Tax industry backs state calls for GST reform

The tax industry has backed comments made by New South Wales Premier Barry O’Farrell that the GST system needs reform and should be used to fund a company tax cut.

Business groups, including the Business Council of Australia, have welcomed the call to reform GST, while Paul Drum, head of policy at CPA Australia, told SmartCompany the organisation remains “firmly committed” to reform.

“In a global economy, and in this Asian Century, it’s inevitable and essential that we get back to looking at taxes on consumption and how they can raise revenue.”

Drum says CPA Australia wants the revenue to be used in three areas – a company tax cut, personal tax cuts, and compensation for low income earners.

Premier O’Farrell made the comments on the weekend, saying “everything should be on the table” when it comes to sourcing revenue.

”It’s a lack of confidence at the national economic level that’s caused the reduction in GST receipts, that’s caused the flow-on consequences for the states,” he said.

”I think we should have a discussion about whether getting rid of other state taxes can be exchanged for adjusting the GST in a way that seeks to address current problems that states are facing in revenue.”

The comments echo those made by New South Wales Treasurer Mike Baird, when he spoke out last week in support of changing the $1,000 low value import threshold.

Both political leaders have come under fire after the NSW Government announced it would cut billions from education and health over the next four years.

Federal Treasurer Wayne Swan has attacked the idea, saying increasing the GST would be “a blatant tax grab”. Tony Abbott also said he had no plans to change the GST.

But Paul Drum says the CPA’s idea for changing the GST would involve giving tax cuts to individuals and low-income earners, which would offset any increase in prices.

“There are various ways to slice and dice the cake,” he says. “But our modelling would look at getting rid of inefficient state taxes.”

“We need to improve productivity and then retire inefficient state taxes, and how do you do that? One way is to look at raising the GST, or broadening the base of the GST.”

The first priority under the CPA Australia’s model would be to introduce a corporate tax cut, followed by personal income tax cuts. The last would be providing compensation to the lowest income earners.

But Drum says such a reform wouldn’t be viable under a COAG agreement. It would have to be organised under a separate system.

“It’s extremely unlikely that this will happen in the foreseeable future, but if we stop discussing it, it will never happen.”

“Our concern is that other countries are putting their VATs up because they’ve been in fiscal damage control, but Australia is sitting on its hands because we haven’t experienced that pain.

“We’d like to stay ahead of the curve.”