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Wednesday, 21 June 2000
Page: 17829


Mr COX (11:42 AM) —This government has raised to an art form the use of euphemisms in titling bills. This bill is entitled A New Tax System (Tax Administration) Bill (No. 2) 2000. It should be more accurately entitled `A New Tax System (Penalties) Bill'. The purpose of these amendments according to the explanatory memorandum is to streamline the existing penalties framework and to support compliance under the new tax system. This is an area where the Treasurer's penchant for doublespeak has had full rein. The compliance costs for his new tax system are enormous yet he has constantly referred to the system's simplicity. His colleague the Minister for Employment, Workplace Relations and Small Business has made constant claims that the new tax system will result in a reduction in red tape for small business. They have recited their mantras about simplifying the tax system and cutting red tape since before they were elected to government in 1996. That is when the person who is now the Prime Minister was promising that there would never, ever be a GST.

The government continued to make those statements after they were elected, although they were never given any meaningful effect. But then the Prime Minister came up with his hypocritical GST proposal. Anyone with a modicum of understanding about what a GST is knows that it involves paperwork and red tape on a scale that was never contemplated under the old tax system and that if you have exemptions and different rates and types of indirect taxes for different goods and services, it will cease to be simple even in concept, let alone in its actual implementation.

We know now, from the number of entities that have registered for the GST, that it will turn 1.6 million Australians and companies into tax collectors. Those 1.6 million tax collectors are having to deal with all of the new system's complexities and the additional red tape it requires. That is why the government needs this bill: to make those 1.6 million tax collectors do all that unpaid work on behalf of the government. And how is the government going to motivate them to do it? Through the system of penalties contained in this bill.

The government have left it until now, 10 days before the GST becomes operative, to debate the penalties for failure to comply with the GST legislation. I am sure the tax office is concerned to get these penalties put into law so that it can enforce the new tax system. Certainly it is necessary to ensure that whatever tax system Australia has can be properly enforced, and it is preferable that the enforcement regime is effective and transparent to the taxpayer, so that they understand the consequences of non-compliance.

It is appropriate at this time to also consider why it may be difficult or onerous for Australians to comply. This goes to the very substantial question: is the GST a cost-effective tax system to administer? I recall my first question in this place, which was to the Prime Minister on 10 December 1998. I asked him if he had read the regulatory impact statement which accompanied the GST bills and showed gross compliance costs to Australian business of $1.9 billion a year and a further $300 million a year to be borne by the Australian Taxation Office—a total deadweight burden on the Australian economy of $2.2 billion per year. I should emphasise that this is in an ordinary operating year, after set-up costs. An article on the front page of last Saturday's Sydney Morning Herald estimated set-up costs at $4 billion.

I asked the Prime Minister if he agreed with me that he was right in what he said on 12 March 1981, when he was Treasurer, in respect of his previous attempt to introduce this tax. At that time he told the House:

a multi-stage VAT—

and, if I may interpolate, that is what we now call a GST—

Was rejected fairly quickly because it would have imposed an enormous paper work burden on both taxpayers and collecting authorities.

The answer I got was that he was aware of the $2.2 billion a year cost of administering the GST and that he did recollect the statement he had made in 1981 rejecting a GST because it would be too costly to administer. He distanced himself from that statement, not by saying that circumstances had changed and GSTs or VATs are now cheaper to administer—they are not—but by saying that was something he said as Treasurer on behalf of the then government. From that it can be accurately taken that he would have introduced a GST then had the government—or, more particularly, Prime Minister Fraser—let him, despite the very high cost to business.

After some self-congratulation about finally doing what he had been thwarted from doing almost 20 years before, and after being dragged back to the question, he said:

Of course, with any change there are burdens, but there are also greater benefits. The cash flow benefits of a broad based indirect tax far outweigh any of the burdens. If you just read one side of the ledger you will always get a negative, miserable outcome. If you read both sides of the ledger you will get a glorious future for the Australian economy.

It will not be long before that statement is tested. There are now very few Australians who think this Prime Minister is leading us to a glorious economic future. Most of the people in business whom I speak to who are now grappling with the burdens imposed by his new tax system believe that his statement of 1981 was a sensible one and that his statement of 1998 is self-serving, delusional nonsense. That is why we have to legislate this new system of penalties. The complexity of the new tax system has grown since the initial proposal was put before the public at the last election. The exclusion of some food items has greatly increased the level of complexity for the food industry. Dealing with that was certainly not helped by the list of food items that would and would not be subject to GST which was issued by the tax office last week.

Last Saturday's Sydney Morning Herald carried a front page report of some analysis done by a senior lecturer from the University of New South Wales ATAX program, Dr Binh Tran-Nam. He was apparently responsible for the work on which the government's estimates of the compliance costs of the GST were based. He said Treasury had underestimated the net cost of compliance by $657 million. According to the report, Treasury had arrived at its net figure of $385 million by subtracting from the $2 billion gross figure the savings from the abolition of sales taxes, state franchise fees, cash flow benefits and tax deductions. That is a very questionable approach, confusing a number of concepts to get a convenient answer.

The real comparison is between the gross cost of complying with the GST and the gross cost of complying with the indirect taxes it replaces. That is the dead weight of administrative burden on the Australian economy. Certainly GST taxpayers will calculate the effect of GST compliance costs on their bottom line after tax, but for most small businesses that earn a return largely from labour derived from within the family unit rather than from capital and employees, the opportunity cost of the effort put into compliance will be substantial and will have been conveniently ignored in Treasury's estimate. Again, that is why we have to have the penalties contained in this bill: to make sure that those small businesses are motivated to work as hard as tax collectors as they work in their own businesses—that is, if they do not become part of the leading indicator, also published in the Sydney Morning Herald article on Saturday, the 50 per cent rise in the number of businesses advertised for sale ahead of the GST implementation date.