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Economics Legislation Committee

Senator WATSON —I have some questions about controlling shareholders' superannuation. As we know, private rulings offer no protection to investors whose names do not appear on the document. If this is the case, why have controlling shareholders' super related schemes grown so dramatically in recent years?

Senator Kemp —Can I just check that we have the right people at the table to deal with that. As usual, Senator Watson, you have come absolutely out of left field on this one. You are always full of surprises. We do have an officer at the table and he will take the question.

Mr D'Ascenzo —Could you go through those questions again for me?

Senator WATSON —It was in two parts. There was a statement and then the question. Private rulings offer no protection to investors whose names are not on that document. By that I mean that the public at large cannot take advantage of a ruling that is given to a particular person, because of the nature of the private rulings. If this is the case, why have schemes known as controlling shareholders' super related schemes grown so dramatically in the last several years?

Mr D'Ascenzo —Our information is that it has only really been in the last 12 months that there has been an increase in those arrangements. Whether that is a consequence of other arrangements or schemes being followed up and closed or for some other reason, I am not sure. What happens with some private rulings is that people do get the private ruling and either in whole or in part they go and they still market it: `It must be okay because, look, the tax office said it was okay in this case.' In terms of implementation, not all conditions are often satisfied. Different circumstances will apply that might give rise to different results. Unfortunately, people see that and still take advantage of it, notwithstanding that a private ruling is just that, private to the person who asked for the ruling.

Senator WATSON —How does the tax office distinguish between genuine superannuation arrangements and minimisation schemes?

Mr D'Ascenzo —One area is situations where in implementation you have a whole range of round robin situations, back-to-back loans—situations where nothing is actually left in the funds at the end of the manoeuvrings to make them a viable benefit for retirement income. That is one example. Another example is situations where the scheme of the act produces a certain result but people take on an interpretation that allows them, they believe, to take an advantage that is not intended by the act.

Senator WATSON —Why did former First Assistant Commissioner Nick Petroulias abruptly leave the tax office?

Mr D'Ascenzo —I think you will have to ask Mr Petroulias about that fact. To the extent to which it relates to the personal affairs of Mr Petroulias, if the committee wants to explore this avenue then I think it should be in camera.

Senator CONROY —We have got a tax inquiry coming up. We are going to explore it.

Senator WATSON —Was the tax office aware of contradictions in Mr Petroulias's action and was there any evidence of special deals for some while conducting contrary action towards others? In other words, were there elements of favouritism?

Mr D'Ascenzo —As I said, I think when it relates to Mr Petroulias the matter might have to be taken in camera.

Senator WATSON —In a perhaps related matter but on the general issue of controlling shareholders' superannuation, a former Tax Ombudsman, Peter Hexton, is quoted as accusing the tax office of a cynical focus in its attempts to stop emerging tax schemes. He said that this attitude was similar to the bottom of the harbour schemes of the 1970s. Perhaps the tax office should dispute that.

Mr D'Ascenzo —It is a long bow. People draw on folklore in this regard. If you look at the history and evidence on the bottom of the harbour schemes, you will see that the tax office was one of the most active agents in trying to bring that to a close. There was the so-called infamous telephone book that was provided to parliament in those years which indicated the many attempts that the tax office did take, via the Crown Solicitor's office, via the Australian Federal Police, via the companies authorities and via governments of different persuasions, about doing something in that area and that the office was very active. Ultimately, in relation to the TUCT legislation, the Taxation (Unpaid Company Tax) Assessment Act, it recovered through those provisions something in the order of a billion dollars.

Senator WATSON —Does the tax office intend to press for amending legislation to pick up an alleged flaw in section 274 of the Income Tax Assessment Act?

Mr D'Ascenzo —That provision is under consideration in terms of whether or not it reflects the correct underlying policy and whether it is or should be interpreted in the way that people put to us, which is contrary to our interpretation of that provision. Having said that, I think it is a matter for us to bring to the government's attention that different interpretations do exist of that provision.

Senator WATSON —Maybe if this matter is pursued further in camera you should be aware of the issue that I am interested in. Did the tax office hire private detectives to track down Nick Petroulias's actions?

Mr D'Ascenzo —Not to my knowledge.

Senator WATSON —Was the Taxation Office aware that private detectives were following him?

Mr D'Ascenzo —Not to my knowledge.

Senator WATSON —Okay, thank you very much.

ACTING CHAIR —I am referring to an editorial in this morning's Age which is somewhat critical of the Deputy Prime Minister, Mr Fischer. It says:

The Deputy Prime Minister, Mr Tim Fischer, was not too constrained by logic when he tried to drag Tony Lockett's goal[hyphen]kicking record into the GST debate yesterday. Trying to make the point that a broad[hyphen]based consumption tax would serve Australia better than the existing wholesale sales tax, Mr Fischer said there was no GST on Lockett's goals, but sales tax was levied on some of the football gear that Lockett wore. Since football gear will presumably also be subject to the GST when it replaces sales tax, Mr Fischer's point is unclear to say the least.

As I understand the provisions of our tax reform proposals, AFL clubs would be regarded as businesses and would be able to register as businesses, given the way they operate. I also understand that generally AFL clubs supply the gear for their players, so wouldn't in fact that football gear be regarded as an input and therefore a rebate would be due on any GST paid on it, as compared with the current wholesale sales tax that receives no rebate? Isn't that the point that Mr Fischer was making? It seems to me to be very clear.

Mr Matthews —We are more than happy of course to take on any interpretations of the draft legislation at any point. I think the position you presented is correct but we will take those questions on notice and answer them in real time in the course of the committee for you.

ACTING CHAIR —Thank you.

Senator COOK —If I could follow on from those questions. We went through this routine in the debate in the chamber. Perhaps we have to go back over it in the light of the new tax package. Sticking with Plugger as the example for the moment, the food of his greyhounds which he races as a business is an input to his business as a greyhound racer and therefore not GSTable. Mr Matthews, that is true, isn't it?

Mr Matthews —I am unable to advise you on that. While we stand well prepared to advise and interpret legislation that is before parliament, of course at this point in time we do not have a definition or an amendment in respect of that area.

Senator COOK —Perhaps Mr Smith is the right person to answer it.

Senator WATSON —I raise a point of order, Mr Acting Chairman. Senator Cook is asking about the personal affairs of a particular taxpayer.

Senator CONROY —No, it is the personal affairs of a dog. We are asking what a dog eats.


Senator WATSON —A person's name was used in the question.

Senator COOK —Well, it was introduced by the Deputy Prime Minister if you want to argue with him about it. I am happy to change it to footballer `X' who happens to race greyhounds.

ACTING CHAIR —It does not have to be any individual.

Senator CONROY —Is dog food an input for a greyhound that is raced?

Senator COOK —If you are running a business to race greyhounds for prize money.

Mr McCullough —The ATO obviously cannot give a ruling or an interpretation until the law is passed. But if I can answer in broad policy terms, once you are an enterprise, a feature of the system is that inputs to the conduct of that enterprise would generally be able to be
creditable to you. So, effectively, if you are an enterprise, you are part of the system and you do not bear GST on those sorts of inputs.

Senator COOK —Right. The minister and I had this discussion. I happen to barrack for the West Coast Eagles and I know a number of the players who play for that team. They have contracts with the club and are required to follow particular strict diets three or four days out from a match. That is an input cost to them as professional sportsmen in the conduct of their business. In the debate, the minister was unable to say whether that is tax deductible for them, but if the club bought it, on the information the chairman has just given us, and handed the food parcels out to the players, then it would be a tax deduction. They would be able to reclaim that back as an input cost to their business, would they not?

ACTING CHAIR —Are you talking about a tax deduction or a rebatable GST?

Senator COOK —I had better get my terms right. If the player's contract with the club requires him to eat certain types of food beginning four days before the next match, the business of that player is being a professional sportsperson and his business ceases if he breaks that contract with the club. He is bound to abide by his contract. Can he buy that food himself and then claim an input cost rebate for himself?

ACTING CHAIR —Food is GST free, Senator Cook.

Senator COOK —We do not know which foods.

Mr McCullough —There are a couple of things which are interacting here. One is the GST system and the other is the FBT system. As a general rule, if a club provided something for the benefit of a sportsperson, there would normally be an input tax credit claimable by the club. There may also be circumstances where, if the individual provided it and claimed a reimbursement under one of the government's proposed amendments, the input tax credit still could be claimed by the club. But where it is being provided to an employee, there is always the question of the private benefit. The way the two systems are designed, the input tax credit that would be claimable by the club on certain private expenditures is clawed back. I cannot give you a precise answer about whether it would happen in this circumstance. I think it would, but I really need to take that on notice to give you a definitive answer.

Senator COOK —So it may be that the individual player who buys on his own, rather than has the food supplied through the club, may not be able to claim it back?

Mr McCullough —The only way the individual player, who is not going to be an enterprise, not going to be in the GST system, could get an input tax credit is if under a proposed amendment by the government—it has not been debated yet—it was treated as a reimbursement so that it was as if the club had themselves met the expenditure and therefore claimed the credit. Other than that, individuals who are not in the GST system do not get input tax credits. I was going on further to say that even if the club did get the input tax credit, effectively, in many circumstances, individuals still pay the GST because of the FBT system and the interaction between the two.

Senator COOK —The earlier point was that Plugger's dog could get food free but Plugger would have to pay the GST.

Senator Kemp —What people should do is read the debate in the chamber.

Senator COOK —Do you think it was enlightening?

Senator Kemp —It was pretty enlightening, yes.

Senator COOK —As a threshold question, I wrote to the secretary of the committee requesting, if possible, that Commissioner Carmody be present for this session. I note that he is not here. Can anyone provide me with a reason why he cannot attend?

Mr Jones —At this moment, he is on his way back from Adelaide. That is the first reason. Secondly, to the best of my knowledge, I was not aware of that request.

Senator Kemp —Senator, I spoke to him last week about the committee and I thought he said at that stage that he had not been asked to appear before the committee. When did you write?

Senator COOK —About a week ago.

Senator Kemp —My impression was that he was not aware that he was requested to appear before the committee. I think it is Mr Carmody's practice always, if he is requested, that he tries to appear. He in no way resists appearing before the committee.

Mr Jones —So I apologise, Senator. I am quite sure from my own conversations with him that he was not aware of that.

Senator COOK —I understand the letter was passed on. Okay.

Senator CONROY —Can we just flag that we also—I think in the same letter—asked for Mr Fels to be present.

Senator COOK —That is right.

Senator SHERRY —He is not coming.

Senator CONROY —We do not know. I am just saying.

Senator SHERRY —No, Mr Fels is not coming. He was on the plane with me today and he said he was not coming.

Senator Kemp —Senator, I am not responsible—

Senator CONROY —Did you tell him there was a microphone involved?

Senator SHERRY —Don't be facetious, Senator.

Senator CONROY —TV cameras and microphones.

Senator Kemp —I think those comments are very unkind and should be struck from the record, Senator Conroy. Mr Chairman, these are matters for the committee; they are not actually matters for me. I think the committee had better sort out who was asked and when.

Senator COOK —Let me proceed. Treasury advised Senator Murray, in a question on notice, that taking food out of the GST would reduce the CPI from 1.9 to 0.5 per cent. That answer was given on 28 January this year. Is that still the inflationary impact of taking food out of this package that we now have before us?

Mr Greg Smith —I would presume that that was all food, whereas this is a particular definition of basic food to be excluded.

Senator CONROY —And also the FIDs and BADs and all those other indirect taxes stay in.

Senator COOK —So, in other words, the inflationary impact would be higher than the 0.5 per cent in the answer of 28 January?

Mr Greg Smith —I cannot remember precisely what that question was but, assuming that was all food, then clearly, yes, it would be higher.

Senator COOK —I cannot define the question better because I assume, as you do, Mr Smith, that it is all food. The `basic food' idea seems to have been a later idea that got intruded into the debate. But the inflation impact would be higher on the new definition of basic food than it would have been on all food? I think you have said yes to that question. We did have questions from Senator Sherry about what modelling has been done. Can you confirm for me that, at this stage, modelling has not been done for the inflationary impact of the GST package?

Mr Greg Smith —As I said, we have done some preliminary figures but we have not released anything as a final result because we are still in discussions on the precise definitions.

Senator COOK —Yes.

Mr Greg Smith —So, as I said already, we have done some initial figuring but we have not done a final figuring.

Senator COOK —Okay. Going on from my question on food, taking all food out reduces the CPI by 1.4 per cent—that is the 0.5 taken from the 1.9 in the answer of 28 January. Therefore, if you take about half the food out, that would reduce it by about 0.7 per cent; is that a fair assumption?

Mr Greg Smith —There are some risks in that assumption, because it depends on the way in which the food is weighted in the CPI, relative to what you are actually taking out. So when you say `half of food' it might be important which half. You do not get a perfectly linear result, because the CPI baskets are not perfect.

Senator COOK —And it would depend on the cost of particular foods. You might consume a lot of food that is relatively cheap but you might also consume some food which is more expensive. That is more likely to be food that has gone through some form of preparation.

Mr Greg Smith —I am not sure whether that would be a significant factor or not. I would have to think about that one.

Senator COOK —Treasury's advice to the Select committee was that the CPI impact is `subject to behavioural effects and avoidance opportunities'. What is Treasury's assessment, then, of the behavioural effects and avoidance opportunities of the current Democrat[hyphen]government deal?

Mr Greg Smith —As I said, we are currently in discussions and a process of analysis of this arrangement, consistent with the principles which were set down in the Prime Minister's letter. When that is finished, I expect the government will release information as is appropriate in relation to its analysis of those matters. So I will not be in a position to give you that type of information today. We will need to wait for the process to finish and we will be available to give the government such advice as it seeks.

Senator COOK —After the ANTS package came down, the Senate had an inquiry into it. I think you appeared at some of the sessions, Mr Smith. That enabled us to examine the package in some detail, and I have to say the consensus of popular view seems to be that the inquiry was worth while and performed a public service in teasing out the detail of the package. Will we have a similar opportunity, Minister, when all this new information is computed to examine that in such a way?

Senator Kemp —I think we have had very extensive inquiries carried out by the Senate. We are keen to get the package through by 30 June. You have indicated the Labor Party's position is that this should be voted on by 30 June and that is our intention.

Senator COOK —That is what I indicated for the original package that was before us, with your original amendments which we all knew about and had inquired into. This is a vastly different kettle of fish.

Senator Kemp —Has the Labor Party changed its position now on a vote by 30 June?

Senator COOK —We have not made a decision about that.

Senator Kemp —That is quite important.

Senator COOK —I am just simply asking you this question, Minister. I am not wanting to joust with you. If you want to joust, I will. This is now a distinctively different package. The macro[hyphen]economic impacts are distinctively different. Will we be given information about them or will we not before the debate?

Senator Kemp —As Mr Smith indicated, the government will of course provide all appropriate information to the Senate. There will be a debate in the Senate on this, undoubtedly questions will be asked during that debate and further information will be required, but it is our intention to have these bills passed by 30 June. I understood, up to this point in time, that was also the Labor Party's position—to have a vote by 30 June.

Senator COOK —That is the Labor Party's position on what was before us. You have changed what is before us. We will have to consider our position again. Can I say that you are on shaky ground. If, as Senator Lees says, in private you are prepared to provide her with information that you are not prepared to provide the inquiry in public, then we may very well want to see what the underpinnings of your new calculations are so that the Senate is properly informed when called upon to cast a vote in this matter. That is only fair, isn't it? You would not want us to vote on things we did not know about?

Senator Kemp —I think there have been very extensive inquiries. There have been no more extensive inquiries into any bill. These bills have been some of the longest debated bills already. The changes were brought about because we did not have the numbers in the Senate to pass the bills in their original form.

Senator GEORGE CAMPBELL —Can you explain all the details of these bills? Senator Minchin could not explain the details of them yesterday in the industry part of this inquiry.

Senator Kemp —There will be a very extensive debate on the bills in the chamber. You are more than welcome to take part in that debate and we look forward to that debate so that we can have these bills passed as expeditiously as possible.

Senator GEORGE CAMPBELL —Are you aware of all the details of the agreement and their implications?

Senator Kemp —We have had discussions on the agreement with the states. We have details here which have been released by the Prime Minister with the Democrats. We are now waiting for the amendments to be drafted and when those amendments are drafted, we can then have this debate in the chamber.

Senator COOK —The Treasury's advice to the select committee was that the CPI impact is `subject to behavioural effects and avoidance opportunities'. Mr Smith has been kind enough to answer that by saying, as I recall, that giving me a clear answer on what your assessment of the behavioural effects and avoidance opportunities of the current deal is depends on further work that is yet to be completed. That is my understanding of the answer. Let me go on: There are two aspects to avoidance of the GST. Firstly, there will be the redesign and repackaging of food in order to obtain exemptions. Mr Mitch Hooke of the Food and Grocery Council has
already publicly stated that this will occur. What is the government's response to that? How will it deal with that problem?

Mr Greg Smith —I do not have any information at all for you today about those details; I am sorry.

Senator COOK —Has this matter not been considered thus far?

Mr Matthews —Part of the Prime Minister's announcement indicated that additional resourcing would be provided to the tax office to administer the revised package. Part of that will be directed at any increased avoidance issues or compliance issues that emerge from the package. The full details, consistent with Mr Smith's response, will be worked out when the final details are known.

Senator CONROY —You are quoted in this paper as saying that there would be 300 more staff than were originally planned.

Mr Matthews —I am not aware of the document you are quoting from, I am afraid.

Senator CONROY —This is the Financial Review .

Mr Matthews —I am quoting the table I believe was released with the package that allocated additional resources to the ATO. I have not read that report.

Senator CONROY —You are quoted extensively.

Mr Matthews —I have not read it, even if I am quoted!

Senator Kemp —Why don't you pass us a copy?

Senator CONROY —I am happy to.

Senator COOK —There is a number being quoted from the press release on the provision of additional resources to the ATO. Is that number, as you understand it, accurate?

Mr Matthews —It is an estimate which we have provided and which we believe will be adequate to administer the revised package.

Senator COOK —When you provided that estimate, did you look at the types of expertise and skills that you would want represented among this 300 additional people?

Mr Matthews —In general terms, yes.

Senator COOK —Were any of those going to identify questions of avoidance arising from the redesign and repackaging of food, for example, that Mr Mitch Hooke has referred to?

Mr Matthews —The general increase in resources would be to address providing advice to taxpayers and to increasing to some extent the resources devoted to compliance work, including audits. Those are the main areas that international experience suggests are impacted by exemptions and changes of the kind you are discussing. That is where we will be applying them, with the final details to be worked out when we see the final details. We have drawn significantly on international experience as reported to us in working out the estimate as provided.

Senator COOK —I appreciate that. So part of that 300—and I appreciate we are using that as a rough figure—are people who will be able to provide better information to taxpayers. What proportion of the 300 does that consist of?

Mr Matthews —The breakdown there will depend on our final analysis and the distribution between what we would call tax legal advice, providing advice through inquiries and call centres, providing advice to taxpayers directly out in the community and doing audit work. We will finalise those plans when we see the final details.

Senator COOK —From your answer, you did not refer to any category of new employee who will have the ability to detect repackaging and redesign. Is that correct?

Mr Matthews —I did not refer to any. That is correct.

Senator COOK —Yes. The Food and Grocery Council spokesman had said that this will occur. Does that mean you will be seeking more staff in addition to the 300?

Mr Matthews —I have only just got your report of the additional 300, and I think it is a misquote. But I have yet to read it in full. We will be seeking additional staff, as indicated in the additional resources provided to us. I am not expecting that we will provide any particularly new special categories or types or skills of staff, other than that which we were planning ready.

Senator COOK —So you have not sought staff to deal with avoidance by redesigning and repackaging, and you will not be seeking additional staff to do that. We come back to you, Mr Smith. That creates a problem, doesn't it?

Mr Matthews —I am sorry. I am not sure that that was quite what I said. Could you repeat your statement so I can be sure? I think I said that I was not expecting to take on any additional staff with particular skills or knowledge beyond those which we had already planned.

Senator COOK —I understood you to say—and we got derailed slightly at one point—that you affirmed that there were 300 additional staff, in rough terms—

Mr Matthews —Of that order. It is probably a few more.

Senator COOK —that the tax office had sought and the government had agreed to provide, that you had a rough breakdown of the particular skills and abilities of what those staff were required to do, that you enumerated some of those skills and abilities and that you agreed then with me that included among them was not a skill or a knowledge of detecting redesigned and repackaged food.

Mr Matthews —No, I did not say that.

Senator COOK —I thought you did.

Mr Matthews —No, I did not. I said that we did not intend to recruit for any skills or abilities beyond those which we had already planned, which would include those sorts of skills.

Senator COOK —Will you have people who will be able to detect avoidance by repackaging and redesigning food?

Mr Matthews —We will have people who are skilled and have the attributes and knowledge. We will also be training people. We have an extensive recruitment and training program already under way. Part of that will of course be adapted to any new needs which emerge in the course of implementation.

Senator COOK —How many people do you think you will have devoted to this?

Mr Matthews —As I said, the details as to how we apply in detail those additional resources will be worked out when we see the final details of the changes.

Senator COOK —It is over to you now, Mr Smith. Will the legislation provide penalties for this type of avoidance?

Mr Greg Smith —I will leave it to the government to introduce the legislation. I am not in a position today to give you any announcements about it.

Senator COOK —We know that the Prime Minister and Senator Lees have announced heads of agreement in considerable detail, albeit confused in some areas, about what will be in and what will be out. I am not aware of any detail referring to this particular matter of avoidance and so forth by repackaging. Are you not in a position—perhaps this is your call, Minister—to affirm that you will be dealing specifically with this problem which has been announced by Mr Hooke?

Senator Kemp —Let me say, as Mr Smith said, that I think it is far better to wait until the actual amendments to the legislation are produced. There are issues which have been raised and, undoubtedly, those issues will be addressed by the government. Let me say that, if they are not addressed, I am sure that you will raise this in the chamber, Senator.

Senator COOK —I am just dealing with a point of principle here; I am not asking to see the actual text of the amendment, which seems to be what you are inviting me to wait for. I am just wanting assurance from the government that it is alive to this issue and it will deal with it in its legislation.

Senator Kemp —The issue has been raised. You have raised it here. I assume you were quoting correctly. Quite obviously, that is a matter which is before the government, and I think we will just have to wait until the legislation comes out to see how that is dealt with.

Senator COOK —Do you decline to give an in principle—

Senator Kemp —No, I am saying—

Senator COOK —May I finish so that you know the question I am inviting you to answer? Do you decline to give an in principle commitment that you will penalise avoidance of the GST by repackaging and redesigning food?

Senator Kemp —We would want to make sure that the compliance arrangements in the bill are as comprehensive as possible. We will ensure that, in the bill which is presented to the Senate, there are the proper compliance arrangements involved. As I said, we are aware that problems have been raised. I do not propose to comment any further on that until the legislation is presented to the chamber. Perhaps we may have a point.

Mr McCullough —I just want to say that, once the amendments are finished, we really need to assess the impact of the existing arrangements for dealing with avoidance on those proposed amendments. There is of course a general anti[hyphen]avoidance provision. If it were a question of straight out avoidance by doing something that triggered the general provision, there would be no need for any specific provisions. Then, of course, there is the question about whether a repackaging is at all an avoidance. So those things have to be assessed once the current arrangements are settled.

Senator COOK —At the risk of an unintentional pun, we are making a meal of this because—

Senator Kemp —No, we are not; it is actually a very clear answer.

Senator COOK —If I may finish, Minister—I ask a question and I am referred to amendments, when what the government does is issue instructions to a draftsman who then writes the amendments. The government in the first place initiates the request for a change. The actual text of the change is a legal argument, as Mr McCullough has just answered, of whether it meets and balances out with all the other things in the act. Mitch Hooke has said this is a problem; he is in a position to know. It is a problem, if you take the reasonable person's view of life. Reasonably, there would be avoidance by this means, too. Will the
government say, yes, it will deal with it, or will it just fade away? Have you issued instructions for it?

Senator Kemp —We are not saying, `Fade away.' I thought the officer answered it very clearly. He said that, first of all, an assessment would have to be made as to whether this came within the general anti[hyphen]avoidance provision, whether the packaging itself amounted to anti[hyphen]avoidance activity. So what we said was that these issues will be properly assessed in the light of what the current anti[hyphen]avoidance arrangements are in the bill at present, and whether there are any additional measures needed. That is what we are saying.

Senator COOK —So, yes, you will do it?

Senator Kemp —We are aware that the issue has been raised. If there is a real issue there, it will be dealt with.

Senator COOK —Yes, you will do it?

Senator Kemp —I cannot add to that.

Senator COOK —God, help me! That is redesigning and repackaging. Will the GST anti[hyphen]avoidance provisions apply where manufacturers vary their product to make it tax free? Do we have to go through this mumbo jumbo that we have just been through?

Senator Kemp —I think I might ask Mr McCullough to restate the anti[hyphen]avoidance arrangements in the bill to make sure that there is proper compliance with the legislation that has been brought down.

Mr McCullough —It is rather difficult to give an opinion on the operation of a general anti[hyphen]avoidance provision without the actual set of facts before us. I do note that, on the last running sheet of the proposed amendments that were before the committee, there was some further guidance on the operation of the general anti[hyphen]avoidance provision put forward in the government amendment. That may well deal with some of those issues that you raised in general principle, but it really is terribly hard to say in a general description of a circumstance that an avoidance provision would operate. We would need to know precisely what the facts are.

Senator COOK —The facts are that a manufacturer has redesigned and repackaged his food to try to make it non[hyphen]GSTable when, if it had been presented in its original design and packaging, it would have been GSTable. Will the types of changes that you are looking at take account of that type of practice and deal with it?

Mr Matthews —If I could refer to an earlier response that I gave, the question is hypothetical in the sense that we do not know yet what the details of the legislation will be.

Senator COOK —Don't give me that, Mr Matthews, please!

Mr Matthews —I am afraid that is the position, Senator. Mr McCullough is correct in saying that an interpretation of the law, particularly the anti[hyphen]avoidance provisions, does not depend on hypotheticals.

Senator COOK —I am sorry, but you have not listened to me, Mr Matthews. I have been through this discussion about the types of changes. I just really want to know from the officer whether the sort of thing he is looking at doing will cover the situation or not.

Mr McCullough —I do not have in front of me the government amendments to the general anti[hyphen]avoidance provision. There are some additions to the objects clause with the general anti[hyphen]avoidance provision that give guidance about that. I think from memory—but I will have to look it up, and perhaps I can take this one on notice—that the objects clause actually gives
some guidance to say that merely to put yourself in a position to be selling something that is GST free would not of itself amount to an avoidance, but beyond that unfortunately we would need to know the particular provision that someone was alleging was being avoided. If it is related to food, it has not been drawn up yet.

Senator COOK —I will take it that that is the state of the art that we can get to in an answer. I am not sure that it answers the question, but thank you very much. Let me put another proposition to you: what if a major retailer is involved with a manufacturer to try and make their products tax free? In those circumstances, will they be subject to anti[hyphen]avoidance provisions? In view of the earlier answer, I better ask: is this the sort of thing that you would try and protect against in the changes that you are overseeing?

Mr McCullough —I do not wish to be difficult, but this is precisely the sort of thing that I think turns on its own facts. In the structure of the general anti[hyphen]avoidance provision, there are eight factors to be taken into account—the manner and form in which arrangements were entered into. They are not the sort of thing that can really be decided apart from those facts. I could imagine hypothetically a situation where somebody manufactured GST free products and no avoidance was involved. I can imagine another situation where someone could manufacture GST free products and avoidance was involved. It really depends on the facts.

Senator COOK —Okay, but the facts are, as I have stated them, that a retailer and a manufacturer have colluded to make their products tax free. Is that the sort of thing that there will be protections against?

Mr Matthews —Perhaps I can lend assistance. The whole existence of the anti[hyphen]avoidance provision is to provide a backdrop to consider where the predominant activities are aimed at getting a taxation outcome. Those conditions need to be looked at in the specific events.

Senator COOK —That is a yes, Mr Matthews.

Mr Matthews —The existence of the anti[hyphen]avoidance provision is there to provide a backdrop to look at those kinds of transactions and then reach conclusions based on the facts.

Senator COOK —Mr McCullough, do you think that is a satisfactory answer?

Mr McCullough —I am sorry, but I was distracted there for a moment. I wanted to refer you to the actual provisions in the bill if you are interested. They are quite lengthy.

Senator CONROY —Is that the amendments?

Mr McCullough —I am just looking at proposed division 165.

Senator CONROY —Not that everyone understands the difference between A and B, but—

Mr McCullough —I am referring to division 165 where it says `Matters to be considered in determining purpose or effect', which is important in making a decision about whether a tax benefit has been obtained. It refers to (a) through to (l), as in the circumstances that need to be taken into account. The first one is the manner in which the scheme was entered into or carried out, and the second one was the form and the substance of the scheme, et cetera. It is very difficult just on a one[hyphen]line statement of the circumstances to make an assessment about whether or not there was avoidance there. That is why people are saying that it needs to be done in the light of a full examination of the facts in a particular case.

Senator COOK —We are making a rod for our own backs here. Essentially, I am saying that there has been a full examination of the facts and the facts are that this event has occurred and then whether there is any way of protecting against it. Everyone seems to be running around the point.

Mr Matthews —If an examination against those provisions enabled us to reach a conclusion that they in fact constitute anti[hyphen]avoidance then the legislation provides for us to deal with that.

Senator COOK —A second type of avoidance will simply involve the GST not being charged on properly taxable items. For example, the commissioner, Mr Michael Carmody—he would recall this if he were here—has spoken publicly about the UK experience concerning fish and chip shops. How can this exemption system be made to work so that the black economy will not get any bigger in the case of the Carmody example on fish and chip shops?

Mr Matthews —As I said earlier, we are yet to see whether the details of the legislation would create any such circumstance as the UK's. But in general terms our auditing and compliance approaches will be focused on those sorts of things right across the board. It is a transaction based tax, in a sense, and one would be focusing compliance on transactions.

Senator COOK —You see, Mr Carmody treated the inquiry to a quite lengthy presentation in writing and then orally. Indeed, he had made a speech that he gave us copies of about what a terrible thing would happen to the tax system and the compliance costs—

Senator CONROY —I would have thought he would have resigned by now, in the face of this.

Senator COOK —if you took food out. I am wanting to know how you intend to deal with that. It may be that the detail is not there yet, but I want to be assured that you have got something in hand to deal with it.

Mr Matthews —Indeed, and government has provided us with additional resources to deal with it.

Senator COOK —Yes. Are you saying that, in the case of Mr Carmody's UK fish and chip shop example that he gave us, you will have the resources and that the act will be such that you will be able to enforce a very clear distinction here? You will not get caught with people shifting around in order to avoid the tax?

Mr Matthews —As I said, we will have the resources to focus on the compliance issues that arise from the full package as it is implemented.

Senator COOK —I have the actual words here. Since we have dealt with that, I might as well read them into the Hansard . This is from his submission to our inquiry, but the pages are not numbered and so I cannot give you the page reference:

Non-compliance is inevitable. In the UK, fish and chip shops selling both fresh and cooked fish typically report that 30% of their sales are cooked fish (taxable) and 70% are fresh (tax-free). Anecdotal reports indicate that the reverse is closer to the truth: 70% cooked and taxable and 30% fresh and tax-free. I also imagine that fish and chip shop owners do not particularly like the VATman standing in the business all day to observe the true picture—but that is the only viable type of compliance check where distinctions on food are made. The reality is, of course, that ensuring practical compliance by businesses in these circumstances is impossible.

I am sorry, but that is not from his submission to our inquiry. I have misled you. It is from an address by the Commissioner of Taxation, Michael Carmody, to the 14th National Convention of the Tax Institute of Australia in Hobart on 24 March 1999. He is saying in that, clearly, that you have to actually have someone in each shop—and 300 people would not qualify to meet that demand.

Mr Matthews —I make a number of points in response. I believe it was the commissioner's purpose to draw it to attention and ensure that the debate was aware of some of the administrative implications of changes in this area. That has been achieved and those have been factored into the decision making process. The next point is that it is not clear at this
juncture as to whether the circumstances which he was referring to that exist in the UK will appear here. That will not be clear until we have the detail of the legislation.

