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The only conclusion is to leave food in the GST

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Business υυηιιιιοη lor i ax Reform



The 8CTR today welcomed the NATSEM research put to the Senate Select Committee on a New Tax

Mr, Fergus Ryan Chairman of the Business Coalition for Tax Reform said that "while we are still digesting the detailed modelling, we make the following initial remarks:

The NATSEM research concludes that from an income distribution point of view, targeted compensation would achieve roughly the same outcomes as leaving food out of the GST.

Critically however, there is a large body of additional research that points to overwhelming evidence that leaving food out of the GST undermines the benefits of indirect tax reform. Leaving food out brings into question whether or not the whole exercise is worthwhile

Leaving food out would:

• Increase compliance costs,

■ Reduce efficiency benefits ■ Create loop holes and opportunities fo r avoidance ■ Create a culture of non-compliance • Increase administration costs

This view is supported by Australian and international academics, tax experts (including the Commissioner for Taxation Mr Michael Carmody) and international institutions such as the OECD and the World Bank

The BCTR has argued all along that any income distribution impact of a GST should be addressed directly by compensation via the income tax and income support systems W e flatly rule out cutting and pasting the tax base

This view is also supported by a number of academics and tax experts, including Professor Neil Warren. Professor Warren has said in a 1998 report to the BCTR that “making food GST free delivers the most benefit in nominal terms to those in the highest income groups. In fact the top 20% receive twice as much benefit in terms of dollars and cents compared with the bottom 20%. As a result, most of the dollar benefits from making food G ST-free accrue to the higher Income groups. The preferred alternative is to target any

compensation for the taxation of food directly to those groups who are adversely affected, the lower income groups"

Mr Ryan also noted that the NATSEM assumption, that restaurant and catering food would continue to be subject to a GST while other food would be GST-free, would produce an even worse result Research undertaken by Restaurant and Catering Australia suggests that a differential treatment of food would result in an immediate oss of 20,000 jobs and in the long term, a loss of 7,000 jobs

Mr. Ryan concluded that any GST position must include food.

Contact: 8 April 1999

Vicki Flannery 03 9610 4204 0418 332272 David Buckingham 03 9610 4222 0419 004200 Mark Paterson 02 6270 8004 0419 215037