THE PRESS SATURDAY, JANUARY 25, 1986. Getting back the GST

Press, 25 January 1986, Page 18

THE PRESS SATURDAY, JANUARY 25, 1986. Getting back the GST

Implementing its decision to return to local bodies the funds it takes from their ratepayers through the goods and services tax has been described by the Government as “revenue sharing.” Thereby, it is argued, the Government will keep its promise on revenue sharing to assist local authorities. On the surface, this may seem to be so. Assuming that the GST rate will be 10 per cent, the rates will be loaded by that figure or, as many will hope, a lower rate will be struck and the GST on the lower amount be returned to make up the deficiency in local body income. This would depend on a direct refund of the tax, which is a matter yet to be settled. Even so, this is not really revenue sharing. The real points achieved by revenue sharing are, first, that Government revenue is gathered from a different base — not a property tax — and therefore provides local authorities with funds from wider sources. Second, the allocation of funds from central Government can redistribute wealth to strengthen the position of authorities with special needs but insufficient local means to meet these. Refunding GST on rates serves neither purpose. If the committee set up by the Government resolves to refund GST with provisos about its use, or to redistribute it giving more to some than to others, local authorities will find great difficulty in their budgeting. To enable a reduction in rates, the plan will have to give them reasonable certainty about revenue from the State. The proposal should not be condemned just because of the possible complications. It is at least better than simply taxing rates and adding to the burden of all ratepayers. Nevertheless, at this stage, it cannot be assumed that the refund will fall evenly. Some ratepayers, or some authorities, may yet be worse off. The revenue-sharing promise was always

conditional upon the Government’s having funds to dispense. While the Government is trying to lower income tax and reduce its deficit, the chances of a true sharing of State revenue are slim. Further, the idea does not seem to have been one to relieve ratepayers; rather, it was an idea to enable local bodies to spend more on more functions. In sum, no ratepayers can expect to be better off financially as a result of what the Government is calling “revenue sharing.” The likely outcome is that local authorities will be induced to spend more money.

That GST is to be levied on rates is unfortunate to begin with. The stumbling block in the argument against taxing rates appears to have been that the Government could not distinguish between rating functions, some of which are for general and common purposes and others for specific services, not common to all local bodies. The outcome is still wretched. A council that makes grants to deserving local causes will be paying GST on the gift. A private gift will probably be exempt from tax. The anomalies will be endless.

No doubt the Government can identify anomalies in exempting rates from GST. For example, in some areas, services provided by private enterprise would be taxed; the same services elsewhere could be provided (without GST) by local government. The fact that a tax is being laid upon a tax is nevertheless objectionable. The result is almost certainly going to be an increase of local rates. Unless the committee and the Government simply agree to refund the GST, and unless authorities allow for this in their rating, the talk of revenue sharing is a deception. If they agree to this cause of direct refunds, they might as well exempt rates from GST in the first place. The only reasonable conclusion must be that the Government does not intend to refund the GST directly.