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Thursday, 17 February 2000
Page: 13740


Mr EMERSON (11:00 AM) —I rise to speak on the New Business Tax System (Miscellaneous) Bill 1999 and the New Business Tax System (Venture Capital Deficit Tax) Bill 1999. At this stage of the economic cycle the budget should be in surplus, but it is well known that the government is struggling to maintain a surplus, as evidenced by its decision late last year to introduce the so-called Timor tax, which is designed to raise revenue to bring the budget back into surplus. The government admitted that, without the Timor tax, it would be in deficit in the coming financial year. Why is it that, at this stage of the economic cycle, after several years of sustained economic growth, the budget is close to being in deficit? The answer is quite simple. It is associated with the introduction of the GST. The government is giving $6 billion to $7 billion in net income tax cuts on 1 July. More than half of those income tax cuts are going to the top 20 per cent of income earners.

We may ask the question: why is the government so committed to giving large income tax cuts to the top 20 per cent of income earners in Australia? The answer is quite simple. It is trying to buy community acceptance of its GST. It is struggling in that regard. In the last day or two in question time and many times before that, we have witnessed the government stumbling and being unable to explain the GST, particularly the price impacts of the GST. It is trying to buy community acceptance of this odious tax. I suggest that the documentation that has been issued by the government on repeated occasions, including $19 million of taxpayer funded publications before the last election, should be titled `Not Tax Reform, A New Tax'. The government is trying to convince the people of Australia that the GST is going to be good for them, and it is failing in that regard. We saw the Treasurer yesterday saying, `We've got this wonderful new advertising program.' But it is funded yet again by the taxpayers, and I am quite sure that it will be a propaganda program. It is time that the government started telling the truth about this tax.

We need also to ask: what is being sacrificed along the way? What is being sacrificed by this government's commitment to provide income tax cuts to the wealthiest people in Australia to buy support for the GST? To answer that question, we might entertain the economic notion of opportunity cost. What is the opportunity cost of the government persevering with the GST? The opportunity cost is the lost opportunity for Australia of the Commonwealth government to be investing in the nation's future. I will cite a few startling statistics. They are in fact from a speech given by the Leader of the Opposition, Kim Beazley, on Friday of last week. It may shock members of this parliament to know that Commonwealth funding to universities fell as a percentage of GDP from 0.94 per cent in 1996 to 0.82 per cent just two years later. Commonwealth spending on science and innovation as a percentage of GDP has come down from 0.71 per cent to 0.64 per cent, again in just two years. Business expenditure on research and development, having risen steadily from 0.33 per cent of GDP in 1995 to 0.85 per cent in 1996, has now fallen two years in a row to just 0.71 per cent today. Remember, that has happened in a situation where the OECD average is much higher, at 1.2 per cent. Finally, Commonwealth spending on labour market programs has been cut from 0.41 per cent of GDP in 1996 to 0.32 per cent just two years later.

We may ask why the unemployment rate in the United States is so much lower than it is here in Australia. Some people say that it is because of labour market flexibility, but the true answer lies in this: the percentage of the Australian work force with a post-school qualification is 28 per cent. In the United States, the corresponding figure is 37 per cent. The percentage of the Australian work force with a university level qualification is just 17 per cent. In the United States, it is 28 per cent. That is the big difference. One country is investing in its nation's future, and another country is not. Australia is falling badly behind in the information economy, where it is so vital that the federal government invests in the nation's future to lift the skills base and qualifications and improve the education outcomes of people. That is vital if we are to compete in the information age, yet the government is not interested in that. It is actually cutting investment in these vital areas as a proportion of GDP.

The new economic reform agenda must be this: the federal government must invest in the nation's future. During the 1980s and the early 1990s, there was a micro-economic reform agenda. It was a worthy agenda. It was the liberalisation of international markets and the gradual reductions in Australian protection. It was the floating of the dollar and the liberalisation of financial markets. All of these things needed to be done, and they were done by a Labor government. But there is now a new economic reform agenda to which the government seems completely oblivious, and that is the agenda of lifting the skills base of the Australian economy so that we can be competitive in the post-industrial era of the new economy.

