Senator CONROY (8:08 PM) —The Excise Amendment (Compliance Improvement) Bill 2000 enacts a number of measures designed to address tobacco excise avoidance and evasion. To this end, the bill establishes a licensing system for the growing, transporting, trade, manufacture and storage of tobacco. In addition, the bill contains provisions which will require the individual labelling of tobacco bales and also contains provisions dealing with the manufacture and storage of excisable goods generally. The issue of tobacco excise avoidance is one which people have been drawing to the attention of this government for some time. Despite the loss of revenue, the government has been very slow to respond indeed.

My colleague Mr Thomson in the other place said that he received a report in May from Philip Morris, which was sent to the government, detailing the existence of tobacco excise avoidance. However, I understand that manufacturers, with the support of tobacco grower organisations, have made repeated representations to government at all levels, including meetings with federal and state ministers, ministerial advisers and representatives from the ATO and the Australian Customs Service over a number of years. Philip Morris made their representation in May, describing government tobacco policy as being `in crisis', with existing government policy driving the creation of a booming black market in tobacco that operates outside of revenue raising and health policy initiatives. The Philip Morris report said:

They describe the issue as one of significant concern to the Australian tobacco manufacturers. The report said that, despite the large sums involved:

as it is colloquially known—

This legislation attempts to address these problems. In addition to the features of the bill I mentioned earlier, the bill will also contain provisions which expand the search powers of officers of the ATO. The new powers will allow searches of conveyances at any place without warrant if officers have reasonable grounds to believe that the conveyance holds tobacco leaf or excisable goods.

The bill will also increase the penalty for the unlawful movement or possession of goods where the duty has not been paid. The maximum fine will be set at 500 penalty units, which currently translates to $55,000, or five times the duty payable. In addition to fines, the bill also provides for imprisonment of up to a maximum term of two years. But it must be asked: how much has the government's lethargy in responding to this issue cost taxpayers? Why has the government taken so long to address this issue that it is now in crisis? First, there is the issue of health. As became clear in the hearings of the Economics Legislation Committee inquiry into this bill, the unregulated sale of chop chop bypasses government health regulations and manufacturing standards. Consequently, sales of illegal tobacco have no health warnings on the packaging and also avoid controls over tar and nicotine levels and other additives. The lethargy of the government is allowing the suppliers of illegal tobacco to avoid the obligations imposed on the retailers of legal tobacco. The economics committee also found that the lack of regulation of the sale of chop chop makes it more readily available to children through mail order outlets or other unregulated channels, making it a significant risk to community health. That is not good government.

Second, there is the loss of government revenue. Submissions made to the Economics Legislation Committee indicated that the costs of the illegal tobacco industry were conservatively estimated as ranging from $400 million to $600 million annually. The report from Philip Morris indicates that chop chop accounts for a volume of anywhere between 1,000 tonnes to 1,200 tonnes per annum. To give that some perspective, the legitimate roll-your-own tobacco market is estimated at 1,400 tonnes per annum. So the illegal market is nearly 70 per cent to 80 per cent of the legitimate roll-your-own market. However, more important, the sale of chop chop translates into a loss of revenue excise of over $300 million annually. That is, $300 million is lost annually because this government has failed to ensure that adequate resources are being applied to this serious problem and because, until now, the government has been reluctant to adopt any serious measures to address the sale of illegal tobacco.

It has been suggested to me that there has been very little checking of cigarettes for export. It has been said that it is too easy to substitute the cigarettes declared exempt from duty with other goods and then to sell the cigarettes into home consumption and not into the export market. This situation has gone unchecked for long enough. It is arguable that the ATO, which took over responsibility for excise from Customs two years ago—and we know they are enjoying that—are overwhelmed with the many problems and complexities in relation to the GST. It is not, of course, the first time this parliament has found that excise is being avoided, and once again this government has failed to respond quickly.

We are to debate shortly the Petroleum Excise Amendment (Measures to Address Evasion) Bill 2000. That bill is aimed at addressing the loss of excise revenue due to branding of unleaded fuel as `solvent', which the tax office admits has cost $100 million and then the loss of a further $10 million through the toluene scandal. This issue was brought to the attention of the government by Labor earlier this year. The government responded only after the issue was raised publicly by the New South Wales Minister for Fair Trading, Liberty Oil and the Shadow Assistant Treasurer. We now know that, since 12 July last year when the tax office took over control of fuel substitution from Customs, a total of 42 sites only have been tested. Of those 42 testings, a total of eight instances of fuel substitution were discovered. That is an incredible 20 per cent incidence of fuel substitution. To put that in perspective, the annual report of Customs for the financial year 1998-99 shows that Customs officers visited 551 test sites and found 52 positive instances of fuel substitution. So, once again, Customs detected a very serious level of fuel substitution. But instead of the government acting on that once it found out there was this kind of problem, it reduced the number of tests so that the tax office tested only 42 sites. That is a 90 per cent reduction in the level of testing.

