Should the GST be increased/widened?

[McLovin]

yes a lot of aspects, this tax would be overly complicated, with terrible side effects.

the current system is very simple and fair, you just don't seem to like the idea that a business gets a refund of the GST it's paid, even though there is a very good reason for this.

Bingo.

 

[SirRumpole]

Yes, and this Tax you suggest would not help them

If you have been reading from the start, tax on inputs is offset by a lowered tax on profits.

People who can innovate and reduce their costs are rewarded by paying less tax for their efforts. Isn't that what competition and incentive are all about ?

If you can eliminate profits tax altogether then you can get rid of a massively complex and inefficient accounting and compliance bureaucracy that smart lawyers can drive a truck through. I don't really see how you can say that the GST is "overly complicated" when it's one of the most efficient taxes to collect, and very hard to avoid.

 

[Value Collector]

If you have been reading from the start, tax on inputs is offset by a lowered tax on profits.

People who can innovate and reduce their costs are rewarded by paying less tax for their efforts. Isn't that what competition and incentive are all about ?

.

why not just keep the system we have, a simple tax that is 10% of the final sale price, and a 30% tax on business profits. Seems fair and very simple.

If you can eliminate profits tax altogether

Profits are what should be taxed.

I don't really see how you can say that the GST is "overly complicated" when it's one of the most efficient taxes to collect

You suggested system of offsetting imports with tariffs. overtaxing the public but offsetting that with other tax breaks etc is complex

 

[SirRumpole]

why not just keep the system we have, a simple tax that is 10% of the final sale price, and a 30% tax on business profits. Seems fair and very simple.

You call the corporate tax compliance system SIMPLE ? Really ? How many accountants and tax inspectors are needed to audit and inspect the accounts of businesses ? It's massively complex and expensive.

And you call the system FAIR when companies can profit shift and minimise their tax ?

The current system is neither simple or fair.

Profits are what should be taxed.

Why ?

You suggested system of offsetting imports with tariffs. overtaxing the public but offsetting that with other tax breaks etc is complex

No more complex than what we have now, and I don't think it would overtax the public if the GST rate was lowered.

 

[Value Collector]

Why ?

Because Taxing profits seems a lot better than taxing losses.

 

[SirRumpole]

Because Taxing profits seems a lot better than taxing losses.

Businesses who make a loss should think whether they should be in business.

 

[moXJO]

Businesses who make a loss should think whether they should be in business.

Business can have bad years.

Wouldn't business spending on upgrades, repairs and other business expenses also stop with no deductions?


Also assembling a product from multiple materials under this tax system would wear a lot of the tax and business would simply offshore.


Is this a similar idea to old 'One Nations' 2% tax?

 

[SirRumpole]

Business can have bad years.

I'm sure arrangements could be made

Wouldn't business spending on upgrades, repairs and other business expenses also stop with no deductions?

Business has to think about whether the upgrades etc will be good for them in the long run. If these things add to the bottom line profit (on which they pay less tax) then they will do them. Capital expenditure could be treated differently to revenue expenditure for taxation purposes.

Also assembling a product from multiple materials under this tax system would wear a lot of the tax and business would simply offshore.

The compensation is to pay less tax on the bottom line.

Is this a similar idea to old 'One Nations' 2% tax?

I don't know, what was that ?

 

[Smurf1976]

That's the way it appears on the surface, but if you tax business inputs (possibly exempting salaries), then does that not encourage business to lower their costs to be more competitive and to be more efficient and discerning about what they spend their funds on ?

Business already has a strong incentive to minimise costs. But if your production is taxed, and an overseas competitor's isn't, then you've got no real chance of survival in the long term. You'll always be at a disadvantage to the untaxed rival.

I don't see how adding a tax somehow leads to lower business costs. And in industries where the cost cannot be passed on at all (anything trade exposed), that's a problem.

 

[Smurf1976]

If capital flows into more lightly taxed industries because they are more efficient what's wrong with that ?

Being more lightly taxed has no bearing on efficiency, unless you are proposing that the rate of tax be set for each individual business based on some objective measure of efficiency. That would be incredibly difficult to administer.

 

[Smurf1976]

What local steel ?

