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Thursday, 25 November 1999
Page: 12621


Mr ANDREN (10:23 AM) —The A New Tax System (Indirect Tax and Consequential Amendments) Bill (No. 2) 1999 , the second consequential amendment bill to the GST legislation, adds around another 150 amendments, as we have heard, to the 450 contained in the first bill of the same name which passed this place last session. That bill made what its explanatory memorandum describes as `minor policy and technical amendments' to the application of the GST. Those amendments, of course, came on top of the 370-odd changes forced on the original bill by the Democrats. The second raft of amendments contained in this bill are also apparently what its explanatory memorandum describes as `minor policy and technical amendments' aimed to, as the member for Fisher said when introducing it, `provide a smooth transition to the new tax system'.

Rather than help facilitate such a transition to the brave new world of the GST, what this bill does is highlight once again how many uncertainties there are about the GST and how much more complicated the legislation will become to clarify the many grey areas. It reinforces the message I am consistently getting from my electorate, that the transition to the GST is going to be anything but smooth for many businesses, but particularly so for not-for-profit and charitable organisations. Above all, this bill demonstrates that, if there were ever any doubts, the GST, and especially the one Australia will soon be saddled with, is far from a simple tax. In fact, it reveals that in many cases our GST will be a very complicated and onerous tax, only decipherable by the lawyers and accountants who stand to make a killing out of this change.

I note with interest the comments of the member for Wannon on this bill about the simplicity of filling in GST returns. According to him, it is so simple it can be done on the back of an envelope. If that is the case, I wonder why the business activity statement released early this week comes with 130 pages of explanatory notes. How simple is that? The member for Wannon must have either a very big envelope or very small writing. The cost of a computer necessary to deal with compliance will mean the difference between survival or not for at least one small shop owner in one of my electorate villages. Rather than a broad based flat rate tax with few if any exemptions, we are going to have a complicated, burdensome tax which will become only more complex and burdensome with each raft of amendments. Given that one would expect that most anomalies will become apparent after the tax's start-up, I predict we are going to see many more hundreds of these types of amendments in the years ahead, as the previous speaker said.

We already know that the GST will apply differently to some foods as opposed to others, some rents as opposed to others and some services as opposed to others. But with this bill we find that it will apply differently to the production of some metals as opposed to others, some insurance policies as opposed to others, some leases as opposed to others and services provided by some organisations as opposed to others. What it demonstrates is how flawed the initial GST bill was and how the government has already realised that it just cannot paint the GST broadly across all sectors and expect it to apply evenly, logically or fairly to all. The bill reflects just how much confusion there is surrounding the GST. While it answers some questions that needed answering, I suggest these are but the tip of the iceberg of unanswered questions out there about what the tax will mean for businesses with particular vagaries.

As one goes through the bill, it is not hard to see which interest groups have had the government's ear since the first passage of the GST in June. This bill largely implements changes in those areas of concern to stakeholders that have had the resources, the capacity and the time to analyse the legislation. There do not seem to be many prompted from the small end of town. Part 1 of the bill attempts to clarify the treatment of grants to local government, the precious metal industry, financial supplies, so-called GST groups, telecommunications supplies, the insurance industry and second-hand dealers, for which I read motor traders. I dare say that further amendments will inevitably follow as an understanding of the GST filters down from big business to smaller business, to not-for-profits, to charities, to education institutions, to providers of medical services, to the primary industry and food processing sector and to the building industry.

I must say, regardless of the government's information seminars, 13 phone lines, mail-outs and Internet services, the feedback I am getting, through attending through my office some of the seminars, is that the majority of small businesses and not-for-profits in Calare are struggling to come to terms with what the GST will mean for them. For example, a feedlot operator wrote to me recently about how the GST would apply to cattle consigned direct to abattoirs on an over-the-hook fee basis. We know the GST applies to the live cattle and to parts of the slaughtered beast such as offal and skins but, as for the food part, when does it become food, what portion of the hook fee is GST free or GST liable and how will this be accounted for? It would turn anyone into a vegetarian just to ponder the complexity. These are the practical kinds of problems frustrating rural businesses. With such a dearth of information out there about how it will apply, the only way businesses seem to be able to get quality answers is by paying for it through the teeth. With all due respect to those conducting the seminars, I am not convinced that they are in a position yet to give any sort of proper interpretation of this legislation to small business.

