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Tuesday, 8 December 1998
Page: 1593


Mr EMERSON (5:58 PM) —I am pleased to participate in the debate on A New Tax System (Goods and Services Tax) Bill 1998 and cognate bills. The test conventionally applied for assessing proposed changes in taxation policy includes: (1) efficiency; (2) equity; (3) revenue raising ability; and (4) simplicity and ease of administration. In the time available I will assess the government's tax policy against the first two of these criteria, efficiency and equity.

Let us look at efficiency. Tax proposals should be judged in relation to their ability to improve the efficient functioning of the economy. That is, does the government's tax proposal boost economic growth and create jobs? The GST package will not improve the allocative efficiency of the economy, it is simply replacing one set of indirect taxes with multiple rates with another set of indirect taxes with multiple rates. Payroll tax and excises on petrol, cigarettes and alcohol will remain. The wholesale sales tax would go but it would be replaced with a multiple rate goods and services tax. That is because some items will be GST free, other items will be input taxed, there will be special treatment of luxury cars, and there will be a myriad of exemptions and anomalies that have been pointed out in this House over the last few days.

This is why independent economic models show little positive effect, and more likely substantial negative effect, of the govern ment's tax package on economic growth. These models do not take account of the business compliance costs of the GST package. If the costs of the GST paperwork per business—and I am talking about big business and small business here—averaged just $1,000 a year, then more than $1 billion a year will be wasted on GST paperwork. My colleague the member for Kingston will amplify this point a little later.

Despite the government rhetoric, there will be little or no impact of the tax package on net exports. There will be some aggregate reductions in tax rates on exports but they are quite small and their effects will be pretty well wiped out by an exchange rate appreciation. Yet the largest and fastest growing export in Australia has been tourism and the tourism sector will be devastated by the GST package because it will pay the GST.

Let us look at the effect of this package on employment. The GST is a job destroyer; it favours capital intensive industries over labour intensive industries, so we can expect substantial job losses from the GST package. If this goes through, we will get some positive effects on employment from spending the budget surplus, which is a separate matter entirely, but these gains to the employment situation will be destroyed by the GST. If Australia does want to spend part of the budget surplus, then it should use it on Labor's family tax credit plan to smooth the transition from welfare to work. That is a true employment policy, not a job-destroying GST.

The Treasurer knows that the GST package is no good for the economy. He is reported in the Weekend Australian of 16 November 1996 as saying:

I honestly think, now it has receded from consciousness it's being invested with some snake-oil qualities . . . It has certain advantages, but you wouldn't want to overclaim it. They're at the margin.

The employment minister knows the GST is no good for the economy. On 1 November he said:

The GST isn't the answer for unemployment.

Dr Neil Warren, who helped design the Fightback package, knows the GST is no good for the economy. He said on ABC television on 18 May 1998:

Oh, I mean people are saying the GST will solve all our ills. I mean, the GST will not, and I think it's a mistake to say that it's going to cure our foreign debt and create thousands of jobs. It's just not going to do that.

Indeed, the Secretary to the Treasury knows the GST is no good for the economy. He is reported in the Australian of 18 May 1998 as saying:

Every economic text that I know of will tell you in principle that shifting the tax burden towards further reliance on indirect taxes will significantly aid national saving.

But he added:

. . . you won't find that convincingly (demonstrated) in studies of international tax reform experience.

So we can only conclude that the government's GST package, assessed against the efficiency criterion, is an abject failure.

So let us turn to the second criterion, and that is equity. There is scarcely a person in Australia who believes the GST package is fair. The Prime Minister and his ministers think it is fair because they will get tax cuts of more than $100 a week. Yet age pensioners, according to the government's own shonky figures, get a tax improvement of only $2.89 a week. The government has perpetrated a fraud on the Australian people with its snake oil GST, and I will show how.

According to the government, everyone is a winner with the GST package. This is all based on the dishonest claim that a 10 per cent GST will increase the cost of living for all Australians by only 1.9 per cent, and here is how the government has concealed the truth from the Australian people. First, it used the second year effect on prices, not the higher first year effect. Second, tobacco price rises have been explicitly ignored. Third, housing cost increases have been deliberately understated. Fourth, the Premiers Conference decision to retain stamp duties on commercial property conveyancing has not been taken into account. Fifth, it has been assumed that there is an instantaneous and complete passing on by businesses to consumers of every cent of savings from abolishing the wholesale sales tax, the financial institutions duty, the BAD tax and other indirect taxes.

If proper account is taken of each of these deliberate understatements of the effects of the GST package on the cost of living, and if we assume business passes on fully 75 per cent of reductions in indirect taxes, then the GST package will increase the average cost of living by more than four per cent, not the shonky 1.9 per cent. The average cost of living increase therefore will be more than double the government's snake oil claim of 1.9 per cent. That is the true average cost of living increase—more than four per cent.

But the situation for pensioners and low and middle income earners is much worse because, compared with high income earners, pensioners and low income earners spend a higher proportion of their income on food, electricity and other essentials of life, and those prices will rise. Second, pensioners and low income earners spend all of their income or more than all of their income—that is, they `dis-save'. So they will pay GST on all their income, whereas the more affluent will pay GST only on that part of their income that they spend.

The effect of the different spending behaviour of pensioners and low income earners compared with more affluent families is that struggling Australian families will face much higher cost of living increases than the average. In fact, pensioners will face cost of living increases of more than $10 a week—and perhaps much more—and couples with children who are earning low incomes will face cost of living increases of around $20 a week or perhaps even more.

The government has deliberately concealed the losses to pensioners and struggling Australian families in its GST plan. Why, we might ask? The answer is so that it can give more than half its tax cuts to the top 20 per cent of income earners in Australia. These massive tax cuts for high income earners are being funded out of the budget surplus built on the backs of ordinary Australians. The government slashed education funding, health care funding and child care.

Yesterday the Uniting Church Child-Care Centre at Logan Central announced that it will be closing its doors after 21 years of service. The Uniting Church attributes the closure mainly to the loss of operational subsidy from this government, and to restrictions to child-care rebates imposed, again, by this government. Thirty families are directly affected by this decision and by the closure.

In addition, vocational training offered by that child-care centre to Woodridge State High School is now going to be lost. So we are going to have a loss of training opportunities and job opportunities for students at Woodridge State High School. That is how the government is funding its $100 a week tax cuts to the privileged. It is funding those tax cuts on the backs of families that have relied on services such as those provided by the Uniting Church Child-Care Centre at Logan Central.

The government's GST package fails the efficiency test and it fails the equity test. In fact, it is a shameful, heartless plan designed to entrench privilege, funded by struggling Australian families. It is a tax package that will be repudiated by the Australian people at the next election for the disgraceful, snake oil, job destroying, unfair deception that it is.