Henry David Thoreau (1817-1862), the American author, naturalist, transcendentalist and philosopher, once observed: "I don't see why the schoolmaster should be taxed to support the priest, and not the priest the schoolmaster."

The federal budget of 13 May 2008, being the new Labor Government's first, could reasonably have been expected to include a few features that unambiguously demonstrated to the electorate that a different team had taken over. While to some extent the budget did indeed do that, these features unfortunately (though unsurprisingly) did not embrace the remedying of the long-standing tax anomalies analysed below.

CONSTITUTIONAL ASPECTS

Our Constitution makes it clear that Australia is to be a secular society. In particular, section 116 provides that "The Commonwealth shall not make any law for establishing any religion or for imposing any religious observation ..."

Yet the spirit even if not the letter of that section is breached by both the Commonwealth and all State governments in many of their tax provisions.

One example of this is in Division 50 of the Income Tax Assessment Act 1997. This gives non-profit organisations complete income tax exemption privileges if they fall into one of a number of specified categories (having regard to an organisation's sole or main purpose).

Quite understandably, these categories include charitable, scientific and public educational institutions. They also include organisations established for community service purposes (not being political purposes or lobbying purposes) and organisations established for the encouragement of animal racing, art, a game or sport, literature or music, as well as organisations promoting the development of primary and secondary resources or tourism.

However, as further discussed below, the specified categories also include religious institutions.

The reference to educational institutions in the legislation is almost ironical, as the teaching of comparative religion has been given a very low priority in Australia. The general public is probably unaware that such a subject could even be taught in schools. Most people seem quite happy to follow the religious beliefs of their parents unquestioningly. Blind faith and dogma are much more comfortable than having to think for oneself and make logical choices.

It must be remembered that any tax concession granted to some taxpayers are inevitably at the expense of all other taxpayers. In this connection, the inclusion of religious institutions is rather disconcerting, as it always involves significant cross-subsidisation.

Why, for example, should the adherents of Religion A pay in order to provide a benefit for the adherents of Religion B? Even more so, why should non-believers be made to pay for the churches of believers?

Of course, to the extent that religious organisations carry out genuine charitable or educational activities they should be entitled to the same tax regime as secular non-profit organisations doing similar work - but purely religious activities should be regarded as being quite different.

To make the problem worse, as shown below, some extreme cults have quite surprisingly managed to receive official recognition as "religions".

Furthermore, the total size of the substantial annual cost of the entire tax concessions to the churches is being kept hidden from the community.

SCIENTOLOGY

The question of whether scientology was a religion was considered by the High Court of Australia over 20 years ago in Church of the New Faith v. Commissioner of Pay-Roll Tax (Vict.) 1983 154 CLR 120. To the astonishment of many observers, the court held that it was indeed a genuine religion.

Justices Mason and Brennan said at page 148:

"47. It follows that, whatever be the intentions of Mr. Hubbard and whatever be the motivation of the corporation, the state of the evidence in this case requires a finding that the general group of adherents have a religion. The question whether their beliefs, practices and observances are a religion must, in the state of that evidence, be answered affirmatively. That answer, according to the conventional basis adopted by the parties in fighting the case, must lead to a judgment for the corporation."

Mr Justice Murphy said at page 162:

"48. Conclusion. The applicant has easily discharged the onus of showing that it is religious. The conclusion that it is a religious institution entitled to the tax exemption is irresistible.

"49. The Commissioner should not be criticized for attempting to minimize the number of tax exempt bodies. The crushing burden of taxation is heavier because of exemptions in favour of religious institutions, many of which have enormous and increasing wealth."

Justices Wilson and Deane said at page 176:

"21. The conclusion to which we have ultimately come is that Scientology is, for relevant purposes, a religion. With due respect to Crockett J. and the members of the Full Supreme Court who reached a contrary conclusion, it seems to us that there are elements and characteristics of Scientology in Australia, as disclosed by the evidence, which cannot be denied. They bear repetition, with particular reference to the indicia which we have suggested. The essence of Scientology is a belief in reincarnation and concern with the passage of the `thetan' or the spirit or soul of man through eight `Dynamics' and the ultimate release of the `thetan' from the bondage of the body. The existence of the Supreme Being as the eighth `Dynamic' has been asserted since the early writings of Hubbard (see Science of Survival, Book I, pp. 60 and 98, Book II, pp. 244, 289). The ideas of Scientology satisfy the first two indicia: they involve belief in the supernatural and are concerned with man's place in the universe and his relation to things supernatural. Scientology in Australia also satisfies all of the other abovementioned indicia. The adherents accept the tenets of Scientology as relevant to determining their beliefs, their moral standards and their way of life. They accept specific practices and participate in services and ceremonies which have extra-mundane significance. In Australia they are numbered in thousands, comprise an organized group and regard Scientology as a religion. It was submitted that Scientology lacked comprehensiveness particularly as regards the nature of, and man's relationship with, the Supreme Being. It has been seen, however, that that is something which Scientology shares with the great Indian religions from which some of its ideas would appear to have been derived. It was also submitted that the fact that Scientology does not insist that its adherents disavow other religious affiliations indicates that it is not a true religion. That, again, is something which could be said of a number of religions including Hinduism, some types of Buddhism and Shintoism. Again, reference was made to some unusual features of membership in the organisation and to the strong commercial emphasis in its practices. However incongruous or even offensive these features and this emphasis may seem to some of those outside its membership we cannot think that of themselves they can outweigh the other considerations to which we have referred."

