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Tuesday, 7 December 2004
Page: 128

Senator STEPHENS (9:27 PM) —The Tax Laws Amendment (Small Business Measures) Bill 2004 provides small business and non-profit bodies that voluntarily register for the GST the option to report and pay their GST on an annual basis. It also allows for annual apportionment of creditable purchases of input tax credits and it removes the requirement for businesses to make annual elections to pay their GST in quarterly or monthly instalments. With respect to input tax credits, it means that the apportionment exercise can take place once a year rather than once a quarter and, once a small business elects to pay quarterly GST instalments, it does not need to keep doing it. This is a small, positive step for small business in the compliance nightmare of the GST.

Since the introduction of the GST in 2000 the Howard government have been forced to concede that the compliance costs for small businesses in particular are unacceptable and they have made several unsuccessful attempts to remedy this. The measures in this bill are further examples of the bandaid measures the Treasurer has put together to reduce the extraordinary amount of time and money that small business spends complying with the complexities of the Howard government's GST reporting regime. Just last Monday the Australian Industry Group released a survey which indicated that the cost of compliance with government regulation is 4.85 hours per employee per month for small business. This compared with 0.78 hours per employee per month for large firms. For a firm employing 20 persons the estimated cost of compliance with government regulation was over $33,000 per year. This is consistent with the findings of the state Chamber of Commerce in New South Wales in 2003 showing that small businesses faced proportionately higher costs than large businesses. The government remains happy to rely on small business to be its unpaid tax collectors but will simply not act to decisively reduce the compliance costs that this involves. The burden of compliance is a hidden tax that the government imposes and there is now a pressing need to act to reduce this hidden tax burden.

The opposition has advocated a superior measure of GST payment for several years now. It is called the ratio method. The ratio method is elegant in its simplicity. It will eliminate the need for quarterly and annual GST reconciliations. Under Labor's simpler BAS option, small businesses can easily adopt a simply calculated quarterly payment on their turnover. Each registered business using the ratio method would be given a GST ratio based on its own trading circumstances. The GST liability is calculated simply by multiplying the business turnover by this ratio. The method could not be simpler. Small businesses have to complete only one calculation and fill in two boxes on the BAS form. It will also provide a safe harbour from the potential costs arising from any tax audit for those adopting the new option. The new option will be completely voluntary. Small businesses can opt to remain in the current system without any change at all. The simpler BAS option will be individual or industry specific, based on reporting experience during the first two years of the GST, and employ a simplified ratio to turnover approach, with allowance for large or irregular business cost items. Labor will require that the simpler BAS option be revenue neutral and that it generate net compliance cost savings for small business.

For the purpose of illustration, let us assume that the ratio is 5.5 per cent, because ordinarily it will be somewhere between zero and 10 per cent once you net away the input tax credits that the business has typically claimed. Once the tax office issues that ratio, the small business need only multiply GST sales by that ratio—in this case, 5.5 per cent—which is a simple calculation, and remit that amount to the tax office. You could not get a simpler method of assessment, and no reconciliation is required by the business.

Let me take this opportunity to talk about the GST itself and the role that it plays in the government's tax policy. We need to remember that this is the highest taxing government this nation has ever seen and, by an enormous margin, the highest taxing Treasurer that this nation has ever had. The tax take is $206 billion in 2004-05 and by next year total personal income tax will be up 80 per cent since 1996. Income taxes will continue to rise in every year of the forward estimates. The average taxpayer is already paying nearly $10,300 more tax every year under the Howard government, and by 2007-08 the amount of extra tax per taxpayer will be over $12,500. The tax to GDP ratio continues to rise to record levels, and part of this is the GST. GST revenue has escalated dramatically, now at $36 billion and rising to $43 billion over the forward estimates. This enormous Commonwealth tax is what is continuing to drive Australia's tax to GDP ratio upward.

So when the government seeks to introduce measures to reduce GST compliance costs we need to get a sense of proportion of how much revenue is actually being raised for the government by business through the GST. This extraordinary growth in revenue means small business will suffer a proportional increase in the amount of resources devoted to compliance. In comparison to the magnitude of revenue raised, the government measures to reduce the cost burden on businesses are really very paltry indeed. While not declining to give the bill a second reading, Labor condemns the government for, firstly, not adequately addressing the significant burden placed on small business by the introduction of the GST and, secondly, failing to adopt Labor's simpler BAS option that would allow small business to use an ATO determined ratio to calculate their quarterly GST payments with no annual or quarterly reconciliations, thus freeing small business owners of the burdensome compliance requirements of the current regime.

Senator McGAURAN (Victoria) (9.34 p.m.)—On behalf of Senator Murray of the Democrats, I seek leave to incorporate his speech in the second reading debate on the Tax Laws Amendment (Small Business Measures) Bill 2004. I believe the Labor Party whips have a copy.

Leave granted.