrat GST. Prices are already rising because of higher housing, insurance and travel costs triggered by the introduction of the GST. I have had quite a lot of people in my electorate bringing to my attention their concern about price increases in supermarkets and in the other places where they shop. They are convinced that these price rises are being brought through in anticipation of the GST, with retailers endeavouring to increase their margins ahead of more concerted monitoring from the ACCC.

I also point out that this government spends an awful lot of time boasting about its economic management credentials. But if we look at what is happening with prices and interest rates, the GST—the centrepiece of this government's economic policy for the past two or three years—is destined to destroy these very credentials, pushing up inflation and pushing up interest rates.

The other issue I want to raise in a similar context is the fact that we do not have a way of seeing what the GST is on particular items. I have been talking about the insurance industry. To its credit it has been quite up-front in pointing out what will be the impact of the GST on insurance premiums. But as a general proposition this kind of information is not available and will not be available to consumers.

I have received, as other members might have received, correspondence from the West Wallsend Combined Pensioners Association quite recently. They expressed concern that the government needs to clamp down on price rises on foods prior to the goods and services tax becoming part of the tax system. They said that one supermarket increased the price of a generic brand of wheat bran from 57c to $1.12 over a period of a few months. They go on to say:

A further concern of this Association is, what items are taxed or not taxed?

We strongly suggest that the amount of Goods and Services Taxes be displayed prominently and separately on all items affected by the tax.

The very Treasurer who managed to sound so scandalised when he talked about the secret, hidden wholesale sales taxes is now hiding the impact of the GST from consumers. The West Wallsend Combined Pensioners Association are absolutely right to want to know what items are to be taxed and what items are not to be taxed. They are absolutely right to demand that this information be made public, and the Treasurer's refusal to do this condemns him as an A-grade hypocrite.

Let me turn to the impact of the GST on petrol prices. During last year's election campaign the coalition swore black and blue that they would not allow the GST to increase petrol prices. On 7 September 1998 the Treasurer said:

The government's proposed new tax system will not lead to any increase in petrol prices.

On the previous day all Liberal Party candidates had received advice from Liberal Party campaign headquarters which said:

There will be no increase in the price of petrol as a result of the GST. The reason is that the government will reduce the petrol excise by an amount equivalent to the GST.

When this issue was raised in question time today all we got from the Minister for Transport and Regional Services was that there would be no need for petrol prices to rise because of the GST. But, if you have a reduction of 7c a litre in excise and if the GST then applies to a price of 77c a litre, clearly it will have an impact greater than the excise reduction. In those circumstances a GST will increase petrol prices.

One thing that motorists out there know for sure is that the Liberal Party is in government, the Liberal Party abolished wholesale price controls on petrol and now petrol prices are going up. It can do all the dissembling it likes on the issue, but the proof is at the bowser. Every time motorists go to a petrol station, the evidence of this government's performance on petrol prices is plain for all to see. You can fool some of the people some of the time, but you cannot fool everybody and you will not fool everybody on petrol prices.

Let me now turn to the motor vehicle industry. I am very concerned about evidence that car manufacturers are experiencing a buyers strike in the period leading up to the implementation of the GST. It has been reported this week that over 3,500 workers at the Ford Broadmeadows and Geelong plants will be stood down for some 12 days next year directly as a result of a GST-induced buyers strike. The evidence of a buyers strike is becoming overwhelming. We have seen manufacturers cutting production and standing down workers including, as I mentioned, at Broadmeadows Ford. There is a glut of cars, 100,000 of them sitting in car yards, because dealers are finding it difficult to shift them. There has been a massive decline in new car sales.

There is anecdotal evidence of problems for car dealers and other small businesses in associated motor trades. Not only do we have thousands of Australians who work directly in car manufacturing being affected by the current situation, we have the owners and employees of more than 80,000 associated motor trade small businesses who are also potentially threatened. There are part and component suppliers, dealership owners, used vehicle salespeople, airconditioning installers, radio and stereo specialists and many others. It is time for this government to take some action to protect jobs by introducing improved GST transitional arrangements for the car industry.

The Treasurer's refusal to provide proper transitional arrangements for the car industry is an act of gross insensitivity. He sits there while the industry burns, making no attempt to douse the fire. The car industry is supposed to be a great beneficiary of the GST, but what of the carnage in the meantime? The Treasurer reminds me of that infamous American general who said of a Vietnamese village, `We had to burn it in order to save it.'

We still have a situation of massive confusion concerning the GST. We asked questions of the government yesterday in question time. The government said that it would provide small businesses with a voucher to offset the cost of the GST. The value of the voucher is $200—a fraction of the estimated $3½ thousand compliance cost facing each small business. The government was not prepared to walk away from its special rebate for high rollers at casinos, despite the Prime Minister's statement that people who are on the rich list can pay the GST and the ordinary taxpayer is not going to subsidise them. The Prime Minister could apply the GST to premium Olympic tickets but he was not prepared to put pen to paper to scoop up the casino high-flyers.

The Treasurer was acting to keep the GST off stamp duties but he was not prepared to act to keep stamp duties off the GST. He confirmed that people paying residential rents may have to pay GST on part of their rent if the house or unit is furnished. Where the residence includes furniture, the non-furniture component of the rent will have no GST—that is to say, it will be input taxed—but the furniture can be hit by the GST if it is the subject of a separate contract. In my view, this will be a nightmare for both renters and landlords as they try to sort out what the rent is on the furniture and on the property.

In conclusion, this is terribly complex legislation. It has 151 amendments on top of the 756 previous amendments which the government put forward in this area. It covers things such as financial supplies, insurance situations and exemptions for diplomatic, consular and related privileges and immunities. The financial services issue is extremely complex but, as it has been explained to me, it effectively amounts to the application of a six per cent GST on financial services. That is very interesting coming from a government which complained about differential rates of wholesale sales tax.

We are not opposing this legislation. We think it should be scrutinised in the Senate in much more detail than we have been able to examine it here. We do not oppose the propositions the government has put forward but we note that, in coming up with something like one thousand amendments to its GST legisla tion in the space of the past few months, this has proved to be anything but the simple tax system that it was undertaken to be.