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Excluding food won't serve economic or social objectives food industry

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To: Political editor Media Monitors

MEDIA RELEASE Thursday, 4 February 1999 003:99



The Australian Food and Grocery Council (AFGC) supports comprehensive reform of Australia’s taxation system and the introduction of a goods and services tax on uniform terms and on as broad a base as possible, including food.

Appearing today before the Senate'Select Committee.on taxation reform, AFGC's Executive Director, Mr Mitchell H Hooke said7*‘there was never any question that the food industry would figure prominently in the tax reform debate, particularly in any consideration of the

adequacy of compensation to the poor and socially disadvantaged.

In his opening statement to the Committee, Mr Hooke stressed that any ‘special pleading* for sectional interests that could not be justified on economic or social grounds would ultimately only serve to undermine the integrity of any package of comprehensive reforms.

“There is no argument that zero-rating food will provide some compensation to the poor, but for every dollar it provides them it will provide a benefit of at least $5 to the top 80% of income-earners. It is just not an efficient way of ensuring that the social objectives of tax reform are met-r-equity, progressiveness and responsibility for the poor and disadvantaged.

“The focus should be on the adequacy of the compensation package—if you get that right then you can have your cake and eat it too!

“More to the point is that excluding food from the GST base will only serve to render the system more complex, more administratively difficult, and more costly to comply with.

“Furthermore, the loss in GST revenue, the fact that food is not the only ‘necessity of life’, and other industries will promote a choms of me too ‘special pleading’ bids, will unravel the package and undermine its integrity.

“There is simply no desire on our part to support a piecemeal approach to reform of Australia’s taxation system. It is neither in the nation's interests nor our industry’s,” he said.

“The current taxation treatment of the food industry is a joke!

“There is little if any rationale for the complex, highly selective, indeed discriminatory treatment of food and beverages under the current wholesale sales tax (WST) regime, exacerbated by an equally discriminatory, narrowly applied payroll tax. And they are both

taxes on business inputs and exports.

“Notwithstanding the broader socio-economic imperatives of tax reform, our industry’s primary interest in reform lies in replacing the raft of inefficient indirect taxes with an efficient indirect tax.

“We seek to neutralise indirect taxes in terms of their effect on resource allocation, food choices and business competitiveness. This, added to the removal of taxes on business inputs and exports, will significantly improve the international competitiveness of the industry.



“Today we presented to Stage 1 of this Inquiry our modelling research work which identified the inefficient indirect taxes which should be removed as a condition of our support for the introduction of a 10% broad-based, uniform GST.

“On the basis of our modelling work, a 10% GST that raises sufficient revenue to abolish WST, payroll tax and some State financial transaction taxes, and reduce petroleum excise to price neutrality, would temper the one-off price impact on food and beverage products on the

domestic market to an average increase of 3.3%.

“Our modelling work also demonstrated that zero-rating food is neither effective nor efficient in terms of compensating the poor and socially disadvantaged for the mildly regressive impact of a GST across the board.

“However,” Mr Hooke stressed, “we are not naive to the political realities of this process. If the political price to get the Government’s package through the Senate is the exclusion of food from the GST base, then it must be all food.

“There is no reasonable basis to defining food just because of its distribution channels or the extent of its value adding. If food is to be excluded, then all food at the final point of consumption should be out of the GST base otherwise we are back to where we started—with an inefficient, complex, costly system. A tax system that creates: .

■ artificial anomalies in the market - putting companies at a competitive disadvantage, distorting food choices and providing scope for social engineering of dietary behaviour;

■ increased compliance costs on both public sector and private business accounts, exacer­ bated by revenue foregone with reduced voluntary Compliance;

■ increased administration costs as GST tax and GST free goods would need to be continu­ ally identified (referring to Gazetted schedules) for the purposes of product pricing and for filing GST returns;

• incentives to develop products that fall within the classification of non-taxed “food”; and

■ bias against manufacturing or processing in Australia, undermining Australia’s capacity for value-adding through industrial transformation.

“In summary,” Mr Hooke said, “the Government’s proposed package meets the fundamental criteria of good tax design and will deliver against the key tax reform objectives of the AFGC.

“We will present to Stage 2 of the Inquiry in mid March, our recommendations on how the legitimate concerns about the political durability of the compensation package might be remedied, ” Mr Hooke concluded.

The Australian Food and Grocery Council is the peak body representing Australia’s food, drink and grocery companies.

Contact: Mr Mitchell H Hooke, Executive Director or Lina Melero, Public Affairs Director (02) 62731466 or 0417 667 169

Editor's Note: The AFGC submission is now public. Mr Hooke's opening remarks are available as a summary from the AFGC (contact Richard Howes Ph 02 6273 1466).