The GST: a bitter anniversary

by Peter Mac

The Goods and Services Tax (GST) is biting deep. Many trade union, 
community and political organisations vigorously disputed the Howard 
Government's promises of benefits from the new tax. So let's look at those 
promises, and the reality of the GST's implementation.

A reduction of the tax burden on low and average income earners, abolition 
of high marginal taxes and low thresholds" — that's what we want, said the 
Government. They claimed that the number of taxpayers paying no more than 
30 per cent tax would increase from 30 per cent to 80 per cent.

However, the GST's introduction was accompanied by a 30 per cent tax rebate 
for those with private health insurance, i.e. primarily to those with 
higher incomes. Moreover, according to the National Tax and Accountants 
Association (NTAA), tax concessions offered to low and middle income 
earners have already been totally eroded by the extra costs of the GST.

Businesses, on the other hand, can claim a tax rebate for GST costs, and 
their corporate tax rate is being reduced from 36 per cent to 30 per cent! 
Protection of the unemployed and other lower income earners from the GST 
impact" will be a condition of its introduction, the Federal Cabinet 
claimed. But the GST has in fact, adversely affected these people.

For example, pensioners, who previously paid little indirect tax, now fork 
out a considerable proportion of their meagre income for the GST. They 
received a few dollars pension increase, half of which the Government has 
already taken back. Now they are offered a pathetic one-off payment of $300 
to "compensate" them — or rather, to buy back their vote. An earlier 
promise of $1000 compensation to self-funded retirees was so qualified that 
very few received any benefit.

We will abolish taxes on Australian exports and hence there will be more 
jobs", said the Treasurer. Abolition of wholesale sales tax on exports, and 
their exemption from the GST, has certainly benefited Australia's largest 
companies. But there's no evidence that this has resulted in extra jobs, in 
fact some of the biggest exporters have been downsizing for all they're 
worth and moving offshore. For products made and sold in Australia the 
costs of the GST have far outstripped the former wholesale sales tax.

Simplification of the tax system" is what we all want, said the Howard 
Government. And they were right! But the Tax Pack instructions ballooned to 
350 pages in size. The individual tax return form has grown in size from 
six pages in 1996 to 12 after introduction of the GST! Tax assessment for 
wage and salary earners has become very difficult, but for small businesses 
it's excruciatingly complex, particularly because of the new Business 
Activity Statement (BAS), which requires quarterly or monthly assessments.

NTAA President, Ray Reagan, commented: "To expect a small Mum and Dad 
business to prepare a monthly financial statement is farcical, especially 
when no other business is subject to this requirement."

Small businesses are now drowning in paperwork. Many have had to borrow 
money and/or employ extra staff in order to cope with the complexities of 
the new BAS assessments, in particular the identification of rebatable 
items.

The GST legislation has become an administrative nightmare for Australia's 
400,000 small business contracting firms, with the tax office demanding GST 
"catch-up" payments by June 30.

Ray Reagan commented: "There is no way known that ... accountants ... will 
be able to meet this deadline date. Accountants themselves are only coming 
to terms with this extremely complex legislation, which has raised many 
unanswered questions. ... They are overwhelmed at its complexity. This is 
clearly the straw that breaks the camel's back. ... The Howard Government 
seems determined to permanently disrupt the day-to-day operations of 
accountants' practices and their clients."

New jobs and more rapid economic growth" are just around the corner, if you 
accept the GST, said Howard. But the economy has slumped, and many 
businesses, especially small firms battling the GST, have shed staff.

Abolition of tax avoidance, and in particular the "black economy"" is our 
aim, the Prime Minister declared last year. But according to the NTAA, the 
introduction of the GST has resulted in a huge "black hole" of tax 
avoidance.

This arises not only from failure to declare payment received for goods and 
services, but also from phoney claiming of GST tax refunds by both "front" 
businesses and legitimate firms. And it costs the taxpayer some $60 
billion, according to the NTAA.

"We'll all be better off with the GST"", shouted all the Coalition 
politicians in unison. But pensioners, welfare recipients, wage and salary 
earners and small businesses have all suffered severe adverse effects from 
the GST.

The erosion of the tax cuts offered as part of the GST deal is reflected in 
the recently announced low turnover expectations of the Coles-Myer group. 
The number of businesses going bankrupt has risen by some 30 per cent over 
the last year, and this is a prospect facing many small and household 
businesses. There is now little incentive for people to commence new 
businesses because of the mass of new GST red tape, and the resultant 
virtual elimination of profit expectations.

So where are we, one year down the track, with regard to the GST? Despite 
the ALP's promise to "roll back" some aspects of the GST's operation, 
there's considerable doubt about how determined or effective they'll be if 
they get into government. On the other hand the Coalition, if returned, may 
well move to remove the GST exemptions and even to increase the tax from 10 
per cent to 12.5 per cent. This has been suggested in at least one "kite-
flying" article in a prominent Australian business publication.

Despite the Howard Government's promises the reality is that the GST was 
introduced in order to be of financial advantage to the very rich and big 
business, by heaping more of the tax burden onto the shoulders of working 
people and the very poor.

And after a year of operation, no amount of promises and cover-up can 
disguise the fact that this has been its effect. A growing number of voices 
are demanding that the GST legislation should be repealed, rather than just 
rolled back.