THE federal government will have to be careful in the way it introduces changes to the taxation system, according to one of Orange’s tax consultants.
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With Denmark the only nation in the OECD [Organisation for Economic Co-operation and Development] countries relying more on income tax than Australia, and bracket creep forcing more Australians into higher tax brackets, the Commonwealth treasury has suggested increasing the goods and services tax (GST).
If increased to 15 per cent, it would raise revenue from $56 billion to $80 billion.
Crowe Horwath associate principal Gary Holway said without knowing how income tax brackets might change, it was difficult to assess which system would leave taxpayers better off.
“The government is not in a position to reduce the overall net tax position because the deficit is huge,” he said.
“If they say let’s drop [the income tax rate] down a bit, you pay it back in GST, but at least you pay it for something you are using.
“But they need to be careful of pensioners because if they hit them with another 5 per cent, it decreases their spending power, which is limited by the low pension anyway.”
The company tax rate is also up for discussion.
At 30 per cent, it is well above Australia’s competitors.
Mr Holway said a cut would assist large-scale businesses, but small and medium-sized businesses would not reap the benefits because much of their profits went to business owners as income and were taxed at the individual rate anyway.
Orange Business Chamber president Tony Healey said he would support an increase to the GST if other costs on businesses fell.
“But if nothing changes and the GST goes up, then no,” he said.
“It does affect everybody and if people haven’t got a lot of money, they’re going to have to cut out something.”
He believed cutting company tax could have the dual benefit of increasing business profitability and employment opportunities.
danielle.cetinski@fairfaxmedia.com.au