.. left many Australian businesses unprotected from foreign funds. Overseas businesses are already more competitive than us, with the reduction to the custom duties, they will be even more dangerous to us. 12) The system will not be fair towards those with the lowest income bracket, children and those who worked all their life and have just retired to pay GST for the second half of their life. In all, there are hundreds of arguments for each side, and there is no proof of any of it being true.
We can only comment when it is put into practice, then and only then do we know if it is as good or is it as bad as they said. Do we need any tax changes? As mentioned before, the government has added bits and patched parts of the Australian tax system over many years. The liberal party who supports a GST thinks there needs to be changes, not only minor patches but to change the whole system. They have put up a list of reasons why our system is working badly. They put their reasons into three main categories. An unfair system, An out dated system, and a complex system. AN UNFAIR SYSTEM Statistics show average Australian income earners have had to pay three times more tax now than we had to forty years ago.
People are paying almost half of their income to the government especially wage and salary earners who are hardest hit by this. Such high taxation reduces the incentive for people to work, save and learn but encourages them to avoid being taxed. They join the ‘black economy’ through such practices as: Paying employees ‘cash in the hand’ Taking a job, or a second and not declaring the income Cheating on social security, by not declaring income or Not reporting cash sales. Let’s face it, with such a ‘wonderful’ social security system, many families could be much better off taking the dole than working. AN OUTDATED SYSTEM The income tax and WST were both introduced in1930 and up till now both are encountering problems of efficiency. The WST was introduced as a method of battling the Great Depression.
It was imposed on goods only at a rate of 2.5%. This 2.5% changed when it was WWII. The government introduced multiple rates as a wartime necessity measure “This Government has now found it necessary to introduce a different rate of tax, and also to vary certain principles of the tax, in order to meet the extraordinary cost of the war in which we are now involved.” (Mr. Fadden, Treasurer, 10 Dec 1940). This amount never looked back.
Now, household appliances such as radios, watches, tape recorders etc. are taxed at the 32% rate. Back in 1930, Australia mainly produced goods unlike now in the 90’s services are a larger part of the economy than goods. The WST is not only old but also uncommonly used. As mentioned before, only half a dozen of nations in the world still adapt it, and most of those countries have already began to introduce VAT.
But Australia remains adamant. And because of this, it was necessary for the government to increase revenue, which was lost to the lack of taxation from goods. They decided to increase sales tax. In every day households, we pay hidden sales taxes on most goods. These include: 22% on detergent/cleaners, 12% on flavored milk, juice, ice cream, biscuits etc. Milk, bread, fruit, vegetables, eggs, flour, meat and butter are the only exceptions.
In the bathroom, cosmetics, shampoo, soap, deodorant, toothpaste, toilet paper etc. are all taxed at 22%. The hand basin, bath, toilet and towels are taxed at 12%. Toothbrushes and medicated mouthwashes are excepted. The list goes! on, from lounge to the garage.
Manufacturers facing a price increase problem tries and classify their product into the lowest possible rate. This creates a recipe for aggressive tax practices. This often results in a windfall gain to retailers. As well, the sales tax applies to exports, thus making us less competitive leading to less job opportunities. The WST just has too many mistakes and unfairness in it we need a better, more advanced system.
A COMPLEX SYSTEM Australia’s current taxes are a mess. As mentioned before, the income tax ACT have increased twenty seven times in size from 1936 till now. There are too many tax brackets for different people and too many exceptions that not even your tax return agent could remember. The sales tax classifies goods into one of seven hidden rates: 0, 12, 22, 32, 37, 41, or 45%. This is not only unfair and complicated, it is also absurd, leading to situations such as where toothpaste is taxed but toothbrushes aren’t.
It is also costly because the combination of different rates requires businesses, the tax office and courts deciding which goods fit into which categories and which rates. And that is only sales tax! There are many other indirect taxes looked after by different levels of government. These include: WST, excise duties, custom duties which are looked after by the commonwealth government. Payroll tax, stamp duty, financial transactions taxes, motor vehicle taxes, gambling taxes, land t! axes and rates which are looked after by the state and territory government. Theses taxes may prove to be effective in that it raised sixty billion in 1996-7 (one third of total tax revenue) But it definitely isn’t simple and is very inefficient to run. Principles of tax reform On Nov 6th 1997, the federal, state and territory governments agreed that Australia needed a fundamental change to its tax system as we enter the twenty-first Century. Before that, the government has already set up a Taxation Task Force who prepared options for the changes to our taxation system.
The following were their goals. there should be no increase in the overall tax burden any new taxation system should involve major reductions in personal income tax with special regard to the taxation treatment of families consideration should be given to broad-based indirect tax to replace some or all of the existing indirect taxes There should be appropriate compensation for those deserving of special consideration and Reform of Commonwealth/State financial relations must be addressed. The Prime minister has indicated that before the next election, the Australian public will have a clear idea of the government’s plans for modernization and reform of Australia’s taxation system. In all, people believe Australia should have a tax reform. The current system does have too many loopholes for cheats to fit in.
A GST may be an idealistic idea but not realistic for the time being. Through the 1992 election between Mr. Keating and Dr. Hewson, it is clear that the public fears the GST. It could be that most are not sure what it really is.
There is need for time and education about GST, allowing voters to understand it. Until then, it’s going to be a long harsh process planning and considering all the aspects of a healthy and fair taxation system.