Where Policy Meets Reality

Transcription

1 Where Policy Meets Reality A Conference to take stock of Australia s GST on its 20th Anniversary GST: Where to next? 26 March 2019 Michael Evans FCA CTA Taxsifu Liability is limited by a scheme approved under Professional Standards Legislation.

2 Overview Objectives A consumption tax For the States/Territories VAT Design features Where are we now? Adequate revenues for the States/Territories? Exemptions, Integrity and Inefficiencies Which way ought we go from here? GST for States/Territories? Consumption tax for Commonwealth? Design features Alternatives 2

3 GST today MYEFO 2018/19 Total GST revenues - $71,650 million. GST % of total Commonwealth revenue 15% GST % of GDP 3.5%. OECD Commonwealth tax % of GDP = 22.2% OECD average = 34.3% GST % of GDP = 3.4% OECD average = 6.3%. GST % of total tax = 16.3% OECD average = 34.5% 3

4 ANTS Objectives 4

5 A consumption tax To provide secure, stable and growing source of revenue for the States and Territories in the long term. Remove the reliance of the States and Territories on Commonwealth grants and distorting taxes So that the erosion of indirect tax revenue is halted permanently Adequacy and neutrality 5

6 Design features Benchmark tax base = household final consumption expenditure (HFCE) Less actual or imputed rent Plus private dwelling investment Top 5 tax expenditures (2018/19 TES 2017) Food - $7.3bn Health services, insurance, care, drugs and appliances - $6.52 bn Education & child care - $7.1bn Financial services - $4.5bn Water and sewerage - $1.1bn 6

7 Where are we now? Is GST: Reliable, stable, sustainable growth tax? Suitable for States/Territories? 7

8 Reliable, stable, sustainable, growth HFE Report GST growing at a slower rate than personal consumption expenditure Growth rate of GST revenue (in real terms) approximately halved between and , from 4.5 per cent to 2.1 per cent» Productivity Commission 2018, Horizontal Fiscal Equalisation, Report no. 88 PBO Report There is a likelihood that taxes on consumption will continue to trend downwards as a share of GDP increasing reliance on taxes on labour income through the personal income tax system» Parliamentary Budget Office, Trends affecting the sustainability of Commonwealth taxes, Report no. 2/

9 What s the problem? PBO Report the Base Change in the consumption mix over time. households have spent progressively more of their income on goods and services that are GST undertaxed Prices of Undertaxed goods and services have grown faster than those subject to the GST Savings Ratio If high, consumption as a share of GDP is low and vice versa Increasing proportion of workers are selfemployed. 9

10 Compliance, fraud and evasion Integrity issues Complexity - Non-compliance Missing trader Peer-to-peer, individual self-employed workers ABN and TPRS ATO compliance gap Grew from 4.6% in 2009/10 to 7.3% in 2015/16 Black Economy Taskforce The black economy doubled since 2012 to $50 billion in dollars. 10

11 Commonwealth/State Suitability as dominant source of State revenue? Variability Savings ratio Housing rent vs investment Decreasing rate of growth/share of GDP Complex design makes it susceptible to fraud Commonwealth response to HFE Increase the GST pool by $600 million in 2020/21 and a further $250 million in 2024/25. The latter is to be indexed to grow in line with GST collections on a permanent basis 11

12 Which way from here? Is GST Revenue for: States/Territories; or Commonwealth 12

13 GST for States/Territories? Erosion of revenue needs to be addressed (again!!!) Base? What can be agreed? Commonwealth pain/state gain Compensation See later Rate? On this base? Integrity / efficiency matters See later Continuation of Commonwealth top up Remove the reliance of the States on Commonwealth grants and distorting taxes? 13

14 Consumption tax for Commonwealth? Revert to untied grants Income tax sharing / State income tax? Tax mix switch less reliance on personal income taxes. Compensation Increase rate On diminishing base? To address erosion of revenue The base Integrity Inefficiencies Alternative tax designs 14

15 More revenue from the base? Share of household expenditure: rent, health, education, water and FS increasing food decreasing Top 5 tax expenditures total $25.83bn (2018/19) Food - $7.3bn Government subsidised services Health services, insurance, care, drugs and appliances - $6.52 bn Education & child care - $7.1bn Water and sewerage - $1.01 bn State tax Financial services - $4.5 bn SFT? Housing Transition to Land tax? Political and practical Food and FS = $12 billion? 15

16 Integrity Missing trader Domestic reverse charge PAYG/Disaggregation - ABN Arranger as supplier Broaden employee status to worker Black economy initiatives Missing trader TPRS Payer/payee Data matching Non-compliance B2B evaders Tax invoice Mandatory 16

17 VAT vs RST vs Hybrid VAT vs RST Multi-stage transactions vs deferral Integrity, fraud, non-compliance and collection efficiency GST Hybrid Broaden Reverse charge Employer/payer reporting / deduction Arranger as supplier Electronic distribution platforms TPRS? Data matching Black economy initiatives 17

18 Cash flow tax Receipts and expenditure Does it address? Government subsidies Hypothetical entities Peer-to-peer/arranger Fraud Exports Difficult to tax? Financial services Imputed rent Imported goods and services? International acceptance? 18

19 Inefficiencies Complexities and risks Hypothetical entities Tripartite arrangements Arranger distinction Mixed supplies Input tax relief Third party consideration Capital raising Blocked credits Inputs priced into outputs FBT 19

20 Thank you Michael Evans CA, FCPA Regd. Tax Agent ( ) PO Box 467 GLENELG SA 5045 Phone: Mobile: mbevans@taxsifu.com.au Liability is limited by a scheme approved under Professional Standards Legislation. 20