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Thursday, 5 December 1985
Page: 3056

Senator PUPLICK(5.12) —In dealing with our opposition to inward duty free shopping I want to deal specifically with the comments made by Senator Sanders in support of this measure. The first point at issue is that the honourable senator says: `I have here a letter from Senator Button which restricts these things and which is going to restrict these things to only three'. One can almost see Senator Sanders getting off a plane somewhere, waving a piece of paper, and saying: `I have here a piece of paper. It has Senator Button's signature upon it. We will have peace in our time'. However, Senator Button has been specifically contradicted by the Minister responsible for promoting this legislation. Clause 4 (b) of the Customs and Excise Legislation Amendment Bill (No. 2) 1985 provides that the goods which can be sold at a duty free store are:

goods included in a class of goods declared by the regulations to be a class of airport shop goods for the purposes of that section

In other words, the regulations may declare any- thing to be a good for the purpose of inward duty free shopping. Senator Sanders says: `Here I have a letter from Senator Button which says that it will be only these three things'. I will read what the Minister who is responsible for this legislation had to say in the House of Representatives. In the House of Representatives on 28 November, at page 3868 of Hansard, the Minister for Sport, Recreation and Tourism, Mr John Brown, said:

I think that it is a good reason for the future extending duty free shopping in Australia at the point of arrival beyond the three commodities catered for in this legislation.

Mr Brown-the principal proponent of inward duty free shopping-has said in the House of Representatives that he looks forward to extending inward duty free shopping beyond the three items mentioned in Senator Button's letter. The Bill is drawn in such a way in clause 4 (b) that it would allow him to do precisely that. Next we have the extraordinary claim from Senator Sanders that in the Manchester aeroplane crash in August this year there were problems arising from the liquor carried on board.

Senator Sanders —Duty free goods; don't distort the truth.

Senator PUPLICK —You said liquor. I will come to the other duty free goods in a minute. I indicate to honourable senators that I had the Parliamentary Library take out all of the Press cuttings and all of the technical reports on the Manchester disaster. There is a fair number of them and not one of them refers to the question of liquor. They refer to the way in which the Pratt and Whitney JT8D15 engine combustion failure took place. As far as Senator Sanders is concerned, we know that he is an expert on everything which he has ever claimed to have had the slightest association. The other thing that was of significance was the allegation as far as packages under the seats is concerned. Anybody who has travelled on aircraft knows that when people buy duty free packages, particularly duty free liquor, they are more likely to put them in overhead cabins. In fact, the airline requirement is for the storage of these things in the overhead cabins. What cannot fit in the overhead lockers are the bulky items-the VCRs and all the rest of them-which are in no way covered by this proposal as far as inward duty free is concerned. They are the sorts of things that are more likely, if congestion is caused, to cause it.

Senator Sanders shows me that he has managed to find an excellent article written by me which appeared in the International Tax Free Trader magazine. It is quite true that in terms of addressing a conference in Cannes last year and in addressing a conference in Bangkok this year, I discussed this matter at very considerable length. Senator Sanders wants to make the implication that he is the only person in this chamber who has any understanding of this particular part of the industry.

Senator Sanders —I am saying that you have a financial interest in this and I don't.

Senator PUPLICK —I am going to pause on that because Senator Sanders has now revealed, I guess, the sorts of low standards that he really has. `You have a financial interest in this', he says. I previously operated a consultancy business of which some duty free operators were clients. That consultancy business was entirely closed down by me, prior to my nominating for re-election to the Senate. The consultancy, in fact, was passed over by me to a firm, the principal of which happens to be a former private secretary to Bill Hayden. It is remarkable that Senator Sanders, the great white hope, the man of integrity and the man of honour, comes in here and makes an allegation that another senator has a financial interest in a matter before the Senate which is, in fact, absolutely untrue. It is just typical of the standards that Senator Sanders has.

