The Abbott government is hoping to take a range of tax cuts to the 2016 federal election in a bid to shore up support among voters and drive forward key economic reforms.
The Coalition has both personal and business tax cuts in its sights, according to Fairfax.
Federal treasurer Joe Hockey has previously flagged an appetite to reform the tax system, saying the government’s recent tax cut for small business was “the beginning of the story, not the end”.
State premiers will meet in Sydney this week in order to discuss tax reform, including a potential increase to the goods and services tax.
Craig Whatman, partner at Pitcher Partners, told SmartCompany it will be difficult for the government to achieve some of its desired tax savings unless it reforms the GST.
“The GST distribution model has been an interesting debate between the states as obviously each state and territory has its own interests in terms of carving up the biggest slice of the GST,” Whatman says.
“That debate will always continue, I believe. The other issue is really about reforming the GST itself and clearly that’s a real challenge. The federal government has come out and said there won’t be reform unless the states and territories can unanimously agree, and some states have already said they have no interest of agreeing to GST reform. So I think Mr Hockey has a challenge on his hands.”
Whatman says one way the government can account for lower company taxes is to simply raise the GST, however that is unlikely without all the states agreeing on how the additional revenue should be distributed.
“Australia is clearly one of the lowest in the OECD, it’s in the bottom 5% of GST rates,” he says.
“The average in the OECD is sitting around the 19% mark. If you compare us, for example, to the UK – the UK has a standard VAT (Value Added Tax) of 20% now.”
At the National Small Business Summit in Sydney last week, Hockey also flagged his willingness to crack down on the $1000 GST-free threshold for online purchases from overseas retailers.
The exemption has long angered local SMEs, who say it creates an uneven playing field between small businesses and overseas giants such as Amazon.
However, Whatman says there are still questions around whether compliance costs associated with dropping the threshold will outweigh potential revenue.
“The biggest issue with that will be the compliance cost and it also becomes an issue for the consumer,” he says.
“If you impose the GST on imported goods, it’s the consumer directly affected by that. You as the purchaser are responsible for paying that to customs before it’s released to you. If there’s no threshold any more, the consumer is probably going to have to front up with a credit card number to pay the GST.”