Senator COOK —It is not a bad example—cooked and uncooked fish in a fish and chip shop, given the basic food definition that we have been led to believe is part of the agreement.

Senator CONROY —You are in charge of drafting the legislation, aren't you?

Mr Matthews —That is part of my responsibility.

Senator COOK —Was Mr Carmody gilding the lily, dramatising a bit?

Mr Matthews —Not at all. The example he gave was an example of the sorts of things that the people who went to visit the UK saw. But, and I make the point again, it is not clear at this point that the same sorts of circumstances will occur here.

Senator COOK —But he said:

The reality is, of course, that ensuring practical compliance by businesses in these circumstances is impossible.

They are his words, not mine.

Mr Matthews —In those circumstances.

Senator COOK —Yes. So you think there may be a way around it?

Mr Jones —I would say that our general approach to these sorts of non-compliance activities would be to make an assessment of the risk in a whole range of activities that we will have to pursue compliance with. That would be our basis for the selection of cases, selection of entities and selection of types of industries. We have used the whole range of strategies already in our income tax compliance areas, and I would imagine that the whole range of that process and similar approaches would be used in compliance activities around the GST legislation.

Senator SHERRY —I have a question on an issue relating to staffing. With the staff that you are recruiting, are you recruiting any of them from overseas?

Mr Matthews —Not expressly. We are not advertising overseas. It may be that we have applications from overseas but we are not advertising there.

ACTING CHAIR —The committee will take a short break.

Proceedings suspended from 3.46 p.m. to 3.59 p.m.

ACTING CHAIR —I call the committee to order. We are considering output 2.1.4 in conjunction with the Australian Taxation Office. Are there any questions?

Senator MARGETTS —To give a slightly different angle on the processes at the moment, what was the reason that the Sales Tax Imposition (In Situ Pools) Act 1992 was introduced?

Mr McCullough —As I recall it, it was as a result of the Mutual Pools decision which decided that, to the extent to which a device that deemed in[hyphen]ground pools to be goods put them in a sales tax act dealing with the taxation of goods, that was held to be unconstitutional and so a separate imposition act was required.

Senator MARGETTS —What is actually taxed under the Sales Tax Imposition (In Situ Pools) Act 1992?

Mr McCullough —I cannot recall the precise details. The imposition act itself would be separate from the assessment act. The imposition act would just determine a rate of tax in particular circumstances, the imposition acts being separate from the assessment acts.

Senator MARGETTS —Will that subject of taxation be taxed under the ANTS (Goods and Services Tax Imposition—General) Bill?

Mr McCullough —The way the structure of the imposition bills is organised is to have those things which can be dealt with by way of an excise subject to one imposition act, those things that have to be dealt with by way of an imposition act dealing with customs dealt with in a separate act and then a general imposition act, but there is not a parallel between the type of arrangement that existed in the wholesale sales tax. There is no deeming of something that is not goods to be goods to be included in the same assessment act.

Senator MARGETTS —Will land transfers be taxed under the ANTS (Goods and Services Tax Imposition—General) Bill 1998?

Mr McCullough —Transfers of land are dealt with under the assessment act and then to the extent that transfers of land would not be—thinking out loud—either anything to do with excise or customs, they would be dealt with under the imposition general bill. For some of these matters, if you really want a precise answer, we would have to take it on notice and get legal advice.

Senator MARGETTS —Sure. I am happy if there is any further polishing to hear back later. Isn't tax on land transfers properly described as a conveyance duty?

Mr McCullough —Sorry, Senator, I do not really have an answer to that one. I am not sure whether I can recall from a long time ago how particular transactions with land would be categorised. I can certainly take that on notice, if you wish.

Senator MARGETTS —Sure. Could the Commonwealth impose a general stamp duties act without breaching section 55 of the Constitution?

Mr McCullough —Senator, you are getting into an area which is really a request for a legal opinion. I am not even sure that it is a question we can take on notice.

Senator MARGETTS —Is it something that Treasury would consider doing, that is, would you normally consider imposing a stamp duties act?

Mr Greg Smith —In the development of these bills, we were fully aware of the Mutual Pools decision and similar decisions. The draftsmen took all of these things into account. The series of questions you are asking now seem to seek to elicit those legal opinions, or legal opinions which we have not yet elicited, which we cannot do. The question as to whether or not we would consider a tax is hypothetical. It is not something that I could answer.

Senator MARGETTS —The ANTS (Goods and Services Tax Imposition—General) Bill 1998 currently is proposing to tax many things which would normally be taxed under omnibus state stamp duty acts; for instance, conveyances, leases, hire purchase agreements and so on. Is this true?

Mr Greg Smith —Some of the things that are presently taxed at the state level may be taxed under the ANTS legislation.

Senator MARGETTS —So is this not, in effect, potentially a problem?

Mr Greg Smith —As I say, all of these legal views were taken into account in the drafting and that is why we ended up with the three imposition bills that were included in the package. Those three bills, we are advised, meet the constitutional requirements of that legislation.

Senator MARGETTS —If a person supplies a good on credit, does that person have to pay GST on the supply of the good?

Mr McCullough —On the supply of the good, yes. Supply of goods, whether on credit or not, are subject to GST.

Senator MARGETTS —And if that person later receives a cheque in satisfaction of the debt created, does that person also have to account for GST on the surrender of the right to sue on the credit contract?

Mr McCullough —I can take that question on notice, Senator.

Senator MARGETTS —If the seller does have to account for GST on the surrender of rights under the credit contract, would not that mean that the GST in fact is 20 per cent minus 10 per cent on the supply of the good, and 10 per cent on the surrender of the right to sue under the credit contract?

Mr McCullough —To the extent that I have taken the first one on notice, I would really have to take the contingent question on notice as well.

Senator MARGETTS —Okay. I will ask some perhaps more straightforward questions. Is the GST meant to be a tax on final consumption?

Mr McCullough —It can be described that way.

Senator MARGETTS —Do costs of earning income represent final consumption?

Mr McCullough —Perhaps you could be a bit more specific on `costs of earning income'? I am not quite with you.

Senator MARGETTS —Sure. Are professional or vocational self[hyphen]education costs tax deductible?

Mr McCullough —Are they tax deductible?

Senator MARGETTS —Yes.

Mr McCullough —I think that is a bit out of my area. I am sure they would be in some circumstances but not in others. Whether they are tax deductible is a question for one of the other officers at the table.

Mr D'Ascenzo —Could I hear the question again?

Senator MARGETTS —I first of all asked: do costs of earning income represent final consumption? Then I was asked to give some examples. The next question I thought might help there was: are professional or vocational self[hyphen]education costs tax deductible?

Mr D'Ascenzo —Is this in relation to our current regime or for the purposes of the GST?

Senator MARGETTS —For the purposes of the GST.

Mr D'Ascenzo —I am not sure what the position is there.

Mr McCullough —I am sorry, Senator. I have thrown you in the wrong direction. When you said `tax deductible' I thought you were asking about the income tax position. I apologise for that.

Mr Greg Smith —Can you explain to us what you mean by a `consumer item', because the question or whether or not the expense is deductible—

Senator MARGETTS —I did not actually say `consumer item'. I said, `Do costs of earning income represent final consumption?'

Mr Greg Smith —In effect, final consumption is meaning the use of an item as a consumer item, so how does that relate to education?

Senator MARGETTS —There are various costs which are involved in the earning of an income, obviously, which are currently tax deductible.

Mr Greg Smith —Yes.

Senator MARGETTS —So what I first of all asked was: `Do costs of earning income represent final consumption?' That was a yes or no question.

Mr McCullough —The answer is that, for a consumer, they will in many cases but for a business they will not.

Mr Greg Smith —It would depend on what you mean by consumption, you see, because the context could be under tax law or the context could be under the national accounting framework. That is the thing that I am really puzzled by. Perhaps if we knew where the question was going we could deduce what the real point of it is.

Senator MARGETTS —Sure. I know there will be some other questions following up. This section is going to be going for some time so I am happy to come back with some clarifying questions later. Are books purchased for professional or vocational self[hyphen]education tax deductible?

Mr Greg Smith —Again, are we on the income tax now—tax deductible on the income tax?

Senator MARGETTS —I am talking about the treatment of a GST as a consumption tax.

Mr Greg Smith —Perhaps you mean as an input tax credit—would a purchaser obtain an input tax credit? Is that what you mean by the question when you say deductible?

Senator MARGETTS —You can give me the answer in terms of that.

Mr Greg Smith —I am just struggling with the question; I am sorry. Perhaps if I explain what I think it means and then you tell me—

Senator MARGETTS —We are not talking about business necessarily. If I was a teacher—and I have been—and I purchased a book for professional or vocational self[hyphen]education, would that be tax deductible?

Mr Greg Smith —If the question was would it get an input tax credit under the GST, the answer would be no because you are not a registered enterprise. If the question was would you get a deduction or depreciation allowance on the income tax, the answer would probably be yes.

Senator MARGETTS —Will GST be imposed on books purchased for tax[hyphen]deductible self[hyphen]education?

Mr Matthews —Yes.

Senator MARGETTS —What is the logic of imposing a tax on a tax[hyphen]deductible expense?

Mr McCullough —The basic idea with a broad[hyphen]based consumption tax is to tax things as they go into private consumption and not to allow things that are for use in enterprises to be subject to the tax. So when it comes to a consumer, that is where—in general principle—the GST sticks. There will be some areas where there is GST free treatment—health and so on—but, other than the designated GST free areas, that is where the tax should stick. It really does not matter whether or not it is tax deductible to the consumer.

Senator MARGETTS —Can GST be described fairly or properly as a tax on final consumption if it is, in fact, to be imposed on the expenses of earning income in many cases, expenses that you have indicated yourself people are able to claim various deductions for?

Mr McCullough —Again, it is a question of the distinction between an enterprise and an individual. An enterprise is going to get input tax credits.

Senator MARGETTS —I talked about the case of a professional who purchases that for their self[hyphen]education or professional work.

Mr McCullough —In that case, we are talking about an individual who is not an enterprise and that is where the general design of the tax means that the tax sticks, irrespective of whether or not they get an income tax deduction as well.

Senator MARGETTS —Does that in fact mean that GST imposed on those purchases is a tax on final consumption?

Mr McCullough —It depends on your definition of final consumption.

Senator MARGETTS —It does, doesn't it. Why was sales tax imposed through several acts in 1930?

Mr Matthews —My vague recollection of the history is that is was to boost flagging government revenues in the Depression period. I think that was the general background.

Senator MARGETTS —Why was it in several acts? I am not asking why it was imposed.

Mr Greg Smith —Essentially, because of the constitutional requirement that each law of taxation deal with only one subject of taxation.

Mr McCullough —Although, may I add that in 1930 I think there was only one act, with no exemptions.

Mr D'Ascenzo —I think there was one act because there was one rate. As soon as they changed the rates and had multiple rates, they needed to have separate acts covering the different rates.

Senator MARGETTS —What was the basis of the constitutional necessity of having several acts to comply with section 55 of the Constitution?

Mr D'Ascenzo —Again, I think the basis was that the Constitution says that the act should deal only with taxation. Therefore, you had a rates act, which dealt with taxation in terms of the imposition of the rate, and you had the assessment act, which relates to a range of administrative matters as well as the liability.

Senator MARGETTS —Has this original advice on the basis of the 1930 decision been fully taken into consideration before placing the GST legislation before the Senate?

Mr Greg Smith —I answered that question earlier. I said that we sought comprehensive advice on Mutual Pools and the other decisions which are central to this decision. The basis of the GST is that it is a tax on supplies. That is the subject of the taxation law. There are then three types of supply that we are required to take into account, which is why there are three imposition bills.

Senator MARGETTS —You have agreed with me tonight that there are elements of leases, hire purchase agreements and so on which are not normally covered in Commonwealth tax.

Mr Greg Smith —But they are supplies. This is the key point.

Senator MARGETTS —They are supplies?

Mr Greg Smith —That is the core provision.

Senator MARGETTS —So a lease is a supply?

Mr Greg Smith —It is dealing with the supply of services under the lease.

Senator MARGETTS —Have you seen the Quick and Garran discussion of section 55 about the placing of a composite or general tax bill before the Senate?

Mr Greg Smith —No.

Senator MARGETTS —You have not seen that.

Mr Greg Smith —Again, I think you are straying into the area in which we would rely upon our legal advisers. We will not be able to give you the legal advice ourselves today.

Senator MARGETTS —When was legal advice first sought on this type of issue?

Mr Greg Smith —It was sought during the development of the bills.

Senator MARGETTS —When?

Mr Greg Smith —I cannot give you the dates. I do not know.

Senator MARGETTS —Why is the Senate being expected to deal with a composite or general tax imposition bill in the ANTS GST imposition general bill?

Mr McCullough —In the course of development of the laws, the Office of Parliamentary Counsel and a number of other places that are well aware of the constitutional requirements came up with the design of the bills. It is a tax on supplies. There is, as Mr Smith has pointed out, not a parallel with the wholesale sales tax situation. We have no reason to believe that there is any problem with it.

Senator MARGETTS —We have reassurance that there has been advice. Are we going to be able to get any basis of that advice made public?

Mr Greg Smith —I believe that we have had these questions before.

Senator MARGETTS —Sure.

Mr Greg Smith —The Treasurer has provided answers. He does not wish, I think in accordance with standard practice, to hand over legal advice.

Senator MARGETTS —Okay. I would think from the nature of these questions there is a very strong likelihood that the bills will be challenged for their constitutionality, not just on one issue but on a number of different issues. If the package goes through, has anyone done a risk analysis of what the implications are for a successful challenge under section 55 of the Constitution? What would be the outcome?

Mr Greg Smith —It is a hypothetical question. I could not answer it.

Senator MARGETTS —But it is a reasonable question to ask.

Mr Greg Smith —It is a hypothetical question, I think. We have not got advice that gives us any cause for concern about the constitutional standing of the bills.

Senator MARGETTS —What steps would need to be taken, say, 12 months down the track, if a GST is operating and it is found to be unconstitutional under section 55 of the Constitution?

Mr Greg Smith —They are all hypothetical questions. I am not in a position—

Senator MARGETTS —No, that is not. What would the Commonwealth need to do if there were a successful challenge to this package of bills under section 55 of the Constitution.

Mr Greg Smith —It would depend on an enormous possible range of facts which I could not begin to venture into.

Senator MARGETTS —Thank you. I am sure there is some follow[hyphen]up somewhere, and I would be happy to come back with some follow[hyphen]up in a little while. I am sure you will be on this section for some time.

Senator SHERRY —There is an issue I would like to clear up quickly before my leader Senator Faulkner arrives. Mr Evans, I have not seen the total documentation for the agreement between the government and the Democrats about the package that will be supported in the Senate. Does it contain Democrat agreement to support the amendments in the Senate that the government has already tabled, those 128 amendments, that go to the issues of gaming high rollers?

Mr Greg Smith —To my knowledge, there is no reference to that in the correspondence.

Senator SHERRY —Can I ask you, Senator Kemp: does the government believe the Democrats will support the amendments that have been tabled in the Senate in respect of gaming high rollers?

Senator Kemp —We hope that the Senate will support those amendments. We hope the Labor Party will. In fact, the Labor Party will be supporting those amendments. You have changed your view, have you?

Senator SHERRY —Is there any agreement with the Democrats for them to support those amendments?

Senator Kemp —I will have to seek advice on that. I will take it on notice.

ACTING CHAIR —Senator Faulkner, do you have questions on 2.1.4?

Senator FAULKNER —Yes, thank you. I did want to ask a couple of questions, if I could, about where we are up to in terms of the advertising of the tax deal. I wondered if one of the officers or the minister could give us a status report on proposals for the campaign to advertise the tax deal and where it is all up to.

Mr Matthews —We have a range of activities in hand as part of a broad public education campaign which, of course, cannot be active until the legislation is passed. They include providing a full range of publications to assist small business and others to be aware of their responsibilities. The process to develop those publications is in hand.

Senator FAULKNER —But it is not limited to publications, is it?

Mr Matthews —No. We have, as mentioned in previous sessions, entered into a number of contracts that will assist us in making sure that we focus our campaign, to be sure that small business is aware of what it needs to do.

Senator FAULKNER —Are we talking about advertising here aimed exclusively at small business? You are, but I am wondering if there is a broader target audience than just small business.

Mr Matthews —At this stage, there is no contract in respect of advertising. We are still currently negotiating. Of course, any campaign in relation to advertising would be dependent on the passage of the legislation but would be consistent with our role of making the public aware of the nature of the changes and their obligations.

Senator FAULKNER —You say that there is no contract in terms of advertising. I certainly accept that, as you have given that as evidence, but can I take you to an article in the Financial Review on Thursday, 3 June. I do not know if you are aware of it. It is headed `Campaign to sell tax deal gets $28m, referendum $15m'. It does go into some detail about an estimated $28 million earmarked to develop a public and business education advertising
campaign to sell the GST. Can you first of all, as a starting point, tell me what the budget for your publicity and advertising campaign might be? I suppose I am interested to know whether that figure is close to the mark.

Mr Matthews —The original allocation as outlined in the regulatory impact statement for that element of implementation—for public education generally, not just for advertising but for the full spectrum of activities—to my recollection, was around $35 million. I will check that for you, but I am pretty sure that was the figure.

Senator FAULKNER —I would appreciate an accurate figure, but I also accept that.

Mr Matthews —Yes, it was. I can confirm for you that component, which represented a little over 10 per cent of the total implementation administration costs in the first year.

Senator FAULKNER —So the precise figure for the advertising and publicity budget is $35 million?

Mr Matthews —That was the amount allocated when the original package was tabled. As mentioned during earlier parts of this session, the government has provided some additional resourcing because the package has changed somewhat, and some of that additional resourcing will also be committed to what we perceive to be an extended need for awareness and education.

Senator FAULKNER —I am sorry, Mr Matthews, that I missed the earlier evidence. I hope I am not going over old ground too much.

Mr Matthews —No. We did not cover that proportion of it—indeed, not that particular point. I was just referring to the fact that there are additional resources which would be added, part of which will go to additional staffing and part of which will go to providing additional information.

Senator FAULKNER —So the $35 million includes what amount of money already expended?

Mr Matthews —That is the amount that begins in the 1999[hyphen]2000 year, of course. At the moment we are drawing on appropriations made for the current year, so that allocation is for the coming year.

Senator FAULKNER —So it is $35 million for the—

Mr Matthews —It is for the year 1999[hyphen]2000, plus a component of the additional resourcing provided recently by government.

Senator FAULKNER —So what you are saying to me is that that is new money, that none of that $35 million has yet been expended?

Mr Matthews —That is correct.

Senator FAULKNER —I do hear what you say about the additional resources. Can you provide the committee with an indication of what sort of additional resources have been sought for publicity and advertising, please?

Mr Matthews —I believe the component of the additional overall $60 million which has been provided would be less than $10 million. It was estimated as an enhancement of the education campaign.

Senator FAULKNER —So this could be, then, anything up to $45 million in 1999[hyphen]2000? Is that what you are saying?

Mr Matthews —It could be. As I say, we are yet to see the final details of the package. I did mention earlier that we will make our final allocation decisions around staffing and public education when we know the full extent of the package.

Senator CONROY —Can I just clarify one thing. There is an article in today's paper, on the front page, which makes reference to `a major row that has erupted among members of its small business consultative committee'—that is, the government's—`over how best to spend $500 million earmarked for implementation of the GST'. It goes on to say, `The ATO is attempting to secure a portion of the funds to help defray its costs in educating small business operators.' On top of that amount of money that you have just outlined to Senator Faulkner, is there a suggestion here that you may be obtaining more money for education, for small business in particular?

Mr Matthews —I am not aware of the source of that report, Senator. I am aware that that consultative group is required to report to government. As far as I am aware, government has not yet taken its decision on the allocations.

Senator CONROY —What I asked you was whether the tax office is seeking some more money for education out of this $500 million.

Mr Matthews —The tax office has been participating in that committee. But, as I say, it is a committee which will advise the government and, as such, I think it is advice to the government that they will announce their conclusions on.

Senator CONROY —So it is possible, then, on top of the money you have outlined—there could be $45 million there—that if the consultative committee recommends it, there could be some coming out of that $500 million?

Mr Matthews —If that is the recommendation, that would depend upon the government's view as to the education needs. Of course the ATO is only one area where the commitment to inform the community is made. There are professional bodies, small business associations and so on, that of course would be part of an overall activity to inform the public.

Senator FAULKNER —As I understand it, from what you have said to us, Mr Matthews, there is a plan to expend $35 million in 1999[hyphen]2000 and up to a further $10 million in the same year.

Mr Matthews —That is on current planning. As I say, we may refine that as we settle the exact application of the additional funding. I do make the point again that that is across the full spectrum of tax reform business education—not advertising. That encompasses the publications and other things that I have talked about—seminars, and so on.

Senator FAULKNER —Is the lead agency for this the ATO—just so I am clear on that?

Mr Matthews —Yes, that would be the case. The ANTS document, in fact, commits the ATO to a major campaign in this area.

Senator FAULKNER —So, for these moneys of between $35 million and $45 million, have you something that you might be able to provide to the committee which outlines in more detail the plans you have in terms of the production of documents and the sort of publicity and advertising campaigns that are being considered to promote the tax deal?

Mr Matthews —In some areas I can give you more information. In particular, we have engaged Ernst and Young. The full part of this contract, of course, will not be activated until the legislation is passed, but we have engaged them to work with industry on our behalf to develop a full range of industry specific publications aimed at informing those industries of their obligations under the reform package. The aim there is to ensure that those packages are
in a language for, and are using examples that are tailor made to reach, that audience. So that is a significant contract. As mentioned, not in this session but in previous estimates sessions, we have engaged Worthington Di Marzio to undertake qualitative research and AMR Quantum Harris to undertake quantitative research. Worthington Di Marzio does qualitative and AMR Quantum Harris does quantitative research, which includes a non[hyphen]English speaking background and an indigenous component. We will be reviewing that arrangement at 30 June, but that research has been aimed at ensuring that we focus our activities in the best possible way.

Senator FAULKNER —I am interested in understanding, for example, the engagement of Ernst and Young being funded out of the 1999[hyphen]2000 funds expended in the 1999[hyphen]2000 financial year. They have been engaged?

Mr Matthews —Yes.

Senator FAULKNER —What are the contractual arrangements there with Ernst and Young? What is that worth? What is that costing?

Mr Matthews —The post[hyphen]passage contract would be about $1.5 million.

Senator FAULKNER —I assume that does not include the actual cost of the publications, et cetera?

Mr Matthews —No, it does not. But the overall amount would include the full printing, dispatch and all of those activities associated with the publications. But my understanding is that that is not included in the Ernst and Young price.

Senator FAULKNER —That relates to the actual work of Ernst and Young, and any publications that are produced that might benefit from the advice of the Ernst and Young consultancy will be over and above the $1.5 million cost to the Commonwealth. Would that be correct?

Mr Matthews —Yes.

Senator FAULKNER —What about Worthington Di Marzio: they have obviously been previously engaged, as I understand. Have they been engaged again for the 1999[hyphen]2000 financial year?

Mr Matthews —The agreement will be reviewed at 30 June, so I cannot commit beyond that point at this stage.

Senator FAULKNER —Where is the process of reviewing the agreement up to?

Mr Matthews —The process will be reviewed at 30 June, consistent with fully activating the education package, on passage of legislation.

Senator FAULKNER —Yes; but will this be a competitive tendering process for other qualitative researchers, or are you looking more to extending the current contract that you have with Worthington Di Marzio?

Mr Matthews —I would think the latter, Senator; but I can check that and, if necessary, reconfirm it.

Senator FAULKNER —I would appreciate it if you would take that on notice, Mr Matthews, just so that we are clear on whether we are going to another tendering process in relation to that qualitative research.

Mr Matthews —Yes. As I said, I think that it is the latter, consistent with the Ernst & Young contract which is geared in a way to be engaged fully upon passage of the legislation.

Senator FAULKNER —Yes. Is the same true for AMR Quantum Harris and their qualitative work?

Mr Matthews —Yes; that would be the case. So I can take those on notice and confirm if there is any variation.

Senator FAULKNER —If you would, I would appreciate that. Of course you cannot advise us, given that this matter is being reviewed, of what cost there might be to the Commonwealth of re[hyphen]engaging either of those research firms.

Mr Matthews —Not at this stage, no.

Senator FAULKNER —I see. Have any other research firms been engaged?

Mr Matthews —No. Those are the areas for research.

Senator FAULKNER —They are the only plans you have? You are confident that all your qualitative and quantitative research needs can be dealt with by either Worthington Di Marzio or AMR Quantum Harris and whatever might evolve from the review of those two research firms?

Mr Matthews —Their original engagement would have been on that basis and, of course, what has happened to date would no doubt be factored into the review.

Senator FAULKNER —Okay. Have you looked in terms of breaking up this $35 million to $45 million budget for promotion, publicity and advertising into the broad areas of promotion: book or booklet production and advertising in print, radio, television, other media and the like? Can you give me some broad parameters there, so that I can understand a little more what we are talking about?

Mr Matthews —In very broad terms, I can give you some indication of some areas. But, as I say, our conclusions on this will depend upon some of the changes yet to come. For example, I can tell you that the publications and printing area that we talked about could be in the order of $7 million, and direct mail costs in the order of $6.5 million to $7 million. We have already covered Ernst & Young.

Senator FAULKNER —Ernst & Young is $1.5 million.

Mr Matthews —We have already mentioned that there will be multimedia and other distribution expenses estimated to be in the order of $1 million, and external stakeholder estimates for tax professional education—

Senator FAULKNER —I am sorry, but I am a little behind you here. We have multimedia and other—

Mr Matthews —Multimedia and other distribution costs are estimated to be from $1 million to $1.5 million. There will be a major commitment to providing seminars and supporting those seminars with materials, and assisting the efforts of other training—particularly tax professional education. All up, what I would call the `external stakeholders' estimates and speaker programs, videoing seminars, and seminars themselves alone would be in the order of just over $3 million, with around $2 million to support those seminars with videos and, if you like, leverage activities spinning off seminars.

Tax professional education has an allocation of around $800,000. With regard to funding associations for distribution costs, we are keen to form a partnership with some of the professional associations in this area, as I have already indicated. Training of other people to educate taxpayers and industry[hyphen]assist specific products together would add up to around $1.2 million. Those are the major components as yet earmarked.

There will be of course, as you mentioned, a commitment to a broader advertising activity. But we still do not have a contract but are negotiating that contract at the moment, and so I cannot give you a figure in that area.

Senator FAULKNER —You do not have a contracted figure, but I assume you have the general parameters that you are working to, wouldn't you?

Mr Matthews —I do, but we are subject to negotiations at the moment.

Senator FAULKNER —It would be useful from the committee's perspective if you would outline to the committee your broader advertising activity. I appreciate where you are up to at this stage. I assume you have a bidding process or a tendering process under way. It would be useful for us to know what has occurred and where this is up to.

Mr Matthews —You will appreciate that probably one of the largest components of our implementation team at the moment is geared around the industry liaison that is already occurring in this business education program. I would be happy to take that on notice.

Senator FAULKNER —I am sure there is someone here from the ATO who can assist us with where the advertising campaign is up to.

Mr Matthews —As I pointed out to you, we are negotiating with a short-listed company and it is not practice to name those, but we have gone through a process of short[hyphen]listing and we are now in negotiations with them. I can take the question on notice and provide you with an answer.

Senator FAULKNER —It may not be practice at Senate estimates to name them—I suppose there are different views about that—but it seems to have received a fair bit of publicity in newspapers. I am not seeking the names of the short[hyphen]listed companies at the moment but I am trying to understand the process that has led to the short[hyphen]listing. If you could outline that to us in some detail that would be helpful.

Mr Matthews —They will be the normal processes of going to tender: short[hyphen]listing, the ministerial committee on government communications, OGIA and so on, all of those processes which have been touched on in other—

Senator FAULKNER —Yes, but can you give me some time frames and detail around that?

Mr Matthews —I cannot, but I am happy to provide some of the stages around that, if you will allow me to take that on notice. I have not been directly involved in those processes.

Senator FAULKNER —Would there be any other officer who could assist us with that process? I appreciate you have other responsibilities, Mr Matthews.

Mr Matthews —I could make some inquiries during the session and report back, but I do not have that information and there is nobody here who can deal with those matters at the moment.

Senator FAULKNER —One of the problems here is when you have articles in the Financial Review last week saying that they believe the Treasury's taxation reform division has short[hyphen]listed two US[hyphen]owned multinational agencies for this task, and names them—McCann Ericsson and J Walter Thompson. It is unfortunate that in those sorts of circumstances these sorts of process questions cannot be answered. I hope you are clear on this, Mr Matthews: I am seeking an understanding of the process—the tendering process and the short[hyphen]listing process. I am not asking for the names of the two short[hyphen]listed companies. As I said, there is already press speculation about that. I am looking more for the detail in relation to the processes undertaken and the time lines that the AT0 has engaged in here. So in these circumstances perhaps it is
best to take that on notice. But I am disappointed that we cannot get a bit of an indication or a sort of broad brush in terms of a budget for this sort of advertising campaign. I cannot imagine why that is a matter of commercial[hyphen]in[hyphen]confidence.

Mr Matthews —I am not actually suggesting that that aspect is; I am just saying that I personally regret that I cannot give you the details and the dates that you require. But I will certainly provide that urgently on notice.

Senator FAULKNER —Thanks for that. Is there any reason, though, why you cannot provide me with information in relation to the advertising budget and the components of it that you are looking at here in terms of promotion of the tax arrangements?

Mr Matthews —As I say, we are still negotiating that, and that no doubt will be available when those negotiations are completed.

Senator FAULKNER —Yes, but surely all short-listed companies and others are provided with the same information in relation to the government's requirements for an advertising campaign?

Mr Matthews —I will take that on notice also and factor it into our response.

Senator FAULKNER —Is there no-one here who can assist us in relation to those particular matters?

Mr Matthews —Not immediately, unfortunately.

Senator FAULKNER —Have you consulted Senator Lees and the Australian Democrat senators about the nature of an information campaign?

Mr Matthews —No, to my knowledge we have not consulted in that way.

Senator FAULKNER —I see. Are there any call centres proposed on this occasion?

Mr Matthews —We intend, as part of our general obligation, once passage is past, to be able to take and meet community demands for information, and call centres are certainly part of our strategy there.

Senator FAULKNER —Where do I find that in the list?

Mr Matthews —I do not think it is included in that budget. I would need to check that, but I would say that with the call centre activity the major costs are the staffing and infrastructure costs of establishing the centres, and they are funded mainly under our work force and logistics budget. Even though I think you are correct in saying that they are part of broadly meeting our obligations to respond to questions from the community, the major costs and effort required are in infrastructure, work force training and so on.

Senator FAULKNER —So what sorts of public information campaigns are we actually talking about here? What are you looking at? You have told us about business information, I think it is fair to say.

Mr Matthews —Yes, there will certainly be a major commitment to informing business on what their obligations are.

Senator FAULKNER —You have talked about some form of public information campaign, I think.

Mr Matthews —We have mentioned a broader awareness.

Senator FAULKNER —What about compliance?

Mr Matthews —Yes, that will certainly be part of the obligations work. I would say too that we have a major commitment to placing a significant number of people out in the community,
specifically aimed at assisting business with understanding how the changes will affect their business and assisting them to meet their obligations and becoming aware. That is probably one of the major planks of our effort to supplement the more media related efforts. We will have a significant number of people working in the community, using strategies similar to those in New Zealand, where people will actually undertake advisory business visits on business premises and help people understand what they have got to do.

Senator FAULKNER —What other elements of the public information campaign do you think it might be useful to draw to the committee's attention?

Mr Matthews —We will, of course, be responding to written advice and correspondence, another major area of our work force, as is normal with taxation generally. We be supplying interpretations and advice on the law as passed and consulting with industry on a continuing basis to assist them in their efforts in educating their client bases. So we have, as we do in other parts of the office, a kind of general inquiries function, whether it is run through call centres or not. I would say that call centres are an emerging strategy for the ATO generally, where the call centres that we will be establishing in readiness for tax reform will also be providing the ongoing advice to small business clients generally on the existing tax and income tax activities. Those have been announced. These elements are part of our normal gearing up to respond to the general inquiries of the public.

