TAXATION POLICY

RESPONSE
Indirect Tax Reform

Issue Sheet

We recognise that reform of indirect tax cannot be avoided if Australia is to be serious about promoting investment and exports and
creating jobs. It is also necessary if Australia is to raise sufficient
revenue in the longer term to fund a decent level of community
services.

We recognise that reform

of indirect tax cannot be
avoided if Australia is to
be serious about promoting investment and
exports and creating
jobs.

What is wrong with our Indirect Tax System

The problems with our current system include:
The current Wholesale Sales Tax (WST) base is declining because
services are excluded, where three quarters of the gro\\lh is.
Half of WST falls on business inputs, adding 1.2 o to export costs,
making it harder for Australian exports to compete against those from
countries with value added taxes.
The complexity of the WST costs small business S1 for every S4 in
tax raised.
The WST is regressive - 27.4% of low income earners" but just 16%
of high income earners" wages are eaten up by indirect taxes.
The Democrats support an indirect tax system that:
Taxes services as well as goods. The wealthy spend 4.3 times more
on services than the less well off:
Taxes the value added component and exempts business inputs, so
that Australian goods can compete with those of other countries on
the same basis;
Is socially and environmentally responsible as well as economically
efficient.
We oppose the Coalition's GST because it is unfair, unaffordable
and socially irresponsible. The Democrats will never vote for new
taxes on food, because taxes on food hurt low income earners
more.

See also:
TAXATION POLICY RESPONSE
Fuel Taxes
Income Tax Proposals

cont p.2
AUSTRALIAN

EMOCRATS

For copies of other Issue Sheets see our

website - www.democrats.org.au - or ring
the Democrats' office (02 6273 1059) or a
Democrat office in your state
I

Authorised and printed A Bartlett Australian Democrats 10-12 Brisbane Avenue Barton 2600

Indirect Tax Reform

Issue Sheet

19 out of 23 OECD countries recognise this and either exempt or

concessionally tax food. Only four have adopted the radical model
proposed by the Coalition.
A new indirect tax system that excludes food but includes services
would have a positive economic effect, raising GDP by about 3%. It
would also reduce the indirect tax paid by the poor by about 1 % and
increase those on the rich by 2.6%. And. as ACOSS points out. it
would provide a more stable revenue base to fund future services.

We oppose the
Coalition 's GST because
it is unfair, unaffordable
and socially irresponsible. The Democrats will
never vote for new taxes
on food, because taxes
on food hurt low income
earners more.

The Democrats have proposed around $6.5 billion of changes to the

Coalition's GST including:
Exempting food (other than restaurants and takeaways):
Exempting books:
Exempting inbound tourism packages to protect jobs in the tourism
industry:
Providing full compensation for First Home Buyers for GST on new
homes;
Carefully reviewing the impact on the rental sector to protect renters:
Maintaining current taxes on petrol so that country prices don't rise
and petrol taxes on company cars don't fall:
Rejecting Treasury's unrealistic assumptions on price effects and recalculating the compensation needed for low income earners:
Locking in the GST rate and compensation so that Federal Governments cannot change them in the future unless all of the States agree:
Compensating the States for the loss of the GST revenue with the
guarantee of other revenue sources. #

AU ST R ALI AN
EMOCRATS

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website - www.democrats.org.au - or ring
the Democrats' office (02 6273 1059) or a
Democrat office in your state

FINANCE* TAXATI ON

Infrastructure and
National Development
Recent research by "new growth theory " economists
and the World Bank has highlighted the vital
importance that public spending on infrastructure has
on economic growth, on improving productivity, on job
creation, and on building national competitive
advantage for nations in a globalised economy.

The Democrats believe

that increasing public
investment in
infrastructure is crucial
to our nation's future
development, job security
and wealth creation.

