Proposal for GST to rise yet cut income tax...what do you think?

[Peter 14.7]

Premiers urged: raise GST, cut income tax
http://www.theaustralian.news.com.au/story/0,20867,21466309-2702,00.html

A HIGH-LEVEL report prepared for the Labor premiers has raised the prospect of increasing the GST and lowering income taxes as part of a broader set of measures to overhaul federal-state relations.
Attached is link to today’s Australian quoting a report prepared by the Premiers recommending a revamp of the tax system to lower income tax and increase GST.

On face value, I approve.

The fundamental good of the GST is that you choose to pay the tax when you buy a new TV, CD but not essentials like food. Where income tax, you have no choice.

To quote the report:

Professor Withers told The Australian that to deliver the benefits of decentralisation, the states require more financial autonomy, and part of the solution is tax reform.
"Australia needs to consider rebalancing its spending and income tax mix to both better support the states in what they can spend without ties and allow the income tax burden to be reduced," he said.
The report says "serious tax reform would recognise that Australia overtaxes incomes and undertaxes spending compared with other OECD economies".

I agree. I have always believed GST targets consumption thereby lowering inflation, where income targets productivity, lowering economic growth.

If they then finally do away with unfair, counterproductive and complicated taxes such as stamp duty, land tax, payroll tax, et... we will really see this Country fire.

FYI it needs all the states and the fed gov to agree to raise the GST which if Rudd gets in would be a real possibility.

The status is:

Co-authored by ANU professor of public policy Glenn Withers and University of Sydney associate professor in law Anne Twomey, the report will today be presented to the Council for the Australian Federation, set up by the premiers to co-ordinate policy at Council of Australian Government meetings.

COAG meets on April 13 to consider issues such as control of the Murray-Darling Basin water system, global warming and setting education benchmarks.

Separate to this thread, the more I see of Rudd and his nation building proposals the more I like him. FYI I have always voted liberal before. This is not a political statment.

Counter views welcome, Peter 14.7

 

[DaleGG]

Hi

At face value, I approve of the idea.
As always though, I would like to see more of the cold, hard facts before commenting too much.

Dale

 

[Peter 14.7]

Hi Back

Don’t we all, with the facts. Nevertheless, as you said, it is a step in the right direction.

And in an election year, very risky so it must stack up.

This could be Labour bid strategy to win over the voters doubt in the final hurdle of "economic management."

Peter 14.7

 

[Mry]

John Howard was very shrewd in putting the GST legislation together. By having a requirement for the states and the federal government agree to increase the GST rate, and the states are substantially Labour, he set them up to commit political suicide over GST increases. Remember, Labour campaigned over the GST saying that the rates would increase in the future. This time Labour is increasing the rates.

The Liberal party will have a field day with this. A lot of people on very low incomes or Government supported income will complain, and that makes good PR.

Overall, I prefer things to remain the same. But as Dale said, I'd like to look at the fine detail first.

 

[MarkB]

Hmmmmm.

Not so sure this is a good thing.

PAYE is a progressive tax - the more you earn the more you pay. Call it highway robbery (if you're a high-earner), but it is an established and accepted practice in taxation.

GST on the other hand is, theoretically, a regressive tax because higher earning households do not have to spend as much of their income on the essentials of life (food, clothing and shelter).

Peter spoke before about GST being a tax you choose to pay. I wonder how those living on next to nix who have to spend every last cent they can lay their hands on just to survive would feel about that.

M

 

[sue78]

It's not a good idea. A lot of businesses will suffer if GST is increased. My mum almost went bankrupt because of GST.

Inflation is already so high that if GST is increased, do u really think everyone will pass on the GST? inflation will go through the roof.

There are many ways to reduce income tax but not GST. If GST goes up, it will afffect everyone.

 

[Peter 14.7]

In reply to Pitt St.

I note the issue with GST being a greater impost % wise on low income earners but I dont agree that the essentials are being taxed.

Base food and some breads are GST free.
Rent or mortgage payments are GST free.
Cars & transport are not GST free but low income persons buying a $5k 93 Holden is paying only $500.

