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Monday, 23 November 1998
Page: 373

Senator HUTCHINS —My question without notice is directed to the Assistant Treasurer, Senator Kemp. Minister, how much would the financial benefit be to Australia's major banks from allowing their services to be GST free as opposed to input taxed? If their services are GST free, will the banks be required to pass on the savings that GST-free status would confer as opposed to those services being input taxed?

Senator KEMP (Assistant Treasurer) —It is quite clear in the documents you should have in relation to the government's tax reform program that most financial services will be input taxed.

Senator Robert Ray —All of them?

Senator KEMP —Except, of course, Senator Ray, where there is a specific fee for service, and in that case that can be apportioned by the particular organisation in question.

Senator Conroy —What about all the outsourcing they have been doing?

Senator KEMP —Senator Sherry wants to get onto outsourcing.

The PRESIDENT —Order! Senator Conroy, it is a question that has been asked by a Labor senator.

Senator KEMP (Assistant Treasurer) —I am sorry, Senator Sherry.

Senator Sherry —What about the super tax?

Senator KEMP —He wants to get into super tax now.

The PRESIDENT —Order! Senator Kemp, it is a question asked by Senator Hutchins, and Senator Conroy should be ignored.

Senator KEMP —Senator Hutchins, as I have said, financial services in general are input taxed, except where there is clearly a specific fee for service, and the apportionment between those two areas can be done in a reasonably straightforward manner. As to the issue that you raised about cost savings being passed on, one thing we are particularly proud of in this government is the actual cost of borrowing from banks. Mortgages particularly have come down very dramatically compared with the levels they were at under the previous government.

Some people say that one of the reasons why we were able to get such strong support from many young families was the fact that interest rates which under the Labor Party had reached, I believe, a maximum of 17 per cent—perhaps you can confirm that that is the case—came very substantially down to between six and seven per cent. As far as the cost to the individual of being able to borrow from banks is concerned, this government has delivered in spades.

Senator HUTCHINS —Madam President, I ask a supplementary question. How will the government ensure that the GST paid by the banks is not passed on to customers or consumers via increased bank fees and charges?

Senator KEMP (Assistant Treasurer) —Senator, I just pointed out to you that in most cases financial services are input taxed. Of course, at the moment, many banks pay wholesale sales taxes, as you would be aware. As the previous government put up those wholesale sales taxes, it had a significant effect on the costs of the banks. We are carrying out a major reform program in relation to the taxation of financial services. We have looked very extensively around the world to see what is the best system we can put in place at this stage. That is precisely what we have done. In relation to general bank costs and the passing on of those costs to individuals, one of the things we have done is create far more competition in the area of financial services. (Time expired)