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WELCOMING THE NEW TAX SYSTEM

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					    WELCOMING THE NEW
    TAX SYSTEM
 The implementation of the New Tax System on 1 July 2000 marks the beginning of a
 change, not only for the Australian economy, but the way in which all Australians will
 live. Gone is the archaic, distorting, inequitable and narrow-based Wholesales Sales
 Tax (WST) – a tax which imposed severe cost burdens on business and in so doing
 made all consumers worse off. But that is only the start of a series of changes which
will make the Australian community far better off than it would have been had tax
reform not been addressed.

Although much of the debate over tax reform has centred on the Goods and Services Tax (GST) the tax
reforms included in The New Tax System will have many long-term positives for all consumers and
business. The New Tax System will provide a more stable and robust platform upon which Australia
can continue to build its economic strength.


The virtues of the new system are critically important:

•        The tax base has been widened – with the removal of the WST, the weight that had been
         previously placed on manufactured goods has been lifted while most services have now been
         incorporated into the tax base;
•        States and Territories have now been provided with a secure revenue source coupled with the
         removal of some highly inefficient State and Territory taxes;
•        Additional encouragement to Australian exporters improving Australia’s international
         competitiveness;
•        Opportunities for tax evasion and avoidance have been sharply restricted;
•        Improved incentives for families to re-enter the workforce.
•        No other country that has implemented a broad based consumption tax offered as
         generous a compensation package as Australia;
•        Part of this compensation package is the largest personal income tax cuts in Australian history;


Australia will finally have a tax system that supports the producers and employers of the economy –
business. What business needs to understand is that consumers pay the GST because any GST paid on
business inputs can be claimed back as input tax credits. In the short term the real concern for business
will be the administrative and compliance requirements and cash flow implications from the transition
to the new system.




Commerce House, 24 Brisbane Ave, Barton ACT 2600 • PO Box E14, Kingston ACT 2604 Australia
Telephone: 61-2-6273 2311 • Facsimile: 61-2-6273 3286 • Email: acci@acci.asn.au • ACN 008 391 795
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There are, however, longer term positives from broader tax reform with the tax burden on business
being significantly reduced and as international evidence suggests, once the tax is up and running
compliance is much more simpler.


Consumers will Benefit

Consumers will also reap the rewards associated with the implementation of the tax reform package.
Once the cost reductions associated with abolition of the WST on consumer goods and on business
inputs and reduced transport costs flow through the economy, very few prices, if any should rise by 10
per cent.


Notwithstanding the cost reductions, consumers will be in an improved financial position due to the
compensation component of the package.


The huge personal tax cuts provided to all Australians are not a one-off occurrence. The tax cuts are on-
going, making the vast majority of consumers significantly better off in the long-term.


Not Everything Business Wanted

But even in welcoming the New Tax System, it must also be understood we do not have the system we
wanted. The GST is not as universal as we would have wished; the indirect tax system is therefore more
complex than it ought to have been. Because the revenue stream is not as large as it could have been,
some $2.3 billion worth of State and Territory taxes that should have been eliminated still remain.
Moreover, the Government has appointed the Australian Competition and Consumer Commission
(ACCC) to monitor the price effects of tax reform to alleviate consumer concerns regarding “price
exploitation.


Unfortunately the boundaries of the ACCC’s role have expanded beyond just simply monitoring prices,
they believe they have been given the jurisdiction to publicly name and shame businesses who they
believe have used the GST to unjustifiably increase prices. All this supposedly in the name of aiding the
consumer.


However, all this does is add significantly to the already massive compliance and administrative task
facing business. Given the widespread changes associated with the package and the fact the economy is
continually changing, it seems extremely unlikely that the ACCC will have the knowledge or
information to accurately judge what price ought to be charged by business after the introduction of the
tax reform package.


There is little reason to think that markets that operated competitively before the introduction of the
New Tax System would suddenly not be subject to the same competitive forces. Businesses need to be
given the latitude to deal with the complications associated with the changeover and experience the
benefits of lower taxation costs without the threat of ACCC action.




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WELCOMING THE NEW TAX SYSTEM (July 00)
Reform of Business Taxation

There is no question that families and business have borne the burden of an inefficient tax system by
paying too high a personal tax and too high a business tax. This New Tax System provides business
with lower business costs and there is also the impending reform to the business tax system part of
which is the introduction from 1 July 2000 of a lower rate on company tax with a further reduction
from 1 July 2001 and lower capital gains tax. Also, businesses with a turnover of less than $1 million
will be eligible to reap the benefits of accessing a simplified tax system also from 1 July 2001.


From 1 July 2000 all Australian taxpayers will benefit from $12 billion worth of income tax cuts and
increases in welfare payments so that 80 per cent of all income earners will be paying a marginal rate of
only 30%. Not only will all workers have more disposable income, but the new tax package encourages
undertaking paid work, encouraging activity and increasing output.


The introduction of the New Tax System will make all Australians better off by helping to ensure that
everyone pays their fair share of tax. And once the initial transition period has been surmounted all
businesses will reap the benefits of a lower taxation burden and continued efficiency gains improving
Australia’s growth and competitiveness in the longer-term.




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WELCOMING THE NEW TAX SYSTEM (July 00)

				
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