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No amount of tinkering with sales tax will do: it should be abolished

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Peter Reith


Who was it, just a few short years ago, who said that the sales tax system had to be abolished? Paul Keating, that's who! And he was right!

Quoted below are extracts from Treasurer Keating's 1985

statements on the inequity of the present sales tax system, why tinkering with it was unsatisfactory and why it should be

replaced by a consumption tax.

In contrast, Treasurer Keating's proposed changes to the sales tax system in the March statement will, to use an old but apt expression, be nothing but re-arranging the deck chairs on the Titanic.

The tax burden on business inputs and exports runs into the billions of dollars and yet media reports suggest that Treasurer Keating is offering a measly $300-$400 million in sales tax relief.

Before I quote Mr Keating's 1985 statements on sales tax and the need for reform, let's review what the Treasury had to say in the Draft White Paper on Reform of the Australian Tax System:

"The existing WST is a narrowly-based tax which applies only to selected consumption goods and some intermediate goods. It does not cover any services, and it has many anomalies and inconsistencies. The current WST base is about $26 billion of which only $13 billion (or

slightly over 10 per cent) is private final consumption expenditure, the rest is inputs to industry. Its lack of comprehensiveness in coverage, and its multiple tax rate structure, lead to a number of problems:

the narrow tax base means that higher tax rates are required to generate a given level of revenue;

the tax impacts differently on various commodities and so interferes with consumption and production decisions;

individuals with the same income bear different tax burdens merely because they have different consumption patterns; and

the extent of commodity exemptions and the multiple tax rates lead to greatly increased administrative costs". (page 117, Draft White Paper)

The erratic Mr Keating was, of course, more colourful in his 1985 crusade to introduce a consumption tax and abolish the sales tax system:



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"If we don't as a nation adopt this proposal, then you won't see significant reforms in this country in taxation for the balance of this century." (The Sydney Morning Herald, 14 June 1985)

"But we must stop dealing with symptoms. The tax laws are in need of radical surgery." (National Press Club, 5 June 1985)

"... we could only attack the thing comprehensively that doing a repair job really wasn't appropriate ..."

"I think that this is the best opportunity Australia has had for genuine tax reform to make the smarties pay their fair share of tax and give ordinary people a break and it's the last chance this nation will get this century. "

(Transcript, 19 June 1985)

"The central question is not whether to repair the system. It simply has to be done." (The Melbourne Herald, 2 July 1985)

"I have every confidence that much of this cynicism on taxation that might have developed through years of political buck-passing will give way to a broader appreciation of the need for change, and the honest and earnest attempt this government is making to bring about that

change." (National Press Club, 5 June 1985)

"I don't like to be mucked around by people who know the truth of a position and let their prejudices sit in the road... I've got no time for polluted minds, none. Most of the people in this building come here to serve the public honestly and try to form honest views. But

there are those with prejudices and they get in the road sometimes. And sometimes, they've got to be knocked out of the road - you can't persuade them." (The Australian, 8 June 1985)

"We're not shrinking violets and we're not about to disappear when the first whiff of grape-shot passes the trench. So if any of our colleagues think that there may be some easy road to soft options, we're not about the soft path."

(AM, 14 August 1985)

"... the consumption tax ... will allow a more rational indirect tax system than the current anomaly-ridden wholesale tax, which has multiple rates, numerous exemptions, and fails to tax the services sector."

(National Press Club, 5 June 1990)

"It (our existing tax system) is decrepit and in a state of virtual decay. It is supposed to ensure that the tax burden is shared on the basis of capacity to pay, but it fails hopelessly to do that. ... As the Draft White Paper describes it, our existing tax system is a dead­

weight to the economy." (National Press Club, 5 June 1985)

The first year following an election is the time to move on the big reforms. The Hawke government should take the opportunity of the March statement to scrap the sales tax system.

Tinkering is not enough. A goods and services tax is the only answer for removing the sales tax burden on business and exports.

5 March 1991 D21/91

Canberra Contact: David Turnbull (06) 2774277