There are two culprits in this fiasco. First, the government have proved repeatedly that they are bad managers. The responsible minister must manage their department and, along with the government, must accept responsibility for ensuring that department fulfils all of its obligations. We now know that the tax office has not been active in ensuring that the proper amount of excise is collected. This has cost Australia greatly in lost revenue but, as I said earlier, also has implications for the health of Australians. The government have been derelict in their duty to Australians. The second culprit is the government's ideological fascination with the GST. The tax office has been overwhelmed by all the complexities and absurdities of the GST.

Senator Kemp —Don't forget, it is your policy now.

Senator CONROY —How is Kouta going in the Brownlow, Senator Kemp? The Howard government has introduced a new, incredibly complex tax—

Senator Murray —What about the casinos?

Senator CONROY —Senator Murray, I have resisted so far drawing attention to the loss of revenue caused by the Democrats backsliding to that small family business in Melbourne, the Packers, and to the Crown Casino amendments. But, just for the Senate's information—in case anybody has forgotten—your unwillingness to tax high rollers at the casino cost $10 million at least, which is some comparison to the figures I have been talking about. I thank you for drawing that to my attention, Senator Murray, because I had been remiss.

The Howard government, as I said, has introduced a new, incredibly complex tax—with the help of the Democrats, it should be said. The resources to implement this tax and ensure compliance are enormous. The Australian Taxation Office is simply overwhelmed. The parliament has had to suffer numerous amendments to the GST. These numbered 1,400 or so, last time I checked, and I am sure the three Sydney telephone books that that amounts to—about so much; I know Hansard cannot see it, but I know Senator Murray can—are drowning the tax office in work, absolutely overwhelming it. The Howard government has not been able to get it right, and the tax office has had to issue—and, I presume, will have to continue issuing—numerous GST tax rulings. The government has dropped the ball. It is consumed by the GST at the cost of all else and is just not doing the job it has been elected to do.

The Excise Amendment (Compliance Improvement) Bill 2000 is not opposed by Labor. As the economics committee heard in its inquiry into the bill, this bill will not wipe out the problem of illegal tobacco, but it is a step in the right direction. For the legislation to make an impact, however, it will be necessary for the ATO to be adequately resourced. As pointed out by Philip Morris at the inquiry:

Labor agrees that the resources being applied to this serious problem do not in any way reflect the level of forgone revenue to the government, retailers and the tobacco industry. In response to the submission of Philip Morris, the ATO pointed out that they will be expanding their capability by an extra 85 investigators, primarily concerned with the tobacco industry. This will need to be monitored to ensure that the bill is allowed to achieve what the government promises. Labor agrees with the recommendation of the committee that the success of the new measure will also require the support and expertise of the industry, particularly in areas such as crop monitoring and other jointly funded projects.

It should also be noted that the problem of excise avoidance will only get worse with the GST. Despite what the government says and despite what the Democrats say, the black economy is only going to grow with the GST. This was admitted in the hearings to do with this bill. I asked the tax office whether they believed the GST would help with this sort of black economy. The answer was a simple and straightforward no. It was a pity, I suggested to the tax office, that they had not mentioned this to Mr Rick Matthews, the Treasurer, the Assistant Treasurer or the Prime Minister at any stage when they were spending that outrageous amount of money advertising their lies and propaganda about the black economy. Senator Kemp well knows this—we have debated the black economy on SBS. We have debated it publicly, and the government continues to pretend that the black economy will be curtailed.

The exact opposite is in fact the case, as has been evidenced in Canada and Europe. We have seen a return to the barter system; we have seen `the nod and the wink' cash grow in that sector of the economy. We have not seen, as this government has tried to pretend, that the GST will do anything about the black economy. Yes, aspects of the tax reform package will lead to some curtailing of the black economy, but it is not the GST part; it is the ABN part. Would it have been possible to have an ABN without a GST? Of course it would have been. So the government's claim that the GST will fix the black economy has been shown in this inquiry, as admitted by tax officials, to be a complete furphy.

The economic rationalists in this government must understand that the rationalist response in this situation is to avoid the GST and enter the black economy—not the reverse, as this government has consistently argued as part of that disgraceful propaganda exercise known as `unchain my heart'—avoid the excise, avoid the GST, sell chop chop. Labor will not be opposing this bill, but it is concerned about whether this government has the competency and the will to ensure that it properly tackles the issue of tobacco excise compliance. This bill is, as I have said, a step in the right direction. I hope that it will not fall by the wayside.