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Fairer tax reform, address to National Press Club, Tuesday, 20 April 1999

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Senator Meg Lees

Australian Democrats

Parliamentary Leader



Fairer Tax Reform

Address to

National Press Club

Tuesday, 20 April 1999


Thank you for coming today.

I was, in a previous life, a physical education teacher, and I have coached many teams in many different sports.

So it won’t surprise you to hear me describe the tax debate in Australia as a game played in four quarters.

The first quarter was kicked off with John Howard’s unilateral declaration of tax reform in a second term - viewed at the time as a circuit breaker for mounting speculation about his leadership.

The second quarter began with the ANTS packag (1) and a $20 million advertising warm up for the election. An election which saw the Coalition returned with a minority of the vote in both houses. An election, which I am proud to say, also saw the Democrats gain a record number of Senators. I welcome Senator-elect Brian Greig from Western Australia here today.

The third quarter was kicked off with the introduction of 16 tax bills by the Treasurer - bounced through the House of Reps in a contemptuous 20 hours, then promptly referred to a Senate Inquiry. An agreement which I was happy to broker.

The fourth quarter began yesterday with the main Senate Inquiry report, and debate starting on the now 29 bills.

Welcome to the end game.

Today, I wear two hats. One as a commentator - looking at the choices each of the political parties now faces.

The other as a Leader - advocating a policy which I strongly believe will best serve our country in a new century.

I want to review both the policy and political positioning of all the key players - beginning with the Coalition , who have rested their case on three basic claims, two proactive and one reactive.

The first basic claim pushed by the Executive is one of right . An oft repeated theme that the original 16 tax bills were immaculately conceived, are a true reflection of the ANTS package and are sanctioned via a golden mandate.

Now, leaving aside the fact a record 63% of voters rejected the Coalition in the Senate - what about the claim that the 16 tax bills should not be altered as they are, simply, perfect?

The Treasurer himself has torpedoed that one, by introducing a further 17 bills so far. They are breeding like rabbits. And, we do well to remember that two tax bills were already passed by the Senate last month - with a further 15 Government amendments. At that rate, we are looking at hundreds of Government amendments to the tax package alone.

So the original bills are not cast in stone. Only arrogance suggests that the Coalition has a monopoly on constructive change.

The second basic claim is that there will be no losers. No one who listened to the evidence to the Inquiry believes that one anymore. Certainly most Australians don’t. But the Ministry marches on regardless, pushing a line which is now up there with ‘No child will live in poverty by 1990’.

The basic third claim, in reaction to the Democrats, is that taking food out of the package is unworkable. Awash with a veritable school of red herrings including high compliance costs, complexity and threats to the ‘integrity of the package’.

As for compliance costs, yesterday’s Inquiry report researches claims of up to 370,000 businesses affected and concludes that it could be as few as 40,000, and the cost to business as little as $13 million. Considerably less than compensating the 4.9 million potential losers from a GST on food. I recommend this section of the report.

As for general complexity I think Senator Murray put it so well recently on ‘Meet the Press’ when he observed that there are 700 million people in 23 OECD countries that zero rate food or tax it differentially. If these 700 million can cope - then so can 18 million Australians.

As to the ‘integrity of the package’ - well surely the same applies to health and education? If the Government can alter the pure model to accommodate these two, each with compliance and definitional challenges, then they forfeit the point on food.

So, here again the Government has failed to make a case and polling shows that 66% of voters support the zero rating of food.

Increasingly, the Executive’s public case is now being prosecuted more through rhetoric and repetition than by reason.

I find it amusing to hear Ministers - including Peter Costello on John Laws’ program this morning - loudly proclaiming that they are, in effect, bastards who want to be kept honest. Whilst we are trying to craft a tax package ‘for all of us’.

Peter Costello now has an important choice to make.

He knows that the package is unacceptable to a majority of Senators.

