Chapter 2: Security


Reforms to indirect tax and State finances


Australia's indirect tax system has major problems. It is complex, unfair and penalises business. The States rely on indirect taxes that limit the development of our financial sector and are inequitable to taxpayers.

The Government will eliminate the wholesale sales tax and reform excise duties. This will cut business costs by more than 3 per cent and reduce exporters' costs by about $4 billion a year. The Government will introduce a goods and services tax (GST) and give the revenue to the States. The States will have a secure and growing revenue source allowing them to abolish some of their worst taxes and remove their reliance on Federal grants.



The problem
Wholesale sales tax is past its use-by date
Some excise duties produce undesirable outcomes
States suffer from an imbalance in taxing powers
State financial taxes are inequitable and put investors off

The goal

The strategy

The plan
Abolishing inefficient indirect taxes
Introducing a GST
Giving all GST revenue to the States
Ensuring fair prices
Reforming excise duties
Introducing a luxury car tax


The problem

Australians are subject to several inefficient indirect taxes. A key example is the wholesale sales tax. It was introduced in 1930 when the economy had a fundamentally different structure. It is now simply out of date. It taxes business inputs and penalises exports. It directly taxes a narrow range of goods, but not services which now make up over two thirds of Australia's economic activity. Successive governments have been forced to increase rates to maintain revenue, but this strategy is not sustainable. States also have had to rely on taxes that unfairly burden the less affluent in our community and impede Australia's development as a major financial centre. We must reform our indirect tax system to ensure that it applies to a broad base of economic activity and has the flexibility to adapt to a modern economy.

Wholesale sales tax is past its use-by date

The wholesale sales tax is levied on a narrow base, has complex multiple classification rates and is difficult for business to comply with. More than half the money raised from it comes from taxing goods purchased by business and, in this way, it imposes a hidden tax on exports.

No other OECD country still has a tax of this type and there are only a handful of countries in the world that do - Botswana, Ghana, the Solomon Islands and Swaziland.

The wholesale sales tax base is too narrow

The wholesale sales tax has simply not kept pace with the development of the Australian economy. The main problem is that it does not directly tax services. This was not as important when it was introduced as services were a less significant part of the economy. Since then services have grown rapidly and are now more than two-thirds of economic activity. Revenue collected from the wholesale sales tax has been maintained, but only because past governments have increased the rates of tax. The ‘general rate’ has risen from 2.5 per cent to 22 per cent and the highest rate is now 45 per cent. This cannot go on forever. There is a limit to how high the rate can go. High rates increase incentives to avoid the tax. The current approach places an increasing burden on particular sectors, other tax bases, and administrative resources.

Multiple wholesale sales tax rates lead to complexity and unfairness

Another flaw in the wholesale sales tax is that particular goods can be exempt, or taxed at one of six different rates. Multiple rates can lead to confusion and provide scope for tax avoidance. Consumers almost never know how much tax they pay on goods and may not even realise that they are bearing a hidden tax.

Multiple rates were first introduced in 1940 as a wartime measure to encourage resources to flow to war-related activities. Goods have been classed as luxuries according to the standards of the time. Many of these judgements are no longer relevant given changes in technology and social norms. Commonplace items like radios, watches, televisions and tape recorders are now taxed at the luxury rate of 32 per cent.

Wholesale sales tax applies at the wholesale level giving scope for avoidance

The wholesale sales tax is paid on the value of the last wholesale sale. This means that where goods pass through a distribution chain, from manufacturer to wholesaler to retailer to consumer, wholesale sales tax is paid when the wholesaler sells the goods to the retailer.

This approach may have made sense in 1930, when most goods passed through a simple distribution chain. It makes little sense today, when the line between wholesaling and retailing is often blurred. These days, the same company often conducts both activities. When there is no distinct wholesale sale, the wholesale price, and therefore the sales tax payable, must be ‘estimated’. This is complex and gives rise to avoidance opportunities. Large businesses are often better placed to structure their arrangements to minimise their wholesale sales tax, giving them an advantage over small businesses.

Taxing business inputs and exports makes business less competitive

While the wholesale sales tax exempts many items for use in the manufacture of other goods (for example, raw materials), it does not provide an exemption for goods used in service activities, such as trucks used in road transport. As a result, the wholesale sales tax paid on goods bought by service industries is passed on to goods producers who buy those services.

More than half of wholesale sales tax revenue is raised on goods used as inputs to one type of business or another. For example, a manufacturing business will pay wholesale sales tax on the purchases of a computer that it uses to manage the accounts and the vehicles it uses for deliveries. That tax will raise its costs and, if the business exports its products, it will be less competitive internationally. The hidden tax burden also makes Australian business less competitive against imports.

Some excise duties produce undesirable outcomes

The excise duty on diesel fuel imposes a heavy cost on businesses, particularly those in rural areas that rely heavily on road transport.

The vas
tly different rates of excise duties on alcoholic beverages create competitive disadvantages. This means that spirits based drinks are at a competitive disadvantage compared to wine based pre-mixed drinks.

States suffer from an imbalance in taxing powers

States have the legal capacity to levy taxes. However, they are restricted by the Constitution in the types of taxes they can levy. They cannot levy taxes on goods, imports, exports or Commonwealth property. As a result, Commonwealth-State financial relations reflect a worsening imbalance in taxing powers, with the States relying on some indirect taxes that are highly inequitable, leading business and consumers to take distorted decisions for tax reasons.

State outlays outweigh revenue

The Commonwealth raises more revenue than is required to fund the programmes it delivers. In contrast, the States' expenditures outweigh the amount of revenue they raise themselves. This is often referred to as vertical fiscal imbalance or VFI.

Arrangements have had to be implemented to take account of this imbalance. Under the federal fiscal arrangements, the Commonwealth passes part of its revenue to the States. In 1998-99, the Commonwealth will provide around $32 billion of grants to the States (around 42 per cent of total State revenue).

Since Federation, a series of developments has restricted the taxation powers of the States. For example, in 1942, to help the war effort, the States passed their income tax powers to the Commonwealth. More recently, the High Court found that the Constitution does not allow States to levy business franchise fees (taxes on petrol, liquor and tobacco) or levy certain taxes on places acquired by the Commonwealth (for example, an office building). At the request of the States, the Government altered Commonwealth tax arrangements to raise, on behalf of the States, sufficient revenue to replace the revenue lost by the States from these decisions.

States rely on inefficient taxes

States currently raise almost one dollar in every four collected through taxation in Australia, through up to 35 different taxes in each jurisdiction. State taxes mainly fall on payrolls, land, financial transactions, motor vehicles and gambling. Taxes on the sale of petroleum, tobacco and liquor are also a major State revenue source. However, as a result of the High Court decision the Commonwealth must levy these on behalf of the States.

