The world according to GRP
G.R. Putland's old blog
Thursday, January 17, 2008:
Trade deficit requires reform of tax and super
If Trade Minister Simon Crean wants to end Australia's trade deficit ("Crean vows to act on trade deficit", The Age, Jan.11), he will need help from the Treasury, Finance and Health portfolios.
One cause of the trade deficit is the 9% employer-funded superannuation contribution, which feeds into export prices but has little effect on import prices. A 9% employer-funded contribution is equivalent to a 9% Federal contribution funded by a 9% Federal payroll tax. If that payroll tax were replaced by a "superannuation levy" on the same base as the GST, it would burden imports instead of exports.
State payroll taxes also feed into prices and discriminate against exports (making it almost certain that they amount to State-imposed excise duties, in which case they are unconstitutional). Merging payroll taxes with the GST would solve that problem, but would tend to cause two others: a rise in the GST rate ("over my dead body", said Mr Rudd), and a further erosion in the fiscal independence of the States.
The forbidden rise in the GST rate could be avoided if the Commonwealth were to take over a major area of State spending. Public hospitals readily come to mind.
And the fiscal independence of the States could be restored by setting the GST rate in each State according to the request and consent of the State Parliament, and returning the GST collected in each State to the Treasury of that State (subject of course to the abolition of payroll tax). This would not amount to unconstitutional discrimination between the States, because the Commonwealth would make exactly the same offer to each State.
If each State were free to set its own GST rate, the GST would have to become a retail tax in order to avoid complications caused by input credits at multiple rates.
These issues, among others, are considered in the article Raising Australia's Market Share, of which the first edition was published on January 9. The article has been featured in Tax Carnival #28 at Don't Mess With Taxes and in the January 16 ed. of the Carnival of Australia at Blogging Sueblimely, and not quite featured (!) in the Carnival of the Capitalists at Bizosphere.
