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Monday, 23 March 1987
Page: 1115


Senator ELSTOB —Is the Minister representing the Treasurer aware of estimates recently published which indicate that a value added tax, known as VAT, levied on all private consumption expenditure except rent at a rate of 8 per cent would raise $11.2 billion in revenue? Is this figure reasonable? How much of that $11.2 billion would be collected from the following areas of private consumption expenditure: First, spending on health; secondly, spending on education; thirdly, spending on rail, train and bus fares; fourthly, spending on postal and telephone services; and, fifthly, spending on domestic gas and electricity bills? What is the sum of these five figures and what is its economic significance?


Senator WALSH —I have seen published recently a claim that a VAT at an 8 per cent rate would raise $11.2 billion in revenue. Indeed, such a claim was made in a paper published by Senator Messner on 20 February this year. That figure is reasonable-indeed, I think it is correct-provided all consumption spending by the household sector, excepting only rent paid, that is every last dollar of consumption spending by the household sector, was included in the VAT base and taxed at that 8 per cent rate. It also includes the heroic assumption that there would be zero tax evasion and avoidance. Of that $11.2 billion total, $870m would be collected on health expenditures-doctors bills, hospital bills, prescriptions and so on. For that one would need to add a couple of hundred million dollars if the doctors union in Canberra had its way and got that $425 a week part time job pay increase that it is trying to extort from the taxpayers. If the doctors got away with that we would need to add another $200m or $300m to the $870m which would be collected from a VAT on medical services. An amount of $190m would be collected from education expenditures, excluding the cost of books bought by students or their parents; $130m would be collected from a VAT on rail, tram and bus fares-a $130m addition to the cost of public transport; $220m from an 8 per cent VAT on post and telephone services; and $340m from a VAT on domestic gas, electricity and fuel bills. If all those items that were identified in the question were added together, some $750m would be collected from those five areas.

The significance of that figure is that the type of consumption tax which advocates of a VAT want, and the type which implicitly was defined in the paper circulated by Senator Messner on 20 February, is very much broader than most people imagine it to be. When most people talk about a VAT or a broad-based consumption tax, they do not anticipate that taxes will be levied on health services-on prescriptions-or that people who are paying a few dollars a week as a fee at the local parish primary school will have an 8 per cent tax added to that fee. They do not expect that pensioners will have 8 per cent added to the admittedly concessional fares that they now pay for public transport; nor do they expect pensioners to have 8 per cent added to their electricity bills while they are crouching over their radiators in a Canberra winter; nor do they anticipate an 8 per cent surcharge on postal and telephone services. In conclusion, for those figures to hold up-for an 8 per cent VAT to yield revenue of that magnitude-it is essential that the base of the VAT cover all the items I have enumerated, as well as a number of others.