Yet, despite the compelling evidence, Government spending on

infrastructure in Australia has collapsed to its lowest level since World
War n, with Governments placing short-term Budget cuts ahead of
longer term planning.
The Democrats believe that increasing public investment in infrastructure
is crucial to our nation's future development, job security and wealth
creation. It is also crucial to addressing unemployment, with research by
the National Institute of Economic Research showing that each $ 1
billion of infrastructure spending creates as many as 18,000 public
sector and 7000 private sector jobs when flow-on effects are taken into
account.
We propose:
A significant increase in infrastructure spending paid, as it should be,
as a combination of normal capital Budget allocations and public
borrowing's, but not from the proceeds of privatisation (which have
the effect of reducing total net public assets);

See also:
FINANCE& TAXATION
Economic Independence
Fairer Banking
Genuine Progress Indicator-An
Alternative Measure

A land transport infrastructure program that emphasises alternatives

to private road usage e.g. light rail transit systems in metropolitan
areas, high speed rail links between major cities, improving rail
freight systems, and building the Darwin-Alice Springs railway;

A niraltele(X)rrmiunications infrastructure scheme to ensure that rural

consumers have access to the best possible telecommunication
services, funded by a universal levy on all carriers;
com p.2

Income Tax

Public Sector, Privatisation &

Competition Policy
Superannuation, Investment &
Savings
Taxation Reform
Wholesale Sales Tax

AU STRALI AN

EMOCRATS

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website - www.democrats.org.au - or ring
the Democrats' office (02 6273 1059) or a
Democrat office in your state

Authorised and printed by A Bartlett Australian Democrats 10-12 Brisbane Avenue Barton 2600

FINANCE a TAXATION
Infrastructure and
National Development

Issue sneet

- page 2 -

A significant increase in research infrastructure to ensure that

universities and scientific research institutions have state of the art
equipment;

Recent research by "new

growth theory"
economists and the
World Bank has
highlighted the vital
importance that public
spending on
infrastructure has on
economic growth, on
improving productivity,
on job creation, and on
building national
competitive advantage
for nations in a
globalised economy.

A major upgrade of national water treatment systems to reduce

pollution of our rivers and oceans, and overhauling water utilisation,
conservation and recycling processes;
Opposing the construction of a second airport for Sydney at
Badgery's Creek but upgrading of the Williamstown Airport, linked
to Sydney by high speed rail;
Upgrading hospital infrastructure and upgrading health facilities;
Increasing grants to local government for local roads with a particular
emphasis on black spots and dangerous intersections;
Re-establishing a Regional Development Policy to help the regions
identify the best ways of progressing their own development, with
funding for supportive, targeted Government assistance programs. #

AUSTRALIAN

EMOCRATS

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website - www.democrats.org.au - or ring
the Democrats' office (02 6273 1059) or a
Democrat office in your state
T

FINANCE a TAXATION
The Public Sector
Privatisationand
Competition Policy

Issue Sheet

The Australian Democrats support a vibrant public

sector, and have strenuously opposed the mean spirited
view that the public sector is inherently bad, a view run
by the proponents of competition policy and privatisation reforms.
In the last five years, over 200,000 public sector jobs have disappeared
as funding for many core services have dried up. Instead of slowing, the
winding back of the public sector looks set to continue as competition
policy, 'contracting out' and privatisation move into top gear. That
means more job losses, lower levels of services (especially in regional
areas) and higher prices for many services.

The Australian
Democrats will oppose
privatisation unless it is
shown in a public
inquiry that there is a
clear public benefit.

In the Senate, the Democrats have provided a strong voice as the

defenders of a legitimate and valid role for the public sector. We have
demanded properjustification for what are essentially ideologicallydriven reforms, and insisted that the interests of the community and the
public must be paramount.
The Democrat specific policies include:
We will oppose further privatisation ofTelstra, Australia Post,
Federal airports, employment services and hospitals unless a public
inquiry proves there is a public benefit. To date no party has clearly
proven its case to the public on the merits of these sales.
We will closely monitor the implementation of Competition Policy to
ensure that the interests of Australians in regional areas, in low
income families, in small business and the interests of the environment are properly addressed. Clearly they have not been to date.
We will oppose 'contracting out' of essential government services
where this will lead to less accountability, higher costs to the public
or a lowering of standards and access.
cont p.2

