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Monday, 7 December 1998
Page: 1513


Mr TANNER (8:00 PM) —The A New Tax System (Goods and Services Tax) Bill 1998 and cognate bills before the House tonight are amongst the most pernicious pieces of taxation legislation this House has ever considered. They are harshly regressive in impact. They are very bad for most small businesses. They tackle yesterday's tax problems to the extent that they will ameliorate problems in the taxation system. They are addressed to problems that used to exist or problems that are increasingly going to be irrelevant to the real issues that we face in dealing with systemic taxation problems. They do not deal with tomorrow's problems—the problems that are coming down the track. They are designed to ensure that a fiscal straitjacket encumbers all future national governments—prevents them from being able to pursue national agendas in areas such as health, education and transport in order that these areas are left up to the states. Indeed, they also place something of a uniformity straitjacket around the states at the same time.

This should come as no surprise to students of history. This is the traditional role of the Liberal Party and the National Party in Australian politics. If we look back through the past, we will see numerous examples of taxation legislation, particularly in the early stages of a new government, that have been introduced specifically for the purpose of inducing a redistribution of the tax burden away from the better off to the worse off in our community.

For example, in 1950 the Menzies government introduced steps into the income tax scales rather than the continuous progression that had prevailed before. They also replaced the previous system of rebates with tax deductions. Both of these initiatives designed to favour the better off. In 1977 the then relatively new Fraser government introduced substantial changes to the income tax system by cutting the top marginal rate and reducing the number of steps from seven to four. The net effect of these changes was substantially regressive. They diminished the income tax burden on better off taxpayers and increased the burden, in effect, on lower income earners. So the Liberal Party and the National Party have a lot of form in this area. They are playing true to form in the legislation before the House tonight.

This is all about rewarding the better off in the community, the people who predominantly vote for them, and it is all about hitting the lower income sections of the community, the people who predominantly do not vote for them. That is precisely what this legislation is doing. If you look at their own figures, you will see that they estimate that a person on $20,000 a year or thereabouts will be roughly $1.20 per week better off as a result of this legislation, as a result of the shift in the tax mix from direct to indirect taxes. They also say that people on salaries of around $80,000 a year will be better off by about $75 per week—people such as members of this House.

Even if you accept their figures—and we do not; we say that people at the lower end of the scale will actually be substantially worse off as a result of the changes that they are introducing—at face value, that in itself demonstrates the extreme regressivity of this tax package. A GST by itself is regressive but, when you use the proceeds to give massive income tax cuts to people at the higher end of the scale, then you compound that regressivity.

Their proposals mean that 52 per cent of the net value of their tax cuts are going to go to the top 20 per cent of income earners in this community. The only defence they can offer to this is wrapped up in the word `incentive'. They say that, if you reduce the tax burden on higher income earners, people will have more incentive to work, to save and the like. There are many studies on this issue and they produce conflicting results. There is no clear proof that increasing the returns to higher income earners through less taxation will produce more incentives for people to work.

It is amusing to note Tim Fischer's defence of this particular position when, during the election campaign, he told his no doubt bemused audience that the reason the bulk of the tax cuts were going to higher income earners was that `we're not communists'. We are all very pleased that Tim has cleared up that confusion. Anybody out there who was actually worried that he was a communist can now feel safe that he is actually not a communist. But the implication in his statement is that any form of substantial redistribution from wealthy people, from well-off people and from higher income earners to those people who are battling, to those people who do not have lots of money, is, by definition, communism according to his term.

Under Labor, as in the rest of the Western world over the 1980s and early 1990s, market incomes did grow more unequal because of market pressures. But, under Labor, as research by people like Ann Harding has found, the effect of that was counterbalanced by the action of government over that time. What this government is doing in contrast is throwing petrol on the raging flames of the fire of inequality, which is already substantially growing, rather than putting in place the social wage measures to effectively restrain that growing inequality.