Low Income Families dont go the $50 a head restaurants and hotels at $200 a night. They go to McD for $5 a head or or Clubs for $9.95 a meal. They stay in caravan parks or with friends or camp sites.

They do buy consumer goods and a higher cost there is good thing.

I can write from experience here as my family is all low income. I constantly hear "I cannot afford to pay any extra of my mortgage", but each child has a DVD and TV in the bedroom. They eat Takeway too much. Too many toys and dodads.

At bit of pain here will not hurt because they chose to pay it. Give them $50 extra a week in the pay packet and there is an additonal mortage payment of $2500 in a year.

Peter 14.7

 

[Peter 14.7]

It's not a good idea. A lot of businesses will suffer if GST is increased. My mum almost went bankrupt because of GST.
.

HI Sue78,

I run a business and I have heard these statements before. Can you elaborate on how the GST affected your mum. I am genuinely interested to understand other businesses.

Thanks, Peter 14.7

 

[MarkB]

Peter

The point is they still have to spend a higher proportion of their income on essential items.

I note that you didn't mention clothes. Poor people don't run around naked, you know.

The GST is a great tax and imho Australia is better off for it. But it should not replace a PAYE tax system. The simple truth is that raising the GST to lower income taxes will shift the taxation burden more towards those who can afford it the least.

M

 

[Peter 14.7]

Pitt

Poor people buy clothes at target for $10 atop not Myer at $40 a top.

And as you would know we have an aging population. That is why we havea GST. When the retire no income tax paid but they will be paying GST.

We must share the burden.

I dont see income tax being abolished but lower and really alowered for those in need is essential.

It is sad that our own Gov says the poverty line is around $20K yet we tax the poor from $5k.

I glad we agree that GST is overall a good thing.

Peter

 

[WinstonWolfe]

I think what Labor are proposing makes sense. But once they have GST rates up, they are bound to creep tax rates up from the token drops they introduce. They will always need more tax revenue than Liberal because they want to be a wealth redistribution nanny. And the administrative cost of a nanny is never cheap.

Personally, I think GST should evolve along current lines so that consumption associated with potentially increasing productivity, and the essentials of life are hit least (self education, non fiction books, consumer staples, basic housing); while dubious or destructive indulgences should be hit most (cigs, alcohol, fast food, processed foods of poor nutritional value, confectionary, luxury items).

 

[MarkB]

Peter

I don't follow the link between old people and the GST.

I always thought it was introduced because as a broad-based consumer tax it is very hard for people to avoid paying it, plus it had the added bonus of getting rid of a raft of silly state and federal taxes.

I think you're missing my point.

It isn't the value of what poorer people buy that matters (yes they can wear $10 t-shirts) - it is that they invariably have to spend a greater proportion of their earnings to live.

If you cannot grasp that point, try this one - the best way to avoid the GST is to stop spending. When people stop spending - what do they call that?

Saving.

Now, other things being equal, who can save more and hence avoid more GST?

a) the person earning $20k pa

b) the person earning $200k pa.

M

 

[luckyone]

Money for clothes

Peter

I note that you didn't mention clothes. Poor people don't run around naked, you know.


M

When I was "poor" of money, I used to shop at the Salvo's. It would cost me $10 for a complete outfit. There are always ways to still afford the things you want if you look. I still shop there, would never tell my husband though as he doesn't believe in second-hand anything. If I can buy the same outfit at a store for $50 or at the Salvos for $10, I'll go the Salvos anytime. Saves me heaps of money that I know I can use better elsewhere.

 

[DaleGG]

Hi

Whilst I understand you point, Mark, there is a very simple and workable solution to this dilmena.

The Government can simply pay pensioners a higher pension to negate the effects of the GST on their spending.

This way, spending above their income level will still hurt them but in doing so the Government still encourages savings.

Dale

Peter

I don't follow the link between old people and the GST.

I always thought it was introduced because as a broad-based consumer tax it is very hard for people to avoid paying it, plus it had the added bonus of getting rid of a raft of silly state and federal taxes.

I think you're missing my point.

