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Bills Digest No. 95 1999-2000

Appropriation (East Timor) Bill 1999-2000

ISSN 1328-8091

 Copyright Commonwealth of Australia 1999

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Published by the Department of the Parliamentary Library, 1999

I N F O R M A T I O N A N D R E S E A R C H S E R V I C E S

Bills Digest

No. 95 1999-2000

Appropriation (East Timor) Bill 1999-2000

Chris Field and Frank Frost Bills Digest Service 7 December 1999

Contents

Purpose ....................................................................................................................................... 1

Background ................................................................................................................................ 1

Australia and East Timor ......................................................................................................... 1

Defence Issues ......................................................................................................................... 2

Main Provisions ......................................................................................................................... 3

Concluding Comments............................................................................................................... 3

Endnotes ..................................................................................................................................... 5

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

Appropriation (East Timor) Bill 1999-2000

Date Introduced: 25 November 1999

House: House of Representatives

Portfolio: Finance and Administration

Commencement: Royal Assent

Purpose

To appropriate $920 million from the Consolidated Revenue Fund (CRF) in 1999-2000 for expenditure associated with the support of Australia’s military and civil operations in East Timor.

Background

Australia and East Timor

The issue of the status of East Timor has been of longstanding interest in Australia. Indonesia invaded the territory in December 1975 and incorporated it as its 27th province in July 1976 but Indonesian rule was never fully accepted and the ensuing conflict between the Indonesian armed forces and resistance forces involved very heavy loss of Timorese lives.

The resignation of President Soeharto in May 1998 opened the way for new approaches to the East Timor issue. On 27 January 1999, President B.J. Habibie’s government announced that Indonesia would now agree to an act of ‘popular consultation’ and that if the East Timorese rejected an offer of autonomy within Indonesia, the path would be cleared for independence. On 5 May 1999, tripartite agreements were signed between Indonesia, Portugal and the United Nations to provide for a ballot, originally scheduled for 8 August, but later put back to 30 August. Under the agreement, a United Nations Mission in East Timor (UNAMET) was to be established to organise a ballot but security was to remain the responsibility of Indonesian forces.

From early 1999, a series of armed, pro-integration militia groups expanded their activities, with assistance from elements of Indonesia’s military forces. The ballot on 30 August resulted in a participation rate of over 98 percent of registered voters of whom

2 Appropriation (East Timor) Bill 1999-2000

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

78.5 percent rejected the autonomy offer and effectively chose independence. The declaration of the results on 4 September was followed by serious violence, in which many East Timorese were killed, mass destruction of houses and other facilities took place and over 230 000 people were deported, mostly to West Timor, in many cases against their will.

The violence after 4 September prompted Australia to lead efforts to organise an international force to enter the territory to restore order and protect the population and UN operations. On 12 September Indonesia consented to such a force and on 15 September the UN Security Council voted unanimously to establish an International Force for East Timor (INTERFET). The force entered East Timor from 20 September under the command of Australia’s Major-General Peter Cosgrove. Under the terms of another Security Council resolution adopted on 26 October, INTERFET is to be replaced by a new multinational force as part of the United Nations Transitional Authority in East Timor (UNTAET) which is expected to be in operation in early 2000.

Australia has committed over 5 000 personnel to INTERFET but its commitment to UNTAET is expected to be reduced to about half this amount. Australia has incurred significant costs in the East Timor commitment to INTERFET and is also contributing to reconstruction effort in East Timor.

Estimates of the costs for Australia of efforts to assist East Timor were provided by Prime Minister Howard in his Ministerial Statement of 23 November 1999. The total East Timor budgetary costs were given as $AUD 1028 million for 1999-00, $AUD1089 million (2000-01), $AUD901 million (2001-02), and $AUD665 million (2002-03), constituting a total for 1999-00 to 2002-03 of $AUD 3683 million.

Defence Issues

On 23 November 1999 the Minister for Defence announced1 that the number of combat ready infantry battalions would be increased from 4 to 6 and as a result the Army’s combat strength would increase by 3 000 to 26 000. The additional strength was regarded as necessary to ensure that Australia would be able to maintain its commitment to:

 INTERFET

 UNTAET

 Sydney Olympics

 the Bougainville Peace Monitoring Group, and

 a rapid deployment capability.

Appropriation (East Timor) Bill 1999-2000 3

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

In relation to INTERFET, the increase in combat ready personnel was regarded as necessary to allow the rotation of troops in the deployment. The new combat ready battalions will be based on the existing:

 6 Royal Australian Regiment (RAR), which will receive an additional 350 personnel, bringing its strength to 706. When combined with support units, the battalion group will have a strength of approximately 1 200 and is expected to be ready for deployment by the end of February 2000, and

 4 RAR which will be the basis of a battalion group of approximately 1 100 personnel and be ready for operations in June 2000.