The government has no vision. It has no vision for investing in the nation's future; all it wants to do is to cut the top marginal rate of income tax. The Treasurer has declared himself `an income tax cut man'. The Treasurer has said that he wants to push the top marginal rate of income tax out to many times average weekly earnings. There is the contrast: on the one hand you have the coalition parties, who are committed to a nightwatchman society, and on the other hand the Labor Party, which is committed to a knowledge nation. By a nightwatchman society I mean that a coalition government believes that the imperative is to continue reducing income tax for the highest earners in the country, financing that by cuts in education, health and other vital basic services. A nightwatchman society means that the government, in this case the coalition government, believes that the only imperatives for a national government are in areas such as defence, foreign affairs, and law and order. All of the other functions of government should be privatised, abandoned or shuffled off to the states. That is exactly what this government is doing. It has no commitment to investing in the nation's future. Kim Beazley and the Labor Party, on the other hand, are committed to a knowledge nation, which means extra resources going into lifting the education attainment of this country so that we can compete in the information economy of the new millennium.

If Australia is to have the capacity to make this vital investment in the nation's future, it needs some revenue in order to do that. I refer here in particular to the integrity measures, Mr Deputy Speaker. You may recall late last year that agreement was reached between the government and the Labor opposition on the business tax reforms. Some of those reforms are here before us today. The Treasurer undertook, as part of that agreement, to proceed with the so-called integrity measures. They were chiefly measures to deal with family trusts. The other main integrity measure was cracking down on dependent contractors. We are very anxious to see that legislation because the Treasurer said that, as a part of the arrangement that was reached with us, he would be bringing forward that legislation. It is very important that that legislation be brought forward so that these measures can start on the date on which they are scheduled to start. The dependent contractor measures are scheduled to start on 1 July, so we are keen to see that legislation. Where is the legislation?

The need for these extra revenue measures and the spending cuts that may well occur in the next budget is due primarily to $6 billion worth of tax cuts for the high income earners of Australia, because that is what the high income earners will get. There will be $12 billion in gross income tax cuts, and $6 billion of that will be going to the high income earners—all in exchange for the GST. We find ourselves in a situation where this entire GST fiasco is threatening the health of the Australian economy. We have seen references today in the Financial Review to the Treasurer actually saying, `Look, we are in a bit of a fix. We are going to have to be very tight on spending because we do not have a lot of money around and we are committed to maintaining surpluses.' We agree with a commitment to maintaining surpluses because that is so vital to the health of the Australian economy. But there is the spectre of a wages blow-out.

The problem is that, if there is a wages blow-out, that will be quite damaging to the Australian economy. No-one wants a wages blow-out. Professor Dixon, in work that he performed for the Senate inquiry into the GST, has estimated that there could be in the order of 100,000 jobs lost if there were a wages catch-up to the cost-of-living increases associated with the GST. The best way of avoiding wages flowing on in a cycle as a result of these cost-of-living increases is for the government to start telling the truth about the true impact of the GST on the cost of living. Mr Deputy Speaker, how would you feel if you were an Australian family being told by the government that the cost-of-living increases associated with the GST would be no more than 2.75 per cent? How would you feel when day after day it was being revealed that that was not true, that prices are already going up in advance of the GST and that on quite a number of insurance policies there is a full 10 per cent GST? We were told by the Treasurer that the prices would not go up by the full 10 per cent. Air fares are going up by an amount much higher than that predicted by the government.

It is vitally important that the government tell the truth about the true price impacts of the GST, because Australian families are saying they are being misled about the price impacts, that they are going to be much higher and therefore they will need to seek redress for those cost-of-living increases through increased wages. Then we get into a wage-price spiral, and no-one wants that. The government itself has been saying that petrol prices will not rise as a result of the GST. This was a commitment that the government made before the last election. But just recently, on the Sunday program on 6 February, when Treasurer Costello was asked whether the government would use the highest regional price or some average price in adjusting for the GST, he said, `There are limits on this.' As the shadow Treasurer said: yes, that is for sure—the city limits. There is every prospect of petrol prices going up as a result of the GST, breaking the government's promise that they would not.

The Australian Automobile Association has confirmed that petrol prices will rise. I will quote from Lachlan McIntosh, the Executive Director of the Australian Automobile Association, who said on 2 February this year:

The government plans to apply the GST to excise increases, which means it will be a tax on a tax, forcing petrol prices up at a higher rate than inflation. The GST introduction will increase the inflation rate so motorists can expect a substantial jump in petrol excise in 12 months. Over a number of years, this tax on a tax will continue to compound, costing motorists hundreds of millions of dollars and providing the government with a huge growing hidden revenue base.

