Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
 Download Current HansardDownload Current Hansard    View Or Save XMLView/Save XML

Previous Fragment    Next Fragment
Wednesday, 9 December 1998
Page: 1751

Dr SOUTHCOTT (4:35 PM) —It is a great honour to be able to speak on this bill which is the most far-reaching tax legislation introduced into this House for at least 60 years.

There is no doubt that the subject of tax reform was the major issue in the last election campaign. It should not have been. There is no reason why tax should be the subject of partisan political debate. The reason it was is that the ALP was completely unable to recognise the changes that have occurred in the Australian economy—the increase in services and the decline in goods as a percentage of the economy. So they remain committed to retaining a 1930s-style tax system which puts us in the same league as countries which retain the wholesale sales tax like the Solomon Islands, Swaziland and Pakistan.

Since the parliament has resumed after the election, we have heard three weeks of ques tion time and debate about our new tax system which has essentially focused on which areas are being zero rated and exempted and so on, but has completely ignored the fact that the Australian Labor Party has opposed tax reform at every stage of the game. We have been discussing it for over two years now and they have opposed it at every stage. The Australian Labor Party is now defined by what it opposes. When I read the Australian Financial Review today I found that it is 15 years to the day that the Australian dollar was floated. We should think back to an earlier time when the Australian Labor Party actually believed in economic reform and had economic ideas.

During the period of the Hawke government, they had reforms to the financial system, reforms to protection and even tentative reforms to the labour market which did improve the efficiency of the economy. We now see a Labor opposition that is acting almost as if the Hawke-Keating governments never occurred. It is retreating to a much older style Labor. We need to ask: what is the overriding principle behind Labor's opposition to the GST? If Labor are opposed to the GST, that means they are standing firmly in favour of higher income tax and firmly in favour of the old style 1930s wholesale sales tax.

Listening to some of the speeches in the address-in-reply debate and the speeches in this debate, it is quite clear that the Labor Party do not understand the current tax system that they are seeking to defend, which is their system. There is no high principle involved in Labor's opposition to tax reform. It is brazen political opportunism. We have seen that demonstrated by the fact that there are members of the Labor Party who, when they leave the parliament or the service of the Labor Party, support tax reform.

There are members of the Labor Party who used to support tax reform. Gary Johns—who was a minister in the Keating government, who was elected in 1993 and who opposed tax reform—has now said tax reform is essential and any right-minded government member would not oppose it. Bob Hogg, who ran the campaign against the coalition in 1993, has been helping to advise on the advertisements for tax reform. In The End of Certainty Paul Kelly has revealed that, apart from Paul Keating and Bob Hawke who supported the broad based 12½ per cent consumption tax, the strongest supporters in the cabinet were the Leader of the Opposition, the former Deputy Leader of the Opposition and Senator Susan Ryan.

In fact, income tax now is raising much more of the tax share than it was in 1985. The amount that we are raising from indirect tax, consumption style taxes, is much less. In 1985 the ALP introduced biscuits, ice-cream and savouries into the wholesale sales tax net and they gave no compensation. In 1993 they increased all the wholesale sales tax rates and they gave no compensation. They increased the excise on petrol, alcohol and tobacco. They gave no compensation. They also increased the sales tax on cars from 15 to 22 per cent—again no compensation.

When we were elected in 1996, the ALP had left the equivalent of an 8.1 per cent GST with food zero rated or a 6.7 per cent GST which taxes food, so that is not a huge difference. We are talking about Labor's seven per cent GST versus our 10 per cent GST. We are talking about Labor's tax on goods and services, which is quite inefficient, versus our tax on goods and services, which helps businesses, exports and so on. In fact, when the Labor Party left office in 1996, the changes that they had made during their last three years were raising an extra $3 billion every year. That was having a huge impact on exports.

The wholesale sales tax is very complicated. We saw that last month with the Federal Court decision on frozen yoghurt. Essentially, they have said that yoghurt is tax free and that ice-cream is taxed at 12 per cent. Frozen yoghurt was a difficult case. It had been going for many years. They have decided that, if it tastes like yoghurt and if it has the acidic nature of yoghurt—so you have to measure the pH of the yoghurt—it will be tax free. If it tastes like ice-cream, it will have a 12 per cent wholesale sales tax. These are the differential rates that the ALP want to keep. The real winners under this are lawyers who have a big indirect tax practice.

