Should the GST be increased/widened?

SirRumpole · 12 February 2015

The discussion is going on as to whether the GST should be increased or widened to close the deficit gap.

This is a regressive tax that hits the lower income people the hardest and it would be politically dangerous to implement further changes, unless compensated for by tax cuts and pension increases.

While the average consumer can't avoid GST, businesses get a refund for the GST they pay. On the principle that it's easier to avoid company tax than GST, why not remove the refund to businesses for GST paid, and compensate by lowering the company tax rate ?

If it's good enough for the consumer, why not for business ?

Hodgie · 12 February 2015

SirRumpole said:
The discussion is going on as to whether the GST should be increased or widened to close the deficit gap.

This is a regressive tax that hits the lower income people the hardest and it would be politically dangerous to implement further changes, unless compensated for by tax cuts and pension increases.

While the average consumer can't avoid GST, businesses get a refund for the GST they pay. On the principle that it's easier to avoid company tax than GST, why not remove the refund to businesses for GST paid, and compensate by lowering the company tax rate ?

If it's good enough for the consumer, why not for business ?

If businesses didn't get the refund they would likely just pass the cost to them onto the customer as they do with everything else which is factored into price.

Also, anyone can register for GST and get GST refunds on things like GST costs incurred on investment products, you don't need to be a business entity to do this. I guess it's the way our whole system works, any expenditure incurred when trying to generate income gets tax relief/refunds while general living expenses do not.

Items purchased by the businesses are being used to generate income whereas when the consumer purchases these items or services they are simply going to be consumed which is why the business gets the benefit and the consumer does not.

SirRumpole · 12 February 2015

Hodgie said:
Items purchased by the businesses are being used to generate income whereas when the consumer purchases these items or services they are simply going to be consumed which is why the business gets the benefit and the consumer does not.

Without the consumer business doesn't have business. It's the consumption of goods and services that generate income for business, not the absence of a tax.

If you lower the company tax rate you attract more investment which increases the supply of services and keeps prices down.

Maybe if businesses pay GST the company tax rate can be abolished altogether as it's an expensive tax to collect. GST is efficient to collect so the overall result would be positive.

sydboy007 · 12 February 2015

I've got no issue with broadening the GST, thought don't see an increase as justifiable considering the majority of exemptions benefit those in the higher income deciles.

Having said that, I would prefer to see changes to the GST part of a more comprehensive package that examines

Land taxes to replace stamp duties - why do the 6% of households buying property each year pay an unfair share of the revenue required by the states?
Limiting to removal of the halving of CGT - benefits the wealthy most.
Changes to super concessions - easiest would be full tax on contributions
Bring back some form of Reasonable Benefits Limit to super to stop it being treated as a tax shelter by the rich
Examine why the primary residence is invisible to the pension assets test - asset poor gen x and y have to pay higher taxes because of this.
Quarantine Negative Gearing to new housing builds and against the income of the asset invested in ie capitalise the losses to the cost base if they outweigh the income generated as pretty much every other country does.

We have world beating tax expendtirues worth close to 8% of GDP. Clamping down on them would increase efficiency and fairness while also helping to make capital allocation into productive investments rather than housing a more viable option.

The below graph from the Henry review shows how we need to move away from corporate and income taxes, along with stamp duties. Land taxes are pretty much the most efficient available. The super chart shows how poorly targeted super concessions are and just how concentrated wealth has become in Australia.

drsmith · 12 February 2015

The table below from the ABS is an interesting read,

http://www.abs.gov.au/ausstats/abs@...ummary&prodno=5506.0&issue=2012-13&num=&view=

The top 4 taxes provided 76% of our tax revenue in 2012/13 highlighting an obvious area for reform.

Value Collector · 12 February 2015

SirRumpole said:
why not remove the refund to businesses for GST paid, and compensate by lowering the company tax rate ?

Because the purpose of the tax is to be a 10% tax on the final retail sale price. if each step in the supply chain had to add 10% and there was no refunds, it would end up being much more more.

eg. If I make clay, and sell the clay to sir rumpole for $1.10, he actually pays me $1 and I sent this extra 10c to the government as GST. but then Sir rumpole makes a brick with the clay, and sells it for $2.20 to a retailer, he then owes 20c to the government, but gets a credit for the 10c gst he has already paid to me, the retailer sells the brick to the consumer for $3.30, the retailer owes the government 30cents gst, but gets a credit for the 20cents he paid to sir rumpole.

So the total tax on the end product was 10% being 30c, but 10c was paid by the clay maker, 10c was paid by the brick maker, and 10c paid by the retailer.

If each step wasn't able to claim back the gst they paid when they purchased their goods, then the final tax amount would have been 60c not 30c as it should be

Value Collector · 12 February 2015

sydboy007 said:
[*]Limiting to removal of the halving of CGT - benefits the wealthy most.

the capital gains tax discount is required to offset inflation, other wise your just taxing inflation.

Your meant to be taxing capital gain profits, not simply taxing increases in price due to inflation.

Remember when your dealing with shares, property or any real asset, part of its "capital gain" is not due to increasing value, but rather the it's price has been pushed up by inflation, providing a discount on gains helps this.

SirRumpole · 12 February 2015

Value Collector said:
Because the purpose of the tax is to be a 10% tax on the final retail sale price. if each step in the supply chain had to add 10% and there was no refunds, it would end up being much more more.

eg. If I make clay, and sell the clay to sir rumpole for $1.10, he actually pays me $1 and I sent this extra 10c to the government as GST. but then Sir rumpole makes a brick with the clay, and sells it for $2.20 to a retailer, he then owes 20c to the government, but gets a credit for the 10c gst he has already paid to me, the retailer sells the brick to the consumer for $3.30, the retailer owes the government 30cents gst, but gets a credit for the 20cents he paid to sir rumpole.

