Australia

Details

  • Service: Tax, Indirect Tax, Topics, Federal Budget
  • Type: Regulatory update
  • Date: 22/05/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Nick Kallinikios

Nick Kallinikios
Partner, Indirect Tax

+61 3 9288 6714

nkallinikios@kpmg.com.au

A tax by any other name 

by Nick Kallinikios, Indirect Tax Specialist

It’s said that in life there are two certainties: death and taxes. However, unlike taxes, death does not get any worse. So each year, I anticipate the tax changes that may be announced in the Federal Budget with the usual trepidation.

The story this year is that the Budget is in need of repair. Furthermore the Government was faced with tough choices of which programs to cut and which taxes to increase or introduce. There are so many considerations both economic and political.

 

Looking purely at the question of revenue adequacy, increasing goods and services tax (GST) collections seems to be an obvious choice. The current rate of 10 percent lags behind the Organisation for Economic Co-operation and Development (OECD) average rate of GST (VAT) which is sitting at around 19 percent. Consideration could also be given by the Government to broadening the GST base by applying GST to things like fresh food and health services.

 

Australia has a disproportionate reliance on income taxes. In the 2011-12 year GST raised $45.8b as compared with personal and corporate tax which combined raised $214.9b. In its current form GST is seen as a relatively efficient tax and a rate rise should not adversely impact on its efficiency. An expansion to include fresh food and health services would help simplify GST, thus add to its efficiency.

 

In addition to this policy rationale, there is a growing recognition from the states and territories that reform to the GST rate and/or base is necessary to meet revenue needs. The GST needs to meet its original objective of being an effective and efficient source of tax revenue, linked to the growth of the economy. The Federal Government should seize this opportunity to bring the GST in line with the needs of our modern economy.

 

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