Senator PATTERSON (7:20 PM) —I move:

That these bills be now read a second time.

I seek leave to have the second reading speeches incorporated in Hansard .

Leave granted.

The speeches read as follows—

A NEW TAX SYSTEM (COMMONWEALTH-STATE FINANCIAL ARRANGEMENTS) BILL 1999

The Bills I introduce today form the third round of legislation required to establish A New Tax System for Australia. The reform of our tax system, the most comprehensive since Federation, provides a rare opportunity for the Government to address inefficiencies in the way we conduct our affairs.

The first part of the Government's legislation was introduced in November 1998 to make private health insurance more affordable. The Government introduced a universal 30 per cent benefit to be claimed against the cost of health insurance contributions as either a rebate on tax or a direct payment from the Government.

A second round of legislation was introduced in December 1998 to abolish the outdated Wholesale Sales Tax and replace it with a broad based Goods and Services Tax (GST) to be levied at 10 per cent as from 1 July 2000. Included in this legislation were Bills to introduce $13 billion of annual personal income tax cuts; the provision of powers to the Australian Competition and Consumer Commission (ACCC) to ensure that it can monitor prices for 12 months before the GST starts and 2 years after; a tightening of the reporting of fringe benefits to prevent some higher income earners taking advantage of Government assistance designed for low income earners; and bonuses for older Australians.

Madam President, the Bills before us today represent a further major step in comprehensive reform of our tax system. With this third round of legislation, the Government puts forward landmark reform of the Commonwealth-State financial arrangements. It also includes further reforms to the way luxury cars and wine are taxed, removing inefficiencies and smoothing the transition to the modern indirect tax system endorsed by the Australian people in the last election.

Reform of Commonwealth-State financial arrangements

Madam President, let me emphasise that the Commonwealth, the States and the Territories are in agreement that the current financial relationship between levels of government must be reformed. Australia needs a stronger and more productive federal system for the next century. This will help deliver it.

A key feature of the new tax system is the Commonwealth's offer to the States and Territories of a stable and growing source of revenue. By passing all the revenues from the GST to the States and Territories, the Commonwealth will provide the States and Territories with a superior growth tax that will allow them to remove nine of their current taxes. They will abolish Financial Institutions Duty, Debits tax, a number of business-related stamp duties and accommodation taxes.

This will reduce the cost of financial transactions and increase Australia's attractiveness as a major financial centre.

The new arrangements mean that the States and Territories will no longer have to rely on inefficient taxes to raise their own source revenues, and will have greater independence from Commonwealth funding.

They will no longer have to rely on general purpose grants from the Commonwealth which have been the subject of much debate each year at the annual Premiers' Conference.

The Prime Minister and the Treasurer met with all Premiers, Chief Ministers and State Treasurers last November to discuss these new arrangements. An historic agreement was reached at this Special Premiers' Conference, covering principles that will guide the implementation of far-reaching reforms to Commonwealth and State taxation and to federal financial arrangements.

GST Revenues

At the Special Premiers' Conference, the Commonwealth committed to legislate to provide all the revenue from the GST to the States and Territories. The A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999 provides a standing appropriation of the GST revenues to the States and Territories. As indicated by the Government in August 1998, these revenues will be distributed to the States and Territories according to the principle of horizontal fiscal equalisation. The Bill provides the basic formula that will determine this distribution.

These reforms will replace the current system of Financial Assistance Grants by the Commonwealth to the States and Territories. These grants will be abolished as of 1 July 2000.

Transitional assistance

The Commonwealth also guaranteed that during the initial period following the introduction of the GST, a period not less than 3 years, the Government will pay transitional assistance to the States and Territories in each of these years to ensure that they are no worse off financially than they would have been under the current arrangements. Payments under this aggregate funding guarantee will be made so that the budgetary position of each State and Territory will be no worse off in each year.

Both the GST revenue and transitional assistance payments will be freely available for use by the States and Territories for any purpose. These arrangements will bring enhanced revenue security to the States and Territories. It will ensure that they can fund a sustainable level of quality services for hospitals, for schools, for roads and for law enforcement.