Senator FAULKNER —This is all separate to the ACCC's compliance information campaign?

Mr Matthews —Yes, it is. We are of course liaising with the ACCC but as yet we have no plans beyond talking with them.

Senator FAULKNER —Do you remember the budget for that one?

Mr Matthews —I would be guessing in a sense. I think there was something of the order of $27 million all told provided to the ACCC for its role here, but I say that really from the depths of my memory somewhere. That would be covering that whole activity.

Senator FAULKNER —So that is not included at all in this $35 million to $40 million?

Mr Matthews —Not directly, no.

Senator FAULKNER —And of course that does not also include the amount of money we have already had expended. It is really starting to add up, isn't it? Are you planning any sort of separate information campaign on the bush/city diesel differential issue, for want of a better description?

Mr Matthews —That would to some extent depend on the details of how those changes are to be administered. But, like most changes, there will be a requirement of course to inform those members of the public affected by those changes or who will have those entitlements as to the processes that are required and their obligations or entitlements. So the short answer is that there would be something there, yes.

Senator FAULKNER —Have you got a proposed budgeted amount for that?

Mr Matthews —No, I do not.

Senator FAULKNER —Are you looking at one or more advertising agencies to carry out this campaign for you?

Mr Matthews —As I mentioned, we are currently negotiating with one short[hyphen]listed company at this stage.

Senator FAULKNER —I see. Have the ministerial communications committee completed their processes in relation to this one short[hyphen]listed company?

Mr Matthews —They have certainly been involved. Whether that is at the completion point, I will provide to you in the advice we talked about earlier.

Senator FAULKNER —Is anyone planning to mention the GST this time around in the advertising campaign?

Mr Matthews —I think it will be hard to inform the community of their obligations without some reference to it.

Senator FAULKNER —You managed to spend an awful lot of tens of millions of dollars of taxpayers' money last time around without mentioning it.

Mr Matthews —As I mentioned, this campaign and this whole education effort commences when legislation is passed.

Senator FAULKNER —Yes, that is a very significant difference, I will grant you. Has the Treasury made any assessment in fact of the original McCann Ericsson campaign?

Mr Greg Smith —We have not done anything since the campaign was run.

Senator FAULKNER —Has any thought been given to trying to make some judgments after the event about the effectiveness of the campaign? This sometimes occurs, as you know. It is not necessarily standard operating procedure but I wondered—with that significant expenditure of public money, I am sure you would agree—whether there has been any consideration given to evaluating the effectiveness of the campaign.

Mr Greg Smith —I am not sure how much you wish me to spend on it but at the moment I have no funds available to conduct that.

Senator CONROY —Try the front page of the Australian today as a starting point.

Mr Greg Smith —I have not got any plans to evaluate the advertising campaign.

Senator FAULKNER —I appreciate that.

Mr Greg Smith —I had not thought about it either.

Senator FAULKNER —That is what surprised me—that no thought had been given to any evaluation of the campaign and its effectiveness.

Mr Greg Smith —As I say, you would probably want to evaluate it if you felt you were going to repeat it. I would expect that there would be some de facto evaluation in the tax office's research because things like awareness levels will be established by their research. But whether you could ascribe that to any particular source I do not know.

Senator FAULKNER —Can I be assured, though, that we are not going to have a situation where any of those responsible for providing market research information to Treasury this time will be concept testing ALP ads? You know that this matter was raised previously. I do not want to till over old ground, but can I be assured that we will not have to face up to that issue in the future?

Mr Greg Smith —As I say, there is nothing further coming in the Treasury. Are you asking about the tax office campaign?

Senator FAULKNER —I asked the minister. As you would understand, Mr Smith, all my questions are directed to the minister at the table. I appreciate you responding to it as you did. It is an important issue nevertheless and I think it is one that we have canvassed previously.

Mr Greg Smith —I am happy to repeat what I told Senator Ray, which was that, had I been aware of that, I did not think that we would do that.

Senator FAULKNER —It goes really to the issue of quality control that the responsible agency has in terms of some of these processes. Perhaps I could ask you, through the minister, Mr Matthews, whether you are aware of the previous experience which Mr Smith and myself have just been canvassing and whether you are able to assure the committee that we will not have any circumstances such as that occurring in the future?

Mr Matthews —I am not aware of the previous matter. As I said, our campaign is aimed at meeting our obligations once legislation is passed to the community.

Senator FAULKNER —Previously we have had the responsible qualitative advertising agency actually market testing ALP advertisements. I think Mr Smith has indicated that, had he been aware, he would have done something about it, and I accept what he says.

Mr Greg Smith —I would just say that at another hearing I gave the full facts and circumstances on this matter, as I understood them, to Senator Ray. I do not think we did quite express it in terms of a concept testing of ALP advertisements. The context in which those advertisements were looked at was to assess whether or not certain messages were influential in focus groups and establishing what type of information they would need to answer those types of concepts. That was the context at the time.

Senator FAULKNER —I am aware that the terminology `concept testing' is all my own work. I hear what you say, but I would argue that it is an appropriate terminology to use. I hear what Mr Smith said and I accept what he said about his knowledge at the time and what he would have done, the action he would have taken had he been aware of it. What I am interested in understanding at the moment, Mr Matthews, given that we have another proposal for massive government expenditure on promotion, publicity and advertising, is whether the Australian Taxation Office is going to be ensuring that we have no repeat of those sorts of circumstances.

Mr Matthews —We certainly have noted the previous experience and will be looking to that.

Senator FAULKNER —It goes to the nature of the advertising campaign, doesn't it?

Mr Matthews —Indeed.

Senator FAULKNER —Whether it is genuinely an information campaign, in other words, whether it explains the tax deal or whether it goes beyond that into areas that the opposition would say would be inappropriate.

Mr Matthews —As I have mentioned, our understanding of our obligation is that we inform—

ACTING CHAIR —Mr Matthews, Hansard would appreciate it if you could speak a little louder for them please.

Mr Matthews —My apologies. I will get closer to the mike. As I was saying, our understanding of our obligation, as outlined in the ANTS document, is to make a commitment to ensuring that the community is aware of the changes and informed of their obligations. That will be our focus.

Senator FAULKNER —How are you going to ensure that that is the case? What are you going to do to ensure that the advertising is as you describe it?

Mr Matthews —We will be going through the process to ensure that the content of our approaches is going to deliver those outcomes.

Senator FAULKNER —Are you going to monitor it?

Mr Matthews —Certainly, and there is, of course, provision—

Senator FAULKNER —Who is going to monitor it?

Mr Matthews —The monitoring of the effectiveness of our campaigns, in terms of that awareness and information, will be done within my program as part of the business education commitment. It follows that we need to know whether we are meeting that obligation, so we will be monitoring in that sense.

Senator FAULKNER —Given that this advertising campaign is not going to begin until the legislation is in place—that is what you have told the committee—does that mean we are unlikely to have the situation we had with the community education information program tax advertising, where it turned out to be very misleading because the pre[hyphen]election proposal of the government appeared to be nothing like the post[hyphen]election outcome?

Mr Matthews —Could I make one other comment to clarify about the timing. There is some knowledge and information that business needs now, and we have already tried to meet that obligation, in terms of fact sheets around transitional issues. There may be some timing of, for example, the measure for businesses to be aware that they would have an entitlement to a wholesale sales tax credit on passage of the GST legislation. We would have an obligation to ensure that those businesses are aware of that. I do want to be clear that there are other changes under tax reform which have already been passed by the parliament, such as the changes to the group tax system and timing. And of course there is a continuing obligation. These things do not all come on, and they are being coordinated as one package. Not everything is tied to the passage of the legislation. There are some things that we could get out.

Senator FAULKNER —Perhaps copies of that material could be made available to the committee?

Mr Matthews —Yes, I would be happy to do that.

Senator FAULKNER —That would be interesting because I assume that would be in a similar form, that some of the materials that you are looking at—

Mr Matthews —If it would assist you I can certainly provide information on the fact sheets, the fringe benefits tax changes and other things that we have already had to move on because of their timing.

Senator FAULKNER —So do you think it is likely that you will be sending to small businesses, for example, great whopping long lists of things that the GST applies to and smaller lists of what it does not apply to? Is this the sort of thing that you are likely to be doing?

Mr Matthews —We will be taking the advice of the professionals that we will engage on the best way to reach the various audiences and segments that we need to. Publications will certainly need to be as clear as possible so that businesses can understand, in terms of their own business, how the changes apply to them. Whether that involves lists or not, I—

Senator CONROY —Surely it would have to include a list. If you are a small business or a corner shop you are going to need to know.

Mr Matthews —Are you focusing on a particular area, Senator, or is this just in general terms?

Senator CONROY —I am now. I probably just narrowed it down a little.

Mr Matthews —To which area?

Senator CONROY —A corner shop: surely you are going to have to send a corner shop an absolute list of items by item?

Mr Matthews —That is not clear until we get the detail of the legislation. We will certainly—

Senator CONROY —Unless there is a new deal to exclude all food, a corner shop is going to need to know for every single item.

Mr Matthews —We will be taking professional advice on the best way to ensure that small business is informed—be it the corner shop or others—of how to meet their obligations and what they need to know. I cannot predict at this stage whether that will involve lists or other forms of communication or information.

ACTING CHAIR —Are there any further questions?

Senator FAULKNER —I am wondering what you have had to do in relation to the Worthington Di Marzio research, given the changes to the original Liberal[hyphen]National Party election tax policy? How have you been able to use that research, given the changes that have occurred since that time?

Mr Matthews —I am not aware that we have made any changes to that approach, but I will take that on notice.

Senator FAULKNER —Is there a particular division in the tax office that has responsibility for this advertising campaign? Does the tax reform division still exist?

Mr Greg Smith —No.

Senator Kemp —Mr Acting Chair, just before we continue, I have had an indication that a number of matters will not be raised in the course of the evening and it means that the officers could go, if that is acceptable to the committee?

ACTING CHAIR —That would be a very sensible move for the areas that are not to be explored.

Senator FAULKNER —We thought you would agree.

Senator Kemp —I understand that 3.1.1—Foreign investment policy advice and administration—is not required or 3.1.4. It looks like the Mint again fails to get a question.

Senator SHERRY —Senator Conroy was just weighing up his next questions.

Senator CONROY —You can send the Mint home.

Senator Kemp —So the officers required for 3.1.1 and 3.1.4 are not required?

ACTING CHAIR —Given your comments, Minister, and the acquiescence of members of the committee that they have no questions on either 3.1.1 or 3.1.4, the officers are excused.

Senator FAULKNER —There was a division called the tax reform division—I was not sure whether it was in Treasury or the ATO and I just wanted to be clear on that.

Mr Greg Smith —The Treasury formed the tax reform group. It had a tax policy division and eventually the tax reform group and the tax policy division were re[hyphen]merged, but in October last year the Treasury restructured completely and the structure we are now working to reflects
the new program structure of the Treasury. We now have in the Budget Group, which is what we are currently dealing with, four programs and six divisions. Tax is an output of most of those six divisions.

Senator FAULKNER —I appreciate that. I just wondered if what I thought was called the tax reform division still existed. Has the ATO, to your knowledge, Mr Matthews, had any direct or indirect contact with Senator Lees or the Australian Democrats?

Mr Matthews —Not that I am aware of, in the context that we have been talking about. The office is a big place, but I am not aware that there has been any contact.

Senator FAULKNER —What about in any other context?

Mr Matthews —No, I am not aware of any contact.

Senator CONROY —There have been no meetings between any officers from your office and the Democrats?

Mr Matthews —Democrat senators, no.

Senator CONROY —Democrat staff?

Mr Matthews —There have been meetings involving tax office people and Democrat staff, yes.

Senator FAULKNER —Why were they initiated?

Mr Matthews —It is consistent with our responsibility for legislation. The Prime Minister has made clear that the details of some elements of the revised package need to be followed through and worked out in detail, and we have been participating in discussions connected to that.

Senator FAULKNER —What sort of tax office resources have gone into that?

Mr Matthews —They are only those that are connected with the area of my program that is involved in producing and advising on the legislation.

Senator FAULKNER —With respect, that is not actually an answer to the question. I was wondering to what extent resources of the ATO have been expended on meetings with Democrat staff.

Mr Matthews —Nominal. We are talking of the order of only one or two at the most.

Senator FAULKNER —What about in the Budget Group, Mr Smith? Is there a similar situation?

Mr Greg Smith —With providing advice to Democrats?

Senator FAULKNER —Yes.

Mr Greg Smith —We have been involved in some discussions but, by and large, these have been conducted by the government and ministerial advisers.

Senator FAULKNER —I understand that by and large they have, so I am not asking about the government's discussions with the Democrats. I am talking on, if you like, a departmental or agency level.

Mr Greg Smith —It has not been very substantial.

Senator FAULKNER —It may not have been very substantial, but what are we talking about?

Mr Greg Smith —Occasional meetings, occasional briefings, occasional discussions and maybe a phone call.

Senator CONROY —Mr Evans is publicly named as having gone to join the discussions at various stages.

Senator FAULKNER —I understand that Mr Evans has been involved with Mr Howard and Mr Costello in meetings. I accept that. I think I might have even seen these sorts of meetings in photo opportunities, with no detail of the substance of the discussions. I am interested in those that do not involve the government—in other words, how the tax office or the Treasury handles these sorts of discussions when a minister is not present, the tick[hyphen]tacking that might occur between the Australian Democrats and the tax office or the Treasury at a bureaucratic level. Perhaps you could be a little more explicit about that, Mr Smith, so we understand what we are talking about here. Also, I think it would be useful for the committee to understand what guidance you provide to Treasury officers in terms of these sorts of dealings. It is a little different or unusual, I would assume, in terms of discussions between non[hyphen]government parliamentary representatives and the bureaucracy. I assume that there is certain guidance you would give your officers of how that should be handled.

Mr Evans —Senator Faulkner, let me take that. Our standard practice is that we would not have discussions with other members of parliament without the Treasurer's approval. If we were approached directly, we would advise the member concerned to contact the Treasurer and, with his approval, we would then undertake the discussions as he directs. That is very longstanding practice, and I am not aware of it having been departed from. When you were asking the questions just now, I understood that what you might have been referring to was that, after the government's agreement with the Democrats, the Treasurer may have asked us to follow up on some detail. Indeed, I know that that is the case. For example, we have to do the definition of `food'. That has to be agreed, and that would be just a standard request from the government for us to do that. We would not take an initiative or respond to an initiative on the Democrats' part without the government's agreement.

Senator FAULKNER —Thanks, that helps us to understand it. I suppose it is as I expected the approach of Treasury or, for that matter, another government department would be. But is there a protocol here? I think you are saying the protocol is that this is off limits and will not take place unless the Treasurer approves it.

Mr Evans —That is right.

Senator FAULKNER —In layman's terms, that is really what you are saying to us.

Mr Evans —That is right.

Senator FAULKNER —In relation to the discussions that you have spoken about, Mr Smith, they therefore fall into the category of having the Treasurer's approval.

Mr Greg Smith —The only things I have done are ones that I have been asked to do by the Treasurer, other ministers or the officers.

Mr Jones —Exactly the same convention, set of rules and principles apply in terms of both guidance to people and the operation of the tax office. The same set of circumstances applies to the discussions mentioned by Mr Matthews.

Senator FAULKNER —Thank you for that. Are you able to inform the committee—I think Mr Evans used one example, which is the definition of food—what the issues are that have been canvassed, either between the tax office and the Democrats or the Treasury and the Democrats?

Mr Greg Smith —Generally, in my case, it has been factual material relating to the proposed tax reforms. Beyond that, I do not think I could go into any detail. If you wish, I could take that question on notice and see if the minister wants to me to advise you of anything further.

Senator FAULKNER —I am not talking here about departmental advice to government or anything like that. These are discussions you are having with the Australian Democrats, which seem to me to be in a completely different category to an interface between the department or the tax office and the Treasurer or a member of the Treasurer's staff. These are the Australian Democrats and the department that we are talking about.

Mr Evans —If the government has reached agreement with the Democrats that it wants legislation produced, for example, to a certain standard, clearly we have to help in that process. It is straightforward.

Senator FAULKNER —But what I am asking is: what issues or subjects did Treasury or the tax office discuss with the Australian Democrats or their staff? Mr Smith has been helpful in saying that it was factual material. I suppose I am saying thank you to Mr Smith for providing that information. I was wondering what particular factual material he might be referring to.

Mr Greg Smith —I have taken that on notice.

Senator FAULKNER —Does that mean that you do not know, Mr Smith?

Mr Greg Smith —I know what I have talked about.

Senator FAULKNER —Couldn't you tell us then?

Mr Greg Smith —No, I will take that on notice and see if there is anything further we can give you. It seems to me that it goes to the discussions we have been having and therefore goes to policy advice.

Senator Kemp —We will take it on notice and bring it to the attention of the Treasurer to see whether he wishes to provide any additional information.

Senator FAULKNER —The point I am making, Minister, is that this is not policy advice to government; this might be policy advice to the Australian Democrats, but it strikes me that it is in a very different—

Senator CONROY —The Democrats are giving policy advice to the government.

Senator Kemp —We hear what you say, but I do not think we will vary from that response.

Senator FAULKNER —What is the protocol that applies here? Mr Evans has explained a protocol which I think I well understood and accept, I must say, as he has outlined it. Mr Evans might even be able to help us on this: what is the protocol that exists here between Treasury or the tax office and discussions or an interface with the Australian Democrats or a member of the Australian Democrats' staff? Isn't this in a very different category to government?

Mr Evans —It is precisely as I explained to you. It is clear cut, and any discussions that we enter into would be at the request of the government. The government would decide what the scope of the discussions ought to be on each occasion.

Senator FAULKNER —Be that as it may, what I am inquiring about gently here are the issues that were the subject of discussions and whether this was a matter for discussion between the government and Treasury or the tax office. You might say that that is a category of advice to government or that internal discussions between government and agencies should not be talked about at an estimates committee. The protocol I am seeking and trying to
understand is why this matter—in other words, tax office or Treasury discussions with the Australian Democrats—is not a matter that ought properly to be canvassed and responses expected to be provided to questions asked about it at an estimates committee. I am drawing that distinction, and I think it is a pretty solid distinction.

Mr Evans —I am not sure what it has to do with an estimates committee at all, but I understand your question. Mr Smith has taken that on notice and will go to it.

Senator FAULKNER —How involved is the Prime Minister's office with all of this? Can you assist me with that?

Senator Kemp —You would have to ask that at the relevant estimates committee.

Senator FAULKNER —I am asking how involved the Prime Minister's office is with the Treasury or the tax office. I am not asking at the Prime Minister and Cabinet estimates; I am asking here.

Senator Kemp —I think these questions are a matter for the Treasurer to reflect on as to how much he wishes to provide the information to you. We have said we will take them on notice, and we will just have to wait to see what the Treasurer's decision is.

Senator FAULKNER —Is there any sensitivity about them?

Senator Kemp —Not at all. It is just that I think he may not see this as a matter that is appropriate to be explored in an estimates committee hearing. He may consider the discussions as private and he may wish to keep them private.

Senator FAULKNER —So what you are saying to us is that an estimates committee cannot properly ask a question about the interface between a government department or agency and a third party—the Australian Democrats in this instance. That is utterly preposterous.

Senator Kemp —I am not saying you cannot ask a question.

Senator FAULKNER —I know. We can ask any question we like, but what you are saying is that you are not going to provide an answer because it is embarrassing.

Senator Kemp —No, I am saying to you that we will take that question on notice. We will ask the Treasurer and he will decide what information to provide.

Senator FAULKNER —In other words, you are hoping that these sorts of issues can be covered up at an estimates hearing.

Senator Kemp —No, not at all.

Senator FAULKNER —It seems to me that this is the sort of thing that is quite properly within the domain of estimates committee questioning. If one has a view about internal deliberations between government and an agency then that is one thing, but between an agency and a third party, whoever it might be, is another. That is the protocol that I am trying to address. This is a very courageous interpretation on your part.

Senator Kemp —We will just have to differ, Senator.

Senator FAULKNER —By the way, has anyone reconciled the further 14,000 ANTS booklets which escaped pulping, which were mentioned the last time Senator Robert Ray was questioning Treasury at this committee? Can you help us with that?

Dr Hagan —Could you repeat the question, please?

Senator FAULKNER —I was asking about the ANTS package booklets. Do we know now how many have been pulped and when they were pulped?

Dr Hagan —The number of copies to be pulped is 27,000.

Senator FAULKNER —How many have been pulped already?

Dr Hagan —That is the only group that we have signed off to be pulped, but they have not actually been pulped yet.

Senator FAULKNER —So none have been pulped yet?

Dr Hagan —No.

Senator FAULKNER —But a decision has been made to pulp 27,000 of them. What was the original print run again?

Dr Hagan —The number was 50,000.

Senator FAULKNER —I see, so someone signed off to pulp 27,000. What are these books worth? What do they cost to print?

Dr Hagan —I am sorry, I did not bring the production costs of that with me.

Senator SHERRY —Will you be running off a new, mark II copy of the ANTS package, given the new deal with the Democrats?

Dr Hagan —No decision has been made.

Senator SHERRY —Does Mr Evans know whether there will be a new version, given the Democrat[hyphen]government deal? The original ANTS package is substantially changed; will there be a second print?

Mr Evans —That is a matter for the government.

Senator CONROY —What do you intend to do with the remaining outstanding amount, given that there is a substantial change and the ANTS document at the moment does not reflect what is going into legislation, if the legislation passes?

Dr Hagan —If I understand correctly, 27,000 will be returned from AusInfo to be pulped; there are still some in stock with AusInfo; we are holding some in stock ourselves—we still have an interest in the document. Basically, the balance has been distributed.

Senator CONROY —Don't you think you should recall them now?

Dr Hagan —I was not planning to.

Senator FAULKNER —They are all out of date.

Senator CONROY —We do not want the ACCC to order a recall on them!

Senator FAULKNER —What is the pulping cost? Can you help us with that, Dr Hagan?

Dr Hagan —I do not know that. I could find out, but I do not know the cost.

Senator FAULKNER —I would appreciate you taking that on notice, if you could, and letting us know. By the way, has any of the research that has been undertaken been shared with the Australian Democrats at all?

Mr Greg Smith —Which research are you referring to?

Senator FAULKNER —Has any research—qualitative or quantitative—undertaken under the auspices of the Department of the Treasury been shared with the Australian Democrats at all?

Mr Greg Smith —I think the only release of that was when the Treasurer released—I think it was in November last year—pretty well the lot.

Senator FAULKNER —I was not talking about what had been released. I am aware of that, and obviously an Australian Democrat and anybody else could get after that and read it at their
leisure. I just wondered whether any of the other very substantial research activities undertaken had been shared with the Australian Democrats at all in these private discussions that have taken place.

Mr Greg Smith —Are you talking about the tax office research now?

Mr Matthews —From the ATO's point of view, I am not aware of any. I am sure not.

Senator FAULKNER —You are not aware of it, and that is fine. But do you mean by that: no, it has not occurred?

Mr Matthews —Yes. I mean, no, we have not shared any information.

Senator FAULKNER —That is clear!

ACTING CHAIR —Are there any further questions on 2.1.4?

Senator CONROY —I would like to return to a discussion I was having with Mr Smith earlier about something on the front page of the Financial Review today, where Senator Lees discusses the Treasury forecast of the impact of the new GST at 1.5 per cent. I quote:

This will mean low[hyphen]income earners, on average, will experience price rises of only 0.8 per cent, while prices confronting pensioners will rise by an average of 1 per cent.

I think we were talking about that earlier, Mr Smith, and you were indicating that Treasury have not completed any modelling at all.

Mr Greg Smith —As I said before, we have done some initial work, but we have not got a final estimate that we regard as a final estimate because we want to get the final package before we have a final estimate.

Senator CONROY —That question of the boundaries for food is fairly important for trying to calculate these things. The famous McDonald's amendments and the potential KFC amendments. All those issues are important for being able to determine a final inflationary forecast, I would have thought.

Mr Greg Smith —We obviously have a view as to the likely outcome but rather than publish a figure that may be slightly modified, we will just wait for the final product. Some initial calculations have been done, as I have said before, and I presume that—

Senator CONROY —Ms Lees is saying that you have provided them with a figure of 1.5 per cent.

Mr Greg Smith —I was not familiar with that information. The Treasury has not provided anything directly to Senator Lees. Whether other material has been provided to Senator Lees, I do not know.

Senator CONROY —Has Treasury provided any information to the Treasurer's office?

Mr Greg Smith —Yes, the Treasurer's office has of course received some. The Treasurer—the government—has had our advice right through this process.

Senator CONROY —In terms of an inflationary number, a point estimate, if I can use a phrases from the past Senate inquiry?

Mr Greg Smith —We have provided estimates to the government, but we now await the further analysis and finalisation of the package before we produce a final, precise estimate.

Senator CONROY —So it would be incorrect to say that Treasury has forecast the inflationary impact of the new GST at 1.5 per cent?

Mr Greg Smith —I do not know what that figure is based on. I am not saying that it would be wrong. It is quite likely to be the sort of figure that could be produced, because—

Senator CONROY —But it is not a Treasury figure?

Mr Greg Smith —That 1.5? I do not know yet what our final figure will be, so I will not say that the final figure will not be 1.5 per cent. I do not want to mislead you there. We have not produced a final estimate, because we have not got a final package. That is the only point that I have been making. We have produced preliminary estimates.

Senator CONROY —Sorry?

Mr Greg Smith —As I have said before, we have produced preliminary estimates and have kept the Treasurer advised of those.

Senator CONROY —I think that is the first time you have indicated a preliminary estimate.

Mr Greg Smith —No. I said that we had started the work on this—

Senator CONROY —I thought you had actually previously indicated that you had started modelling but that you had not completed it.

Mr Greg Smith —That is what I meant, though. What I meant by that was that we had produced some initial figuring based on what we understood. But, until it is finalised—and it is not finalised—we do not regard it as final. We leave it to the government then to release final figures when they are ready.

Mr Evans —And we have not provided the government with any estimates of an inflation effect of a GST package.

Senator CONROY —You have not provided it, did you say?

Mr Evans —No. We have provided estimates of a one-off effect on prices, but we would never be so careless as to refer to that as an inflationary impact. There is a very big distinction, as you would know.

Senator CONROY —Notwithstanding that Mr Schumann does not know the difference between an inflationary impact and a price effect?

Mr Evans —I do not know who wrote the article.

Senator CONROY —No. It says `a spokesman for Senator Lees', and I think that Senator Lees's spokesman is Mr Schumann.

Mr Evans —I wanted to let you know that we knew the difference.

Senator FAULKNER —The Democrats obviously do not, which gives us big cause for worry.

Senator CONROY —Could you undertake to explain the difference to them for us, in your discussions?

Senator Kemp —Next question, Senator.

Senator CONROY —The price effect of the GST at 1.5 per cent: Mr Evans, is that the Treasury figure that has been supplied to government? I am not trying to catch anyone out. You were particularly definitive in what had not been supplied, and so I am now trying to ascertain that a price effect—

Mr Evans —Yes. I was being definitive on the issue of inflation, because it goes back to a discussion we had earlier in the day. As to the figures, I will leave that to Mr Smith.

Senator CONROY —I am concerned and confused, Mr Smith, as I indicated to you about an article that I will table now and that I have already given you so that you had it in advance. It is an article in today's Herald Sun , purporting to be some modelling from the Democrats
with the help of Treasury, and I am concerned that it reveals that a GST without food will lift prices about 1.5 per cent. The Democrats then go on to justify their position.

Mr Greg Smith —As the article presents it, it is Democrat modelling—

Senator CONROY —With the help of Treasury, it says, though.

Mr Greg Smith —I know. It does say that. As I say, I do not know—

Senator CONROY —Had Treasury helped the Democrat model?

Mr Greg Smith —No, I do not believe so. What I do not know about is what has happened at the political level, but I do know that at the official level we have not been working with them on modelling and the cameos in that article are not our cameos. I say all this without in any way saying that they are necessarily wrong.

Senator CONROY —I just want to make sure that Treasury do not have their name attached to information that is incorrect.

Mr Greg Smith —It says Treasury officials but I think there may be a confusion with Treasury portfolio personnel that are not Treasury officials. That is the only thing I could suggest.

Senator CONROY —Is there anybody in this room who would possibly fall into the category of any Treasury official who has helped the Democrats with their modelling?

Mr Greg Smith —We have not helped the Democrats with their modelling. Let me be a little careful here: we have given answers to questions on notice quite regularly dealing with so many aspects of this question that it would be easy to take that material—easy if you have a modelling capacity—and construct something.

Senator CONROY —Do you think the Democrats have a PRISMOD in their back pocket?

Mr Greg Smith —No, I do not think they have a PRISMOD but they have access, as everyone in Australia does, to other advisers and they could well have constructed something. I am aware, for example, that even before the government and the Democrats sat down to have discussions cameos similar to this one were published by the Democrats. So obviously they do have a capacity to produce these sorts of things, which is, as I say, not something which is unique to the Treasury. But these are not Treasury cameos. Which information they have used, whether it is the answers we have given or other material that they have obtained, I do not know. But it was not because we sat down with them as Treasury officials and assisted them, which is the implication of one of those sentences. That is not true.

Senator CONROY —If I read you the following sentence:

The Democrats preliminary analysis is based on the ABS Household Expenditure Survey Data and estimated price effects drawn from the Treasury modelling.

Would you say that is not possible?

Mr Greg Smith —I am not saying that is not possible, because we have provided these sorts of results in various answers to questions on notice. They could well be using that.

Senator CONROY —But you have never modelled taking food out—leaving FIDs and BADs on. I mean, you have never modelled this package prior to—

Mr Greg Smith —We have provided advice to the government based on initial PRISMOD modelling. What we have not done is finalise that.

Senator CONROY —Let me be precise: questions on notice are from the opposition, the Greens, Senator Harradine or the Democrats, possibly. At no stage could any of those questions possibly have gone to the package that is now before the parliament.

Mr Greg Smith —That is true.

Senator CONROY —You may have answered all the questions in the world on notice but none of those questions could be relevant to the actual package that is now before us.

Mr Greg Smith —They may well have been relevant, they may have been useful information.

Senator CONROY —I did not say irrelevant, I said not relevant to the package that is before us. It is all connected among itself. If food comes out, you can look at a one-off but everything else stays the same. When you have the scope of the changes that have taken place, it would be very hard to draw any useful information from many questions you had on notice. I am not trying to put words in your mouth but, in terms of the complexity of a modelling that has been done—

Mr Greg Smith —What I do not know is whether they have used that material to help construct their models or whether they have used any other material that they have obtained at the political level. What I am telling you is that they have not obtained anything directly from Treasury.

Senator CONROY —I appreciate that. If I could say to Mr Evans, at least Mr Cherry seems to know the difference between the price effect and inflation figure, so it is only Mr Schumann you need to have a chat to.

Mr Greg Smith —As I say, we provided preliminary information in the development of this negotiation. We had to do that, we had to do it on various assumptions—

Senator CONROY —But it is preliminary information based on not having the details of the final package. One of the great mantras that Senator Kemp has lectured me on at length over the last six months is the diesel fuel situation, and the importance of the removal of diesel fuel to transport costs and those embedded costs that flow right the way through. Even Senator Allison indicated recently that it was not possible for Treasury to have put a figure—in terms of dollars—on the savings or the size of the rebate because she had not yet finished finalising the diesel fuel position. I think it was in the weekend papers where she makes it quite clear that the dollar amount the Mr Vaile was tossing around in parliament last week could not possibly be completely accurate because she had not finished her consideration of the issue. I am not in any way having a go at Mr Vaile. I am just indicating that the Democrats are the ones who are saying as late as Thursday, Friday and Saturday that you could not possibly have reached a dollar figure for diesel. Is that a fair statement?

Mr Greg Smith —We have produced a figure, which we have published in the letter, which is our best understanding of the revenue raised—

Senator CONROY —I accept it is your best understanding, and good luck in coming to a final understanding of Senator Allison's—

Mr Greg Smith —That is always the case with any revenue estimate or costing that we do. We do it on the best information that we have.