The additional battalion groups will remain combat ready for 2 years ‘while the longer-term size of the infantry force will be addressed in next year’s Defence White Paper.’2

Main Provisions

Department of Defence: Clause 3 will appropriate from the CRF $860 million for 1999-2000 for expenditure incurred before 1 July 2000 in relation to the deployment of forces to East Timor and the additional forces to support that deployment.

Australian Agency for International Development (AusAid): $60 million will be appropriated from the CRF for 1999-2000 for expenditure through AusAid in the humanitarian, reconstruction and development needs of East Timor and to support the operations of UNTAET. The maximum amount that may be used for departmental expenses, the acquisition of assets or the payment of liabilities will be $728 000 (clause 4).

Clause 5 provides for an advance of a maximum of $175 million to the Finance Minister for the purposes contained in clauses 3 and 4 if the amounts appropriated by those clauses prove insufficient. The Minister must give Parliament details of any amounts advanced under this proposed section.

Concluding Comments

While this Bill deals with the appropriation of funds for operations in East Timor, the other side of the account is the so called ‘East Timor levy’ which was announced by the Prime Minister on 23 November 1999. The levy, which can be more accurately classified as a tax increase, will apply for one year from 1 July 2000. The levy will be at the rate of 0.5% for individuals receiving assessable income above $50 000 per year and 1% for individuals with assessable income above $100 000 per year (both thresholds will be

4 Appropriation (East Timor) Bill 1999-2000

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

subject to minor phasing-in). The increase will be implemented through legislation to amend the Medicare Levy Act 1986.

As the Medicare Levy was introduced to assist in paying for the universal health insurance scheme (the levy does not fully fund Medicare) it applies principally to natural persons and not to most other entities, such as companies. As a result these entities will not be liable for the increase in tax to support Australia’s efforts in East Timor regardless of their income. In view of the Prime Minister’s attempts to encourage greater business philanthropy,3 it will be interesting to see the level of voluntary contributions made by such bodies.

Other equity matters that have been raised in relation to the proposed levy (tax) increase include:

 The position of single income households relative to double or more income households. For example, a household in receipt of two incomes of $45 000 each will not be liable for the increase while one with a single income of $55 000 will be (although this aspect is prevalent in the current tax system where, in the above example, the two income household would receive the benefit of two tax free thresholds and lower marginal rates).

 For those in receipt of an assessable income of more than $50 000 the originally announced reduction in marginal rates forming part of the GST package were reduced prior to that legislation being passed and will be further reduced by this measure. However, as reported by Ross Gittins, the median income is $37 000 per year, so that an income of $50 000 a year places a recipient in the top 20% of taxpayers, while an income of $100 000 per year places the recipient in the top 5% of taxpayers,4 and

 The Medicare Levy is based on assessable income so that those with a method of reducing their assessable income, eg through deductions based on negative gearing while they acquire a capital asset, may not be subject to the increase. As noted in the Treasurer’s Press Release of 25 November 1999, those in receipt of fringe benefits are in the same advantaged position as fringe benefits are not included in the calculation of assessable income. In this regard, the Treasurer's Press Release states: ‘The government considers that the arrangements for the levy as announced are fair.’ (Again, this matter reflects the current structure of the income tax system.)

The use of the Medicare Levy to finance projects not connected with the provision of medical treatment can also be regarded as misleading and, if it is to become more common as the recent gun buy-back and this measure suggest, an alternative method of increasing tax should be found. The obvious alternative would be to increase the rates of tax contained in the Income Tax Rates Act 1986, which would have the advantage of enabling the rates to be increased for all classes of taxpayers, and not just individuals. Both methods require legislative changes that are not complex and, due to the wider range of taxpayers covered by the alternative method, it can be argued that this would be more equitable within the constraints of the income current tax system. A further alternative would be to

Appropriation (East Timor) Bill 1999-2000 5

Warning:

This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments.

This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

introduce a separate levy that could be used for temporary tax increases. Such a levy could remain on the statute books and only be activated when spending currently funded through temporary increases in the Medicare Levy are desired.

Endnotes

1 Minister for Defence, Media Release, 23 November 1999.

2 ibid.

3 See The 1999 Corporate Affairs Oration, presented by the Prime Minister to the Centre for Corporate Public Affairs, 26 March 1999 and Joint Press Release, Prime Minister, Treasurer and Minister for Family and Community Services, Federal Tax Measures to Encourage Philanthropy.

4 Ross Gittins, The Sydney Morning Herald, 1 December 1999.