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Tuesday, 8 February 2005
Page: 19


Senator MURRAY (1:35 PM) —I too intend to speak on the Tax Laws Amendment (Long-term Non-reviewable Contracts) Bill 2004 and the other three bills being dealt with cognately. I guess at one time or another all of us are guilty of this with pet issues, but I must say at the outset that sometimes—through you, Madam Acting Deputy President—Senator Sherry and other members of the ALP, I think of you fighting a war that is long lost. I am almost reminded of those apocryphal magazine stories of some poor Japanese soldier suddenly emerging from a jungle 10 years after the war, ready to carry on and fight his battle. I think the GST is now well accepted in the community. I note that in Western Australia the cornucopia of riches that is available to both major parties contesting government is amply contributed to by GST funds. That enables them, of course, to make terrific offers on infrastructure, police, health and education. If ever you speak to the Labor members of state governments, as I do, you will know that the very last thing they ever want the coalition government or any other government to do is to get rid of the GST.

It is a great tribute to the coalition and the Democrats that we had the courage to introduce and support such tax reform. As I said, that battle is over and you need to move on. In fact, I guess you are moving on because, having made your criticisms, you nevertheless will support the bill—


Senator Sherry —Five years on.


Senator MURRAY —Yes, it has taken you five years to accept it, I suppose. But I am pleased to see it. I get distracted and I am sure we will have this jousting for many years to come. The Tax Laws Amendment (Long-term Non-reviewable Contracts) Bill 2004 amends the A New Tax System (Goods and Services Tax Transition) Act 1999 so that parties who entered into a long-term contract prior to 8 July 1999 have access to an arbitrator to enable negotiations to take account of the GST’s impact on those contracts after 1 July 2005. On 1 July 2005 the five-year transitional rules that ensured no party was disadvantaged will come to an end.

In one respect I agree with some remarks of Senator Sherry: this matter could have been brought on earlier and could have been dealt with for the benefit of the parties concerned. It is not the Senate’s fault that it was delayed. One thing I am increasingly irritated about—and I want to join the Hon. Bob Hawke in giving the media a clip around the ear—is the media’s continual and automatic acceptance of the coalition’s mantra that the Senate has endlessly held up bills. That is not true. It is the government that decides how many sitting days there will be and it is the government that decides which bills will be before us. When those bills are before us, you will find that the Senate has dealt with them. There are very few bills in fact that have been held up. On Sunday, yet again I heard a senior commentator saying ‘and all those bills that the Senate has held up’. Which bills? The media will immediately mention the unfair dismissal bill—yes. Telstra, yes. Any others, folks? There are perhaps a couple, perhaps seven but certainly fewer than 10.

It is about time that the media started to behave like a media and give the government a run-in every time they claim that the Senate in its role has been obstructionist and has been holding up legislation. Ask the next question: ‘All right, Minister, which bills? Name them. Name when they were held up.’ Ask them why they did not have an extra sitting week, as we Democrats ask for many times. Ask them why bills were not put on the Notice Paper, when they have the entire power to do so.

On 1 July 2005, the five-year transitional rules that ensured that no party was disadvantaged will come to an end. This bill is necessary because the legislation implementing the GST recognised that there were numerous pre-existing contracts where the supply was to be made after 1 July 2000. The prices set under these contracts were most likely negotiated without reference to the GST regime. If the GST had applied immediately to these contracts, suppliers would have had to pay the GST but would not have had an opportunity to pass on these costs to the recipients. Further, recipients would have been able to claim the GST input credit without paying a price for these goods that included the GST paid by the supplier. So the essential problem was that one party would be advantaged and one party would be severely disadvantaged.

Consequently, section 13 of the GST transition act allows supplies under a pre 8 July 1999 contract, or a pre 2 December 1998 contract where the recipient was not entitled to a full input tax credit, to remain GST free until either the first opportunity for review of prices under that contract or 1 July 2005, whichever date arose first. After 30 June 2005 this transition period finishes and under current legislation all goods and services supplied under pre 8 July 1999 contracts will become liable for the GST. As noted above, suppliers may face the situation where they are liable for the GST but have no means by which to recover this cost from the recipients of those supplies. If the arbitration mechanism fails to produce a satisfactory outcome to the supplier, these amendments require a recipient to pay any GST obligation on these transactions. Where the recipient agrees to a change in consideration or accepts an arbitrated offer for a change in consideration or where no arbitrated offer has been made and no agreement reached, the supplier remains liable to pay the GST.

The government has had five years to address this issue. On 3 May 2000 the Treasurer issued a press release announcing that the government would introduce measures to ensure that there was no disadvantage to either supplier or recipient after the transition period ended. But it took until 29 October 2004 for the Minister for Revenue and Assistant Treasurer to draft the legislation and release it. I am aware that this government have at times been able to produce legislation on a 24-hour call. We know they can do it. My view is that obviously the government did not regard this legislation as a high priority and have done it in their own time.

This legislation was then introduced into the House on Tuesday, 7 December 2004. The Democrats were then privately asked to support the bill being rushed through the Senate by Thursday, 9 December. The Labor Party were unwilling to rush it through. They were not aware of the bill. They had not considered all the issues. As well, both Labor and the Democrats were dealing with other pieces of legislation. It is necessary, given that Labor likes to work its legislation through caucus and the Democrats through party room, that ample notice is given when a bill is to be dealt with. However, it was always the case that the Democrats would support this legislation, and the parties concerned knew that that was the case.