The same constituent goes on to say that, so far as he can see, because he has to pay GST on live cattle but cannot collect on the slaughtered animal, he will require a constant pool of money to cover the GST outputs for which there will be delays in reclaiming. That is assuming he has got the resources and that the cattle market stays reasonably buoyant, and that is only a three- to six-month proposition at best in this farming climate.

I have some questions on notice—and I will be fascinated with the answers—particularly asking the Treasurer the following:

Is it a fact that it is common practice for abattoirs to charge an all inclusive fee for the slaughter, preparation and processing of livestock, and that part of that fee will relate to the production of GST free and GST liable goods; if so, will the costs have to be apportioned; if so, how.

I look forward to the answers. This man's situation will be like that of health or education providers or charities—or any industry, for that matter—providing GST-free services. In a sense, they will be giving the government an interest-free loan for the 3½-month period before they can reclaim their inputs. The manager of the Bathurst diocese of St Vincent De Paul has estimated his organisation will have to employ at least one person simply to comply with the GST requirements, when all the services it provides are GST free. How is that for a not-for-profit organisation? As he rightly points out, the wages of that person would be better spent directly on its programs and would more than likely eat up any inputs able to be claimed back.

St Vincent De Paul is running a $3½ million business out there—covering a raft of services, opportunity shops, aged care facilities and other organisations—and he has never had to hire people to run these organi sations. It has been all voluntary, part of that $16 billion worth of voluntary assistance given to the community in this country and saving the taxpayer and government an enormous amount of money, and yet he has to put on board a $40,000 job, because nobody could do it on a voluntary basis, to soak up money that is there for public humanitarian purposes to just comply with this bill.

Thankfully, with this bill we will now know that appropriated payments from a state or federal government to a local government will not be subject to GST. That is a matter which local government has been seeking clarification on for some time,, but one may ask why it had to be clarified in the first place. It just does not make sense for a government to subject its own appropriations to the GST or, for that matter, to subject local government grants to not-for-profit community organisations to it.

The amendments to the treatment of GST groups contained in the bill also warrant some comment. One aspect of the GST's impact that did not receive much coverage during debate on, and inquiries into, the original bill is the tax's regressive impact on businesses. In this context I mean regressive in terms of the tax's impact on small businesses, as opposed to big business and multinationals.

The grouping provisions treat large organisations preferentially by effectively treating associated organisations as a single entity. Supplies and acquisitions made within such a group are deemed to fall outside the GST system and so they occur in a GST-free world. How is this regressive? Well, the bigger the company the more likely it will be to be able to purchase goods and services from within its so-called group and thus not be burdened by the GST in terms of lost cash flow for outputs and compliance. This is why, as the New Zealand experience showed, the GST was regressive not only for individuals but for many businesses too. The smaller the business, the more of a burden the GST became.

In fact, the GST put smaller businesses and small players in the market at a distinct competitive disadvantage. Take a credit union like Reliance, based in my electorate—in fact in the building that I am usually in—which I have discussions with on numerous occasions and which is an active participant in the transaction centre in Eugowra recently opened by the Prime Minister. Reliance has done so much in filling the financial void left by the major banks in regional New South Wales. Reliance is not big enough to provide all of the services it needs in house. Whether it is legal advice, facilities maintenance, IT or—dare I say—GST advice, this credit union must pay for services from outside. Each one of these will attract a GST and the same applies to others—Calare Credit Union I can think of as another which has brought this matter up. They believe they will be at a distinct competitive disadvantage in a very competitive financial marketplace. Sure, they will become business inputs but there will be cash flow and compliance costs that Reliance must bear that its group competitors will not have to.

