Our experts help you lodge your Australian tax returns online and get your tax back!

GST in Australia on the Tax Forum Agenda

Posted by Tax Advisor on 15 August, 2011

At a tax forum focused on simplification, the Australian GST is still not on the table

As Aussies keep their eye on the 31 October deadline for lodging income tax returns, there is an even closer and more exciting event–if there is such a thing in the world of taxes–on the not so distant tax horizon. On October 4 and 5, 230 participants and observers will gather in Canberra for the federal government’s tax forum. The goal here is to simplify the tax system, which while not the multi-headed Hydra that plagues countries like the U.S., is still considerably less efficient than it could be. This fact was driven home by all the hullabaloo surrounding the release of Ken Henry’s report last year and its oft-quoted and rather astounding statistic that 90% of Australian tax revenue comes from a mere 10 taxes out of 125 on the books. The other 10% comes from a confusing and inefficient jumble of the remaining 115 taxes. In the pre-summit debate about how best to go about streamlining the tax system, the issue of Australia’s tax rates, particularly the GST, has taken precedence over almost everything else.

What is the GST, you ask? The GST, which stands for Goods and Services Tax, is a value-added tax of 10% on most goods and services transactions in Australia. Like a sales tax, the consumer ultimately pays the tax, which is perceived by the buyer as a tax on the price. But unlike a sales tax, which is collected and remitted only once, after the final purchase, a value-added tax like the GST is collected and remitted to the government at every stage of production and distribution, with manufacturers and sellers credited for the taxes they’ve already paid on the inputs. In other words, they only pay for the value they add to the good or service. The GST in Australia currently stands at 10% and took effect in 2000 under the Howard government, replacing a wholesale sales tax and providing the further benefit of allowing a great number of smaller taxes to be eliminated.

The current controversy surrounding tax forum 2011 and the GST involves a push by some, most notably independent MP Tony Windsor, one of the independents with whom Gillard made the deal that allowed her to form her government last year, to increase the GST. Before you tax-opposed immediately recoil in fear or grow red in the face with apoplectic anger, let me assure you that increasing the overall tax burden is not being suggested. Windsor advocates raising the GST by 1 percentage point, to 11%, and eliminating the 115 superfluous taxes, keeping tax revenues more or less the same but making the system less complicated and decreasing the cost to businesses.

The Gillard government, however, has asserted that the 10% tax rate is not up for debate at the tax forum. The only formal role it will have at the forum will be a panel to discuss the GST’s distribution, which has been criticized by some states that pay in more than they get back.

The merits of raising the GST in Australia would be a simplified tax system. CPA Australia, a global accounting body, suggests that raising the GST would ultimately be beneficial, with the abolition of inefficient taxes, such as insurance taxes, motor vehicle taxes, the commercial conveyancing duty, and the payroll tax, resulting in increased productivity for businesses. On the other side of the debate, Treasury argues that the GST costs more to collect than other taxes and, according to Executive Director Rob Heferen, is “less than robust” as Australians spend more of their money on tax-free items.

Still, the Gillard government’s unwillingness even to discuss such a change at a tax forum convened for the express purpose of simplifying the tax system is somewhat puzzling, especially in light of the political havoc being wrecked by her proposed carbon tax. Clearly these are questions of some importance to Australia’s economy, but the political stakes are pretty high as well. It’s fairly clear that many business owners are not particularly happy right now, with small business taxes one of the major issues weighing on their minds. A recent survey of 3,900 owners of small and medium-sized businesses by MYOB found that 71% want a simplified Business Activity Statement and 75% want GST rules reviewed and clarified, with ⅓ saying that action in these departments could sway their votes. The fact that only one representative from the small business community is invited to the forum exacerbates concerns about the government. With a carbon tax-inspired approval rating of 23% and many businesses up in arms over the proposed legislation, can Gillard really afford to be so cavalier about the concerns of independent MPs and small business owners?

For now, tax kangaroos, it seems official debate on what is the GST’s ideal rate is closed, at least for this tax forum. But debate on tax rates in Australia most certainly is not. This is definitely one tax issue to keep an eye on.

Leave a Reply