GST and Tax reform, what is necessary?

[Rorschach]

Raise the GST? No thanks. Here's five better ways to fix Australia's finances
David Hetherington
theguardian.com, Saturday 1 November 2014 15.46 AEST

Like the arrival of the jacaranda bloom, the GST hike made its annual appearance in Australia this week. This is the hardy perennial of Australian public policy, and the usual arguments were on hand to welcome its arrival.

The federation’s revenues are broken, Tony Abbott tells us, and the only way to fix them is to “look at” the GST. John Daley of the Grattan Institute argues that an increase would raise about $14bn, and would be a “necessary evil”. The Business Council hasn’t yet trotted out its standard line of linking the GST rise to a company tax cut, but one suspects it can’t be too far away.

These views represent a profound intellectual laziness among Australia’s policy elite. Few people question that we need to raise more revenue, but the notion that the only or even the best way to do it is through a higher GST shows an almost wilful disregard of other, better options. Here are five:

Reduce tax concessions on superannuation

The ATO estimated this concession costs the Commonwealth almost $40bn a year, with over 50% of it flowing to the top quintile of income earners. Simply shaving this concession, as Per Capita has proposed, could produce the $14 billion the GST rise is estimated to raise, without any adverse policy impact. The wealthy beneficiaries of the concession don’t need the pension anyway, and we could leave some concession in place for those who genuinely need help to avoid old-age poverty.

Abolish negative gearing

Australia is in a house price bubble which has made it near impossible for young owner-occupiers to buy first time homes, yet we still subsidise older, wealthier investors. The subsidy has done little to increase new supply, which should be its primary rationale. Conveniently this concession costs $13.8bn a year, almost exactly what the higher GST might raise.

Cut down on corporate tax avoidance

Company profit shifting to shelf companies in tax havens is calculated to cost Australia $8.4bn in lost revenue. Thanks to a raft of loopholes and concessions, nearly one third of ASX 200 companies pay an effective tax rate of 10% or less, despite a legal tax rate of 30%. Again, the revenue potential of tackling this avoidance is huge.

None of these options involves new taxes or raising existing ones. They simply involve the removal of concessions that have long outgrown their intended size and effect. Two other ideas suggest themselves:

Land taxes

In his 2010 review, Ken Henry called for consideration of a broad-based land tax in place of stamp duties. Land taxes offer several advantages - they can’t be offshored, they’re less exposed to changes in the economic cycle and they are progressive. The introduction of land taxes under state governments would lift the overall revenue base and give states much-needed control over their own revenue stream.

Tax socially costly activities

Finally, Henry also recommended that governments consider a range of taxes on socially costly activities, including congestion pricing, volumetric alcohol taxes and the elimination of gambling tax concessions. These are unlikely to raise as much revenue as a higher GST on their own, but they also reduce government spending to ameliorate the costs of these activities.

Many combinations of the above ideas would deliver just as much as a higher GST. And that’s before mentioning carbon pricing or resource rent taxes, the bêtes noires of the Australian tax debate.

So why the collective blindness? Why is the GST hike a “necessary evil”, and these other proposals greater, less necessary evils?

Well, it depends greatly on your point of view. The GST is regressive – it hits poor people harder than rich ones. So a GST hike is perhaps only a necessary evil if you have big super tax concessions and a negatively geared investment property. It is a disaster if you are a single mum, elderly, a pensioner or marginally employed.

The policy elite concedes that more revenue needs to be raised. But almost in the same breath, they dwell on what taxes might be cut with a higher GST rather than what services might be expanded.

And the word “evil” is especially revealing. It perpetuates a debate in which tax is framed as something to be minimised at all costs, rather than the price we pay for civilisation.

[IQS.RLOW]

Thanks to a raft of loopholes and concessions, nearly one third of ASX 200 companies pay an effective tax rate of 10% or less

The Guardian

This guys is a fucking idiot and his statement above proves it, along with the rest of the garbage he writes. A clueless, gormless, socialist retard spouting the leftwing line.

[mantra]

The proposals make perfect sense. The concessions to superannuation for those at the top of the heap is approx the annual cost of the old age pension. What is superannuation for - so that people can support themselves in retirement. This costs taxpayers $40 billion pa - last financial year the age pension cost $39.5 billion.

Negative gearing should have gone years ago. All it does is enable people to own numerous homes tax free, while the majority of under 35's are pushed out of the market because of the short supply and escalating prices. This scheme costs the same to the taxpayer as the revenue which would be raised by an increase to the GST.

nearly one third of ASX 200 companies pay an effective tax rate of 10% or less, despite a legal tax rate of 30%. Again, the revenue potential of tackling this avoidance is huge.

So what does the government do? Strip the ATO down to a skeleton staff to ensure they don't have the resources to chase these crooks up. Why should they get away with paying so little tax, or even no tax?

I can't see why you're so disgusted with this article IQ? It is balanced and fair. Why shouldn't the wealthiest people in the country make a few concessions too?

I disagree with the land taxes though on people who live in their only home. We pay enough taxes through stamp duty and our rates and insurance. Maybe land taxes should be imposed on those with multiple investment homes?

[Rorschach]

Thanks mantra seems you've given it some thought.
I do agree with the government, that tax reform is needed.
I voted against the GST when Hewson tried and when Howard brought it in, I still don't agree with a tax on services. I do think broad based consumption taxes are better than high direct taxes though.