I welcome the amendments to the GST treatment of second-hand goods contained in the bill but urge the government to do far more to explain how the GST will apply to this sector. Judging from the Taxation Office seminars, this is one of the areas where there is greater than the general level of confusion. But what is being done to help motor vehicle manufacturers and traders make a smooth transition to the GST in the face of rapidly declining car sales? Whatever the government tries to say about comparing this year's sales with previous years' sales, the industry is telling me that their sales are on a rapid decline in real terms and that they are very nervous about not only their own prospects for the next six to eight months but those of their employees. According to the Motor Traders Association, consumers do not seem to realise that, while new car prices might come down after the GST, the fall in used car prices will most likely wipe out any savings. According to the association, the anticipated car bargains will prove illusory.

What about second-hand houses? What about a house that builders build and then move into themselves? I am advised that in these cases the house will be treated as a new home even if the builder has lived in it for 10 years. It is pretty common practice for builders to build their own homes but, unless they want their houses to be at a distinct disadvantage in the marketplace, it would appear they will have to buy them off themselves and pay the GST.

The telecommunication supply amendments contained in the bill are yet further examples of the snowballing problems the GST will face once operational. The GST system is designed to tax consumption of goods and services in Australia. But, in the increasingly globalised world, Australian purchasers of goods and particularly services will be able to choose whether they want to purchase them here or overseas. Under the current act, supplies of telecommunications services provided from overseas by foreign suppliers may fall outside the scope of the GST system. The amendments in this bill aim to ensure that telecommunications services used or enjoyed in Australia are subject to the GST, regardless of where the supplier is based. I predict this will be the first of many amendments that will be necessary to prevent erosion of the GST's base. This amendment demonstrates how the GST, while perhaps more modern than the wholesale sales tax, is itself an out-of-date tax, unable to keep pace with the modern world.

As I have said on numerous occasions, in a globalised economy where national boundaries are becoming less and less relevant, we need to look at global forms of taxation. But, more than anything else, this amendment raises the question of what commitment the federal government will have in the future as the imposer and collector of the tax to maintain its base when the GST revenue will be going to the states. I predict that inevitably when the states complain about this erosion the feds will come back and say, `Rather than doing that, why don't you just agree to put the rate up? That is the easiest and best way we can guarantee you the revenue. Put it up and the consumers will not even know because, unlike other countries with their value added taxes, we've embedded our GST in the price of goods and services.' How clever! Why, I ask, after deriding the wholesale sales tax for being a hidden tax, has the government decided to hide its GST? I guess I know the answer to that one: because, inevitably, the rate will have to go up.

The bill's clarification of how the GST will interact with state stamp duties is welcome, as this is an area which has caused much confusion to consumers and, it would appear, to some state governments. My office raised this issue with the New South Wales Treasurer's office over a month ago and has yet to receive a response. Perhaps that is because the state government is laughing all the way to the bank, charging its stamp duty on some insurance policies on top of the premium and other levies such as the fire service levy and the GST. The change confirms that the GST will be calculated on the insurance premiums exclusive of the stamp duty, but it would appear that it will still be charged on top of other levies. The end result for the consumer is the same as stamp duties being charged on top of the premium and other taxes. It seems clear that double dipping is occurring on the part of at least the New South Wales state government and, considering the states stand to receive all the funds from the GST, I hope they will soon amend the stamp duties, as the government has done, so that they apply only to the GST exclusive price of premiums.

All in all what we have here is a bill that points to an emerging behemoth of a tax system. It is a pervasive, regressive and complicated tax—regressive in its impact on individuals and businesses. It is a system that will force many businesses out of business and others into the black market, that will make the life of not-for-profits and charities that much harder and that will benefit only the professionals employed to explain and exploit the tax and the anomalies within it.

Sure, it is going to generate employment—it is going to generate one $40,000 job for the Bathurst St Vincent de Paul diocese that it did not have to pay for before. That is the sort of job it is going to generate. I put the government on notice that, if it is concerned about the election results in Victoria and the referendum result, it should look closely at the reasons for those votes, which were not all about republics and such things. It should be extremely concerned about the backlash that will follow this tax across the country and, I would suggest, particularly in rural and regional areas. If the government does not pick up its game in communicating and implementing this tax the Prime Minister told us would never be on his government's agenda, I have little doubt it will suffer the consequences at the first post-GST election.