Senator Sanders says, of course, that aeroplane flights are going to be cheaper and that there are going to be reduced air fares because the airlines are allegedly going to be able to save some fuel on the particular flights concerned, despite the fact that the items of bulk and the items of weight are not liquor these days-they are primarily VCRs, electrical equipment and heavy equipment of that nature. Senator Sanders knows that there is going to be nothing done about that because he has a letter from Senator Button which says that those classes of goods are not going to be available in terms of inward duty free shopping. That argument is a nonsense. He says that there is going to be a saving to Qantas and that somehow Qantas is going to reduce its air fares because people have the opportunity to buy a bottle of liquor, 200 cigarettes and a certain amount of perfume when they arrive here. Of course, there are two things that he forgets. First, this legislation does not prevent passengers taking duty free liquor on board prior to their arrival in Australia, carrying it and taking it off the plane as they do at the moment if, for instance, they do not want to be stuck in the terrific congestion in the inward duty free shop at Sydney airport with a jumbo load of other shoppers-indeed, given the Sydney curfews, three jumbo loads of shoppers coming in at the one time-so that argument is specious.

The second thing that is entirely specious about the argument is that one of the things that this measure will encourage, particularly in airlines which are hard up for cash money, is for them to carry duty free liquor on board and sell it to passengers, saying: `You may have been waiting to buy your duty free grog when you get to Sydney, but it will be very crowded when this jumbo arrives. There are three jumbos coming in between 6 and 7 in the morning. Why don't you buy the liquor from us on the aeroplane and take it off with you?' The airlines will carry more duty free grog on board aircraft in order to sell it to passengers. That is a fact.

If Senator Sanders wants to look at the misbehaviour of the whole thing, and a criticism of Qantas for doing this, he might like to look at the judgment of Mr Justice Wilcox in a trade practices case of Steiner v. Magic Carpet Tours which was decided in October 1984 in which the judge specifically took Qantas to task for the amount of free liquor which it provides to passengers during their flights. As to the suggestion that many Australians appear to arrive in South East Asia intoxicated, the judge said:

If that statement is correct it raises questions about the wisdom, in terms of Australia's reputation with its neighbours, of government and airline policies . . . unlimited free alcohol in flight-which tend to encourage excessive drinking.

So criticisms are made of Qantas for the practice that it has at the moment. It is clear that what is likely to happen is that Qantas and other airlines will carry more duty free liquor on board in order to sell it to their passengers. If Senator Sanders is concerned about that matter, he ought to take that consideration into account. Senator Sanders said that people will buy their duty free goods in Australia. I suppose he does not give a hoot about the fact that the principal concessionaire at Sydney Airport is a non-Australian company which repatriates home most of its profits. It got the contract for the duty free shop at Sydney Airport by putting in what was undoubtedly a loss leading tender. It undercut other companies. It undercut Australian companies in order to get this contract. The contract was so bodgie that the company had to come back to the Government, once it had been given this monopoly contract, to renegotiate it. At page 1866 of the Senate Hansard of 13 May 1985 honourable senators will see an answer provided by Senator Gietzelt, representing the Minister for Aviation, to my question about why the contract had to be renegotiated. I asked: What were the terms of the new contract? The terms are set out in the Hansard. The contract had to be renegotiated.

On 15 May I put on notice question No. 302 asking: How many other contracts have had to be renegotiated because they were so bad? To this day, that question remains unanswered on the Notice Paper. That is an indication of the sorts of people who Senator Sanders says ought to have this material made available to them. The concessionaire at Melbourne Airport has been criticised in the September 1984 report of the Auditor-General upon audits, examinations and inspections under the Audit and other Acts. This report is parliamentary paper No. 170 of that year. At page 112, under the heading `Location of Duty Free Premises at Melbourne International Airport', the Auditor-General criticises a lack of security at those premises.

I turn to the question which the Leader of the Opposition, Senator Chaney, raised about barrier control and the problems that raises. The first and most important thing to say is that one has to look in the first instance to the fact that this will be a revenue losing operation. The details of that revenue loss are contained in the submission by the Australian Taxation Office to the Industries Assistance Commission inquiry on passenger concessions. Page 31 of the submission summarises its position-I do not have time to go into it now-which demonstrates clearly that inward duty free will be a loss to the Australian revenue.

