Should Australia Introduce Any Tax Or Gst Changes Essay
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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) Last but not least, foolishly yet
truthfully the liberal party claims that the robust system of taxing goods
and services is to provide the government with the capacity to fund-through
increased taxes and revenue.
DISADVANTAGES
1) Even with less income tax people will
be declined to spend as much as before, consumption will decrease.
2) If the introduced GST was to be equitable
and effective, it will have many exemptions, thus leading to complication.
3) Many services will lower their prices
in order to receive cash thus avoiding the GST.
4) With the introduction of GST, the government
also has to increase social welfare and many other government services
to keep up living standards.
5) The following years in which a GST
will be introduced, the inflation will stay very low thus many coin/note/bond
holders will transfer their money to the government. And most importantly,
yields the government billions through its impact on collection from the
progressive personal income taxes. With out inflation this taxation by
stealth disappears. This will benefit the community, but the government
will need to raise its tax revenue is it wants to increase expenditure.
6) If assumed without any exemptions,
many luxury goods that were highly tax by WST will now be cheaper, advantaging
the minority rich people of Australia.
7) Higher prices on goods and services
will discourage tourism. Thus unemployment will rise.
8) Higher interests due to GST will mean
that current mortgage owners will have to pay more.
9) Due to the abolishment of WST, families
that current rent and don't own a property will have to pay more to buy
a house and more to rent. (Real estate commission will rise, building materials
will rise etc.)
10) It could lead to a state where employees
feel they need more money to support their family (especially those with
only one member working) and go on industrial strikes this will trigger
a series of severe fund loss from the government.
11) The reduction to custom duty may advantage
businesses that import from overseas but it has also left many Australian
businesses unprotected from foreign funds. Overseas businesses are already
more competitive than...
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