See also:
F1NANCE&TAXATION
Economic Independence
Fairer Banking
Genuine Progress IndicatorAn Alternative Measure
Income Tax
Infrastructure and National
Development
Superannuation, Investment and
Savings
Taxation Reform
Wholesale Sales Tax

AU STRALI AN

EMOCRATS

For copies of other Issue Sheets see our

website - www.democrats.org.au - or ring
the Democrats' office (02 6273 1059) or a
Democrat office in your state

Authorised and printed by A Bartlett Australian Democrats 10-12 Brisbane Avenue Barton 2600

The Public Sector,

Privatisation and
Competition Policy

Issue Sheet

- page 2 -

We will support the role of a strong Australian Industrial Relations

Commission to provide a strong arbitrator on disputes between
public servants and their government employer.
We will defend the independence of the public service, and oppose
efforts to politicise the public service through short term contract
employment or Unking salary to the achievement of government
objectives.
We will oppose waste at any level of the bureaucracy, and support
stronger powers and better resources for the Auditor-General to
identify and address waste and inefficiency.
We will oppose the cutback of funding to community services,
particularly the aged, the ill and the unemployed, and support a $500
million community services job creation program.
We are appalled by the massive run down of Australia's public
sector infrastructure; funding for which is now at a 40-year low. We
support a large boost to infrastructure spending, particularly on
public transport, education health and water quality infrastructure.
We support a strong accountability regime for public sector service
delivery, including performance standards, a liberal Freedom of
Information regime, and ready access to the Ombudsman scheme.
This regime should also apply to corporatised and 'contracted out'
public services.
We support whistleblower legislation for the public sector. #

In the Senate, the

Democrats have provided
a strong voice as the
defenders of a legitimate
and valid role for the
public sector.

A U S T RA L I A N

EMOCRATS

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website - www.democrats.org.au - or ring
the Democrats' office (02 6273 1059) or a
Democrat office in your state
J

FINANCE a TAXATION
Superannuation,
Savings & Investment

Issue Sheet

The Democrats believe that all Australians should be

encouraged to save morefor retirement and for other life
cycle needs. We supported the introduction of the Superannuation Guarantee system of compulsory superannuation as a means of raising national savings and
meeting the future costs of an ageing population.

The Democrats support a

fairer treatment of
superannuation and
savings to encourage
people to save more.

What is now needed is less chopping and changing and fairer treatment
of superannuation and savings to encourage people to save more and to
give more confidence in the superannuation system.
The Democrats propose:
Restructuring the $7 billion of tax concessions underpinning superannuation to reduce the 33 cent in the dollar rebate available to high
income earners and to increase the puny 6 cents in the dollar rebate
given to low income earners.
Means testing and revising the poorly targeted $2 billion Savings
Rebate so that it encourages low- and middle-income earners to
save, but does not provide a new tax break for the rich.
Increasing tax breaks on long term savings to encourage people to
save more for life cycle needs like health, education and housing.

See also:
nNANCE&TAXATION
Economic Independence
Fairer Banking
Genuine Progress IndicatorAn Alternative Measure
Income Tax
Infrastructure and National
Development
Public Sector, Privatisation and
Competition Policy
Taxation Reform
Wholesale Sales Tax

Maintaining award clauses regulating workers' superannuation, but

amending them to give workers a choice of two industry funds, or to
continue to be a member of the same fund if they change employers,
and allowing workers who have a good understanding of superannuation to choose their own fund.
Superannuation trustees should continue to be regulated by comprehensive Federal regulation to make sure that they are acting in the
interests of members, with a low cost tribunal to resolve complaints.
cont p.2

A U S T RA L I A N

EMOCRATS

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website - www.democrats.org.au - or ring
the Democrats 1 office (02 6273 1059) or a
Democrat office in your state
I

Authorised and printed by A Banlett Australian Democrats 10-12 Brisbane Avenue Barton 2600

