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Monday, 6 December 1999
Page: 12813


Mr KELVIN THOMSON —My question is directed to the Treasurer. Is the Treasurer aware that, because the GST will apply to donated second-hand clothing that is cut up and sold as cleaning rags, it may lead to this clothing being used for landfill rather than recycled to help fund charities? How do you think most ordinary Australians donating clothing to charity bins will feel knowing that their donation may be either taxed—the government taking a $1.65 million cut of the action—or end up as landfill? Isn't this the same as sending the Australian Taxation Office out to pick the pockets of every Australian donating to charity?


Mr COSTELLO (Treasurer) —They always go a bridge too far, don't they, in the Labor Party? The rules that the government has laid down are entirely clear: charities are GST free. That means that if you are rendering charitable services not only is there no GST on it but you get back all of the embedded tax on everything you buy. Let us go to the pie drive. Under the Labor Party, of course, if a charity buys a pie warmer they will pay sales tax on the pie warmer.


Mr Bevis —That is a lie.


Mr COSTELLO —You have been running this system for years. Under the Labor Party, when the charity filled its car with petrol, it paid 43c a litre in petrol tax. Was there ever any input tax credit on petrol for a charity? Under the Labor Party, when the cars went to pick up the disabled, was there any credit for the petrol that they were putting into the cars? When they were buying the paper plates and cups, were they getting credit for any of those things? No, of course they were not. The Labor Party was operating a system where embedded into everything that charities bought for charitable activities or otherwise was a full indirect tax cost. Did we hear any complaints from the Labor Party? Was there any concern from the Labor Party over all of the time since 1932? Of course there wasn't.


Mr Cox —Mr Speaker, I rise on a point of order that goes to relevance. The question was about second-hand goods, in particular rags which had no wholesale sales tax on them before.


Mr Tuckey —What about the truck they put them on?


Mr SPEAKER —The Minister for Forestry and Conservation, I was asked for a ruling and not you.


Mr Martin —You would make sense, Mr Speaker.


Mr SPEAKER —The member for Cunningham is a very effective and often amusing interjector but, regrettably for him, the capacity for interjections to be tolerated bears no relevance to their level of amusement.


Mr Howard —More amusement for you, Mr Speaker.


Mr SPEAKER —I concede that, Prime Minister. The member for Kingston has raised a question of relevance and I deemed that the comments made by the Treasurer were entirely relevant to the question of charities. I made the natural presumption that he would be reaching the point at which he would refer to the question of second-hand clothing.


Mr COSTELLO —The first rule is that, for a charity, its charitable services are GST free and it gets what it has never got before and that is full input tax credits. It never got that before; never got any embedded costs in the things that it bought back under the wholesale sales tax system.


Ms Macklin —They didn't pay GST.


Mr COSTELLO —Of course they paid GST—it was embedded in everything they bought. It was in their petrol, their transport, the manufacturing process. In relation to everything that they bought there was embedded wholesale sales tax.

Ms Macklin interjecting


Mr COSTELLO —It is a good idea before you defend your own tax system to understand how it works. Wholesale sales tax embeds into every price in the community. The second thing is that, where charities are engaging in commercial activities, if they have a turnover, as the Prime Minister said, of over $100,000 they are subject to the system. That is then ameliorated by several other rules. They are not subject to it if they are selling donated second-hand goods. They are not subject to it if they are selling 50 per cent below commercial markets. They are not subject to it if they are selling 50 per cent below cost.

There is no GST on the sale of donated second-hand clothing, nor indeed on any second-hand goods. The question arises: what happens if there is a transformation or a manufacturing process undertaken? If there is a transformation or a manufacturing process which is a commercial process competing with the private sector then, for reasons of competitive neutrality, the same tax system will arise. Would the Labor Party complain about that? One of the clauses that the Labor Party put in the competition policy that it signed with every state government in this country was the principle of competitive neutrality. It is a Labor Party principle. The Labor Party principle of competitive neutrality—and we support it—is simply this: where somebody is competing on a commercial basis with the private sector, they ought to be subject to the same tax arrangements. It is the same principle under which commercial operations are now starting to be charged in relation to land taxes. It is the same principle under which all of the state governments are now seeking to make them subject, on the basis of competitive neutrality, to the various state taxes.

All of these institutions are paying the financial institutions duty. Would the Labor Party ever worry about that? They pay bank account debits tax. Would the Labor Party worry about that? They pay the wholesale sales tax embedded in their price. Would the Labor Party worry about that? They pay a full 43c per litre in petrol. Would the Labor Party ever worry about that? Under the competitive neutrality principle, the government, observing its agreement as signed by the Labor Party with the state governments, ensures that where there is commercial competition the same tax in relation to that commercial competition ought to apply. But, in relation to the GST and charitable activities, charities get something that they have never got before. They get back all of the taxes which are embedded in their prices—which means that the rendering of charitable services is cheaper than it has ever been before, and that is one of the great benefits of a modern taxation system for the 21st century.