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Monday, 7 December 1998
Page: 1540


Mr BAIRD (10:13 PM) —I rise in support of the government's bill. I am delighted to do so. In fact, the last speaker actually highlighted the great naivety of the Labor Party when it approaches economic management in Australia today. The talk about the people in Struggle Street shows that the member for Fowler simply does not understand the shift in the Australian economy away from goods and more into services. How are we going to meet the requirements of not only the people on Struggle Street but of their parents and their kids without a fundamental shift in the way that Australia manages its economy, a fundamental shift in the way it manages its tax system and a fundamental shift that will ensure that Australia is competitive domestically and also overseas? Without that change, we would become the poor men of Asia and of the world. This is about taking the right action.

I congratulate the Prime Minister and the Treasurer on taking this action. The cafe latte set, to which I am sure the member for Fowler belongs, sit back and pontificate about how we can fix things in Australia. Without the fundamental reforms you are not going to fix anything in this country—let alone in Struggle Street. It is interesting to look at the editorial in the Daily Telegraph on Thursday, 3 December. It says:

Australia set itself apart from the regional economic mine yesterday with a five per cent annual growth rate.

The editorial concludes on this note:

Economic management is not a matter of luck but of consistent policy and constant attention to global movements. The current managers, the Government of Prime Minister John Howard, have been doing this.

To disrupt the Government's work by blocking tax reform would be sheer political bloody-mindedness and a betrayal of all Australians.

The Telegraph editorial is saying to people like the member for Fowler, `Get your act together. If you want to climb aboard the economic engine of what Australia is today, this is the direction you should follow.' You are basically into retro politics. Of course we have heard that from one of your members who said, `You are stuck in the past. It is a 1950s revisit, and you haven't looked at how the world has fundamentally changed.'

It is very important to recognise that the world has moved away from just taxing goods and into the service area. There is very little taxing of services in this country. So if people want to go to the gym, if they want to get their hair cut, if they want to go to the restaurant, if they want to go to a resort, they are not taxed. But that shift to taxing services is happening everywhere in the world economy.

Tourism—and we had 4.2 million international visitors here last year—is one of the growth engines of the economy and is part of the services sector. The member for Fowler might not understand that, but a fundamental shift has occurred. I can tell you that the tourism industry—the shadow minister is there—was very happy about the fact that bed taxes across the country are going to be removed. And the Labor Party did not promise that they were going to stop those taxes across the country. That was a fundamental flaw of the Labor Party's when they talked to the tourism industry. The industry knew that the bottom line was that they were going to be better off under a GST proposal.

It is important in terms of this shift that we also see what has happened in terms of indirect taxes. Indirect taxes as a proportion of the take of taxation have been constantly shifting. We have seen taxes from the indirect area dropping by 0.5 per cent to one per cent of GDP, which represents $500 million per year. That means that we have to find other tax areas, otherwise we would have a problem. When you have a shift in the indirect tax, you have to move it onto the direct tax. We have seen that the share of indirect taxes has gone from 27 per cent to 24 per cent and the direct taxes have continued to grow from 63 per cent to 70 per cent. The factor operating here is seen, for example, in the fact that we have not seen a taxation flow-on, despite the productivity improvements, in the area of car prices. People are not smoking and drinking to the same degree, and of course that means less in terms of tax take. So we need to find new avenues for taxation.

The third major factor, following on from the need to broaden our tax base and the problem of that indirect system, is the need to protect the salary and wages earners of this country. In the 1950s, the taxpayer had to be earning 19 times average weekly earnings before paying the top marginal rate of taxes; today it only takes 1.2 times weekly earnings to pay the top marginal tax rate, or by the year 2000. We need to shift that whole approach.

The fourth major factor is the personal income taxes and the increased family allowances that will become available to the people of Australia because of these tax changes. They are a great incentive to get people out there working. Under the GST, despite the claims from the member for Fowler, nobody will be worse off. Eighty per cent of taxpayers will be paying 30 per cent tax, and the average family will be $50 a week better off. There will be $13 billion in tax cuts, an extra $2.5 billion assistance for families. There will be a reduction of $4.5 billion in taxes reduced right across the board in terms of the net cost to the government.

The fifth major reason we should be supporting these tax proposals today is the overall reduction in business costs because of the ability to provide important tax credits. So it is passed up the line and the credits continue until finally the consumer pays for the tax.

I think that provides us with the sixth major reason, which is significant. It allows us to get at the tax cheats. As you check the processes through, you can certainly trace those who have been rorting the system. In New Zealand thousands of companies came out to register in order to get the tax credits. That is what we will see under this program—the people who are rorting the process, rorting the tax system, will be caught out.

The seventh major reason is the great incentive that will be provided to Australian exporters. There is no doubt that Australia depends just as much as ever on exports. It used to be that we depended on wool; now it is manufactures, as well as the mining sector and of course the tourism sector. The incentive of taking off a whole range of indirect taxes and not having the GST means that Australian exporters will not operate under the type of handicap they have been operating under to date. They operate internationally under a 4.5 per cent disadvantage on average now. That will be removed when the GST is introduced. That will have a flow-on effect to the standard of living right throughout this great country of Australia. That is one of the key factors why we should be supporting this tax: providing real incentives to our exporters to assist our balance of payments situation and to increase the standard of living by the flow-on effect from the input of overseas currency.