Some State taxes, such as payroll and land tax, are applied or capable of being applied to a broad base. However, for the most part, the States depend on narrowly based taxes which are more likely to lead businesses and consumers to distort planning decisions for tax reasons and less likely to ensure equitable treatment of taxpayers.

State financial taxes are inequitable and put investors off

Several States have acknowledged in their recent budget papers the deficiencies of some of the taxes they levy. In particular, they have identified taxes on bank transactions and stamp duties as generating significant efficiency losses and performing poorly in equity terms.

Taxes on bank transactions are inequitable

Debits tax and Financial Institutions Duty (FID) are levied on a relatively narrow range of financial transactions. Variations in bases and the rates across States increase compliance costs and leads to uncertainty for taxpayers as to their tax liability.

The taxes on bank transactions unfairly burden the less affluent in our community. For example, those undertaking smaller transactions often pay relatively more tax than those who make large transactions because debits tax rates are specified as fixed dollar amounts per transaction. Further, large firms minimise their FID liability by bundling their transactions to take advantage of the cap on the maximum amount of FID payable per transaction. Individual consumers therefore bear a disproportionate tax burden.

Some consumers and business can also avoid FID by conducting their financial transactions in areas that do not impose a FID. For example, some Australians have bank accounts overseas or in Queensland where FID is not imposed. Taxpayers can also avoid paying debits tax by conducting their affairs through credit unions or by using accounts without cheque facilities.

Stamp duties limit financial development

The States levy a plethora of stamp duties on transactions and transfers -  including on property conveyances, mortgages, leases, marketable securities, insurance, and hiring arrangements.

These duties are generally narrowly based, being levied on some but not other types of transactions, instruments or entities. Taxpayers have to deal with different State tax bases and rates. This imposes significant compliance costs, particularly for those businesses that operate in more than one jurisdiction. These differences also create opportunities to avoid taxes, encouraging taxpayers and businesses to locate themselves, or conduct their activities, in States with lower stamp duties.

Stamp duties on marketable securities increase the cost of share trading in Australia. Many Australian companies are listed on stock exchanges in the US, New Zealand and Canada where there are no equivalent stamp duties. Foreign companies are also more inclined to list their shares in countries where such duties do not exist instead of trading on the Australian Stock Exchange. Combined with debits tax and FID, stamp duties on marketable securities adversely affect Australia's ability to develop as a financial centre in competition with others in our region and around the world.

A number of factors support the development of Australia as a major financial centre. It is not only in a time zone that would complement other major financial centres such as New York, London and, to a lesser extent, Tokyo, but it also has a stable government as well as a transparent, secure and efficient financial system. However our tax system impedes Australia's development as a major financial centre.

Abolishing these stamp duties will mean that the cost for households of hire purchase, rental agreements, cheques, mortgages and the cost of purchasing shares will fall.

State taxes on bank transactions and stamp duties

Taxes on bank transactions

Debits tax is levied on the value of withdrawals from bank accounts with cheque drawing facilities and is generally passed on to customers.

Financial Institutions Duty is levied on the value of receipts (credits) at financial institutions and is generally passed on to customers.

Key stamp duties on business

Conveyancing duty is levied on the transfer of business property (based on the sale price) and is usually paid by the purchaser.

Stamp duties may also be levied on credit arrangements, instalment purchase arrangements and rental (hiring) agreements. These include:

  • hiring arrangements duty, which is levied on the rent paid in respect of the hire of goods;
  • hire purchase arrangements duty, which is levied on the price of goods purchased under instalment purchase arrangements; and
  • credit duty, which is calculated as a percentage of the amount loaned.

Lease duty is levied on the rental value of non-residential tenancy agreements.

Marketable securities duty is levied on the transfer of shares and other marketable securities of corporations and is usually levied on both the buyer and seller

Mortgage and loan security duty is levied on the value of a secured loan.

Some State also impose stamp duty on cheques, bills of exchange, and promissory notes.

What's wrong with these State taxes?

The following excerpts from State budget papers identify State taxes which State governments consider are the least desirable on efficiency and equity grounds:

"The overall tax system includes taxes imposed by States, many of which are narrowly based, relatively inefficient and inequitable. These are the financial taxes such as financial institutions duty, debits tax, share transfer duty, loan security duty and stamp duty on business transactions."
(New South Wales, 1998-99 Budget Paper No.2, p. 5-18.)

"It is now widely recognised that a number of State taxes — particularly those imposed on financial and capital transactions — are narrowly based, inequitable and significantly impede Australia's international competitiveness"
(Victoria, 1998-99 Budget Paper No.2, p. 91)

"Aside from wholesale sales tax [wholesale sales tax], many of the more inefficient and inequitable taxes levied on Australia are those imposed by the States. These include financial institutions duty, debits tax and various stamp duties." (South Australia, 1998-99 Budget Paper No.2, p. 6-10.)

"Many of Australia's most inefficient taxes are levied by the States and it will be difficult to achieve meaningful tax reform without involving the States. Taxes on financial and capital transactions, particularly FID and debits tax, are generally considered the least desirable of State taxes."
(Western Australia, 1998-99 Budget Paper No.3, p. 176.)

The goal

We need a system that taxes a broad range of goods and services at a single low rate, rather than the present system, which taxes a narrow range of goods at numerous high rates. We need a system that will be fairer, less complex and provide a more reliable source of revenue.

Business and the community will benefit from the reform of our indirect taxes. Taxes on business inputs will be reduced. Exporters will be able to compete on equal terms with the rest of the world. It will be easier for the community to know how much tax they pay.

We need reform that provides the States with a stable source of revenue, allowing them to abolish bank transaction taxes and a number of stamp duties. This will reduce the cost of financial transactions, increase Australia's attractiveness as a major financial centre and give Australia a world class tax system.

The strategy

The Commonwealth is proposing a comprehensive, national approach to the reform of the indirect tax system. The strategy, which rests on the introduction of a broad based GST to replace wholesale sales tax, is to modernise our indirect tax system and remove the reliance of the States on Commonwealth grants and distorting taxes.

Earlier attempts at tax reform in Australia have had a substantial ‘tax mix switch’ motive - increasing indirect taxes substantially in order to fund large cuts in personal income tax rates (particularly the higher marginal rates). That is not the objective of this reform. A fundamental objective of this package is to halt the erosion of indirect tax revenue.

The impact on indirect tax collections of the 1993-94 Budget measures was 0.6 per cent of Gross Domestic Product (GDP). In describing those measures, the then Treasurer said in his Budget Speech that ‘(t)hey will halt the erosion of Commonwealth indirect tax revenue - thus preventing Australia's tax system becoming lopsided…Failure to act on the indirect tax side would create pressures for more weight on income tax, a weight which would fall most heavily on middle-income earners’.

