On taxes

David Higginbottom writes: Re. “O Canada: Minerals Council comes a cropper on company tax” (yesterday). I am interested in the interaction of taxes and the distortions that can result. I have a “train of thought” that I think is worthwhile exploring, although most people would dismiss it out of hand. I am a partner in a manufacturing company that predominately exports. As such any GST we pay to our suppliers is totally refunded.  This is a capital item and does not appear as part of the profit and loss.

The rationale, as I remember, the exemption was to put exports on a level with the rest of the world and enable them to compete.  I assume this is a global treatment for VAT’s. This is where my economics is very basic, but if the major mechanism to balance trade is the exchange rate, to the extent that exports are higher (than they would be if GST was levied on them), therefore the currency is higher than otherwise, imports are cheaper, and local manufacturers are less able to compete.

To the extent that other taxes are higher to balance the budget this is then a further impost on local industry.  The GST refund to exporters is worth around $30 billion per annum. Obviously this would be a very hard change to sell, and even if accepted, would need to be phased in over many years. Perhaps we should only concern ourselves with mining and fuel, to the extent that these companies use transfer pricing and other techniques to minimise their taxes. The GST refund could be seen as a hidden subsidy and a substantial reduction it their contribution to the economy.

A back of the envelope calculation is that the GST refunded to mining and fuel exporters is in the order of $10 billion. To the extent that some of these companies transfer price to reduce their tax in Australia, the GST refund means that they make a far more reduced contribution to the economy than claimed. Rather than levying GST on exports, is it reasonable to not refund GST?

Noelene Turton writes: Re. “State income tax: a good idea, except for South Australia and Tasmania” (yesterday). Such a bad idea. Canberra should fund these without the state help. We need to have a universal system for education and health unless we break Australia up into 6 countries like Europe: then Tasmania can be our Greece, South Australia our Spain and we can get rid of the Commonwealth government completely. We can get rid of all the free trade agreements, some states can have protectionism, a wall can be built between those states and those that don’t to stop smuggling. The Northern Territory is not a state so perhaps the government could move there or maybe they could sell it to China to fix the current budget deficit. Is Malcolm mad?

Sniping and undermining

James O’Neill writes: Re. “Shades of Thatcher: Abbott’s demise traces a familiar path” (yesterday). The Quadrant piece confirms what Abbott is really like. One illustration makes the point. Abbott claims that “US satellite imagery revealed a missile battery had moved from Russia into Ukraine, fired and (once the target had become known) returned to Russia.”
That is manifestly untrue. There is absolutely no evidence to support the claim, and it was in fact specifically disavowed both by the Report of the Dutch Safety Board in October 2015, and before that by the Report from the Dutch Security Services in July 2015.

Fred Westerbeke, the Dutch leader of the JIT investigation, revealed in February 2016 that the US satellite data had been disclosed to the Dutch Security Services, but it was still confidential. The Americans have refused to publicly release the satellite data. As a result of Abbott’s bizarre views on this matter, relations with Russia are at a very low point. The “shirt front” incident (that he claims happened in the article — another lie) was a major international embarrassment. The thought that Abbott might return is truly frightening.