Monday, 19 June 2017
Treasury Laws Amendment (GST Low Value Goods) Bill 2017; Second Reading
I endorse some of the comments that Senator Leyonhjelm made in respect of the botched policy process that has led to the Treasury Laws Amendment (GST Low Value Goods) Bill 2017 coming before the chamber. Senator Leyonhjelm has talked about the lack of a regulatory impact statement which is just one of the problems associated with this bill.
I want to make some introductory comments in relation to the fact that this unfortunately is not the first time that this government has botched a consultation process and a policy process. In fact, it is beyond my comprehension that many people in the media consider the coalition to be the more credible economic managers. That mythology is not supported by the facts. I have made it my mission in this place to highlight some of the areas in which this government has been shambolic and chaotic when it comes to economic management. I have mentioned on a number of occasions the mythology that this government is always going to levy less tax on the Australian taxpayers, and how this mythology—which they always try to perpetuate—does not stand up to scrutiny. There is the fact, that since 1980, ten of the years with the lowest level of tax as a proportion of GDP were Labor government years. When it comes to the highest years since 1980 with tax as a proportion of GDP, eight of those 10 years were under the coalition. So this is another area of mythology.
When it comes to orderly development of tax policy in this country, we had some glimmer of hope under the previous Treasurer that we would have a tax white paper and a tax green paper following the Intergenerational report, and that there would be a holistic look at the tax system. But, lo and behold, we find that upon Mr Turnbull coming into the office of Prime Minister that was all scrapped, and all of the effort that was put into putting together a holistic review of our taxation system, which I think everybody was welcoming, was basically scrapped in the name of political expediency. At the time, the Chairman to the Board of Taxation, Mr Michael Andrew, talked about the fact that the process had cost at least $7 million in terms of working towards a tax white paper. In addition, we see the wasting of time, effort and money of 1,000 Australian stakeholders and business organisations who contributed to the review of our taxation system. Having basically scrapped that process, Mr Turnbull—who promised that he would have more credible economic leadership than his predecessor—floated ideas about increasing the GST, about the states assuming taxation powers and about the Commonwealth walking away from funding public schools. This was chaotic economic management.
When it comes to the issue of spending, I have said on a number of occasions in this place—and I remind the chamber constantly—that the International Monetary Fund working group identified the profligacy in the Australian system as being on the government side not on the Labor side. In fact, it was Prime Minister Howard who was found to be profligate in his spending in two periods of his term of office. When it comes to spending, I know there are senators on the other side who shake their heads that in 2013 one of the early acts of economic management of this government was to remove Labor's gross debt cap of $300 billion. Last week we crashed through the $500 billion mark. We expect to go through the $600 billion level at the end of this decade, and we are expecting to hit $725 billion in gross debt in 10 years time, with no peak in sight. So, when it comes to economic management this government's record is in tatters, and I hope that the mythology associated with the coalition's economic record is finally debunked.
Once again, as I said, the Treasurer has botched the policy process and it falls to Labor to step in and fix up the mess. Coalition governments, under both Prime Minister Abbott and Prime Minister Turnbull, derailed a genuine process that was started under the previous Labor government. The end result after all these years is a bill with numerous problems and plenty of unanswered questions about whether it is the best way to lower the threshold for the GST on online purchases.
It is a shame that after the backpacker tax debacle we have to have another piece of legislation put forward by the Treasurer that, again, has so many problems. I want to make the point that Labor supports the concept of evening up the playing field as regards Australian online businesses and overseas online businesses. In principle, that is something that should happen. This bill is not the answer to that problem. To fix this low-value GST situation, Labor will be moving amendments to delay the commencement of the legislation by 12 months while requiring the Productivity Commission to conduct a short inquiry on implementation and other GST collection models.
I want to note the sensible comments made by Senator Macdonald in relation to the delay of the commencement of the legislation. I also note his concerns about the method chosen in this bill as to whether it is the right method. On our side of the chamber, we certainly see that that is a problem with the bill. The Productivity Commission is well placed to review the package and ensure that we have a framework where compliance is high and there are no significant adverse consumer outcomes.
