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Thursday, 25 March 1999
Page: 3295


Senator SHERRY (3:10 PM) —I move:

That the Senate take note of the answers given by the Assistant Treasurer (Senator Kemp), to questions without notice asked by Senators Bishop and O'Brien today relating to the proposed new tax system.

The answers relate to the goods and services tax and the issue of the black economy—certainly not to the superannuation surcharge. Senator Kemp's total failure in that area is obvious to everyone in the industry and the media and there is no need to address that issue, but Senator Kemp totally failed to adequately answer the questions relating to the black economy.

One of the constantly touted themes of the Liberal government in respect of a goods and services tax is that it will crack down on the black economy. Senator Kemp said, `One of the ways to tackle the cash economy is to tackle tax reform.' Of course, we all know what that means: the introduction of a goods and services tax.

The question from my colleague Senator Bishop went specifically to the problems in the housing construction industry in New Zealand and Canada, where after the introduction of their goods and services taxes there was significant evasion—in fact, a significant increase in the black economy as a result of the equivalent of a goods and services tax.

Why does this happen? The great problem in the housing industry and other industries as well is that the goods and services tax is a tax primarily on the labour content of that service provision. In the housing industry, the considerable majority of the price that is charged relates to the cost of labour, and this is the area where all the evidence internationally points to the most significant level of evasion of a goods and services tax.

Mr Damien Walshe, who is a partner of Arthur Andersen, referred to `evasion with a GST VAT, especially in a labour-intensive job'. He said:

When you have relatively low levels of goods being inputed to a service provision, the opportunity for the service provider not to declare income is where the real problem lies.

And this is one of the problems with a GST, and in particular with the housing industry. A study in Canada by the Ontario state government found that their GST led to `widespread participation in the underground economy', causing lost revenue of $Can2.3 billion. So the central argument advanced by this government, that a GST will crack down and reduce the black economy, is false. There is no evidence that that is the case, and in fact there is evidence to the contrary from Canada, New Zealand, Europe and the United Kingdom that the black market, as it is known, will increase.

There was an interesting article in the Sunday Times of August 1998. The Henley Centre, a consumer consultancy which interviewed 1,000 adults, carried out what is called a sensitivity sample, and they found that Britain's black economy is booming. This was also confirmed by European Union economists, who estimated that the black economy in Europe—bearing in mind that every country in Europe has a VAT or a GST of varying levels—was expanding and could now account for 16 per cent of the European Union's gross domestic product.

In respect of question 6, there are some effective ways at present under the Tax Administration Act of 1953 to identify people who are engaged in the black economy, and this section will be used in respect of the implementation of a goods and services tax. Senator Kemp, the Assistant Treasurer, said very firmly:

The answer is yes. They will be used appropriately. We have section 8U of the Tax Act of 1953 to crack down on the black economy.

Then, what do we hear from the Treasurer, Mr Costello, on Triple J radio last Thursday? He advised a young person who rang in and who was working cash-in-hand to effectively ignore that section of the tax act. The Treasurer is telling the nation, `We are going to crack down on the black economy,' but he effectively advised the person who rang in not to worry about it—not to worry about section 8U of the tax act. So what hope have we got, if a GST comes in, of effectively cracking down on the black economy? (Time expired)