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New Taxation Era As GST Begins

Major taxation changes, including the introduction of a 10% Goods and Services Tax, began today in Australia. Reaction to the changes is likely to determine the fate of the Prime Minister, John Howard, his government and the Opposition over the coming months.

HowardThe Wholesale Sales Tax (WST) system that has operated since the 1930s is now abolished. The differential rates of WST operated as taxes on business production. They have been replaced with a flat 10% tax which covers not only goods, but previously untaxed services. The GST operates at the consumption end of the production chain.

Basic food, education, child-care and health are exempt from the GST. Food was included in the government’s original plan, but exempted following the deal struck with the Australian Democrats last year that ensured the passage of the legislation through the Federal Parliament.

Retailers now act as tax collectors. Overnight, major department stores, supermarkets and other retailers, repriced their products to be ready for the change-over today. It is reported today that Australian Competition and Consumer Commission price-watchers will be out in force today to monitor retailers.

With the changes come reductions in income tax rates, with the majority of taxpayers, around 80%, now sitting on a top marginal rate of 30%. This represents weekly tax cuts of around $50 for people on incomes around $50,000. The tax cuts cost around $12 billion.

Family assistance programs also change today. Pensions are increased by 4%, rent allowances by 10%, and some retirees are eligible for a savings bonus. First home buyers receive a $7000 rebate and the diesel fuel tax will be cut. Controversy has erupted in recent weeks over the effect of the changes on petrol prices and this will be an interesting area politically in coming weeks.

Reforms to business taxation also take effect today. The rate of Company Tax falls from 36% to 34%. The system of provisional taxation is replaced by a new “pay as you go” system.

One of the most significant changes in the new tax system ittle understood by many people is the introduction of the Australian Business Number (ABN) and GST registration processes. These are aimed at cutting into the black market economy, although evidence from overseas is at best mixed about the likely success of this.

The GST is expected to raise about $24 billion, all of which will go directly to the State and Territory governments. This represents a major change in Commonwealth-State financial relations. General Purpose Grants and the annual Premiers Conference have been supplanted by the GST.

Reports in today’s newspapers

Offical GST Web Sites

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Malcolm Farnsworth
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