The eighth major reason that I support this approach is the change in Commonwealth-state financial relations. The Commonwealth will provide the states with a growing source of income. That is something that has been sought by the states for some time. The great opportunity to rationalise state and federal relations is important. The abolition of the wholesale sales tax, the abolition of stamp duties and the abolition of BAD and FID transaction requirements are great incentives for all Australians.

As I mentioned, the Labor Party are involved in their retropolitics. They simply do not understand that the shift to a greater number of people in retirement and a greater of number of students means that somebody has to pay for the taxes in this country. We need to look at how we can broaden the base as much as possible and how we can reduce the overall burden of direct taxes.

There is no doubt that there are major flaws in the current system. But there is grave hypocrisy in the Labor Party saying, `It's OK. There are no taxes on foods at all,' when even those regarded as being the necessities of life—bread, milk and butter—are already taxed at the rate of three per cent, and fuel is taxed at the rate of 43 per cent per litre. Then there is the sales tax on computers and on motor vehicles. All this flows on to the cost of goods and food.

We have world's best practice in manufacturing and in service delivery. Why don't we have world's best practice in tax delivery? More than 120 countries all over Europe have a VAT. Canada, most of South America and most of Asia have a VAT or a GST. The USA has a retail sales tax and its economic basis is exactly the same as the GST. However, the IMF says that, when you get over 10 per cent of retail price, it is better to go to a multistage tax with offset. A tourism tax is imposed in various countries. In the UK it is 17.5 per cent, in France it is 26.6 per cent and in New York City it is 15 per cent. So there are various taxes around the world with a similar rate to the rate in Europe.

Monitoring of price reduction will be an important aspect and business will see the benefits. The ACCC will make sure that there are criteria to monitor the prices. There will be competition out in the marketplace to ensure that prices are minimised. There will be far greater uniformity of taxes right across the board. But there will also be opportunities for the individual—whether they want to put their money into direct consumption or whether they want to save. There will be direct opportunities for savings. The new system will be fairer to administer across the board. The current system is far too complex. A person on an average weekly wage earns $37,000 a year. The tax rate on $38,000 a year is 43 cents in the dollar. That is absolutely absurd. The rate will be brought down to 30 cents in the dollar under a GST proposal.

In terms of the criteria of fairness, equity and transparency, obviously the GST meets each of those proposals. Why is it that business is so enthusiastic? Why is it that the taxation community are totally in support of these proposals? The reality is that this is a logical system, it is a clear system, it is a transparent system. The reality is that most people in Australia today do not know what taxes they are actually paying. Let us look at toothpaste, for example. We pay 22 per cent on toothpaste and nothing on toothbrushes. We pay 30 per cent on engagement rings and nothing on wedding rings.


Mr Fitzgibbon —Fix it!


Mr BAIRD —The shadow minister for tourism says, `Fix it.' The reality is that this is fixing it. There will be uniformity. Instead of rates of 12 per cent, 22 per cent, 32 per cent, 37 per cent, 41 per cent and 45 per cent, there will be one rate. So we will see uniformity right across the board. The tax will be implemented on an easy basis. We will see dramatic price changes when it is implemented—the price of cameras, the price of watches, the price of cars.

Mr Fitzgibbon interjecting


Mr BAIRD —You say it is a tax on jobs. May I ask my honourable colleague opposite if he could explain to me how it is that this will not create jobs for the Australian car producers if they have a reduction in price from the current levels down to 10 per cent? It just does not make sense that you can move from levels of 32 per cent down to 10 per cent as if there is no elasticity of demand at all—as if people will not shift at all. If somebody offers you a very significant reduction in price, you will be interested. This will occur right across the board. This will occur with consumer products and, most importantly, this will occur with Australia's export products. With every country that we compete with we now have a four to five per cent handicap because these taxes are taken off by our competitors in those 120 countries that have a VAT or a GST.

We have to operate an outdated wholesale sales tax with a multilevel system that is difficult to understand, that is complex and that has a huge range of volumes of tax books to which you can refer as to whether or not a particular exemption applies. This will be a simple system. Those who are disadvantaged will be taken care of. The charities will be taken of. It is very interesting to note that Mr Vos, who headed up this inquiry as to how these various exemption areas would be administered, is a former member of the Salvation Army, so he knows how to look after the charitable areas. I think the provisions agreed to in relation to the charitable areas are very generous. The new system looks after the disadvantaged. It gives pensioners a four per cent increase. They will be 1½ per cent ahead of the CPI increases.

We will have a fairer system, we will have an equitable system, we will have a transparent system. We will have a system that provides real incentives for those who want to work overtime. Those who want to move from one area of work to another will not be held back by lack of incentive because of their concern that they will go up to maximum rates. It is a system that will provide us with a basis of internationally competitive advantage right across the board. It will exempt religions, it will exempt charities, it will look after the disadvantaged and it will look after retirees. It will transform the Australian economy. It will put us in a globally competitive position. This is the tax that we have been looking for for the past 30 years. It has taken this government, this Prime Minister, this Treasurer, to make it happen.