Whyalla (One Steel) and Port Kembla (Bluescope) come immediately to mind as blast furnace facilities producing steel from iron ore and coal.

TEMCO in Tasmania makes ferro alloys, used in steel production, and exports most production to numerous overseas buyers.

There's also a number of places that melt down either raw steel or scrap in electric or gas furnaces in order to produce various end products.

 

[SirRumpole]

Whyalla (One Steel) and Port Kembla (Bluescope) come immediately to mind as blast furnace facilities producing steel from iron ore and coal.

TEMCO in Tasmania makes ferro alloys, used in steel production, and exports most production to numerous overseas buyers.

There's also a number of places that melt down either raw steel or scrap in electric or gas furnaces in order to produce various end products.

I'm glad they still exist, but the future looks grim

Author

Diana Kelly

Associate Professor, School of History and Politics at University of Wollongong

Disclosure Statement

Diana Kelly does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The University of Wollongong Provides funding as a Member of The Conversation AU.
uow.edu.au
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BlueScope has fallen victim to a changing export market, high Australian dollar and gradual structural shift to free trade policies. AAP

Once upon a time, 30 years ago, when we still thought the steel industry was an endless and bottomless well for economic growth and employment, many of us also believed in industry policy, corporate responsibility to communities, and the right to stay in the same place and space as long as we wanted.

We were happily unaware that “restructuring” would become inevitably intertwined with “job losses” or that the inheritors of the Kingswood (which many of us drove back then) would soon be driving cars neither built in Australia nor made from Australian steel.

But that was 30 years ago. Shortly after, the Australian steel industry began to spin into crisis, an early home-grown casualty of the globalisation of production.

Indeed, the crisis should probably have happened sooner but in those days there was a fair investment in Australian steel production and the low Aussie dollar meant good steel export prices – the US even accused Australia of dumping cheap steel – and profit levels were generally accepted at lower rates than today.
Shock to the system

Even so, when it came, that first steel crisis was pretty shocking – postwar Australians were not yet used to major job losses, nor the allied multiplier effects that devastated towns and communities.

I remember writing in the introduction to the Katherine Thompson play, Diving for Pearls, (set in an industrial town experiencing major job losses) that Christmas 1982 was a time of fear and spending, as people avoided each other, fearful of hearing bad news or telling it, and spending up big because of redundancy pay – or fear of job loss.

Yet, sooner than we hoped, most of us bounced back. That was because they had a wonderful instrument in those days called industry policy.

In those distant decades, governments were not wedded to day trading for policies – they took longer term views, knew “the market” could be as mindless and destructive as Triffids, and also took it as their responsibility to intervene so the polity, society and economy were not mere flotsam among the blips and bumps of market fluctuations.
Industry plan

And that was the case in 1983 when the Steel Industry Plan (SIP) was proposed, debated and implemented over a few months.

The SIP was not just a comprehensive and integrated set of assistance, responsibilities, goals and gains for the steel stakeholders, it was even a tripartite policy (that is sooo 20th century!) and had the commitment of the steel company, the trade unions and communities, and the government. It worked – at least for a time.

Now again in 2011, we have a steel industry crisis. After reports of an annual loss of nearly $1 billion (nearly ten times the average profits of 20 years ago), 1000 redundancies and a major reduction of contractors have been announced at BlueScope Steel. The causes are fourfold.
Paradox

The most important factor has been the high Australian dollar – paradoxically driven by the resources boom – which has raised the price of steel exports.

The paradox is that the second factor leading to the current steel crisis has been increased input costs – notably iron ore and coal. The drivers of the very mining boom which has raised the Australian dollar have also raised the costs of production – coal prices for example have tripled in the last decade.

The effect of these factors has meant the crisis has been more pronounced on BlueScope, which has less favourable access to inputs than has its former sister company, OneSteel.

Third, there is pressure on steel companies throughout the developed world – the Brazilian company Usiminas is in trouble, and even ArcelorMittal, the biggest steel company of them all is struggling.
Market shift

Export markets are shifting. Japan is planning to buy steel for post-earthquake reconstruction from China or Korea, and many former customers of Australian steel are now exporters. And on top of all of that, in Australia, the fall of steel is tied to the inexorable decline of local manufacturing.

