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A New Tax System (Trade Practices Amendment) Bill 1998
Bills Digest No. 81 1998-99
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
A New Tax System (Trade Practices Amendment) Bill 1998
â¢ Prohibit the charging of unreasonably high prices (price exploitation) for the supply of goods having regard to the New Tax System changes
The economic model that the Government has used to calculate the effect of the GST on prices assumes that everyone will pass on changes in costs and prices to the consumer; the reduction and abolition of taxes, including the Wholesale Sales Tax (WST), will moderate the impact of the GST by reducing prices; and competitive pressures will ensure that a fall in the tax rate will flow through to consumer in the form of lower prices. The estimated result is an inflationary effect of only 1.9% in the year the GST is introduced.(1)
The implementation of a 10% goods and services tax could potentially lead to retailers profiteering from the change by:
â¢ failing to reduce the price of an item on which the amount of tax paid falls because the GST payab le is less than the total WST previously paid in respect of that item, or
â¢ increasing the price of an item by more than the actual price effect of the GST on that item.
In an attempt to ease consumer fears, the Treasurer, the Hon Peter Costello MP, announ ced on 2 August 1998 that the ACCC would be asked to monitor prices in the 12 months leading up to the introduction of the GST and afterwards. On the Seven Network’s Face to Face program, he said:
So what we will be doing is we will be asking the Australian Competition Commission, with special transitional powers, to increase its monitoring and surveillance in the twelve months leading up to the tax change and thereafter; to be monitoring prices generally. And we will provide it with powers where people unfairly use tax changes to try and push up prices, to take action against that under the Trade Practices Act.
It was also announced that companies that fail to pass on tax savings via lower prices once the GST starts will be liable for $10 million in fine s.(2)
This Bill inserts new Part VB into the Trade Practices Act 1974 . Proposed new section 75AU prohibits ‘price exploitation’. A corporation engages in price exploitation if:
â¢ it makes a regulated supply - a supply between 1 July 1999 and 1 July 2000 of certain luxury items or any item between 1 July 2000 and 1 July 2002(3)
â¢ the price of the item is unreasonably high, having regard only to the new tax system changes (i.e. the imposition of the GST and abolition of WST)
â¢ that unreasonably high price is not attributable to the supplier’s costs, supply and demand conditions or any other relevant matter.
The ACCC is empowered to formulate guidelines about when prices may be regar ded as unreasonably high ( proposed new section 75AV ). If the ACCC regards a corporation as having engaged in price exploitation, it may issue a notice to the corporation to that effect. In any prosecution of a breach of section 75AU , such a notice is prima facie evidence of a breach ( proposed new section 75AW ).
Proposed new section 75AX will allow the ACCC to issue notices which specify the maximum price that, in the ACCC’s opinion, may be charged for an item. It may issue such a notice if it considers that doing so will aid the prevention of price exploitation.
The Bill also gives the ACCC a price monitoring role for either or both of the following purposes:
â¢ To assess the general effect of the imposition of the GST and abolition of the WST
â¢ To assist in considering whether price exploitation has occurred ( proposed new section 75AY ).
The ACCC has that role from 1 July 1999 to 1 July 2002.
As an adjunct to the power to monitor prices, the ACCC may require a person to provide it with specified information relating to the setting of prices that it considers will be useful in price monitoring.
The ACCC must report quarterly to the Treasurer about the ACCC’s operations under Part VB ( proposed new section 75AZ ).
Item 7 of the Schedule amends section 76 of the Trade Practices Act 1974 , which deals with pecuniary penalties. The effect of the amendment is to make a breach of section 75AU punishable by a penalty of up to $10 million where the breach is committed by a corporation or $500 000 where the breach is by an individual. Item 9 will make it possible to obtain an injunction under section 80 of the Trade Practices Act 1974 where a person has breached or is proposing to breach section 75AU .
Th e limits on the Commonwealth’s constitutional power mean that whilst it can implement price monitoring in respect of goods sold by corporations and prohibit price exploitation by corporations, it can’t easily, if at all, implement those measures in respect of goods sold by businesses which are not run by corporations, i.e. sole traders and partnerships (usually smaller businesses).(4)
For that reason, it is proposed that the States and Territories will be able to implement a uniform New Tax System Price Exploitation Code, which will essentially give the ACCC the same powers and functions as Part VB, but in respect of individuals rather corporations.
Proposed new section 150M provides that the object of Part XIAA is ‘to facilitate the application of the New Tax System Price Exploitation Code by the States and Territories’.
The New Tax System Price Exploitation Code is comprised of an amended version of Part VB which refers to persons rather than corporations and any regulations and guidelines made in respect of Part VB.
The issue has arisen as to whether retail outlets will be expected to maintain the same dollar margin when pricing their goods or whether price the ACCC will demand a constant percentage mark-up.(5) Presumably, issues such as this will be dealt with by guidelines to be issued by the ACCC.
1. Gome, A. ‘Profiteering and a GST’, Business Review Weekly , page 58, 31 August 1998.
2. Buffini, F. ‘GST cheats face ACCC fines of $10 Million’, Australian Financial Review , page 13, 18 December 1998.
3. The ‘luxury items’ are those items referred to in items 4 to 14 of Schedule 5 of the Sales Tax (Exemptions and Classifications) Act 1992 , which are:
4. tie pins, cuff links etc
5. goods made of precious metals
8 . binoculars
10. photographic enlargers
11. projectors and viewing equipment
12. tape recorders, video recorders, video cameras, radios, televisions
13. picture tubes for televisions
14. slot machines for gambling and amusement.
4. Use of the Trade and Commerce power is subject to similar practical limitations.
5. Switzer, P. ‘Confusion on GST price monitoring’, Australian , page 35, 14 September 1998.
20 January 1999
Bills Digest Service
Information and Research Services
This pap er has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document. IRS staff are available to discuss the paper's contents with Senators and Members and their staff but not with members of the public.