Tax de­bate shines light on flawed rev­enue base

China Daily (Canada) - - FRONT PAGE - By BLOOMBERG

Aus­tralian Trea­surer Joe Hockey’s pledge to con­sider ex­clud­ing tam­pons from a sales tax has raised con­cern the gov­ern­ment could end up­shrink­ing its rev­enue base at a time when it needs ex­pand­ing.

Hockey asked the Trea­sury to cost the re­moval of the 10 per­cent goods and ser­vices tax from the san­i­tary prod­uct af­ter women hold­ing a gi­ant tam­pon ques­tioned the trea­surer on the fair­ness of the levy on Aus­tralian Broad­cast­ing Corp’sQ&Apro­gram.

The de­bate over re­mov­ing the GST from the item has shone a spot­light on a scle­rotic tax sys­tem that has failed to keep pace with Australia’s chang­ing spend­ing pat­terns and left the gov­ern­ment strug­gling to plug its bud­get deficit. Hockey’s move to re­view the levy on tam­pons, in place for 15 years, could prompt a flood of de­mands for es­sen­tial items to be ex­cluded.

“It opens up a can of worms,” said Su-Lin Ong, head of Aus­tralian eco­nomic and fixed-in­come strat­egy at Royal Bank of Canada in Syd­ney. “The de­bate should not be about ex­clud­ing more from the GST, it should be about mak­ing it ap­ply to a broader range of items.”

Hockey, in his bud­get re­leased two weeks ago, fore­cast a bud­get short­fall for the 12 months through June 2016 of A$35.1 bil­lion ($27.2 bil­lion), wider than its De­cem­ber es­ti­mate of A$31.2 bil­lion. It also wiped more than A$50 bil­lion from its pre­dicted tax rev­enue over the next four years due to a col­lapse in iron ore prices and low wage growth.

The gov­ern­ment has al­ready ruled out tight­en­ing tax con­ces­sions for prop­erty in­vestors and pri­vate pen­sions that might have helped boost rev­enue, and said it won’t in­crease the rate or broaden the scope of the GST in this term of gov­ern­ment.

The trea­surer on Tues­day asked his depart­ment to cal­cu­late how much the tax ex­emp­tion for tam­pons would cost. The night be­fore, a uni­ver­sity stu­dent told him on live tele­vi­sion that it was in­con­sis­tent to ap­ply the GST to tam­pons when it wasn’t levied on con­doms, lu­bri­cants, sun­screen and nico­tine patches be­cause they were classed as im­por­tant health goods.

Hockey agreed that based on this prin­ci­ple, san­i­tary prod­ucts should be GST ex­empt. “It prob­a­bly should, yes. The an­swer is yes,” he told Q&A.

The GST is raised by the fed­eral gov­ern­ment and then dis­trib­uted to Australia’s states to al­low them to fund ser­vices such as health and ed­u­ca­tion.

Prime Min­is­ter Tony Ab­bott, who sought to play down his trea­surer’s com­ments, told par­lia­ment on Wed­nes­day it would be up to the states to make the de­ci­sion on ex­clud­ing tam­pons.

Trea­surer Joe Hockey

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