TAXES ACROSS THE BOARD

Religious bodies benefit from tax concessions at all levels of government. Federal exemptions apply to income tax, fringe benefits tax and the goods and services tax. State government exemptions cover land tax, payroll tax, stamp duties and car registration fees. And local government bodies give exemptions from municipal rates. In addition, concessions apply to some water and power charges.

The land tax exemptions cover not only church buildings but also church-owned commercial properties. Furthermore, this absence of land tax encourages the underutilisation of land and thus makes the nation the poorer.

Some municipalities in Australia are home to more religious institutions than others, so that the municipal rate subsidies granted by local councils hit some owners and occupiers harder than others.

The GST exemption means that wedding and funeral services conducted by priests - even on non-church premises - are not subject to the GST, while the corresponding ceremonies when conducted by civil celebrants involve this impost.

FRINGE BENEFITS

The fringe benefits tax exemption creates an undesirable loophole. It enables eligible employers to pay lower wages to their employees (being amounts which are subject to income tax in their hands) and to compensate the employees concerned for this by means of higher fringe benefits (which are then tax-free to both employers and employees).

Section 57 of the Fringe Benefits Tax Assessment Act 1986 gives total exemption to fringe benefits given to employees who are religious practitioners. As there is no cap to this in the legislation some churches use remuneration packages which consist of nil salary and 100 per cent fringe benefits.

The use of such a device can also have the undesirable side-effect of creating an unwarranted entitlement to social security benefits.

There is no such thing as a free lunch. All of such cross-subsidisation measures naturally result in higher taxes for the rest of the community.

COMMERCIAL OPERATIONS

Some churches conduct commercial operations within their tax shelters. To that extent they enjoy a tax subsidy at the expense of ordinary taxpayers.

But, apart from that, their lower overheads also allow them to charge lower prices than their commercial competitors, thus giving the church proprietors an unfair trading advantage over these.

To illustrate, the Seventh-day Adventist Church runs the Sanitarium Health Food Company, a manufacturer of many popular food products.

ANOTHER EXAMPLE

Commenting on the Catholic World Youth Day held in Sydney in July 2008, John Perkins, the president of the Secular Party of Australia, said:

"It has been reported that constituents have sought details on funding via the Freedom of Information legislation. Fees were paid to retrieve this information, but when received, all the relevant figures had been deleted. Citizens have a right to know how their taxes are spent. To withhold this information is contemptuous behaviour from a government supposed to be acting on behalf of their constituents.

"Reports of a leaked briefing to priests allege the cost of the day has now blown out to $150 million. Federal grants are funding 20 to 24 per cent of this figure. In addition to this is $41 million compensation for the use of Randwick racecourse and $20 million for services such as policing, security and sleeping accommodation at public schools. Some estimates calculate the real cost to be in excess of $200 million even before consideration of the carbon footprint.

"We are told our Australian governments are secular. 25.8 per cent of Australians are Catholic. This is nothing but state-sponsored religion for just a quarter of the population."

GRANTS

Tax concessions that are automatically available are in any case a very inefficient way to pass wealth from one section of the community to another.

A system of targeted grants, awarded on the basis of some objective criteria (including in regard to efficiency and accountability) and subject to some defined overall budget cap, would be much more appropriate.

THE POLITICAL REALITY

It is easy to see why the politicians on both sides of the political fence are reluctant to tackle these issues. The 1998 Australian Community Survey of 8500 Australians from diverse regions across Australia studied the community values, religiosity and image of churches at that time. It was conducted in co-operation with the Edith Cowan University of Perth.

This survey found that more Australians believed in God (74 per cent), the divinity of Jesus (42 per cent), His resurrection (43 per cent), life after death (45 per cent), heaven (53 per cent), hell (32 per cent) and the devil (33 per cent) than attend church monthly or more often (20 per cent).

It is little wonder then that biblical expressions abound in the English language as spoken in Australia - for example, the wisdom of Solomon, the writing on the wall, manna from heaven, a fly in the ointment, and the salt of the earth. Every day, references are made to separating the sheep from the goats, killing the fatted calf, turning the other cheek, raising Cain, being on the road to Damascus or being a doubting Thomas.

THE MARKETING OF TAX CHANGES

Of course, any tax reform measures which are revenue neutral in total inevitably involve some winners and some losers. The winners usually keep quiet, while the losers protest loudly.

Any move to institute a worthwhile tax reform is thus likely to prove unwelcome in parts of the electorate. It would accordingly be desirable to accompany the changes canvassed above by a simultaneous public relations campaign explaining their nature and emphasising the equity and efficiency aspects.

CONCLUSION

Australia believes in the separation of church and state. As the above analysis has demonstrated, it would thus be highly desirable to do away with all the unfair tax concessions to religious institutions that are currently available.

It is perfectly proper in a democracy for members of a particular faith to support it out of their own pockets, but it is quite immoral for such funding to be compulsorily extracted from other citizens.

The new masters in Canberra should really have used the 2008 budget to adjust the long-standing inequities discussed above.

However, they have at least arranged for the Senate Standing Committee on Economics to hold a public inquiry into the disclosure regimes for charities and not-for-profit organisations and to report back by the last sitting day of November 2008.