FINANCE a TAXATION
Superannuation,
Savings & Investment
- page 2 -

Requiring superannuation funds to reduce their overseas investments,

which have more than trebled in just six years, and invest more in
Australian jobs and businesses.
Giving members of superannuation funds more say in how funds are
invested, for example, with the option of more funds going into
Australian small businesses, venture capital or infrastructure projects,
or into ethical investments, or into different risk categories.
Encouraging retirees to take super benefits annuities rather than lump
sums over the longer term.
Closing tax minimisation loopholes which cost up to $3 billion in lost
taxes on financial instruments, and which subsidise debt for speculation. Instead, tax breaks should be expanded for long term savings
and for investments which degenerate new jobs and business opportunities.
A national education campaign to explain superannuation to members and provide more information on superannuation investments.
Part of this process should include reviewing current rules governing
superannuation and seeking to simplify them wherever possible.
Maintaining the role of the Senate Select Committee on Superannuation in reviewing superannuation laws and policies, providing for
public input into inquires and recommending better ways of protecting and enhancing savings. #

AUSTRALIAN

EMOCRATS

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website - www.democrats.org.au - or ring
the Democrats' office (02 6273 1059) or a
Democrat office in your state
I

FINANCE & TAXATION

Taxation Reform
The Australian Democrats have always fought to
promote a fair taxation system. We recognise that our
current tax system is in need of an overhaul Tax has
become optional for high income earners, while low
and middle income earners are carrying more than
their fair share of the tax burden.
The Australian
Democrats have always
fought to promote a fair
taxation system that
delivers the best outcome
for lower income people
and for the economy as a
whole.

Our tax system must be capable of raising sufficient revenue to fund a

decent level of public services for the public. Our starting point is to
determine a level of services that Australians reasonably demand and
need, and then to seek to find the fairest and most efficient way of
raising that money.
But while the Democrats recognise the need for urgent tax reform,
we have an open mind on exactly what form that reform should take,
including whether or not a GST should be considered, and what form
it might take. The issue is what is fair and what delivers the best
outcome for lower income people and for the economy as a whole.
A fairer tax system
We are looking for a fairer tax system, and issues that require wide
ranging debate include the following:
elimination of tax avoidance practices;
addressing the high effective tax rates faced by low and middle
income earners, particularly with withdrawal rates of social security payments;
minimising compliance costs of paying tax, particularly for small
business;
ensuring the tax system recognises environmental costs and
encourages better environmental outcomes;
ensuring that multinational companies and currency dealers pay a
fair share of tax;
addressing the imbalance between the taxing and spending powers of the Commonwealth and the States;
the level of revenue Australia needs for proper funding ofhospitals, schools, transport, childcare, jobs, the unemployed;

See also:
FINANCE&TAXAHON
Economic Independence
Fairer Banking
Genuine Progress Indicator - An
Alternative Measure
Income Tax
Infrastructure and National
Development
Public Sector, Privatisation and
Competition Policy
Superannuation, Investment and
Savings
Wholesale Sales Tax

cont p.2

AU STRALI AN

EMOCRATS

For copies of other Issue Sheets see our

website - www.democrats.org.au - or ring
the Democrats' office (02 6273 1059) or a
Democrat office in your state
I

Authorised and printed by A Bartlett Australian Democrats 10-12 Brisbane Avenue Barton 2600

Taxation Reform
- page 2 -

the need to avoid changing the tax mix between income taxes and
sales taxes to ensure low income earners are not disadvantaged;
the need to broaden the tax base so that rates overall can be reduced;
ensuring that the necessities of life (e.g. food, health and education)
are kept at the lowest possible cost.
The Democrats role in tax reform
The Democrats have a proud record of promoting fairness in taxation
policy. We have:
forced the government to increase the Low Income Earners Tax
Rebate;
opposed retrospective tax changes on long service leave and a wide
range of other retrospective changes;
opposed attempts to slap a sales tax on housing on four occasions,
twice when proposed by John Howard and the Coalition (1981 and
1993) and twice when proposed by Paul Keating and Labor (1985
and 1995);
led the debate to use taxes to encourage more environmentallyfiiendly outcomes, such as encouraging energy efficiency and paper
recycling. We obtained a tax bounty for recycled paper manufactures
(which Labor withdrew in 1994) and we opposed the increase on
sales tax on recycled paper in the 1995 Budget (which passed with
Labor and Coalition support);
supported small business tax reform to prevent provisional tax being
collected before the income is earned, succeeding finally in 1996;
fought to keep the bounties and research and development tax
concessions which are so essential for business;
prevented farming cooperatives losing a tax concession that would
have put them out ofbusiness;
forced the Coalition to moderate its attempt to reduce tax rebates for
medical expenses.

