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Wednesday, 31 May 2000
Page: 16669

Mr KELVIN THOMSON (1:29 PM) —I move as an amendment to the motion for the second reading of the Sales Tax (Customs) (Industrial Safety Equipment) Bill 2000:

That all words after “That” be omitted with a view to substituting the following words:

“whilst not declining to give the bill a second reading, the House:

(1) condemns the Government for its mis-management of the sales tax regime; and

(2) notes that instead of simplifying the tax system the Government has made it more complicated.

These bills—the Sales Tax (Customs) (Industrial Safety Equipment) Bill 2000, Sales Tax (Excise) (Industrial Safety Equipment) Bill 2000, Sales Tax (General) (Industrial Safety Equipment) Bill 2000, and Sales Tax (Industrial Safety Equipment) (Transitional Provisions) Bill 2000—amend sales tax legislation to overcome a decision of the Federal Court in the case of the Commissioner of Taxation v. New South Wales Cancer Council of last year which resulted in sunglasses being made exempt from sales tax as safety equipment because they protect workers' eyes from glare and cancer. The application of this decision as such is not particularly wide as the sunglasses referred to must not be fashion spectacles. As is sometimes the case, however, decisions of the judiciary modify the intent of various laws which the parliament has passed, and if this decision were sustained then the Commonwealth would be forced to pay credits back to 1993 to those who collected the sales tax on these items. There is no practical way in which consumers could receive this credit because they have already paid the sales tax on the sunglasses—it is of course not possible to find the consumers—so this would produce a large windfall for the wholesalers. The total potential impact of this decision is in the order of $2 billion—and I will come back to that—so there is some need for legislation to address the issue. It should be noted as well that this is essentially a debate about retrospectivity because the application of sales tax to sunglasses in future is academic with sales tax being replaced by goods and services tax. I will come back to that as well. But, as a result of this, the Labor Party will not be opposing this legislation.

We have, however, had some representations concerning the bill, and I will turn to these. As I said, the bill arises from the Federal Court finding in the case of Commissioner of Taxation v. New South Wales Cancer Council, 1999. The Australian Cancer Society markets, on behalf of the cancer councils in each state, a range of health products to reduce the exposure of the population to cancer. This is highly commendable work which members should be well aware of through the twin campaigns called SunSmart and Slip Slop Slap. It even runs TV commercials featuring that Joe Cocker hit You Can Leave Your Hat On to promote the virtues of wearing a T-shirt, hat and sunglasses when out in the sun. The long-term benefits of this campaign in terms of reduced skin cancer and eye problems will be much appreciated in the future. I will come to other Joe Cocker songs which have been used in advertising campaigns in due course, but it does seem to me that this song, You Can Leave Your Hat On, might have been a more appropriate song for the government's GST advertising campaign because after the GST strikes on clothing it will probably be the only piece of clothing you can afford.

The Cancer Society have developed a successful marketing line in SunSmart products. They have been successful in marketing low-cost SPF 15+ protection sunscreens and they won a case in the 1980s to ensure that these were made sales tax exempt. The Liberal government's original tax plan imposed a GST on sunscreens, but I am pleased to say that the government relented in this respect and that sunscreens are now to be GST free. The Australian Cancer Society have also been successful in marketing low-cost sunglasses which fully comply with Australian Standard AS1067.1. These glasses provide a high level of protection to the wearer because they are coated with special glare foil and have a special wraparound design. The society have been very successful with the sales of these glasses and have had quarterly sales of around $800,000 through their state cancer societies and the various anticancer outlets that stock these products.

