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Food-free GST better than compensation: NATSEM Report supports Democrats' position on food.

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Senators Meg Lees & Andrew Murray

Australian Democrats

Leader & Finance spokesperson


April 8, 1999




NATSEM Report supports Democrats’ position on food.


A major report from the National Centre for Social and Economic Modelling (NATSEM) released today by the Senate Tax Committee, found that zero-rating food delivers more benefits to low and middle-income Australians than increasing the compensation promised by the Government.


Democrat committee member Senator Andrew Murray said the report concluded that zero-rating food paid for by targeting income tax cuts would improve the progressivity and fairness of the tax system.


The report compares the zero-rating of food with increasing social security payments by 2%, and finds that while compensation would leave pensioners marginally better off (e.g. by 30-40 cents a week for most couples), it would disadvantage the three million families on incomes between $20-60,000.


The impost on the food consumed by families would then be used to maintain tax cuts of up to $68.50 a week for high income earners.


“This report is the final nail in the coffin of the argument for a tax on food,” Senator Murray said.


“We know that a GST that makes food GST-free delivers all of the economic benefits of a broader GST. We know from the experience of the 23 OECD countries that exempt or concessionarily tax food that the compliance costs issue is not as large as the Government claims.


“And we know that taking out food delivers a big plus on the fairness and equity front, as well as a much fairer deal for Australian families than going down the compensation route.


“Even with the very conservative modelling assumptions used in this report by eminent economists Professors Ann Harding and Neil Warren, the case for zero-rating food is now compelling.


“It will reduce the GST paid by pensioner couples by $7 a week, and the GST paid by a middle income two-wage earner family by around $8 a week. All of that can be funded by simply cutting the outrageous tax cuts for high income earners,” he said.


Democrats Leader Senator Lees welcomed the NATSEM report, and called on the Government to “bow to expert opinion” and accept that GST-free food is an essential for a fair tax package.


“We now know that the Governments tax plan will leave pensioners, the disabled and many self-funded retirees worse off, the unemployed on the borderline and probably worse off, many dual income couples and families with a buffer of $1 a week or less, and wage earners on less than $30,000 on a worrying buffer of $1.90 a week or less,” she said.


“With that sort of an outcome, a tax package that includes taxes on food is clearly unfair and should not be supported by the Senate. It is now time for the Government to start negotiating for a fair tax package, one that does not hurt the elderly, the disabled and families,” Senator Lees concluded.


For further information: Senator Meg Lees 08 8295 8911; John Cherry 0411 430 367





The Government has understated the impact of the GST on many households:


The ANTS cameos understate the impact on single income earners by around 0.8% ($4.28); on single income couples by 1.2% ($6.47); on dual income couples by 0.7% ($4.13); on dual income families (50/50 split) with a child aged 5-12 years by 1.1% ($5.68) or with two children by up to 2.3%; on single aged pensioners by up to 2.2% ($4.28); on aged pensioner couples by 2.3% ($7.39) and on self funded retirees by 1.4% ($7.03).


The following categories are clearly worse off under the tax package (OPTION 3):


• Unemployed couple with no children;


• Single age pensioners with no outside income;


• Age pensioner couples with up to $5000 of outside income..


• Self funded single retirees living on $ 10,000 a year;


• Self funded retiree couples living on $20,000 a year;


• Disability pensioners with up to $5000 of private income.


The following categories are marginal i.e. with buffers of less than $2 a week:


• Single wage earners on between $15,000 to $30,000;


• Single income couples with no children on $30,000;


• Dual income couples (50/50 split) with no children on $30,000 or $50,000, or with one child aged between 5-12 and incomes of under $10,000 or $45,000;


• Dual income couples (67/33 split) with no chi ldren and incomes between $30-40,000;


• Self funded retirees on incomes of $5000, or $25-35,000;


• Self funded retiree couples on incomes of $15-20,000;


• Students with incomes of under $10,000.


Zero-rating food will reduce inflation by 1.1 %, and the GST impact on:


• Aged pensioners by $4.12 a week (or 64%);


• Aged pensioner couple with $10,000 income by $9.76 a week (or 67%)


• A worker on $30,000 by $4.12 a week (or 48%);


• A single income couple on $30,000 by $6.55 (or 65%);


•  A single income couple with 2 children (aged 5 -12) on $ 3 0,000 by $11.25 (or 111 %);


• A dual income couple on $40,000 by $6.88 (or 58%);


•  A dual income couple with 2 children (aged 5-12) on $30,000 by $8.59 (or 65%);


(Comparing tables 5B and 3B)






(*The gain in brackets refers to a more progressive tax scale -providing a 30% tax rate to $35,000 and a 49% rate over $60, 000 - in order to pay for the zero rating of food .)


These findings are despite the NATSEM report understating the impact of the GST through conservative assumptions:


• The modelling assumes all households within each cameo have the same expenditure pattern regardless of income. This is patently untrue, as low income households spend twice as much of their income on food as high income households.


• The modelling assumes that the cost impact on housing should be discounted by the value of the First Home Buyers Scheme. This is pointless, as 80% of home buyers are in the top 40% of households, and 94% in the bottom 40% of households are not home buyer s.


• The modelling uses the second year CP1 effect of 1.9% rather than the first year of 2.5%. This results in the compensation being overstated by upwards of 4.8% in all cases.


For technical information: John Cherry 0411 430 367