The full year revenue impact of all of the indirect tax reforms in this package is around 0.7 per cent of GDP.

The 1993-94 Budget measures increased indirect taxes as a proportion of GDP temporarily. However, the continued reliance on the existing narrow indirect tax base meant that they were never likely to succeed more than temporarily. The revenue erosion is once more evident, with the indirect tax to GDP ratio presently about one-and-a-half percentage points lower than its level of a decade ago. This tax reform package makes up less than half of that lost ground. But it does so in a way that differs markedly from the 1993-94 Budget strategy. The GST will ensure that the erosion of indirect tax revenue is halted permanently.

The package reduces the reliance of State governments on Commonwealth funds by about $20 billion a year. It also provides the States with a more robust source of revenue. By 2003-04 they are projected to be $370 million better off than under existing arrangements. Reflecting the strength of GST collections relative to the existing system of Commonwealth grants and narrowly based State indirect taxes, the Budgets of the States are projected to improve by $1.25 billion in 2004-05, $2.25 billion in 2005-06, and commensurately larger amounts in subsequent years. The enhanced revenue security of the States will ensure that they can provide a sustainable level of high quality services - such as hospitals, schools, roads and law enforcement - into the future.

Implementing these changes will require the active involvement and support of State governments. The Commonwealth is therefore proposing to hold a Special Premiers' Conference (after the next Federal election) to discuss the proposal for reform of Commonwealth-State financial relations.

The plan

Abolishing inefficient indirect taxes

The Government's tax reform plan abolishes ten types of indirect tax - one Commonwealth and nine State.

Abolishing the wholesale sales tax

As mentioned earlier, the wholesale sales tax was introduced in 1930 when the economy had a fundamentally different structure. It is now out of date, failing to tax the growing service sector. The Commonwealth will abolish the wholesale sales tax.

Abolishing inefficient State taxes

The GST revenue will enable the States to abolish a range of inefficient taxes.

The Commonwealth supports abolition of the following taxes and is including funding for their elimination as part of the reform package:

  • Financial Institutions Duty;
  • debits tax;
  • stamp duty on marketable securities;
  • conveyancing duties on business property;
  • stamp duties on credit arrangements, instalment purchase arrangements and rental (hiring) agreements;
  • stamp duties on leases;
  • stamp duties on mortgages, bonds, debentures and other loan securities;
  • stamp duties on cheques, bills of exchange and promissory notes; and
  • ‘bed taxes’.

As noted above, these are ‘ad hoc’ taxes largely introduced where States have sought to tax consumption of services. Giving the GST to the States will eliminate the need for such taxes.

In order to ensure that the overall tax burden does not increase, access to GST revenue will be conditional on a commitment by the States not to reintroduce any of these or similar taxes.

It is estimated that, by itself, the elimination of the State bank transaction taxes, stamp duties on marketable securities and other duties mentioned above would result in a 0.9 per cent reduction in the Consumer Price Index (CPI).

Introducing a GST

A key element of the Government's indirect tax reform strategy is to introduce a broad based indirect tax to replace the wholesale sales tax a
nd a number of State taxes. In line with the terminology in use in New Zealand and Canada, the tax will be known as a goods and services tax or GST. The GST has the advantages of:

  • applying to a broad base;
  • applying only one rate to taxable goods and services;
  • being paid on the final selling price; and
  • not taxing business inputs.

While some goods and services will be excluded from the tax (such as most health, education and childcare services - see below for an explanation of why these goods and services are being excluded), most goods and services will be included in the base.

Food and clothing will be subject to GST and this will contribute to the simplicity of the system. There will be no need to develop complex rules to differentiate basic food from takeaways or restaurant meals. Excluding food and clothing from GST would deliver much larger dollar benefits to high income earners than low income earners.

Embedding the value-added concept

The new GST will be based on the ‘value added tax’ model adopted by nearly all OECD countries and more than 80 other countries around the world. It will be a tax of 10 per cent on the consumption of most goods and services in Australia, including those that are imported, but it will not apply to exports of goods, or services consumed outside Australia.

The GST is a multi-stage tax.

Registered businesses will charge GST when they sell (supply) goods or services to another business or a consumer. When calculating the amount to pay to the Tax Office, businesses will offset the tax paid on their inputs (such as purchases of raw materials and machinery). This offset is referred to as an input tax credit. In this way, tax will be collected only on the value added by each business in the production and distribution chain, with the tax being ultimately paid by the final consumer. However, sales by one business to another will be effectively tax free.

If the tax collected on sales exceeds total input tax credits, then the net difference will be paid to the Tax Office. If input tax credits exceed the tax collected on sales, a refund can be claimed. For example, if a business buys a major item of capital equipment, so that the tax collected in a given period is less than the tax paid on the capital item and other inputs, that business may claim a refund.

Facilitating implementation

The GST will start on 1 July 2000. This will allow time for business taxpayers to learn about the new tax and establish appropriate administrative systems.

The Government will provide financial incentives of up to $500 million for small and medium businesses to upgrade their record keeping capacity through software and hardware, so that the start-up costs of a GST are minimised. Business will be consulted through a Small Business Consultative Committee to ensure that the financial incentives are targeted and delivered in the most effective way.

Before the start-up date, the Tax Office will undertake an extensive public information programme to ensure that businesses and consumers have all the information they need about the GST.

The Government will appoint a distinguished Australian to chair a Tax Consultative Committee comprising selected community representatives to assist the Government in targeted consultation on outstanding GST design issues and advise on the best methods of informing industry about the GST.

How will the GST affect a business?

How will the GST affect a business?

In this diagram:

  • A timber merchant sells timber for $110 to a furniture maker, including $10 tax on the sale.
  • The furniture maker claims a credit of the $10 tax paid on the timber. This makes the purchase of the timber effectively tax free for the furniture maker. The furniture maker would also claim credits for other inputs used to produce furniture, such as a wood saw. For illustration purposes, these are not shown in the diagram.
  • The furniture maker charges tax of $15 when the finished table is sold to a furniture retailer, who, in turn, claims a credit for that tax. The consumer is charged $275, including tax of $25, when purchasing the table from the retailer.

The tax liability of each business in the chain is in proportion to the value added to the final price by them. While tax is imposed at each stage in the manufacture and distribution of the table, the consumer ultimately pays the tax.

There is no need for a business to ‘match’ purchases and sales. If a furniture retailer buys a table in June and sells it in December, there is no need to wait until December before claiming the credit for the tax they have paid on their purchases - it can be offset against other tax payable for the June period.

