Federal Labor has placed a lot of store over the past three years in saying that it would roll-back the goods and services tax and make it simpler. It might have sounded like a good idea at the time – when business was screaming about extra paperwork, the complexity of the tax and the horror it presented for cash flow. But now businesses have settled into the system. As with any new system, the first time it is used it is difficult. But it gets easier as time goes on. Even those businesses which deal with a mixture of taxable and non-taxable items have now established systems and streamlined them. In fact, the imposition of the GST has forced many businesses to upgrade their accounting and computing systems so that they have a better idea of their cash flow.
Last week Labor proposed a fundamental change in the way that small businesses pay their GST. Instead of calculating it on every item they sold minus the GST they had already paid on inputs, they would be able to simply pay a set percentage of their turnover. The percentage would be set by the Tax Office according to past experience. But if a business wanted to, it could continue with the present method. The plan is flawed. Labor claims it will be revenue neutral, but it is likely that many businesses will just pick the method that yields the lowest tax. Many smart businesses will continue to do the accounting necessary to do a monthly or quarterly business activity statement anyway because it is good business practice and the accounting has to be done and the tax paid eventually anyway. If Labor gives them an option to pay less tax, they will snap it up. It may well be that a few small businesses will like the idea of postponing the detailed accounting until the end of the year. If so, they will be losing the valuable discipline of knowing how their business is travelling.
If Australia was to have a broad-based consumption tax it necessitated a transition of business practice. Perhaps the Government could have done it better at the time, but now it is established it would be folly to change significantly the way it is calculated and paid.
Also last week, Labor announced GST concessions to the meat, wine and pharmaceutical industries. Pharmacists would no longer have to pay GST on wholesale pharmaceuticals. That helps the cash flow of pharmacists at the cost of the manufacturers. The former group contains more voters (with more contact with other voters) than the latter. Similarly, meat processors who pay GST on carcasses but do not charge it on the meat they produce will get relief in the form of a subsidy. And the wine equalisation tax will be removed for small wine producers. These are all sensible moves to remove anomalies in the existing GST regime. But before Labor gets to virtuous about them, it must be remembered that the anomalies were created in the first place largely because of Democrat-Labor insistence in the Senate to change the Government’s original all-encompassing GST regime.
If the original plan had gone ahead, the GST would have been simpler to apply in the first place.
In all likelihood, Labor’s roll-back to be announced next week will add more complications as it exempts more things and more businesses join those that deal in both exempt and non-exempt goods.
It would be better to give direct government help to those industries that need help and to those who use goods and services that have special social value, rather than further complicating the GST.