The Productivity Commission report released today provides compelling evidence that our present system of indirect taxes is penalising exporters and putting a brake on economic growth.
The report found that Commonwealth indirect taxes impose a significant cost burden on manufacturing and other exports, and that many of these costs occur well back in the production chain and are therefore hidden from exporters.
The Productivity Commission undertook this research study after a request from the Treasurer for it to examine the impact of Commonwealth indirect taxes on exporters, particularly manufacturing exporters.
The Productivity Commission identified a major deficiency in the Commonwealth indirect tax system of the taxes-on-taxes problem with the cascading effect of taxes throughout the production process.
The Commission estimated that the wholesale sales tax and just 4 cents a litre component of fuel excise raise input costs by around 2.4 per cent of the value of production. The cost imposed on the manufacturing sector is close to $6 billion. For the economy as a whole, the total impact on production costs is around $22 billion and more than double the revenue collected from wholesale sales tax on business inputs.
As part of the study, the Productivity Commission modeled the impact of reforming the indirect tax system. The Commission found significant and overwhelmingly positive benefits would flow to the Australian economy from the introduction of a value added indirect tax system which refunds tax paid on business inputs.
This study will play an important educational role in the public debate on the merits of taxation reform.