19/04/2005 - 22:00

GST battle a stand-off we had to have

19/04/2005 - 22:00

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There is a fascinating battle under way over states’ rights and taxation, with federal Treasurer Peter Costello wielding his new-found power as chieftain of the biggest pot of gold the nation has ever seen – the GST.

There is a fascinating battle under way over states’ rights and taxation, with federal Treasurer Peter Costello wielding his new-found power as chieftain of the biggest pot of gold the nation has ever seen – the GST.

Mr Costello has been telling anyone who is interested for the past year or so that the states are getting more than was ever expected and they ought to be cutting their own taxes in line with this new-found income.

He has threatened to start making GST allocations on the basis of policy rather than on the current system, which is supposed to be free from political interference.

The states have told Mr Costello to mind his own business and suggested that directing the allocation of the GST would prove that it’s really a federal tax, not the theoretical state tax administered by the Commonwealth as the treasurer likes to argue.

It is one of those rare moments when both sides are right, in my view, and it goes back to when they all signed up for the GST in the first place.

It appears, four years on, no-one expected the tax to be so successful, or they were only interested in rushing it through the parliamentary and constitutional roadblocks … or both.

Now we have a system that only partially achieves what it set out to do, creating a broader and fairer tax base that overcomes difficulties with states’ taxing powers and the problems that created, namely the constant burden on business.

In order to get the GST approved, the feds agreed to a hybrid that failed to stop states taxing business.

But the states also accepted the idea, in principle, that if a consumption tax was put in place the revenue flows would replace their own hotchpotch of inequitable levies, duties and taxes, even if that wasn’t going to happen straight away.

If they wanted to remain in control of taxing mechanisms, they should never have signed up for the GST in the first place.

So what we have here is a Mexican stand-off between two parties over the benefits of a deal they stuffed up the first place by not being more clear about how both parties would be required to act if certain outcomes were obtained.

In the meantime the rest of us lose – unless you think governments can spend your money better than you can (which I am prepared to argue that they can, perhaps 25 per cent of the time, tops 30 per cent).

The funny thing is I can’t see either side changing, even though both have obvious choices when it comes to the principle of the matter.

Premier Geoff Gallop could argue that he never signed up to the GST (that was done by his predecessor) and it was wrong.

He could then forego Western Australia’s allocation of the tax and return to finding state taxes. Good luck with that.

Alternatively, Mr Costello could say that if the states are getting more than they deserve and won’t cut back their own taxes, it might be time to lower the GST – something that would be a historical move globally. While this might not be a long-term improvement to the fairness and equity of our tax system, it would at least provide balance.

Business, of course, would lose out.

A better alternative would be to cut income taxes.

Even though that would be a ‘federal’ tax drop in favour of a ‘state’ tax rise, the fact of the matter is that we are all paying too much tax and it’s time one of these parties started to hand some back.

Given the Liberal Party’s philosophical predisposition to being against tax, it would be nice to see it lead the charge in this regard.

Every boom has the  inevitable flip side

Our story on steel prices this week is a great example of a flip side of a boom, and the basics of economics.

No matter how much growth you have there are always losers – I guess we just have to hope there are more winners than losers each time the cycle comes and goes.

I recently chatted to a scaffolder who said the boom was bad for business. Delays at building sites due to labour shortages meant his scaffolding sat there for longer, even though he was paid a fixed price.

Take a look at Tim Treadgold’s Briefcase column on page 26, where he makes some similar points about the oil price and current concerns in the stock market.

Intriguingly, as a downturn comes upon the markets, Briefcase is highlighting the reverse point. There are always winners from a bust.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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