The rate of GST should be increased and its base expanded with the extra revenue raised being used to abolish state payroll taxes, according to Business SA.
In a submission to the federal taxation review, the peak business group calls on the Abbott Government to show the political courage to achieve meaningful taxation reform.
“It is extremely important that all options for tax reform are costed in the (Government’s) Green Paper and not just those which may be more politically palatable,” Business SA says.
Recognising the political sensitivities involved in changing the GST, Business SA says broadening the base would improve the simplicity of the GST.
“While Business SA accepts the GST may not be strictly ‘progressive’, it does capture spending by high income earners on luxury consumer goods and it is equitable in the sense that no one, no matter how clever their accountant, can avoid paying the GST on a meat pie at the football.”
The submission says it “is imperative that this round of tax reform actually delivers real relief to business from inefficient State based taxes, particularly payroll tax and stamp duty”.
“The non-mining economy will not magically fill the void in Australia’s economy without genuine tax reforms to increase investment in both capital and labour,” it says.
Business SA notes that with Australia’s GST coverage slipping from 56 per cent to 47 per cent of all goods and services, it is now below the OECD average of 55 per cent.
“While there is merit in leaving the GST base untouched in consideration of the existing system already being entrenched, Business SA accepts that this will depend upon how much revenue can be raised from raising the rate alone and whether or not additional revenue from broadening the base is necessary to facilitate the abolishing of inefficient State based taxes such as payroll tax.”
“The Green Paper must clearly outline the revenue gains from specifically broadening the GST base to health, education and fresh food and other existing exemptions.”
Business SA “acknowledges there may be some requirement for compensation through GST reform to protect those most vulnerable”.
“But any moves to compensate need to be carefully considered in light of Australia’s relative tax burden which the Federal Government acknowledges for a single average wage earner is 27 per cent, compared to approximately 31 per cent in Canada, the UK and the US.”
Business SA engaged a group of taxation experts from Adelaide’s accounting firms, including some Business SA members, to advise on possible reform measures.
“While we acknowledge the academic debate on whether payroll tax is a ‘tax on jobs’, we are guided by what our member businesses advise us and the way in which they behave in response to payroll tax,” the submission says.
“Payroll tax is limiting the expansion of businesses, particularly those below but approaching the tax free threshold, and does actually prevent job creation by small business.”
Business SA notes the Federal Government’s acknowledgement in its tax reform discussion paper that payroll tax is ultimately likely to be passed onto employees and consumers.
“If the long-run incidence of payroll tax is absorbed by employees through reduced wages and by consumers through increased prices, logic suggests the long-run effect of replacing payroll tax with an increased GST should be to balance employee welfare through higher wages offsetting increased consumer prices,” it says.
“Concurrently, employers will be incentivised to create more jobs which will increase demand in the labour market and further enhance employee welfare.”
