DIVISIONS have emerged between two of the Coalition’s leading agricultural voices over potentially removing an exemption on fresh food in the Goods and Services Tax (GST).
The idea was raised last week by Coalition agricultural backbench committee chair Dan Tehan who said considering the removal of such exemptions is essential to a “mature” and “proper” national debate on taxation reforms.
But NSW Liberal Senator and Junee farmer Bill Heffernan said dealing with taxation revenue leakage caused by the recent escalation of increased online buying is a more urgent and greater national priority than a 10 per cent GST on fresh food.
Mr Tehan ventilated the possibility of a GST on fresh food products in a new push to broaden the controversial tax, amid the government’s tight fiscal climate.
In a strongly worded Australian Financial Review opinion article, Mr Tehan said broadening the GST would deliver up to $21.6 billion in extra revenue each year and enable further serious reductions in direct taxes.
He said New Zealand’s GST covers 96pc of the neighbouring country’s consumption but in contrast Australia’s GST covered only 47pc of local consumption and was “shrinking”, having dropped from 53pc a decade ago.
“While OECD (Organisation for Economic Co-operation and Development) countries have applied their valued-added taxes more broadly, Australia has an aversion to broadening this taboo tax, either due to flawed arguments of unfairness or political cowardice,” he wrote.
“Tax reform, particularly broadening the GST, is not the easy path.
“But it is the right one for our future.
“We must finish the job of tax reform begun last century by doing it well.”
Speaking to Fairfax Media, Mr Tehan said the Coalition was conducting a GST white paper process this year with tax reform “a priority agenda item for the government”.
“If our tax system is to remain efficient and internationally competitive, then we have to reduce our reliance on direct taxes, such as income and company tax, and look to replace that with indirect taxes such as the GST,” he said.
“This is not about increasing the amount of tax the government takes - it’s about making our tax system as efficient as possible and it’s a debate as a nation that we need to have.
“If you look at New Zealand they have far less exemptions to their GST than Australia, which enables them to have much lower income tax rates and a lower company tax rate.
“My view is, we need to have a mature discussion about our tax system and that has to include the current exemptions that exist in Australia when it comes to the GST.”
Mr Tehan said he’d not yet discussed his GST views directly with the Coalition agricultural backbench committee which meets each Monday during parliamentary sitting weeks.
Federal parliament is due to sit next on February 9 where his suggestion to cull the GST fresh food exemption is likely to be attacked by Senator Heffernan.
Senator Heffernan said he’d repeatedly raised his concerns about the pressing need to deal with escalating online purchasing globally, in various forums and with other members of parliament, including the federal Treasurer and the Prime Minister.
He said the increasing trend had the potential to change the definition of national sovereignty due to growing and concerning revenue losses for many nations, including Australia.
“I don’t mind having the debate on changes to taxation laws because as a politician we’ve got used to things like pre-selections or taxation rules being pre-determined,” he said.
“So we need to see more contesting of ideas rather than factionalism and meetings in dark alleyways.
“But we should give serious consideration to having a GST for online buying which is a far greater priority than having a GST on fresh food.
“If you’re buying something online for a quarter of the price than what you can get in the retail store, then having a GST on that product isn’t going to be a deterrent.
“The higher priority we have right now is working out how to deal with multi-national and corporate tax avoidance because technology has outsmarted the law,” he said.
Tax revenue leakage
Senator Heffernan said the World Bank estimated the G20 nations suffered three trillion dollars of taxation revenue leakage last year.
In a Senate speech last December, he said most of that revenue leakage came through derivative swaps and transfer pricing.
“These are serious issues which the electorate needs to be informed of, because what we should be doing - whoever is in government should be doing it - is modelling where we have come from in the last 20 years and modelling where we are going in 20 years’ time if we do not change the law to catch up with the times in capturing our revenue base,” he said.
But Mr Tehan said what he has done is “floated an idea to generate a debate on tax reform in the nation”
Mr Tehan said the “majority view” of feedback he’s received from other MPs, including senior cabinet ministers, was about the importance of tax reform to the nation’s future.
But he said there’s, “obviously a variety of views on what that tax reform should look like”.
Mr Tehan said he believed any tax reform package, which lowers income tax rates and the company tax rate, should consider all current GST exemptions.
He said a “proper debate” was needed about whether the nation’s current tax mix was working, where 53pc of what’s currently being consumed is exempt from the GST.
“Such discussions need to include our whole tax system and whether it’s working for us in the 21st century,” he said.
Mr Tehan said the government was also looking at taxation reforms in other white paper processes, including the federation reform and agricultural competitiveness.