Senator CONROY —Sure. But Senator Allison in particular was making the point that she did not feel—this is as late as Thursday's, Friday's and Saturday's papers—that you were far enough down the track in terms of those discussions with them that a dollar figure could be taken for granted yet. I am not saying it was wildly wrong or wildly right; I am just drawing
that point. Senator Kemp has consistently lectured me about the importance of that diesel fuel rebate to the embedded transport costs and those sorts of costs that flow through to the savings involved, et cetera. So, as an example in terms of it not being yet possible for you to make a final price effect, I would have thought that would have been an important component—not the only component but an important component—in not being able to finalise your price effect.

Mr Greg Smith —I think the main one is food, but to get the final price effect—we may be very close now; maybe it will be that our preliminary guess ends up being our final guess. But at the moment, because there is uncertainty about it, I do not want to publish a figure. The Democrats have constructed this figure. They may have used the preliminary information that may have been given to them. I am not privy to what they been given. They may have assisted the development of their estimates using the material we have referred to earlier from Senate estimates. I do not know.

Senator CONROY —But, as you keep saying, you would not publish cameos on the preliminary figure.

Mr Greg Smith —I think these cameos could well be quite close to describing exactly what the result will be.

Senator CONROY —Stop cuddling up to them.

Mr Greg Smith —I would expect them to be quite close, but I do not know; at this moment in time I cannot say. It is not for me to—

Senator CONROY —You would not want to sign your name to it just yet.

Mr Greg Smith —It is not my job to sign my name to these things.

Senator CONROY —Someone signs Treasury's name up to your estimates.

Mr Greg Smith —This is not our estimate. I have told you this is not a Treasury cameo.

Senator CONROY —I am just trying to absolutely nail down that the price effects that are being claimed in today's press release are not price effects that you have published or that you consider to be complete. They are preliminary estimates.

Mr Greg Smith —They could well be accurate. They could be very close.

Senator CONROY —You are doing a better job of cuddling up than the entire ministry at the moment, Mr Smith. That will be transparent to anyone watching, so you do not have to worry.

Mr Greg Smith —They are not watching it, Senator.

Senator Kemp —You are exceedingly hopeful. I suspect that they might have switched off a couple of hours ago.

Senator CONROY —I live in hope that we do not toil away unnoticed, much like on the GST committee. I am particularly concerned that it appears that a press release by Senator Lees today is claiming, like in the article that appears to have been leaked yesterday, that Treasury officials are helping with modelling. But you have absolutely cleared up the case that no Treasury officials are helping—

Mr Greg Smith —That is the first I have heard of it, but I would expect, based on many, many examples of these things, that people do confuse ministerial staff with Treasury officials. That is very common.

Senator CONROY —I accept that. Are you able to cast your eye around the room and just ensure that no Treasury official has helped in any way? I am not trying to be tricky. Are you confident that no Treasury official could mistakenly be—

Mr Greg Smith —I do not even know who the Democrat modellers are, to be blunt. We are not aware of anything, and if I find out there is anything I will certainly let you know.

Senator CONROY —There is nobody in the room who can hear me at the moment who would want to put up their hand and say that they could have been mistaken for this Treasury official?

Senator Kemp —I think you have asked the same question, I have to say, at least ten times.

Senator CONROY —I am just trying to help Mr Smith. I do not want Mr Smith to have to make an explanation later because one of the other Treasury officials had accidentally been—

Senator Kemp —Maybe we can move on, do you think?

Mr Greg Smith —I cannot believe that this is happening without my knowledge—

Senator CONROY —I am just trying to save you the problem. As I said, I am particularly concerned because there is a press release that has been issued today by the Democrats purporting to be based on Treasury officials' assistance with their modelling, but you have now cleared up that that is absolutely not the case. Thank you.

Mr Greg Smith —As I say—

Senator CONROY —I will take the shake of the head, even though Hansard could not.

Mr Greg Smith —It is the standard confusion between political advisers and departmental staff. That is what I would assume that to be.

ACTING CHAIR —Senator Conroy, it might be appropriate to move on to things of greater substance in relation to the budget estimates.

Senator CONROY —You have to understand that the Deputy Prime Minister was on the TV at the weekend suggesting that you have some newly formed coalition with the Democrats, so it is not irrelevant. I think those are his words. I think you should get the picture.

ACTING CHAIR —I hardly believe they are relevant to the budget estimates for the Treasury department or the Taxation Office so perhaps we might get back to those, Senator Conroy.

Senator CONROY —Have you not noticed the discussion for the last hour and a half?


Senator CONROY —Have you been asleep in the chair again?

ACTING CHAIR —No, I have not, Senator Conroy. I have noticed the discussion and I have allowed you to engage in a wide ranging discussion, as has been the practice with estimates committees, but I think it might be appropriate to come back to more specific matters.

Senator Kemp —Mr Acting Chairman, I think it was a narrowly cast discussion. I think we had the same questions being asked repeatedly.

Senator COOK —Talking about press releases, on 31 May Senator Murray claimed in a press release that:

Adding up the positives and negatives, our best estimate is that making food GST[hyphen]free will add around $40 million to the Government's admitted $1.9 billion business compliance cost, or 2 per cent.

Does Treasury agree with that figure?

Mr Greg Smith —We propose to provide advice on these questions as requested by ministers for release, as I say, at the time the package is finalised and at the time that the legislation is introduced. I am not in a position today to give any estimates because they would only be preliminary estimates. They would only be estimates that would be based on an incomplete decision set as to how this exemption and the other features of the package are to be constructed and legislated.

Senator COOK —So you would be in a position to answer such a question at what point exactly?

Mr Greg Smith —I would expect that we would be in a position to answer such questions or to develop estimates after we have completed the package, after the government and the Democrats have finalised their agreement on the detail of the package.

Senator COOK —Which will be when?

Mr Greg Smith —Some time between now and when the legislation needs to be introduced, which is in the week commencing 21 June.

Senator COOK —Okay. I may even ask the minister—

Senator Kemp —I bet you will. I am sure you will.

Senator COOK —when this comes before the chamber: does he agree with Senator Murray on that? Does the ATO have anything to add to that answer?

Mr Matthews —No.

Senator COOK —On 30 May the Treasurer said on the Meet the Press program that the cost of compliance for making food GST free will be $100 million plus. This is of course widely at variance with what Senator Murray said. I think you would have to say the Treasurer would be right, wouldn't you?

Mr Greg Smith —The answer to the previous question would be the one I would repeat for this question.

Senator COOK —But for the Treasurer to say that he would have had some advice from someone—surely he would not have plucked it out of the air?

Mr Greg Smith —I would say to you that the basis of that, I presume, could have been a full exemption for food. I do not know the details. What I do know is that we are still working on the details of the design of the features of this package, and those details will have a significant effect potentially on issues like compliance costs.

Senator COOK —I think you are pretty firm on it, Mr Smith. I will have to take that for your answer.

Mr Greg Smith —That is my answer.

Senator COOK —I will ask the Australian Taxation Office the following question. Given the $60 million per year to be added for compliance costs that the new package creates, how is that $60 million calculated?

Mr Matthews —The first point I would make—consistent with my previous answers—is that it would not all go to compliance costs in the audit sense. As I outlined earlier, it would cover a range of costs including providing additional technical advice, additional publications and so on. So that may be compliance in the broadest sense, but not in the narrowest sense. The calculation there was based on input from overseas experience, on estimates previously
quoted here of the US Congress about the implications of making exemptions and, most significantly, it was based on our detailed plans for implementation before the changes were announced.

Senator COOK —So it was calculated according to all that criteria? Is that what you are saying?

Mr Matthews —Yes.

Senator COOK —We have talked about some of these things but let me ask this specifically: does it include additional systems modifications or does it not go that far?

Mr Matthews —I believe not. Again, the details are not fully known but I think our original assessment would be that there are not significant systems changes that would change or add costs to the planning and implementation that we already have under way.

Senator COOK —Senator Lees proposed—I am bound to ask this question—I think in a radio interview, that a way of resolving some of the shades of meaning and difference over what is in and what is out in the case of food, in this case bread, would be to include a recipe for bread in the revised GST arrangements. Is that a preferred Treasury[hyphen]ATO approach, writing a recipe into GST tax legislation?

Mr Greg Smith —Senator, you are going to matters which are currently the subject of policy advice to the government and we will not be in a position to provide you with any information about those matters today.

Senator COOK —So it is under consideration?

Mr Greg Smith —Senator, I said the broad area you are going to is one of policy advice and I will not be confirming or denying what is in or out of consideration.

Senator COOK —No, but if this is included in the basket of things called `policy advice', then it is in your advisings, in which case you have considered it, you have written yes, no, maybe or possible. It is under consideration. That is all I am asking.

Mr Greg Smith —I have nothing further to add to my previous answer on that.

Senator CONROY —Is zucchini loaf under consideration, Senator Kemp?

Senator Kemp —Next question.

Senator COOK —Let me put the question a slightly different way. Is this approach of putting a recipe in legislation consistent with the redrafting program under the ongoing ATO Tax Law Improvement Program?

Senator Kemp —Senator, you may have asked the question in a different way. The answer broadly remains the same.

Senator COOK —It is a slightly different question.

Senator Kemp —It is a slightly different question, but it goes to the substance of the matters that Mr Smith has—

Senator COOK —Do you think it is consistent with the ATO Tax Law Improvement Program?

Senator Kemp —The government will be getting advice on this matter. These matters are being discussed with the Democrats and I think we should wait until the outcome of those discussions before we comment.

ACTING CHAIR —If I might provide some guidance for committee members—

Senator CONROY —Apricot raisin loaf?

ACTING CHAIR —Order! It would certainly assist the expeditious consideration of estimates if members of the committee did not unnecessarily become repetitive in the nature of the questions they ask.

Senator COOK —Thank you, Chair.

Senator CONROY —Banana coconut loaf?

Senator COOK —There are 43 different versions of bread here. Which should be the national Australian recipe? Which other countries include recipes for things like bread in their tax legislation?

Mr McCullough —I would have to take that one on notice.

Senator COOK —Do you know of any?

Mr McCullough —From memory, Canada. I would have to take it on notice, to be accurate there.

Senator COOK —I am not holding you this to be the only or even indeed an accurate answer. But you think Canada may include in its tax law a recipe for bread?

Mr McCullough —That was my recollection. I thought they had—shall we say—a definition that one might describe as a recipe.

Senator COOK —Would you describe taking a step like this in writing tax law—including a recipe for bread—as recognised international best practice in drafting tax legislation?

Mr Greg Smith —I think you are still asking us to reveal our policy advice. I do not believe that we should comment on hypothetical possible arrangements because, in essence, to do so is to provide our policy advice.

Senator COOK —You have made it clear that you have this matter under consideration. It is subject to policy advice and clearly it is not decided, so it must be under consideration. Thanks very much. Given the new tax package, will the ACCC's resources be further increased?

Mr Greg Smith —There has not been any decision to increase the resources of the ACCC as a result of the changes to the tax package.

Senator COOK —It is fair to say the complexity issues are greater in the new package, is it not?

Mr Greg Smith —It is not entirely clear to me that it would make a material difference to the burden on the ACCC, but it is not something I have considered closely. It is a matter that you would normally raise under outcome 3. Structural policy is the responsible area for that matter.

Senator COOK —Just the other day the Prime Minister was reported as making an observation that not all of the savings would necessarily be passed on. Obviously, the ACCC has the responsibility to ensure that they are. He was making this observation in the context that there may be some private pocketing of savings. That would suggest that he, at least, thinks there would be some complexity, because I do not think he has said that before. He certainly did not say it of the previous package. But are there no plans, at this stage, for the ACCC to increase its policing power?

Mr Greg Smith —I am not familiar with those comments that you are referring to. The package that was released does not provide for any additional funding for the ACCC.

Senator COOK —Thank you. The Democrats' original GST[hyphen]free food amendment included in it a four per cent rebate to meet the added compliance costs of making food GST free. That is, if a shop sells GST[hyphen]free food, and was able to claim $100 in input tax credits then, under the Democrats' amendment, they would get a total of $104. Is this four per cent additional rebate part of the government's agreement with the Democrats?

Mr Greg Smith —I am sorry, I missed the track of your argument. But I really do not think I can add anything to what was released in the Prime Minister's letter.

Senator COOK —I was not making an argument. I was just making an observation that the Democrats had said, in their original GST[hyphen]free food amendment that they put up, that a four per cent rebate should be included to meet the added compliance costs of making food GST free.

Mr Greg Smith —The only things that are in the agreement are the things that are in the letter. I do not believe there is a reference to a four per cent rebate in the letter.

Senator COOK —I see. All right. Has the legislative model for food been finally decided as yet?

Mr Greg Smith —No.

Senator COOK —Do you know when you will be in a position for that to occur?

Mr Greg Smith —I answered that earlier—sometime between now and 21 June.

Senator CONROY —Can I just clarify, according to the Democrats' principles and the ones that you have adopted—so I am presuming I can ask a question about the principles you have adopted—fruit on bread is going to be GST free?

Mr Greg Smith —We are not in a position to answer questions like that, as I have said before.

Senator CONROY —I thought that was an agreed principle. I am not trying to sound silly, but I thought that was absolute agreed principle. Minister?

Senator Kemp —The agreement with the Democrats was as released.

Senator CONROY —Can you read me the section on bread?

Senator Kemp —That agreement says that:

The precise definition of taxable food will be finalised after consultation with the Australian Democrats, to ensure that it meets the design principles expressed in the Australian Democrats' circulated amendment.

Senator CONROY —The Democrats put out a press release subsequent to the agreement which includes a table, `Food which is GST free and not GST free'. What is the status of that? They are saying this is the agreement. Are you saying it is not the agreement?

Senator Kemp —I have not seen what you have in your hand.

Senator CONROY —It is from 1 June.

Senator Kemp —There is a process of consultation with the Democrats at present and until these things are finally nailed down I am not in a position to comment.

Senator CONROY —On the bottom of the page it states that the `Full Democrat amendment is attached'. So this table is based on the Democrat amendment. Mr Smith, are you familiar with their press release on 1 June.

Mr Greg Smith —No. Perhaps it was circulated, but I have not personally seen it.

Senator CONROY —I am confused why you cannot answer a question on what the Democrats are saying. This press release is based on their amendment and they have attached their amendment to emphasise that this is their view based on their amendment.

Mr Greg Smith —I have seen their amendment.

Senator CONROY —They have compiled a table arising out of their amendment and you are now saying that the table is not valid, only the amendment. If I say to you that this press release is based on their amendment, I am struggling to understand why you cannot answer a question—

Mr Greg Smith —I am not in a position to comment on the Democrats' press release.

Senator CONROY —What is the status of the press release then? They are saying that this is consistent with their amendment and you are saying that your position is consistent with their amendment therefore—I did not think there was a trick here.

Mr Greg Smith —I am saying that the Treasury is not in a position to comment on that.

Senator CONROY —I am asking the Minister then. Do you agree with the Democrats' press release?

Senator Kemp —The government's position is that:

The precise definition of taxable food will be finalised after consultation with the Australian Democrats.

That is the position which the government stated when it announced the agreement.

Senator CONROY —To give the Democrats their due, they are trying to conduct this in a reasonably transparent way by saying, `Here is the list.' I am surprised that you, Minister, and Mr Smith have not seen their list. It is disappointing that you are not following the debate given that you are the minister in the chamber responsible. This is their list and I am asking you what is the status of the Democrats' statement on `Food which is GST free and not GST free'.

Senator Kemp —What I am saying to you is that the statement that was made in the press release that was issued by the Prime Minister after consultations, and it said that the precise—

Senator CONROY —You are supposed to be helping the Democrats sell this; not say you do not know anything about it.

Senator Kemp —definition of taxable food will be finalised after consultation.

Senator CONROY —I thought the orders from the Prime Minister were to try to help sell this. Here is your opportunity; not say you know nothing about it.

Senator Kemp —I am just saying that that is the position we are discussing with the Democrats at present—the definition of taxable food—and, until that is finalised, I do not think I am in a position to comment further.

Senator COOK —Would you say that the Democrats have negotiated with the government in good faith?

Senator Kemp —I think so, yes.

Senator COOK —And that they have acted straightforwardly and honestly?

Senator Kemp —As far as I know, yes.

Senator COOK —So what they say in their press release would reflect those sentiments?

Senator Kemp —Obviously, if you say it is a Democrat press release, that is a view that they have put.

Senator COOK —You would not think that they would misconstrue the agreement?

Senator Kemp —I do not think so. I do not think there is any attempt to misconstrue it, but there are some boundary line issues which are being discussed. It is better from my position not to indicate until the amendments are finalised. These are being discussed with the Democrats; they will be more precise than that.

Senator CONROY —I thought it was accepted that bread with fruit on it was GST free.

Senator Kemp —That is the position I am putting to you.

Senator CONROY —The Democrats have stated that that is the case. You are not suggesting that they are—

Senator Kemp —I am just saying that there is an issue that a number of comments have been made about—how we can best move forward on this.

Senator CONROY —We understand you want to be as obscure as you can.

Senator Kemp —I am not being obscure.

Senator CONROY —Banana bread, presumably, is okay and escapes the net.

Senator Kemp —I am saying that the precise definition of taxable food will be finalised after consultation with the Australian Democrats.

Senator CONROY —So we should not take anything seriously that the Democrats say publicly between now and when the legislation arrives?

Senator Kemp —They put a view, and they are quite entitled to do that.

Senator CONROY —Are you telling us to just ignore the Democrats—ignore their press releases, ignore Meg Lees on A Current Affair and ignore the chat line with John Cherry? Are you telling us that it does not matter what they say and that it only matters once the detail is out?

Senator Kemp —No, it does not. Quite clearly, anything that is finalised would be done with their agreement. That is quite clear.

Senator COOK —You have said that they have negotiated in good faith and that they have acted straightforwardly and honestly in all of this. They set down in a table food which is GST free and food on which GST is payable. Given your reference of good character on their behalf, one would have to say this is an authoritative list, wouldn't one?

Senator Kemp —I have no doubt that they have negotiated in good faith, but there have been discussions, as you are aware, on the definition of bread and what is involved with that. Until those matters are finalised with the Democrats, I do not think I am in a position to be more precise.

ACTING CHAIR —Are there any further questions?

Senator CONROY —I just want to know whether banana macadamia nut bread is going to fall!

Senator COOK —Is a raisin loaf bread? Is it?

Senator Kemp —As I said, just wait until the amendments are finalised.

Senator CONROY —What is the status then of Meg Lees going on A Current Affair in front of 2 million Australians that night—which is about how many people watch A Current Affair —and saying, `This is in; this is out'?

Senator Kemp —Any amendment which will be passed through the Senate will be passed with the agreement of the Australian Democrats. Anything that we will be putting down will have their agreement.

Senator CONROY —So are you suggesting Senator Lees may change her position?

Senator Kemp —No. I am saying that, as we said in the press release, the precise definition of taxable food will be finalised after consultation with the Australian Democrats.

Senator CONROY —She has made it clear on A Current Affair . She walked down supermarket aisles, pointed at items and said, `That's in; that's out.' Are you standing by what she said on A Current Affair ? You are supposed to be helping her. Your orders from the PM are to get out there and sell it.

Senator Kemp —Senator Lees is more than entitled to say that because, as I said to you, in the end, any amendment which is passed will be with the agreement of the Australian Democrats.

Senator COOK —You are saying to us—correct this statement if it is wrong—that there is no final decision yet between the government and the Democrats as to the detail of what is in food and what is out of food.

Senator Kemp —The information I have is that we are having consultations with the Democrats to work out in the end the precise definition of taxable food. That is exactly what we are doing.

Senator COOK —You are having consultations to work out what the final definition of taxable food is.

Senator Kemp —That is right.

Senator COOK —That statement says that no decision has been finally made.

Senator Kemp —I am not privy to those consultations, but if anyone else can add to the status of those—

Mr Greg Smith —The thing to remember is that there has been a final decision about the broad approach and the principles.

Senator CONROY —The principle was that fruit on bread is okay. I thought that was a principle.

Mr Greg Smith —The principle was set out in this letter, so that is final, but the decision was equally that the precise definition of taxable food will be settled after consultation. That process is not finished.

Senator COOK —The process has not finished, in which case, until it is finished, no-one can say for certain on the marginal calls that those things are definitely in and those things are definitely out, can they?

Senator Kemp —Senator Lees on behalf of the Australian Democrats, as I said, will have to agree with any amendment which the government proposes.

Senator CONROY —This could get you on the 7.30 Report again, if you keep this up.

Senator COOK —As to the status of a document which says what is in and what is out, until this process is final—and you have reassured us several times that it is not now but there is some prospect of it in the future—no-one can be absolutely definitive about particular items of food? That is the whole point.

Senator Kemp —It is exactly what was said in the press statement. The precise definition of taxable food will be finalised after consultation with the Australian Democrats.

Senator COOK —You have just shafted Meg Lees.

Senator Kemp —That is exactly what was said in the press release.

Senator CONROY —The dinner break cannot come fast enough for the PM to give you a ring.

Senator COOK —In the legislation, will there be a list of which foods are taxable and which foods are GST free?

Mr Greg Smith —We have answered this type of question already. We are not in a position in Treasury to tell you what the final form will be. It is a decision to be taken by the government, following consultation with the Democrats.

Senator COOK —The Treasurer's initial response was to favour a regulation which sets down particular foods, I think. Has he changed that position?

Mr Greg Smith —I am not familiar with your reference. All I can tell you is that the government will make this decision following consultation with the Democrats. It has not been made yet; therefore I cannot give you any further information.

Senator COOK —I have to go back and check the actual reference for this statement. The Treasurer made a statement saying that he prefers the actual list of items to be included as regulation, not in the initial act. I am simply asking—

Senator CONROY —What about pumpernickel bread?

Senator COOK —Has there been a decision on whether to keep to that format or change it and put a list in the act?

Mr Greg Smith —The government's decisions will be announced, I presume, in the week beginning 21 June.

Senator COOK —Mr Matthews, are you attending the discussions with the Democrats?

Mr Matthews —No.

Senator CONROY —You have been lucky enough to escape, have you?

Senator COOK —There will have to be a list somewhere, won't there, Mr Smith? How will there be absolute certainty on behalf of taxpayers—

Senator CONROY —About pumpernickel bread.

Senator COOK —Exactly, about pumpernickel bread or the raisin loaf with sugar coating, if there is not such a list. There will have to be a list somewhere, won't there?

Mr Greg Smith —Sometimes in this situation, legislation is cast in one form and rulings eventually provide further information. But, as I say, no decision has been taken on the preferred form at this time.

Senator COOK —In the process of taking a decision, are you consulting actively with small business?

Mr Greg Smith —I gather that consultations are being undertaken with representatives of business interests, but I am not in a position to give you the details of that.

Senator CONROY —The food manufacturers met on Friday with the Treasury; is that right?

Mr Greg Smith —As I say, I am not in a position to give you those details. Most of those consultations are happening at that level, so I am not in a position to assist.

Senator COOK —Are they happening without the presence of Treasury?

Mr Greg Smith —Not necessarily but, as I say, I do not have the details here with me at all.

Senator COOK —Can you find out the details and let us know, Mr Smith?

Mr Greg Smith —I will see whether the minister wishes you to be advised of the details of his meetings.

Senator COOK —The question I am asking so we can be sure is: which organisations and/or individuals are being consulted in making these changes in the act clear to that section of the community that will have to implement them and taxpayers at large?

Mr Greg Smith —I will take that on notice.

Senator CONROY —Spinach bread.

Senator COOK —Minister, you will recall that I did move an amendment to the tax package in its previous incarnation before the Senate. That amendment related to disclosing the amount of tax paid on a customer's receipt—disclosing the initial price, the amount of tax paid and the final price for the customer. The government opposed that and, for the record, might I say, so did the Australian Democrats in perhaps some sort of unexpected preview of what was to come. But both of you opposed that, and one of the arguments you put for opposing it was that customers could simply divide the total price by 11 and work out the amount of the GST. How will consumers be able to do that if they are not certain of what is in and what is out?

Senator Kemp —If you fully read the argument which was canvassed when you moved that amendment, which was lost, you would know that there was a wide variety of arguments put. One which we noted, of course, is that the wholesale sales tax is currently not shown and that there has never been any move by a Labor government to show that. The fact is that the wholesale sales tax is a far more complicated system and that there are many rates. So there were a number of issues canvassed.

Senator COOK —I am not meaning to cut you off, but that would make it easier to show this tax than the wholesale sales tax.

Senator Kemp —I was pointing out that, given the differences that currently exist under the wholesale sales tax scheme, to the extent that you feel it is important, it would seem to have been more important under your preferred system.

Senator COOK —You are the government, Minister. How will consumers be able to work out what they should be charged under a new, horrendously complex system of taxation?

Senator Kemp —It is not horrendously complex at all. Compared with the system it is replacing, it is very straightforward.

Senator COOK —I think that if Senator Conroy were here he might point out Amish friendship bread starter—is that a bread according to your definition? There are 46 different types of bread.

Senator CONROY —There are more than that, I assure you.

Senator COOK —Is that not horrendously complex if all of them are not in?

Senator Kemp —I think that what you should do is wait and see the amendments that are finally put forward to the Senate. Rather than assuming that things are horrendously complex, I think you should wait and see.

Senator COOK —Thank you for your advice, Minister. I think Mr Smith said earlier that the operative date was 21 June. You want this through the Senate 10 days after that date, which does not suggest ample time for the Senate to properly scrutinise all of this complexity, which, as a house of review, is its job to do. So a bit of help to us at this level would be very useful indeed.

Senator CONROY —I am available for an inquiry.

Senator Kemp —You are available or unavailable?

Senator CONROY —I am available.

Senator Kemp —I thought you told me privately that you were unavailable.

Senator CONROY —I think that by the time we have finished support for the GST could be down to 20 per cent, if you are lucky. Orange citrus buns is a type of bread apparently.

ACTING CHAIR —Order! Senator Conroy, the purpose of these estimates is to ask questions, not to make comments.

Senator COOK —The Canadian government can manage to put the actual cost of the GST on its customer receipts. Why can't we?

Senator Kemp —We have stated our position on this: we do not believe that it is required. We believe that for a variety of reasons—one is that it is a straightforward system, unlike the wholesale sales tax system. There are compliance costs to small business. We will not be supporting that.

ACTING CHAIR —Are there any further questions on item 2.1.4?

Senator SHERRY —Can I deal with a couple of matters? The government claims savings for exporters of $3.5 billion and, secondly, $10.5 billion for business in total as a result of the ANTS package. How are these figures made up?

Mr Greg Smith —Which figures are you quoting?

Senator SHERRY —The $3.5 billion savings for exporters and the $10.5 billion for business in total.

Mr Greg Smith —This would be the PRISMOD result, I would expect. I am just trying to find the reference. The estimates were based on the input[hyphen]output analysis in PRISMOD. I cannot confirm those figures now, because I am not sure where they are. I will take that on notice and let you know what the detail is. Did you want an industry breakdown? What type of information would you want?

Senator SHERRY —I think an industry breakdown would be very useful.

Mr Greg Smith —I am not sure if I can do it, but I will see.

Senator SHERRY —Their constituent parts, if it can be broken down into industry. I assume those figures are the figures based on the ANTS Mark 1. Are you doing new figures under the recent Democrat[hyphen]government deal?

Mr Greg Smith —We will be leaving it to the government to announce any further analysis that it wishes to, when we finish the design.

Senator SHERRY —Would you take my request on notice? If the government is anxious to boast about the alleged benefits as a result of ANTS Mark 1, I would have thought we would be getting figures in respect of the latest package. Are you able to confirm whether the $3.5 billion for exporters and $10.5 for business in total are the latest figures?

Mr Greg Smith —They are not the figures I have got. Looking at the ANTS document, I think the 3.5 is the percentage figure. The dollar figure was $4.5 billion for exporters in ANTS. Maybe that is just a transcription thing. The $10 billion figure I have not turned up yet.

Senator SHERRY —On what page is that figure you have just referred to?

Mr Greg Smith —159.

Senator SHERRY —Page 59?

Mr Greg Smith —No, 159. I will have to look up the other figures.

ACTING CHAIR —Senator Cook, do you have further questions?

Senator COOK —If I can turn to the question of the constitutionality argument in relation to the GST and ask you, Minister, to cast your mind back to 23 April, when we had a wide[hyphen]ranging debate on the constitutionality of the GST.

Senator Kemp —Very wide ranging, if I remember rightly.

Senator COOK —Can I quote to you an exchange from Hansard ? Senator Woodley said:

I am still confused about what the minister is saying in this respect. I am not sure if he is actually saying he is going to seek any further advice. It seems to me that he is saying that conclusively the government believes it is right. I did hear him earlier in the debate offer a briefing to Senator Harradine, and at that point I interjected that I hoped the chamber would have the benefit of that.

Senator Harradine—Yes, and that is what I said.

Do you recall that interchange, Minister?

Senator Kemp —I recall an interchange like that, yes.

Senator COOK —You may recall that Senator Woodley went on:

Yes, I thought you would have, Senator Harradine. The point is that the government could have given Senator Harradine a briefing at any point, because he has raised this both as a question and in a speech in the second reading debate. I cannot understand why the government has not at this point brought a briefing into the chamber, because Senator Harradine gave plenty of notice of these questions, and they are fundamental to this debate.

Senator Harradine—And I tabled it.

Is it familiar?

Senator Kemp —Yes, keep it going.

Senator COOK —Senator Woodley continued:

Yes. The reason I say that the time for any private briefings for any of us has passed is that the debate is now here in the chamber, and that is why the answers have to be given here in the chamber. Private briefings are just not applicable. I am sure that is what Senator Harradine's position would be. So that is the problem, Minister. I hope that you will take that away.

Then you replied, Senator:

Senator Woodley raised the point that he believes the briefing should be here; in a sense, this is what we are currently having. This debate has gone on a bit further than I would have predicted but, nonetheless, there has been an extensive debate. There has been a pretty frank exchange of precedents and court judgments which I believe have supported our position. It is up to this Senate chamber how long it wishes to continue; it is quite entitled to continue this debate if it wishes. To the extent I can assist and respond to questions and get further advice to the Senate, that is precisely what I will do.

That is a quote of your reply to the foregoing interventions by Senators Woodley and Harradine. Minister, in the light of this exchange, did the government, either through Treasury or the Australian Government Solicitor, provide any advice—be it written or verbal—to either Senator Harradine or the Australian Democrats on the constitutionality of the GST?

Senator Kemp —I will have to take that on notice and see if I can get you a response.

Senator COOK —We are going to break for dinner in a few minutes and resume at 7.30 p.m. Could you have a response by then, Minister?

Senator Kemp —I am not sure that I can, but I will see what I can do.

Senator COOK —Minister, this is a serious matter. In the chamber you were able to provide some—albeit opaque—enlightenment of the issue. It is a matter of fact whether advice was given or not given, either via Treasury or the Australian Government Solicitor. The House is sitting and the ministers are available. I would have thought it was possible to bring back an answer to this question after dinner.

Senator Kemp —I said I would take it on notice.

Senator COOK —Bear in mind, Minister, that Senator Lees has said that the government has not disclosed to the Senate through its inquiry all of the information that it then voluntarily disclosed to the Democrats in the negotiation. That is an indictment by your negotiating partner, and now co-sponsor of this package, of your directness and honesty in your dealings with us.

Senator Kemp —That is absolute rubbish.

Senator COOK —It is. It is a public indictment. Will you be able to answer this question after dinner or not?

Senator Kemp —I said I will take it on notice.

Senator COOK —I will ask you after dinner if you can provide more advice.

Senator Kemp —If I have an answer I will give it to you. If I do not, I will not.

Senator COOK —As we are not quite at the time, I will ask some other questions which, given that answer, you will probably want to take on notice. If any such advice was given, was it public advice or private advice, and when was the advice given? If it was given by Treasury, who in Treasury would have been responsible for providing or for seeking advice as to the constitutionality of the GST? Finally, the government have just made claims and assertions that the GST is constitutionally valid. Would the ATO—this is a question to the ATO—be keen to fund a test case in the High Court under the ATO's test case litigation program to test that proposition? Maybe the ATO is in a position to answer the last question, because it does not depend on the minister going back for advice.

Mr D'Ascenzo —We have a litigation panel, made up of people from outside the Public Service, who advise on those questions, so it would really be a question of how that panel reacts to those circumstances, should they arise.