Sometimes people talk about exempting food. It is ironic that the Australian Democrats, who have talked about exempting food, are the same party who say that our private health rebates should be means-tested because that would be giving a tax rebate to people on higher incomes. If you exempt food, the benefit goes much more to people on higher incomes than people on lower incomes. The top 20 per cent benefit almost three times as much, in gross terms, as people in the bottom 20 per cent.

With regard to a next tax system, the important principles of any tax system are that we should have simplicity, efficiency and equity. Overall our tax changes will see $4 billion less being raised by the Commonwealth. The income tax scales that we will have from 1 July 2000 will be more progressive; that is, the top 20 per cent of incomes will pay more of the burden of income tax and the bottom 20 per cent of incomes will pay less of the income tax.

Indirect tax reform will also address the cash economy and will increase the incentives to save, work, export and invest. By having more productive investment, and by lowering business costs by $10½ billion and export costs by $4½ billion, you can get higher growth and better export performances. I do not think the Labor Party dispute this. They do agree that there are benefits from indirect tax reform; they say they are not as big as we say.

Looking at some of the studies, a 1998 study by the Melbourne institute and the Brotherhood of St Laurence found that indirect tax reform could increase GDP by 3¾ per cent over the long term, and that has an impact on creating more jobs. Salomon Smith Barne Stockbrokers found that GDP would increase two per cent over the long term. Morgan Stockbrokers estimated that, just by having a GST and reforming the indirect tax system, you could create 200,000 jobs in the long term. An OECD study in 1988 found the same.

We are not here to praise the wholesale sales tax; we are here to bury it. We are here to inter the wholesale sales tax. The Labor Party is standing determined to defend it. Not all the Labor members actually understand the wholesale sales tax. It falls very heavily on goods and on manufacturers. Watches, clocks, cameras, video-recorders, tape recorders, radios and televisions are all taxed at 32 per cent. The wholesale sales tax exemption falls on things like horseshoes and horseshoe nails, food for non-domestic birds and toluol. So, if you have polo ponies, the horseshoes and the nails are tax exempt. If you are breeding pheasants—non-domestic birds—to shoot them on your farm, the food for them is tax exempt.

Clothing is tax exempt, but that extends to things like Armani ties. To highlight how old this legislation is, the old legislation, which was only changed in the last couple of years, talked about the clothes that were tax exempt, including such things as jabots—which judges wear—snoods and spats. I am not sure how many people still wear these clothes, but they were actually listed there.

In terms of how far the exemption goes for clothing, in 1982 the Administrative Appeals Tribunal was asked in relation to customs tariffs to consider whether Spiderman and Incredible Hulk outfits were toys or outer garments. If they were toys, they would attract a 32 per cent wholesale sales tax; if they were outer garments, they would be tax exempt. The AAT found that these were fun garments but that they could nevertheless be described as articles of clothing. The tribunal held that, because of the total effect which the outfits enabled the wearer to present to the outside world, they were properly classified as outer garments and not as toys. So we have a system where Incredible Hulk and Spiderman outfits are wholesale sales tax exempt. That is the system that the Labor Party will be voting to retain.

We have a system where sinks are taxed at 12 per cent but the pipes leading to those sinks are not taxed. Soft drinks are taxed at 22 per cent but cordial is taxed at 12 per cent. Pet food is taxed at 22 per cent but if someone goes to the butcher and gets a nice prepared meal for their dog the food is tax exempt. Wedding rings are exempt but engagement rings are taxed at 32 per cent. As I have said before, confectionery, biscuits, savoury snacks and ice-cream goods are taxed at 12 per cent.

The Labor Party look as though they have set the pattern for the next three years. They do not know what they believe in. The tax policy that they took to the last election was a joke. I feel somehow that the Labor Party believe that the last election was like the 1969 one—that was the election where they gained a lot of seats—and that in a subsequent election they will gain more seats and be in government. The Leader of the House was right on election night when he said that it was more like 1984, in that the Labor Party has not done the work in order to work out what their policies should be and what they really believe in. They need to do a lot more work to present viable policies to the Australian people in order to have any hope of getting elected in the future.