The Australian Democrats have been telling us for the last couple of weeks in respect of the tax package how much they are in favour of small business. The Australian Small Business Association, in its submission to the Industries Assistance Commission, said specifically that inward duty free shopping should not be introduced. It said that it would be deleterious to small business, that it extended the concept too far and could not be supported by it. On 6 May 1985 it put out a Press release headed `Small Business Condemns Inward Duty Free Decision'. Therefore, we come to the questions of security. I seek leave to incorporate in Hansard a submission made to the IAC in April 1985 by the Australian Customs Service.

Leave granted.

The submission read as follows-





As the authority responsible for the adminstration of the passenger concessions, it is not our role to comment on questions of fiscal policy (e.g. revenue foregone) or on matters not directly related to ACS operations (e.g. financing of airports, the effect on Australian industry or the efficiency of national resource allocation). The prime area of concern for the ACS in respect of passenger concessions is the facilitation of passengers and the allocation of resources to that function. The resource question involves Government consideration of the priorities it needs to apply in the allocation of resources to Government Administration, particularly in times of restraint, and ACS consideration of how it in turn should deploy resources to meet the Government's priorities.


Passenger concessions exist for two reasons. Firstly, to facilitate the inward movement of passengers and, second, to release passengers from duty liability on articles commonly carried as personal possessions and necessities purchased for the journey. There can be, of course, subsidiary reasons for the concessions; for example, they have been held to be a means of assisting migrants to overcome problems in bringing assets with them into Australia, and Australia grants concessions contained in international Conventions to which Australia is a signatory.

The facilitation philosophy finds international acceptance in Annex F.3 to the Customs Co-operation Council Convention on The Simplification and Harmonization of Customs Procedures (the ``Kyoto'' Convention). Australia is a signatory to the Kyoto Convention, has acceded to a number of its Annexes and is at an advanced stage in the process of adopting Annex F.3.

The Customs view is that concessions should be realistic. That is, they should recognise that people will make purchases and should avoid the need for collection of duty on reasonable purchases of the nature contemplated by the concessions. The latter should be structured in such a way that they can be interpreted easily and that travellers who know they must pay duty will do so voluntarily. The concessional regime should not provide an incentive for travellers to seek to evade duty. Equally, of course, general concessions, say on sales tax, can be overly generous and raise questions of equity in relation to the majority of the population.

The Customs concern is to steer a line which will not create an atmosphere of policing and not encourage petty smuggling. It has to be said that, apart from resource questions, there is a matter of priorities involved. Relatively minor duty evasions cannot rate highly as compared with narcotics or quarantine breaches. At the same time, Customs deprecates the attitude of some regular travellers who move in what might be termed the ``loot'' area of concessions, that is, high value items not usually thought of as affordable by the average citizen. In that context, it should be noted that Australia's concessions are generous by international standards. The concessions are not, and should not be regarded as, a grant. Moreover, they are not linked in any way to the ``free port'' philosophy (which has sway, for example, in Hong Kong, Singapore and Fiji), which is much broader in concept and is based on quite different considerations, in that it is designed to encourage i.e. industrial development, investment, retail opportunities and commercial export incentive programs, and to bring in revenue.


An essential element for facilitating the entry of passengers by providing concessional treatment to goods carried by them is simplicity of administration.

One aspect is that the concessions available should be sufficient to permit a relatively unimpeded flow through the Customs barrier for the majority of passengers, by keeping to a minimum the incidence of duty collection. If it were necessary (because of the non-existence of reasonable concessions) to collect duty from the majority of passengers, or to examine significantly more baggage to prevent smuggling, the increase in ACS staff resources needed to ensure that processing delays did not occur would be considerable. In the absence of allocation of additional resources in the Budget, which may not be possible, this would result in deployment of staff from another area of operations with inevitable consequences to it.

Another aspect is that concessions should be able to be interpreted and applied without real difficulty, both by the passenger and the ACS. Difficulties in interpretation and application cause delay at the Customs Barrier. A factor in this is that exceptions to the rule should be kept to a minimum. Examples are concessions accorded serving crews (limited to once a year), migrants, tourists of different nationalities and constant travellers (e.g. couriers who may pass through the Customs barrier every 10 days). As a further example the existing concessions allow `Articles for personal hygiene, grooming or adornment'. An exception to this concession for, say, `items of jewellery, purchased overseas and exceeding $100 each in value' could cause considerable administrative difficulties for the ACS and could involve, for example:

the registration of items of jewellery taken out of Australia by passengers and verification at time of re-importation;

the registration of jewellery temporarily imported by tourists and verification on re-exportation;

the valuation of all items of jewellery by the ACS-this would mean recruitment of a significant number of specialist staff; and

an increase in the number of passengers from whom duty would be collected.