Senator COOK —Would you be prepared to fund a test case?

Mr D'Ascenzo —We would first be taking advice from that panel. I do not know what the answer of that panel might be.

Senator COOK —It is a pretty fundamental question—the constitutionality of legislation on tax, isn't it?

Mr D'Ascenzo —Senator, I am just explaining the processes we would take in terms of the litigation test case program.

Senator COOK —Has that panel laid down principles against which it has to be satisfied in order to decide whether a test case will go or not?

Mr D'Ascenzo — There are principles of importance that impact on the rest of the community which would fall favourably in that respect. So there are principles and criteria, but the panel does take it on a case by case basis in relation to the merits of the particular taxpayer.

Senator COOK —Yes. Could you provide us with a copy of the criteria against which they assess? Senator Conroy was keen for me to ask you whether you could also let us know who sits on that panel and makes the judgment about whether or not a test case should go forward.

Mr D'Ascenzo —I can provide that. In terms of the judgment, the panel provide advice to the ATO and ultimately it is a question for the tax office in terms of making those funding decisions. Those decisions would be made either at ATO solicitor level or in consultation with the Second Commissioner or Commissioner, ultimately.

Proceedings suspended from 6.30 p.m. to 7.39 p.m.

Senator Kemp —Mr Chairman, I think there was a request made to have the commissioner here. The commissioner has been able to come along. He was told at extremely short notice. My understanding is that he was not informed that he was required before this committee. Commissioner, we appreciate you finding the time to come to this committee. I hope it has not caused you too much inconvenience.

Mr Carmody —Thank you.

ACTING CHAIR (Senator Chapman) —On behalf of the committee, thank you Mr Carmody for making yourself available at short notice. I declare the committee open from the dinner adjournment. Are there any further questions on output 2.1.4?

Senator COOK —Yes, Mr Chairman. I apologise to Mr Carmody for not going straight to him. Just before we broke for dinner, I asked some questions about whether the government had provided, informally or formally, written or verbal opinions to Senator Harradine or the Australian Democrats about the constitutionality of the GST. And I did foreshadow—if I did not exactly foreshadow in precise language, I certainly gave the indication—that, since the minister was unable to answer that question, I would be asking him to find the answer for it over dinner.

Senator Kemp —Senator, you were extremely precise and I was equally precise. I said I would take that question on notice. I have taken the question on notice. I have not been able to provide you with an answer, but we will provide you with an answer in due course. It is a matter for the Treasurer to turn his mind to. Whether we should provide information to this committee on briefings or other things that we have given to other people in the Senate, I am not sure, but that is a matter that the Treasurer can now turn his mind to. As I said, I will take the question on notice.

Senator COOK —I just draw your attention, Minister, to the extract that I read of your answer on 23 April in which you did indicate, `To the extent I can assist and respond to questions and give further advice to the Senate, that is precisely what I will do.' To this point, you still have not provided advice on that issue.

Senator Kemp —There was a widespread debate in the Senate on the constitutionality issue. I think it went on for some hours. In your remarks to me you indicated that I had provided some views on this matter. You also read out that, as this had become a matter where it was extensively canvassed in the Senate, you were wondering whether you should have a private briefing. I suggested to you that I thought events may have passed that by given the extensive debate we had in the Senate on this matter. I have taken the question on notice and I will see what information we are able to provide to you.

Senator COOK —Mr Smith, did Treasury provide any advice, verbal or written, at the request of the government or otherwise to any senators on the constitutionality of the legislation?

Mr Greg Smith —I am not aware of any direct communications from the Treasury to senators. We discussed that issue of direct communication. I am not aware of anything to that effect.

Senator COOK —What about indirect then?

Mr Greg Smith —I am not aware of the facts and I was not even aware of the debating material that you mentioned earlier, I am afraid, so I would have to go with the on notice on that. I would have to check it.

ACTING CHAIR —Don't you read the debates in the Senate, Mr Smith.

Mr Greg Smith —I do my best.

Senator COOK —Minister, I just want to put this to you very seriously. The government has four men promising but not delivering on issues like this. This is a matter of considerable substance. You are now foxing with the committee, declining to actually answer the question, saying that you need to confer with the Treasurer as to whether these events did occur or not, and even if they did occur, whether it is proper to disclose them to an inquiry such as this. So since you are putting it on notice and you will get back to me, I think your words were `in due course', would you care to share with us how long due course might be and when it would be that you would get back to us?

Senator Kemp —As I said, I will discuss this with the Treasurer. I have indicated that the question is on notice. You are anxious to get an early answer. I will see what we can do. I am not foxing with the committee at all; I totally reject that comment. What I am doing is acting in a quite proper fashion. You have asked a question; I have taken the question, as I am entitled to do, on notice. I have indicated that I am unsure of the position that may be taken in relation to private briefings which are given to other senators. I am not sure what the response to that would be. It is an issue that clearly has to be addressed. We take your questions seriously, Senator—I don't imply any disrespect at all—as we do from the committee. As I said, I will seek to provide an answer to the committee.

Senator COOK —Can you assure me that you will provide an answer before the appropriations come on for debate in the Senate?

Senator Kemp —I will assure you that I will see what I can provide to you as promptly as I can. I do not want to raise expectations, because I said there was an issue in relation to this matter.

Senator COOK —Let me just mark this spot for future reference, Minister. I will be seeking an answer to the question from you. I will be seeking an answer before the appropriations come on. I will be seeking a direct answer, not an obfuscating answer. If the answer is not to the point, and if it is just another fob off answer, I will then have to consider with my party what action we take when we come to vote on the appropriations.

Senator Kemp —That would be a pretty big decision, Senator, let me tell you.

Senator COOK —We might have to move an amendment.

Senator Kemp —This would be a pretty big decision.

Senator COOK —It would be a pretty big decision for the government to withhold information of this nature that should be in the public domain. If you do that, then you should take the consequences.

Senator Kemp —It is a matter for consideration whether matters which are discussed privately with senators—you may be faced with a similar circumstance yourself in future—should become a public hearing, that is all.

Senator COOK —Matters of public importance, touching on validity or otherwise, the constitutionality or otherwise, of your tax revolution—your words, not mine—the biggest tax change in the history of the nation—your words, not mine—are matters of considerable public importance. You do not have private chats about them, Minister; you have actual official briefings, whether they are private or not.

Senator Kemp —That is right.

Senator COOK —If you cannot answer that question and if you will not answer that question—I am just marking the spot—we will come back to it.

Senator Kemp —I have gone on record publicly—which is even more important—indicating that the government is confident that the bills are constitutional. That is the far more important point, and that is on record in the Senate.

Senator COOK —I have put my position.

Senator O'BRIEN —I raised in the chamber the question of the matters relating to the taxation of the racing industry and the implications for it in terms of entities which might be registered under the GST. I think you indicated the last day the matter was on for debate that you had an answer to the questions.

Senator Kemp —I provided answers to all those questions.

Senator O'BRIEN —No, not all of those questions that I am aware of.

Senator Kemp —There was one which was outstanding which I signed off over a week ago. Senator, I think you will find—I may be corrected—and my understanding is that all the questions that you had on notice have been tabled.

Senator O'BRIEN —The questions that I placed on notice through the notice process have been, but there was a question that I asked in the chamber which I do not believe you have answered.

Senator CONROY —Do you think you are Robinson Crusoe?

Senator O'BRIEN —That is another question, Senator. In relation to that, the question I asked was: given that there was a commitment during the campaign that an entity which raced an animal with a reasonable expectation of earning prize money would be able to register as an enterprise. That is different from the answer that you have given me in question No. 434. That is why I highlighted that matter in the chamber. Your answer, in part (5) of question No. 434, states:

(5) An entity who genuinely owns horses for the purpose of racing and carries on that activity in a business like manner (ie with a reasonable expectation of profitability and therefore collecting GST on outputs) should expect to satisfy the tests for being treated as carrying on an enterprise as set out in a 9-20 of A New Tax System (Goods and Services Tax) Bill 1998.

The question I asked you was that commitments were given to the industry that an entity who owns an animal—let us say for the purpose of this question a horse for the purpose of racing—with a reasonable expectation of earning prize money—and that is quite different from the
answer which you have given me—would be able to register as an enterprise and be able to claim back GST inputs and would, of course have to collect GST on outputs. I just want that clarified. It is a fairly simple question.

Senator Kemp —I thought it was clarified, Senator.

Senator O'BRIEN —If you can point me to the parliamentary question or other letter or advice in which that was clarified, I would be very grateful, Minister.

Senator Kemp —I think you read out:

The activity of racing a thoroughbred horse, a standard bred horse or a greyhound is subject to the GST. For registered businesses undertaking racing activities, prizes won will be treated as consideration for a supply of racing services while input tax credits will be allowed for the GST paid on the costs incurred in the course of the business.

I think that was the one. You then read out some—

Senator O'BRIEN —It was 434 I read out.

Senator Kemp —That is the one—434; that is the one I am reading out.

Senator O'BRIEN —It was 434, item (5).

Senator Kemp —Senator, let me make this point: I did check with my office that we had answered all your questions. I was under the impression that we had. There was one outstanding which I cleared about a week ago. But if there is one that you feel I have not answered, I would prefer to look at it, and I will provide you with an answer to it.

Senator O'BRIEN —You have officers here. The proposition I put is different from the proposition that is contained in part (5) of question No. 434, the answer thereto. The reason I am asking you is that it was a specific commitment given to the industry during the campaign; that is, an entity who owned—as in this case—a horse for the purpose of racing carried out that activity with a reasonable expectation of earning prize money. They are the terms that were used during the campaign; they are quite different from those in the answer. I just want you or your officers to say, yes, the entity who carries out that activity with a reasonable expectation of earning prize money will be able, whether they reach the $50,000 turnover threshold or not, to register as an enterprise under the legislation. That is all I want to know.

Senator Kemp —Senator, this is what section (5) says:

An entity who genuinely owns horses for the purpose of racing and carries on that activity in a business like manner—

Senator O'BRIEN —I understand that.

Senator Kemp —It continues:

(ie with a reasonable expectation of profitability—

Senator O'BRIEN —As distinct from earning prize money; a reasonable expectation of earning prize money.

Senator Kemp —It continues:

and therefore collecting GST on outputs)—

Senator O'BRIEN —They are the key words, Minister. If you are saying, replace the words I use with the words `expectation of profitability'—if that is clearly how I should understand the matter—then I accept that answer. I just want you to either rule in or rule out the proposition.

Senator CONROY —You understand the difference, don't you?

Senator Kemp —I think they are quite similar.

Senator SHERRY —They are similar but not the same.

Mr McCullough —If you could just describe to me where you see the difference, I might be able to help.

Senator O'BRIEN —You may have a reasonable expectation of earning prize money, but not make a profit. You are saying `a reasonable expectation of profitability'. I might own an animal that costs me $20,000 to race and I win a race earning $19,000.

Mr McCullough —I follow you now, Senator.

Senator O'BRIEN —And 30 per cent of animals that race, I think, might earn prize money, but owners might race with a reasonable expectation of earning prize money.

Mr McCullough —I would interpret the two as both attempting to get at the enterprise test. If you have a look at the enterprise test in the GST, it allows people who, firstly, conduct a business, and a whole range of other non-profit organisations, to register. If you look at the definition—I do not have it in front of me—there is an exclusion for people who carry on a hobby, for example. So on the one hand, if I just owned a horse myself and had no intention of making a profit and no intention of racing the thing in order to win prize money, I would suspect that the ATO may well find that that person is conducting a hobby and therefore is not in an enterprise test. But I would not interpret those two different phrases that you have focused on as meaning anything materially different. They both address the enterprise test.

Senator O'BRIEN —I think they do mean something quite different. There are a lot of people who would race with an expectation of earning prize money, but not with an expectation of profitability, given that about 30 per cent of animals that actually get to the racetrack earn more money than it costs to purchase, to train and maintain them. If I understand this test, what you are saying is that the Australian Taxation Office would look at each case, would look at how that particular entity operated and would look at whether they had a reasonable expectation of profitability. I would interpose there that they would look at the statistical probability of making a profit in the racing industry, wouldn't they?

Mr McCullough —The actual question of how the tax office determines who is conducting a business is really one for them, but I can assure you that it would not just be in relation to just one criterion. The question of who is carrying on a business and how they carry on a business relates to a whole range of criteria. I am just saying that, to the extent that those questions do not set out the full explanation of how you determine whether a person is an enterprise or how you determine whether a person is conducting a business, you should not focus too much on the slight differences in the work.

Senator O'BRIEN —The reason I am focusing on that is that the words which were used in the campaign conveyed to the industry an expectation that any owner raced an animal with a reasonable expectation of earning prize money. The way that was explained was that if you put a horse in training—you are going to pay for a horse or a dog that has some ability—you put it on the track and you pay for all of its costs, you have a reasonable expectation of earning prize money. It might be $250 for running fourth at Mowbray and you might have spent $100,000 to get there. But that is a reasonable expectation of earning prize money and therefore you can claim your inputs back. What I really want to know is, should the industry understand the legislation to mean that?

Mr McCullough —Senator, it seems to me that you are focusing on the question of whether a reasonable expectation of making a profit is any different from what you have described.

Senator O'BRIEN —It is quite different.

Mr McCullough —Perhaps somebody from the tax office may correct me if I am on the wrong track here, but the question of whether you are making a profit at a particular point in time has never, as I have understood it, been determinative of whether you are in a business and therefore would not be determinative for the enterprise test. You could, as they say, travel hopefully and never get anywhere. You could have a reasonable expectation of a profit and never make one. You could have a reasonable expectation of winning prize money and never win a race.

Senator Kemp —Senator, I have a statement here of what was put out in the campaign. This was available during the campaign and—

Senator O'BRIEN —I have seen a bit off the Internet, but I did refer you in the chamber to a letter from Mr Thomson's office.

Senator Kemp —This is what was put out:

Individuals or syndicates that own horses to carry out a business may register for GST.

Senator O'BRIEN —Carry out a business?

Senator Kemp —That is right:

Individuals or syndicates that own horses to carry out a business may register for GST.

That was put out during the campaign.

Senator O'BRIEN —I understand that that is what you are saying. Should I understand the term `business' to be used in the same way as it would be used in general taxation law?

Mr McCullough —I would have thought that in that context it is very much the same.

Senator O'BRIEN —So anyone who conducts a business now could claim their costs as business costs and would pay tax on their profits in that definition?

Mr McCullough —Anybody who is conducting a business now would, I have no doubt, be an enterprise for the purpose of GST. And they would be able to register, even if they did not get to the $50,000 turnover.

Senator O'BRIEN —Yes, I understand that. I am just looking to parallel the test of enterprise for the purposes of this legislation in this area and the general taxation law.

Senator Kemp —Senator, could you just read out the full sentence you read out earlier?

Senator O'BRIEN —It was:

An entity who genuinely owns horses for the purpose of racing and carries on that activity in a businesslike manner—

Senator Kemp —In a businesslike manner.

Senator O'BRIEN —Yes, I am not querying this answer, I am saying it is at odds with material used in the campaign.

Senator Kemp —No, it is not.

Senator O'BRIEN —I am not saying it is necessarily at odds with the document put out on the Internet. What I am saying is that it is at odds with the statement where you replace the term `expectation of profitability' with the term `a reasonable expectation of earning prize money' and I think that is quite different.

Senator Kemp —But you said `in a businesslike manner'.

Senator O'BRIEN —This is the term here, `in a businesslike manner', which does not appear in Mr Thomson's letter, I suggest to you. But the industry can judge the matter on the basis of your answer, I think, because it seems to me that there is quite a difference between the position which you are putting and that which the letter on Mr Thomson's letterhead put, and I guess that will be for the industry to judge. But I was seeking some clarity because I am sure the industry would have been hopeful that you would have agreed with the proposition as I put it—that an entity that carries on the activity of racing with a reasonable expectation of earning prize money would be able to register as an enterprise under this act.

Mr Greg Smith —It has to be in a businesslike manner.

Senator O'BRIEN —It has to be in a businesslike manner, did you say, Mr Smith?

Mr Greg Smith —Yes, and I think essentially what you have to do is take that whole sentence together, not a single phrase.

Senator O'BRIEN —So the qualification the industry should have understood is that it has to be conducted in a businesslike manner?

Senator Kemp —That is what we said in the campaign; that was the material put out in the campaign

Senator O'BRIEN —No, it is not.

Senator Conroy —It is not true.

Senator Kemp —It is true. Senator O'Brien, I have just read it out to you. Senator Conroy, you have not been following this debate, so you do not know what you are talking about. I'll just read what we put out in the campaign: This is what was freely available during the campaign.

Senator Conroy —You don't listen to Senator O'Brien.

Senator Kemp —Senator, I am addressing Senator O'Brien's concerns and he is quite entitled to raise those concerns, but I am pointing out what we put out during the campaign:

Individuals or syndicates that own horses to carry out a business may register for GST.

And registered owners will be able to claim input tax credits for all their purchases.

Senator O'BRIEN —I understand what you are saying. I am not gainsaying what you are saying. I understand it should be understood in the comments of Mr Smith, I am not seeking to argue with that. I ask these questions for clarification, and I think I have it now.

Senator Kemp —Okay, thank you. As far as you are concerned, all questions on notice are now answered; is that right?

Senator O'BRIEN —As far as I am aware, the parliamentary questions on notice are answered; the one I asked in the chamber was not answered.

Senator Kemp —And that's now addressed as far as you are concerned?

Senator O'BRIEN —After a fashion, yes.

Senator COOK —My question is to Mr Carmody and, as I said earlier, Commissioner, I appreciate the lateness of your advice and very much join the minister in his sentiments in relation to your making yourself available for the committee this evening. I understand that on 19 April, under the heading `Reform update GST inquiries', you caused a memo to be circulated to staff, which, if I may read it, in the salient points said these things:

From today, the Senate will commence debating A New Tax System (Goods and Services Tax) Bill 1999 and related Bills.

During this time, we must all exercise special care to make no public comment regarding the legislation.

We are planning well coordinated information campaigns to commence after legislation receives Royal Assent.

So in the meantime, if taxpayers ask you for information on tax reform matters, where legislation has not yet been passed, please refer them to Treasury's Tax Reform Information line on 13 63 20.

Then the next heading is about call centres broadcasts, which is not something I want to pursue. As best you recollect it, Commissioner, that is an official memo from you to your staff?

Mr Carmody —As best I recollect, it sounds like it.

Senator COOK —Can I draw your attention to the words `During this time we must all exercise special care to make no public comment regarding the legislation.' To whom was that advice directed?

Mr Carmody —I think that was a general staff advice passed around to all staff members.

Senator COOK —That would be everyone at the Australian Taxation Office?

Mr Carmody —Well, yes.

Senator COOK —It applies to senior officers of the ATO at SES level?

Mr Carmody —Yes.

Senator COOK —Does it also apply to second commissioners?

Mr Carmody —It applies to all tax officers, yes.

Senator COOK —Does that include yourself, Commissioner?

Mr Carmody —At that stage, that included myself, yes.

Senator COOK —Right. On 24 March, just under a month earlier, you made a public speech in Hobart. I think the precise title of it was `Preparing for tax reform in the new millennium' which was, as I understand it, an address to the 14th Convention of the National Taxation Institute of Australia, which was held in Hobart on 24 March. That speech is, I think it is fair to say, is it not, a general comment regarding the legislation, or at least a key element of it?

Mr Carmody —Well, I explained to the Senate select committee why I made those comments.

Senator COOK —Yes, I was there. Do you regard that speech as a comment regarding the legislation?

Mr Carmody —As I said to the Senate select committee, I regarded it as an appropriate speech for me to make, given my particular responsibilities as Commissioner of Taxation and given the particular circumstances that were applying at that time. I made a number of points. I pointed out that I made that speech out of a sense of frustration and responsibility in that I did not believe that the practical administrative issues that I raised in that speech had been appropriately put on the table in the public debate. I also made the comment that I was speaking specifically from a view of the practicalities of administration. I was not attempting to make any judgment about the appropriate legislative response, because, as I said—I think in that speech and at the time—the full variety of matters that need to be taken into account by the parliament in determining the shape of the legislation were beyond those that I had responsibility for, and I was merely seeking that they be on the public record to be taken account of in that debate.

Senator COOK —So, do you regard it therefore as appropriate to have made remarks about the package before 19 April, but not after 19 April?

Mr Carmody —If you take the sequence of events, I have already explained that in my particular position—and it was a decision for me, and therefore not something that I would expect any other member of the ATO to take—

Senator Conroy —Did you clear it with the Treasurer's office?

Mr Carmody —I did not clear it with the Treasurer's office. I provided them with an advance copy of my speech. And I explained to the Senate select committee the reasons, which I have reiterated now, why I made those comments.

Senator COOK —Do you stand by those comments?

Mr Carmody —I stand by those comments in the context in which they were made and particularly in the context that I was making it clear that they were only one matter to be taken into account in the decisions of parliament on the shape of tax reform. I also made it clear that I did not pretend to be an expert in the other matters that should be taken into account and that it was appropriate that the decision be taken by the parliament. I also pointed out that whatever the ultimate shape of the tax reform package, we would administer it in a professional way.

Senator COOK —I certainly agree that that is what you will do. But would you agree that it is fair to say that the theme or the pre-eminent point of your speech was to, if you like, sound a warning that taking food out of the GST would create massive complications for the tax system?

Mr Carmody —What I pointed out—I drew on experience of the complications presented by the present wholesale sales tax system—was that making distinctions would add to compliance costs and it would add to the costs of our administration of the law.

Senator COOK —If I can just turn to the speech for a minute. I referred to this passage earlier today. You were not here, so it is only fair for me to refer to it in your presence. The copy of your speech I have does not have numbered pages, but it appears to be on the fifth page of at least my copy. The second last paragraph states:

Non-compliance is inevitable. In the UK, fish and chip shops selling both fresh and cooked fish typically report that 30% of their sales are cooked fish (taxable) and 70% are fresh (tax-free). Anecdotal reports indicate the reverse is closer to the truth: 70% cooked and taxable and 30% fresh and tax-free.

I also imagine that fish and chip shop owners do not particularly like the VATman standing in the business all day to observe the true picture—but that is the only viable type of compliance check where distinctions on food are made. The reality is, of course, that ensuring practical compliance by businesses in these circumstances is impossible.

Is that your view still?

Mr Carmody —That was a view expressed about a particular item. I cannot relate that to any particular legislation that we have at the moment to administer.

Senator CONROY —There wasn't any legislation then either.

Mr Carmody —No, and as I explained to the Senate select committee, I did not know what would be the final shape of that legislation; therefore, I could only point out, in general terms and using examples of overseas legislation, the practical compliance issues that are raised.

Senator COOK —Which goes to my earlier question—it would seem to me, from a plain reading of this speech, that your purpose as the Commissioner of Taxation and expert voice on this subject was to sound a clear warning to legislators and others that the compliance costs
and difficulties about implementation would be massively increased if food came out of the GST.

Mr Carmody —I have already repeated the point that there are compliance cost increases where lines like that are drawn. I need to continue to put it in context. I was putting it in context that that was one element to be taken into account in the parliament making its decisions, particularly around appropriate compensation for lower income people. I did not presume to say that it was the deciding factor or presume to make that judgment.

Senator COOK —I think you are being a bit unfair to your own erudition on this matter because your point is made over several pages. It is not just a point subsumed among many others.

Mr Carmody —I have made it quite clear that I was trying to make that point. The reason I made it was that in various public debates I had not seen acknowledgment of that point and I thought it was one of the points that needed to be taken into account and in that environment, yes, I did spend time on making the point.

Mr Matthews —When we were on this topic earlier, Senator, we did note that the government had recognised that point by providing additional resources to the ATO for administration of the revised package.

Senator COOK —Yes, you did make that intervention, Mr Matthews. Commissioner, you have made the observation that there is no legislation that takes food out of the GST before us at the moment. And that is true; it is not yet drafted. What we do know, though, is that the Australian Democrats and the government have reached an agreement, as a consequence of which the Prime Minister has issued a letter outlining the terms of that agreement. In that letter, food comes out of the GST. We now appear to be at the stage at which drafting instructions have been issued, or are close to being issued, and we in the Senate will shortly see, hopefully sooner rather than later, actual amendments which take food out of the GST. In other words, what you are warning against, or raising concerns over, is now about to occur. At least that is common ground, isn't it?

Mr Carmody —I understand that there is to be an exclusion of what is called basic food, but I do not know the detail—how that line is to be drawn, as yet.

Senator COOK —Has the Department of the Treasury consulted with you about how best to draw that line, given your concerns about how difficult this is and your expert position as the tax commissioner?

Mr Carmody —I believe that we will be involved in the preparation of those amendments.

Senator COOK —That is future tense; you have not yet been involved?

Senator CONROY —Mr Matthews indicated—

Mr Matthews —I said we had officers involved in discussion with officials.

Mr Carmody —There have been discussions, I believe.

Senator CONROY —Democrat officials?

Mr Matthews —Yes.

Senator COOK —Sorry, I must have missed that point earlier. Can I just be clear on this matter then. What exactly have you been involved with, Mr, Matthews?

Mr Matthews —I think consistent with the response given by Mr Evans that we have been involved in discussions which are giving further definition to the food component of the agreement as outlined in the Prime Minister's announcement.

Senator CONROY —Senator Faulkner was sitting—

Mr Matthews —I am just trying to recap myself. I appreciate that you, Senator Conroy, were not here. In fact, I think that is probably an elaboration on what I said. I think at the time we just said that we were involved.

Senator COOK —That is with the Democrats?

Mr Matthews —With officials.

Senator COOK —Democrat officials?

Mr Matthews —Yes.

Senator CONROY —John Cherry—I am willing to bet.

Senator COOK —I am sorry, I just want to be precise about this. I am sorry if I am laborious. That is with the officials from the Australian Democrats political party?

Mr Matthews —They are involved. Officials from the minister's office are also involved.

Senator COOK —As well?

Mr Matthews —As well.

Senator COOK —And the nature of this—

Mr Matthews —If I could elaborate, as you were not here, in my reference to Mr Evans's comment, he did make the point that the involvement in the discussions is at the request of the Treasurer's office.

Senator COOK —You are there with proper clearance. You are not there because you invited yourself in unilaterally?

Mr Matthews —Indeed—nor simply accepted an invitation unilaterally.

Senator COOK —Naturally. This is a process in which a majority of the Senate is trying to tie down a major change to the tax law and they are seeking your advice on how best to do it. Was that the nature of your consultations—technical advice on how best to avoid confusion on the matters of the GST and food?

Mr Matthews —You are moving now, I think, into the area of policy advice that has been outlined earlier. I have given the general area of discussions as being the definition of food, the details of which are being worked out in part through that process.

Senator COOK —From Mr Carmody's answer to me earlier and your answer to me now, it seems that Mr Carmody was unaware of this level of consultation. Is that true?

Mr Carmody —First of all, part of the reason I could not be here earlier is that I have been in Adelaide for the last couple of days and so I am not fully up to date with every detail. I have been aware that there have been discussions between officials—between Treasury and the tax office. I was aware some time last week that there were proposals for discussions at official level, but I had not caught up with the final detail of that.

Mr Greg Smith —The way in which this is operating might be of some use to you. The way in which we have been operating for a long time now with the development of this legislation, including this latest example, is that we have a subcommittee of the the tax reform task force. The subcommittee is chaired by Mr McCullough and involves the tax office and other relevant participants in the process of developing proposals that we put to the government. So it is a subcommittee process chaired by the Treasury. The GST subcommittee chair is Mr McCullough. The tax office is involved in that process, as are people from the Department of the Prime Minister and Cabinet and, as necessary, ministers' officers. That is
the process we have been going through this week. Discussions with the Democrats are conducted at the political level, not directly by this group.

Senator COOK —Thank you very much, Mr Smith, for that explanation. Naturally, at the highest level it is a political negotiation or a quasi[hyphen]political negotiation. I understood Mr Matthews to indicate that the tax office had been involved in advising Democrat officials or consulting with Democrat officials. Has the Treasury task force or Mr McCullough been involved with doing that as well?

Mr McCullough —Yes, Senator. I do not think Mr Matthews was intending to say that it was to the exclusion of the Treasury. What we have basically been doing is proceeding with the indirect tax subcommittee processes where the groups that Mr Smith described as being part of the group were discussing possibilities or alternatives and then, as invited by the minister's office, becoming involved in consultations, at which sometimes Democrats were present.

Senator COOK —That is a different qualification. Let me just ask you about that. Are you all in a big room together in which the Democrats are there and there is a free interchange or do you have one-on-one consultations with the Australian Democrats—either political leaders or—

Senator Kemp —The officer can answer the question if he wishes to, but I do not think such level of detail is required by this committee or is appropriate.

Mr McCullough —In my role as chair I do not deal directly with Democrat representatives, but I am present at times in rooms where they are there.

Senator COOK —Did you or Mr Matthews directly deal with them?

Mr Matthews —I have not attended personally these meetings, no.

Senator COOK —But do officers under your control?

Mr Matthews —Yes.

Senator COOK —Deal directly with them?

Mr Matthews —In the general meetings in the way Mr McCullough has outlined.

Senator COOK —I am advised this afternoon, Mr Carmody, by Mr Smith that essentially these consultations that are going on are not yet finalised. They will be finalised some time between now and, I think, 21 June, Mr Smith said, which is an important date because I think it is the beginning of the parliamentary session. Apparently the parliament will have seven days to dispose of this and some other legislation before we all turn into pumpkins at midnight on 30 June.

Senator Kemp —Speak for yourself.

Senator COOK —I am probably a pumpkin already. My point about this is that there is precious little time, given the complexity involved on matters such as this. This may be one of the few occasions on which we have a chance to look at some of the complexity, albeit unresolved, in its final form. We had a discussion earlier about the proposal for a national recipe for bread to be included in tax law. I am advised by Mr McCullough—and I thank him for it—that that is probably the case in the Canadian legislation. As tax commissioner and with your knowledge of international legislation, are you aware whether a recipe for bread is included in the Canadian tax legislation?

Mr Carmody —I am not aware of the specific Canadian legislation. I have heard it said that there are examples of that.

Mr Matthews —I think an answer was given to that question earlier, Senator. I think a number of administrations have certainly used ingredients of various products as a means of giving definitions.

Senator COOK —But in this case, in order to help define what is bread, the ingredients of bread are set out in the act; is that the case?

Mr Matthews —In some administrations I think that approach is taken, whether it is bread or other things.

Senator COOK —Would this approach work in Australia?

Mr Carmody —We do not have the legislation; it has not been finalised. I am not sure that I can comment.

Senator CONROY —You did not mind giving your speech though, outlining a whole range of problems without legislation in front of you. But now you come before the parliament and you sit there and tell us that you do not want to answer questions about the system.

Mr Carmody —No, I have explained—

Senator Kemp —The commissioner has been given extremely short notice to be here. He has come here straight from an interstate trip.

Senator CONROY —He is an expert on compliance costs.

Senator Kemp —Just hold on, Senator. These issues have been canvassed. People right along the table have not been prepared to speculate on the final outcome of the legislation and it is perfectly appropriate that that is the position the commissioner feels he should also argue as well. I do not think he needs to be subjected to raised voices and harassment. I think that is quite improper.

Senator CONROY —Thanks for your opinion.

Senator Kemp —Good—now follow it.

Senator COOK —Commissioner, if I can take your UK example of a fish and chip shop. You say that the only way to get the truth of the matter is to effectively have the VATman standing in the business all day to observe what truly happens. I think there is an analogy here, is there not? Your reference to the fish and chip shop is to cooked and uncooked fish—one being taxable and one not being taxable. In the case of the ubiquitous chicken, which has gone into folklore in the last week or two, if it is whole, it seems to be exempt from GST, but if it is in pieces, it is not. Are we not in a similar situation here? Wouldn't we need a GST man in order to make sure there are no acts of non-compliance?

Mr Carmody —Again, I do not feel that I am in a position to speak about specific legislation, because we do not have that legislation. I have been quite open in saying that there are difficulties where you attempt to draw the line. Those difficulties, as I have said, are one point to be taken into account in making your decision. Those difficulties have been recognised by giving further money, appropriations proposed, to the tax office to handle that. When it comes to the ultimate shape of the legislation, we will have to look at the approaches we take to compliance, both in our advice and in our administration of the law.