Cash flow benefits for business

The payment arrangements for the GST will deliver a cash flow benefit to business. Most businesses will have the use of GST revenue they collect for 21 days following the end of the quarter in which the tax is collected- this is an average of 66 days.

Reduced costs for business

Implementation of the package of indirect tax reforms will reduce business costs by more than 3 per cent. The cost of private investment goods should fall by about 7 per cent. Costs facing Australia's exporters should fall by about 3 per cent, or about $4.5 billion a year. More detail on these benefits is provided in Chapter 5.

Giving all GST revenue to the States

Establishing a timetable for the removal of other taxes

The Commonwealth offer involves the States receiving GST revenue as of 1 July 2000. The temporary arrangements for fees on petrol, liquor and tobacco and Financial Assistance Grants (FAGs) will cease at that time. The States will continue to have the capacity to meet rebate arrangements introduced following the 1997 High Court decision on business franchise fees. For example, Queensland will be able to maintain its 8 cent per litre rebate on petrol.

The offer is conditional on the States eliminating some of their worst taxes and not reintroducing them in the future. On 1 January 2001, States would abolish FID and debits tax. They would also have sufficient revenue to abolish, from 1 July 2001, their stamp duties on marketable securities and other business transactions. The package assumes that their ‘bed taxes’ are abolished from 1 July 2000.

The States will be required to compensate the Commonwealth for the costs of administering the GST. The first payment will be required in 2000-01. This will cover administration costs in 1999-00 and 2000-01, projected to total $700 million. The States will not be required to contribute to the costs of systems development undertaken prior to 1 July 1999.

The package will ensure that the States are not worse off than if they were to continue receiving FAGs.

Devising a formula for equitable allocation of GST revenue

The Commonwealth will ensure that in each of the first three years following the introduction of the GST the States are no worse off financially than they would be under current arrangements. On the revenue projections contained in the package this will require the Commonwealth to make grants to the States in 2001–02 and 2002–03. In addition, the Commonwealth will make available to the States in 2000-01 a short term interest free loan, repayable the next year, to cover the financing shortfall in that year. From the 2003-04 year the States should be better off financially, and increasingly so, because the
GST revenue will grow at a rate appreciably stronger than the Commonwealth payments and State taxes being replaced.

GST revenue will be distributed conditional on the States' applying horizontal fiscal equalisation (HFE) principles. The Commonwealth Grants Commission will continue to determine the equalisation formula. States have expressed their support for HFE principles ensuring that all Australians can have access to similar standards of government services, regardless of where they live.

The Commonwealth Grants Commission, the organisation currently responsible for recommending an allocation formula for FAGs, will be asked to propose an equitable allocation of GST revenue. The new allocation will have to reflect the capacities and needs of each State as it currently does, as well as the fact that not all States currently levy the whole range of taxes to be eliminated.

Transferring responsibility for local government funding

Funding for local government has traditionally come from both Commonwealth and State governments. The national indirect tax reform means that the Commonwealth will no longer need to provide general purpose assistance to local government. States would have sufficient funds to ensure adequate funding arrangements for local governments.

The Commonwealth would therefore require that States take responsibility for the payment of general purpose assistance. The Commonwealth will make the payment of the GST revenue conditional on the States making these payments in accordance with existing conditions on the payment of general purpose assistance to local government, including the road funding component. Maintaining the growth in general purpose assistance to local government on a real per capita basis would constitute one of the conditions to be met by the States in order for them to receive GST revenue. These payments will ensure that local government is no worse off on this front. In addition, the reduction in the costs of government resulting from the replacement of the wholesale sales tax with a GST, and the fact that local government rates will be GST-free, means that local government will benefit from tax reform. They will be able to recover the GST they pay on their inputs. Local government is expected to benefit by around $70 million each year by not paying wholesale sales tax embedded in the products it buys.

Locking in the GST rate

The Government has taken careful note of concerns expressed that a future Commonwealth government could increase the GST rate. These concerns relate to overseas governments which have increased value-added tax (VAT) rates after introduction. Principally this has been done to increase government spending.

As GST revenue will be directed to the States, the Commonwealth Government would not only have to agree to introduce legislation to increase the GST rate, but the request for such a change would have to be unanimous among State Premiers and Territory Chief Ministers. Legislation would then need to be passed by both Houses of the Federal Parliament.

Ensuring fair prices

The removal or reduction in a number of taxes will moderate the price impact of the GST. For example, the average impact of the wholesale sales tax on consumer prices (as measured by the CPI) is over 4 per cent. This burden is generally hidden from the public by the nature of the wholesale sales tax. Other taxes being abolished or reduced should also act to reduce prices.

In general, it can be expected that the competitive pressures that already exist within the economy will ensure that a fall in the tax rate on a product will flow through to consumers in the form of lower retail prices.

However, the Government recognises that with the transition to a new tax system, there will be legitimate community concern regarding the possibility of consumer exploitation and excessive profit taking. In measures designed to counter excessive profiteering, the Government will legislate to provide the Australian Competition and Consumer Commission (ACCC) with special transitional powers to formally monitor retail prices. The transitional price oversight regime will begin 12 months prior to the implementation of the GST and will continue for a further 2 years after the date of introduction.

The ACCC will be required to monitor retail prices in order to identify instances where consumers have not fully benefited from reductions in the tax rate, or have been exposed to greater than necessary prices rises.

The Commonwealth will consult with the States with a view to ensuring the ACCC has statutory authority to take action under its Act against unfair business practices that adjust prices in a manner that is not consistent with changes in tax rates. Breaches of the Act carry penalties of up to $10 million. The ACCC will report to the Government on a regular basis. Those reports will be made publicly available.

Reforming excise duties

Reducing excises on petroleum fuels

The Government's reforms will significantly reduce the cost of fuel to all businesses, but particularly heavy transport, marine transport, and rail.

At the time of the introduction of the GST, the government will reduce excises on petrol and diesel so that the pump price of these commodities for consumers need not rise. This approach recognises that, although petroleum fuels are exempt from wholesale sales tax, they currently bear significant tax in the form of excises and the GST ought not to be used to increase that burden.

Under the GST, registered businesses will pay less for petrol and diesel because they will be able to claim an input tax credit for the GST payable on fuel used for business purposes. Businesses will save about 7 cents per litre relative to what they pay now.

As an additional boost to transport (especially rural transport), the Government will introduce a new comprehensive diesel fuel credit for registered business. The credit will be delivered through the GST system. This credit will reduce the effective excise payable on diesel fuel used in heavy transport (vehicles with a gross vehicle mass over 3.5 tonnes) and rail from around 43 cents per litre to 18 cents per litre. All other off-road business use of diesel and like fuels (including diesel, bunker fuel and light fuel oil for marine business use) will qualify for a full credit of excise. This represents a broader exemption than the current Diesel Fuel Rebate Scheme and, as a consequence, that Scheme will no longer be needed by business. Alternative fuels will remain excise free on the introduction of the GST.