He has to choose between negotiating his way down either a ‘food out’, or a ‘compensation up’ pathway.

He knows the Democrats will not go down the ‘compensation up’ road.

At this point Senator Harradine’s position is not so clear - although I think all reasonable Australians, including Senator Harradine, would expect this package to be dealt with above the negotiating table and not below it. And I do not rule out the possibility that Senator Harradine, having seen the same witnesses and the same submissions - particularly from church and welfare agencies - will arrive at the same conclusions as the Democrats.

But today, the ball is firmly in Peter Costello’s court.

He will have to choose between a fair, Democrat modified, GST or try his luck by pulling out of his bottom drawer the additional $2-3 billion of additional compensation, which was always there in the original design for the first Senator who put his or her hand up. A paltry, inadequate sum.

Shortly, I will outline our definition of food, and then the last piece in the Democrat negotiating position will be firmly in place - up front, in public, and above the table.

If the Treasurer or the Prime Minister choose to negotiate in good faith then my colleagues and I firmly believe that this package can pass the Senate by early June.

What happens next is Peter Costello’s call.

Will he take the bird in the hand, or try for two Independents in the bush?

Only he can choose.

So how do we define food?

The Democrats fought the last election with a clear position of broad principle - no G ST on food.

In fact, I released our taxation response here at the Press Club.

We said then that we were leaning towards the widest possible definition, but left the question open within the Party room.

After weighing the evidence, the final Report outlines three possible definitions for food, all of which work in practice. The Dutch, UK and Irish models.

The Dutch, in their concessional treatment of food take a wide approach treating all foods the same, including restaurants and takeaways. The British take a narrower approach, taxing restaurants and takeaway food, which is more progressive but more complex. The Irish, like most European countries, confine their food exemption to basic foods.

The importance of recapping all of this is to underline the importance of the Senate Inquiry - for we have been persuaded by the evidence to alter our position on definition.

Although all three models remain on the table as workable, the Australian Democrats do have a preference, and that is the Irish model - a fairly narrow definition that costs a billion dollars a year less than the British option.

The Irish model zero-rates basic food - that is fresh fruit, vegetables, meat, dairy, bread, cooking ingredients, but taxes soft drinks, ice-creams, confectionery, bakery products other than bread, and prepared meals served hot or warm.

Drawing on the experience of the Canadian Restaurants and Foodservice Association, the definition should also fully tax prepared meals, as these are effectively take-aways.

This model overcomes most of the sideshow arguments about doughnuts, cold pies and gingerbread men. And it is progressive - high income earners eat a lot more take away meals, pre-prepared meals and restaurant meals than low income earners.

It also serves public health interests in that the price of fresh, healthy food would actually fall, but some junk food would rise. An outcome sought by the Dietitians Association and the Public Health Association.

And it is pro-jobs, increasing the number of jobs generated by the tax plan by about 8,000.

Indeed, I would urge the National Party to get in behind us as the GST on food will hurt their constituency hardest. Mr Costello’s plan would see fresh produce price rises of 6-7 percent, four times the rise for biscuits and Mars Bars and cost 10,600 jobs in food and agriculture in the first year, and 2,600 jobs in remote areas.

The Nationals need to listen to the evidence from the Dairy Farmers, the Beef Association, the Fresh Stone Fruit Growers and the Fruit and Vegetable Growers Associations from Mackay and elsewhere, as we have, and join us in defending rural Australia.

The $4 billion cost of exempting food from the GST could easily be paid for by a new, more progressive tax scale, described as Tax Scale 2 in the Inquiry Report. (2)

This combination of zero rating food, and a new progressive tax scale would see low income earners on, say $30,000 a year, upwards of $4-6 a week better off than under ANTS - while high income earners on $80,000 would still receive substantial tax cuts of $38 a week. A much fairer outcome than a new, regressive $5 billion tax on food used to fund bigger tax cuts for the top 20% of tax payers.

