A university student with a petition calling for a GST exemption on tampons and sanitary products has put GST back on the table for the government.
After lobbying by university student Subeta Vimalarajah on ABC-TV program Q&A on Monday night, Treasurer Joe Hockey agreed to put the removal of the GST from tampons and sanitary products to the states for the next treasurers meeting in July.
Hockey has asked Treasury to calculate how much the tax exemption would cost but modelling by Deloitte Access Economics suggests the revenue hit would be about $30 million.
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Hockey’s move represents a backflip for the government with Prime Minister Tony Abbott saying earlier this year that there would be no changes to the GST in his first term in office.
Rather than advocating exemptions, Treasury’s tax discussion paper released in March made the case for a higher GST rate.
The GST is the country’s third-largest tax source, after personal income and company tax, and in 2013-14 raised $56 billion or 16% of total government tax revenue.
However, it is a revenue source that is shrinking.
Paul Drum, head of policy at CPA Australia, told SmartCompany the debate should still be about how to change the tax mix to put more money in the pockets of consumers and small business.
“The best way to do that is to broaden the base of GST, not to pick off single items one by one,” he says.
“I’m sure the Treasurer will be a man of his word and do what he has committed to, but I think when that happens [the states] will take a dim view of it and ask, how will you compensate us for any loss of revenue?”
Drum says a broadening of the tax base in itself is not going to be helpful for business. Instead, it is what you do with the revenue that is key.
“That’s why we need a packaged approach and as long as the revenue is directed back to personal income tax cuts that helps most businesses which are unincorporated and consumers,” he says.
“That’s the type of discussion we should be having, not about reducing a tax whose collections are reducing over time anyway because people’s consumption habits are changing.”
Peter Strong, chief executive of the Council of Small Business Organisations of Australia, says the last thing small businesses need is more complexity to the tax system.
“Someone else is going to do a petition now saying we shouldn’t have a GST on condoms,” he says.
“Just leave the GST alone. If you are going to do anything you broaden the base you don’t start making exemptions on the basis of a petition.”