The benefit of these measures is around $3 billion a year. It is estimated that, together with other measures in the package, they will reduce road transport costs by 6.7 per cent, rail transport by nearly 4 per cent and water transport by 5.7 per cent. These cost reductions are industry averages. For rural and regional Australia, which relies most heavily on heavy road transport and rail, the cost reductions will be even larger.

The Government's transport reform package underscores its commitment to rural Australia.

Separate rebate arrangements will continue to provide relief from excise for certain private, off-road use of diesel, such as remote power generation (including generators not currently eligible). The Government will take the opportunity to improve the non-business coverage of the former scheme.

The taxation of alcoholic beverages

The existing taxation treatment of alcoholic beverages reflects factors that range from government health and industry assistance policies, to the impact of historical circumstances (such as the 1997 High Court decision that certain State business franchise fees were prohibited by the Commonwealth Constitution).

The Government has decided that, from 1 July 2000:

  • Wine, and beverages consisting primarily of wine, will become subject to a Wine Equalisation Tax to replace the difference between the current 41 per cent wholesale sales tax and the proposed GST. The Wine Equalisation Tax will be levied at such a rate that the price of a four-litre cask of wine need only increase by the estimated general price increase associated with indirect tax reform; ie 1.9 per cent. The concessional taxation treatment of the alcohol content of cask wine will therefore be preserved.
  • The excise on beer, and other beverages with less than 10 per cent alcohol content, will be increased to make up for the removal of the present 37 per cent wholesale sale tax. An excise will be imposed on drinks such as alcoholic cider. However, the change in excise will be limited so that the retail price of a carton of full strength beer need only increase by the estimated general price increase associated with indirect tax reform.
  • To continue support for the production of low alcohol beer, the Government will increase the excise-free threshold for beer, from the present level of 1.15 per cent, to 1.4 per cent. This will mean that the retail price of a carton of low alcohol beer should not increase and, in some cases, may fall slightly. This will increase the price differential between full strength and low alcohol beer.
  • The excise on beverages other than wine, with more than 10 per cent alcohol content, such as spirits and liqueurs, will rise to offset the removal of the wholesale sales tax. The change in excise will be limited such that the retail price of whisky, which is currently heavily taxed, will not need to change. The brandy excise rate will increase but remain below the rate applying to other spirits.

The net effect of these changes will be that cask wine remains concessionally taxed, without allowing the taxation changes to further increase its price advantage compared with beer. However, the tax incentives to use wine based alcohol in mixer drinks will be substantially reduced.

Table 2.1:
Changes to alcoholic tax and prices

Table 2.1: Changes to alcoholic tax and prices

Note: The price changes incorporate both the direct and indirect impact of
tax changes, including reductions in industry costs.

Improving tobacco excise arrangements

The Government will take the opportunity to improve the current arrangements for taxing tobacco. At present, tobacco excise is calculated under a complex formula involving a combination of a Commonwealth weight based charge, plus a hybrid State surcharge based on both the wholesale price of tobacco and the weight. These complex arrangements were introduced as a short term measure to shore up State revenue when their business franchise fees on tobacco products were held to be unconstitutional by the High Court.

Very few other countries in the world still collect tobacco excise based on weight, because such an arrangement encourages people to smoke more, lighter cigarettes. This creates greater health problems than smoking even the same amount of tobacco in fewer cigarettes.

The Government has therefore decided to adopt the form of tobacco excise recommended by health experts and favoured by most other countries, which is based on the number of cigarettes produced, not the overall weight of tobacco in them. This form of excise is known as a per stick excise and will apply from 1 July 1999. Cigars and other tobacco products will continue to be subject to excise according to their tobacco weight.

Health experts have also recommended that tobacco taxes should be increased by 15 per cent at the same time as moving to a per stick excise. The Government has decided not to do this, but has determined that the measure will be introduced in such a way that no cigarette brand will fall in price.

After the introduction of per stick excise and the application of GST, premium branded 25s will be expected to rise by approximately 6   per cent. The per stick excise will remove the current tax advantage of light cigarettes (especially those in high volume packets such as 50s). These will increase substantially more - an intentional outcome of the design of this excise on the basis of health grounds.

Introducing a luxury car tax

Cars in general will fall in price as a result of the change from the wholesale sales tax to the GST. If the Government took no specific action, then the price of luxury cars would fall dramatically as they are currently subject to the special wholesale sales tax rate of 45 per cent. The Government does not believe that this price reduction is appropriate following the replacement of the wholesale sales tax with the GST. Therefore, the Government will introduce a retail tax on luxury cars, at a rate of 25 per cent of the value above a luxury threshold (a GST-inclusive value of $60,000). The tax will ensure that luxury cars only fall in price by about the same amount as a car just below the luxury threshold. Businesses subject to GST will not be able to obtain an input tax credit for the tax on luxury motor vehicles.

Key features of the GST

The GST will be similar to value added taxes operating in other countries. Definitions and administrative requirements will, where practicable, be harmonised with income tax to reduce compliance costs.

The GST will apply to supplies made by registered persons engaged in taxable activity. Private sales by unregistered people (for example, items in a garage sale) will not be taxed.


Individuals, partnerships, companies, trusts and other bodies that engage in taxable activity will be required to register if their total sales will exceed $50,000 per annum. Non-profit societies, clubs and associations will only need to register if their total sales (including membership fees, but not donations) will exceed $100,000 per annum.

Although individuals, businesses and clubs with smaller annual sales will not have to register, they will have the option of registering if they wish. If they do not register, they will not charge tax on their sales (outputs) or claim back tax paid on their purchases (inputs).

Registered persons will pay tax or claim refunds either quarterly (on 21 October, 21 January, 21 April and 21 July) or monthly, depending on their sales volume. Those with total value of sales less than $20,000,000 per annum may operate under a quarterly taxable period (but may opt for a monthly period), while larger businesses must remit on a monthly basis. All remitters, but particularly quarterly remitters, will get significant cash flow benefits from holding the tax before forwarding it to the Tax Office.

Displayed prices will include any GST payable.

Large businesses will account for the GST on an accruals basis, usually when an invoice is issued, consistent with the way they report their sales for income tax purposes. This means that one set of accounts will satisfy their income tax and GST reporting obligations. Registered persons with total sales less than $250,000 per annum will have the option of accounting for the GST on a payments basis (that is, when payments for sales are received).

