State finances and industries that compete with imports would be a lot healthier now if John Howard had not decided to exclude exports from paying the GST. The Howard justification was based on simplistic claims that the GST export concession would make our exports more competitive. However, the reality is more complex because general export subsidies like the GST concession encourage offsetting increases in the value of the currency. This post argues that we would be better off if the GST export concession was removed?
The GST was set up to provide a growing source of revenue to the Australian states. The ABS reported that the GST represented 12% ($50 billion) of the total Australian tax take of $415 billion for 2012/13. In addition, the World Bank estimated that Australia’s exported good and services were 20% of GDP for 2013. (vs imported goods and services of 21%.) On the basis of these figures the states would have shared additional revenue of over $12.5 billion for 1012/13 if John Howard had chose not to exclude exports from the GST.
At the time, the exclusion was justified as a way of making our exports more competitive. However, in reality, any large, general subsidy on exports like the GST exclusion is likely to spur a compensating rise in the value of the $Aus. In the end, it is debatable what benefit, if any the GST exclusion made to our export industry.
The GST was imposed on imports with the idea that this would neutralize any impact on industries that have to compete with imports. This would have worked if the GST export exclusion had had no effect on the value of the $Aus. However, imposing the GST on imports is not sufficient when the GST exclusion is driving up the value of the $Aus.
It is not unreasonable to suggest that, if the GST export exclusion was removed:
- State finances would be a lot healthier than they are now.
- The value of the $Aus would drop.
- Australian industries that compete with imports would be more competitive.
- Industries like the minerals export industry would make a fairer contribution to tax revenue.
It is debatable whether, in the end, getting rid of the tax exclusion would have any real effect on export competitiveness.