I agree with the main thrust of the article that there must be other things that can be done before increasing the GST, either in scope or by percentage charged. I agree with you on land taxes. But personally I am against them on principle, as we already pay many indirect land taxes anyway.

I don't agree with increasing the tax burden on the poor or increasing the cost of living for them, they should create some form of exemption for the less well off.

Also, I don't recall the current government stripping down the ATO to skeleton staff at all.

[IQS.RLOW]

Because this...

nearly one third of ASX 200 companies pay an effective tax rate of 10% or less, despite a legal tax rate of 30%. Again, the revenue potential of tackling this avoidance is huge.

...is a lie made up by the tax justice network.

Why would believe anything else that is written in the article?

[Rorschach]

A link to a UV article and the full Independent report follows...

http://www.unitedvoice.org.au/press-rel ... lth-report

[IQS.RLOW]

http://catallaxyfiles.com/2014/10/28/do ... -taxation/" onclick="window.open(this.href);return false;

Treasury at Senate Estimates have confirmed how flawed the analysis was:

Senator CANAVAN: I have a follow-up on that. I know a few years ago Treasury made a lot of comments about the effect of the economic downturn on accumulated losses and its subsequent effect on tax, particularly corporate tax revenue. How is that washing through the system now? Is that still impacting on companies’ liability for tax, those forward tax losses, accumulated over the years?
Mr Heferen: I am sure there are still some companies that will have losses that are still being carried through the system and, of course, there will still be companies that post the GFC would still make losses in a particular year. With those losses, of course, the company has to carry those losses forward to a future year under the tax system until they have the profit to offset that against, and so there would no doubt be an element that would carry over from the GFC and there would be some generated in years after the GFC.
In an accounting profit sense those losses are accounted for then, but in the tax world they have to be carried forward. Hence you can easily see a situation where a company in a particular year, and particularly as some reports have looked at, say, in the 2012-13 year or the 2011-12 year, would be at the sharp end of still having to account for their carried forward losses.
Senator CANAVAN: So, given that relationship any analysis which relied on gross profit and not taxable income would have even larger errors given the recovery process?
Mr Heferen: It is more fundamental than that. It is not just an error. It is just comparing an apple with an orange and not being about fruit. With accounting profit and taxable income for some businesses some of the time there could be a degree of similarity, and, in fact, a recent report said that if you used accounting profit a lot of firms are earning 26 per cent rather than 30. I must confess I was surprised it was so high. But when you get right down to it, there are intended significant differences. Research and development tax concessions are a classic. Accelerated depreciation is another standard. The carried forward loss is another one.
For our ASX 200 companies, for the large ones, what would be critically important would be the fact that if they have foreign income, so they have an investment overseas, when the dividend comes back it typically would have been paid in the other country, so when it comes into Australia it is treated as non-exempt, non-accessible income. Yet from an accounting profit point of view, it could still show up as a profit. Once you go to that level then it is a situation where for a company to work out its taxable income, which starts with the accounting profit and then says, ‘What do we need to deduct?’. The other one is interest cost.
Senator CANAVAN: Is it your understanding that the Tax Justice Network report did not cover those factors?
Mr Heferen: It did not go anywhere near them.
Senator Cormann: They did not look at taxable income, because if they had looked at taxable income it would have shown that these top 100 ASX companies actually paid the corporate tax rate of 30 per cent. That was very misleading.

[mantra]

Senator Cormann: They did not look at taxable income, because if they had looked at taxable income it would have shown that these top 100 ASX companies actually paid the corporate tax rate of 30 per cent. That was very misleading.

So this 30% corporate tax they owe annually is offset against their losses carried through each year from 2007? Why can corporations do that? We can't. I doubt small businesses can either.

[Neferti]

There is Personal Tax and Company Tax.

Companies (even small businesses) have to pay for such things as wages for staff, superannuation, compensation, insurance and a hoard of other stuff. They are in business to not only earn a crust but to EMPLOY workers.

You therefore can NOT compare tax you pay on YOUR income with the tax YOUR employer pays to keep you employed.

Have you ever run a small business?

[Rorschach]

Tony Abbott's proposed changes to the Goods and Services Tax (GST) are a necessary evil, the nation's public policy think tank says.

The Prime Minister said at the weekend the Government was ready to work with the states on changes to the tax, by either lifting the rate of the GST or broadening its base.

His comments sparked renewed debate about whether the GST should be changed.

The chief executive of the Grattan Institute, John Daley, backed Mr Abbott.

He said while changing the tax might be unpopular, it could generate as much as $14 billion a year.

"Given where we are, the alternatives are much worse," he said.

"We've seen what happens in Europe if governments let their budgets get out of control and stay out of control for a long time.

"It certainly looks as though governments across Australia are starting to realise that they have a problem, and increasing GST by broadening it or by lifting the rate is probably the least of all evils; given that they do need to fund an increasing number of services that the public is asking for."

More here.

http://www.abc.net.au/news/2014-10-27/p ... il/5845218

Australia has to pay the Credit Card bills that Krudd and Gizzard left us with. Sell the farm or raise the taxes?

Raising the GST will ensure that ALL Australians, who were given hand-outs by Kev and Jules (including themselves and Tony Abbott, etc) will now pay for the generosity of the GALP.

NOTHING IS FREE. When will the citizens realise this?