On Mon, November 10, 2014 8:46 am, Arjen Lentz wrote:
On 7 November 2014 1:06:15 PM AEST, Russell Coker
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;
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
As a simple example, a higher GST would make McDonalds
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
mobile: 0432 255 208
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