Here's why a GST rate increase should be on the table
Sun, 11/08/2013 - 02:03 Alastair Taylor
At present the Australian GST is levied at 10% on the majority of goods and services produced in Australia which are then on sold to Australian individuals and businesses. The money raised by the GST is then put through a process called Horizontal Fiscal Equilisation where the Federal government then allocates each state and territory an amount based on the HFE formula.
Given the primary income for State/Territory Governments is GST and the basic consumer and business processes already exist, adapting the GST could be argued as one of the most prudent ways for Governments to raise more revenue to pay for transport infrastructure expansion or interest bills on debt used to build new infrastructure. As GST is linked to consumption, the more money spent in the economy, the more money raised.
Cities are the engine rooms of any economy - it's where the overwhelming majority of us choose to live and work. Living near to centres of employment, social and retail hubs offers up choice - and the great enabler of this choice is transport. Without efficient transport modes providing greater capacity we're unable to get to where we need to go in order to work, go shopping or conduct our lifestyles how we see fit.
Sourcing capital to build new or expand existing infrastructure has become an interesting exercise to watch over the past 1-2 decades with a multitude of Public Private Partnerships having built differing pieces of city transport infrastructure all around the country. Governments of both persuasions have increasingly looked to the private sector to fund projects like Citylink and Eastlink as ideology from both sides has incrementally shifted Governments away from directly raising revenue in order to fund expansion or use as capital for the respective State/Territory's needs.
This PPP trend has produced a dubious outcome where public secrecy of big ticket infrastructure projects like the East-West link in inner Melbourne becomes commonplace and the taxpayer - the ultimate user - does not have a clear picture of the true benefits due to the Government's fear of compromising Private Sector investment.
Yes - I'm advocating a tax increase and one which isn't offset by other sectors of our entire taxation regime.
We require a two-pronged approach to provide greater transport capacity and alternatives to the existing private transport regime: secure a reliable funding source (this article) and expand Infrastructure project assessment capabilities downstream of Canberra (future article).
The reliable fund source
- Raise the GST rate by 2.5% to 12.5%
- State and Territory Governments are required to create Infrastructure funds to be managed by their respective Funds Management agencies, for instance Victoria's Funds Management Corporation
- The extra revenue raised above the existing 10% of GST should bypass the HFE process and be directly returned to the State or Territory the good or service was bought from and paid directly into the Infrastructure funds.
- The Infrastructure funds should have an enshrined purpose to purely fund transport infrastructure investment - public transport, roads and ports.
Key to all of this is communicating the increase in the GST is for a specific purpose: Infrastructure investment. Without this critical point, what I outline below is pointless and similarly having infrastructure spending decisions distanced, in part, from the political process as much as possible should be the secondary goal. This could be achieved via State-based Infrastructure agencies like the Federal Infrastructure Australia or by setting up joint State-Federal branches of Infrastructure Australia in each state capital ensuring public sector manpower is better deployed working with the largest service provider - the States and Territories - and the largest purse - the Federal Government.
I'd like to see a distinction made between the current level of GST and any future increases - such as the current Horizontal Fiscal Equilisation regime remains as is on the 10% portion of the GST - I think most people would understand the need for wealthier states to in part help out other states and territories in providing services there. However the wealth-generating states also need to fund their own infrastructure pipelines to ensure they can achieve consistent growth and keep on supporting the "have-not" States/Territories. To cut out the inevitable quarrel amongst State Premiers / Territory Chief Ministers which revolve around "we're not getting our fair share" then let's keep it simple: the 2.5% increase above the existing 10% would go back to the State/Territory where the GST is levied.
How it could work and impacts on entities paying GST
Small, medium and large businesses are the entities, generally, which pay the GST to the ATO. This is captured through a BAS Statement where the business tallies the amount of GST it has received from its goods and services sales, offsets the GST it has paid itself and produces a total figure which is the $ amount the ATO receives with each quarterly BAS lodgement.