The society received advice that these sunglasses should also be sales tax exempt under the provisions of the 1993 act and they took a test case to the Federal Court through the New South Wales Cancer Council. They won that argument. The Federal Court agreed with the arguments put on behalf of the New South Wales Cancer Council and it rejected an appeal by the Commonwealth and awarded costs to the New South Wales Cancer Council. The Commonwealth lodged a further appeal with the High Court but decided instead to overturn the decision by way of these bills. The opposition accepts that the Commonwealth faces a significant potential problem if the principles enunciated by the Federal Court in this case concerning sunglasses were to be applied to a wide range of other goods that have both special use as protective equipment and a general use. For example, ergonomic chairs provide benefits for the user through their design, but they also function as chairs. The explanatory memorandum suggests that this decision could expose the Commonwealth to a raft of other claims and a potential loss of $2 billion. There is no evidence provided for this very large figure, but the opposition expects and accepts that the losses could be considerable. Accordingly, we will support the passage of this bill, which in effect retrospectively validates a large amount of sales tax which has already been paid.

We do raise, however, whether it is possible to close the wider loophole without stripping from the Cancer Society the victory that they have had in court. I understand that claims for refunds of sales tax paid are limited to three years duration and that, on this basis, the amount of tax that the society would have been able to claim a refund for, except for the introduction of this bill, would be of the order of $2 million on sales of around $10 million over three years. I draw this matter to the attention of the government and ask them to give their consideration to the worthy cause that the Australian Cancer Society represents.

An objection to the payment of refunds to sales tax, raised in the explanatory memorandum, is that the ultimate beneficiaries, the retail purchasers who would have enjoyed a lower price for their goods, cannot practically be found to be compensated. In the case of a commercial organisation, this would result in a windfall to the seller because they would get a refund without any means to pass it on. However, in the case of the cancer councils, this objection is less valid. Because they are public benevolent societies, acting to promote a public good through the sale of these goods, they are able to return the benefit of the sales tax refund to the community in the form of an expansion of their activities. There is a well-established legal principle of `cy-pres' which has been applied in both US and Australian cases, most notably the Household Finance Corporation case. This principle holds that, where it is impracticable to return funds to consumers, consideration should be given to directing the funds to a targeted use for the benefit of consumers generally in the field where the overcharges were originally made. In this case it may be appropriate to use this principle to argue that the sales tax concerned should be returned to the Cancer Council to further their work rather than being retained by the government, notwithstanding the court finding. I would like to put this case to the government and ask it to consider an amendment to this bill or an agreement to make an ex-gratia payment to the council in lieu of the statutory removal of the benefits of their court victory. I ask the government to consider and respond to this proposition either here or possibly in the Senate.

The opposition is also aware of representations to the Treasurer by the Institute of Chartered Accountants concerning the issue of retrospectivity. They come to the conclusion in their submission:

It is impossible to escape the conclusion that the proposed amendments are merely a means to eliminate revenue loss resulting from court decisions adverse to the Commissioner.

That may well be the case, but I would suggest that the parliament does have a right to do this. We make the laws here and the courts interpret them. If we think that interpretation is wrong or brings about a legal situation which is unsatisfactory, I do not think that there is any impropriety in moving to establish the law as the parliament believes it should be. It is fascinating to note some of the Liberal Party hypocrisy concerning this issue. I do have some Hansard quotes that go back to 1995 from the proposed diesel fuel rebate amendments which were being debated back then. I quote Mr McGauran from 1995:

Companies have gone to considerable expense to contest decisions in the AAT and courts which will be overturned now by this legislation. In effect, industry is being asked to pay for the consequences of poorly drafted eligibility provisions and government inaction for nine years. Therefore, the Coalition opposes the retrospectivity elements of the legislation.

In the Senate, Senator Macdonald said:

What makes the government's legislation even more offensive is the fact that it discriminates against the claimants according to the stage of their legal proceedings.

Senator Crane said:

It is the function of this parliament to make laws but, having made them, it is not our job—in fact, it is fundamentally wrong—to pass legislation to overturn the decisions of the courts. That is what I call a dictatorship: that is what I call anarchy. It is a total travesty of justice.

Then we had the now Attorney-General saying:

As a technique, the retrospectivity which this bill ... seeks to put in place is totally objectionable.