But food is not the only issue we want to talk to the Government about.

It is just one of many other concerns we have including the treatment of books, health, tourism and housing.

Now, turning to the Democrats’ position on the GST and its drastic effect on the environment.

The information given to the Senate on this aspect of the package was compelling and can be summarised as follows.

There would be significant increases in the use of diesel fuel, most particularly in urban environments.

Diesel fuel has been recently shown to be highly carcinogenic and contributes considerably to greenhouse gas emissions. It also has particulates which the AMA and others maintain will lead to significant increases in respiratory and other problems. In fact the Committee heard conservative estimates that at least 65 more people - predominantly young children and the elderly - would die each year if the ANTS package goes ahead unchanged.

And the renewable and gaseous fuels industry will most likely collapse because of the proposed excise arrangements, with our rail networks facing further shut downs. Just last week one of Ford’s senior executives criticised this policy as being out of step with recent moves by our major trading competitors in Japan, Europe and America.

Australia is the only country in the OECD to introduce these sorts of measures at a time when the trend is to give incentives for reducing fossil fuel use.

With a little negotiation, the negative impacts of the GST with relation to diesel are totally avoidable. We can still deliver one billion dollars of assistance to regional and rural areas by allowing a diesel fuel excise and maintaining a modified rebate system, but we can also mitigate the effects by, amongst other things: (3)

•  Maintaining the existing 100 per cent diesel rebate for all agricultural and other fully rebatable off road use vehicles

• Maintaining the current exemption from excise for compressed natural gas (CNG) and LPG, combined with more advantageous taxation measures

• Providing grants for the cost of converting heavy vehicles to gas, and

• Tightening emission standards for vehicles to match European standards by 2002.

I want to turn now to the issue of compensation. Does the ‘compensation up’ pathway actually lead to fairness?

Well, I think not.

The Senate Inquiry concluded that all of the following would have to be adjusted:- the initial increase in social security pay ments, then the quarterly indexation of social security payments as well as indexing the tax cuts, family tax benefits, on top of increasing the aged person bonus, rural industries assistance, zone rebates and family payments.

Even then there will be many categories of losers, approximately 1.1 million Australians, who fall between the cracks.

However, the total bill for this "benchmark" compensation package, below which it would simply be a joke, would be $5.9 billion dollars - compared to only $4.2 billion for ‘food out’.

Neither should we ignore the social problems of the ‘compensation up’ route. In particular the dangers of branding the poor for being poor. I think Bishop Power, speaking on behalf of the Catholic Social Welfare Commission, made the point well in his evide nce, when he said:

‘There is a human dignity aspect involved in that too. It means that, because people are being taxed more indirectly, they have to be compensated and, therefore put in a position where they are being asked to put their hands out for handouts.’

I am concerned about the psychological effect of this on ordinary people whose lives are already tough enough.

Australians are also acutely aware that compensation packages have a notoriously short political shelf life - and what is given with one hand can be taken away with another, as was the case in New Zealand.

The ‘compensation up’ path is less viable than ‘food out’ for all of these reasons IF fairness is your measuring stick.

Now I want to talk briefly about some of the other players in the game, starting with Labor.

Plainly put, the ALP is basically in two minds about this package:

•  On the one hand they would be happy to vote down the package and force a double dissolution, which they would undoubtedly win.

• On the other hand they would be equally happy to speed up passage (they have already agreed to 12 extra hours debate) in order to get it through with foods in, then campaign later to take it out.

The ALP represents no lobby group other than their current leadership within this debate. And with Kim Beazley’s confirmation last week that they would vote against a ‘food out’ amendment - an idea first floated by Peter Cook last October - Labor has walked away from the social justice movement.

They are now in the ludicrous position of saying that they don’t like the old tax system, and they don’t like the proposed new one - but they would rather have either.

They are in the hypocritical position of saying they will oppose the GST, but keep it if elected.