Senator COOK —We have not got the actual black[hyphen]letter amendments in front of us, that is true, but we do know what is intended by virtue of what the Prime Minister has said and what the Democrats have said. On the question of what is intended, let me ask my question again: do you see that in order to prevent problems of avoidance you have to go to the extent of ensuring that there is an inspector in place all the time to get the truth?

Mr Carmody —My general position is that I cannot comment on specific legislation, but let me turn to the issues of compliance that you raised. I think we had a discussion about this in the Senate select committee. They asked whether I knew of stories of people having thermometers outside somewhere or other. I think I also said that I had no direct experience of that, but that someone came up to me at drinks and claimed that they employed someone to do such a job. I do not know whether that is true or not. The issue is one of the level of compliance you achieve across the board. This is true in all laws that we administer and there are issues that we continually face in devising the compliance strategies.

In raising the particular thermometer one, I would not be suggesting that if we have that particular provision we would have people sitting outside the stores with thermometers. We would have to look at the compliance strategies that may be employed. And that is exactly what we will do in developing our compliance strategies in response to the final shape of the legislation that comes forward. I can assure you that we will employ the best possible approaches to do it as professionally as possible.

Senator COOK —Would you agree, though, that you cannot ensure viable compliance in a case like this?

Mr Carmody —`Viable' is probably putting it too high, Senator. I do not know what I am dealing with until I see the legislation. We will have the position of giving our advice in the preparation of that.

Senator COOK —Do you think `viable' is putting it too high?

Mr Carmody —That is probably around the wrong way. You are talking about provisions that I think you pointed out do occur in other legislation around the world. I am sure those administrations can speak for themselves. The point I was making is the one I continually come back to. I was making the point that, if you draw these lines, then there will be compliance costs and there will be issues of compliance that we will need to address. They have been recognised and we need to await the final decision of parliament now.

Senator COOK —If you think `viable' is too high, why did you say the following in your speech:

I also imagine in a fish and chip shop owners do not particularly like the VATman standing in the business all day to observe the true picture—but that is the only viable type of compliance check where distinctions on food are made. The reality is, of course, that ensuring practical compliance by a business in these circumstances is impossible.

That is pretty high, isn't it?

Mr Carmody —Again, I was talking about the particular example there, and we do not have the final shape of the legislation. When we get the final shape of the legislation, I can assure you that I will speak about the compliance strategies that we will employ to ensure that that system operates as efficiently as it possibly can.

Senator COOK —Have you read the Prime Minister's letter setting out the terms of the agreement with the Australian Democrats?

Mr Carmody —I have read the letter that sets out the general terms, but that is not the detail of the legislation we would be looking to.

Senator COOK —Have you read what Senator Lees has said about it? She has told us in what form chickens will be taxable and non[hyphen]taxable.

Senator CONROY —Did you watch A Current Affair , where she wandered round the supermarket aisles?

Mr Carmody —No, I did not.

Senator COOK —My problem is that, in this fish and chip shop example, you say:

The reality is, of course, that ensuring practical compliance by business in these circumstances is impossible.

I do not need to emphasise that. `Impossible' is a fairly pejorative term. How can we possibly ensure practical compliance in the case of the ubiquitous chook?

Mr Carmody —I have not gone into the detail of development of our compliance strategies until we have the shape of the law. I have said that, when we have the shape of that law, I will be more than happy to share with you the compliance strategies that we are developing for them.

Senator COOK —In sharing that, though, will you be talking about how to maximise best compliance or viable compliance?

Mr Carmody —We face a range of compliance issues in our administration of the law. We do not pretend that we get 100 per cent compliance in a range of areas. I have made that clear on a number of occasions—in speaking about the cash economy, for example. When I speak about the compliance strategies that we will employ in relation to the GST as finally enacted, it will be about compliance strategies designed to maximise compliance with that law.

Senator COOK —All right. Can I turn to another point of your speech. You say:

The critical point I want to inject into the public debate is that any attempt to draw a line around food will lead to costly disputation and greatly increase costs for the community in administering the GST. Compliance not simply for the GST but for taxes generally may also be a casualty.

You would still stand by that remark, wouldn't you?

Mr Carmody —That is the sort of experience we have with the present wholesale sales tax.

Senator COOK —In looking at international comparisons, which you did do in your speech here, where food has been exempted or some changes have been made with food, were you able to come to any conclusion about what factor or degree of extra cost is occasioned to compliance and the cost of administering a tax where you take food out as opposed to leaving it in?

Mr Carmody —I think this question was raised with me in the Senate select committee and I said I was not aware of that sort of analysis. In fact, I think the Australian Taxation Office is taking a bit of a lead in ensuring research of compliance costs. As you would be aware, we released a publication that we commissioned on general compliance costs. However, as I said at the Senate select committee, I was not aware of any particular analysis of that. What I did point to was a report in the United States by their equivalent of our National Audit Office, which I quoted there as indicating 30 per cent or 40 per cent on advice and some compliance. That is reflected in the fact that, with the announcement of the agreement, the attachment to that details extra funding to the Australian Taxation Office.

Senator COOK —The extra $60 million reflects a 30 per cent to 40 per cent higher compliance cost with—

Mr Carmody —The broad estimate, as I understand, was based on that report in the United States.

Mr Matthews —I think I said in responding to an earlier question—I am not sure whether you were here, Senator—in relation to the additional resources, that the estimate drew on
overseas experience as well as our own current planning estimates from a variety of sources. The report the commissioner has mentioned was one of those elements factored in.

Senator COOK —Yes, thank you, Mr Matthews. I was here; I in fact asked you the question. As far as the tax office is concerned, the broad order of estimate is a compliance cost hike of between 30 per cent and 40 per cent.

Mr Carmody —No, that was the particular resources used—not all of the resources are used to administer a GST. It was around the advice because of the need for greater level of assistance and advice in that area and it was around compliance staff, but there are more staff involved, of course, in the administration of a GST. They are administration costs of the Australian Taxation Office in this case.

Senator COOK —In the excerpt that I read you, you say:

Compliance not simply for the GST but for taxes generally may also be a casualty.

What other taxes are you referring to there?

Mr Carmody —The example I was giving there was that, if people do not comply with the law in one particular respect, there is always the risk—and that is what I was acknowledging—that that behaviour may flow over.

Senator CONROY —Which other taxes?

Mr Carmody —I guess it can flow to any, if that occurs.

Senator COOK —Is it the principle that, if some particular tax falls into disrepute in public perception, there is a tendency for people to disrespect all taxes?

Mr Carmody —I said that that always raises that risk. To be frank, I think that is an issue that raises itself also with the present wholesale sales taxes.

Senator COOK —You say here too that, if you attempt to draw a line around food, it will lead to costly disputation.

Mr Carmody —I think I gave examples from the present wholesale sales tax where we had disputes about chocolate coated peanuts—

Senator CONROY —Gingerbread men.

Mr Carmody —No. A better one than that—chocolate coated bananas, I understand. One was held to be confectionery and the other was not, which I could never quite understand.

Senator CONROY —What does Meg say?

Senator Kemp —No: what do you say? It is your system, Senator. What do you say?

Senator CONROY —What does Meg say about this one?

Senator Kemp —No. What do you say.

Senator CONROY —It is going to be your system in about 20 days. What do you say?

Senator COOK —Minister, I remind you that we had a tax reform package at the last election.

Senator Kemp —Oh, dear, I do not think I would call that reform, Senator.

Senator CONROY —We didn't steal $20 million to advertise it though.

Senator COOK —You also said in your speech that there would be increased costs to the community in administering the GST. What sorts of extra costs are you referring to there?

Mr Carmody —Well, depending on the actual shape of the law, if businesses have to make distinctions between some goods that may be subject to GST and some that are not, that will raise for a number of businesses the extra cost of making those distinctions.

Senator COOK —And how do you weight that as a concern? Is this a major concern or a minor concern?

Mr Carmody —That will depend on the final shape of the legislation as to exactly how that comes out. And so I cannot put a qualification on it. Indeed, I have already explained that there is, to my knowledge, not a lot of research around the world on this.

Senator COOK —Would it be overstating the matter to say that there would be greatly increased community costs?

Mr Carmody —Again, that depends on the actual shape of what comes out. At one end of the scale you could have variable rates and variable lines drawn, and that is likely to be the most costly. Somewhere else down the line the costs will be different.

Senator COOK —You have seen the Prime Minister's letter; you have read the letter.

Mr Carmody —Yes, I know that Senator, but until we see the final shape of that legislation, I cannot comment further.

Senator COOK —You told us in this speech that there would be greatly increased costs to the community in administering a GST. Your full sentence is:

The critical point I want to inject into public debate is that any attempt to draw a line around food will lead to costly disputation and greatly increased costs to the community in administering—

Mr Carmody —That is right, and the exact dimension of those will depend on the shape of the legislation.

Senator COOK —But they will be great?

Mr Carmody —Great is a broad term that you can use when you make a general comment. When you are actually asked to put the specifics on a specific piece of legislation, I cannot quantify that yet. I have made this point a number of times: I was injecting comments that I stand by into the debate as one element to be taken account of by the parliament in its decision. I went on and said that whatever the shape of the final legislation, we will administer that professionally. Now, one of the issues in our administering the law professionally is to seek to develop systems of administration that minimise to the maximum possible extent the cost to business. And I have acknowledged that when this comes out, there will be additional costs. The final tally I cannot say at the moment. But when we have legislation to administer, our focus will be on how we can minimise those costs. Progressively that is what we will do. I am on the public record as saying this. One of the things we want to promote, for a variety of reasons, is the use of electronic commerce in the administration of our laws.

Senator COOK —Well, that presumably would be in order for greater efficiency and cost savings.

Mr Carmody —For all business, and the tax office. Again, I am on the public record saying this: If tax reform can become the vehicle for Australian business to get on-line, there are broader benefits to Australian business and the Australian economy.

Senator COOK —Yes, I think we may have had this debate before, but whether you call this package tax reform—

Mr Carmody —Well, I'm just using what is commonly used.

Senator SHERRY —Ou on the street it is not commonly used. It is the GST out on the street.

Mr Carmody —As I have said on a number of occasions, Senator, that I see the proposals as much bigger and broader than GST.

Senator Kemp —Indeed they are.

Senator SHERRY —You should have heard what people were saying about this last week!

Mr Carmody —I have also said on a number of occasions that in the end event I suspect that business tax reform, depending on its final shape, will be the more significant issue for the future.

Senator COOK —Well, that may depend on who you are, though. And there is a big equity question over this package.

Senator Kemp —Senator, I think they are matters for public debate in the chamber.

Senator COOK —The Treasurer described taking food out of the GST as `nightmare on main street'. Do you agree with him?

Mr Carmody —I think you need to speak to the Treasurer. I am not here to comment on descriptions used by the Treasurer. I assume what he was referring to is the fact that there will be higher compliance costs, and that is something that I have acknowledged.

Senator COOK —Yes, your whole speech would seem to support what the Treasurer was saying.

Mr Carmody —To the extent that what he was saying was that there will be additional compliance costs then, yes, that is true; I have acknowledged that.

Senator CONROY —I know you mentioned that you had been away this week for the past couple of days. Were you in Canberra most of last week?

Mr Carmody —Yes, I think I was, Senator.

Senator CONROY —So were you tuned in to question time at all?

Mr Carmody —Senator, as I say, my day does not consist of watching parliamentary question time. Can I also let you into the life of a commissioner. It is not solely focused on GST either. My primary role is to make sure that our present laws are being administered efficiently and that we are collecting the revenue that is necessary to support community service:

Senator CONROY —We promise not to keep you here all evening just on the GST.

Mr Carmody —I was not complaining about being here. I was trying to suggest to you that my whole life does not revolve around the GST.

Senator CONROY —I just wanted to make sure that you were aware of the sort of debate that took place last week. There were tossed salads, tins of soup—you know the sort of thing.

Mr Carmody —I did see news reports of those, yes.

Senator CONROY —Cooked chickens of course. You are smiling and I think most Australians were grimacing as well as smiling last week. I just wanted to take you to a transcript of our last meeting. You made the comment:

I do believe strongly that when you have a tax system that becomes subject to ridicule—

you were referring to the fish and chip shop, et cetera—

some of these rules can lead to stories like the formation of doughnut clubs outside doughnut shops, so that individuals wanting one can get together and one will go in and buy six. It sounds funny, but you are almost promoting in people a sense of comfort in not complying with the law.

Would you say that last week a degree of ridicule was present towards the proposed law?

Senator Kemp —I have to say this—of course, you may detect I am biased, but—

Senator CONROY —We know you are embarrassed by it.

Senator Kemp —No, not embarrassed. I thought the Treasurer absolutely wiped the floor with your colleagues there.

Senator CONROY —Don't you read the newspapers?

Senator SHERRY —You should get out in the real world and hear what they are saying!

Senator Kemp —With all your experts, we happen to be in government and you happen to be in opposition. So you are political geniuses, are you?

Senator CONROY —Why don't you just pick up today's Australian and read the newspaper?

Senator Kemp —Senator, you may have your opinion and I may have mine, and we can have a debate in the chamber, but you have the privilege of having the commissioner here. Why don't you ask some questions that the commissioner can properly address?

Senator CONROY —I am sorry, this is the commissioner's statements to the select committee where he suggested that a tax system that was the subject of ridicule was a problem.

Senator Kemp —From your pathetic efforts last week, I think the thing failed that test. I think the Treasurer did a mighty job. Let's face it, Mr Crean is struggling. Everyone knows that.

Senator CONROY —If I can just get back to the commissioner. There was a fair degree of ridicule last week, you would have to say.

Senator Kemp —There was a degree. Whether we were speaking about the tax on chocolate milk or strawberry milk, and whether we were talking about brooms or all the rest of it, there was a degree in relation to the wholesale sales tax, that is true. But, Mr Chairman, we have the commissioner with us. The commissioner is not here to take part in political debate. He is here to answer specific questions, and if Senator Conroy could ask specific questions rather than trying, in a most unsubtle manner, to elicit opinions on matters which are more properly the role of the political arm, I think the considerations of the committee would be advanced.

ACTING CHAIR —Minister, I concur with your comments. The purpose of estimates is to seek information in relation to the estimates, not to seek political opinions.

Senator CONROY —I am sorry, but I am seeking the opinion of the tax commissioner, who has raised the issue of ridicule and the tax system.

Mr Carmody —My response to that would be that I would have to draw a distinction between debate at the time of questioning of introduction and ultimately with what occurs in the operation and administration of the ultimate law.

Senator CONROY —You continue to try to hide behind the fact that there is no legislation in your refusal to answer questions. You were commenting on an issue where there was no legislation before the parliament. Senator Cook asked:

Indeed, but you still think they would apply irrespective of what the final shape is?

To which you responded:

I have attempted to illustrate that, no matter where you draw the boundary—whether you attempt to target it to food that on one view is more typically eaten by people on lower income, or whether you attempt to exclude food completely—almost no business gets out of having to register . . . '

So your point was that it does not matter where you draw the boundary. It does not matter where the final crosses and dots in the legislation are, all these rules apply. Now you are seeking to hide behind the fact that you have not got the final dots in front of you.

Mr Carmody —I am sorry, Senator, I have not hidden. I have stated—I do not know how many times tonight—that I stand by the comment that, where you draw these lines, compliance costs and complexity increases. That is acknowledged by the proposed allocations to the Australian Taxation Office as a result of this agreement. Where I am drawing the line is then getting to the specific quantification or whatever when I do not have legislation in front of me. In the speech I was making general points about the issue of drawing lines.

Senator CONROY —In your evidence before the Senate committee you are making general points and I am not asking you to comment on specific legislation.

Mr Carmody —I have acknowledged—I do not know how many times tonight—that where you do draw the line there are increased costs.

Senator CONROY —Senator Watson, who is not here now, invited you to make some comments. He elicited the following response from you, which is in the middle of a sentence:

. . . that requires that you distinguish between processed food coming in and then being sold in a processed manner, or a restaurant that is receiving some fresh food and then selling cooked food, and people having to distinguish between whether something is sold before or after a particular time, or whether it is sold according to the size of the chocolate dots on it. Making all these distinctions requires accounting records, and cash register systems are required to make those distinctions. So, intellectually, I find that a very difficult concept to agree with.

Mr Carmody —If you look at the totality of my presentation in the speech and my presentation to the committee—at the totality of that—then everything that I have said tonight is acknowledging what I have said there and is consistent with that.

Senator CONROY —Intellectually you do not agree with the concept you are being asked to implement.

Mr Carmody —I have made the point on a number of occasions. If you read—you were there, you do not have to read the totality of what was there. I have made the point there, I have made the point in the speech and I have made the point tonight that there are extra costs where you draw the line. That has been acknowledged in what has been given to us in administering this proposal.

I have also made the point a number of times in that committee hearing and elsewhere that I was talking about the administration considerations. I made the point on numerous occasions that there were broader considerations for the parliament to take into account and I was not pretending to be competent or responsible for making those decisions. Whether you want to draw out individual sentences or not—

Senator CONROY —You said:

So, intellectually, I find that a very difficult concept to agree with.

I am asking you where intellectually are you at on this package now?

Mr Carmody —I was not making a comment, Senator.

Senator CONROY —I just read you the whole sentence—two or three sentences.

Senator Kemp —Mr Chairman, I think we have answered this. The same issue has been raised interminably. To raise it 20 times does not make it more worth while. You have asked the question and the commissioner has responded most appropriately. I think it is time, Senator Conroy, that we moved on.

Senator CONROY —Thanks for your opinion.

Senator Kemp —It is my opinion. I put that to the chairman as well.

ACTING CHAIR —I agree with the—

Senator CONROY —Thanks you for your opinion, Chair.

ACTING CHAIR —With all respect, Senator Conroy, I chair the meeting. I will determine what is appropriate and what is not in terms of questions.

Senator CONROY —Feel free to put it to a vote.

ACTING CHAIR —I think it is time we moved on to a new matter.

Senator CONROY —Thanks for your opinion. I just draw your attention, Commissioner, to your statement in relation to these sorts of exemptions. You said:

So, intellectually, I find that a very difficult concept to agree with.

I put to you: you are now faced with a raft of exemptions—

Mr Carmody —Senator, I do not like to say this, but I think you are being unfair in impugning to a particular sentence a particular judgment of mine, which is not a judgment that I offered or would dare to be offering—

Senator CONROY —You say:

. . . distinguish between processed food coming in and then being sold in a processed manner . . .

Senator Kemp —Could the commissioner finish his comments, do you think, before you butt in.

Mr Carmody —And if you read fairly the whole context of that evidence and my speech, it is wholly consistent with the line—which is the line I have taken right along—which I have expounded to you tonight on a number of occasions.

Senator Kemp —Hear, hear!

Mr Carmody —No doubt what I was talking about in that context was also the administrative costs and complexities—where you draw lines.

Senator CONROY —I am not disagreeing. The problem is that you made all of those points and then you made a further point. You made all of the points you have just said, but then you made this extra point about your intellectual position. You made it—

Mr Carmody —My intellectual position, as I was expressing it there—if you were there for the whole session it would be the same—would be coming from the perspective of an administrator of the law and concern to put on the table the administrative complexities of drawing lines.

Senator CONROY —That is not what you said. You said:

So, intellectually, I find that a very difficult concept to agree with.

Mr Carmody —That is right; as an administrator of the law and therefore the costs involved in that.

Senator CONROY —So I am asking you, with this package—

ACTING CHAIR —Order! Let the commissioner proceed.

Mr Carmody —If you are asking me to make judgments on the total package, that is not my responsibility. I do not have a role in doing that and that is the point that I have made all along in these discussions. I feel that I have a responsibility as a person responsible for the administration of our laws to make the point about costs of administration and complexity. I made those points. I made it repeatedly clear that I was only making that point.

Senator SHERRY —Mr Carmody, on not just one occasion but two occasions that have been referred to you made your position not just clear but, I would argue, aggressively clear—

Senator CONROY —Absolutely.

Senator SHERRY —in that first speech and certainly in your appearance before the Senate select committee—an aggression which I might say surprised me, and I do not necessarily disagree with much of what you said. As an administrator of the law, do you prefer food to be in or out of a GST?

Mr Carmody —It is not a matter of preference. If you ask that question, you are asking me to go way out of the domain, because you cannot answer solely from administrative costs. I have given you the perspective of administrative costs.

Senator Kemp —Senator, that option did not arise because the truth of the matter is that the government's preferred option was on the table. Everybody knew the government's preferred option.

Senator CONROY —Could the commissioner finish his sentence.

Senator Kemp —Senator, it is clear that we did not have the numbers to get that option through the Senate.

Senator SHERRY —I appreciate that, Senator Kemp. I am not going to badger you about this, Mr Carmody. Anyone reading your speech and listening to your comments before the select committee could not have been under any illusion about what your view was in excluding food and the administrative costs and the complexity from your point of view. It was made in the strongest possible terms.

Mr Carmody —In the strongest possible terms, my view is that drawing those lines would add to the cost and complexity of administration. And I was making that point strongly.

Senator SHERRY —Can I ask you—and this will be the final question—as an administrator of the law, do you believe that is a good thing for the tax system?

Mr Carmody —But you are asking me to make decisions based—

Senator SHERRY —No, I am not asking you to make a decision. I am asking for your opinion.

Mr Carmody —I'm sorry, you are, Senator, asking me to give an opinion on something that involves much broader decisions and competence than I have, because you can't make those decisions in isolation. I am sorry, Senator, on every occasion that I have spoken about this I have made it clear. I have made it clear about the compliance costs, but I have equally made it clear that in coming to a decision on this, the parliament appropriately takes into account broader issues on compensation and I have never pretended to proffer a view on what that decision should be.

Senator SHERRY —I will conclude on this question. You put yourself in the public debate on this issue. You chose to enter the public debate in the strongest possible terms?

Mr Carmody —Absolutely.

Senator SHERRY —And no-one could be under any illusion about what your views are on this issue.

Mr Carmody —My views are—

Senator SHERRY —That is why you are being held accountable on this issue tonight.

Mr Carmody —I am quite happy to be accountable. I have repeated on numerous occasions tonight—

Senator SHERRY —And you are standing by it—you are standing by those comments?

Mr Carmody —I have repeated on numerous occasions that there are costs and complexities involved in this.

ACTING CHAIR —Are there any further questions?

Senator FAULKNER —I have a number of questions.

ACTING CHAIR —Senator Faulkner, we were intending to have a coffee break for 10 minutes at 9 p.m. Perhaps we could have that now.

Senator FAULKNER —Could I just indicate to the officers at the table before you break, Mr Acting Chairman, so it is clear: I want to ask some questions—this should not take long—in relation to the Australian Valuation Office. So I would appreciate it if the relevant officer could come to the table after the break.

Mr Carmody —I am not sure that we have someone here from the Australian Valuation Office. Perhaps we can help if you can give us your questions; otherwise we will have to take them on notice.

Senator CONROY —I do not think we are going to finish this section tonight.

Senator FAULKNER —I hear what you are saying, Mr Carmody. I mentioned it to the committee secretariat before.

Mr Carmody —The Valuation Office was not seen as being topical. I am sure if we had been alert to that we would have made someone available.

Senator FAULKNER —I understand that. It is topical to me, which just shows my eccentricity.

Mr Carmody —We will try to answer your questions.

Proceedings suspended from 9.02 p.m. to 9.17 p.m.

ACTING CHAIR —Are there any further questions on output 2.1.4? If there are no further questions—

Senator CONROY —I would not get that excited, Mr Acting Chairman.

ACTING CHAIR —We have had more than enough, I would have thought.

Senator CONROY —We do not want to make Commissioner Carmody's visit here just a brief cameo and have to get him back. We will try to get everything we want out of the way with him so he can go home. I am sure he would like to—like the rest of us.

Mr Carmody —I think that makes sense to me. I think if we could do that, Senator Conroy, that would be a big help.

ACTING CHAIR —What, we are getting everything out of the way before we go home tonight?

Senator CONROY —I want to address some questions to the diesel fuel rebate. I refer to the proposal that the Democrats are advancing. Minister, I appreciate that this is the subject
of ongoing negotiations, but could you clarify where you are at. I understand that the Democrats are proposing zones. Is that consistent with your understanding of what their proposal is?

Mr Greg Smith —I am not in a position, Senator, to provide information about these things. What we have got is just the information provided in the letter.

Senator CONROY —Could you read me the relevant section then? I just do not have the letter in front of me.

Mr Greg Smith —You are talking about trucks?

Senator CONROY —And as Senator Kemp will no doubt tell you, as a member of the TWU, which I continue to be, trucks are of an ongoing interest to me.

ACTING CHAIR —How many trucks have you driven, Senator?

Senator CONROY —Unfortunately, TWU does not just cover trucks.

Senator Kemp —Not that many calluses on your hands, Senator Conroy, I've detected.

Mr Greg Smith —The distinction is being drawn in relation to trucks of size 4.5 to 20 tonnes gross vehicle mass, and the vehicles above that range would be eligible for credits irrespective of the location of their operations. Vehicles within that range would be eligible for credits if they operate outside the mainland capital cities, except for Darwin, the large conurbations of Newcastle, Sydney, Wollongong, Melbourne, Geelong, the Gold Coast, Brisbane and the Sunshine Coast. That was the material in the letter.

Senator CONROY —Is it the government's position—I am asking this to know what your position is, rather than where you are at in your negotiations—that the tax will apply to that part of the business that is conducted in the non-rebate areas; it applies from where the truck goes, not where it is based? Is that consistent with what is in the press release, Mr Smith or Senator Kemp? You indicated not where it is based—I am just trying to—

Senator Kemp —The wording here is:

The regional transport credit would cover all trucks over 4.5 tonnes operated by a GST registered entity. Operators would have to identify to the ATO the number, type(s), and registration numbers of vehicles undertaking rural and regional operations.

Senator CONROY —It is where it goes, then?

Mr Greg Smith —There is a further sentence; if you do not have it, I will read it into the record.

Senator CONROY —No; please read it.

Mr Greg Smith —It reads:

Regional transport operations would include travel between regional centres and metropolitan areas, as well as intrastate and interstate operations. Transport operations within a capital city or conurbation (as outlined above) would be excluded.

So there is some further elucidation—so it is a usage test.

Senator CONROY —Thanks for that. The Democrats are arguing, I understand, that if you have a trucking company in Tweed Heads, your business is in a rebate area while your competitor across the road in Coolangatta pays the full price of diesel. That is what the Democrats are saying, as opposed to what you have read out. I am not trying to catch you; I am just trying to get my understanding of what they have said in the debate and what you have just stated.

The point you have made there is fairly clear. It is about where it goes rather than where it is based. Are you able to suggest to us how you are intending to keep track of the usage? What is the actual proposal from the government at the moment about how you keep track of the diesel used in the areas where you are saying it is eligible?

Mr Greg Smith —Once again, Senator, this is something which is the subject of consultations. The proposals are still being developed.

Senator CONROY —I have seen one suggestion about tracking the movement of trucks using satellite technology. Has that something that has been canvassed?

Mr Greg Smith —I am not an expert on that, Senator, although I have also heard that in a very serious light, not necessarily for this purpose but for other purposes. I gather that that technology is available and is being developed for a variety of purposes.

Senator CONROY —One of them is taxis—another area that falls within the TWU's domain, if anybody is interested.

Mr Greg Smith —Although I have heard of it, I know nothing more of it myself. I am sorry, we have no-one here who is expert on that. These are largely matters that are being developed in the transport portfolio, of course, and there is a question as to where you should be directing these questions.

Senator CONROY —No, I do not think you can get away with it that easily, Mr Smith.

Mr Greg Smith —I am not trying to get away; I am just saying that when it gets to that technology I cannot help you.

Senator CONROY —I do not think you can quite handpass it that simply, because this is an attachment to that letter, which has a costing—we mentioned it a little earlier—which you have done.

Mr Greg Smith —These costings and these negotiations and these arrangements were not just done by the Treasury or within the Treasury portfolio, Senator. They were done by a number of portfolios.

Senator CONROY —But as the Treasury, you ultimately have to take some responsibility for the costings, I presume. Or do you just say, `Oh, Transport did that. We had nothing to do with it.'

Mr Greg Smith —No, I am not saying that at all. I am just saying that this was not done in isolation of other portfolios.

Senator CONROY —So this attachment gives a dollar figure in terms of costs to government and those sorts of things: diesel fuel excise, mid range vehicles, diesel fuel excise 2c per litre, reduced credit, offroad diesel credits—all of those sorts of calculations. I am just interested in how you calculated them or what was the methodology, other than your best guess, and I am not being facetious.

Mr Greg Smith —There is a large data base that is held on all of the classes of truck size and so on—I do not have any of this with me tonight, as you may appreciate—

Senator CONROY —I am happy for you to take it on notice.

Mr Greg Smith —You would like some sort of—

Senator CONROY —Breakdown, yes.

Mr Greg Smith —description of how that is done. Each truck size, we know how many vehicles there are, we have got average usage, et cetera. We have got a lot of information from
other schemes in the past, et cetera. Most of this, as I say, is held or sourced in the transport portfolio as well as in our own portfolio. So we will get you some information on notice on that.

Senator CONROY —Mr Atkins in today's Courier-Mail suggested:

The GST confusion over bread and chooks could appear quite rational up against the implementation of the Federal Government's diesel fuel rebate policy if it was ever taken seriously.

Having some familiarity with the transport industry, I will be intrigued to see your costings and how you are planning on administering it. I guess if you believe no truckie has ever taken drugs, sped or overloaded his truck, you are expecting to get—

Mr Greg Smith —I bow to your personal knowledge of the industry, Senator.

Senator COOK —Minister, can I just ask you a direct question about the forthcoming amendments on the GST before the Senate. Will they contain the Crown Casino amendments or not?

Senator Kemp —I do not know what you mean by the Crown Casino amendments. There are amendments on gambling. As far as I am aware, Senator, they will be proceeded with. If that has changed, I will advise you.

Senator COOK —Is that a settled part of the package?

Senator Kemp —I think a question was asked in the Reps today—I think it was asked of me, and I think my answer

is that the government will be proceeding with those amendments.

Senator COOK —That is, yes, it will be proceeding?

Senator Kemp —Let me say that that is the latest information I have. If there is any change in that, Senator, I will advise you.

Senator COOK —Can I just ask, then, through you to Mr Paul McCullough: we put a number of questions on notice about the Crown Casino amendments, but we have not yet received a reply. Will we be in a position to receive a reply prior to these amendments coming on for debate in the Senate?

Mr McCullough —I am just checking, Senator. I understood they had all been answered.

Senator COOK —Sorry. I have just been advised they were tabled this morning. I have not seen them. I withdraw my question to you. Thank you for your delivery of those answers, Mr McCullough. The $500 million fund for small business and charity is to cope with the GST. Will that fund be increased? Is that part of the deal?

Mr Greg Smith —There has been no decision as part of this package to increase that fund, Senator. That fund, of course, is administered by the portfolio of workplace relations and small business.

Senator COOK —But after this long evening on enhanced compliance costs, most of which will go to small business and retailers, one would have expected, given that the tax office has scored an increase in funding, that this package would be enhanced? Has that not been a matter at all canvassed with the Australian Democrats, Mr Smith?

Mr Greg Smith —I am not in a position to comment on what has been canvassed with the Australian Democrats, Senator.

Senator COOK —When might you be in a position to tell us about that fund?

Mr Greg Smith —I will not be in a position to tell you about what has been canvassed with the Australian Democrats, Senator. That is not my—

Senator COOK —No, I did not ask that. I am sorry if you misunderstood me. I was asking: when you would be in a position to tell us whether the $500 million gets lifted or not.

Mr Greg Smith —I certainly will not be doing that either, Senator. If the government wanted to change its policies in an area, I am sure they would announce it, but I will not be doing so.

Senator COOK —You won't be doing it?

Mr Greg Smith —I am not in a position—as I say, it is not even in our portfolio.

Senator COOK —There was a report in the Australian Financial Review on 3 June that non-bank mortgage providers such as credit unions, building societies, bodies like Aussie Home Loans, will be eligible for a partial input tax credit on a designated list of services provided to these organisations. Is that true or not?