After looking at this bill over the Christmas period, we did take on board the concerns of the Property Council that there was some uncertainty in its operation. Specifically, there did need to be some definite time frame for the offer period. That is a very common feature of contracts, as Minister Coonan would know as a former barrister—I presume she is still a barrister—and it is a very necessary constraint so that things are done in time.

The Labor Party have drafted an amendment to this effect. I have seen some correspondence from the very able Peter Verwer of the Property Council stating that the proposed amendment provides much-needed certainty. That particular amendment does make sense to the Democrats. We have not had any negative feedback from those concerned in the industry and we will be interested to see what the government’s attitude is to that minor and clarifying amendment.

On the subject of the GST, I would like to remind the Senate that the recently released mid-year economic outlook shows that the states will receive $35.2 billion in GST funding in 2004-05. This year, the states will have $1.94 billion more revenue from the GST than they would have had under the previous system of financial assistance grants and the state taxes that were abolished at the time of tax reforms. All of us must recognise that the primary role of parliaments is to ensure that they deliver the goods and services that are legitimately needed by Australians. It is a primary role of federal government to ensure that the states are able to attend to their duties successfully, particularly in the areas of the environment, health, education, and law and order. Therefore, the GST has provided much more certainty as a growing tax base than the wholesale sales tax—that limited consumption tax that only applied to goods and not services.

The state governments owe the Democrats a big thankyou. One or two of their ministers have whispered that in my ear but they have not said so publicly and I will not die waiting for it. Not only that, but the federal government is also forecasting massive surplus budgets in the coming years, the Australian economy remains strong, and inflation, unemployment and interest rates are either relatively low or low. The Democrats as a party have taken a lot of pain to deliver Australia a lot of gain.

I am going to repeat some remarks I have made before, but I do note some newspapers again stating that the GST should be revisited to apply to basic food. In response to that, the Treasurer made it very clear that he was not interested in that proposition. Some of the very newspapers that push that boat forget to remind their readers that at the time of the original debate those newspapers were asking to be exempt from the GST themselves. That is a little fact that is conveniently left out of the commentary. Now and again I write a letter to the editor reminding them of that and miraculously it does not get printed. It is always wise to keep a history of these things.

Some of these editorial writers and advocates imply that food is the only thing which is GST-free, but I want to persistently remind people that the coalition decided on extensive GST exemptions for dwelling rentals, health services, education, financial services and exports, all of which total well over 20 per cent of GDP. So, right from the start, the coalition advocated that one in five consumer dollars should not be subject to the GST, and we added basic and fresh food to that. It was not the only exemption or even the most important exemption. The Democrats agreed with the coalition’s proposed exemptions. We then broadened them to include basic and fresh food, which is consistent with GST/VAT systems the world over. We also negotiated extended exemptions in the health, education and charitable services sectors.

I freely admit that we could have done better. Undoubtedly, the government could have done better too. Everybody concerned could have done better, particularly the Labor Party, because if they had entered into the discussion with more principle and less politics we would have got somewhere. I will never forget that the Labor Party called a division and voted three times to tax food under the GST. It is on the record in the Hansard. Overall, I will say again and again that, despite the angst it has caused my own party, this was a very good outcome in Australia’s national interest.

Finally, I would like to briefly comment that we know the Treasurer is likely to have a large—perhaps huge or perhaps massive—surplus in the next few budgets he will manage, and he will be tempted to provide tax cuts. By the way, I agree with the Labor Party that the GST should be recorded as a Commonwealth tax; do not forget that I have put that on the record many times. Tax cuts of themselves are not a bad thing, but the Democrats would always say that first we should make sure that our health, education and environmental systems are catered for. If you are then going to look at tax cuts, the priority should be low-income earners. The priority should be to increase the tax-free threshold from its ridiculously low $6,000. This would provide a fair and equal tax cut to all Australians as well as potentially reducing some of the effective high marginal tax rates paid by those moving from welfare to work.

Tax cuts right now are a big agenda item because the backbench of the coalition have decided to flex their muscles and have an opinion on this. We support their approach in that it is creating a debate, but we stress that the principles we stand by are: firstly, income tax reform should be structural and permanent; and, secondly, it needs to be prioritised over a number of years. We say that the first priority is low-income earners, which means that, firstly, you have to pay attention to tax-free thresholds; secondly, you should pay attention to tax indexation; and, thirdly—only thirdly—would you then look at raising the upper rates. We do not object to the idea that the upper rate should be raised at some time, but this is not the time. If the Labor Party sit on the fence on this one they will be doing themselves a disservice.

We think that to provide another exclusive tax cut to high-income earners would be divisive in Australia, and it would certainly not be supported by the Democrats. The Labor Party might be tempted to fold again on those principles. We would urge them, under their new leadership and with their new mood, to in fact attend to the debate and attend to the issue of permanent structural income tax reform, which will get us away from the triennial debate about what goodies you dish out at election times and give us some certainty and security—which is, incidentally, what the coalition have provided on the consumption tax side. With those concluding remarks I confirm that the Democrats will be supporting this bill.