On Mon, November 10, 2014 8:46 am, Arjen Lentz wrote:
On 7 November 2014 1:06:15 PM AEST, Russell Coker <russell@coker.com.au> wrote:
Tony Abbott wants to increase GST and apply it to more items. The Liberal goal of increasing taxes on poor people is going well.
I reckon that's a bit simplistic. Most affluent countries have a much higher GST rate than we do. Our 10% rate is very low.
I think Russell is right; the tax burden will be shifted, any shortfall from corporate (et al) tax cuts will raised from the GST instead.
Indeed, applying it to more items is not good. Unprocessed foods and other primary living needs should have a 0% rate. Did you know that in the Netherlands, books are taxed at a lower 6% rate? (about a third of the normal Dutch GST) Interesting.
Which will lead to the problems of the old Australian sales tax system where different items had different rates, adding to the complexity of the system and requiring government definitions of what constitutes "unprocessed food" (remember the cooked chicken incident?) and whether game rule books are books, but exactly the same books in a box are games. Variable rates means the GST loses the one advantage it used to have; relative efficiency.
GST is a tax on consumption rather than earnings, and that is generally regarded a mechanism suited as a broad revenue measure as well as guiding for instance more environmentally aware purchasing. It means people pay tax in line with their consumption choices rather than on their earnings. That can be a very good thing for everybody including those on lower incomes. Abbott may be exploring this for the wrong reasons (political haggling with the states as that's currently where GST revenue goes), but it's not intrinsically a bad policy.
I think it is intrinsically bad. Any tax on transactions - apart from the usual administrative costs - also carries a deadweight loss, caused by loss of trades. If you want more environmentally aware purchasing, internalise externalities through a Pigouvian tax. Overall, *all* taxes on earnings or consumption carry deadweight losses, it's just a matter of degree. Taxes which concentrate on rent-seeking activity (which often are based around high-profit companies), or which pass their costs externally (e.g., pollution taxes) actually provide net economic benefits.
As a simple example, a higher GST would make McDonalds relatively much more expensive than fresh (unprocessed) foods. That tweaks consumer behaviour which has positive impact on health, healthcare, local food production, as well as the environment.
It also means that your tofu and quinoa salad with kale juice purchased at Hipster Cafe is more expensive too.
I mention the local food production because in a longer supply chain the cost component of the transport and intermediaries increases, and because GST taxes that, a shorter supply chain gains a relative advantage.
Not really. The costs is passed along each point of the transaction so only the final consumer pays the tax ultimately. Which means a short supply chain has the same relative advantage as prior to a GST. -- Lev Lafayette, BA (Hons), GradCertTerAdEd (Murdoch), GradCertPM, MBA (Tech Mngmnt) (Chifley) mobile: 0432 255 208 RFC 1855 Netiquette Guidelines http://www.ietf.org/rfc/rfc1855.txt