All of the above would lead to additional delays in passenger processing (unless resources devoted to it were considerably increased) and negate the objective of facilitation. The above example is given as indicative of the type of administrative considerations that can arise. Changes introduced in the last ten years have sought to simplify the administration of the concessions available to passengers, afford reasonable facilitation for imports by passengers and minimise delays in processing times to ensure that airport facilities (in particular) do not become overloaded.

The Effects of Changes in Concessions/Administration

It may be worthwhile to illustrate the facilitation question by taking a specific element of the Commission's reference, that is, inwards duty free shopping (IDFS).

Shopping by inward passengers could well aggravate queueing at major airports if subsequent flights arrive while passengers from earlier flights are still proceeding to the primary line. This would result in problems both for processing passengers at the primary line, and for congestion (from the carousels) in the Customs Hall, even to the extent of causing later baggage to be held in the basement awaiting space.

There may be a tendency for passengers to confuse the extent of the concessions and overspend their allowance, thereby increasing congestion at the primary line as Customs would have to collect additional duty.

Last minute shopping could cause amendments to baggage statements to be necessary on occasions, according to purchases, and the primary desk is not the place where passengers should complete/amend the statement.

There is the further problem of completion of statements (in aircraft en route) where it is not then certain what will finally be in the baggage. Alterations could make for evidentiary difficulties later.

Surveys conducted by the ACS indicate that if IDFS were available there would be an upward trend in both the number of passengers who purchase duty free goods and the value of those goods. This would have two effects in particular:

(i) an increase in the revenue foregone; and

(ii) an increase in processing time for each passenger, with a consequent increase in staff resources needed if delays were to be minimized.

An additional problem is that IDFS staff would be located within the Customs area leading to an added risk of narcotics and message exchange. This would require additional Customs surveillance workload and increased manpower. The security screen would have to extend to checking IDFS staff each time they left the premises (e.g. lunch, visits to toilets, leaving work for the day). Monitoring would be required of deliveries to and from the IDFS and rubbish removal. There would be a requirement of police/character checks on IDFS staff.

The above comments illustrate the implications which concessions and their administration can have:

at the primary line, where the determination is made whether duty is payable;

at the baggage channel, where the extent of concessions used is verified; and

within duty free premises themselves, to ensure that the barrier is not being breached by shop personnel or others connected with duty free operations.

Delays at the first point in the Customs clearance chain lead to an increased number of representations criticising inadequate facilitation.

In a circumstance of resource pressures resulting from a particular concessions regime, there is some risk that the increased emphasis on verifying passenger concessions usage could be detrimental to Customs effectiveness in the high priority areas of narcotics, quarantine and community protection.

Senator PUPLICK —I thank the Senate. That submission makes it abundantly clear that the Customs Service is concerned about security and smuggling issues. Because the submission is now in the Hansard, I will not read it. However, I draw attention to two other reports which relate to this. The first is the report of the Mahony Review of Customs Administration and Procedures (in New South Wales). That report specifically drew attention to the problems of security if inward duty free shopping were introduced. The reference can be found at pages 121 and 122 of the report. Today we received the annual report of the Department of Industry, Technology and Commerce. At pages 92 and 93 of the annual report which was presented to this Parliament only today, the Mahony report is raised specifically. The report says in part:

The single major influence of the year under review was the Government's development of a national campaign against drug abuse.

The report continues:

. . . The Mahony report on the Review of Customs Administration and Procedures in New South Wales had recommended a tightening of barrier controls and this recommendation was also accepted by the Government as part of its national campaign.

That tightening of barrier controls will be undermined by the introduction of inward duty free shopping. Arising from this will be the major problem of airport congestion at the terminals. The Daily Telegraph of 17 May 1985 reported that the Federal Government had been told that the international passenger terminal at Sydney Airport had become `alarmingly' congested. That complaint was made by international airlines. A comment was made in the IAC's draft report on passenger concessions. It is stated on pages 87 and 88 of the report:

There seems little doubt that an inward duty free store would increase the security problems substantially. The Commission understands that authorities in the United States of America strongly oppose inward duty free shopping on security grounds.

