A retail sales tax

Press, 15 August 1978, Page 16

A retail sales tax

The idea of shifting the burden of taxation away from incomes, at the national level, and property, at the local level, is becoming increasingly respectable among economists. The idea is becoming attractive to increasing numbers of politicians who see an opportunity to reduce the burden of income taxes and rates without seriously diminishing the government's revenue Indirect taxes on consumption have much more to commend them than this, and a shift to them appears likely in the relatively near future. The suggestion of the Minister of Local Government. Mr Highet, that the Government might study a retail sales tax. the proceeds of which would go to local bodies, should have given a glimpse of hope to members of many financially beleaguered local authorities. The Government has steadfastly refused to countenance handing over to Ihe country’s local bodies any sizeable amounts of money raised through the present national taxes. But if Mr Highet’s suggestion is pursued in any practicable way, the Government will be in effect introducing revenue sharing. To be workable, a retail sales tax will have to be a national tax: it cannot be left to local bodies to set rates or decide upon the items to be taxed. Independent local taxes would cause great confusion. Nor can it be left to local bodies to administer such a tax: such fragmented tax collection would be unduly costly. If a retail sales tax to support the activities of local bodies is to be a national tax, it should be introduced only as part of a thorough overhaul of

the whole system of taxation and after a careful consideration of all forms of indirect taxation. Some retailers have already spoken out against a retail sales tax on the grounds that it would be expensive to collect and that it would be inflationary. Their strictures appear justified, but only if what is contemplated is a tax on all retail sales which has to be collected by retailers. The strictures need not apply to other forms of indirect taxation. While the Government is refusing to share any more of its present revenues. local bodies are being expected, or even required, to assume increasing responsibilities. Many of these new responsibilities have less to do with the ownership of property than have most of the traditional responsibilities of local bodies. This is an added argument in favour of limiting the extent to which local bodies must rely on rates for their incomes. The best immediate solution might be simply to increase the amount of money paid over to local bodies from the petrol tax, through which the Government is already sharing part of a retail sales tax with local bodies. The Government may have to increase the petrol tax to do this. But petrol is an item to which all the arguments in favour of an indirect tax on consumption apply with special force. Giving the local bodies a larger share of the petrol tax would be quite in accord with everything Mr Highet said at Amberley and would provide the local bodies with the relief some of them at least need without committing the Government prematurely to a new indirect tax.