New Treasury modelling supports change in tax mix towards GST

In the latest Commonwealth Treasury Economic Roundup, there is an excellent paper on the economic impacts of company tax. The paper could be viewed as supporting a cut in company tax and replacing the lost revenue with greater GST revenue, either from broadening the base or increasing the rate of the GST (The incidence of company tax in Australia). As the paper shows, company tax is an inefficient tax because it reduces the level of investment in the economy, and this cost is borne by both shareholders and workers. The authors of the Treasury paper note (p. 43):

The welfare effects of a 1 percentage point cut in the company tax rate are shared between company owners and workers. Estimates from the main scenario, which includes economic rents, suggest that in the long run only around one-third of these benefits accrue to the owners of capital, with the remaining two-thirds flowing to households primarily through higher wages.

I’ve previously posted on taxation issues and I’ve noted that it would be desirable to cut a range of inefficient taxes, particularly stamp duty, and to replace forgone revenue with a broader-based GST. Relevant posts include:

Dr Parkinson right that the GST should be broadened

GST changes should be considered as part of wide-ranging tax and expenditure review

 Inefficient State taxes

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2 Responses to New Treasury modelling supports change in tax mix towards GST

  1. KT says:

    Hi Gene
    a few points
    I think Stamp Duty should be reduceed and Payroll abolished – a tax that penalises business for employing staff. Agree that GST should be broadened
    Company tax should stay as is
    Negative gearing should stay too

  2. Gene Tunny says:

    I agree with you on stamp duty, payroll tax, GST and negative gearing. Thanks for your comment, KT.

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