The Democrats in the

Senate mil try to ensure
that no unfair,
retrospective, regressive
or irrational tax plan is
foisted on the Australian
people.

No matter whether Labor or the Coalition wins the election, the Democrats will play a crucial role in the Senate in analysing their tax reform
packages. We will analyse their proposals line by line and negotiate its
passage only if it passes the test of fairness and equity.
Labor and the Coalition both have bad form of promising one thing and
delivering something worse on tax policy. It will be the Democrats in the
Senate who will try to ensure that no unfair, retrospective, regressive or
irrational tax plan is foisted on the Australian people. #

AU STRALI AN
EMOCRATS

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website - www.democrats.org.au - or ring
the Democrats' office (02 6273 1059) or a
Democrat office in your state

FINANCE & TAXATION

Wholesale Sales Tax
The Coalition wants to replace the Wholesale Sales Tax (WST)
system, with a Goods and Services Tax. Labor wants to keep
the WST. There are arguments for and against both proposals.
But -what is clear is that if we are to keep the WST, it needs to be
substantially reformed to make it more effective and efficient, and
reduce business compliance costs.
The problems with the Wholesale Sales Tax (WST)
The classification and exemption system needs to be reviewed and
simplified, as at present similar items are taxed at different rates.
The tax is particularly burdensome on smaller wholesalers who must
remit tax monthly rather than quarterly.
The tax must be paid within 21 days of the end of the tax period, even if
the purchaser hasn't yet paid their account on the goods sold.
The WST adds to the costs of exports because many inputs are taxed.
The largest growing sector of the economy - the service sector - is
excluded completely from the WST system. The WST is therefore
sometimes called a Goods Tax (GT).
Large vertically integrated wholesaler/retailers can avoid the tax burden
and costs of their small business competitors because of vertical integration.
The improvements that can be made to the WST
The classification system should be completely overhauled. Similar
items must be subject to the same rates of tax.
The threshold for switching from quarterly to monthly returns must be
significantly increased to assist smaller operators by reducing compliance costs.
The period for tax payments by small businesses should be extended
from 21 to 45 days so that it becomes more consistent with accounting
procedures.
A rebate should be introduced for exporters to compensate for the
WST embedded in their inputs.
There should be a comprehensive inquiry into taxation of the services
sector and the introduction, where needed, of specific taxes to broaden
the indirect tax base in the fairest possible way.
The reforms above would significantly improve the efficiency of the
WST without the additional compliance costs of a Goods and Services Tax,
which would increase the number of sales tax collectors from 80,000
wholesalers to one million retailers.
The Democrats will decide after closer examination of the Coalition and
Labor tax policies whether the replacement of the WST with a GST
system passes the test of fairness and should be supported in the Senate. #

If we are to have a
Wholesale Sales Tax, it
needs to be substantially
reformed to make it more
effective and efficient,
and reduce business
compliance costs.

See also:
HNANCE&TAXAT1ON
Economic Independence
Fairer Banking
Genuine Progress Indicator An Alternative Measure
IncomeTax
Infrastructure & National
Development
Public Sector, Privatisation &
Competition Policy
Superannuation, Investment &
Savings
Taxation Reform

AU STRALI AN

EMOGRATS

For copies of other Issue Sheets see our

website - www.democrats.org.au - or ring
the Democrats' office (02 6273 1059) or a
Democrat office in your state

Authorised and printed A Banlett Australian Democrats 10-12 Brisbane Avenue Barton 2600