GST needs broadening instead of raising

5 June 2016

Various ideas have been floated over time about reforming the taxation system.  Some ideas have been taken up, wholly or partly, and other ideas have been knocked back.  The hard part is coming up with a system which can’t be easily taken advantage of or avoided in some fashion.

Probably the biggest reform to the tax system was the introduction of a tax on goods and services, or a GST for short.  The GST can be described as a consumption tax, applied to when people spend.  This came into being in the middle of 2000.

Because of political realities at the time, the GST was excluded from many things, most significantly fresh food.  It was thought that taxing food would penalise society’s poorest people the hardest.  Although considered fair, it led to confusion over what constituted fresh food or processed food or cooked food.  As a result, all sorts of food products don’t attract the GST, and nor should they, while other food products attract it.

But fresh food isn’t the only thing exempt from the GST.  I don’t claim to know what else is GST-exempt, but there are all sorts of non-food products and services which are also GST-exempt.  This has left the tax system riddled with holes, and there’s much confusion over what attracts GST or is exempt from it.  Indeed I read somewhere that the GST is paid on only about half of Australia’s entire economic activity – this isn’t exactly efficient.

There have been ideas floated for reforming the GST, whether by raising it or broadening its base.  These have been knocked off, because of the thought that poorer people would fare worst out of any such change.

Dangerous as this sounds, I’m of the view that the GST needs reforming.  I’m opposed to raising the GST, currently at a rate of ten per cent on items attracting it, but I support broadening its base.  While fairness is part of the reason why I’m against raising the GST, there’s another reason, arguably ignored in the reform debate – administrative simplicity.

Somebody used a theory of a shoebox to explain the theory of how the GST affects businesses or entities which charge it for their goods and services.  And I’d name the individual who used the shoebox theory, if I could only remember who it was!

It’d be so much easier for business owners to be able to empty out their cash registers at the end of the week or month, count up their takings, put ten cents of every dollar into a shoebox, tally up what ends up in the shoebox, and send off a payment for the shoebox’s tally to the relevant government authority.

Because there are so many exemptions to the GST, countless business owners can’t do this, and they have to work out what attracts the tax and what’s exempt from it.  While they might have accountants and other professionals to do this form, how much easier would it be if they didn’t have to work the exemptions?

And how much more difficult would be for business owners to work out what they owe in terms of GST if they had to count eleven or twelve cents from every dollar?  Given that we round everything to the nearest five cents or ten cents when we spend these days, raising the GST would create an administrative mess.

While I oppose putting the GST on fresh food, I don’t see why we can’t start removing GST exemptions from other goods and services.  We should look for those, and seek to remove them first, ideally if they’re most often bought or used by wealthier people.

My argument is that the GST needs broadening rather than raising, particularly from the perspective of administrative simplicity.  Some people might pay more, but a careful check of exemptions could limit the cost of GST reform to those who can least afford it.

 

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