In order to capture the amount of GST a business or organisation levies on customers in each state, every entity collecting GST would need to know their customers, more specifically they would need to know where they are located.
This is simple for a small retail outlet/corner shop: all their sales are in the one state therefore the added paperwork would be minimal. It would be relatively simple to ascertain for an online business - billing addresses which accompany credit card or paypal transactions (which already must be captured) can be used to capture the jurisdictional data. For large multi-state businesses (think Woolworths, Coles, Telstra, Origin Energy) POS terminals and internal accounting systems would need to be altered to produce sales figures per jurisdiction breaking down their state-by-state sales & associated GST component (if they don't already).
Essentially 8 new boxes would appear on the BAS Statement - one for each state and territory plus the existing total figure businesses currently used to inform the ATO of their GST obligations. Small, medium and large, online or bricks and mortar business would then simply provide their state-by-state breakdown - providing the grand total and then the GST paying entity would provide a figure for GST levied in Victoria, New South Wales, Queensland, South Australia and so on.
The business/organisation would pay the GST in one single payment to the ATO, as is the case now, but the extra information would then be used by the ATO to strip out the extra 2.5% and redirect the cash straight to State/Territory Government funds on a quarterly basis with the existing 10% component running through the existing HFE process.
Key to aiding the transition to the new GST regime will be the ATO/Federal Government devising and publishing the guidelines for accounting system integration touchpoints in order for software packages provided by MYOB, Xero, Oracle and SAP to automatically generate GST breakdowns based on customer and sales ledger data.
Show us the money
What does the extra 2.5% look like in real numbers? According to the Commonwealth Grants Commission's State Relatives 2012 Update report, Victoria was forecast to receive $11,782,000,000 in GST revenue for the 2012-2013 financial year. HFE/relative changes aside (in case you were wondering Victoria was forecast to receive $0.92 for every $1 paid in GST in 2012-2013) let's assume the $11.7billion figure is a straight 10% and if a model such as the one I've outlined were to be implemented, Victoria's new Infrastructure Fund would have been filled with $2.5-$3billion in 2012-2013.
Let your mind run wild, $2.5 to $3billion a year, could:
- Remove 25 level crossing removals a year, assuming an average cost of $100 million per crossing (we have well over 100 to remove in Melbourne alone).
- Commence major bus lane construction right across the metro and regional cities coupled with countless bus route improvements state-wide.
- Assuming an 8-10 year construction timeframe, Melbourne Metro Tunnel could be paid for directly with this fund and thereafter all the other subsequent heavy rail links as outlined by the PTV plan.
- Build the missing link in the ring road from Metropolitan Ring Road at Greensborough bypass to the Eastern Freeway at Thompson's road - offering an alternative to the Monash-West Gate corridor.
- Increase the amount of regional highway duplication projects: Princes HWY West from Winchlesea to Colac and beyond, Western Highway from Ararat to Horsham, accelerate plans to remove the last remaining at-grade intersections on the Hume and Princes "Freeways" between Craigieburn & Wodonga and Pakenham & Traralgon.
Let's not kid ourselves - this is not about creating a new tax to only have it funded by a "saving" elsewhere - this is about reversing the trend of the past couple of decades and flushing cash into an area that business, unions and community all agree needs a lot more attention. Regardless of your socio-economic profile, we must all contribute and doing it through adapting existing system and increasing the rate by an amount inside the Reserve Bank's inflation range will hit everyone's hip pocket, but it has a very specific and important purpose.
Big or small ticket transport infrastructure projects have flow-on productivity, social and environmental benefits for everyone and key to the success is rational discussion around tying the tax increase it to specific outcomes - projects and programmes selected on merit with greater community engagement outside the electoral cycle.
Would you accept a 2.5% increase in the GST if you knew every dollar raised was for the sole purpose of expanding transport infrastructure in our cities and regional areas?