He said the government hadn’t ruled “anything in our out at this stage” in regards to its tax white paper.
“In my view that is the correct approach because we need to have a proper debate on this,” he said.
“We need to have a serious discussion about this, with everything on the table.
“If you rule things in or out before you start, as Labor did with their tax white paper, you distort the process.”
Senator Heffernan said the US lost US$650 to $850 billion last year in revenue leakage due to “technology that’s outsmarted the law”.
“As a group of nations we have to address this issue because if we don’t our current understanding and definition of sovereignty will be redefined,” he said.
“It’s a serious challenge for the western world that will not be solved by one nation alone.
“If we’re going to have a debate on changes to the taxation system, let’s go to the heart of the problem.
“Talking about a GST on fresh food is just playing at the edges.
“It’s about time politicians put aside the political bullshit and dealt with this issue properly - you’ve got to move with the technology,” he said.
“I think debate on tax reforms is healthy but it has to be an informed debate, not one driven by politics.”
Mr Tehan’s suggestion to broaden the GST and potentially place a 10pc tax on fresh food has invoked strong backlash from the National Farmers’ Federation (NFF) and the federal opposition.
The NFF expressed “serious concern” about the proposed change with CEO Simon Talbot saying he believed the exemption should be retained, due to fears about potential negative impacts on the welfare of Australian farmers and families.
He said the NFF understands budget pressure, “but we also understand the reality of family budgets”.
“We want Australians to eat more fresh food, not less,” he said.
“Increasing the cost of food could mean consumers demand less fresh fruit, vegetables and protein, leading to a decrease in overall sales and poorer health outcomes.
“The reality is that the retailers aren’t going to forego profit.
“This means that farmers are likely to be forced to absorb the increase in costs.
“They are not able to pass on their costs,” he said.
“From our viewpoint, it makes no sense to increase the cost of fresh food.
“After all, Australians need greater incentives to eat healthily, not disincentives.”
Speaking to Fairfax Media, Mr Tehan said he’d seen the NFF’s response to his GST suggestions - but urged the peak farm lobby group to “keep an open mind to the tax reform process”.
“Ultimately in the end what we need to be doing is what’s in the best long-term interests of the nation,” he said.
Mr Tehan said the Victorian Farmers Federation’s (VFF) statement on the issue was “a lot more sensible”.
He said the VFF said last week it opposed a GST on fresh food but would consider details of any suggestions arising from the overall taxation reform process that yielded potential benefits for the farm-sector.
In response, Mr Talbot said the NFF would consider the finer details of any realistic offsets - not compensation - the Coalition suggested, if a GST was placed on fresh food.
He said potential offsets could include additional funds for infrastructure improvements, like the inland rail system or port facilities, or increased research and development spending, which helped bolster access into Asian export markets for farm products.
The NFF is also conducting modelling that’s likely to be released this week on examples where fresh food prices have increased and consumers have moved to other products, like bananas to muesli bars, and various associated impacts, he said.
Mr Tehan’s calls to expand the GST also attracted sharp criticism form Shadow Assistant Treasurer Andrew Leigh, which was exacerbated when Trade Minister Andrew Robb also gave his support to the idea.
“Minister Robb has today outed himself in the Australian Financial Review as the ringleader of the campaign within the Liberal Party to increase the GS,” Mr Leigh said last week.
“With Minister Robb leading the charge, Australians are in no doubt whatsoever than an increase in the GST is firmly on Abbott government’s agenda.”
Mr Tehan said Prime Minister Tony Abbott had welcomed the debate being ventilated publicly among MPs of varied opinions.
“Other people have said ‘good on you’ for stirring things up and getting the focus on reforms’,” he said.
Last week, Mr Abbott said the GST would not change in this term of Parliament and cannot change in any term of Parliament without first obtaining the support of all the States and Territories, including those held by Labor, and without effectively having a parliamentary consensus.
“Without a measure of bipartisanship the GST is not going to change,” he said.
“Lower, simpler, fairer taxes is the absolute objective that we are taking into this tax white paper process this year.”
Federal opposition leader Bill Shorten said there was “real concern” Mr Abbott was talking about putting a GST on fresh food.
“Tony Abbott has proposed a structured campaign with selective speeches and leaks all across the summer period getting backbenchers, and now Andrew Robb the federal Minister for Trade, coming out and supporting a GST on fresh food,” he said.
But Mr Tehan said Labor’s response to his proposal was “typical head in the sand stuff”.
“Labor are in complete denial about the true state of the mess they’ve left the nation in and aren’t prepared to listen to or discuss any potential solution,” he said.