AS we embark on the next wave of tax reform, we must consider setting out principles for a national debate. If these principles lead us to a reform of the goods and services tax, we need to look seriously at its biggest flaw: the breadth of its coverage.
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When the Howard government reformed our tax system, the prime minister took a set of principles for reform to a cabinet meeting in July 1997. The principles were straightforward and provided a clear road map for change. In embarking on a similar process, we should follow the same process.
Principles along the following lines (unsurprisingly similar to those John Howard took to his cabinet) would help give structure and clarity to the path ahead:
- No increase in the overall tax burden.
- Changing our tax mix away from direct taxes towards indirect taxes.
- A system which prioritises working, saving and investing.
- Compensation for those on welfare adversely affected.
- Ensuring the states also reform to help drive economic growth.
- Changes to be taken to an election.
Reconsidering the GST exemptions should be a priority as we embark on further tax reform. In particular, applying the GST to financial services is where we should start.
The financial services sector has come a long way since the year 2000, as has the technology used to record and track the financial movements.
We are now very close to having the ability to apply the GST to these services and it should be the first thing that is reviewed when we consider broadening the GST.
If financial services and supplies that are exempt were to have GST applied, it would raise at least $18 billion over the next four years. In 2016-17 alone it would raise $4.8 billion. This could be used to offset a reduction in the company tax rate, allowing for wages growth and a higher standard of living. It would be an innovative change to our tax system. Given the significance of the tax reform task ahead, we should be looking at all avenues to improving our tax mix.
Reform that drives growth and improves our standard of living will require lasting changes to our system and should include consideration of broadening the GST base.
DAN TEHAN
Member for Wannon
