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You can have zero-rated food and income tax cuts says ACS

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Australian Consumers" Association

€ iO lO EConsum er H elp Ssfll# Press ReleasesWhat's Hot You can have zero-rated food AND income tax cuts says

A C A f o + t

Embargoed until 3pm, February 10, 1999.

Have your say about What's Hot

ACA believes that food - possibly excluding eating out - should be zero­ rated and urges the committee to explore taxing financial services as a way to make up much of the shortfall (see the submission for the full funding recommendations). The Australian Consumers'Association (ACA) today released its submission tolhe Senate Inquiry into the GST

and the new tax system.

"The challenge is to deliver a sustainable, efficient and equitable system within the current political context. WeVd like to see all food, not just that bought at a supermarket, and household energy use zero-rated, but in order to deliver these exemptions small changes to the income tax cuts would be

needed," said Mara Bun, Policy and Public Affairs Manager.

"It comes down to a difficult choice - which goods and services should be subject to the new tax. Our analysis shows when you tax food low-income earners are hit hard, when you tax financial services it's the better off who pay," Ms Bun said. ACA's submission outlines the case against taxing food, saying that not only is a GST on food highly regressive but it discourages people from buying healthy foods, with lasting negative consequences for the health of Australians.

ACA is also urging the Senate committee to zero-rate all pharmacy-only medicines including larger pack sizes of paracetamol and aspirin, children's products (such as infant paracetamol) ibuprofen and 2mg or less nicotine chewing gum. According to ACA, these items are essential for the community's long term health.

Why tax financial services? Currently most financial services are going to be input taxed only, with no GST on the final service. "The reality is that these costs, estimated at around $800 million, will be passe d on, in most cases to consumers who can least afford it. Taxing financial services is a way to make the system more transparent and helps to ensure the cost of input taxing is distributed fairly," said Ms Bun. ACA's submission suggests there is potential for further revenue by extending the GST to lending products, unit trusts, life

insurance and bank transactions. Savings such as superannuation and bank deposits would not be subject to the GST.

The impact of pricing and competition was the other focus for the ACA's submission. "You can't assume that all markets are perfectly competitive so there will not be an over inflationary price impact of introducing the GST.

Time and again our research has shown there are markets which are not competitive enough to ensure prices are not increased beyond the impact of the GST. Areas such as health, banking and supermarkets will need special attention to ensure a fair system for all consumers," Ms Bun said.

ACA is also keen to pursue tighter tax treatment of family trusts without compromising unit trust investors unfairly. Likewise, credit unions should not be penalised for their relative reliance on outsourcing.

For more information, contact Kate Beddoe or phone (02) 9577 3347. 23/02/1999