I. Existing Taxes on Goods and Services
27.3. The present structure of taxes on goods and services rests on two main taxes: the wholesale sales tax, which is a single-stage tax designed substantially to fall on sales to retailers by manufacturers and wholesalers; and excise duties, including the equivalent component of customs duties levied on imported commodities subject to excise duty when home produced. These are important taxes, excises accounting in 1973–74 for over $1,555 million (14.2 per cent) and sales tax for $969 million (8.9 per cent) of the Australian Government's tax revenue of $10,938 million.
27.4. Excise duties are levied at a rate per unit of quantity, not on an ad valorem basis. The total amount raised therefore depends on the rate of levy and the volume of production, not on price. Ninety-eight per cent of all revenue raised from excises is derived from six products: beer, potable spirits, tobacco, cigars and cigarettes, diesel fuel and petrol. Commodities in these groups bear a heavy weight of tax as is shown by the figures in Table 27.A. In addition 1970–71 total expenditure on tobacco products estimated at $547 million had a tax content of $285 million and total expenditure on alcoholic drinks of $1,306 million a tax content of $436 million.
27.5. The wholesale sales tax is imposed on an ad valorem basis, so that, conveniently in a time of inflation, the revenue yield adjusts automatically to changing prices. The share of the wholesale sales tax in total revenue has declined since 1953–54, largely because of the rapid rise in collections of personal income tax, and partly because of continual narrowing of the sales tax base. In the last twenty years, exemptions and reclassification of goods to lower rated categories have significantly reduced the base on which the wholesale sales tax rests.
27.6. The wholesale sales tax structure, described and evaluated at greater length in Appendix A to this chapter, is designed so that all goods produced in, or imported into, Australia bear the tax at the general rate, currently 15 per cent, unless they are specifically exempted from it or required to bear tax at a rate different from the general rate. Exemptions and classifications of goods bearing different rates are shown in four schedules to the sales tax legislation:
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| Total excise duty (b) and sales tax | ||||||
| Category | Expenditure $ million | Excise duty (b) $ million | Sales tax $ million | $ million | Percentage of total | |
| Personal consumption expenditure (a)— | ||||||
| Food | 3,850 | 21 | 21 | 1.2 | ||
| Tobacco | 547 | 285 | 285 | 16.4 | ||
| Alcoholic drinks | 1,306 | 436 | (c) 27 | 463 | 26.7 | |
| Clothing, footwear | 1,790 | 1 | 1 | 0.1 | ||
| Chemists’ goods | 564 | 26 | 26 | 1.5 | ||
| Electrical goods | 559 | 44 | 44 | 2.5 | ||
| Furniture, carpets etc. | 478 | 9 | 9 | 0.5 | ||
| Hardware | 390 | 30 | 30 | 1.7 | ||
| Newspapers, books | 331 | 6 | 6 | 0.4 | ||
| Toys, sporting and travel goods | 530 | 57 | 57 | 3.3 | ||
| Operation of motor vehicles | 1,009 | 62 | 74 | 136 | 7.8 | |
| Purchase of motor vehicles | 1,025 | 124 | 124 | 7.2 | ||
| Other personal consumption services | 7,076 | |||||
| 19,455 | 783 | 419 | 1,202 | 69.3 | ||
| Business and capital expenditure | n.a. | 319 | (d) 214 | 533 | 30.7 | |
| Total | n.a. | 1,102 | 633 | 1,735 | 100.0 | |
| note note note | ||||||
- the First lists items that are exempt, including virtually all food and clothing;
- the Second lists certain consumer durables such as television sets, record players and other items such as jewellery, cosmetics and furs: the rate on items in this schedule is 27½ per cent;
- the Third lists furniture and household equipment which items bear tax at 2½ per cent;
- the Fifth, there being currently no Fourth, lists motor cars designed principally for the transport of persons, on which the rate is 27½ per cent.
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27.7. A general picture of the impact of the two taxes is given in Table 27.A which shows the tax imposed on various categories of goods falling within the ambit of personal consumption expenditure. The message of the table is clear. Motor vehicles and parts, together with the main excise items, yield about 80 per cent of the total paid by persons, while representing only 16 per cent of net personal consumption expenditure. The remaining 20 per cent comes chiefly from categories like chemists’ goods, electrical goods, hardware and toys and travel goods which represent a further 10 per cent of net personal consumption expenditure. Sixty per cent of personal consumption expenditure, including virtually all that on food, clothing and services, is not directly subject to tax.
27.8. Most countries levy an extra burden of tax on those commodities that produce the bulk of the revenue from excise and sales taxes in Australia: alcoholic beverages, tobacco products and petrol. A case for differential treatment of these goods is widely admitted. The first two have been taxed for centuries in Europe. There have been relatively few submissions to the Committee criticising them. They excite less antagonism among the taxpaying public than most other taxes. To some extent this may be attributable to their relative invisibility and taxpayer ignorance of their magnitude.
