12th August 1998
The Australian population has been bombarded with pro GST rhetoric for over a decade. The proponents are mainly people with either a political or big business background and an agenda filled with self-interest and "globalism" rather than the interest of Australia in mind.
Proponents use half-truths and all-out lies to push their idea's onto an unknowing population. It is my intention to explain from were the GST 's negative results will be felt most severely: Small business, the largest employer group in Australia. This large group of self employed people are doing it harder than ever before and don't need any more financial disadvantages.
Operating a small business in Holland for more than 10 years and being subjected to GST during that time has given me a sound understanding of GST and the increased administration burden that comes with it. During that time I traded on a regular basis with most countries in Europe and found that small businesses in these countries suffered similar problems related to GST.
First of all: There is only ONE type of GST/VAT. Some say that there are different types of GST. This is not true, this is evident from the GST/VAT 's used in Europe, they all work in the same way.
In all these countries it was noted that GST was very easy to avoid except by businesses with a need to show high turnover caused by high overheads and costs.
GST works as follows: Goods are purchased including GST, a mark up is added during a sale and the GST payable to the tax office is calculated by subtracting the amount of GST on the purchase invoice from the amount of GST on the sale invoice. So the GST is in effect a percentage of the mark-up.
Please note that the mark up only represents GROSS profit. A further resale of the goods will repeat the same procedure over and over again, in effect a tax over a tax etc, etc.
Sale of services have by their nature no purchase invoices, only sales invoices. The main cost of a service is wages, the employee does not present the business with an invoice. Therefore the GST on a service is calculated on the sale figure only, NO subtraction at all! So the GST payable on a service equals a full 15% of the sale price, it does not recognise the cost of wages, and some other costs associated with providing a service. The GST on services is a pure turn-over tax!
Contrary to information supplied by the pro GST brigade: ALL European countries that have a GST still have very high income tax rates. Another fact is that any country that brought in GST always increased it's GST rate very soon after introduction under the heading: the increase is 'only' 2%.
An increase of 2% on an existing rate of 15% is an increase of no less than 13.3% in revenue. And therefore an equal (13.3%) increase in amount payable to the tax office.
Furthermore, the promised income tax cuts associated with the introduction of a GST are a fallacy, the impact of a GST is such that the theoretical tax cut will be nil or negative as a result of the loss of net profit.
The average small business owner can only hope to reduce his income tax bill by a maximum of say $1,000.00 PA while he might have to hand over something like $1,500.00 or much more a MONTH.
Clearly no comparison, and the reduced income tax is based on the premise that his profits are still the same as before GST, which is higly unlikely.
It's all too easy for politicians and accountants to dismiss this and say: "But the customer will pay this!" They totally ignore the fact that nowadays, in the depressed economy of today, the consumer simply doesn't have any extra money to spend. The retail dollar cannot be stretched. Since the consumer's disposable income doesn't increase, it means that the GST amount comes out of it, meaning that small business nett turnover decreases by the same amount.
Or, even worse, the consumer will go to a 'backyarder' (non complying business) causing the bonafide business to lose the whole transaction. Reason being that the easy avoidance of GST gives the non compliant business an edge which most buyers will find irresistible.
The promised removal of existing taxes on goods has never eventuated, as the European experience shows; ALL goods prices after the introduction of GST increased.
It should be understood that with regard to service (labour) based turnover the GST is a pure sales/turnover tax with no relation whatsoever to gross or net profit, and that with regard to goods related turnover the GST has a relation only to gross profit, which obviously not necessarily translates into a net profit.
A tax that has no relation to profit is not a tax, it's a LEVY. And this GST "levy" is in reality a levy on running a business and employment.
The result can be and sadly enough often is, that a small business could be unprofitable while still paying relatively high amounts of money to the tax office. The amounts: 15% of service charge related turnover, plus: 15% of gross profit on all goods sold.
Tax reform is necessary, but it is untrue that a GST is a prerequisite for tax reform, the politicians and big business want it because it's good for them. Unfortunately it is not for small business. The argument that "GST helps exports" is flawed at best. Exports could be exempted from sales tax, which would make them more competitive than with a GST.
The black money circuit will dramatically increase, as shown in Europe it can grow to approx. 50% of the currency in circulation. This will significantly reduce tax revenue, adding to the upward pressure on the GST percentage.
The cost increasing impact of a GST should not be overlooked either. The adding of a GST to rents, leases, insurance premiums, telephone bills, power bills, advertising and rates will further erode the already shaky profit base of small business.
The disposable income of consumers decreases by the same percentage as the GST. And it is clear that consumers with a low to middle income level will be hurt most. This is because they HAVE to spend most if not all of their income to survive, therefore they are carrying more of the burden. Unlike high income people who do not have to spend their whole income to live and therefore carry less of the burden, so much for equality.
The promise that fuel cost will go down is also questionable, in Europe petrol costs is from 50 to 100 % more than in Australia.
The final result is also that GST will have a negative impact on employment.
The truth is that the sole reason for a GST is to increase tax revenue, but no lagging economy has ever improved through tax increases.
To say that only a GST will fix Australia's economy and that all successful nations have a GST is false, Only the European countries and New Zealand have a GST. The USA doesn't have a GST, not exactly a minor nor unsuccessful economy.
I hope that I have helped to explain the GST and invite anyone needing more information to contact me, I will be only too happy to answer any queries.
Because of the reasons above I believe that all Australians should publicly reject the GST.
Karel Zegers.
PO Box 113
Marong 3515
VIC.