Mr Greg Smith —The short answer is yes, it is true. It was in the package. It was also originally announced earlier than in this package and some detail is provided in the attachment to the letter. Is that enough for you now?

Senator CONROY —How much is public and what can you give us that is public, other than what you are saying is already in the letter and attached?

Mr McCullough —What is in the letter, Senator, under the heading `GST Higher Financial Services Input Tax Credits'—it is a short paragraph—is as follows:

A partial input tax credit will be provided for the purchase of a specified list of services used to make financial supplies. The partial credit rate will be set to ensure that there is no bias between insourcing and outsourcing a listed service. This measure will particularly benefit smaller organisations in the financial sector like credit unions, which operate with a large range of outsourced activities. There will be further discussions between the Government, Australian Democrats and the financial services sector on the resolution of the issues that have been raised in Democrat amendments.

Senator CONROY —Has that been finalised yet?

Mr McCullough —It is one of the issues that is being settled.

Senator CONROY —`Has been' settled, did you say?

Mr McCullough —That is being settled. It is exactly the same status as all the—

Senator CONROY —I was just wondering if it was available. If it was publicly available, we could get a copy, that was all.

Senator COOK —In the case of this thing, which is still to be settled, but you have announced its broad outline, does that remove the arguments that Aussie Home Loans and the credit unions put to our inquiry that, compared to other financial providers like banks, for example, they are at a competitive disadvantage because of higher costs? Does that remove that objection entirely?

Mr McCullough —Well, it is specifically designed to address most of the issues.

Senator COOK —Have the credit unions and Aussie Home Loans et al been consulted about this?

Mr McCullough —I am not aware of whether they have or not in detail.

Mr Greg Smith —I am aware that the credit unions have been consulted. I would not go beyond that at the moment. But there has been certainly some discussion with the credit unions.

Senator COOK —The Prime Minister's letter of 28 May to Senator Lees reads in part:

There will be further discussions between the Government, Australian Democrats and the financial services sector on the resolution of the issues that have been raised in Democrat amendments.

The Democrat amendments only dealt with credit unions, and even then they only dealt with services provided by a body that was owned by two or more credit unions. In light of this, is the government looking to extend input tax credit relief to entities other than just credit unions.

Mr Greg Smith —Senator, the announcement was not restricted to credit unions at all. It was for any financial service. There was no specific—the example was given of credit unions, but only by way of example.

Senator CONROY —I think the Democrats in their amendments before the parliament only looked at credit unions.

Mr Greg Smith —As I say, I am not here to talk about the Democrat amendments. But in terms of the agreement, the explicit—

Senator CONROY —Be nice to them!

Mr Greg Smith —I cannot talk about that. The explicit agreement which Mr McCullough has just read out was not restricted at all to credit unions. It could potentially go to any financial service provider, depending on the circumstances they were in.

Senator COOK —What threw me, though, was that the letter of 28 May from the Prime Minister to Senator Lees referred to Democrat amendments. When you go to those Democrat amendments, they relate to credit unions in the manner I have just described.

Mr Greg Smith —It must therefore mean other suggestions in their amendments—is that what you were going to? I thought you were asking whether or not this was only for credit unions. This is not just for credit unions. This is for all.

Senator COOK —Does that include superannuation funds—financial services consumed by superannuation funds?

Mr Greg Smith —Potentially I think it could.

Mr McCullough —This is not restricted to any particular institutions—it is relating to providers of financial services.

Senator COOK —So that is a yes, it goes to super funds?

Mr McCullough —It could potentially cover that, yes.

Mr Greg Smith —If their circumstances would come within this type of financial supply.

Senator COOK —Yes. Are these discussions complete now, or are they still ongoing?

Mr McCullough —They are still ongoing.

Senator COOK —And we will hear about them in due course, I am sure you are about to advise me?

Mr McCullough —Yes.

Senator Kemp —I think the point was made earlier on that we have the Tax Commissioner with us this evening. It would be better if we could finish up with any questions to him so that we will not require him to attend again.

ACTING CHAIR —Senator Sherry, do you have any questions of the commissioner?

Senator SHERRY —Thank you. Commissioner, you provide advice to the Treasurer and Treasury on tax avoidance matters?

Mr Carmody —I think we have spoken before about this. We do provide advice in appropriate cases and have discussions with Treasury on appropriate occasions.

Senator SHERRY —Does your advice include avoidance using superannuation funds? Specifically, are you aware of any matters relating to tax minimisation or avoidance schemes involving controller superannuation arrangements?

Mr Carmody —Yes. We have put out a press statement announcing our position that those schemes are not effective—those particular ones.

Senator SHERRY —I am going to come to that in some detail. Do you see those schemes as a threat to revenue?

Mr Carmody —Well, by definition if we take a view that they do not achieve the tax advantages that they proclaim, then they are a threat to the extent that they are marketed and attempted to be engaged in.

Senator SHERRY —Have you any estimates of the size of revenue that is being avoided or minimised?

Mr Carmody —No, we do not have specific estimates. With those particular arrangements, our understanding is they have been heavily marketed, particularly in this last financial year. So a lot of the revenue that might be said to be at stake in these cases we would be saying that people are not entitled to seek anyway.

Senator SHERRY —So these schemes have been in existence, to your knowledge, for some years?

Mr Carmody —No. In regard to the sort of mass marketing of the particular variation of schemes, it is not my understanding that they have been around for a number of years. I think we have seen in the last 12 months—and it is not only superannuation schemes; there is a range of employee benefit arrangements—a round of very aggressive mass marketing and that aggressiveness has been particularly in this year. I am not precluding the fact that there may have been others before.

Senator SHERRY —I understand that these schemes using control of superannuation arrangements enable the minimisation or total non-payment of superannuation contributions tax and the superannuation surtax, as we call it?

Mr Carmody —That press announcement went to a whole variety of arrangements. We provided specific examples of the sorts of arrangements. They are on our web site. We can make them available otherwise. When I talk about aggressiveness, what we have seen in a range of employee benefit type arrangements is that this is a marketplace where the competitive nature is to strive to find a more competitive scheme than someone else who is promoting it and they have moved to what we have termed a total tax wipe-out, which claims that there are no tax liabilities at all that arise. In our view, they are not correct in their claims and we have expressed our determination to pursue what we see as the correct view of the law as far as necessary to ensure that they are not successful.

Senator SHERRY —Just returning to that issue of lost revenue and potential lost revenue—and you have referred to total tax wipe-out, which depending on individual circumstances must be a considerable saving of money: are we looking at tens of millions of dollars or hundreds of millions of dollars?

Mr Carmody —It is very hard for me to put that with precision, because we know they are being marketed by a range of people. We have offered for people to come forward and make a voluntary disclosure, in which case we have said we will apply lower penalties. If people do not take advantage of that, we will be pursuing—you will have seen some press coverage even today of our pursuit of client listings for people engaged in these arrangements and we will pursue those to get it. In terms of the dollars, I cannot put a precise estimate on it.

Senator SHERRY —I am not asking for a precise figure but a range.

Mr Carmody —I would say the indications are that it is in the hundreds of millions. But I would also say that is not necessarily revenue forgone because of the very heavy marketing that occurred in the current year. We are saying, `Well, don't even bother to claim it.'

Senator SHERRY —You mentioned that you have been seeking for people to come forward voluntarily. Has that been happening?

Mr Carmody —Because it had become known in the marketplace that we were forming a view on this, we already have had—I think this is referred to in the press release—at least one promoter who has come forward with a wide range of his or her clients. The last I heard—and this would be a week or two ago now—there was a fair bit of inquiry to find out our position. The offer is available until 30 June.

Senator SHERRY —Is there a problem with section 274 of the Income Tax Assessment Act in respect of these schemes and closing them off?

Mr Carmody —We believe that the general anti-avoidance provision will close off these schemes. We have had a fair bit of success in the High Court on the general anti-avoidance provision, Senator.

Senator SHERRY —So you don't believe there is any problem with section 274?

Mr Carmody —There is an argument about section 264. We have, I think it is, counsel's opinion that supports a view in these sorts of aggressively marketed cases that in fact the claimed defect will not operate. But even if it is ultimately found that way, we are saying that puts you right into the general anti-avoidance provision. So we are saying under the present law we can defeat these schemes.

Senator SHERRY —Have you made any recommendation to government about legislation to make sure that there is no doubt?

Mr Carmody —I do not know that it is appropriate for me to talk about advice to government, but our position is clear: we are saying that under the existing law we will defeat these schemes.

Senator SHERRY —And you are confident that that will happen?

Mr Carmody —We do not take these on lightly. There is always the question of what occurs in the courts. We do not always succeed in the courts. But we are coming with a strongly supported position that we can use the existing law, including the general anti-avoidance provision, to defeat these arrangements. That would be the nature of any advice I might give to government.

Senator MURPHY —Does that include the arrangements that private rulings and private opinions have been given on that relate to these same things?

Mr Carmody —We address that in the press release. We have said there that we believe that any opinions that have been given will not bind us in these mass marketing areas because we do not believe that they have been implemented very successfully. We also pointed out
that any private rulings that might exist did not address the question of the general anti-avoidance provision—or to the extent it did, made an assumption that we do not believe is correct in this case.

Senator MURPHY —How many private rulings and advance opinions have been given in respect of these schemes?

Mr Carmody —I am sorry, I do not have those details, Senator.

Senator MURPHY —Are you aware of a report in the BRW of 4 June?

Mr Carmody —I have seen the report in the BRW of 4 June. If I might say, Senator, for all the hyperbole, all I got out of that report was that the tax office was taking a tough stand on these schemes and would be prepared to take them all the way in the court. I also note that one of the promoters, who remained anonymous, acknowledged that people in these schemes had pushed the envelope beyond the bounds.

Senator MURPHY —I am interested in some other aspects of the article, in particular as to the private rulings that have been given and have been given supposedly, as reported in the article, against a flaw in the tax law or the tax act that relates to section 274.

Mr Carmody —I have explained to you our position on this, Senator. I have explained our position on the rulings and on that.

Senator MURPHY —You said you think the existing law can be upheld?

Mr Carmody —Yes.

Senator MURPHY —Then I am curious as to why private rulings would be given in favour of some of these schemes.

Mr Carmody —As I said, the rulings that are there either do not address the general anti-avoidance provision or, to the extent they do address it, address it on the basis of a specific assumption that we believe does not apply in the cases that we are seeing. So we are saying that we believe the sort of mass marketing that has gone on of these arrangements will be unsuccessful.

Senator MURPHY —How do you respond to the statement from the former tax ombudsman, Peter Haggstrom that in effect it has been a bit of laziness on the part of the ATO and that really there should have been a recommendation to change the law.

Mr Carmody —That is his opinion.

Senator MURPHY —And you have made no recommendation to change the law?

Mr Carmody —We believe the existing law will defeat these arrangements.

Senator MURPHY —So you have made no recommendation to change the law?

Mr Carmody —I have said before that I do not know that it is appropriate here to talk about advice to the government. But if I was asked by the government, my advice would be that we will be tackling these under the existing law.

Senator MURPHY —The article says:

For years, his most senior officers have been quietly endorsing aggressive schemes that make the payment of tax optional . . .

Further, it says:

Carmody has suddenly revised his interpretation of tax law . . .

Then it makes a point:

The background to this debacle contains many elements: long-recognised legal loopholes . . .

What are these legal loopholes?

Mr Carmody —I have explained to you, Senator.

Senator MURPHY —You say there are none.

Mr Carmody —I have explained to you, and I have acknowledged, that there is an argument about section 274. As we have seen these schemes marketed aggressively, we have sought advice and we have, I believe it is, counsel's view that there is not a defect of the type claimed and that we could successfully argue that. However, irrespective of that, it takes you squarely into the general anti-avoidance provision in this area.

Senator CONROY —`Wine Marketing and Management is pleased to announce that its Palandri Wines Margaret River wine business has received a product ruling from the Australian Tax Office'.

Mr Carmody —Senator, they are completely different arrangements.

Senator CONROY —This is about aggressive tax avoidance schemes that you are endorsing. They have a ruling from you.

Mr Carmody —With all due respect, Senator, the particular position in those arrangements has nothing to do with the superannuation arrangements that were being talked about. The product ruling system has been introduced, firstly, to give people certainty. We believe that a number of people went into schemes that I would term aggressive, in a way not understanding that they were exposing themselves to penalties and failing to get deductions under the law.

Senator CONROY —Except you made the point—

Mr Carmody —Let me just finish. So we offered product rulings. And we would not be giving product rulings where we see exhibited the sorts of features that lead to sort of round robin loans, leveraging up through non[hyphen]recourse loans, and, in our view, very little of the claimed fees actually going into what was claimed to be the commercial venture. We would not be giving a product ruling in those cases. You are reading a particular view of a particular journalist. I am giving you what is occurring.

Senator MURPHY —Mr Carmody, if I can go back to the former tax ombudsman, who would be seen to be somewhat independent. In expressing his view, he says:

By effectively endorsing controlling shareholder superannuation schemes for years . . .

I think I understood you to say before that you did not know whether they have been going on for years.

Mr Carmody —No, I said aggressive marketing of particular variations has been particularly high this year. I was not precluding the fact that there may have been some arrangements in previous years and our press announcement does not limit it to a particular year.

Senator MURPHY —Were you aware of them in previous years?

Mr Carmody —If you are asking me personally, I cannot tell you any more than what I have told you this evening.

Senator MURPHY —It is reported in the article that there has been some debate within the tax office over a period of time about these schemes.

Mr Carmody —Senator, you are expressing a view of a journalist in an article.

Senator MURPHY —I am asking you whether the view is correct or not.

Mr Carmody —What I am saying to you, Senator, is that I have acknowledged that there were some individual rulings given in past years. I have also said that we do not see the schemes as aggressively marketed being protected by those rulings.

Senator MURPHY —Would you agree with Mr Haggstrom's statement, which says:

By effectively endorsing controlling shareholder superannuation schemes for years, the tax office created a dual tax system where it was optional to pay tax.

Mr Carmody —I have explained that our press announcement says that they are not successful.

Senator MURPHY —Somebody has been successful through them. Given that there has been a significant increase in them in the past 12 months—or at least the marketing of them, the promotion of them—you have now decided that the previous arrangements, the private rulings and advance advices, are no longer going to stand. You said in your statement—and you read it out—that you would stand by the existing arrangements but not unless the names of the people who have these arrangements appear on the contracts or agreements. I think that is what you said.

Mr Carmody —No, I do not remember ever saying that. I am quite happy to make available a copy of the press release in which was made—

Senator MURPHY —I have to say that I do not have a copy of it. If I can read you parts of this article.

Mr Carmody —You are quoting from an article. I am explaining to you not the journalist's perspective or whoever is giving the journalist his or her perspective on this; I am explaining to you the tax office perspective on this.

Senator MURPHY —Well, my apologies if the journalist misrepresented your statement.

ACTING CHAIR —Senator Murphy, it is the old adage—you do not always believe everything you read in the newspaper.

Senator MURPHY —True, especially South Australia's papers. Would you like to read out what you said?

Mr Carmody —Can I say, Senator, that I have no intention of allowing any system that allows it to be optional for people to pay tax or not. I will do everything within the existing law to prevent that. The statement that I released is directed at precisely achieving that result.

Senator SHERRY —Mr Carmody, is it correct that any of the officers—Deputy Commissioner, Large Business and International Tax, Mr Jim Killaly; Deputy Commissioner, Superannuation, Michael Monaghan; and Deputy Commissioner, Small Business, David Butler—had issued private rulings and advance opinions condoning these types of schemes? Have any of those officers issued those rulings?

Mr Carmody —I do not believe that they have personally issued any rulings. Rulings go out under the names of deputy commissioners.

Senator MURPHY —Yes. Presumably they would have some knowledge themselves, then, wouldn't they?

Mr Carmody —Almost all of these go out in the name of deputy commissioners because that is the way the authority chain works. But then people are authorised to issue in the name of the deputy commissioner.

Senator SHERRY —So we have had some private rulings and advance opinions?

Mr Carmody —I have acknowledged in this press statement that there are some private binding rulings, but we are saying that they are not effective in the way these particular mass market arrangements have been entered into.

Senator SHERRY —Have you spoken to any of these officers about these schemes and their advance opinions and private rulings?

Mr Carmody —As I say, I do not think those particular officers would necessarily be aware. It is correspondence that goes out in the name of the deputy commissioner, just like a lot of things are done in the name of the commissioner that I have no idea of.

Senator SHERRY —That is not what I asked you. Have you spoken to any of these officers about these issues?

Mr Carmody —I think some of the officers might have been involved during the course of consideration of our position on these rulings.

Senator SHERRY —That is certainly what I would have expected. These rulings—albeit I accept that they may not have been aware of the details of rulings going out in their names—apparently have been issued between 1991 and February this year and it seems, according to you, to have become very aggressive in the last year. Is it correct that these rulings and advance opinions have been issued for many years?

Mr Carmody —I understand there are some that go back a few years, yes.

Senator SHERRY —How do you draw the line? You have talked very firmly and in a forthright way tonight about the aggressive marketing in the last year, and you have acknowledged that these schemes have been in operation prior to the last year, but the last year it has been particularly aggressive. How do you draw the line between what is legitimate and what is not. Just because it is aggressively marketed—

Mr Carmody —Sure. The aggressive marketing is what drew senior attention to these arrangements.

Senator CONROY —When was that?

Mr Carmody —I think it was certainly some time this year that I would have become aware of them. I cannot be precise there, Senator. But I was trying to respond to a point that was raised by Senator Sherry. There can be individual rulings given by officers and the law requires that, where they are appropriately given and where the circumstances are implemented in that way, they apply. Now, what occurred here was we saw them being aggressively marketed. That drew other attention to those arrangements. We then looked at what was occurring. We decided to examine fully what was the ATO's position on these arrangements, and the ATO position is, as I announced in the press release. The point I was also making is that it is my understanding that, even with those individual rulings, the issue of part IVA is not precluded by them.

Senator SHERRY —That is the next point I was going to ask you about. Those schemes where there have been advance opinions or private rulings—what will you be attempting to do about those?

Mr Carmody —A private binding ruling applies only to the individual concerned, so I am not going to pretend—I will be frank—that in every case we get every individual private binding ruling right. We have quality control procedures in place, but the law was introduced—and we support the law—to provide certainty for people.

Getting back to the question you asked earlier; when we see something being aggressively marketed, we will have a further good look at it. And that is what occurred in this case. Employee benefit arrangements in their broad, I became aware of in the last half of last year. And I am not sure in my own mind where the superannuation arrangements got caught up in that. But as a result of that aggressive marketing, certainly we reviewed our position on this and our position is as stated there. When we look to the individual rulings that have gone out, on the ones I have seen—and I believe these are representative of that—either part IVA was expressly precluded from the advice—in other words, we are not giving any opinion on the operation of part IVA—or it was included but it was said to be okay on a particular assumption about the purpose of operational arrangements.

Now, in our looking at what has been going on in the marketplace, we are saying that that assumption does not hold; therefore, we do not feel bound in those particular cases. But they would be only a very limited number, once they got aggressively marketed, of the broad number that were being entered into.

Senator SHERRY —In the article there is a quote from Mr Robert Richards, the principal of Robert Richards Solicitors, in which he says, `The government is negligent in not rushing through amending legislation. Promoters could get away with using these schemes for four to five years before being fully tested in court.' Is Mr Richards correct?

Mr Carmody —Given our stand on this, I would be very surprised if we see continued mass marketing of these arrangements.

Senator SHERRY —So you are not advocating legislation at this point in time?

Mr Carmody —Not at this point in time.

Senator MURPHY —What is the process? Are you going to run a test case, as is suggested in that article?

Mr Carmody —These individual arrangements are part of a broader concern that started with some of the tax effective in highly leveraged investment arrangements where we took some fairly public stands and, as we focused on it, moved into employee benefit arrangements. I am not going to pretend to you that there will not be some who will raise technical arguments against the position we are putting. However, what I am saying is what I have said there: we have a firm view of the opinion of the law and we will take that all the way. In support of that, and because I see it as a broader issue in terms of the culture that surrounds some of this marketing, it also requires that as we take these issues to the courts, we do not allow ourselves to get restricted and buried in individual little technical arguments. That is what these sorts of planning arrangements rely on—a bit of a twist on a turn here and a turn there. We have already had discussions. It is my intention to have at least two senior Queen's Counsel, perhaps supported by others, who will assist us in managing and taking forward the whole range of these cases, so that we have proper control, to the extent we can influence how the cases progress, over what gets up from a consistent point of view, and that we have consistent arguments put forward that paint the broader picture for the context in which the individual decisions by the court have to be taken.

Senator MURPHY —Does that include those that have already received private rulings?

Mr Carmody —I have said that on the advice available to me those private rulings are not binding in their terms, particularly in the private binding ruling cases, because of the effect of exclusion of part IVA. So to the extent that we believe that is available, we will seek to apply part IVA there.

Senator WATSON —If a person has a private ruling and conducts his affairs in accordance with the manner that has been outlined in that private ruling, in relation to that particular taxpayer whose name appears on that ruling for that particular year, wouldn't you seek to honour that arrangement?

Mr Carmody —Yes, that is the law. I am here to uphold the law, so of course I would apply the law in those cases.

Senator WATSON —If circumstances vary—

Mr Carmody —If circumstances vary—

Senator WATSON —And to other taxpayers?

Mr Carmody —Yes, and we have some evidence to suggest that circumstances varied. But the rulings rule on particular aspects of the law. And we have to remember who some of the people are whom we are dealing with here. Let me give you, for example, an express case. One of these rulings that went out—I believe it was in this area—did not cover part IVA. And I know for a fact that the person receiving that went and got advice on what that meant. Could part IVA be applied? And the advice back from counsel was, yes, if it is applicable, it can apply. So these are people who have their eyes open in these arrangements.

Senator MURPHY —For those schemes that I think you said may have had part IVA included because of the supposition that the scheme may have met certain requirements and therefore IVA would not be applied, if there is a range of those schemes that have been marketed and set up that have not received private rulings with an individual's name and/or advance opinions, you are saying that they are in trouble?

Mr Carmody —Look, the law only requires us to adhere to specific private binding rulings and they are to the individual concerned. So even if we had, as we had, issued a number of these, in the scheme of the amounts involved they are minuscule. People have said they have got general opinions. Now, the law does not require anything of us there and I have made certain statements about my view of that. But in any event, the sort of marketing that went on became, I believe, very sloppy in its implementation. That is where the real dollars got involved.

Senator MURPHY —It just seems unusual that, as it was asserted that this went on over a long period of time, from a strategic point of view the tax office did not see that a problem was going to develop.

Mr Carmody —Let me say to you, Senator, that I have expressed for some time the need for the Australian Taxation Office to get much more up to date with what is happening in the market. The traditions of tax administration that go on for years under self-assessment are always after-the-event reviews. And that continues to be the tradition often around the world. These are examples of how these sorts of schemes can become heavily marketed and of the need for a tax administration to actually be acting before we even see assessments. Now, I am not pretending that that is how we have acted throughout our history. What I am saying to you is that that is the course that we have attempted to embark on and it is not easy. We encounter lots of hurdles. We get taken to court merely for trying to get client listings. Legal professional privilege is being held out by some and agreed by one judge.

Senator WATSON —You have won those cases now.

Mr Carmody —No, we have won with accountants. There is one case that is still under appeal where legal professional privilege was claimed by the solicitor and the judge found that legal professional privilege applied. We do not believe that is a correct interpretation of
the law and we are appealing that one. I am not pretending it is easy. The nature of the force is on the other side. The knowledge of what is going on is out there and they are not necessarily putting up their hands to tell us.

Senator MURPHY —I am sure we will visit this in the not too distant future.

Senator SHERRY —You make it sound like a Star Wars battle.

Mr Carmody —I have not seen Episode I, but I have been told by one of my colleagues—I do not know whether he has gone—that the introduction is that years ago as the result of a tax dispute on something the world fell apart.

Senator CONROY —I made a reference earlier to the wine marketing management, Palandri wines. Would you consider that this could be defined as heavy marketing? The big round circle, Australian Taxation Office product ruling, tick—is that heavy marketing to you?

Mr Carmody —There are many things that are heavily marketed, Senator. I am sure it is good marketing. I see marketing every day on television and in newspapers. That is not the issue.

Senator CONROY —It says `Summary of income tax scenarios'. You rule on this one, `The growers will obtain a tax benefit, but it is not possible to conclude the scheme will be entered into with the dominant purpose of enabling the relevant taxpayer to obtain this benefit.' Are you serious? This is being marketed as a tax avoidance mechanism, pure and simple—`Summary of income tax scenarios'.

Mr Carmody —Can I explain again the history of those to you? First of all, I have used the term aggressive planning.

Senator CONROY —This is as aggressive as it gets.

Mr Carmody —I think you will find it is not. It might be aggressive marketing. The question is: are they taking unintended or inappropriately leveraged up deductions?

Let me go through the history of this. I suggest to you that I can paint you an alternative scenario where you would be having a go at me for not issuing product rulings. The situation arose whereby, in relation to a range of what are called tax effective investments, many thousands and thousands of people have put their money into those investments. They said to me, `We believed we got advice from our financial advisers and others that these were effective for tax purposes.' We have now said that they are not and as a result those people are suffering real financial detriment, because they lose their deductions and they have paid up some of their own money.

Those particular arrangements typically involved a very small—not small to the individual; but small in proportion to the claimed deductions—percentage of the amount put up by the individual. What we then found—this is the problem when it gets to aggressive planning—was that behind those arrangements was the internal financial company associated with the promoter or the person who is said to be operating what is probably a legitimate business, but on a much smaller scale than is claimed by these deductions. The internal financial company did a round robin of non-recourse loans such that for the $10 I put up I claimed a $100 deduction, but in effect the $90 went around and around in circles and could not be used in the actual operations.

Going back to the point that was being made earlier, we took action in response to those that goes back two or three years. People made the very point that Senator Murphy made: `Why didn't you stop it early? I have now gone into this. I thought I was operating on the best financial advice, and now I am suffering.' In response to that, and also to create a market
pressure for investment only in those schemes that did not involve those aggressive and somewhat artificial financial arrangements, we offered product rulings so that people could at least be certain—not that the investment of the business was going to be successful—that, if it was implemented in the way disclosed to us, tax deductions would be available. What I am saying to you is that, if it is disclosed to us that there are these other features, we will not be issuing a product ruling.

Senator CONROY —I am struggling. I make no pretence that I understand how these schemes work. I rely on the force, as we were discussing before, to look after these issues. I have spoken to the journalist involved. The core of the scheme as far as he is concerned is the management fee. I am not sure whether you have read Ken Davis's article on this. He makes the point, `The grower has spent nothing and done nothing, but provided the grower is rich enough to be on the top marginal rate, he or she is able to write off about $10,000 of tax in the first year, $5,000 in the second year and $4,000 in the third year before any legitimate deductions associated with the actual production of wine.' This has not been marketed to me as, `Here is a good investment in terms of getting into the wine industry'. This has been marketed to me on the basis of, `Here is a way to minimise your tax.' You may say that maybe it does not fall into the scale of the people you deal with—

Mr Carmody —It is not an issue of scale, Senator.

Senator CONROY —I hope not.

Mr Carmody —No, it is not. For goodness sake, tax affects everyone's decision on legitimate business and everything else. It is a reality that there is a tax liability, and that is a factor that is taken into account. The fact that someone markets it and says, `Yes, there are tax benefits' is not sufficient, or appropriate even, for the tax office to therefore say it is illegitimate and you cannot get the claimed deductions. I do not know the individual detail of this scheme as it is described, but what I have said to you is that it would not get a product ruling if it involved a financial arrangement where there was artificial leveraging up, round robin effects and others. If it involved legitimate expenditure in management fees, then it would get a product ruling.

Senator CONROY —And what is your definition of `legitimate expenditure in management fees'? Why are they being paid $46 million to manage 120 hectares of vines over three years?

Mr Carmody —I am not across the full detail of this, but in my terms it is the difference in legitimate borrowing of money to incur expenditure as opposed to—in the schemes we saw—artificial leveraging up of borrowings to multiply the deduction available by the use of round robin, circular, non-recourse funding where there was no real liability on the part of the person claiming the deduction. I do not know any more detail than that about the particular arrangement.

Senator CONROY —Unfortunately Mr D'Ascenzo has gone. I guess that was because you had arrived. I had given him a copy of the article and he did not have a chance to read it, unfortunately. If he had had a chance to read the article, he might have been more able to engage me in conversation.

Mr Carmody —Reading an article, as I have pointed out, is a particular view of something.

Senator CONROY —It quotes the tax office view: `The growers will obtain a tax benefit, but it is not possible to conclude the scheme will be entered into with the dominant purpose of enabling the relevant taxpayer to obtain this benefit.'

Mr Carmody —That is what we said. We wanted to give certainty to people because of the circumstances we have had. I suggest to you, Senator, that if we had not done that, I would have been here defending our actions and facing claims of, `How do poor old people understand what is available to them?'

Senator CONROY —I am just struggling to understand. I am being marketed this product not on the basis of anything other than being able to minimise my tax. I am staggered to hear you saying, `The growers'—which would be me if I entered into it—`will obtain a tax benefit, but it is not possible to conclude the scheme will be entered into with the dominant purpose . . . ' It is the only reason it is being pushed in my direction.

Mr Carmody —That is a completely different question to the question of whether the arrangement is legitimate under the law. Can I say to you, Senator: if you chose to invest in that solely on the basis of a tax advantage, then you would not be a very prudent investor and you may well find you lose your money, depending on whether the particular vineyard or whatever succeeds or not.

Senator CONROY —That is a business risk for me to make that judgment on. What I am putting to you is that you are the tax commissioner and you have to make a judgment on whether or not it is possible to conclude the scheme will be entered into with the dominant purpose of enabling the relevant—

Mr Carmody —And the judgment we have made is that it is not possible, and therefore deductions are available to you.

Senator CONROY —It is blindingly obvious that it is the only reason people are investing in it.

Mr Carmody —I am sorry Senator, you are basing your blindingly obvious on an article—

Senator CONROY —No, I am basing it on what I have read in the documents.

Mr Carmody —And I would be more than happy to supply the product ruling to you, which would outline the terms under which we have come to that conclusion.

Senator MURPHY —We would appreciate it.

Mr Carmody —More than happy. They are publicly available, Senator.

Senator WATSON —Perhaps, Mr Carmody, it might be advantageous if you made a statement tonight, that the press could pick up, that it would be unwise for people to invest in these sorts of things unless there is a ruling given in relation to that particular scheme or arrangement.

Mr Carmody —I have made it clear on a number of occasions that they had no certainty as to their tax deductions unless there is a product ruling, and the very statement you have made has been made. I even read it in the Personal Investor magazine this weekend.

Senator WATSON —But it should be in those brochures.

Senator MURPHY —A lot of punters do not get to read that.

Mr Carmody —No, but there are people who advise them. Our primary purpose in providing this was to provide certainty to people, given the experience of a whole range of ordinary Australians who invested in something that we believe is not successful. We wanted to be fair to those people. So that was the primary purpose for this. But in providing these product rulings we have also instituted a market force that is leading a lot of advisers to say you should only invest in something with a product ruling if you want any certainty about the tax
deductions. And I think that if you look at ways of achieving compliance with the law, that is a good step.

Senator MURPHY —Senator Cook, do you want to ask more questions about that?

Senator COOK —No. This brochure was given to me. It was pushed to me on the basis of the Australian Taxation Office product ruling PR199-29 ATO, with a red tick across it. It was opened at the centre page—Palandri wines ready reckoner, year one, summary of income tax scenarios. It has various gross incomes and what tax you would save according to how many units of investment you took out. Then it has a projection of annual returns to you over the time, basically financed by your tax deductions. It is presented as returning 31.2 per cent per annum; as having a product ruling and, therefore, it is kosher; and it is producing premium wines that you can take to a BBQ with your friends. What is the dominant purpose of this? I suppose you could argue it is 31.2 per cent return per annum. How do you get it? In my case by taking your PAYE tax deductions; by plundering those for the purpose of financing the scheme.

Mr Carmody —Senator, as I say, I am quite happy to provide the individual ruling to you. I go back to why the product rulings were introduced. They were to provide certainty and avoid the sorts of gearing up of deductions and, in your terms, shonky financial arrangements.

