News

Opening Statement to the Senate Inquiry into a New Tax System

18.3.1999

AAA represents 6.4 million members through its state and territory motoring clubs and associations. RACV, who appear with us today, is one of our constituent organisations.

 

You will have received our submission which deals with a number of issues:

 

  • the broad impact of taxation reform on motoring costs
  • keeping petrol prices unchanged
  • road funding
  • the treatment of diesel
  • transitional arrangements
  • carbon tax

 

I intend focussing on two key issues in my opening address. First, the issue of keeping petrol prices unchanged following the implementation of the GST; and, secondly, transitional arrangements affecting the payment of membership club fees for roadside assistance.

 

My colleague, Professor Ken Ogden from the RACV, will address road funding issues and the treatment of diesel.

 

Unchanged Petrol Prices

The Government's taxation proposals set out in the document A New Tax System (ANTS) leave open the question of how much petrol excise (currently 43c) will be reduced when the GST is introduced to maintain the promise of no increase in pump prices.

 

ANTS is also silent on how petrol excise will be adjusted to take account of the one-off impact of the GST on the CPI.

 

AAA is concerned about the impact of the GST on petrol prices, since the direct effect of reducing excise and applying a 10% GST to the retail price of petrol will be to increase the gap between city and country petrol prices.

 

To ensure pump prices do not rise in any country town, AAA has calculated that the Government should reduce petrol excise by 8.9 cents/litre before applying the GST.

 

According to research undertaken by Econtech for AAA, indirect taxation reform will generate cost savings in petroleum production, transport and distribution (0.3-0.6 cents more in the country compared to the city), but the savings will not generally be enough to offset the direct impact of the GST on the city/country price gap.

 

We also note that Treasury estimates of cost savings from indirect tax reform apply in the long term and assume that the benefits are fully passed on to consumers. It is expected that cost reductions will take some years to be realised.

 

Since cost reductions will not significantly impact on country compared to city prices, since they apply only in the long term, and since the benefits of indirect tax reform are likely to be quickly eroded by the effects of indexation, AAA believes that the cost reductions should not be taken into account by the Government when setting the excise level to prevail from 1 July 2000.

 

AAA also considers that the indexation of petrol excise must be abolished. If the policy of indexation is to continue, we believe that the excise to apply on 1 July 2000 would need to reflect the immediate inflationary impact of the GST (estimated by Treasury at 2.5 per cent). Thus, if pump prices are not to rise, excise should be reduced by 8.9 cents/litre at that time.

 

Transitional Arrangements

One of the major problems confronting the motoring organisations in respect of the GST legislation is the concept that services provided as a result of an annual payment are deemed by the legislation to be provided on a uniform basis over the year.

 

Consequently, annual membership subscriptions paid after 1 July 1999 will be deemed to be providing a service after I July 2000 and to that extent will be subject to GST.

 

There is a number of options which the motoring organisations have to address this problem, including:

 

  • back-billing our 6.4 million members for the GST liability from 1 July 1999 to 30 June 2000, after 1 July 2000; and
  • collecting the GST on a pro-rata basis from 1 July 1999.

 

Neither approach seems politically expedient. And it would involve a high administrative cost. I am sure that our clubs - and indeed the Government - do not want too many complaints from our significant membership base.

 

It seems to us therefore that the preferred approach - which I understand was adopted in New Zealand - is to have the legislation amended so that membership subscriptions, which are normally rolled over on a yearly basis, are not affected by GST until they are invoiced after 1 July 2000.

Related Documents