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DEATH and TAXES – Part II – Efficiency in Government

July 4, 2011
Herman O'Hermitage
Title:
DEATH and TAXES – Part II –
Efficiency in Government

By: Herman O’Hermitage
The blog Death and Taxes Part I – Who pays the PENNY Man twines many strands. It briefly mentions well targeted government programmes and GST. The GST is now over 10 years old, and it is interesting to note how no government has dared to develop it other than some basic compliance simplifications after it was introduced.GST is a value added tax but it is particularly ham fisted as the Democrats insisted that basic food be exempted, therefore not broadly based.

The State Governmentshave become particularly dependant upon their share of the revenue. The question must remain has the GST addressed the cash economy as it was promised to do, or did it really encourage more industries into the cash economy. The building industry and motor vehicle repair industries are fine case studies.Retailers simply pay their GST as the issues concerning non-compliance are not realistic.

That has been nice and simple for government but lately Gerry Harveyis want to highlight that on line transactions are exempt and hurting store based sales. That is the nature of tax. Avoidance is very lucrative and prosperous. Any teenager will tell you that a new digital camera or other electronic device is cheaper on the net.

A mechanic told me years ago, that if 40% of his revenue is declared as income and therefore subject to GST and the other 60% is non taxed he would optimise. In this way he could claim the taxed inputs of 100% of his real business against the 40% declared income and thereby maximise personal income and pay virtually no tax. In that scenario the ATO would still under a taxation audit give him an estimated income based on inputs, and make him prove that his income was not so. The basic premise is lifestyle. Where he is spending to a notional level, how does he finance it?

Last December I was referred to a particular mechanic for a squeaking brake issue, and he insisted on being paid in cash. I was stunned by his brazenness in demanding cash. There wasn’t even a question like “I might be able to better for cash”. I will not be returning to that mechanic. Is this GST compliance regime OK?

Last year I was chatting with some roofing specialists how tradesman walk away from shoddy practices in the cash economy. They were laughing how you can’t report them to fair trading in the cash economy. Therefore we are all better protected by only dealing with reputable traders, but

What is cost of compliance? It is not ever effectively measured. Some will estimate that government revenues cost 8% to collect, others will debate it is less than 2% while others would cite bureaucracy as being impossible to calculate and as high as 25% and you must then consider each tax individually. The government would love to do away with (or reduce the volume of) personal tax refunds as they cost too much to administer.

I can only surmise that GST in Australia did not deliver a fraction of the promise. It has not reduced personal or company tax. It is now simply a compliment. I wonder why the Liberal Government did not re dress GST being broadly based post 2004 when they had control of both houses of Federal Government.

They did introduce Workchoices. That was a curse and as the fable of the Curse of the Ancient Mariner tells us you can’t sell an albatross (curse), you can even give it away. I can only believe that the former Liberal government did not have the courage of their conviction on GST, and that is why it is what it is.

Sadly this is how I perceive the Carbon Tax. It is intended to introduce financial incentives to reduce the externality of carbon pollution from coal fired electricity and other highly polluting industries. It is totally inequitable when so many unintended groups need to be compensated. It is even more difficult when you can not quantify the relative claims of those groups. We have Unions saying it will destroy jobs in certain industries.

The unknown and unquantifiable are simply immense. You can rightly ask is there a better way?

The Federal government are convinced that the polls will turn around after the carbon tax is introduced before the next election.

I believe it too is an albatross, and where Federal Labor want to resurrect the curse of Workchoices constantly, why can’t they see a Carbon Tax as planned as an equivalency?

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