He is quite sure that petrol prices will go up. For the Australian community, particularly those in rural and regional Australia, petrol prices will go up and people in those areas will get a shock and say, `We need to be compensated for this.' But there is no compensation for these petrol price rises because the government said they would not happen.

On car prices, the package that the government released before the last election said that motor vehicle prices would fall by 8.3 per cent. Then the Prime Minister repeated that pre-election promise when he said, on the John Laws program of 23 September 1998, that the price of the average new car would fall by eight per cent. The Treasurer joined him and said they would fall by $2,000. Yet the industry minister, much more recently and well after the election, denied that the government ever said that car prices would fall. He claims that the government had only ever said that the amount of tax on cars would fall. He said, `We don't dictate prices. It is a matter for the manufacturers and the dealers and everybody else as to what the ultimate price will be.' So it looks like car prices will not fall by 8.3 per cent, as promised by the government.

On beer prices, the Prime Minister said before the last election, `There will be no more than a 1.9 per cent rise in ordinary beer.' He may say that he was referring only to bottle shop prices, but he certainly left voters with the impression that beer prices would rise by only 1.9 per cent. More recently, Treasury officials have admitted that beer prices over the bar will rise not by 1.9 per cent but by seven per cent. That means a $2 pot or middy will cost around $2.14 after 1 July. There are so many examples of prices going up already and by much more than the government has predicted, and that therefore feeds into the prospect of a wages blow-out. Examples were cited by the shadow Treasurer yesterday when he showed that pyjamas would be going up in price by a full 10 per cent. There are numerous examples of this. But I was dismayed to find that the Australian Taxation Office has joined in the propaganda campaign to mislead the Australian people. I have downloaded a document from the Australian Taxation Office, which says, amongst many other misleading statements:

Prices will not go up by the full 10 per cent because old unfair price taxes such as the wholesale sales tax will be removed and many things will be GST free.

Yet Professor Allan Fels of the ACCC has said that prices can go up by the full 10 per cent. Why? Because, in many instances, the wholesale sales tax reductions will not be sufficient to prevent that from happening. There are a lot of items to which no wholesale sales tax is applied at all, including all services. The Treasurer might talk about embedded wholesale sales tax, but there is not a lot of embedded wholesale sales tax in services. The other critical point is that the ACCC allows for compliance costs to be added into the calculation of the increased price of products and services associated with the GST. If you are allowing for those compliance costs—and I can understand why they would be allowed for—then of course prices can go up by the full 10 per cent. The ACCC has repudiated the Treasurer even today saying, yes, they can go up by 10 per cent; they would need to see the evidence. I am sure the evidence will be forthcoming in the form of the compliance costs, because the compliance costs for many businesses are going to be enormous.

So the Treasury is joining in this propaganda campaign of the government saying that prices will not go up by the full 10 per cent because old unfair taxes such as the wholesale sales tax will be removed. The wholesale sales tax does not apply to services, and it does not apply to most basic goods. That is regarded as unfair, and it is going to be replaced by a so-called fair GST, in the eyes of the tax office, which will apply to virtually all basic services and to a huge number of basic goods.

I am absolutely dismayed that the tax office could put itself in a position where it is just another arm of the government's propaganda machine. The tax office is supposed to be an independent organisation, and yet they produce documents like this which are highly misleading, full of subjective statements and all designed to give people the impression that prices will not go up by the full amount and that they will be fully compensated. It says, for example, that there will be no GST on basic food, health or education. There will be GST on a huge number of education expenses: on school uniforms, on many books, on public transport to and from school and on shoes and socks. They say there will be no GST on health. People are going to get a rude shock when they find the range of health products on which there will be GST, including skin creams, tampons, sanitary pads, feeding pads, breast pumps, pregnancy kits, spectacle frames, contact lens solution, first-aid kits, bandaids, antiseptic and lozenges. How are people going to respond? They will seek higher wage rises in association with the GST when the truth becomes known.

I call on the government to start telling the truth about the true price impact of the GST and the tax office to revert to its normal independent role and stop joining the government in its propaganda about the GST. We will be watching with great interest the taxpayer funded advertisements that are going to be put to air trying to sell this unfair GST. That should be a factual campaign, not propaganda, as enjoined by the Australian Taxation Office with the Prime Minister and Treasurer of this country. (Time expired)