Before going into the detail of the bill, for the benefit of the Senate I think it is appropriate to state for the record a few points about the history of this issue. There has been some good work done previously, which has been recklessly abandoned. The Senate Standing Committee on Economics' inquiry identified many of the problems with the bill. The outcome was that we had a government-dominated committee, the Economics Legislation Committee, which supported a delay. And of course, Labor's sensible position—supporting the legislation—provided that there be a 12-month delay and a Productivity Commission review. Those are very important caveats.
The bill has a long history and was reviewed by the Productivity Commission in 2011. In their report, Economic structure and performance of the Australian retail industry, the commission highlighted the need for tax neutrality while also collecting the levy:
As the GST is a broad based consumption tax the LVT should, in principle, be reduced to a low level to ensure tax neutrality. But the costs of collecting additional revenues must be balanced against the gains from removing the distortion.
This led to a strong recommendation to establish a task force to find a workable model. The recommendation was very clear:
The government should establish a task force charged with investigating new approaches to the processing of low-value imported parcels, particularly those in the international mail stream, and recommending a new process which would deliver significant improvements and efficiencies in handling. The task force should comprise independent members, with the Australian Customs and Border Protection Service (Custom), the Australian Quarantine and Inspection Service (AQIS), Australia Post and the Conference of Asia Pacific Express Carriers providing advice.
Following the Productivity Commission report, a task force was established and a final report delivered in July 2012 that considered a number of options and issues that needed to be addressed. To show how detailed that report was, it stated:
In considering which of these potential solutions may fit within an integrated package of reform, assessments at both the initial and detailed costing stage are undertaken based on criteria derived from this investigation's terms of reference. The criteria include cost, efficiency, implementation, competitive neutrality, risk, revenue impact and legislative impact. Regard is also given to Australia's interaction with the digital economy and Australia Post's profitability. Not all criteria are relevant to the assessment of every solution, nor are they applied prescriptively.
The report then went on to supply a new, streamlined model of GST collection by logistics companies, a so-called 'logistics model'—which I note Senator Macdonald has some sympathy for—although this simplicity does not give credit to the substantial amount of analysis and the detailed recommendations that sit behind these words.
The previous Labor government then took steps to develop and implement this model in 2013. What we saw from the coalition government in 2015 was a U-turn on all that work. The then Treasurer issued a media release stating:
At the meeting the Commonwealth Treasurer put forward a proposal that relies on a vendor registration model as a method of collecting the GST for the states and territories. As goods would not be stopped at the border, administering a vendor registration model would have a relatively low cost.
The so-called logistics model, with the backing of the Productivity Commission report and the task force report, was abandoned with little notice, and instead the so-called vendor model was embraced. No justification was offered for why this change had been made, and the Office of Best Practice Regulation stated that this announcement, without an accompanying regulatory impact statement, was in breach of their regulation guidelines—a point that Senator Leyonhjelm has identified.
Fast forwarding to 2017, in March the legislation was introduced into parliament. It is far from ideal when we have an announcement in 2015, yet in March 2017 the legislation is introduced and the start date remains 1 July 2017. It does not give much time for scrutiny or for stakeholders to prepare for this new measure. The government seems to have wanted the parliament to just wave this legislation through. Labor sensibly wanted it to be referred to the Senate Economics Legislation Committee, and this bill is a clear example of how important these committees are when we have a government and a Treasurer introducing legislation like this.
The work of the committee culminated in a hearing in April, where we heard from Treasury officials as well as stakeholders on all sides of the debate. To start, I confirm that the Treasury had still, in 2017, not released the regulatory impact statement, and Treasury also admitted that the lack of a RIS was in breach of the Office of Best Practice Regulation guidelines. It was very concerning to hear that the Turnbull government had botched its own policy process in developing this bill. The hearing started with this revelation, and the news only went downhill from there. No explanations were offered by the government for the decision to move away from the recommendations set out in chapter 7 of the 2011 Productivity Commission report Economic structure and performance of the Australian retail industry and the subsequent Low Value Parcel Processing Taskforce: final report. There are still no answers after all these years.
