the future of gst - institute of public accountants

The Future of GST By Tony van der Westhuysen

Pressure for changes to the GST

Tax mix – 2012 -13

Taxes as % of GDP

“Sales Taxes” and “Other Taxes”

a) Sales taxes include GST, LCT and WET.

b) Other taxes include other indirect taxes, fringe benefit tax and the carbon pricing mechanism

OECD Report and Recommendations

• Larger than expected fall in commodity prices

• Nation should be concerned about this year’s forecast $40 billion-plus deficit

• “One of the key rooms for improvement in the Australian tax system is if it can be shifted away from taxes on income and towards taxes on consumption.”

Process for changing the GST

First Obstacle

• GST governed by the Intergovernmental Agreement (IGA) on Federal Financial Relations

• Clause A6 of the agreement requires any change to be unanimous (i.e. Between Commonwealth, States and Territories)

Is this true....?

Is the IGA binding?

• Not according to two constitutional law experts, Bret Walker SC and A.D. Lang

• They believe that the Commonwealth is legally free to disregard the IGA and amend the GST legislation unilaterally

• This is because the IGA is not legally binding, but merely a political agreement

Political will?

Can the coalition afford another “broken promise”....??

• Pre-election commitment to not alter the GST in its first term.

• Comprehensive review of the tax system to include an examination of the GST.

• Change unlikely before the next election due in 2016.

Options for change

• Changing the GST Rate

– NZ Experience

• Broadening the GST Base

– Fresh food exemption through pressure

– Other exemptions part of original design

– $1,000 import exemption

• Changing the “share” of GST

NZ Experience

• 1986 – GST introduced: Rate 10%

• Top marginal rate reduced from 66% to 33%

• Corporate tax reduced from 48% to 33%

• 1989 – Rate increased to 12.5%

• 2000 – top marginal rate increased to 39%

• 2010 – Rate increased to 15%

• Top marginal reduced to 33%

• Corporate tax reduced to 28%

Changing the rate in Australia

• GST revenue forecast to be $54 billion in 2014-2015

• Increasing the GST by (say) five basis points likely to increase revenue by $25 billion

Broadening the Base

• According to the Treasury 2013 Tax Expenditures Statement, cumulative cost of all GST exemptions estimated to be $17 billion in 2014-15

Changing the “Share”

Recommendations of the National Commission of Audit:

• States and territories receive an equal per capita share of the GST revenue;

• Additional payments to ensure that no state or territory would be worse off;

• Views mostly influenced by whether the State or Territory is a ‘winner’ or ‘loser’

GST Winners & Losers

Source: Federal financial relations: budget paper no. 3 2014–15,

Forecast Relativities

Source: Federal financial relations: budget paper no. 3: 2014–15, 2014

Conclusions

• Reforms to the GST supported by many groups (including World Vision);

• Unilateral changes to the GST by the Commonwealth appear to be legally possible (but unlikely)

• If States and Territory support required, Rate, Base and Distribution changes likely to be linked.

Questions