Should Australia Introduce Any Tax Or GST

Changes. Essay, Research Paper

Why do we need taxes.

Taxation makes up majority of our government’s

income. With this income the government can provide us with proper infrastructure

and social services for little, if no cost at all. These include Medicare,

social security and education. (These facilities are known as recurrent

expenditures because it is needed time after time.)

Other expenditures include transportation,

lighting, recreation etc. These services are granted to us at no costs.

In many 3rd world countries where taxation is low or doesn’t exist, all

of these services are to come out of one’s own pocket.

Over the many centuries, in which taxation

was existent, people have cheated and avoided paying these taxes. Nowadays

people with high-income put their money into trusts, superannuation, or

incorporate it into businesses. Businesses would try and receive more cash

transactions. This has led to a decrease in our government’s revenues,

thus leading to a tax reform in hope of a more effective result.

What makes a good tax system.

There are four elements in a successful

tax system. They are effectiveness, efficiency, equitability, and simplicity.

1) Effectiveness: is the performance compared

to the desired effect. E.g. the number of people who pays tax, how much

tax is received.

2) Efficiency: is the cost of running

the system. The system may be very effective with a million tax officers,

but it would cost millions to hire so many people.

3) Equitability: is the fairness of the

system. This is an impossible goal to achieve. From different people’s

point of views, the system will always be unfair to them in some way. Not

to mention the tax cheats. The best solution is to broaden the number of

people who pay the tax, which is only fair.

4) Simplicity: A tax system should never

be too complexed, it is otherwise not efficient neither understandable.

The income tax Act that just started off at just 120 pages in 1936 is now

over 3300 pages and has doubled in size over the last 7 years. A complex

system means that those who can afford expensive tax advice minimize their

tax. But those that can’t, pay the full share. It is impossible to have

a system where all four elements are satisfactory. Where a system may be

effective and efficient it will not be equitable or simple. It is impossible

to fit the whole population all under one roof. Under these circumstances

the government proposed a new way of taxation- GST.

What is GST.

GST is a tax on the goods and services

that each and everyday households consume. Tax is collected at each stage

of production and distribution, but a credit is given for the GST on inputs.

Refunds are given for GST on exports. Therefore, only households bear this

tax. Australia currently has a WST in place of a GST. WST is whole sales

tax this tax is levied on the whole sale price and is collected by wholesalers.

A GST is in fact a VAT-value added tax. Meaning it is levied at each stage

of production and distribution. Over one hundred countries in the world

have a GST/VAT, but only six nations including Australia have a WST.

The advantages and disadvantages of a GST

It is hard to say whether the GST is favorable

or adverse because the government hasn’t yet proposed the whole system,

the exemptions and the exact figures of taxation. The following is only

speculation by the many supporters and those who disapprove.

ADVANTAGES

1) Lower taxes means business can buy

and sell more competitively overseas.

2) The higher cost of prices will slow

down inflation.

3) At each level of production and sale,

except sale to a consumer, a rebate is claimable. The paperwork for these

claims helps to enforce compliance. This would also stop tax evasion.

4) It will hit the black economy because

the money earned will be used for consumption.

5) Replace existing distortional indirect

taxes

6) Prices on some good and services will

fall instead of rising. E.g. petrol

7) Less income tax gives people more incentive

to work.

8) The reduction in many taxes that were

of a heavy burden to businesses will be abolished thus giving the businesses

more power to employ extra workers. These taxes include the WST and many

other excise duties such as the taxes on many house hold goods.

10) The GST will be able to with stand

tomorrow’s many challenges which the current system will not be able to

handle. E.g. an aging population.

11) Current indirect taxes are levied

on a limited array of goods, which are a declining proportion of household

budgets. This problem can be solved only with a broad-based tax system

such as the GST.

12) GST will be simpler than the existing

system.

13)

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