We also had Mr Fischer saying:

Does the Prime Minister agree that it is a fundamental principle of our legal and political system that retrospective legislation should be used only in the most extraordinary circumstances? ... Why did the government not act to clarify the operation of the scheme at some time in the previous nine years and avoid this unjustified retrospectivity?

Madam Deputy Speaker, I wonder whether we will hear those same views raised in this debate that were raised in that debate, thundering against retrospectivity? I very much doubt it. Hypocrisy and double standards on public policy are regrettably Liberal and, indeed, National Party trademarks.

I turn now to Labor's amendment and raise the issues of the GST burden on 1.6 million small businesses, charities and clubs and the fallacy of the simplification of the tax system. Under the current taxation laws there are around 750,000 sales tax collectors whereas under the GST there will be in excess of 1.6 million tax collectors. That is a massive increase in administrative burden for the people of Australia. Far from simplifying the taxation system, the GST is complicating it. The processes involved in this change for small businesses, clubs and charities are enormous. One of the barrage of government advertisements illustrates what businesses must do to be ready for the change. Far from the new tax system unchaining small business this advertisement illustrates the enormity of the change. It sets out the steps that businesses must go through. They are, first, get your ABN; second, register for the GST—a 42-page document; third, understand and manage your new cash flow changes—they give you an 81-page booklet to deal with that; fourth, review and update your record-keeping and they give you a 30-page booklet to deal with that; fifth, review your prices; sixth, understand the new PAYG system; seventh, update your stationery; eighth, evaluate all your contracts and agreements; ninth, train all of your staff; tenth, 30 June stocktake. Well, that is it; that is simplification. No wonder the recently released Yellow Pages Small Business Index says that there has been a collapse of confidence in the Australian small business sector. It has slumped to the lowest level in its seven-year history. Quite damning for a government that professes to be about helping small business and cutting red tape.

What about the clubs and charities of the world? How are they going to cope with all those steps I outlined? I received a letter recently from a local mum in Coburg in my electorate, Lucy Loprete, who is very heavily involved in fundraising for her kids' school. She dropped into my office and wrote down:

I want to know how the GST is going to affect our school regarding fundraising: e.g. All totals raised at fete do we pay GST? Donations, raffles etc... e.g. If we also charge $1 for Bread and Sausage do we add GST? Our mums will refuse to do more fundraising if we have to share it with the government.

That was dated 17 May, a mere month and a half before the change occurs. It demonstrates only too clearly that this government has put its budget into political propaganda rather than properly informing ordinary mums on how the GST will impact on them. I went in search of some information to help Lucy Loprete and I came across the ATO's charity pack Taxation Guide for Charitable Institutions and Funds. This is a 70-page publication that seeks to simplify and clarify the operation of the GST. The pack covers important questions such as, `Are you a charity?' It also adds another step to the process I outlined before—step 1(b), `Are you an endorsed charity?' Once again a whole swag of questions to be asked, a set of different tests that charities have to pass, different arrangements depending on whether it was a charity before or after 1 July 1997, and some charitable funds being split into two separate trusts—the new trust and the old trust. Another great example of simplification of the tax system.

I recently got some correspondence as well from David Dwyer of Dwyer & Co. Certified Practising Accountants. Mr Dwyer demonstrates some considerable resentment towards the government about its so-called simplification. In an email to me he comments:

There will be resentment towards the Government about the extra time required by small business, individuals and accountants. Accountants will find it logistically impossible to really help given the 2-3 weeks timeframe between the end of the quarter and the 21st of the following month being the due date. To put the issue in perspective there is now talk for the need for accountants and tax agents to simply have some sort of strike or industrial action to stand up to the government and ATO and simply refuse to comply with unworkable tax collection systems. In practice this is very unlikely to occur as we are small businesses ourselves and do not have an organiser the way a union does. Our professional bodies are not effective as hard lobbyists compared with say the ACTU. The bureaucrats have taken over and they do not understand what they are thrusting on us.