Large businesses (who must remit monthly) will lodge their GST returns and make payments electronically. The Tax Office will pay all r
efunds directly to bank accounts and interest will be payable where refunds are not paid within 14 days.

The Government will spend up to $500 million to defray start-up costs of small and medium businesses implementing the GST. The Government will consult with business through a Small Business Consultative Committee on the most effective options for delivery of these incentives.

On-going administration costs of a GST will be less significant for businesses with good record keeping practices. In fact, overseas experience suggests that compliance costs will fall as familiarity with the rules and methods of a GST increase. Overseas experience also suggests that in order to comply with GST obligations businesses often improve theiraccounting systems, enhancing the quality of information upon which business decisions are made.

Taxable activity

A taxable activity is any supply of goods or services for a payment, whether in cash or kind. However, certain supplies will be excluded from the definition of taxable activity. For example, wages received by

employees will not be taxable under the GST – in practice employees will not be caught up in the GST system. Private activities and some other supplies that will be input taxed (see below) will also not be taxable activities.

In line with the treatment of new goods, sales of used goods will generally be taxable if sold by a business, but not if sold by a private individual. This means that a family will not charge the GST when selling its house, used car, boat, or caravan, or when holding a garage sale. Where used goods are sold by dealers, the GST will in effect apply only to their value added (that is, their margin).

The GST base - very few exceptions

The GST will apply to a very broad base, but some supplies of goods and services will not be taxable.

Goods and services will not be taxable where imposing GST would be technically difficult or would create inequities between private and public sector providers.

Where goods are given away (for example tasting samples in a winery) no sale has occurred and there will be no GST paid.

There will be two types of non-taxable activities under the GST:

  • activities that are not taxed and where credit is allowed for tax paid on purchases (known as GST-free); and
  • activities that are not taxed and no credit is allowed for tax paid on purchases (known as input taxed).

Activities that are GST-free

Where activities are GST-free, a registered person will not charge tax on the sale of those goods and services, but will nevertheless claim back the tax paid on inputs. Other countries use the term zero rated to describe this type of activity.

Activities that are input taxed

Some activities will be input taxed. These activities will not be taxable, but anyone selling them will not be able to claim credits for the tax paid on their inputs.

This approach has been chosen where it is technically difficult to impose GST on the sale of particular services, but it is not appropriate to allow the sale to be GST-free. Other countries use the term exempt to describe input taxed.

Input tax credits

Registered persons will be able to claim credit for GST paid on purchases of business inputs (input tax credits). This will mean that purchases of business inputs will bear no GST, enhancing business competitiveness. Input tax credits can also be claimed by those providing GST-free activities, reducing the cost of undertaking these activities. Input tax credits will not be allowed for the GST paid by business on inputs used in activities that are input taxed. Where inputs are used in a mix of taxable and other activities, a partial input tax credit will generally apply, based on the proportion of taxable use.

Input tax credits will not be allowed for GST paid on goods and services for the personal use of sole proprietors and partners. Personal use tests will be similar to the current tests for non-deductibility under the income tax system. Input tax credits will not be allowed for the GST paid on certain inputs that are essentially private in nature (for example, meals and entertainment expenses).

Where goods or services are provided to employees as fringe benefits, the GST credit will be allowed, but Fringe Benefits Tax will be adjusted so that there will be no advantage for the employer in providing benefits rather than providing salary.

Activities that are GST-free


Exports of goods and services will be GST-free. This treatment, coupled with the removal of wholesale sales tax and the various State taxes, will reduce the costs to exporters by around $4 billion in Australian dollar terms in the first year of operation of the GST. Exported goods must be physically exported from Australia and exported services must be performed outside Australia for a non-resident. An example of how no GST is paid on exported goods is presented below.



Goods and services consumed by tourists in Australia, such as meals and hotel accommodation will be taxable in the normal manner. International air and sea travel will be GST-free, as will any domestic air travel purchased overseas by non-residents. Tourists and Australian residents going overseas will be able to recover the GST they pay on goods purchased in Australia and taken away with them when they leave. Refunds will apply to purchases of at least $300 made from any one business within 28 days of departure.

However, if the goods are subsequently brought back into Australia, then GST will be payable at that time.

Example of an export sale

Example of an export sale

Health and medical care

The health sector in Australia has significant government involvement through direct subsidy and regulation. Many health services are provided to patients free of any direct charge or by means of a co-payment that is a fraction of the total cost of providing the service.

Applying taxes to health care would place the private health sector, with its heavier reliance on direct fees, at a competitive disadvantage with the public health system.

For this reason, most medical and hospital care services and health insurance will be GST-free. The cost of providing health care and insurance will fall as a result of the Government's indirect tax reforms as input taxes will be systematically removed from the sector.

Medical services

Medical services will be GST-free if they attract a Medicare benefit or are commonly used health services, listed by the
Government. Examples of GST-free health services are:

Health services covered by Medicare:

  • general practitioner and specialist consultations; and
  • diagnostic, surgical and therapeutic procedures (for example, ophthalmology, neurology, optometry, radiation oncology, anaesthetics, radiology, ultrasound etc) and pathology.

Other medical services that will be GST-free include:

  • hospital charges (accommodation etc);
  • dental services;
  • optical;
  • physiotherapy, chiropractic;
  • speech therapy;
  • occupational therapy;
  • counselling services;
  • home nursing;
  • dietary services; and
  • podiatry.

The precise scope of qualifying medical services is a matter on which the Government will take a final decision following advice from the Tax Consultative Committee.

Hospitals and nursing homes

Health care provided at hospitals, nursing homes, hostels and similar establishments will be GST-free, as will nursing care services supplied to patients at home. The concession will extend to accommodation, drugs, dressings and meals supplied to patients or nursing home residents in the course of their treatment or care. Supplies of items not related to health care, such as food served in hospital cafeterias, or televisions rented to patients, will be taxable in the normal manner.

Medical appliances and aids

The supply of medical appliances for use by people with severe medical conditions or disabilities (examples include wheel chairs, crutches, artificial limbs and modifications to motor vehicles for the disabled) will be GST-free.

The precise scope of qualifying medical appliances is a matter on which the Government will take a final decision following advice from the Tax Consultative Committee.

Drugs and medicines

Drugs and medicines that can only be provided on prescription and PBS and RPBS medicines provided on prescription will be GST-free. The Government will take a final decision on the precise scope of qualifying drugs and medicines following advice from the Tax Consultative Committee.


Like health and medical care, education receives significant government assistance. Public primary and secondary education is provided free of charge and significant assistance is given to private schools and tertiary and vocational education. Applying the GST to education would discriminate against private providers.