Other payments

The Bill also includes provisions to ensure that States and Territories will retain their existing entitlements to franchise fee windfall tax and competition payments.

Lock-in of GST rate and base

Madam President, I would like to turn to the process for locking-in the GST rate. The Commonwealth has indicated very clearly that no change to the GST rate will be implemented without the unanimous support of all the States and Territories and both houses of the Commonwealth Parliament. The Bill clearly provides this lock-in mechanism. The mechanism will be backed by the Commonwealth-State Intergovernmental Agreement as well as by legislation.

The introduction of a GST is a major undertaking and like the introduction of any major tax, provisions must be made for fine-tuning. The Government expects that some administrative changes or minor adjustments may be required in the early months of operation, generally having regard to the need to protect revenues. It would be irresponsible for the Government to ignore this. As the GST revenue will be directed to the States and Territories, the Bill ensures that the States and Territories will be involved if changes to the GST base prove necessary.

However, time will be of the essence in the first year of operation. Therefore, to ensure that action is taken as quickly as necessary, the Commonwealth will reserve the right in the first year to introduce legislation or regulation that may impact on the GST base but is necessary for the smooth and proper operation of the GST. This right is reserved only for changes which are of an administrative nature, necessary to facilitate minor adjustments to the GST and are made having regard to the need to protect the revenue of the States and Territories. After the first 12 months, any change to the base will be subject to the approval of the States and Territories and both houses of the Commonwealth Parliament.

The 10 per cent GST rate is locked-in with the passage of this legislation.

Intergovernmental Agreement

The Bill before you today will result in a major transformation of the Commonwealth-State financial arrangements. It brings a new era of cooperation between the Commonwealth and State and Territory governments.

Reforming the Commonwealth-State financial arrangements is a major undertaking. However, not all aspects of this reform are appropriately addressed through legislation. Other mechanisms are better suited for arrangements between governments. Accordingly, the Commonwealth will enter into an Intergovernmental Agreement with the States and Territories with respect to the reform of our financial arrangements.

This agreement, which will be discussed at the forthcoming Premiers' Conference, will spell out the detailed arrangements for the implementation of the reforms to Commonwealth-State financial relations.

In addition to outlining the Commonwealth commitments reflected in these Bills, the Intergovernmental Agreement will detail the obligations which the States and Territories are assuming as part of the new arrangements. In particular, these obligations will include:

the repeal of nine inefficient State and Territory indirect taxes;

the assumption by the States and Territories of responsibility for the funding of local government; and

the operation of a First Home Owners Scheme by the States and Territories.

Madam President, national indirect tax reform means that the financial arrangements relating to local government can also be reformed. The revenues from the GST base will be sufficient to also fund the Commonwealth's current contribution to local government.

Therefore, starting in July 2000, responsibility for ongoing financial assistance to local government will be transferred to States and Territories.

States and Territories will be required to continue to provide general purpose assistance payments to local government at a level which is at least equal to that which would have been paid under the current funding arrangements.

In return for the GST revenue, States and Territories have also committed to take on specific responsibilities in assisting homebuyers with the purchase of their first home. Starting in July 2000, States and Territories will assist first homebuyers through funding and administering a new First Home Owners Scheme, designed to offset the impact of the introduction of a GST on the price of new homes.

Consequential legislation

Madam President, I also introduce as part of this package of legislation the A New Tax System (Commonwealth-State Financial Arrangements—Consequential Provisions) Bill 1999 . This Bill repeals the States Grants (General Purpose) Act 1994 , the legislation governing the current Commonwealth-State financial arrangements. It also amends the Local Government (Financial Assistance) Act 1995 to enable a smooth transition of payments in 1999-2000, and provides for its repeal on commencement of the A New Tax System (Commonwealth-State Financial Arrangements) Bill 1999 .

The Local Government (Financial Assistance) Act 1995 provides for financial assistance for local government by means of grants to the States and the Northern Territory.

As I mentioned before, under the Government's reform package, these financial assistance grants are to be abolished from 1 July 2000 and the States and Territories will take over responsibility for providing this assistance to local government from GST revenue.