The GST is also going to be a nightmare for many small businesses. Many will have a very complex stocktake process they will have to go through in order for the changeover to occur so they know which of their particular goods already in stock will not have a GST applying to them. There is a built-in bias in favour of large businesses who will get the bulk of the benefit from their ability to hold the cash that is given to them courtesy of the GST and earn interest off that cash, even though there is a provision for differential times.

Because the GST is effectively a tax on a margin, there is a bias built in for big businesses like Coles-Myer as against your small local milk bar, as was very ably demonstrated by the honourable member for Kingston in an MPI debate on this issue late last week. Because those businesses, by definition, have to run higher margins because they are much smaller—they are usually family businesses—they are going to see their competitiveness vis-a-vis the big businesses who are engaged in selling the same products eroded because of the effect of the GST.

I note with some amusement that the $500 million package that is supposedly going to be provided as start-up assistance for small businesses to implement the GST is not dealt with in this legislation. We look forward to it appearing at some stage. There is no question that, for many businesses, this will be inadequate. When you add the problems they will have with respect to the introduction of the GST to the problems such as the year 2000 difficulty, you will see that many small businesses are going to have a prolonged nightmare with the introduction of this legislation.

It is also claimed by the government that this change to the tax system will produce $3 billion worth of revenue courtesy of the fact that the so-called black economy is captured. It is worth noting that experience elsewhere suggests that this is a fanciful claim. Avoidance of GST equivalents in Europe—in countries like Spain, Italy and Germany—is rampant. What this legislation ignores is that the problems that are emerging, such as with Internet commerce and such as with the proliferation of personal services—an increasingly substantial component of our economy—are not addressed by a GST; they are in fact exacerbated by it. We have got substantial difficulties on the taxation front as a result of the changing structure of our economy. The GST is an answer to yesterday's problems. It is not an answer to the problems that are coming down the track; it is not an answer to the issues that we have to deal with—it is an answer to yesterday's problems.

Avoidance, which will proliferate with the GST, is also going to make the GST more regressive. In terms of the different types of goods and services that people buy, consider the typical household budget of a low income family. What it does not include is things like Internet commerce. What it does not include is things like personal services: nannies and gardeners and all those sorts of things. All those are things which it will be easy to avoid a GST on. But what it does include is rent, what it does include is supermarket purchases and what it does include is school books and all of these basic things where the GST will not be avoidable. So the problem of avoidance, which will be substantial, is going to further compound the regressivity that is already inherent to this proposal.

The overall structure and architecture of this taxation scheme are designed to create a fiscal straitjacket for future national governments, in particular future Labor governments. It proposes to guarantee all of the GST revenue to the states in lieu of a basket of state taxes. It is notable that this guarantee is not legislated. In fact, apparently it is referable indirectly to the 13 November agreement which the Commonwealth concluded with the states. If it is ever challenged in court, that agreement should raise some very interesting and peculiar issues of statutory interpretation, especially when you have got some states which have recorded their disagreement with particular issues in the agreement itself.

It also raises questions about what will occur if changes are subsequently made to the horizontal fiscal equalisation principle. Changes have in fact been mooted in this context. It may well then render this commitment to the states completely invalid. The government estimates that the replacement of the financial assistance grants by the GST revenue will produce a net positive flow to the states of $370 million in the year 2003-04, $1.25 billion net positive to the states in 2004-05 and ultimately an additional $7 billion to the states. The states quibble with these figures. New South Wales thinks there will be two years, between 2002-03 and 2004-05, when they will be left in the lurch. Clearly the Commonwealth has failed to deal with that issue. Nonetheless, in the longer term, if the government's figures are correct or even vaguely correct, there will be a substantial net increase in money going to the states.