Most educational services will therefore be GST-free. This treatment will apply to:

  • tuition at or through a pre-school, primary or secondary school;
  • tuition provided at a college, TAFE, university or other recognised institution that leads to a degree, diploma, certificate or other similar qualification; and
  • the provision of accommodation at boarding schools.

The precise range of recognised institutions and courses that qualify as GST-free will be finalised following advice from the Tax Consultative Committee.

Some related goods and services will be taxable

All mainstream education will be GST-free. However, additional activities that would normally be taxed will not become GST-free simply because a school acts as a purchasing agent. Goods (such as computers and books) and services sold or leased to students by any educational institution will be taxable in the normal way. However, goods loaned to students free of charge will not be taxed.

Activities that are not GST-free include:

  • the food component of boarding fees, and food and beverages sold to students (eg in tuck-shops);
  • school bus services and uniforms;
  • fees charged for equipment hire (eg musical instruments); and
  • sales of goods and services for fundraising purposes.

Courses that do not lead to a recognised degree, diploma, or certificate, such as business training (for example, team development, writing skills etc) will be taxable. However, most businesses will be able to claim input tax credits for tax on course charges.


Because childcare often includes an educational component, childcare provided at a recognised facility will be GST-free. As a result, childcare provided at facilities that receive government funding, or where the parents qualify for a government childcare payment, will be GST-free. This will apply to such things as long day care, short care (before and after school), family day care, occasional care and childcare facilities at fitness clubs and registered clubs.

Other forms of childcare, such as that provided by baby sitters, play centres, holiday camps, sporting and craft programmes will be taxable. However, many of these providers will be below the small business threshold ($50,000 for businesses and $100,000 per year for a non-profit organisation) and will not be required to charge GST.

Charitable activities

Charities, public benevolent institutions, community groups and religious organisations operate differently from businesses. They often do not charge for the goods and services they supply, or impose only a nominal charge. Much of their funding and inputs are provided as donations.

Their charitable activities will be GST-free. Non-commercial supplies of goods or services by them will also be GST-free.

To avoid unfair competition with business, the commercial activities of these bodies will be taxable. Memberships of registered organisations (for example, local sporting clubs) will be taxable, but donations (which are not payments in return for services) will not be taxable.

In practice many community organisations will be below the $100,000 registration threshold and their memberships will not be taxed.

Religious services

Religious services will be GST-free. Churches and other institutions that supply religious services will not charge tax on those services and will be able to claim input tax credits for tax paid on their inputs.

Religious items for use in private devotion will be taxable. The precise range of religious services that will qualify as GST-free will be finalised following a report from the Tax Consultative Committee.

Activities that will be input taxed

Financial services

Some financial services are structured in a way that makes it extremely difficult to subject them to GST. The international experience has been that it is difficult to identify and measure the value added of many financial services on a transaction by transaction basis. However, there is no reason why private consumption of financial services should be tax-free. In principle, all financial services should be taxed in the same way that other goods and services are treated.

The Government will input tax some financial services in line with current international practice.

For example, a bank will pay GST on a computer bought for use in managing credit card accounts. The bank will
not be entitled to an input tax credit for tax paid on the computer. However, no tax will be payable on the credit card charges of the bank. The precise range of services that would be taxed or input-taxed would be determined in consultation with industry.

Exports of financial services will be GST-free, in line with the treatment of other exports.

Other financial services, such as investment advice, where there is a readily identifiable fee or charge, will be taxable.

Residential rents

Residential rents will be input taxed to ensure comparable treatment for renters with owner-occupiers.

How will the GST affect other sectors?


The construction and sale of new homes, and repairs and renovations to existing homes, will be subject to GST in the normal manner. Residential rents will be input taxed.

Residential land will be treated like second hand goods. That is, when it is sold by a registered business (such as a property developer), it is not subject to GST on its full sale price, but only on the margin added by the business. There is no tax when land is sold by private individuals, or on the sale of an existing family home.

The current tax system imposes a hidden tax burden on homes. Wholesale sales tax is currently paid on some materials used in constructing and finishing a house, such as carpets, bathroom fittings, heaters and air conditioners. Financial taxes impose a further burden on the price of a home. The Government's reforms will remove a hidden tax burden of approximately 5.3 per cent of the cost of constructing a new house.

If nothing else were done, a GST would raise the prices of new homes by about 4.7 per cent. Although existing home owners would benefit from a rise in the value of their homes, those who do not currently own a home would face higher purchase prices and possibly higher rents.

To maintain home affordability at its present high levels, the Government will require the States to assist home buyers through a First Home Owners' Scheme as a condition of receiving GST revenue.

People who qualify for assistance will receive a lump sum payment of $7,000 from July 2000. Payment will not be means tested. Because it is a flat amount, people purchasing more expensive first

homes will receive proportionally less benefit than those buying less expensive homes. People who buy an older house will find that this payment assists them to fund renovations. A first home owner will be more than compensated on the purchase of a home with a construction value (excluding land) of up to $150,000.

Eligibility for the First Home Owners' Scheme

The First Home Owners' Scheme will apply to Australian citizens and permanent residents who are buying or building their first home in Australia. To qualify, an applicant or an applicant's spouse must not have previously owned a home, either jointly, separately, or with some other person.

The purchase of a first home will include the purchase of the land on which a house is to be built and cover all forms of private dwelling ownership (strata title etc).


Supplies of short term accommodation in hotels and similar establishments will be taxable. Long term stays (for twenty-eight days or more) will be input taxed in line with the general treatment of residential rents.

Other construction

The construction, sale and leasing of all non-residential land and buildings, whether new or used, will be subject to tax. This treatment will allow virtually all businesses to claim input tax credits for the tax payable on such buildings they occupy or own. This will make the purchase or lease of a building effectively ‘tax free’ for them.


The Government's intention would be to apply the GST to the commercial activities of all levels of government in the normal manner. However, there are Constitutional limitations on subjecting some activities of government to the GST.

To overcome these limitations, the Commonwealth will be seeking the agreement of the States to ensure that a consistent national approach is taken to taxing commercial activities of all levels of government.

The non-commercial activities of government will be outside the scope of the GST. For example, appropriations for general government activities will not be taxable, nor will grants from one level of government to another, as neither constitutes consideration for a supply.

Fines, penalties, and taxes are not usually commercial transactions. The range of taxes and charges that will not be subject to the GST is extensive and will include taxes and charges levied at all levels of government. Examples are:

  • income tax;
  • Medicare levy;
  • land tax;
  • stamp duties;
  • motor vehicle registration fees;
  • water and sewerage rates and charges; and
  • local government rates.

Like taxable businesses, governments will be entitled to claim input tax credits on all their purchases. This will lead to a fall in the running costs of general government.