A strike by accountants—that is a bit mind boggling really but it provides an indication of just how serious these problems are. Mr Dwyer also wrote an unanswered letter to the Treasurer in September 1998 making the same point. The last time the Treasurer used the word `simplify' concerning the GST in this House was on 28 June last year. Even then that was concerning the Australian business number, simplifying the taxation arrangements for business. We are all somewhat older and wiser now, including the Treasurer, who has stopped using the word `simplify'. He obviously realises that the public will not be taken in by such posturing concerning the GST.

The evidence about simplification really is alarming. I think all members were sent a copy of a docket from Woolworths indicating the steps they were taking to comply with the new tax system. Their sample docket lists a range of products and on the left-hand side there is an asterisk against those which are taxable items; that is to say, they have got the GST on them. Half the items in the Woolworths sample docket have the tax and the other half do not. To look at the docket indicates how complex in practice it is for retailers and, indeed, for consumers.

Then there are the recently simplified accounting measures for business. The ACCC has issued a simplified accounting methods booklet for food retailers and it sets out for food retailers a number of different options. They are given the business norms method, the snapshot method and the stock purchases method. If you find that you are eligible to use one of these simplified accounting methods, if you are registered for GST, if you are a retailer who sells both taxable and GST-free food at the same premises, if your annual turnover is lower than the $1 million threshold and $2 million in the 2000-01 financial year, if you do not have adequate point of sale equipment to identify and record your mix of taxable and GST-free sales, and if your eligibility is not affected by your accounting basis, that—is, whether you use a cash or non-cash basis—if, after you have made your way through that, you decide you are eligible to do this, you have got the business norms method which allows you to apply standard percentages to your total sales and purchases for every tax period to estimate your GST-free sales and purchases. I will give the House a few examples which have been supplied concerning this issue: for continental delicatessens that do not sell hot foods or prepared meals, on their GST-free sales they have 85 per cent for purchases, 90 per cent GST free; for cake shops, their sales are two per cent GST free and for purchases they are 95 per cent GST free; for health food shops that do not convert GST-free food into taxable food, 35 per cent of their sales are GST free and 35 per cent of their purchases are GST free.

Similarly, different percentages apply depending on whether you are a fish shop, a pharmacy, a rural convenience store, a hot bread shop, a convenience store which prepares takeaways, or a convenience store which does not prepare takeaways. There is also a distinction between converters and non-converters. Rural convenience stores can be converters if they prepare takeaway hot foods; for example, they can convert GST-free bread and filling into sandwiches or GST-free potatoes and fish into taxable fish and chips. What was it that Treasurer Costello said about this being the nightmare on main street? He was certainly right about that.

It is intriguing that a couple of days ago I was in the House when the member for Moreton gave the game away concerning the second-rate nature of the GST when he complained that we should have allowed the government's legislation to pass in its original form rather than, in his words, `creating the necessity to hobble so much of what we promised before the last election'. The honourable member for Moreton gives the game away that this is a hobbled second-rate or even third-rate GST. It is all very well for him to blame us in relation to this, but the point was simply that we were determined to keep to our election promises. We had promised the people of Australia that we would not support a GST in this parliament and we did not.

The government, faced with that situation, should not have entered into the arrangement that it did with the Democrats. In order to get anything up and going, it came up with a half-baked proposal which even it considers to be second-rate and inadequate. The other point we ought to note about the comments made about this issue by the member for Moreton and other members on the government side from the Prime Minister down is that they want to roll the GST forward. In their heart of hearts they remain committed to the 10 per cent on everything, and I have no doubt that, if they were to be re-elected, they would be seeking to produce the 10 per cent GST on everything.

The problems of implementation and lack of simplification surrounding the GST have caused business people to give up altogether. I mentioned previously in debate the Wheatons in western Victoria, whose business in country western Victoria survived two world wars and a depression, but they decided to close down the business rather than try to meet the GST. Similarly there was a report in the Financial Review in recent days which quotes South Sydney newsagent Len Halvorsen, who was seeking to sell his newsagency before the new tax package takes effect on 1 July. As the article reports, thousands of small business people are doing their own `beat the GST' sale. They are concerned that implementing the GST will put them out of business and many are trying to sell up in order to escape the hassles of the GST.

