Tax architect says GST design costs $25b a year

One of the architects of the GST says that indirect taxes such as the GST are collecting $25 billion less each year than they should be and Australia is in a worse position than before the tax was introduced.

The man who implemented the GST when he worked for John Howard as head of Treasury's revenue group, Greg Smith, said growing spending on rent, health, education and food – which are excluded from GST – had taken the budget back to pre-2000 tax levels.

"There has been growth in consumption in this country in the very areas where the GST does not hit, the biggest ones are rent, health and education," he told the Economic and Social Outlook Conference in Melbourne. "That is $25 billion per annum gone."

Former state Labor leader and treasurer John Brumby reiterated that increasing the GST was a "no brainer" but Opposition Leader Bill Shorten told the same conference that Labor would "absolutely oppose" a 15 per cent GST.

The growth in consumption across rent, health and education meant the amount collected by the GST as a share of GDP has fallen from 4 per cent to 3.5 per cent. Other indirect taxes such as fuel, gambling and alcohol taxes are also collecting 1 per cent less of GDP than before, as people's tastes and behaviour changes.

 



"All of them have been failing monumentally," Mr Smith said. "You have got 1.5 per cent of GDP, which is gone from tax revenue collections over the last 15 years, which has actually put us back to an indirect tax collection before the GST was introduced, we are back to 1997 in terms of what we are getting from our indirect tax system … that's roughly $25 billion per annum."

NZ-STYLE GST MODEL SUPERIOR

A professor of economics at Melbourne University, John Freebairn, said Australia should not only listen New Zealand on how to play rugby but should follow their model of the GST.

"The GST covers about half the potential base," he told the conference. "Why do we distinguish between a necessity called clothing and one called food? I have to spend money on utilities, water, sewerage and electricity but in Australia we give a break for water but we don't for electricity, is there any logic in that?" Professor Freebairn asked.

The Liberal MP who kicked off the current GST debate, David Gillespie also stepped up his campaign to adopt a New Zealand style GST, which uses a 15 per cent rate and applies to 97 per cent of consumption, rather than 47 per cent in Australia. Mr Gillespie has obtained modelling from the Parliamentary Budget Office that a NZ-style GST would raise an extra $65.6 billion and allow personal income tax to be reduced, state payroll tax to be abolished and small business tax to be cut to 25 per cent.

"If we did go the full monty à la New Zealand, there would be $65.6 billion extra in GST raised by 2017/18 … it obviously generated significant interest and a broader discussion about the GST, which up to now has been a bit of a taboo subject, so I'm glad I've ignited a debate we had to have."

Prime Minister Malcolm Turnbull has said any tax changes need to be "fair" and Treasurer Scott Morrison has labelled Mr Gillespie's plan at the "extreme end" of possible changes.

Source::: The Australian Financial Review, dated 06/11/2015.........