Last week saw the tax reform debate take a new turn when the state governments of Victoria and Western Australia openly canvassed the need for Australia to have a good look at the base and rate of our existing GST system.
As our members will know, the Institute has been a long-time advocate of the case for a broader based GST with a potentially higher rate than 10%. Dr Ken Henry was not given the opportunity by the federal government to review the scope of the GST as part of his landmark review of our future tax system. The exclusion of the GST was viewed by many in the business community, including the Institute, as a missed opportunity to tackle the big issues confronting our future tax system.
But things appear to be moving on. The fact that two influential state governments have now begun to openly speak about the need for a GST system that generates more revenues than is currently the case, is promising.
Why?
The answer lies in the fact that any serious overhaul of inefficient and market-distorting state taxes (like stamp duties or payroll taxes) brings with it a need to replace the lost revenue with a new source. Given that GST revenues are already passed through to state governments under the deal struck back in 1998, and the fact that the GST is an inherently more efficient tax, it would make a lot of sense for us to look closely at the option of expanding the existing base of goods and services currently subject to the tax.
The two options essentially boil down to looking at whether or not more goods and services should be brought within scope, and if it is appropriate to increase the actual rate of the tax beyond 10%.
The expansion of the GST in this sort of way would undoubtedly have a big impact on low to middle income earners; as consumers, rather than businesses, generally suffer the final impacts of consumption taxes like the GST. Because of this, any change to the base and rate of the GST would need to be coupled with an appropriate reduction of personal income tax rates in order to offset the increased costs that would be borne by those least able to afford it in our community. This, incidentally, is precisely what our neighbours in New Zealand have recently decided to do.
Tell me what you think: is moving to a broader based GST, with a higher rate, a good idea if it means a dramatic reduction in some of the cumbersome state taxes?
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ReplyDeleteMoving to a broader based GST, with a higher rate, is a good idea if it means an ELIMINATION of some of the cumbersome state taxes.
ReplyDeleteUnless payroll tax (a tax on jobs) is abolished never to return, raising the GST is a waste of time. Reducing the rate does not reduce the administrative burden on business.
Ideally,the states should only have power to tax land, via land tax, and stamp duty.
This would need to be changed via a referendum to ensure state taxes 'abolished' remained that way forever. This means no payroll tax, no mortgage duty, no motor vehicle registration (increase fuel tax if you have to) no parking space levy. Just GST revenue, land tax, stamp duty on land, and fines.
Doing it by halves was what happened the first time around, when Howard 'compromised' with the Democrats and the GST was made more complex, and less effective. Would love to see state tax reform, just as long as it is done once and done properly.