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Tuesday, 17 March 1987
Page: 974

(Question No. 4558)

Mr Andrew asked the Treasurer, upon notice, on 17 September 1986:

Does the 10% sales tax on fruit juice products (a) constitute a tax on food and (b) decrease effective protection against imported citrus products; if so, does this conform with the Government's desire to encourage the purchase of Australian products.

Mr Keating —The answer to the honourable member's question is as follows:

(a) The Government announced in the 1986-87 Budget that the sales tax exemption previously applying to a number of non-alcoholic beverages, including flavoured milk, non-alcoholic wine and cider, and fruit juice and fruit juice products containing not less than 25 per cent Australian fruit juice was to be removed and those products taxed at 10 per cent of wholesale value.

The measure broadened the indirect tax base and reduced the tax discrimination against carbonated soft drinks, mineral waters and similar beverages which have been subject to sales tax for a number of years (since 1982, at a rate of 20 per cent of wholesale value). Nevertheless, fruit juice and fruit juice products continue to receive comparatively favourable tax treatment by being taxed at a rate of 10 per cent. Whether fruit juice products may or may not be described as food is not considered germane since most beverages are already subject to indirect tax in one form or another.

(b) The previous sales tax exemption for fruit juices and fruit juice products containing not less than 25 per cent Australian fruit juices was structured as an indirect form of assistance to Australian fruit growers, particularly citrus fruit growers. However, its protective impact was significantly undermined in practice through arrangements whereby fruit juice was imported for making up the volume of pure fruit juices (which therefore contained 25 per cent Australian fruit juice and 75 per cent imported fruit juice). The imported fruit juice was considered to be a `raw material' for sales tax purposes and accordingly escaped sales tax entirely. As a result, the Government believed that the sales tax arrangements were, in practice, a particularly ineffective form of protection to citrus fruit growers.

The citrus fruit industry remains one of the most highly assisted rural industries. In 1983-84 (the most recent year for which reliable data is available), the effective rate of assistance provided to the citrus industry was estimated at 53 per cent, compared with the agricultural-sector average of 11 per cent. The Government is nevertheless aware of the difficulties presently faced by citrus growers. As a result of this concern, and following a short term review of temporary assistance to the citrus industry undertaken by the Industries Assistance Commission, the Minister for Primary Industry announced on 16 December 1986 a number of measures designed to further assist the citrus industry. The measures include the reversal of an automatic reduction in the tariff on orange juice which occurred on 10 December 1986, and a scheme whereby the Federal Government would match funds raised by the States for carry-on loans to citrus producers under Part B of the Rural Adjustment Scheme.