Another tax reform opportunity ultimately lies with the GST

Another tax reform opportunity ultimately lies with the GST

Dr Ken Devos, Department of Business Law and Taxation, suggests that an immediate response to current taxation problems lies in making changes to the GST.

Commentary 2nd Apr 2015

The recent release of the governments anticipated "White Paper" the Tax discussion paper, "Re:think," has provided another opportunity for serious tax reform to go ahead.

The question is whether the government has the confidence, boldness and public support to go through with it. Major tax reform generally takes time and the way the economy is progressing that is something that is not on the government's side.

The discussion paper suggests that consultation should take place on the problems identified in the next few months so that an options paper can be produced in the second half of 2015. Reform proposals are anticipated to be finalised and taken to the next election in 2016. It is suggested that this time line is lengthy and a more immediate solution can be found in changes to the Goods and Services Tax (GST) which will have a flow on effect for other taxes and the economy generally.

At present our GST rate of 10per cent is half of the OECD average of 20 per cent and is the fourth lowest of OECD and selected Asian countries. It has been at this rate since it was introduced 15 years ago. Likewise, the GST base covers only 47 per cent of the consumption of all goods and services below the OECD average of approximately 55 per cent. Consequently, there is room to manoeuvre here by increasing the rate, to a suggested 15per cent and broadening the base and reducing the number of exemptions and concessions available.

White paper

Any change to the GST rate or base will require the unanimous support of the state and territory governments, the endorsement of the Australian government and the passing of legislation. However, these hurdles are worth jumping in the pursuit of reforming our tax system and improving our international competitiveness in the short term.

The key will be in the selling of the idea as a package of changes that will ultimately improve the revenue going forward. That is, the trade-off for increased GST revenue which is our third largest tax is the possible reduction in both the corporate tax rate and personal tax rates. Personal tax which accounts for 50 per cent of total revenue can decrease thereby tackling the other related issue of bracket creep. Likewise, corporate tax currently at 30 per cent which is far too high by world standards which average around 23 per cent could also be reduced. This will have the flow on effect of attracting more foreign investment by multinational companies and reduce the temptation for aggressive tax planning and tax avoidance by those companies.

The increase in the GST rate and base would also enable the abolition of a number of inefficient state and indirect taxes, provide compensation for low income households and would generally boost much needed economic growth. The package is one that will provide greater revenue for the government overall in order to tackle the budget deficit and the public must be informed and educated that this is the case.

While changes to more complex tax issues, of negative gearing, superannuation and dividend imputation will take longer, an immediate response to our current taxation problems lies in making changes to the GST. If the general public could be made aware of and appreciate this and the government has a mandate, there is a real chance the economy can progress sooner than later.