By Sue Boland
Despite PM John Howard's promise (obviously not a "core" promise) in 1995 that the Coalition would "never ever" introduce a goods and services tax, the Liberals, big business and economic "commentators" are clamouring for a GST. The big media corporations are trying to create the impression that the public is demanding a GST.
The government and big business claim that a GST will be simpler, that tax evasion and the cash economy will be eradicated, that everybody will pay the same tax, low-income earners will be compensated, and the tax burden will be decreased.
Ray Regan, president of the National Tax and Accountants Association, told Green Left Weekly that after four decades of experience, countries with a GST or value added tax (as it is often called) have not achieved equity, simplicity or eradication of the cash economy. Everybody paying their fair share has not occurred. Nor is the tax simple: many small businesses have been confused about zero ratings, exemptions and what type of records to keep.
Under GST regimes, the cash economy has increased. Regan gave the example of a restaurant owner currently pocketing an undeclared $1000 a week. "There is an opportunity to pocket $1250 under a 12.5% GST", Regan explained.
Despite Howard and treasurer Peter Costello's claims that a GST would be fair to all, including those on low incomes, the NTAA is opposed to a GST, explained Regan, "because we know that it's going to impact unfairly on individuals".
"It's an irrefutable fact that there are many losers under a GST", said Regan. "For example, for people living in regional areas, the cost of LPG gas, power and goods and services are going to be 10-20% higher under a GST.
"Think of people who are sick. They're going to be taxed on the cost of public transport, telephones, medical care, on every facet of their lives, minute by minute.
"Imagine those who live in central Australia, or anywhere with a very hot climate. Those people are going to be disadvantaged purely because of the geographical part of Australia they live in. They're going to have to pay increased taxes on their airconditioning."
Regan is adamant that it is not possible to compensate low-income earners for a GST. People who do not pay tax — retirees, people with disabilities, the infirm and the unemployed — cannot get tax relief.
Pensions and social security benefits would have to be increased "a lot" to compensate for a GST, Regan said. "Initial analysis shows that pensions and benefits would have to be increased by at least $3000 a year, but you could never compensate people enough."
"Australians are a social, recreational, leisurely people", Regan added. "They want to go to the footy; they may want to watch cable TV. You can never properly compensate people under a GST. When they turn on their hot water, when they turn on their TV or their heat and power, when they buy a local newspaper — everything will be 10% or 12.5% more expensive, and they are going to pay it for the rest of their lives."
"The only people who benefit are the wealthy, those people who have plenty of assets", Regan explained. A GST is a flat rate of tax. The result is that the rich pay a smaller proportion of their income than do the poor. Big business is pushing the GST because "even with increases in prices that will result, they'll still get their margins".
A report produced by the NTAA shows that countries with a GST increased it by an average of 42.41% within 10-15 years of its introduction. Some countries, such as Denmark, have increased it by as much as 150%. This provides some perspective on the Howard government's promise that it will not increase a GST after it is introduced.
The government is pushing for a GST on behalf of big business, Regan told Green Left Weekly. "Big business — which gives the big political donations — is simply saying don't touch us, don't stop us from taking billions of dollars offshore and not paying a fair share of tax.
"The statistics from the tax department show that some 50% of corporations that have subsidiaries here don't pay tax at all. An article that costs $1 [to produce] is sold for $30 in Australia, and all the profit that should be taxed in Australia is taken overseas.
"Big business says GST is very good. It won't be touching them and their high lifestyles. 'Just make sure you tax the seven million average taxpayers. We won't end up paying more tax' — that is their view.
"The only losers will be the average people in the street. Big business is going to be insulated. They're promoting it because they don't want to be taxed in the areas they should be taxed in."
Small business will also lose, said Regan. Businesses get a tax credit for the GST they pay on their inputs and deduct the GST they have paid from the GST they collect, then remit the net amount to the tax department. It is only the end consumer who pays the tax, not the business.
Only about 65,000 of 1 million small businesses in Australia are registered. These include people who do house cleaning, gardening, sell ice cream or hotdogs on the roadside, as well as shopfront businesses. Every one of those 900,000 organisations will have to register to be entitled to credit for the tax charged to them by manufacturers, wholesalers or retailers.
These 900,000 businesses are going to need a computer. Every little business will have to lodge its tax returns via modem. The NTAA's estimate is that it will cost small businesses at least $12,000 to get the computers, modems, software and manuals, organise training and update computer systems to manage the GST. It estimates that small businesses will have to spend at least 228 extra hours per year to administer a GST system.
"Genuine tax reform means that you can't have individuals paying an effective 48.5% — 49.5% with the new Medicare levy — and about 20% extra in indirect taxes, while companies pay only 36%. You can't have partnerships, companies and trusts getting deductions and tax perks when individuals don't", said Regan.
"Unless the government is prepared to introduce proper transfer pricing [regulations] that stop big businesses taking their billion dollar profits offshore and avoiding tax, then individuals will see that the GST is not about equity and fairness.
"They have got to see the examples set by big companies and by the politicians themselves. John Howard hasn't had the guts to change the rules so that the superannuation of politicians is no different than that of us mere mortals.
"The GST is a smokescreen — big business will continue not paying tax, politicians will continue rorting their superannuation system, medium-sized companies will keep getting perks from fringe benefits tax exemption. Ordinary individuals will still be paying half of their weekly pay packet in taxes."