The Commonwealth recognises that local government needs certainty in its funding arrangements and has guaranteed that payments to local government will be in accordance with existing conditions. The States and the Northern Territory will make payments at least equal to the amount local government now receives under the financial assistance grant arrangements, adjusted each year for population and inflation movements. These are non-negotiable conditions for the payment of GST revenue to the States and Territories.

The States and Territories are responsible for local government under the relevant legislation and it is therefore appropriate that they resume financial responsibility for local government. The new arrangements will be set out in more detail in the Intergovernmental Agreement to be considered at the forthcoming Premiers' Conference.

Conclusion

Madam President, the third round of legislation I am introducing today represents a major step towards establishing a modern tax system for Australia.

The reform of Commonwealth-State financial arrangements will improve the financial position of the States and Territories by providing them with a more robust tax base which can be expected to grow over time.

At the same time, it will allow the States and Territories to abolish bank transaction taxes, a number of stamp duties and accommodation taxes. The cost of financial transactions will be reduced and Australia's attractiveness as a major financial centre enhanced.

Full details of the measures in the Bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the Bill to the Senate.

A NEW TAX SYSTEM (COMMONWEALTH-STATE FINANCIAL ARRANGEMENTS-CONSEQUENTIAL PROVISIONS) BILL 1999

With the Government's introduction of A New Tax System , the current arrangements for provision of Commonwealth financial assistance to the State, Territory and local governments will change. This Bill repeals the two Acts that currently provide this assistance—the States Grants (General Purposes) Act 1994 and the Local Government (Financial Assistance) Act 1995 . The second of these Acts falls within the responsibility of the Minister for Regional Services, Territories and Local Government and in presenting this Bill I therefore also do so on his behalf.

Under the proposed reforms, all Goods and Services Tax (GST) revenue will be distributed to the States and Territories, and Financial Assistance Grants (FAGs) will be abolished. The States Grants (General Purposes) Act 1994 , which appropriates funding for payments of FAGs to the States and Territories, will be repealed on commencement of A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 .

States and Territories have provided their agreement in-principle to assuming responsibility for local government funding. This Bill therefore amends the Local Government (Financial Assistance) Act 1995 to enable a smooth transition of payments in 1999-2000 and provides for its repeal, also on commencement of A New Tax System (Commonwealth-State Financial Arrangements) Act 1999 .

The Local Government (Financial Assistance) Act 1995 was designed for the continual payment of grants, with adjustments in respect of one year's payments being made in the following year. This adjustment process will not be available after 30 June 2000. This Bill therefore amends the Act to provide for payments in the final quarter of 1999-2000 to be paid by monthly instalments, with the instalment adjusted to reflect the final determination of the local government grant for that year.

In addition, notwithstanding the repeal of the Act, State Treasurers will be required to report to the Minister for Regional Services, Territories and Local Government that the 1999-2000 payments have been passed on to local government and will need to provide a certificate by the State Auditor-General to that effect. As is currently the case, the Minister will be required to report to the Parliament on the operation of the Act in 1999-2000 as soon as practicable after 30 June next year.

Full details of the measures in the Bill are contained in the Explanatory Memorandum circulated to honourable senators.

I commend the Bill to the Senate.

A NEW TAX SYSTEM (WINE EQUALISATION TAX) BILL 1999

This bill will introduce a wine equalisation tax. From 1 July 2000 it is proposed that the nation have A New Tax System which will abolish wholesale sales tax (WST) and replace it with a goods and services tax (GST) at the rate of 10 per cent. Currently wine products are subject to wholesale sales tax at the rate of 41 per cent.

The wine equalisation tax means that after the abolition of WST and its replacement with GST prices are equalised back to avoid dramatic and dislocating price falls.

The Bill will apply to wine products including non-grape wines, cider, perry, mead and sake.

The government has consulted industry and taken advice from industry representations. The bill applies to a broader range of products than outlined in A New Tax System . In particular, cider is included and will remain excise free.

From 1 July 2000 the wine equalisation tax will be levied at a rate of 29 per cent.

This will achieve the relative price impacts on cask and bottled wine outlined in our tax reform policy endorsed by the Australian public at the last election. In line with that policy the price of a typical four-litre cask of wine need only increase by the estimated general price increase associated with indirect tax reform; that is, 1.9 per cent.

