GST is no answer

Posted January 2015 on Accountants Daily in reply to Institute of Public Accountants call for GST “reform”
https://www.accountantsdaily.com.au/breaking-news/7904-ipa-say-tax-mix-must-change?utm_source=Accountants+Daily&utm_campaign=Accountants_Daily_Newsletter31_12_2014&utm_medium=email
Well, a 40%-50% GST would bring both its advantages and disadvantages to the fore.
Yes, you could dump income tax but you will still have the problem of designing targeted “compensation” to families and lower income earners (shade outs would still have to be based on income and would jack up the effective marginal rate scale and you would still have the problem of the tax unit – does a family of 6 on a given income or expenditure have the same ability to pay tax as a single earner on the same income or expenditure – not to mention of course non-discretionary expenditure).
You would bring to the fore that GST in fact exempts foreigners – Australia would be a tax haven for them as their spending is elsewhere. People who are getting into a lather about Google and Apple will really enjoy the prospect of un-taxing foreign billionaires buying up Australian real estate!
You would also bring to the fore the hidden fact that GST is not really a true consumption tax. Labour is as necessary to production as capital and other business inputs. Input tax credits are allowed to business and investors but not to workers keeping body and soul together for the daily grind or raising children to replace them. If a farmer can get a GST input tax credit for feeding his work horses why can’t a worker get at least a partial input tax credit for the food, clothing and shelter which enables him to work for 8 plus hours a day? GST discriminates against labour income which is why many economists describe it as equivalent to a wage or payroll tax.
The more things change….
One has to look behind names to see the true reality that all taxes are ultimately paid from the factor incomes of land, labour or capital. Only one of those factors of production does not wear out, rust away, emigrate, die off or flee or get hidden under a mattress. Adam Smith and the Physiocrats had it all worked out before 1776. Adam Smith even foresaw capital flight to tax havens… he was a bit ahead of Mr Hockey and the G20.
Dr Terry Dwyer
Dwyer Lawyers
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  • The answer is “No”. Consumption equals income minus savings. An increase in the GST is merely an income tax surcharge by another name. But one which exempts savings and which exempts non-resident buyers of our mines, farms and real estate. It’s not very smart to impose a tax on your own PAYE taxpayers breeding your future PAYE tax base while exempting foreigners buying up your country!

  • Dr Terry Dwyer
    Dwyer Lawyers