So the total tax on the end product was 10% being 30c, but 10c was paid by the clay maker, 10c was paid by the brick maker, and 10c paid by the retailer.

If each step wasn't able to claim back the gst they paid when they purchased their goods, then the final tax amount would have been 60c not 30c as it should be

These things could be compensated for by not charging the consumer the final gst because it has already been paid for in the manufacturing and other processes and therefore added to the retail price. The rate could be adjusted
suitably so that the price effects can be controlled. Or, you can leave the GST on the final price as well and lower income tax rates and raise pensions.

The main point is that companies are avoiding company tax in spades, but they can't avoid GST. That was the main argument for imposing it on the consumer in the first place. Most PAYE consumers can't avoid income tax, but companies can. Having them pay GST makes the tax system more efficient.

sydboy007 · 12 February 2015

Value Collector said:
the capital gains tax discount is required to offset inflation, other wise your just taxing inflation.

Your meant to be taxing capital gain profits, not simply taxing increases in price due to inflation.

Remember when your dealing with shares, property or any real asset, part of its "capital gain" is not due to increasing value, but rather the it's price has been pushed up by inflation, providing a discount on gains helps this.

Bring back the previous system of bumping up the cost base by CPI. Easily done in the age of computers.

McLovin · 12 February 2015

SirRumpole said:
These things could be compensated for by not charging the consumer the final gst because it has already been paid for in the manufacturing and other processes and therefore added to the retail price.

I'm not sure I follow. Consumers won't pay the tax because the tax is already included in the price? Isn't that the same outcome?

SirRumpole said:
The main point is that companies are avoiding company tax in spades

Says who?

SirRumpole · 12 February 2015

McLovin said:
I'm not sure I follow. Consumers won't pay the tax because the tax is already included in the price? Isn't that the same outcome?

No, they won't pay the final 10% at the till as well as what's included in the price.

Says who?

Lots of people. You should read more.

http://www.abc.net.au/news/2014-09-...lian-companies-pay-less-than-10pc-tax/5775870

McLovin · 12 February 2015

SirRumpole said:
Lots of people. You should read more.

http://www.abc.net.au/news/2014-09-...lian-companies-pay-less-than-10pc-tax/5775870

When did tax minimisation become tax avoidance?

SirRumpole · 12 February 2015

McLovin said:
When did tax minimisation become tax avoidance?

Semantics, they equate to the same thing.

overhang · 12 February 2015

No I don't support broadening the GST to fresh food and have already written to my local MP about this. It's an efficient but regressive tax, if all other options were exhausted like super concessions, negative gearing, CGT concession and we still need to raise tax revenue then I'm not opposed to raising the GST. But it's already too cheap to eat unhealthy processed rubbish and that gap will only widen if we apply the GST to fresh food. Obesity is a huge problem in our Western society and we all know the health ramifications that come from obesity. I would support a junk food tax before broadening the GST to fresh food.

drsmith · 12 February 2015

sydboy007 said:
Bring back the previous system of bumping up the cost base by CPI.

That I agree with as it's a more equitable system for long term investment.

One of the problems though was that a significant gain pushed the taxpayer into high marginal rates. The answer to that at the time was to calculate the tax on 1/5 of the gain and then multiply that by 5.

Overall though it delivered little relief for more medium term investments (~3 to 5 years) to tax on capital for those on higher incomes from high marginal rates so I think an additional discount to CPI is required such that the real level of capital gain is taxed at something closer to the corporate rate.

In other words, go back to a CPI indexed cost base and have a further discount of up to about 1/3 tapered in over a period of years from initial investment.

In the absence of significantly lower marginal rates of income tax, the present 50% discount should be tapered at 10% intervals to take full effect after an investment has been held for 5 years and CPI cost base indexation should also be available as an alternative where that provides a better outcome for the taxpayer than the discount above.

Longer term, the top rate of income tax should be much closer to the corporate rate such that any fixed CGT discount can be done away with altogether.

Julia · 12 February 2015

overhang said:
No I don't support broadening the GST to fresh food and have already written to my local MP about this. It's an efficient but regressive tax, if all other options were exhausted like super concessions, negative gearing, CGT concession and we still need to raise tax revenue then I'm not opposed to raising the GST. But it's already too cheap to eat unhealthy processed rubbish and that gap will only widen if we apply the GST to fresh food. Obesity is a huge problem in our Western society and we all know the health ramifications that come from obesity. I would support a junk food tax before broadening the GST to fresh food.

+100.

Hodgie · 12 February 2015

SirRumpole said:
Semantics, they equate to the same thing.

They may both lead to less tax being paid but doing one of those things can land you a prison cell.

boofhead · 12 February 2015

Are you aiming to assist state coffers or federal coffers? Are you hoping increase in GST improving the state coffers flows throw to lower trasfer of funds from federal coffers to state coffers?

pixel · 12 February 2015

overhang said:
No I don't support broadening the GST to fresh food and have already written to my local MP about this. It's an efficient but regressive tax, if all other options were exhausted like super concessions, negative gearing, CGT concession and we still need to raise tax revenue then I'm not opposed to raising the GST. But it's already too cheap to eat unhealthy processed rubbish and that gap will only widen if we apply the GST to fresh food. Obesity is a huge problem in our Western society and we all know the health ramifications that come from obesity. I would support a junk food tax before broadening the GST to fresh food.

totally agree

SirRumpole · 12 February 2015

Hodgie said:
They may both lead to less tax being paid but doing one of those things can land you a prison cell.

Ah no. Tax evasion will land you in a prison cell, avoidance is using legal loopholes to minimise tax.

As i say, semantics.

Should the GST be increased/widened?

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