The wine equalisation tax payable will be incorporated into the net amount calculation under the GST so that taxpayers do not have additional payment and administrative obligations.

The tax will apply to assessable dealings and importations and a quotation system will ensure that the incidence of the tax is delayed until the final sale at the wholesale level or an equivalent transaction.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.

A NEW TAX SYSTEM (WINE EQUALISATION TAX IMPOSITION—GENERAL) BILL 1999

This bill will impose wine equalisation tax, to the extent that it is neither a duty of excise nor a duty of customs, at the rate of 29 per cent.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.

A NEW TAX SYSTEM (WINE EQUALISATION TAX IMPOSITION—CUSTOMS) BILL 1999

This bill will impose wine equalisation tax, to the extent that it is a duty of customs, at the rate of 29 per cent.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.

A NEW TAX SYSTEM (WINE EQUALISATION TAX IMPOSITION—EXCISE) BILL 1999

This bill will impose wine equalisation tax, to the extent that it is a duty of excise, at the rate of 29 per cent.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.

A NEW TAX SYSTEM (LUXURY CAR TAX) BILL 1999

This bill will introduce a luxury car tax in place of the current 22 per cent wholesale sales tax that applies to cars generally and the 45 per cent wholesale sales tax applying to luxury cars. From 1 July 2000 it is proposed that the nation will have A New Tax System . The wholesale sales tax will be abolished and replaced with goods and services tax at the rate of 10 per cent. The price of cars will fall when wholesale sales tax is abolished. If the government took no additional action the price of luxury cars would fall dramatically more than non-luxury cars because they are currently subject to wholesale sales tax at the rate of 45 per cent.

The luxury car tax will make up for the removal of the wholesale sales tax luxury loading.

From 1 July 2000 luxury car tax will apply at the rate of 25 per cent. The tax will be applied to the portion of the price of a luxury vehicle above the income tax depreciation limit. The limit is currently $55,134. The luxury car tax will be payable in addition to the GST but on a GST exclusive price. It will be incorporated into the net amount calculation under the GST so that taxpayers do not have additional payment and administrative obligations.

A quotation system will ensure that the incidence of the tax is delayed until the car is sold at the retail level. The luxury car tax will not apply to the private sale of motor vehicles by unregistered persons.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.

A NEW TAX SYSTEM (LUXURY CAR TAX IMPOSITION—GENERAL) BILL 1999

This bill will impose luxury car tax, to the extent that it is neither a duty of excise nor a duty of customs, at the rate of 25 per cent.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable senators.

I present the explanatory memorandum, and I commend the bill to the Senate.

A NEW TAX SYSTEM (LUXURY CAR TAX IMPOSITION—CUSTOMS) BILL 1999

This bill will impose luxury car tax, to the extent that it is a duty of customs, at the rate of 25 per cent.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.

A NEW TAX SYSTEM (LUXURY CAR TAX IMPOSITION—EXCISE) BILL 1999

This bill will impose luxury car tax, to the extent that it is a duty of excise, at the rate of 25 per cent.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.

A NEW TAX SYSTEM (INDIRECT TAX ADMINISTRATION) BILL 1999

This bill will amend the Taxation Administration Act 1953 to bring the wine equalisation tax and the luxury car tax within the administrative powers exercised by the Commissioner of Taxation in respect of taxation laws.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable senators.

I commend the bill to the Senate.

A NEW TAX SYSTEM (WINE EQALISATION TAX AND LUXURY CAR TAX TRANSITION) BILL 1999

This bill sets out special rules needed to ensure a smooth transition from the existing wholesale sales tax applied to wine and luxury cars, to the new wine equalisation and luxury car tax arrangements.

A special goods and services tax credit will be available for sales tax already paid on stock that becomes subject to wine equalisation tax. The bill will also provide that the proposed luxury car tax is not payable on cars sold by retail before 1 July 2000.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable senators.

I present the explanatory memorandum and I commend the bill to the Senate.

Debate (on motion by Senator O'Brien) adjourned.