When manufacturing booms, steel bounces, but employment in manufacturing has fallen to well less than 10% of employment in the last decade, and its contribution to the national economy has fallen similarly.

So it is perhaps not surprising that we have another steel crisis. The job losses may be fewer and the impact on buyer, supplier and contractor firms may be less, but we have a steel crisis that will once again weaken and depress the steel communities of the Illawarra. Brave words are being spoken of resilience and hope, but the options in steel are few.
Anti-competitive

Certainly we won’t have a Steel Industry Plan this time around – the WTO has put paid to that. Giving preference to local product for construction is now “anticompetitive”, and so are tariffs and subsidies.

Governments can support the steel communities – at least a little – but they cannot support the steel industry, they cannot offer carrots to encourage capital investment or enforce requirements on major new projects to buying Australian made products.

They can ask nicely, but in the brave new world of free trade, governments are tied to the higgling of the market.

Chillingly, perhaps the story books of the future might begin – “Once upon a time, when Australia had a steel industry …”

http://theconversation.com/once-upon-a-time-when-australia-had-a-steel-industry-2967

 

[Logique]

GST goes to the states. How will that help the federal books.

No GST on fresh food.

 

[sydboy007]

Why not follow the Swiss and bring in broadly based wealth taxes.

The tax base for the wealth tax is net wealth, i.e. gross wealth reduced by the sum of the taxpayer's documented debt as well as personal allowances and social deductions that vary from canton to canton.

The table below shows the wealth tax due in the capital town of each canton. By way of an example, the annual tax for a net wealth of CHF 500,000 in the canton of Zürich is around 0.12 percent. The maximum individual wealth taxes levied in all cantons vary between 0.14 (Canton of Nidwalden) and nearly 1 percent (Canton of Geneva).



There's plenty of options out there to make our tax system far far more efficient. I'd like to see the Feds just cut back on grants to the states over say a decade, with savings directed to balancing the budget and eventually lowering income taxes when possible.

The states would then finally be forced into their own tax reform, whether it's via pushing for GST amendments or introducing broadly based land taxes. Resolve the fiscal imbalances where by the states are able to raise the revenue requird to meet their social obligations. Kill off the blame game between states and feds.

We have to kill off stamp duties and payroll tax, while drastically lowering corporate and income taxes. Reduce the revenue by half from those sources and replace with taxes that are less costly to implement and harder to avoid or minimise. That's why I like land taxes so much. It's practically impossible to avoid and only needs to be on land zoned commercial or residential.

Cracking down on trusts used to income share should also be a priority. that could net $1B a year in extra revenue.

Then we can start having a conversation along the lines proposed by Liberal Democrats Senator, David Leyonhjelm:

…our taxes haven’t even covered each year’s government spending. Over the past 40 years, budget deficits have been the norm…If anything, I and my fellow baby boomers should pay the rest of Australia a lump sum when we retire, to cover the debt we are leaving…

And it’s not as though my taxes have been devoted to buying assets that will be in service for decades to come. Successive Commonwealth governments have been selling off these assets for much of my taxpaying career. Rather, my taxes have been devoted to providing services to the voters of the day, including many from which I’ve benefited…

Given the debt we will leave behind, baby boomers like me have a duty to make the asset test comprehensive. Those who own million dollar houses shouldn't rely on welfare when they can draw on their own wealth…

The “I’ve paid taxes all of my life” argument also doesn’t hold much weight, for reasons outlined above by Senator Leyonhjelm. As illustrated brilliantly by the Grattan Institute:

http://grattan.edu.au/wp-content/uploads/2014/12/820-wealth-of-generations3.pdf

In the past, each generation took out more from the budget over its lifetime than it put in. This “generational bargain” was sustainable when incomes rose quickly – the norm for 70 years. However, government transfers from younger to older cohorts are now so large that future budgets may not be able to afford them as the population ages. Consequently, the generational bargain is at risk…

The Grattan Institute also showed that older households have captured most of the growth in Australia’s wealth over the past decade, with households aged between 65 and 74 some $200,000 wealthier today than households of that age 8 years ago. Meanwhile, the wealth of households aged 25 to 34 has gone backwards.



