Howard’s Commitments to Meg Lees on the GST

This is the letter from the Prime Minister, John Howard, to the Leader of the Australian Democrats, Senator Meg Lees.

The letter sets out the agreement reached between the government and the Democrats to secure passage of the Goods and Services Tax legislation through the Senate.

Senator Lees
Leader of Australian Democrats
Suite SG 112
Parliament House
CANBERRA ACT 2600

Dear Senator

I refer to our discussions this morning regarding the Government’s tax package and the Government’s commitment to the outcomes reached.

Education

The Government will write to the Commissioner of Taxation to seek a ruling on the definition of education services that are to be GST free.

The ruling will address all instruction for students directly or indirectly related to the school curriculum, excursions supervised by schools and school camps. However, it is not intended that GST free treatment be extended to activities that are predominantly social in nature. The Government’s letter to the Commissioner of Taxation will include as an attachment your letter to me of 21 June 1999 on this matter as items which should be covered in the ruling.

The Arts

You will recall that the Government had previously agreed to review the need for additional assistance to the arts in the light of the Nugent Review of arts funding with a view to ensuring that the arts are not adversely effected by the impact of the GST. As the first step in that process, the Government agrees to fund a study to develop an appropriate methodology for measuring the likely impact of the GST and related measures on the arts and a preliminary assessment of the likely impact of the GST on various sectors of the industry.

The method will serve as the basis for an assessment of the impact of the GST on the arts. This study will be concluded no later than 31 December 1999 and the review will be completed by September 2001 at the latest.

Charities

The Government reaffirms that non-commercial charitable activities will be GST free. The Government is not disposed to extend the definition of a charitable institution to advocacy and other groups. In practice many community groups such as neighbourhood centres should be not be subject to GST because they are operated by charities or are below the $100,000 registration threshold. However, given the important community service role of neighbourhood centres the Government will review the impact of the GST on their operations in the context of the previously foreshadowed consultations between the Government and the Australian Democrats on the GST impact on charities.

It has been agreed that these consultations will now be brought forward and will occur no later than 31 December 1999. These consultations will also canvass the application of rulings regarding the divide between commercial and non-commercial charitable activities.

The Government confirms that relationship counselling will be GST free where it is provided by an appropriately accredited psychologist or social worker.

As recommended by the Vos Committee, the Government will monitor the possible impact of the GST on sheltered workshop services and will give careful consideration to providing additional compensation if necessary.

The application of the GST to membership fees payable by charities and tax-deductible bodies will be examined in the context of the consultations on charities.

In relation to emergency relief payments the Government confirms that where a charity pays for goods or services on behalf of a client, the charity would be able to claim a credit. As discussed at our meeting, where charities provide cash as emergency relief it would not be appropriate to give input tax credits because there is no control over how the money is spent by the client.

Food

Salads and savoury bread will be GST free. Muesli bars but not breakfast bars and the like will be subject to GST. Fruit and vegetable juices of at least 90% by volume will be GST free. Cordials and flavoured milk will be subject to GST. Products consisting of milk not less than 95% by volume will be GST free. Beverages consisting principally of soy milk or rice milk, but not including flavoured beverages, will be GST free. Bottled (still) natural water without any other additives will also be GST free.

Books

The Government has received your proposal regarding assistance for book writing and production and remains committed to developing a scheme that meets our shared objectives. However, it will take time to develop an appropriate scheme and the Government undertakes to consult the Democrats and agree on a scheme before the resumption of Parliament in August 1999. The scheme will pay particular regard to the educational objectives underpinning the Democrat proposal, particularly in respect of the price of text books.

Wine Equalisation Tax (WET)

Historically rebates for cellar door sales have been a State responsibility. The Government and the Australian Democrats agree on the importance of maintaining cellar door arrangements. The Government undertakes to ensure that the States keep arrangements which provide a tax exemption for cellar door and mail order sales up to $300,000.

The Government will also examine a number of definitional issues arising from the WET bill, which you have advised, and the scope for concessional treatment of low alcohol wine and intends that these be dealt with in a Bill to be introduced in the Spring sittings. As a consequence of these commitments the Government and the Australian Democrats are agreed that the WET legislation will be passed by 30 June 1999.

Boarding Houses and Caravan Parks

A separate note on the Government’s proposed treatment under the GST of boarding houses and caravan parks will be provided in due course.

It continues to be the Government’s intention that the full GST will not apply to long term residents.

GST Assistance Scheme for Low Income Persons

The Government is developing a scheme to provide assistance to low income persons who identify themselves as outside the income tax and social security systems and therefore ineligible for the compensation provided in this package. Particular attention is being given to identifying the groups to which the scheme will apply. The purpose of the scheme is not to provide a new, generally available income related entitlement but to catch those who may otherwise slip through the income tax and social security net. The Government’s intention is to develop a scheme in consultation with the Australian Democrats.

Disability Services

An amendment will be introduced so that any service funded under the Disability Services Act 1986 (or similar State/Territory legislation) will be GST free.

Rent Assistance

In addition to the previously agreed compensation package, Rent Assistance will be increased by a further 3 per cent in respect of eligible private renters at a cost of around $33 million per annum with effect from 1 July 2000. This will bring the total increase in Rent Assistance up front to 7 per cent.

Yours sincerely

(John Howard)

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