In relation to the 1 July 2017 start date, Treasury officials declined to answer questions about whether alternative start dates had been modelled. Witnesses from the Australian Retailers Association, online retailers, the Conference of Asia Pacific Express Carriers and the Freight & Trade Alliance all expressed concerns about the 1 July 2017 start date. Even the supporters of this bill have concerns. EBay claimed that Treasury officials had told them they expected a 25 to 30 per cent compliance rate from the model set out in this legislation. Treasury officials later stated that they expected this compliance rate in the third year of operation and that it would reach maturity in 2022-23 at 54 per cent. So the government has clearly overstated the benefits of this bill. If 54 per cent is the best that can be achieved, it does not appear that this bill actually delivers on the objective of levelling the playing field for Australian retailers, who are struggling.
In another worrying sign, some of the online platform companies did not rule out geoblocking Australians and preventing them entirely from purchasing from overseas vendors. EBay stated:
Because we do not want to violate the law, we may have to stop all overseas sellers from selling to Australians. Of course, it will hurt our business significantly. I want to make it clear that we are not threatening; I just want you to know how significant an impact this bill will cause to our business.
Etsy also made similar comments, stating:
Because of the scaling complexity of this task, quite honestly, we are left with a number of unfavourable options. It is absolutely our worst-case scenario that we would have to do this, because, as I mentioned earlier, the revenue from our Etsy sellers is essential revenue. These are typically women at home who are full-time carers. This revenue counts for them, so blocking them from being able to achieve a sale like that is, frankly, devastating for us and for our business model.
Alibaba made comments along the lines:
Alibaba Group has done some preliminary work looking at this bill, and is of the view that it may not be able to be applied to AliExpress. If that were the case, we would have no choice but to geoblock Australian users from using the AliExpress platform.
And they had not provided any costing in relation to that. These potential impacts of a reduced variety of products, reduced competition and higher consumer prices are clearly possible consequences of this bill, and it is important that adverse consumer outcomes like this are avoided.
There were not many friends to be found for this bill during the hearing. Even witnesses normally supportive of government policy, such as Dr Berg and Professor Davisdon, associated with the IPA, gave the tax zero out of 10. They said:
The idea that 3,000 firms are just going to voluntarily stump up on this policy when there is really no direct enforcement mechanism seems to us a bit fantastical.
On this point of compliance the ATO, lumbered with a vague plan by the government, were left to explain that jurisdictions like the USA and China will not enforce the measure on their behalf. Platform compliance is largely reliant on the goodwill of overseas operators. Even the Retailers Association, a strong supporter of this bill, noted in their submission:
Our main concern is the speedy implementation of the policy with proposed registration and other measures needing time to be set up and enforced.
The logistics companies concurred with this issue of the start date, given the need to have their information systems modified to comply with the legislation. The public hearing clearly showed that the Treasurer had failed to properly consult with stakeholders and develop a workable model for taxing low-value imports. The hearing exposed numerous problems with this bill, and it clearly was not good enough in its proposed form.
The outcome of that inquiry was that we saw a government-dominated committee requesting a delay. Clearly, the issues did not just concern the Labor Party. The final committee report, in an unusual move, recommended the commencement date be amended to 1 July 2018. Indeed, in the words of my colleague Senator Hume in the media:
I think a delay in implementation is probably a good compromise solution. It's quite understandable that those companies to whom it applies wouldn't be prepared or have made the necessary changes until after the legislation was actually passed.
The final report also notes concerns expressed about the proposed implementation date and the complexity of implementation and enforcement. It accepts that business may need more time and assistance to develop their systems to implement the measure.
Labor also set out in the report its bipartisan in-principle approach to this bill to delay the start date and to have a review completed so that the best model could be adopted, the playing field could be properly levelled and that suitable consumer outcomes could be maintained. We maintain our position today that we are willing to find a way forward to level the playing field for Australian retailers, to have a taxation system with high compliance and for suitable consumer outcomes to be maintained. However, given the state of the bill and its numerous problems, we have no choice but to step in and give the affected stakeholders, the government and the parliament another chance to fix the Treasurer's mishandling of the GST low-value threshold legislation. Given the Productivity Commission's previous work into the collection of GST on online purchases, it is well placed to review the model. The Labor Party stands ready to find a way forward on this legislation. It is important to get the policy right.