Senator CONROY —At our last meeting you talked about ridicule being something to worry about in terms of the tax system. Can I put to you very strongly that by endorsing products like these with these sorts of rulings, you are opening up the tax office and yourself to enormous amounts of ridicule?

Mr Carmody —Senator, I think I have answered the question in a number of ways. I do not know that I can add any more.

Senator WATSON —It would appear that the article has misrepresented the position. I think the promoters would be liable to be sued for misrepresentation to investors.

Senator MURPHY —Senator Watson's opinion. I return to the article by Michael Lawrence in the BRW . With regard to a certain tax officer, it is reported that a Mr Petroulias was pressured to leave the tax office by advisers of some of these schemes. Do you feel that you or the tax office was placed under any pressure?

Mr Carmody —It would be inappropriate, particularly in a public forum, to talk about individual officers and what might have occurred there.

Senator MURPHY —Perhaps we will have to discuss that at another time as well.

Senator WATSON —Mr Acting Chairman, it was stated this afternoon when a similar question was asked by me that the matter would have to be taken to cabinet if the committee wished to pursue it through a legislative process.

Senator MURPHY —The Senate committee has a tax inquiry that will continue.

Mr Carmody —I will be more than happy in camera to talk about it fully.

Senator COOK —Just going to taxation of trusts as companies: could the Treasury or the ATO outline the basic reason behind wanting to tax trusts as companies as contained in the ANTS package?

Mr Carmody —I think the question of an equivalent tax regime for business operating entities is explained in the document.

Senator COOK —Is it essentially an anti-avoidance measure, then?

Mr Carmody —No, I think it is essentially an equivalent regime.

Senator COOK —Why do you think it is required?

Mr Greg Smith —The government set out some discussion of this in chapter 3 of ANTS and that is probably the essence of it. It pointed out that differential treatment of entities can produce unfair outcomes. It pointed out that it produces some inconsistent effective tax rates for equivalent investments, depending on the structure through which their investments may be made. Those are the sorts of points—essentially equity and efficiency points. Your basic objective with tax law or tax policy should be that something which occurs should be taxed in the same way, irrespective of the structure through which it is taxed, as best you can achieve that. That is the logic of it.

Senator COOK —Thank you. Can either of you explain the difference between the tax treatment of trusts versus companies regarding the withdrawal of capital from a trust as opposed to the withdrawal of capital from a company?

Mr Greg Smith —I do not think I will venture into that. Is that an interpretive question?

Mr Carmody —I am sorry, my mind is not getting to the precision of the detail. But the difference in treatment of certain distributions from companies and trusts is well documented. I think it is even in the original Ralph reports. And that was part of the rationale for equivalent treatment—that some distributions by trusts are not taxable where equivalent distribution from companies may well be taxable.

Senator COOK —And the treatment of private company shareholder loans as opposed to trust loans to beneficiaries?

Mr Carmody —There has been a range of action on those fronts, I understand. I am sorry, I am more than happy to provide a detailed answer, but just at the moment the precision of it is not with me.

Senator COOK —Is it true to say that trusts enjoy an advantage over companies regarding the taxation of capital?

Mr Carmody —It is clear that there is differential treatment and there is advantage in some respects, but I would prefer to provide you with a detailed answer rather than off the cuff at this hour. I feel that I do not have the precision of detail that you are looking for.

Senator COOK —All right. Let me just put another question on the record. You said that you were taking these on notice. Does this same advantage also apply to the taxation of trust beneficiary loans relative to the treatment of private company shareholder loans?

Mr Carmody —We will answer that for you, Senator.

Senator COOK —Could I go to this point: there has been enormous growth in the number of trusts over the last few years. I think this is fairly well documented. Does the ATO have a fair idea as to what is driving this growth?

Mr Carmody —I think our taxation statistics report makes some comments. There are a wide variety of factors that influence people to use a trust structure rather than a corporate structure. I suspect that some of them have equally to do with the differential tax treatment.

Senator COOK —There has been a veritable explosion in the number of trusts, hasn't there, in just recent years?

Mr Carmody —I do not have the precise numbers, but I know there has been a very high growth in the number of trusts, yes.

Senator COOK —It stands to reason, doesn't it, that this is because people perceive that they actually get better tax treatment if they go into a trust structure than if they go into a company structure?

Mr Carmody —In the Taxation Statistics Report 1996-97, we outline the growth in the number of trusts. We note there that the preference for a discretionary trust over a company structure or vice versa is dependent upon a range of factors, including establishment and operation costs, the taxation treatment of income from companies as compared to the income from discretionary trusts—a variety of factors.

Senator COOK —There has been a fair degree of commentary lately—this is one for you, I think, Minister—that the taxation of trusts would be detrimental for the rural sector. Some of that commentary is based on leaks from the National Party party room. Does the government share that concern?

Senator Kemp —Senator, I think you have asked me this question on a number of occasions. If I am right, you asked me a question in the Senate on our last sitting.

Senator COOK —That is true.

Senator Kemp —I gave an answer there which I thought was a comprehensive detailed response to your question. I see no reason to vary that tonight.

Senator COOK —I found it difficult to understand what the answer actually meant on a yes/no basis.

Senator Kemp —The answer was that these issues were before the Ralph committee. The Ralph committee would be making recommendations to the government and these would be considered by the government and a response given in due course.

Senator COOK —These were issues in the ANTS package?

Senator Kemp —Yes.

Senator COOK —And this is what is coming before us; this is actually what is before us.

Senator Kemp —There is an actual quote in the ANTS package—if one of my colleagues can find that for me—which indicated that these matters would be referred to the Ralph committee.

Senator COOK —So you have an open mind at this time?

Senator Kemp —Let me just read it. It states:

In the ANTS package the government announced it would consult on the framework for tax and trust-like companies as well as transitional and implementation details. The government has appointed Mr John Ralph AO to chair the review of business taxation . . .

And so on and so forth. It noted that the government has extended the reporting date to 30 June. We are doing precisely what we said we would do in the ANTS package.

Senator COOK —At present Ralph has a discussion paper out for comment. Does the government have a comment on whether it regards the taxation of trusts as detrimental to the rural sector?

Senator Kemp —Senator, we are not commenting on the discussion paper. The discussion paper is out for comment—and presumably extensive comment has been received—and the Ralph committee will be making a recommendation to the government which the government will consider. We are doing precisely what was said in the ANTS package. No matter what effort you may use to attempt to put a spin on it, the truth of the matter from my understanding is that the government is doing precisely what it promised in the election.

Senator COOK —The Deputy Prime Minister is quoted as saying, `I'll make sure we kill this in cabinet.' Is that your view too, Minister?

Senator Kemp —Senator, this is a press report which you have drawn to my attention. I am not aware that Mr Fischer made such comments. All I am saying is that there is a proper process in train, a process which fulfils the obligations that we went to the election on. The final government position you will have to wait for until the government considers the recommendations from the Ralph committee.

Senator COOK —If it is, as claimed, that the predominant reason that trusts are the favourite financial structure of farmers is that they provide asset protection and succession planning advantages, should the taxation of trusts be of any undue concern to the rural community?

Senator Kemp —I think there would be people who have undoubtedly made submissions to the Ralph committee if they have concerns. Those matters will be considered by the Ralph committee in developing its recommendations to the government. I think the ANTS package has outlined the rationale for the government's approach in this matter. I think this has been summarised to you by Mr Smith. Senator, I am not able to go past what the government has promised.

Senator COOK —Would you say that rural families have nothing to fear from the taxation of trusts?

Senator Kemp —Senator, there may well be some people that have a particular view and they have put their view to the government. I do not propose to make any comments on this until the government has determined its position. I think that is the responsible position that a minister should adopt.

Senator COOK —I see. As I say, the Deputy Prime Minister is reported as saying that he will kill this in cabinet.

Senator Kemp —That was a press report. I am not aware of any comment that the Deputy Prime Minister made. I am putting to you that the government is proceeding with the commitment it made at the election. We have outlined the rationale to you. We have outlined the process by which this goes to the Ralph committee. I do not think I can add any more to it.

Senator COOK —Let me ask you whether you agree with what Mr Ralph has said. He is reported in the Sydney Morning Herald of 7 June as saying:

Taxing trusts as companies in no way involves a death duty.

Do you agree with him?

Senator Kemp —Senator, that is what Mr Ralph said. He is a man of eminent experience. This government does not support death duties, Senator. I know that people in your party have speculated on this from time to time, but this is not a government that supports death duties.

Senator COOK —I do not know who those people are.

Senator Kemp —I will dig out the quotes for you in due course.

Senator COOK —I am not asking you to—

Senator Kemp —No, I am not.

Senator COOK —What I am asking you is: do you agree with Mr Ralph?

Senator Kemp —This government does not propose death duties, Senator. What I am telling you is that this government will be fulfilling what it said in the election—the commitments it made in relation to the taxation of trusts.

Senator COOK —Do you think it is fair to depict the taxation of trusts as a form of death duty?

Senator Kemp —Senator, I do not wish to get into a debate on this issue.

Senator COOK —No. I am just asking for your opinion.

Senator Kemp —Let me just say that this government does not support death duties, Senator. As I said, that is the position that this government has adopted. But we will be looking, obviously, at the recommendations which come forward from the Ralph committee.

Senator COOK —You do not support death duties; we do not support death duties.

Senator Kemp —That is good.

Senator COOK —But it is an emotional issue in the electorate. Do you think this is part of a scare campaign to drive away the idea of taxing trusts?

Senator Kemp —I think there has been an attempt at some stage at a scare campaign. If my memory serves me correctly, during the last election there was an attempt at a scare campaign. Back then I think the Labor Party was not immune from running the odd scare campaign, if I remember.

Senator CONROY —The one run on capital gains—

Senator COOK —That was run out of the National Party as well. Minister, the government has never released a discussion paper on the tax treatment of trusts.

Senator CONROY —That is right.

Senator Kemp —This was folded, if my memory serves me correctly—

Senator CONROY —It wasn't folded; it was shredded.

Senator Kemp —Let me at least complete my comment, Senator. The officers may correct me if my memory does not serve me correctly. This matter was folded into the Ralph inquiry. Mr Ralph's committee has released a discussion paper. You have referred to the discussion paper in your own comments. Public comment and submissions are being received on that discussion paper and the government will be making a decision following Mr Ralph's recommendation.

Senator CONROY —I thought ANTS made a decision about this issue. I have never understood you continuing to try to say that Ralph is responsible for this decision.

Senator Kemp —The trouble is that you never listen, Senator Conroy.

Senator CONROY —Unfortunately, I have to listen to you quite regularly.

Senator Kemp —It is a good thing you do, Senator. If you listen carefully, you might actually learn something.

Senator CONROY —I doubt that.

Senator Kemp —Senator Conroy, you were in government for 13 years and very little action was taken on the issue of trusts during that period. It ill behoves any Labor Party member of this committee to attempt to lecture me, to be quite frank, and to lecture this government on the treatment of trusts.

Senator COOK —I would not develop that argument too far, Minister. I might have to ask Mr Carmody to tell us when there was an explosion in trusts, which occurred under you.

Senator Kemp —Oh, well.

Senator CONROY —You just keep burying the paper.

Senator Kemp —At the end of your term of government you were concerned about trusts and you brought in a bill to deal with trust losses, but that was after a long period of government, Senator.

Senator CONROY —What happened to the interposed interim legislation?

Senator Kemp —Oh, God.

Senator CONROY —Where did that go?

Senator COOK —Just coming back to this discussion paper, which you will not release, but which is folded in—

Senator CONROY —Folded up.

Senator COOK —to the Ralph inquiry: the release of the paper would enable the proposals in ANTS to be judged against a range of options that were put before the government by Treasury, wouldn't it?

Senator Kemp —Senator, I have explained to you the process.

Senator COOK —It is not the process; it is the question of—

Senator Kemp —The discussion paper on the taxation treatment of trusts has been released by Mr Ralph.

Senator CONROY —That is nonsense, and you know it—absolute nonsense. Are you suggesting that the entire paper that was previously prepared is contained in the Ralph review document?

Senator Kemp —No, I did not suggest that.

Senator CONROY —That is exactly the case. That is exactly right.

Senator Kemp —I said a discussion paper incorporated in the Ralph—

Senator CONROY —Do not sit there and pretend that it was not—

Senator Kemp —You are alleging what I did not say. I think the Hansard will prove that I am correct as usual and that you are wrong as usual.

Senator COOK —Let me ask you a question, Minister, which is not to do with process. It is a factual question and it does not require you to disclose the contents of the discussion paper, either. Did that discussion paper canvass options that could have been considered as death duties?

Senator Kemp —Senator, I do not propose to add anything to my comments. I have stated the government position on death duties.

Senator COOK —Did you actually see the discussion paper?

Senator Kemp —I do not propose to add any further comment on this.

Senator COOK —You were not in the loop on this either?

Senator Kemp —I know that you would like to elevate my responsibilities, but I am always entirely modest in what my work involves.

Senator COOK —I want to go on to the high wealth individuals project.

Senator CONROY —How much revenue can be specifically attributed to the work of a high wealth individual task force?

Senator Kemp —I—

Senator MURPHY —Could I just interrupt. I want to go back, Mr Carmody, to a question I asked you before about certain officers. I referred you to an article in the BRW which quotes Mr Petroulias as saying:

Responding to complaints began taking more of my time and I was not getting much done; it tied me up. I tried to get away from the heat, but couldn't.

I know you said that you do not want to speak about specific officers' cases, but was he being asked to respond to complaints—whether they be of this nature?

Mr Carmody —Senator, I really think if you want to delve into this area we need to have a full discussion and it would be inappropriate to do that in this public hearing.

Senator MURPHY —It is not possible to respond to that particular—

Mr Carmody —I am always worried about seeing things in isolation. You have indicated that you would like to pursue this matter. I am happy for that to occur, but I would prefer not to start into it in a public hearing.

Senator MURPHY —Thank you.

Senator SHERRY —I just want to get some clarification on two matters I raised earlier today about which there has been discussion; I will put other questions on notice. I asked for some detail of the claimed savings for exporters and business, the $3.5 billion, and I think Mr Smith and I had a conversation about it earlier. In taking that on notice, could he provide—I assume he will take it on notice as well—a breakdown of the savings to business in areas such as WST, state taxes—that sort of make-up.

The other question is to Mr Matthews. There was a discussion earlier about staffing at the ATO. I understand—this is in reference to my home state of Tasmania before the Democrat-government deal on the exclusion of food—that the information we had was that there would be an estimated additional 70 officers in Tasmania responsible for GST. Do you have any further information on that? Will it be increased? If so, by how much?

Mr Matthews —The 70 or so was the correct figure for our original plans. As I indicated earlier, we have not yet finalised the deployment of the additional resources, but we will not be creating new locations. It is my expectation that most of the locations that we have announced, including those in Tasmania, will probably increase to some extent, but at this point I cannot give you figures. We have not gone to that level of detail.

Senator SHERRY —When you make that announcement, I would appreciate a copy of that direct, if you could. You can take that on notice.

Mr Matthews —Certainly.

ACTING CHAIR —Any further questions?

Senator CONROY —I will go back to my question: how much revenue can be specifically attributed to the work of high wealth individuals?

Mr Carmody —I think we gave you an accounting as at the end of the last financial year. I do not have the precise figures, but I think we indicated that we met our estimate or commitment to $100 million from that. I can provide you with an updated figure if you would like that.

Senator CONROY —You have met your target of $100 million, did you say?

Mr Carmody —The funding was provided and there was an estimated revenue return of $100 million up to the end of the last financial year. We provided detailed accounting of the impact of our high wealth task force activities and I believe evidence that we had met that commitment. I can see if I can update—

Senator CONROY —Do you think it would have gone passed the $100 million by now?

Mr Carmody —It was $100 million per annum, Senator.

Senator CONROY —Is it more than $100 million, around $100 million, just under? I am not trying to hold you to anything.

Mr Carmody —No. I think we indicated at the wrap-up of last financial year or near the end of the last financial year that we had at least met the $100 million per annum and if you took into account the indirect effect from the other, but I do not have the figures.

Senator CONROY —Have any more high wealth individuals been identified over and above those originally identified in 1995-96?

Mr Carmody —Yes. We have been conducting a program of reviewing those originally identified and there has been some progressive extension.

Senator CONROY —Above and beyond the flicking through the BRW top 100.

Mr Carmody —Yes, it is a little bit more sophisticated than that, Senator.

Senator CONROY —How many, roughly?

Mr Carmody —Senator, I am only aware of the fact that we have continued the program and expanded it. I cannot give you the precise numbers.

Senator CONROY —Have you done any estimate of the extra tax that you could collect from those extra individuals? I know you are saying $100 million ongoing, but if you have identified more, I would have thought perhaps the figure was—

Mr Carmody —Some that we originally identified have proved to be able to demonstrate why their tax position was as it was. On others we have a number of audits which I think have been extended fairly extensively and we continue to expand the field as we get more intelligence about the operations.

Senator CONROY —I am wondering whether that expanding of the field, as you describe it, would lead to an expanding of the projection beyond $100 million. That is all I am asking.

Mr Carmody —The estimate is maintained at $100 million. The original estimate was never based on the identification of these particular individuals. It was of that field. So we have progressively been examining that field. We have detailed requirements for lodgment of detailed schedules and other things to enable us to do better analysis and we follow up as appropriate with audit activity.

Senator CONROY —Has the task force identified any areas where the legislation needs to be tightened up to stop avoidance?

Mr Carmody —I think a number of measures have already been introduced into parliament and passed from some of the intelligence we have gained and they have had an impact in the area of high wealth. There has been a range of issues on private company loans, misuse of charitable trusts and so on where legislation has been provided. So there has been that coming out of it. I think the issue that is raised in the Ralph discussion paper, probably for broader reasons but which will impact here, is the proposal for consolidation, because some of the issues we have seen have to do with multiplication of losses within groups.

Senator CONROY —That is the only fresh area that the task force is recommending?

Mr Carmody —I am giving to you a range of measures that have already been announced or enacted that have an impact in this area. It is not solely limited to that area. But the major revenue return has been through intelligence audit activity. The fact of our taking a very close scrutiny, to the extent of requiring fully detailed schedules and extended lodgment details in their returns, has meant that we have also seen a direct correlation to the returned income of the private companies of these individuals, turning around from being less than average upwards.

Senator CONROY —As you say, you are gathering intelligence all the time. Does the task force consider that the existing anti-avoidance provisions or that any specific anti-avoidance provisions, where they exist, are adequate to stop tax avoidance by the high wealth individuals?

Mr Carmody —Certainly I have indicated that we see the general anti-avoidance provisions having more teeth and substance to them than many out in the marketplace would project to some of their clients, particularly following the Spotless decision. I believe—we got a lot of support through the High Court after losing cases right through the Federal Court—that it is on strong grounds.

Our examination of high wealth continues. I am not pretending to you that we are completely at a position of comfort with that. We are just going to have to continue with the activity, continue with the audit activity, continue taking the stand we do on the general anti-avoidance provisions and the question of the legislation. We have had direct input into the considerations of the Ralph committee. I believe that we have come across some issues in the high wealth, as well as in other areas, and we have fed that experience into the Ralph review.

Senator CONROY —Is the ATO following the legal action arising from the death of Mr Max Green?

Mr Carmody —Oh, this is the wonderful newspaper—it is wonderful press, isn't it? Anybody thinking of entering into tax arrangements should read that. It should be bedtime reading for them. I cannot speak about the specifics of our activities with individuals. That has been so public and, if it has not already occurred, I will be ensuring that we take account of that.

Senator CONROY —Are you concerned that a major accounting firm, Horwath and Horwath, has actually admitted that many of their clients, which include the high wealth individuals, regularly engage in aggressive tax avoidance and pay little, if any, income tax?

Mr Carmody —I have spoken on a number of occasions about my concern about the cultural attitudes of some people towards tax. If you thought about half the intellectual capital that goes into devising, marketing and entering into these arrangements, if half of it actually went into growing business we would be a whole lot better country than we are now. But that is the culture we have got. In the face of that culture, that is the reason we have been taking the stand that we have.

Senator Kemp —Mr Chairman, I wonder if I could seek the guidance of the committee. I think the siren goes at 11. I just want to get a feeling from the committee—

Senator MURPHY —Perhaps it is just the early warning siren.

Senator Kemp —No, it is not at all. Unlike you, Senator Murphy, I have been over here for 14 hours.

Senator CONROY —If your question is do we think we will finish soon, the answer is no.

Senator Kemp —I think in that case if we just finish—

ACTING CHAIR —I think we should be finishing Tax this evening.

Senator CONROY —That is very good of you.

Senator LUNDY —Chair, can I indicate that I have at least an hour's worth of questioning for Tax.

Senator Kemp —The answer is no. To show my extraordinary goodwill, I am prepared to battle on if we felt that we could make some decent progress, but if the feeling is that we cannot make that sort of progress, in that case we might go.

Senator CONROY —We appreciate the offer.

Senator SHERRY —And in the spirit of cooperation, I am going to put a few of my questions on notice, particularly super tax.

Senator Kemp —It would not be the same without those!

Senator CONROY —Can I just use up the next five minutes?

Senator Kemp —I think this is the commissioner's final evening here, so if we could finish off questions for the commissioner.

ACTING CHAIR —Could I get some idea from members of the committee as to how much time they will need to spend on the other agencies that are listed for tomorrow.

Senator COOK —Speaking for myself and no-one else, Chairman, my brief ends at tax.

ACTING CHAIR —So you have no questions for these agencies.

Senator COOK —No.

Senator Kemp —Could we get some guidance on the topics you wish to raise on tax so we can bring the relevant people?

ACTING CHAIR —Can I just clarify first these other agencies?

Senator CONROY —I have got questions for the other agencies. How long? I do not know. I am not being silly—I do not know.

ACTING CHAIR —I am just making the point that we need to finish tomorrow.

Senator CONROY —No. On Thursday we are scheduled and it has been agreed to—

ACTING CHAIR —That was a spillover from the industry inquiry, not for Treasury. We completed industry.

Senator CONROY —We have got till 11 o'clock tomorrow night, so we would agree that we hope we finish tomorrow.

ACTING CHAIR —Senator Lundy, do you have any questions of these other agencies?

Senator LUNDY —No; mine are specifically related to tax. Can I just indicate what it is in relation to? It might assist the appropriate officers.

Senator Kemp —Can I just get this clear. I take it that all the agencies listed for tomorrow are needed; is that right?

Senator CONROY —Yes.

Senator Kemp —The answer is yes to that.

Senator SHERRY —Not significant in the sense of what we have been going through today.

Senator Kemp —But all those agencies and officers?

Senator CONROY —I have got ACCC, APRA, ASIC and CASAC, the competition council and the Productivity Commission.

Senator SHERRY —I have nothing on competition or productivity.

ACTING CHAIR —The minister wants to clarify issues of tax.

Senator COOK —There are some questions on high wealth individuals; there is trafficking in trust losses, deferred company tax arrangements, ASIO access powers and legal professional privilege. We have dealt with some of that but I still have some questions. And there is binding oral advice by the ATO. That sees me out.

Senator Kemp —Those are your tax questions. Have you got tax questions, Senator Conroy? You are deferring to your deputy—very wise.

Senator CONROY —My questions will be intermingled.

Senator LUNDY —My questions relate specifically to the IT outsourcing project and the management of information technology within Tax.

Senator Kemp —I am assuming that if we bring along people to do with high wealth, trust losses, trafficking in trust losses, binding rulings and IT outsourcing, that will cover the taxation area tomorrow. Does the committee plan to do the agencies tomorrow morning?

Senator CONROY —We will do our best.

Senator LUNDY —I have a crossover of three committees tomorrow. Can I liaise with the chair at some time to ensure I can be available at the appropriate time?

Senator Kemp —We will do our best to assist, Senator.

Mr Carmody —I have to point out, Mr Chairman, that Senator Faulkner asked that the Australian Valuation Office be here at 11.30.

Senator Kemp —Any further questions of the commissioner?

Senator CONROY —I appreciate that you came here off a flight. Are you indicating you cannot make it tomorrow?

Mr Carmody —I am in town tomorrow.

ACTING CHAIR —I think anything to do with the commissioner should be completed this evening.

Senator CONROY —I am hoping to knock over the last few in 15 minutes.

Senator Kemp —I will agree on the assumption that that finishes the commissioner. Is that the deal?

Senator CONROY —I just need to check with Senator Cook. I cannot speak for Senator Cook on this issue.

Senator COOK —It is a question of whether the officers at the table can answer the questions in the other areas.

Mr Carmody —I suspect they will be more competent and detailed than I am.

Senator COOK —The only reason for seeking through the secretariat to request your attendance, Commissioner, was on those areas that we have already examined you on.

Mr Carmody —I could skate over the top of some of these, but it would only be at that level.

Senator CONROY —We will hopefully be quick so the commissioner does not have to come back tomorrow.

Senator Kemp —We go till a quarter past 11—

Senator CONROY —I was speaking on my own behalf, knowing how much I had to go. I was not sure how much Senator Cook had to go on this issue. I am not trying to mislead. I was just trying to clarify. We will endeavour to stick as close to 15 minutes as we can. I do not want to keep anyone here either.

Senator Kemp —I have been here 14 hours and I am happy to go a bit longer, but that is it. If we can finish the commissioner at a quarter past 11, that is it. I think that is a fair enough deal.

Senator COOK —I think we will probably get there if you let us get on with it.

ACTING CHAIR —We have been on tax for 14 hours.

Senator CONROY —You have not been here all day, Senator Chapman, so that is wrong.

ACTING CHAIR —I have been here most of the day.

Senator CONROY —Then you should know what a current account deficit looks like by now. It took the first three hours.

ACTING CHAIR —It must take you a long time to understand these things if it has taken you that long to do current account deficit.

Senator CONROY —I was talking just before about the Max Green case, and we were talking about high wealth individuals engaging in aggressive tax avoidance and paying little if any income tax. Could I draw your attention to a couple of quotes from the court case, if you have not already seen them. Under intense cross-examination by Horwath's lawyer, Mr Peter Hayes QC, Mr Boerkamp admitted that he was under specific instructions from the 73-year-old Mr Alter to avoid tax. An article says:

`I'm not suggesting anything illegal . . . but your standing instruction from Mr Alter is "I don't want to pay any tax"?' Mr Hayes asked.

`Correct', Mr Boerkamp replied.

Mr Boerkamp also agreed with Mr Hayes that he instructed Horwath that the group, if at all possible, wanted to pay nil tax. That is a fairly aggressive approach, wouldn't you say?

Mr Carmody —Yes.

Senator CONROY —And they appear to have been reasonably successful given the growth in their asset base?

Mr Carmody —Senator, obviously in these hearings I cannot talk about the tax affairs of particular people.

Senator CONROY —Would you agree this is the sort of example of an individual that helps—ridicule is not even a strong enough word. It diminishes the willingness to comply for everybody else when they see this sort of naked approach by somebody who is reputedly worth $500 million wanting to pay no tax at all.

ACTING CHAIR —Senator Conroy, the Taxation Commissioner has already indicated it is not appropriate to talk about individuals, and I believe it is not appropriate to raise the issue of individuals in a committee hearing of this nature.

Senator CONROY —Thanks for your opinion. Now back to my question.

ACTING CHAIR —That is my ruling, not my opinion. So you will not raise it.

Senator CONROY —You know what you can do with it.

ACTING CHAIR —Senator Conroy, you will not raise these matters dealing with individuals. I have ruled on it.

Senator CONROY —I do not care what you have ruled. Is that plain enough?

ACTING CHAIR —You cannot raise these matters.

Senator CONROY —I cannot raise something that is a public transcript in a court case, a public transcript—

ACTING CHAIR —The commissioner has indicated it is not appropriate for him—

Senator CONROY —I did not ask him about an individual. I asked him to comment on the fact that this bloke is worth $500 million. I did not ask him about his tax affairs.

ACTING CHAIR —You are asking the commissioner to comment on tax matters in relation to that individual.

Senator CONROY —I asked him not about individual tax matters but about the attitude about the tax matters—not how much tax he is paying.

ACTING CHAIR —I will listen carefully to your question.

Senator CONROY —That would be a good idea. Try to stay awake during the questions. It helps if you are awake. That means eyes open in the chair.

ACTING CHAIR —The eyes are open in the chair and they are listening very carefully to you.

Senator CONROY —Try to keep the ears open with the eyes.

ACTING CHAIR —Someone who takes three hours to understand the—

Senator CONROY —You could spend three years on the current account deficit and you would not get close, right.

ACTING CHAIR —Proceed with your question, Senator Conroy.

Senator CONROY —My question came to the fact that, according to the BRW rich list, Mr Alter is worth $500 million. In terms of the attitude that has been expressed by Mr Boerkamp, do you think that impinges on the integrity of the tax system and the willingness of other taxpayers to comply?

Mr Carmody —Senator, can I preface my comments by saying that I do not want to relate my answer to a particular individual. Secondly, you should not infer in respect of that report from anything I say whether we are examining a particular individual.

Senator CONROY —No, I am not suggesting we were.

Mr Carmody —But on a general point, the proclamation by some who would appear to have a high wealth but who do not wish to pay tax is obviously a matter of concern, and to the extent that it is public and perceived to be a more representative view, then it is a challenge to the integrity of the tax system. I say that quite openly, and it is the very reason that we have embarked on the high wealth individual project, because we do not believe that that sort of attitude—whether or not it is from that individual—is appropriate and it does not help the integrity of the tax system. Therefore the community has every right to expect that the Australian Taxation Office will focus a fair amount of its energies on addressing such behaviour.

Senator COOK —Can I ask you a question in relation to that comment. On Channel 10's late night news last night, which is the only news I saw last night, there was a report of professional groups or sectors of the economy allegedly targeted by the tax office for special
attention, one of which was teachers. The channel interviewed a representative of the teachers' union about this, seeking from him an opinion. He expressed the view sweetly and benignly to the camera that he hopes teachers are treated in exactly the same way as Kerry Packer is treated by the tax office.

Mr Carmody —I agree with you about perceptions. The tax office did not come out and say, `We are cracking down on teachers' or `We are targeting teachers.' This was an annual event by a representative of a tax professional organisation. It was not the tax office saying that. Anyone who came to the tax office would get the accurate picture, and that is that, yes, we are sending out letters to people. They are nowhere in the nature of an intensive audit or any audit, or any of the sorts of activities that we involve the high wealth individuals in. I would be happy to provide the committee with examples of the letter, because they are not targeted at particular employment or professional categories—they are sent out on the basis of comparing past levels of claims with what is seen to be the norm for particular professions or occupations. It is a letter that simply explains the application of the law to them and invites them to consider that in preparing their return. That is a completely different issue to the way it was represented in the media, and completely consistent with the way we are acting in this whole area.

Senator COOK —I think the teachers unions point was there is a common perception, rightly or wrongly, that Kerry Packer pays, to use the colloquial, bugger all tax.

Mr Carmody —I am saying that perceptions can be damaging. What I am pointing out is that that perception was fed by claims that were not of the tax office, but by someone representing accountants. And while I do not want to impugn any motivation, they have the effect in the minds of people of questioning whether they should not go to an accountant.

Senator CONROY —I have one further quote that I want to draw your attention to, in case you had not seen it. It relates to further discussion between Mr Hayes and Mr Boerkamp. The article stated:

"The Alter Group, the Pacific Group, whatever label it's had at different times . . . has substantially increased its asset base through a policy of not paying income tax over many years." Mr Hayes then said.

Mr Boerkamp again said: "Correct.'

Mr Carmody —Again, I cannot comment on the individual cases. But anybody with apparent substantial wealth and not paying any tax could be expected to be the subject of scrutiny under our high wealth project.

Senator CONROY —Can I agree. I am in no way suggesting that he is currently under investigation or should be; I am simply looking at the generality of the sort of attitude which brings the tax system and the integrity of it into complete and utter disrepute when people are this naked about their unwillingness to play any part in the broader Australian community.

Mr Carmody —To the extent that occurs, we are in complete agreement and you can look at the sorts of strategies we are employing to see that we are acknowledging that.

ACTING CHAIR —If there are no further questions, we have completed the interrogation of the Taxation Commissioner. Thank you very much for your forbearance, Mr Carmody.

Committee adjourned at 11.12 p.m.