It is blatantly unfair to expect workers – whose share of the population will fall as the population ages and the proportion of retirees rises – to keep shouldering more and more of the tax burden and Budget cuts, at the same time as tax concessions on superannuation and housing, as well as access to the Aged Pension, go largely untouched.

 

[SirRumpole]

It is blatantly unfair to expect workers – whose share of the population will fall as the population ages and the proportion of retirees rises – to keep shouldering more and more of the tax burden and Budget cuts, at the same time as tax concessions on superannuation and housing, as well as access to the Aged Pension, go largely untouched

It's also blatantly unfair to expect taxpayers to pay for other people's children via the family tax benefits which were introduced in a mining boom and are no longer affordable.

The government could simply say that these benefits would no longer be available for children born after say 30/6/2017, saving the budget billions from then on. Nothing is taken away from people that they are already getting, and those planning children will have to ensure that they are in a financial position to do so.

That should be part of the "personal responsibility" mantra that the Libs keep harping on about.

There's plenty of options out there to make our tax system far far more efficient. I'd like to see the Feds just cut back on grants to the states over say a decade, with savings directed to balancing the budget and eventually lowering income taxes when possible.

Or get rid of the States altogether. Federal takeover of public hospitals like Rudd proposed. Then turn States into administrative regions only without legislative powers.

 

[Smurf1976]

So far as industry is concerned, something that is generally missed in discussion (everywhere) is that globalisation is not a new concept. It has been tried before, failed, and was followed by protectionism which lead to the establishment of most big industries, for example steel, car manufacturing, paper, chemicals, refineries and so on, in Australia in the first place.

We are now seeing what amounts to a currency war at the global level. That is the first stage of the failure of globalisation and an eventual return to protectionism. It will happen, the only question being the timing but the signs are there now that the pendulum has gone about as far as it's going to go in the free trade direction.

Once we get to that point, it matters little whether tax is applied at the point of production or at the point of sale, since with limited trade and protectionism it makes little difference in practice. But we're at the other extreme at the moment, and applying tax at the production end under present circumstances would bring a lot of pain economically so long as globalisation is still a going thing.

So far as the steel industry is concerned, I should have added to my previous post that there is also an iron pellet plant at Port Latta (Tas) which produces a bit over 2 million tonnes a year. The iron ore is sent from the mine (about 85km away) to the plant by pipeline - a world first when it was built but plenty of pipelines (globally) carry ores, coal etc these days.

 

[SirRumpole]

So far as industry is concerned, something that is generally missed in discussion (everywhere) is that globalisation is not a new concept. It has been tried before, failed, and was followed by protectionism which lead to the establishment of most big industries, for example steel, car manufacturing, paper, chemicals, refineries and so on, in Australia in the first place.

Globalisation may be going on, but is there any sign of Europe lowering its tariff structure or the US reducing industry and agricultural subsidies ?

 

[Julia]

Syd mentioned the Grattan Institute above. The following is full article from today's "Australian": a bit long but worth a read.

WEALTHY older people who warehouse their investments and properties in superannuation should be the subject of a government crackdown in the hunt for genuine, fair budget savings.

Grattan Institute chief executive John Daley has remade the case for a dramatic structural overhaul of retirement policy in light of a looming budget crisis, savings measures stalled in the Senate and an ageing population.

“The government’s problem is they now have a budget deficit of $40 billion per year and that means you have to find structural changes worth that much every year,” he told The Weekend Australian. “You’re not going to get there with $1bn on unemployment benefit changes and $2bn worth of Medicare co-payment changes and a bit from higher education. The numbers don’t add.”

Mr Daley said the government could save at least $16bn a year by capping the maximum yearly super contribution at $10,000, including the family home in the pension asset test and taxing super earnings after people turn 60 at 15 per cent, the rate younger people pay.

As it stands now, investments can be made through super and transferred once it is in pension mode, avoiding capital gains tax.

“From a fairness perspective, those earning any material amount in super ought to be paying tax on it and, from a tax efficiency point of view, it is one of the biggest games played at the moment,” Mr Daley said. “If you purchase an asset in super *before you’re 60 and hold on to it to sell it you pay no capital gains tax, none. It is insane. Completely insane.”