It isn't the value of what poorer people buy that matters (yes they can wear $10 t-shirts) - it is that they invariably have to spend a greater proportion of their earnings to live.

If you cannot grasp that point, try this one - the best way to avoid the GST is to stop spending. When people stop spending - what do they call that?

Saving.

Now, other things being equal, who can save more and hence avoid more GST?

a) the person earning $20k pa

b) the person earning $200k pa.

M

 

[JFisher]

HI Sue78,

I run a business and I have heard these statements before. Can you elaborate on how the GST affected your mum. I am genuinely interested to understand other businesses.

Thanks, Peter 14.7

We also made the transition from pre to post GST. We certainly didn't have any problems but I know of quite a few who didn't know what how to apply it to their business, or understand how to record and pay the GST component, and subsequently got themselves into strife. I made sure that I got as much info as I could and clarified things with our accountant to avoid problems.

From the group that struggled, many struggled with the management side of their business before and/or were running predominantly cash business.

 

[Ausprop]

GST was suppose to be about tax reform. the state labor governments have frustrated this process such that we still have stamp duties on you name it and payroll taxes and a string of other red tape impedances to business. by all means put the GST up, but lets not kid ourselves that it will ever be anythign more than another tax grab

 

[Peter 14.7]

When I was "poor" of money, I used to shop at the Salvo's. It would cost me $10 for a complete outfit. There are always ways to still afford the things you want if you look. I still shop there, would never tell my husband though as he doesn't believe in second-hand anything. If I can buy the same outfit at a store for $50 or at the Salvos for $10, I'll go the Salvos anytime. Saves me heaps of money that I know I can use better elsewhere.

Agree. I am not poor anymore and our favorite shop is E-Bay.

Only today my wife bought six pairs of baby toilet training pants for $12.50.

Perfect Condition they are worth $30 on a store. And GST does not apply to Ebay.

Peter 14.7

 

[WinstonWolfe]

Only today my wife bought six pairs of traning pants for $12.50.
Peter 14.7

So Pete, is her intent to tran, or put em back on ebay for a higher price?

 

[Peter 14.7]

I think what Labor are proposing makes sense. But once they have GST rates up, they are bound to creep tax rates up from the token drops they introduce. They will always need more tax revenue than Liberal because they want to be a wealth redistribution nanny. And the administrative cost of a nanny is never cheap.

Personally, I think GST should evolve along current lines so that consumption associated with potentially increasing productivity, and the essentials of life are hit least (self education, non fiction books, consumer staples, basic housing); while dubious or destructive indulgences should be hit most (cigs, alcohol, fast food, processed foods of poor nutritional value, confectionary, luxury items).

I agree and hope that a key compenent will be CPI adjusted tax brackets. Bracket Creep is the cruelest of all tax hits.

As for a variable GST I agree with the thoery of that idea but I dont agree with the applicaton.

I run a business ,which GST wise is relatively simple. If the rates where 20% on some, 15% of other and 10% on the rest it would be adminstrative nightmare. It essentially would return to the old sales tax system which is replaced ,which was totally confusing if your were a retailer/wholesaler.

IT is hard enough with GST free, GST exempt, some tradies being not registered and most being registered that to add layers of different rates. It would be unworkable.

I woudl have to raise my costs significantly to cope with the additonal paper work and admin costs. Working out the BAS would be guess work.

Peter 14.7

 

[Peter 14.7]

So Pete, is her intent to tran, or put em back on ebay for a higher price?

That often happens with baby gear. She has bought, used and sold for a higher amount.

IMO Ebay should be given a UN award for recycling.

My wife will not even look at a second hand junk shop, let along a Salvos but is a Ebay addict.

75% of what we have for our daughter was bought on Ebay and I bet no-one could tell which ones. Often is it brand new or worn once.

Personally I have bought a $600 chipper for $156. A $1200 Kitchen for $500. Etc..Usually the discount is 30 to 40% for BNWT (brand new with tags),. However we have saved up to 90%. Postage Cost is important.

If you have not tried it have a look but be warned , it is addictive.

Peter 14.7