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Tuesday, 8 December 1998
Page: 1598


Mr McMULLAN (6:23 PM) —I, of course, rise to support the amendment moved by my colleague the member for Hotham in this debate on A New Tax System (Goods and Services Tax) Bill 1998 and cognate bills. What we have here is a set of bills and a debate which reflects substantially a government that has its priorities fundamentally wrong. What it has done is set out to work out the tax system that it thinks is ideal and then try to adjust the society and economy to fit in with the tax system it wants to introduce.

By any normal logic of public policy, that is not the way you go about it. You would say, `What is the outcome? What is the social and economic outcome we are trying to achieve?' Then you would do something about the tax system as part of a package of measures targeted towards that end, but not here. When you hear the debate it is all about, `We want to have this most wonderful tax system. If it has some social and economic disadvantages we will try and come up with some compensation measures to make up.'

We all know that, as soon as the budget comes under pressure, it is the compensation measures that go. It is not a unique accusation to make about this government. You can look around the world at what has happened. You do not have to look very far—just across the Tasman. In that instance, you will see that a conservative government came in without any commitment to the compensation measures. They never said that they were going to cut them but, as soon as the budget got under pressure, their first step, apart from putting up the GST—which is an issue that, if I have time, I will come back to—was to cut the compensation measures. So the priorities are just wrong. It is putting the tax reform cart before the social and economic policy horse.

What would we set down if we were trying to ask what goals we should set? Let us see if we measure whether this tax change is making a positive contribution to achieving those social and economic goals. Of course, that in itself could be the subject of a major speech, and debate could go on for hours. But there are certain broad things that I think are shared in Australia about what it is that are our social and economic goals within which we try to develop packages of measures to achieve those broadly shared goals. They are about a fair society and an economy growing and creating jobs.

Let us have a look at whether this set of measures is contributing to the goals of a fair society and an economy growing and creating jobs. It is evident on its face, on the government's own measures, that the tax bills that we are debating have an unfair impact, because it is to compensate for that unfair impact that we have a whole range of other bills as compensation measures for the unfair consequences. We would argue about the adequacy; I will come to that if I have time. But that is not my core point. My core point for the moment is that it is a given that the tax changes make the society less fair and therefore we introduce compensation measures to make up.

The member for Eden-Monaro argued how wonderful the compensation measures are. We are very critical of them; and the member for Hotham, in his contribution, I thought analysed them very effectively. I do not want to duplicate his remarks, because our time is limited, so I simply endorse them. But it is unchallenged that, without the compensation measures, the nature of these tax changes makes our society less fair. Some changes I think also reflect something that worries me about the values and trends in our society. It is as if we have abandoned priorities and goals. It is as if we are bringing in a tax system that says that, as its virtue, it does not discriminate between socially beneficial and socially harmful. It does not discriminate between environmentally damaging and environmentally beneficial. It is as if we no longer have priorities as a country; as if we no longer have values; as if we no longer try to put together, through the actions of our government, a composite impact that improves the nature of our society. And that is claimed to be a virtue of this tax package—that it does not reflect any values, that it does not have any priorities and that it does not discriminate between good things and bad.

We will have an argument in here about what those priorities should be. That would be fine; that is very healthy. We live in a democracy; we should have a debate about those things. But do not pretend that you do not discriminate, that they are all equal and that you do not have a preference between things that pollute and things that do not or between things that enhance our society and things that do not. It reflects I think very worryingly in terms of its social impact in that way.

But, of course, as shadow minister for industry, my primary responsibility in the time available is to talk about the economic, the industry and the employment consequences. Let me do that quickly. The government, in its tax package, claimed that we would get for the Commonwealth budget— and more for the states; but let me just talk about the Commonwealth budget for simplicity—a growth dividend of $1.6 billion over three years. That is a key part of preventing these splurges in tax cuts to higher income Australians absolutely blowing the budget. It does erode significantly into the surplus that has been, as the member for Rankin so eloquently said, gained on the backs of people whose services have been cut, and those tax cuts are being given predominantly to high income Australians.

The argument that it is consistent at least in some part with responsible economic management is that we will get a growth dividend of $1.6 billion over three years, and you get the usual elegant set of models based on assumptions that automatically lead you to the conclusion that this will be so. The problem is that the empirical evidence is not there; the data does not back it up. When you look at the 22 OECD countries which have introduced a value added tax over the last 35 years, and you look at the three years of economic growth before a value added tax and the three years after—so you take out all the one-off factors in any one country because those arguments can just lead you into arguments about the one-offs and it should cancel out most of the one-offs—you see that for 11 of them the growth in the three years after a GST was higher than in the three years before and in 11 countries it was lower. It is as likely that growth will be lower than higher. In fact, the unweighted average of those 22 changes is slightly negative.

For the purposes of the discussion, let us say it is zero—it is in fact, as I say, slightly negative. The historical experience is that there is no growth dividend. Everybody who believes in a GST will write an elegant economic model building in assumptions that lead to the outcome they want which says, `But there will be.' The facts keep not agreeing with the theory and so they keep arguing that the facts must be wrong. It is just arguable that the theory is wrong. In 35 years in 22 countries it has not worked, so you cannot bank on that growth dividend that has significant budgetary consequences. But it is significant because during the election when the government was asked for their answer to unemployment it said the GST was. But there is no growth dividend. It is at best zero.