Again, because of lack of time, I will not go through all that the Commission had to say, but further on it states:

If the export objective of duty free shopping is abandoned in favour of maximising passengers' utilisation of import concessions, there would be little to criticise in such a proposal.

But that is not the proposal that the Government has come forward with. Its conclusion is:

The Commission does not believe that inward duty free shopping helps to achieve any of these objectives--

those being passenger facilitation, immigration, cost effectiveness, and Customs administration-

Indeed, the probability is that it would hinder Customs in processing passengers and achieving other objectives of barrier control. The Commission does not therefore consider that passenger import concessions should apply to goods purchased in Australia by arriving persons before they pass through the Customs barrier.

Senator Sanders is the great expert on barrier control and Customs administration. He has told the Senate that, despite the lengthy hearings by the Industries Assistance Commission which says that inward duty free shopping will hamper its barrier operations, despite the submission by the Customs Service that it will hamper its barrier operations, he knows better. We have the whole sorry tale of the way in which this was introduced. The first report of the Bureau of Transport Economics was presented in September 1979. That report was sent to an interdepartmental committee which rejected its findings. Another interdepartmental committee was set up. That committee was under the chairmanship of Senator Button's Department. For various reasons, it passed from that Department's chairmanship. His Department has been consistently opposed to inward duty free shopping. His Department surrendered the chairmanship to Mr John Brown's Department of Sport, Recreation and Tourism.

That Department sought to mislead the Senate and the Parliament in last year's annual report by the way in which it made its report on inward duty free shopping. I challenged the Department on that. The Senate Hansard of Estimates Committee D of 18 April 1985 shows that I challenged the Department on that and the Department had to make all sorts of excusses and retreats. Again, funnily enough, the report which has come in only today-the 1984-85 annual report of the Department of Sport, Recreation and Tourism-apologises in effect, at pages 92 and 93, for having misled people in last year's annual report; that is, the 1983-84 annual report. Page 110 of that report referred to inward duty free shopping. In answer to a Senate question it was indicated on 8 May that the interdepartmental committee report referred to at that time related to departmental inputs to the preparation of a Cabinet submission on inward duty free shopping. So the Department has been forced to back down on the way in which it has attempted to cover up in this whole operation.

I do not have the time to explore all of the other matters which are of significance here-for instance, the submissions by the Fiji High Commission, the Fiji Visitors' Bureau and the Fiji National Duty Free Merchants Association to the IAC asking it not to proceed because of the damage that inward duty free would do to its small regional economies, and the submission by the Department of Foreign Affairs asking the IAC not to proceed. Finally I came back to drugs. I refer again to one of the comments in the IAC report which states:

Incoming passengers could pass contraband to arrival shop staff who would later bring it through the barrier.

On 27 November 1985, in the debate in the House of Representatives on page 3835 of Hansard Mr Fife, the honourable member for Hume and a former distinguished and respected Minister for Customs, who consistently rejected appeals for the introduction of inward duty free shopping because of the advice of his Customs advisers, stated that the Government was `running a risk that no responsible government should ever take'.

The motion which has been moved by Senator Chaney, and which is fully supported by the Opposition, is a simple one. It acknowledges that there are arguments about the security provisions for control of inward duty free shopping. There are arguments that touch upon the fundamental question of whether a threat is posed to young people in Australia and to the Australian community in general, by the importation of drugs. That threat exists and has been identified by the Australian Customs Service, interdepartmental committees, the Mahoney review and in numerous submissions to the IAC and has been identified and rejected by previous Ministers for Customs because it posed too serious a challenge for it to be allowed to go ahead without further examination. On that basis further examination by a Senate committee is entirely justified and Senator Chaney's motion ought, for that reason alone, be supported. Those who fail to support it and fail to see the strength of that argument are determined to put political or commercial interests ahead of the fundamental interest of the security of young people and the whole Australian community in the vital war which we have to fight against organised crime and the drug trade.