27.9. In 1971, among OECD countries, the excises imposed on alcohol, tobacco and petrol, at all levels of government, produced percentages of total tax revenue varying from about 9 per cent in Austria, Belgium and the United States, up to 17 per cent in the United Kingdom and 30 per cent in Ireland. Australia's figure of 13 per cent puts it in the middle of the list, being in the upper half as far as the excises on tobacco and alcohol are concerned and near the bottom in the case of petrol.
27.10. Excises excel in administrative simplicity and ease of enforcement. They are currently the least expensive to collect and administer, per dollar of revenue collected, of all the taxes in the Australian armoury. There is much less simplicity in the wholesale sales tax, and the Committee has received a number of submissions about points of administration to which further reference is made in Appendix A. But even with the variety of rates it embodies, it appears to operate smoothly.
27.11. Though they bear such a large share of the load, excises are, by contrast with their simplicity, among the most inequitable and non-neutral of taxes presently levied. If, as is generally agreed, the demand for products subject to excise is relatively insensitive to price changes, the tax will fall predominantly on their consumers: to assess their impact, it is sufficient to look at the consumption pattern of those goods. Some complications are however unavoidable. Petroleum products, raising about one-third of total excise revenue, are consumed directly and also affect the cost of production and distribution of many other consumption goods. Thus the excise on petrol is borne partly by consumers of goods which use petrol as an input, and the total incidence of the tax will reflect the consumption pattern of these goods, as well as that of petrol itself. In this sense, the petrol excise is partly reflected in higher food prices, higher prices of travel and so on.
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27.12. Information is not available about the consumption patterns of individual commodities subject to excise duties. However, the 1966–68 Macquarie survey referred to in Chapter 4 throws some light on the subject. In lower income groups, at the time of the survey, the excises on tobacco and alcoholic drinks amounted to over 4 per cent of income, a figure which declined to less than 2 per cent in higher income groups. Similarly the taxes on motor vehicle operation declined from about 0.8 per cent of low incomes to about 0.25 per cent of high incomes. The conclusion is inescapable that excise duties are regressive, falling more severely on lower than on higher incomes.
27.13. The greater part of sales tax is levied, as Table 27.A shows, upon goods concerned with motoring and thus far shares the inequity and non-neutrality just ascribed to the excise on petrol. The remaining sales tax is scattered in small packets over other categories of consumption expenditure and constitutes a small but uneven levy upon them, too modest to deserve much consideration. Outside the area of motoring, drink and tobacco, taxes on goods and services at the Federal level can be dismissed as a trivial relic.
27.14. It will be seen later that the Committee does not regard the existing excises and wholesale sales tax as a foundation upon which the broad-based taxation of consumption goods and services can be erected. But it does consider special taxation of motoring and drinking, and, with less conviction, smoking, to be fully justifiable as deliberate non-neutralities in the tax system, designed for specific purposes of intervention. This is a field for what have been called ‘efficiency taxes’ in Chapter 3.
27.15. There is an overwhelming case in principle for the taxation of motoring, whether by levies on petrol or on vehicles or by registration fees or some combination of all three, on the grounds of charging for the use of roads (a most expensive publicly-provided facility), for their policing, for limiting congestion and accidents (which cost the community great sums), and as an anti-pollution measure. But the form and the scale of such taxation must be considered in relation to its adequacy and its efficiency for these specific ends, and not simply as a matter of revenue-raising. This is an area in which some calculations can be made with reasonable accuracy and others (such as valuations of the cost of accidents and pollution) in only very arbitrary fashion. Nor would it be easy to suggest the right distribution of charges. The Committee has not explored this difficult area in detail, and does not consider itself qualified to undertake the task. But it recommends that decisions involving any great change in existing revenue from motoring should be made in the light of such special studies.
27.16. Similar considerations apply to the taxation of alcoholic drinks. It cannot be doubted that drinking imposes substantial costs upon the community as a whole in terms of health, road toll, crime and disturbance of the peace. But again the form and level of imposts designed to meet their costs, or to prevent some of them arising, are most difficult matters to decide, and the Committee has no specific recommendation to make other than that expert studies are desirable before any substantial change is introduced.
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27.17. The costs to the community of tobacco consumption are as hard to assess as those of motoring and alcohol. From such surveys as have been made, however, it is clear that a substantial amount of ill health and consequent absenteeism is due to smoking. Quantification of costs awaits further studies outside the Committee's scope, and any large variation in the volume and method of tobacco taxation should be decided on the basis of these studies.
27.18. The Committee therefore recommends that special taxation should continue in these three areas; but that its eventual form and level should be reviewed in the light of the specific purposes it serves. If a broad-based consumption tax, on the lines to be next discussed, is introduced, it would of course be necessary to take account of the level of that tax on these activities. Steps that might be taken are outlined in paragraph 27.40.