Tax experts and small business advocates have urged that any increase to the rate or base of the GST be accompanied by other tax changes that will help ease the burden on SMEs.
The renewed debate over the GST has been triggered by a new report into the future of the federation by the Committee for the Economic Development of Australia.
Prime Minister Tony Abbott has also invited speculation on the issue by revealing his intention to shake-up the tax mix, using a speech over the weekend to say he will fix the “dog’s breakfast” of federation.
Currently the states spend $230bn a year but only raise $130bn of that, with the federal government making up the difference. The government will receive White Papers on both the tax system and the federal system before devising an informed taxation policy to take to the 2016 election.
Council of Small Business of Australia executive director, Peter Strong, said there were mixed views in the SME community about increasing the rate of the GST depending upon which sector you worked in.
“We understand there’s things to be worked through,” he told Dynamic Business. “But certainly expanding the base is something that needs to happen.”
Mr Strong said the current system meant some business owners were selling products captured by the GST while others were not. He advocated for a more consistent approach.
Director of Economics and Industry Policy at the Australian Chamber of Commerce and Industry, John Osborn, said broadening the base would definitely reduce the administrative complexity of the GST.
However, he stressed any change to the GST would have to be accompanied by “concrete offsets” in less efficient taxes via a comprehensive tax reform package.
Mr Osborn told Dynamic Business there might be some softening of demand in retail arising from higher prices should the rate of the GST be increased, but stressed an associated reduction in income tax would mean more money in peoples’ pockets.
Tax Counsel at The Tax Institute, Stephanie Caredes, told Dynamic Business the flow on impacts to SMEs would hinge on whether any broader changes were made to income tax or other state taxes.
“(Increasing the GST) will influence prices and that increases the liabilities that entities registered for GST have. But there could be other compensating factors,” she said.
“There might be a decrease in company tax that might offset or compensate for the increase in GST. There might be cuts in marginal rates as well. They are all features that need to be designed once the government determines what they think is the most appropriate mix going forward.”
She welcomed the CEDA report as a valuable contribution to the debate on tax reform, but said any change to the GST should be part of a broader package focused on finding the best and most efficient sources of revenue.