You can look at two countries which have a lot of similarities to Australia either in their political system or socially. Canada, for example, is a federation with a similar economic structure to ours in terms of its resource base and New Zealand, which is different in that it is smaller and not a federation, with a similar economy to ours and similar in many other ways. They both recently introduced a value added tax. In 1991 in Canada and in the three years after the GST was introduced, growth fell to 0.5 per cent on average. It fell 2.1 per cent in those three years. In New Zealand it fell on average by three per cent over the subsequent three years. So, using the most comparable example we can get, they are even more negative. If you average it over the 22 countries over 35 years, the growth dividend is zero. That is what I call a horizontal assessment over a large number of countries over a long period.

If you try to do a vertical assessment and assess a whole range of similar countries at the same time, you get the same result. In fact, in recent times with regard to OECD countries, you get a more negative result in the vertical assessment because the United States and Australia over the period since 1993 have tended to grow more quickly than the average OECD countries—and they are two big OECD countries without a GST. But let us say for the purpose of being fair to the government that the vertical assessment again says zero. Both instances are in fact negative. At best there is no growth dividend and there are no jobs.

We then look at the specific industry consequences. I am very worried about the GST and its impact and the ways these bills are being introduced with regard to particular industries. Let us have a look at three, which is all I have time for: cars, information technology and housing—three very important sources of jobs for Australia. All commentators are extremely concerned about the inadequate transitional arrangements for the introduction of the GST. Mitsubishi said on 3 December that:

. . . a single date introduction such as this cannot be managed in a normal commercial context . . .

and that the changes could cause significant disruption to sales and have a severe effect on the livelihood and income of people in the vehicle industry.

We now have the Australian Fleet Managers Association saying that fleet owners are likely to delay purchases from as early as July for up to three years to ensure they receive the full tax credit. They say that:

. . . this could have a terminal effect on the Australian automotive industry manufacturers who rely on fleet purchases for their very existence.

Fleet purchases are much more important to domestic producers than they are for the vehicle industry as a whole. They constitute a much higher proportion of fleet purchases than they do of new car sales as a whole. So if it has an adverse impact, as it is most likely to have most starkly in the fleet purchase area, it will have its major impact on Australian automobile production rather than on imported automobiles.

In fact, there is a bit of an argument that there will be a significant slowdown in private vehicle sales because of the significant gains to private automobile purchasers. I think there is an expectation of that cut and it may lead to some deferral. But when you look at the likely impact of the introduction of a GST on the used car market, which is a very free market where policy changes and price changes are reflected very quickly in the market, you see most ordinary Australians never buy a new car. They buy used cars. Almost 70 per cent of Australians buy used cars. If you change one used car to another, you get no benefit. But even if, as higher income Australians tend to do, you go from a used car to a new car—that is, you change over your car, but it is a private purchase, not a fleet purchase—the changeover price is not going to be significantly affected by the GST, because the fall in used car prices is going to be proportionate to the fall in new car prices, because that will be the devaluation of the value of the used car.

An ordinary Australian punter buying a car is not actually going to get a benefit unless they are in one small group which buys a new car without a trade-in. I recently was in that group, so I suppose I should be regretting that I did it so early. At the other end of the market, if you sell a used car and are not going to buy a new car, you will be a loser. In the middle, there will be no net effect, which covers the overwhelming majority of purchases by ordinary Australians. That is a well-known concern.

In the limited time available, I want to say that the same problem can occur and is a cause of great concern in the information technology industry, which is a very important and rapidly growing industry, growing at three times the rate of the economy as a whole. It is an important job generator. There are no transitional arrangements for the computer industry. The bring forward risk is exactly the same.

While the hardware is not going to be manufactured in Australia, when major hardware contracts are deferred, it is going to have significant implications on software suppliers, systems integrators and other service providers around those major contracts. There is a big bring forward problem in the IT industry with job consequences that are quite significant. This has been raised significantly by the Australian Information Industry Association with the government without response.

Conversely, you have a significant problem in housing, which I will just give in one sentence, because I do not want to take up more than my allowable time. The Housing Industry Association has said:

The post-GST drop in new housing starts will be severe and concentrated in the second half of 2000.

That is the very worst time, because it is when I fear we are going to be having a significant downturn in the construction industry, as a consequence of the end of the Olympic construction boom. That is what everybody in the construction industry is saying, and it is a serious problem.

I would like to say something about the impact of e-commerce on these measures. I do not have the time to do that, so I will simply say that it is going to undermine the income generating capacity of all consump tion tax like this. We are signing on to the 1960s wave, just as it is receding.

I will conclude with these remarks in accordance with the agreed timetable. The Australian people had the chance to vote on these measures; the majority of them voted for parties against these measures—they did so particularly and overwhelmingly in the Senate. They voted in majority to say they do not want these measures introduced. They voted for me and for my colleagues to vote against it. I will be doing so, and I call on the House to do the same.