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Tax negotiations - the way forward



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Business Coalition for Tax Reform 16/379 Collins Street, Melbourne Vic 3000 Telephone: 03 9610 4203 Facsimile: 03 9610 4223 Web Site: wwv-.bcrr ore

25 May 1999

TAX NEGOTIATIONS - THE WAY FORWARD

The Business Coalition for Tax Reform (BCTR) met yesterday in Sydney to consider the current discussions between the Government and the Australian Democrats.

Mr Stan Wallis, spokesperson for the Business Coalition, said "The meeting strongly reaffirmed our commitment to comprehensive tax reform. There is no question that we need to get our tax system in much better shape for the years ahead. If we get the fundamentals right we can have a fairer tax system that improves our ability to attract investment and to create jobs.”

"There is also no question the best possible tax reform measures would include replacement of as many of our existing indirect raxes as possible with a single rate tax on all goods and services. This would include food and food services."

Mr Wallis said "At the same time the Business Coalition for Tax Reform recognises the political realities of the present situation. If these realities mean the Government does reconsider the weighting of food in the indirect tax base, fundamental principles of good tax policy would suggest that three conditions should apply:

■ All food, including restaurant and take-away food, should be taxed at a single rate, ■ All the State and Territory indirect taxes currently earmarked for removal should still be removed, ■ The ongoing revenue security required by the States in Federal/State financial arrangements should

"We will examine any proposals to modify the tax treatment of food according to these principles.”

“In taking^this position the BCTR has indicated that it is adamantly opposedtotaxing different foods at different rates - the “hybrid” or “Irish” approach to the treatment of food.

Mr. Wallis noted “should the current negotiations produce an outcome under which all food would be taxed at a single rate, then at a rate of 5% there would be no significant effect on existing overall food prices.”

"Today I wrote to the Prime Minister on behalf of the BCTR drawing his attention to these points and asking his government to consider the very serious implications of proposals to tax some food at one rate and other food at a different rate."

"The BCTR position is spelt out in greater detail in the letter which I attach to this release."

be assured.

Contact.1 ,:

Stan Wallis: 03 9679 1032 Campbell Anderson: 0417512187 Mark Paterson: 02 6270 8004 0419215037 David Buckingham: 03 9610 4222 0419004200

Business Coalition for Tax Reform16/379 Collins Street, Melbourne Vic 30C0 - ­Telephone: 03 96101208 Facsimile: 0390104223 PJehSlle:www.6cb.org 25 May 1999

The Hon John Howard MP Prime Minister Parliament House Canberra ACT

FAX 02 6273 4100

Dear Prime Minister,

I am writing to inform you that the Business Coalition for Tax Reform (BCTR), representing some 40 key industry associations, met on 24 May 1999 and wishes to register as strongly as it is able certain key requirements the business community has for any tax reform outcomes.

The BCTR remains a firm supporter of the need for comprehensive tax reform. In particular, we recognise the present indirect tax system is fundamentally flawed and, if not rebuilt, will continue to be subject to the underlying erosion we have witnessed over recent years.

• in this sense, the objectives of the business community for tax reform remain unaltered. They are to improve international competitiveness and fairness of taxation and to contribute to a climate favourable to investment, job creation and saving.

For well over a year the BCTR has argued for reform measures in line with the following principles that were reaffirmed at yesterday’s meeting:

■ The removal of as many existing indirect taxes as possible, » The introduction of a single rate goods and services tax on as broad a base as practical, ■ The remodelling of Federal/State financial relations, • Reductions in income tax rates and reforms to business tax, '

* Reworking of the interactions between the income tax and social security systems to reduce poverty traps.

Notwithstanding the events of the past two weeks, the BCTR remains of the view that the best possible reform to Australia's tax arrangements should be consistent with these objectives and principles. It will a ssess the outcome of the current negotiation process between the Government and the Democrats against these objectives and principles. The BCTR has

explicitly noted that the BCTR, and through it the business community at large, would not support a program of tax reform that departed significantly from these principles.

In this context, the BCTR continues to believe the taxation of all goods and services (including food) at a single rate is the most effective way to enhance Australia's economic performance, our international competitiveness and the fairness of the tax system. It nevertheless recognises the pressures to address concerns with your Government’s original tax reform

proposals. It", in that context, the Government does reconsider, as a matter of political necessity, the weighting of food in the indirect tax base, fundamental principles of good tax policy would suggest that three conditions should apply:

■ All food, including restaurant and take-away food, should be taxed at a single rate,

■ All the State and Territory indirect taxes currently earmarked for removal should still be removed, ■ The ongoing revenue security required by the States in Federal/State financial arrangements should be assured.

Further elucidating these points, the BCTR is adamantly opposed to any ‘hybrid' approach to the treatment of food. Taxing different foods at different rates involves massive compliance costs and gives rise to serious distortions between different food products in the market place. Proposals currently being considered discriminate according to the level of processing,

character of retail outlet and nature of food container. Such an approach, of itself, will not necessarily deliver any improvement in the fairness of the tax system.

Should a political compromise on the treatment of food be judged necessary, the BCTR would recommend that the Government consider setting the sam e rate for all food products delivered in all different settings. We note that a uniform rate of 5% on all food would fund the removal of most existing indirect taxes (excluding payroll tax) on food. Very importantly, such

a rate applied to all food products should therefore have no significant effect on overall existing food prices.

The BCTR is also of the view that the cost to revenue of any changed treatment of food under a GST must NOT be funded by the retention of any of the existing indirect taxes now slated for abolition. To do so would compromise the very rationale for reform of the indirect tax system itself and would undercut any residual ability the business community might have to

support the outcome of the current negotiations between the Government and the Democrats. Instead the BCTR would observe that any change in the treatment of food should be funded firstly and logically through appropriate adjustments to the compensation component of your Government's original proposals. The balance should be drawn from additional reductions in

income tax cuts.

Finally, the BCTR is strongly of the view that, as a leading supporter of reform and as the central player in any tax collection system, the business community should be given the opportunity to provide considered input into any proposals to modify significantly the m easures contained in the Government's original package of reform measures. While this

letter has concentrated on the question of the tax treatment of food, business has concerns with the full range of proposed alterations to your Government's original proposals - particularly the treatment of fuel excise. The business community is particularly concerned that potentially severe flow-on effects to other sectors be fully taken into account before

political compromises are struck.

Given her central role in current negotiations. I am copying this letter to the Leader of the Democrats, Senator Meg Lees.

Yours sincerely,

S ta n W a llis Acting Chairman