This will mean that there will be ongoing and mounting pressure on other Commonwealth payments to the states, particularly specific purpose payments. Forty-six per cent of current payments by the Commonwealth to the states consist of specific purpose pay ments. It is about $15 billion at the moment. These cover things like health, schools and local government—a whole range of particular specific purpose payments. If there is legislation guaranteeing that to the states, as the GST revenue rises the Commonwealth, particularly as it is facing an ageing population and an increased burden on social security payments, is going to get squeezed. Where is that squeeze going to be manifested? I will tell you where it will be manifested: it will affect specific purpose payments to the states. If there is still a conservative government—which we hope there will not be—the Commonwealth will turn around and say, `We are now letting you have all this GST revenue, so we're going to cut back on the specific purpose payments.'

It is designed to produce this outcome. That is precisely the objective. It is designed to ensure that future governments will be forced to retreat from national agendas in areas like health, education and transport. In an era when even conservatives, even employer organisations, are seeing the need for things like a national agenda in areas such as curriculum, it is just an absurdity that we should be creating a fiscal straitjacket that is designed specifically to preclude that and to force these issues back to the states—back to the bad old days when six different things happened on one front and where you had all the problems associated with differential approaches being taken when what was really needed was a national approach.

The regressive effect that is inherent to this package is compounded by the inadequacy of the compensation and the arrangements being made with respect to price monitoring. The four per cent increase being offered for pensioners is in fact a half a per cent increase. It has been double counted with the 3½ per cent increase that was automatically going to be theirs because of the nexus with average weekly earnings—25 per cent of average weekly earnings. The GST compensation, so-called, will automatically be gobbled up to a significant extent by increases in rent for public tenants.

Mr Hockey interjecting


Mr TANNER —That is the absolute literal truth, because their rental rates are related to their incomes, so the rent rates will automatically go up.

Self-funded retirees, people in some cases in their late fifties, are being given $3,000 to compensate them for the impact of the GST. These people, who have paid income tax for many years and have had their tax based on their earnings for many years, suddenly face, at the time when they are shifting from a period when they are earning a lot to a period when they are actually spending a lot, the fact that suddenly the tax regime is shifting to spending. They are getting $3,000 for what could be 30 years or more of expenditure. That $3,000 is not going to compensate them for very much.

On the question of the government's assumptions, if you actually look at some of the detail here and at some of the figures that were published in the election, you will see that they assume that for certain levels of income, certainly ordinary income earning categories, an extra child in the family will increase their GST burden at the rate of 30c a week—30c a week. That is a very cheap child. That is a child that presumably is locked away in a cupboard with no clothes and no food. That is an absurdity. The government's assessments about the compensation and about the net outcomes for people in this whole new arrangement for taxation are based on absurd calculations that defy commonsense, defy reality and defy the experience of the ordinary individual.

This GST package is inherently regressive and inherently unfair, and it is made doubly so by some of its specific features. It has massive tax cuts for the wealthy. It is a huge burden for many small businesses. It will not tackle the problem of avoidance and, in fact, the avoidance problem will exacerbate the regressivity that is inherent to the package. It is designed to preclude future federal governments from being able to pursue national agendas on issues like health and education which, in themselves, are a very important means of contributing to reducing inequality and disadvantage in our community.

Many journalists criticised Labor for not supporting tax reform. We do not support what people opposite call tax reform. We do not see that as tax reform; we see that as tax regression. We do not see it as addressing the key issues that are problems in our tax system at the moment—the interplay between the social security system and the tax system, insufficient incentives to work, problems with people going into the higher marginal rates, and those sorts of things. We sought to address those issues in the election, and a majority of the Australian community voted against the GST. A very substantial majority of the Australian community voted for parties in the Senate which explicitly opposed the GST.

We are going to fight to the end on this issue. We support tax reform, but this is not tax reform—this is tax regression; this is going back to the bad old days. This is precisely what the conservative parties in this country have always stood for. It is throwing more fuel on the flames of inequality in our community. Inequality is a very serious problem which is growing despite the best efforts of the previous government. It will continue to grow and it will ultimately overwhelm this country, which has traditionally prided itself on being decent, civilised, egalitarian and compassionate. We cannot afford this legislation in Australia. It will set us back decades.