Gambling and lotteries

Gambling and lottery activities will be included in the tax base. The GST will apply to the operator's margin of these activities, not to the prizes paid out. That is, the tax will apply to the difference between total ‘ticket sales’ or ‘bets taken’ by the operator of the gambling or lottery activity and the value of the prizes or winnings paid out. However, operators cannot always adjust their prices because these are often set by the rules of the game or by State government legislation relating to levels of pay-out. As the States already tax gambling highly there may need to be corresponding reductions in State gambling taxes. This will be possible because, under the proposed arrangements, the States will receive the proceeds of the GST, including the GST on gambling.

GST transitional arrangements

To ensure a smooth transition from the wholesale sales tax to the GST, certain transitional arrangements will apply.

Credit for wholesale sales tax on tax-paid stock

When the GST is introduced, many businesses will be holding inventories of new goods for sale on which wholesale sales tax will have been paid. To prevent double taxation, businesses may claim a credit of the wholesale sales tax paid on stock against their GST liability.

Harmonising wholesale sales tax rates

After the GST is introduced, many goods will fall in price. In particular, so called ‘luxury’ goods taxable at the 32 per cent wholesale sales tax rate (for example stereos and televisions), are likely to fall in price.

To avoid consumers holding off on purchases, the Government will reduce the 32 per cent wholesale sales tax rate (other than that applying to furs and jewellery)
to the standard 22 per cent rate immediately following the passage of the GST legislation.

Phase in of input tax credits
for motor vehicles

The introduction of the GST will significantly reduce the cost of business by providing input tax credits. This causes a transitional problem as businesses that currently bear wholesale sales tax may delay some of their purchases so that they can get input tax credits.

The Government is concerned that this may disrupt the motor vehicle market.

To alleviate this problem the Government will phase in input tax credits for motor vehicles over a two year period. In the first year of operation no input credits will be allowed for motor vehicle purchases. In the second year, half the value of the full input tax credit will be allowed. Full input tax credits will be available in the third year and the system will be fully operational.

Bodies that can currently purchase motor vehicles exempt from wholesale sales tax will not be affected by this measure. These bodies would have no incentive to delay purchases and so they will be able to claim full input tax credits from the date of implementation.

The Government will take a final decision on these matters following advice from the Tax Consultative Committee.

Contracts that span the implementation date

Some contracts and agreements will span the date of implementation of the GST. Where this occurs, the general principle will be that GST applies to all goods delivered and all services performed after the implementation date.


Revenue measures tables: indirect tax*

Revenue measures table: indirect tax

* A positive revenue or outlays number implies a positive impact on the budget balance.

(a) Includes GST revenue, the phased input credit on motor vehicles, credit for wholesale sales tax paid stock, and response effects associated with replacing the wholesale sales tax with a GST.

(b) Estimates for 1999-00 and 2000-01 reflect transitional impacts arising from the lagged collection of tax paid in respect of those financial years.

(c) Includes abolition of wholesale sales tax, collection of outstanding wholesale sales tax debt, the wholesale sales tax phase down in 1999-00 and response effects associated with replacing the wholesale sales tax with a GST.

(d) The estimates reflect an assumption that the States will reduce tax on gambling by an amount equivalent to that raised by the GST.

(e) Assuming abolition from 1 January 2001.

(f) The estimate assumes these stamp duties are removed from 1 July 2001.

(g) The estimate assumes these taxes are removed from 1 July 2000. The higher cost in 2000-01 reflects the Sydney Olympics.

(h) Refer to reconciliation table below for more detail on this measure.

(i) See also the impact on outlays of the removal of diesel fuel rebates. Refer to reconciliation tables below for more detail.

(j) As a consequence of the extension of the Commonwealth scheme for diesel fuel credits, the States will no longer need to pay rebates for off road diesel use.

(k) This reflects the removal of embedded wholesale sales tax and excises on purchases by Australian governments.

Revenue measures table: reconciliation of Commonwealth excise arrangements*

Revenue measures table: reconciliation of Commonwealth excise arrangements

* A positive revenue or outlays number implies a positive impact on the budget balance.

  1. Estimates for 1999-00 and 2000-01 reflect transitional impacts arising from the lagged collection of tax paid in respect of those financial years.
  2. Alcohol taxation changes such that: a representative 4 litre cask of wine and representative carton of regular strength beer need not rise by more than the estimated increase in the CPI; a representative carton of low alcohol beer need not rise in price; a representative bottle of whisky remains about the same price; and a representative bottle of wine should only increase in price by about 3 per cent.

Revenue measures table: reconciliation of diesel excise arrangements*

Revenue measures table: reconciliation of diesel excise arrangements

* A positive revenue or outlays number implies a positive impact on the budget balance.

(a) Estimates for 2000-01 reflect transitional impacts arising from the lagged collection of tax paid in respect of that financial years.

Revenue measures table: States, Territories and local government*

Revenue measures table: States, Territories and local government

* A positive revenue or outlays number implies a positive impact on the budget balance.

(a) Includes GST revenue, the phased input credit on motor vehicles, credit for wholesale sales tax paid stock and response effects associated with replacing the wholesale sales tax with a GST.

(b) Estimates for 1999-00 and 2000-01 reflect transitional impacts arising from the lagged collection of tax paid in respect of those
financial years.

(c) The estimates reflect an assumption that the States will reduce tax on gambling by an amount equivalent to that raised by the GST.

(d) Assuming abolition from 1 January 2001.

(e) The estimate assumes these stamp duties are removed from 1 July 2001.

(f) The estimate assumes these taxes are removed from 1 July 2000. The higher cost in 2000-01 reflects the Sydney Olympics.

(g) Payment to States to offset negative early year impacts of GST implementation.

(h) This reflects the removal of embedded wholesale sales tax and excises on purchases by Australian governments.

(i) The payment in 2000-01 reflects costs associated with GST administration incurred in 1999-00 and 2000-01.

(j) Tax reform is projected to make a positive contribution to the net budgetary position of the States, Territories and local government in 2003-04 of around $0.37 billion. Beyond 2003-04 real per capita incomes will result in faster growth in indirect tax revenues than in the Commonwealth grants being abolished.

(k) The Commonwealth will provide a one year interest free loan to the States to offset the increase in their net financing requirement that arises in 2000-01 as a result of early year impacts of GST implementation. As a consequence of this arrangement, the net financing requirement of the States is unaffected by tax reform in each of the years 1999-00 to 2002-03. The impact on the headline balance for the Commonwealth is -$1.16 billion in 1999-00, -$5.45 billion in 2000-01, -$4.12  billion in 2001-02 and -$7.25 billion in 2002-03. The public debt interest costs associated with the loan are included in the Commonwealth public debt interest item.