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Wednesday, 2 December 1998
Page: 1091

Mr COSTELLO (Treasurer) (9:53 AM) —I move:

That the bill be now read a second time.

This bill abolishes the wholesale sales tax. The wholesale sales tax is an outdated system which Australia shares with only a handful of other countries in the world.

When introduced, the wholesale sales tax was at a single rate of 2½ per cent. The general rate of sales tax is now 22 per cent and the highest rate is 45 per cent. Rates can be 0, 12, 22, 32, 37, 41 or 45 per cent.

The wholesales sales tax needs to be abolished because it has no logic or design.

It was introduced in the 1930s and was appropriate for a 1930s economy. But the economy has changed.

Multiple rates were introduced in 1940 as a wartime measure to encourage resources to flow to `essential' war related activities.

Goods were classed according to the standards of the time.

Radios, watches and tape recorders which are currently taxed at the `luxury' 32 per cent rate were perceived as wartime luxuries.

Ad hoc changes to classifications by both the parliament and the courts have resulted in anomalies. And as the economy increasingly becomes a service based economy, our indirect tax system applies to a narrowing base, with even higher rates needed to preserve revenue.

This penalises our manufacturers and exporters. We have a tax chasing an economy long gone—an absurd system which has no place in a modern economy entering the 21st century.

The wholesale sales tax is the tax the Labor Party is pledged to preserve.

Goods production now represents less than a quarter of the economy.

The economy has transformed. The sales tax system has not. Neither has Labor.

The contribution to tax revenue from income taxation and indirect taxation has changed significantly over time.

This change has been particularly marked over the last 20 years since the deregulation of many sectors of the Australian economy.

Over the 1980s, indirect taxation (comprising principally excise and sales taxes on goods) represented 7.2 per cent of GDP compared to 5.8 per cent of GDP over the 1990s.

In comparison, direct taxation (individuals and companies) increased from 16.4 per cent of GDP to 17.2 per cent of GDP.

Over the same period, the composition of revenue to the Commonwealth budget has also changed, with the share of indirect tax falling from 27 per cent to 24 per cent, whilst the share of income tax has increased from 63 per cent to 70 per cent.

There are two approaches to addressing this automatic and continuing shift in the tax mix.

The government's approach is to replace the complexity and unfairness of the wholesale sales tax with a simpler and fairer broad based, low rate indirect tax which will ensure a secure and stable revenue base to fund government services.

The alternative approach would be to maintain an outdated and unfair system which cannot provide the revenue required to sustain the level of government services Australians demand and deserve.

In 1993, the Labor government told the Australian people before the election that they could have income tax cuts without the reform of the indirect tax system.

After it was re-elected, Labor took away the income tax cuts and increased wholesale sales tax rates across the board, without any compensation whatsoever.

This bill will abolish the wholesale sales tax. It will put to an end and finally bury that sorry episode.

This bill provides an opportunity to sweep away the outmoded, outdated, complex 1930s style wholesale sales tax.

Those members of this House who oppose tax reform and support the wholesale sales tax will have a chance to support it by voting against this bill. They will vote for the indirect tax system of the 1930s. But they will also be voting against a secure indirect tax base growing in proportion to the economy, securing growth revenue for essential state services and removing the extraordinarily high tax burden which will otherwise be imposed on average earners.

Full details of the measures in the bill are contained in the explanatory memorandum circulated to honourable members.

I commend the bill to the House and present the explanatory memorandum.

Mr Crean —I move that this bill that will lead to a 10 per cent tax on almost everything be adjourned.

Honourable members interjecting

Mr Crean —You hate it, and you will get to hate it.

Mr SPEAKER —The member for Hotham will contain himself.

Mrs Bailey interjecting

Mr SPEAKER —The member for McEwen will also contain herself.

Debate adjourned.