Well, the Democrats are proud to be constructively engaged in this debate. Proud to stand shoulder to shoulder with welfare and church groups. Proud to pursue the ‘food out’ option as a matter of policy and principle.

The fight over food will not end even if this unfair GST package is passed unamended. We will actively campaign at the next election for its removal, and I am confident we will succeed.

Labor may be slow to catch on, but when Kim Beazley or his successor looks for a tax policy to take to the polls, they will remember the lessons of the Irish Labour Party - who successfully campaigned to remove a GST on food on their way to Government in the late ‘70s.

Forget about the collateral damage to 5 million Australians by Labor’s tactics. They do. For Labor, politics comes first! And they would not dare leave this vote winning stone unturned.

Finally, to the Business and Welfare lobbies - who, together, kick started this whole process. Sadly, since then, key business lobbyists seem to have forgotten some very good advice - that is to ‘dance with the ones that brung ya’.

I thought Stan Wallis, for instance, had almost ‘got it’ when I heard him say on radio that ‘You can’t make economic reform really, really succeed unless you’ve got the community with you.’ But then he went straight on regardless to denounce the one thing the community overwhelmingly wants - an exemption for food.

It has been bemusing to watch the slippage in the business tax reform process, and increasing demands for changes from the big end of town.

And there is a certain wry amusement in being attacked in newspapers for daring to suggest changes to the GST, whilst those same papers are appearing before the Inquiry arguing for newspapers to be GST free.

Of course, the Democrats will continue to be actively engaged with both the business and welfare groups on this and many other issues - but I do lament the recent rise of a new, and very well connected breed of protestors - the NIMBPs. People who say ‘Oh yes, I fully support reform, but not in my back pocket."

But although there are many other points to cover, I think you have probably had enough for one lunch time. Before I turn over to questions, I’d like to re-iterate:

Right now, it’s Mr Costello’s call. Not Senator Harradine’s, not the ALP’s, not ours.

It’s Mr Costello’s.

This is the end game and all along the Democrats have been open and transparent about our position.

Mr Costello resisted the Tax Inquiry process and the evidence, and the reports thus far have demonstrated why. But he did eventually change his mind and accept.

Now, despite the bravado and chest-beating, Mr Costello must know that to secure passage of his tax legislation there will have to be changes.

All indications so far are that the Government has only three options:- Food out, compensation up or no tax package.

The Democrats have accepted the findings of the Tax Inquiry and accordingly we have embraced the Irish model for defining food. It’s progressive, it’s fair, it’s the cheapest option for change and it’s workable.

But Mr Costello must also accept the findings of the Tax Inquiry, along with everyone else.

If he wants to negotiate in good faith, I believe that passage can be assured by early June.

However, Mr Costello’s first call might well be to Senator Harradine. That’s the reality of the numbers and I accept that reality.

In any case we will pursue our amendments, one by one, on the Senate floor.

And I say this to both John Howard and Peter Costello - you can be very sure that the Democrats will hold firm on food. No retreat, no surrender.

We have shown the Democrats are prepared to work towards tax reform in Australia. But it’s got to be fair all round - especially the GST.

That’s our call.

But the next call is Mr Costello’s. He has my number.


1 A New Tax System

2 Tax Scale 2: $0-6000 = 0%, $6000-20000 = 17%, $20000-35000 = 30%, $35000-45000 = 34%, $45000-55000 = 43%, 55000+ = 47%.

(p 378, Senate Select Committee on a New Tax System - Main Report)

3 Other measures would include:

* zero rating public transport

* giving rail transport a 100 rebate as an off-road use

* targetting the regional transport rebate more tightly to heavy road transport, with the weight threshold increased fr om the proposed 3.5 tonnes to 20 tonnes

* providing incentives for the greater use of gas and ultra-low sulphur diesel through rebates for eligible companies

* exemption or zero-rating of equipment purchased to utilise renewable energy



jy  1999-06-24  11:30