Mr Halvorsen had spent $17,000 on a new point of sale system so he could track the GST on sweets and soft drinks, but not cough lollies or orange juice, which are GST-free. He also bought a new software package so his accountant could pay his tax four times a year 21 days after the quarter. To quote Mr Halvorsen:

The GST was a good idea but it's been poorly executed; we don't know how the GST works, our suppliers don't know, the tax department don't know, and our politicians have no damn idea—

they are his words. He continues:

And when you're spending a sixth of your income to become a tax collector, it's not even funny.

The same article quotes business broker Mr Gerry Quinlan, who is involved with one of the larger hospitality business brokers in Australia, saying his firm has been inundated with calls from business people desperate to sell. He says:

We are being inundated every day with inquiries to sell other businesses, from retailers to small manufacturers—

people who are trying to sell their business and get out before the GST hits them. This sort of problem is even reflected in accountants and tax agents deciding that they do not need clients anymore. I have been given an extraordinary piece of correspondence from the chartered accountants Lawler Davidson to one of their clients, saying:

We have spent some time reviewing the services we provide for you and it seems that our service and fee structure might no longer be best suited to your needs.

They go on to say:

As you know the introduction of the GST is much more than a change in tax systems. It introduces a whole new way of conducting business and, indeed, a whole new way of providing business advisory services ... It will also increase fees to most clients because of the amount of work and professional advice now required and essential for their continued success.

So they give their client of many years a list of other people to contact and tell them that they have notified the tax office that they are no longer acting in the capacity of registered tax agent. After many years they have decided they do not want his work anymore.

One of the things that I think is most unsatisfactory about the whole situation is that the government's attempts at simplification have been such a failure that they have decided that they need to spend huge amounts of taxpayers' money in order to justify the GST in what has been a most disgraceful advertising campaign. We found recently in estimates an additional $20 million on advertising featuring Joe Cocker's song Unchain My Heart. That brings the total expenditure on promoting the GST with taxpayers' money to in excess of $400 million, an absolute disgrace. In estimates we also discovered that the government has engaged five companies to prepare market research on the GST. Two of those five contracts are worth $200,000 each. The others they could not tell us about. They have employed Mr Mark Pearson, an advertising expert engaged by the Liberal Party on two federal election campaigns, to oversee the GST advertising campaign. The cost of that is $195,000. This is a pure political advertising campaign, with people with Liberal Party backgrounds being brought in simply in order to rort the system.

Some of the billboards that I have seen in Melbourne and, indeed, in other cities have nothing in the way of information, not even a contact number. They simply have chains and lines such as `Tax reform coming soon'. Well, Mr Treasurer, we all know that. It is a disgrace that the government could spend so much taxpayers' money to provide so little genuine information.

Mr Crean —Not doing them much good either.

Mr KELVIN THOMSON —That is right. I have to say that this campaign is a disgraceful and utterly corrupt campaign. It is now outdoing the Liberal Party's pre-1998 election performance as the most blatant and outrageous abuse of taxpayers' funds for party political purposes in this nation's history. When we hear from small business, churches, charities and community groups how the GST is chaining them to their desks, stopping them getting out and doing what they do best, with chains of GST, ABN and PAYG compliance, we really have to wonder whether the TV networks have made a mistake and applied those ads backwards. One ad shows an elderly woman bowling and the chain comes off her and her bowling ball, but down at the bowling clubs in my electorate, it is the other way around—the GST is putting the chains on them. I urge all members to support Labor's amendment.

Mr SPEAKER —Is the amendment seconded?

Mr McClelland —I second the motion.

Mr SPEAKER —The original question was that this bill be now read a second time. To this the honourable member for Wills has moved as an amendment that all words after `that' be omitted with a view to substituting other words. The question now is that the words proposed to be omitted stand part of the question. However, it being 2 p.m., the debate is interrupted in accordance with standing order 101A. The debate may be resumed at a later hour.