In Grattan’s wealth report, released last month, Mr Daley notes the income tax bill for the over-65s *declined “despite strong growth in income over the last decade”.

“This may be because con*cessional superannuation tax *arrangements now allow individuals over 60 to materially reduce their income tax liability, by up to $5000 a year, and the Seniors and Pensioners Tax Offset can also *reduce tax payable by up to $1600.55,” it says.

Treasury estimates it would gain $30bn in revenue next financial year if it did not have concessional tax arrangements on both super contributions and earnings, taking into account presumed behaviour changes after *incentives are taken away.

“The reality is there is nothing else that looks remotely this good for investments,” Mr Daley said.

“Any financial planner not *advising their clients to do this should be fired.”

There are more than 500,000 self-managed super funds in Australia with one million members; the prime vehicle for individuals who are keen to invest in property.

“My clients are multi-millionaires. Of course it is an attractive investment option, otherwise they wouldn’t be paying me to run things for them,” one adviser, who did not wish to be named, told The Weekend Australian. About 50 per cent of super tax breaks go to the top 20 per cent of income earners.

The Australian Council of *Social Services has targeted these and the churning of wages through superannuation for people older than 55 at an effective tax rate of 15 per cent without actually saving for retirement. Abolishing this loophole, it says in its budget submission, would save the government $500 million in its first year. Reducing the assets*-test threshold for couples, excluding the family home, from $1.1m to $794,250 saves about $1.35bn.

“There is a whole market of *financial advisers out there who specialise in getting people access to the part-pension,” ACOSS chief executive Cassandra Goldie said.

“And we firmly agree with *(financial inquiry boss) David Murray that we need to define what the core purpose of super*annuation is, because at the *moment there is a lot of unfair leakage from the tax system.”

Industry Super Australia chief executive David Whiteley said any move to reform super would need to be bipartisan and include consensus with the industry.

“Policymakers need to find a way to contain future growth of tax concessions and of ensuring those concessions are aligned to the purpose of super,” he said.

Joe Hockey said growth alone would not drag the budget back into a sustainable position.

“In the coming weeks I will *release the next Intergenerational Report that will facilitate a conversation with the Australian people on the challenges the nation faces over the next 40 years. The challenges we face are likely to be significant. The task will be complex.

“We will address the issues systematically and methodically.”

 

[Smurf1976]

Globalisation may be going on, but is there any sign of Europe lowering its tariff structure or the US reducing industry and agricultural subsidies ?

Thinking of every significant employer within the state which is engaged in actually producing something tangible (as distinct from simply warehousing, retailing etc), every single one of them ultimately competes against overseas producers of the same or similar goods and services.

Norske Skog, Nyrstar, Vodafone, Cascade, Boags, Incat, Impact, TEMCO, Bell Bay Aluminium, Grange, every mine and every farm. Even things like pie factories and the power industry to a large extent. They are all ultimately competing against overseas producers. The only ones who aren't are retailers of things not easily bought overseas, services such as car repairs, plumbers etc, the various activities of government and so on. But those who are actually making something physical, or serving a wider market outside the local area, are absolutely subject to competition.

Whilst I foresee the demise of globalisation at some future time, right now it's the only game in town so we need to play along. Taxation policy needs to bear this in mind - Australia is a high cost place to do business to start with, taxing production isn't going to help our situation. At some future time it might make sense, but not now

 

[SirRumpole]

Whilst I foresee the demise of globalisation at some future time, right now it's the only game in town so we need to play along. Taxation policy needs to bear this in mind - Australia is a high cost place to do business to start with, taxing production isn't going to help our situation. At some future time it might make sense, but not now

In that case perhaps we should take into account the level of subsidies that our overseas competitors receive when determining such things as tariffs and import quotas. Tax imports and use the money to subsidise our own producers.

Australia does not have the resources that Japan, China, Europe and the US use to subsidise their products and trying to compete on a level playing field is impossible because there isn't one. So we keep flogging ourselves trying to be "globally competitive" when our trading partners are taking us for a ride despite the much vaunted "free" trade agreements. What is the end game of all this ? Perhaps Europe and the US will eventually go broke subsidising their industries. I doubt it as they will then just print more money.

We are on a hiding to nothing whatever happens.