Tax reform needed over GST and public sector service funding

ABA funding taxation productivity commission

4 September 2017
| By Hope William-Smith |
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The banking industry is largely in support of equal access to publicly funded services, but the way GST is distributed still needs addressing to preserve efficiency and fairness in Australia’s tax system, according to the Australian Bankers’ Association (ABA).

Former Queensland premier and ABA chief executive Anna Bligh called out the goods and services tax (GST) distribution history over the past two decades, saying “unintended and undesirable consequences” were part of the mechanism for its distribution.

In the ABA’s submission to the Productivity Commission inquiry into horizontal fiscal equalisation, Bligh said there was legitimacy to the view that GST had not worked in line with its original envisaged outcome.

“The distribution should be able to better respond to fluctuations in revenue sources, to avoid unplanned budget deficits and financial market disruption,” she said.

“Australia needs well-considered tax reform that focuses on driving economic activity, investment and jobs.”

Bligh pointed at discrepancies within the provision of GST and called for more flexible strategy to address economic variables.

“States and territories derive limited benefit from some sources of revenue raising,” she said.

“It is clearly untenable for states such as Western Australia to receive a GST share of less than 35 cents in the dollar, nor was this possibility foreseen or intended by the original GST agreement.

“The distribution should be able to better respond to fluctuations in revenue sources, to avoid unplanned budget deficits and financial market disruption.”

The proposed major bank levy by South Australia was also touted as a key issue of concern by the ABA, with Bligh stating its introduction was in direct contradiction to the GST agreement to eliminate financial taxes.

“No state should gain a financial benefit from breaking the agreement,” she said.

“Banks pay GST on their inputs but do not collect GST on the financial services and products the provide [and] this ‘input-taxing’ of financial services means that GST becomes a direct cost to financial institutions.”

The draft report of the PC inquiry is expected in October.

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