Australian Industry Group Calls For GST Increase

by Mary Swire, Tax-News.com, Hong Kong

30 September 2011

It looks as if business organizations are going to ignore the rules set down by the Australian government for the upcoming Tax Forum to be held in Canberra on October 4 and 5 by calling for an increase in the goods and services tax (GST) rate to allow other more inefficient taxes to be removed.

The government hopes that the Tax Forum will help identify priorities and directions to build on its tax reform efforts. There will be sessions on personal tax, transfer payments, business tax, state taxes, environmental and social taxes, and tax system governance.

In its detailed submission to the Forum, including views on business tax reform, road transport taxation priorities, personal income tax and governance priorities, the AI Group was the most damning on state taxes, saying that taxes imposed by the states and territories are among the most inefficient and poorly designed of all Australia’s taxes.

It believes that in an ideal world, insurance taxes and conveyance duties would be removed together with a range of lesser taxes, and that payroll tax should either be remodelled or removed; land tax could be improved substantially; compliance costs could be reduced by harmonising remaining state and territory tax bases; and economies of scale could be exploited and compliance costs reduced by outsourcing state revenue collection to the Australian Taxation Office.

AI points out that while the potential gains are large, there are considerable difficulties involved in getting a reform program off the ground. For example the states currently raise only a relatively small proportion of their total revenue requirements, with the remainder supplied by the allocation of GST revenue and other grants from the Commonwealth. They are therefore very reluctant to give up revenue sources in the absence of security and discretion over alternative revenue sources.

It says that the progress made in the GST reform in state taxation should not be underestimated and to some extent points the way to the resolution of these difficulties. At the same time the ongoing fiscal difficulties faced by the States and the subsequent increases in their recourse to inefficient taxes to meet these difficulties points to the limitations of an approach that did not provide adequate scope and incentives for the States to utilize more efficient tax bases. This points to the desirability for a whole-of-system approach.

It suggests investigating further the Business Cash Flow Tax (BCFT), an idea mooted by the Henry Review, which would be imposed on value added without the tax and credit mechanism employed in the GST. At a rate of around 3%, the Group says that a BCFT could finance the removal of payroll tax and insurance duties imposed by some states. It also proposes phasing out conveyance duties over a number of years and replacing the revenue with a remodelled land tax, and sharing the personal income tax system base between the states and the Commonwealth.

The Group says: “The Tax Forum is an opportunity to put the case for tax reform and to advocate changes that better gear Australia’s tax arrangements to contribute to our ability to meet current and emerging challenges and our preparedness to capitalize on current and emerging opportunities.”

“In short, Australia should put in place a tax system that facilitates greater workforce participation; reduces distortions against saving; that boosts business competitiveness by attracting investment, including early-stage investment; that keeps barriers to innovation and business restructuring to a minimum and that is conducive to the ongoing development of high value-adding industries. In addition, the taxation system has important roles to play in ensuring that Australia maintains and improves its character as a fair and socially inclusive society.”

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