The Church and Charitable Private Hospitals Association (CCPHA) objects most strongly to the Government's business taxation reform on the grounds set out in the Committee's terms of reference of 14 October 1999. The CCPHA challenges the erroneous economic theories and assumptions which underpin the package -- both in regard to church and charitable activity in general and in particular the misconstrued application of such theory and assumptions which has led the government to terminate the long-standing FBT exempt status of public benevolent institutions and to channel the new tax revenue so derived from charities to reduction in business tax. We find it astonishing that it is seriously proposed that charities and non-profit associations which by law are devoted to serving the public interest should be attacked through taxation imposts to fund a cut in corporate and capital gains tax rates for the benefit of large corporations and their shareholders.

ECONOMIC THEORIES AND ASSUMPTIONS

CCPHA members are charitable institutions. In Western civilisation, and in the economic theory and philosophy which has developed in the West, charitable institutions have always been properly distinguished from profit-seeking pursuits. The concept of charity is well understood at common law and includes the relief of sickness and distress. Modern economic theory recognises altruism and voluntary redistribution as more than efficient alternatives in many cases to State welfare provision.

Church and charitable private hospitals provide health services within an environment of care and love which is dominated by a concern for the individuals' wellbeing -- not for commercial gain. They are not "economic" institutions operating for the profit of shareholders. On the contrary their presence in the health care area serves to limit the dangers of moral hazard and asymmetric information which can be unethically exploited by commercial health corporations to maximise charges to patients where services are over-provided. The destruction through taxation of charitable and community hospitals will leave the way open for the "Americanisation" of Australian health provision with the inevitable attendant waste of social resources in inflated health costs.

Church and charitable hospitals should not be confused with private hospitals operating for a profit. Those hospitals are competing in the economic sphere with other forms of businesses with the prime objective of profit maximisation, return on equity and dividends to shareholders. Quite properly private for-profit hospitals should be taxed as is the case with any other business activity.

It is quite wrong in logic and in economic theory to argue that a "level playing field" should be achieved between not-for-profit and for-profit hospitals so that the latter do not suffer a "competitive disadvantage". Such logic -- if accepted -- would be a manifestation of economic rationalism of the worst kind. A "level playing field" is already available if commercial operatives are willing to dedicate their profits to public charitable purposes.

PREVIOUS SUBMISSIONS

The CCPHA has made strong representations to Ministers, Senators, Members of Parliament and numerous Inquiries (The Gibson Committee, Vos Committee, Ralph Committee and the Senate GST Inquiry) over a long period seeking to ensure that the long-standing and traditional tax free status in Australia of its members be preserved. Nevertheless, the government has moved in this business tax legislation to take the historic, and wrong, decision to force not-for-profit charitable activity into the Procrustean bed of the profit-seeking corporation. It is a false economic theory to cast all economic activity as being legitimate only if undertaken by profit-seeking corporations. Charities, like governments, serve public purposes and that is the reason for the fundamental principle, adopted by the Fisher Labor Government in 1916 and generally supported by all governments since, that charitable activity should remain tax free.

REVENUE IMPLICATIONS

The government's business tax reforms not only break the long-standing principle of taxing charities, but in so doing it seizes the revenue gained from fringe benefits tax (FBT) impositions on charities ($260 million in 2002-3) for reductions in business taxation! This is an astonishing concept of income redistribution -- to take services from the poor and sick to increase the profits of Australia's largest companies.

Church and Charitable Private Hospitals object most strongly that new FBT imposts on it and public benevolence institutions more generally will be used to subsidise private sector business in this package of "Ralph Reforms".

As the CCPHA has submitted in detail in previous submissions the present tax exempt FBT status of church and charitable hospitals is working as intended. It benefits our not for profit institutions, not the employees, by reducing hospital costs. FBT is an employer tax and our existing exemption correctly benefits our budgets, thus allowing our institutions to pay going rates of wages to our employed staff. If it is legitimate for State governments to grant payroll tax exemptions to small business to reduce their employment costs we see no reason why our Federal FBT exemption is any less legitimate. Any withdrawal of the present full FBT exemption will harm our institutions -- and represent a new tax impost on the charitable sector to increase government revenue which will then apparently be used to subsidise tax breaks to the for-profit business sector of Australia.

Again we must stress that the tax-free status of church and charitable activity is not a "concession" but rather is a correct application of economic theory. It makes no more sense in economic theory to tax charitable activity than it does to tax the core responsibilities of government such as the provision of public health, law and order, etc. The community, especially in rural and regional areas, is already showing signs of anger that traditional services, long taken for granted as incidents to a civilized society, are being wound back in the name of an economic rationalism which discards any non profit making activity. We doubt that closures or commercial takeovers of charitable and community hospitals will prove acceptable to the community.

CONCLUSION

CCPHA again urges the Senate in this Inquiry to reject the imposition of FBT on public benevolent institutions. It urges the Senate to reject the economic assumptions underlying this profound change to long held beliefs about the role of charity in Australian society which would usher in the taxation of charitable activity -- and, worse still, the subsidisation of the Australian business sector by charities. We find it surprising that at a time when the Government is urging greater corporate philanthropy and has extended tax concessions for charitable gifts, it has been willing to accept Treasury's proposal to attack charitable organisations through taxation.

The CCPHA would be pleased to resubmit to the Inquiry its previous detailed Submissions on this important tax issue if required and to appear before this Inquiry.

Stephen Roberts
Chairperson
CCPHA
27/10/99