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Tuesday, 17 February 1987
Page: 66

Senator BOLKUS —I ask the Minister for Finance whether his attention has been drawn to an article in the Sunday Telegraph last weekend quoting Sir Joh Bjelke-Petersen's view on what he says are the Liberal Party's plans to introduce a value added tax. The Premier stated:

It is disastrous.

I cannot state this as well as the Premier. He continued:

I would have more chance of selling ice cream at the South Pole than they would have of selling an eight per cent value added tax.

I ask the Minister: What are the deficiencies of a value added tax?

Senator WALSH —Some of the catastrophic disadvantages of the value added tax of the type proposed by Mr Howard were spelt out by the Treasurer in a speech in Melbourne last week, particularly the dangers under present circumstances when inflation has already been boosted by the devaluation of the dollar. There is no guarantee that, because of the further boost to the consumer price index which would inevitably flow from the value added tax proposed by the Opposition, attempts would not be made by organised labour to recover those higher prices through higher wages. In other words, Australia would be locked into a rate of inflation of the order of 16 or 17 per cent if the Opposition's proposals were actually to take place.

I commend to anybody who wants to read at some length a careful reading of the Treasurer's speech. However, there are many other disadvantages of a value added tax with which the Treasurer did not deal-principally, the cost of collection. Let us take the United Kingdom experience as a guide. I think it is, if anything, likely that the collection costs in Australia would be relatively higher than in the United Kingdom. The costs to the United Kingdom Government are of the order of 2 per cent of the revenue raised. That is about twice the cost of collecting income tax in Australia. However, the cost to the Government of collecting VAT is by no means the total cost of collecting it. In particular, it falls in a very regressive way on small business; it falls particularly hard on small business. The United Kingdom experience, based on 1977 figures, showed that it cost small businesses with a turnover of between #10,000 and #20,000, which converted into Australian dollars is something like $40,000 to $80,000, more than #12 for every #1,000 turnover. In other words, VAT in the United Kingdom is a turnover tax of 1.2 per cent on small business. A turnover tax of 1.2 per cent on small business is what the Opposition is proposing.

The cost for big business, defined as those businesses which had a turnover of greater than #1m in 1977, of the order of $A4m today, was 40 pence per #1,000. For those who are interested, that is 0.04 per cent as against 1.2 per cent for big business. In other words, the effect of a value added tax would be to--

Senator Archer —You are a humbug.

Senator WALSH —Who said that-not the Patrick partner? Did that come from the man who used to write Patrick Partners' prospectuses?

The PRESIDENT —Order! I suggest that Senator Walsh address the Chair.

Senator WALSH —Certainly, Mr President. Heavy cost to the Government, a 1.2 per cent turnover tax on small business and a turnover tax of 0.04 per cent on big business-given all of those facts, I must say that I am absolutely amazed that the self-styled spokesman for the small business lobby in Australia, Mr Peter Boyle, is in favour of such a tax.