Rudd’s Tax Review And GST Rate Rise Temptation
Michael is the principal of Adendorffs Solicitors & Conveyancers based in Coffs Harbour.
Thursday, August 21st, 2008
Prime Minister Kevin Rudd has suggested a “root and branch” review of the tax system. However, the GST rate will not change. By world standards, Australia’s GST rate is modest.
There is nothing new, again by world standards, in politicians suggesting tax system reviews. See David Martin’s work on Tax Simplification elsewhere on this website and my summary view of the complexity of the Australian taxation system. Not surprisingly, any plans for a major review are always welcomed by business. That is so particularly where the plans do not include any rises in the GST rate. In European Union Countries, Value Added Tax (which is the Continental equivalent of GST) is imposed at what I would say are extraordinary rates, for example 17.5% in the United Kingdom to 25% in Denmark.
There is a view that in a high interest rate environment, any additions to consumers’ cost of living would cause outrage, but GST rate rises are alluring to governments.
So while Rudd has ruled out GST changes, taxation experts would maintain the GST rate could be looked at, because it is low by world standards.
Professor Neil Warren from the School of Taxation is reported to have said that “… if you’re going to talk about the breadth of the issue, sooner or later you’re going to have to talk about the goods and services tax.”
Stephen Walters, the chief economist at JPMorgan, has reportedly said that a higher GST rate “… discourages consumption and boosts savings ….” Further that “… when you’re running a big current account deficit, like Australia is, it means we haven’t got enough savings, so if you can tax consumption, that should boost savings.”
Question must be asked whether a GST rate increase, without abolishing many of the other taxes which arguably have no place in a tax system that encompasses GST, is sensible.
Tags: GST, Tax, Tax Review
