Friday, July 13, 2012

Bills skyrocket with GST on top of carbon tax

AUSTRALIANS are facing a surprise "tax on a tax", as the GST is applied on top of the carbon tax to power bills, appliance repairs and other everyday costs.

PUTTING the GST on a carbon tax is inefficient and revisits the old era of hidden wholesale sales taxes, shadow treasurer Joe Hockey says.

News Ltd reported on Thursday that energy companies, waste disposal firms and appliance repairers are among businesses charging consumers GST based on carbon tax costs.

Mr Hockey said the "taxes on taxes" scenario revisited the pre-GST era of hidden wholesale sales taxes and would make the economy inefficient.

"The only area where you still have taxes on taxes is insurance which is the most hideous area of tax," Mr Hockey told the Seven Network.

"The best way to get efficiency in the economy is to have only one tax on a product, not an embedded tax and then another tax on top of it which is what's happening with the carbon tax."

But cabinet minister Tony Burke said GST charges have been levied in the same way since it was introduced in 2000.

"The mechanics of how the GST works across the entire economy have been set down for more than a decade now," Mr Burke told the Seven Network.

Some companies are grappling with how to apply the 10 per cent GST to the carbon tax, amid fears the Australian Competition and Consumer Commission will crack down on illegal pricing.

One of the country's largest waste disposal firms, J.J. Richards, was threatened with fines of up to $1.1 million after informing its customers the carbon tax will cost "$25.30 a tonne including GST".

A spokesman for Climate Change Minister Greg Combet said the claim - outlined in an "Important Notice to Our Customers" issued by J.J Richards - was "wrong and the Government will refer it to the ACCC".

"Any businesses jacking up their prices and falsely blaming the carbon price could be liable for fines of up to $1.1 million," Mr Combet's spokesman said.

Air-conditioning firms, data contractors and waste companies have all begun applying the GST on top of the carbon tax, according to invoices seen by the Herald Sun.

NSW electricity companies confirmed the 10 per cent GST would be applied to power bills after the carbon tax had been added to the bill.

Origin Energy confirmed that it was normal practice. As the carbon price was an input cost to supply of electricity to customers, it was added to the cost of supply.

The GST, as mandated, must apply to the total retail cost of a good or service, but companies are cautious about publicising this, as customers already are angry at the rising costs of the carbon tax.

In another case, the cost of repairing a household air-conditioner was inflated by several hundred dollars, because the price of refrigerant gas has risen 90 per cent.  The GST was then added to the overall bill, increasing it by about $40.  An apologetic repair man told his customers he was forced to increase his price by several hundred dollars "due to the carbon tax".

Tax experts confirmed the GST would add to household and business costs as the carbon tax was rolled out across the economy.

"Consumers will be paying tax on a tax, which is 10 per cent GST on top of the carbon price that some businesses will be passing on," said Yasser El-Ansary, of the Institute of Chartered Accountants.


How bureaucracy can obstruct the provision of goods and services

Housing developer held up for 12 years by red tape.  Not many people would have had his staying power

WHEN developer Keith Johnson first planned to build 2500 houses in the lower Hunter, John Howard was prime minister - that was four federal elections and 12 long years ago.

Mr Johnson waded through layers of bureaucratic red tape and persevered through planning delays before the first blocks could go on sale last weekend.

"Because it was a site identified by the government, I thought it would take two or three years at most," Mr Johnson said.

Watagan Park in North Cooranbong was a master-planned, 2500 lot development in the key growth corridor identified in the state government's Lower Hunter regional strategy.

But over more than a decade, Johnson Property Group faced a series of roadblocks, including the council adopting new planning guidelines in 2004 and being told to write a new environmental study which added three years to the project.

There were delays for new studies going on public exhibition and arguments over the infrastructure funding.

Six years in, Mr Johnson applied to have the project assessed by the state government instead of the council. That cost $500,000 and meant he had to start the process from the beginning.

Eight years in, the land was finally rezoned. But then the council required increases in infrastructure payments than the existing plan, from $16,000 to $45,000 per block. The negotiations took more than 18 months.

It took another year before a development application to subdivide 48 lots was approved by the council, but then the agreements on who would fund upgrades to sewerage and water infrastructure to new homes changed again.

The GFC had struck, and banks were not lending to developers to fund infrastructure unless there was 100 per cent pre-sales. "We got it approved but there was a lack of funding ability," Mr Johnson said.

Finally, 12 blocks went on sale for up to $168,000 -- and Mr Johnson said residents could be in by Christmas. "Once you get it up, buyers are waiting and they are very keen," he said.

A green paper to rewrite the entire Planning Act is to be handed down within weeks.

Mr Johnson said he hoped new laws would resolve infrastructure funding. "I am hopeful there will be more certainty, and better efficiencies," he said.


Should TV broadcasts of parliamentary proceedings be  fair and accurate?

A rather unfunny Leftist satirist argues below that he should NOT have to be fair and accurate

In Australia the regulations for parliamentary broadcasts state: broadcasts may only be used for the purposes of fair and accurate reports of proceedings, and must not be used for satire or ridicule.

The reason for this law is not entirely clear. The provisions were included in the very first trial of parliamentary broadcasting for television in 1991. At the end of the trial period, the Parliament held a review of the rules. Paul Bongiorno, from Channel 10, questioned the rule, noting: "There are such things in newspapers as cartoons which daily hold up to ridicule our leaders, our politicians and our church leaders at times. They make them look very silly and we all laugh at them. On television, if you are going to do, for example, a political satire or cartoon, naturally enough you are going to hold up the politicians or our leaders to some sort of ridicule."

The response of the House of Representatives Select Committee on Televising was far from comprehensive: "The committee views the medium of television as being a much more powerful medium than any other and therefore discounts any suggestion that televising of proceedings should be as unrestricted as publishing in newspapers and magazines."

The argument is intriguing - we don't mind being ridiculed as long as it isn't by a powerful medium. The most common justification for the rule given to me has been "to protect the dignity of the house". If you have watched question time recently, where cat calls and guffawing pass the time before the daily call for the suspension of standing orders, such dignity may have evaded you.

Is this law actually a restriction on freedom of speech? True free speech does not restrict the tone or type of speech. It does not say, you may discuss your government, but only in polite tones. It does not say, you may criticise your politicians, but only in a well-researched op-ed piece.

As the US Supreme Court has accepted, the criticism of public figures "inevitably, will not always be reasoned or moderate"; public figures will be subject to "vehement, caustic, and sometimes unpleasantly sharp attacks".

Much more HERE

Big retailers not so greedy after all

As you shop, think about all the costs involved in getting a product to the shelves

WHEN you buy something in a supermarket or a department store, how much of the price that you pay is the store's mark-up? And of that mark-up, how much covers the store's costs and how much is clear profit? Everyone has their own answers to these questions. But I suspect most of those answers are based on vague impressions and long-held prejudices rather than hard evidence.

When I was growing up, we were always hearing about the depredations of "middlemen". The poor farmers got terribly low prices for their meat and other produce, but by the time that produce went through many hands to reach us in the city, the prices were sky-high.

These days, we hear continually about the evil practices of the two big supermarket chains. They're busy screwing the life out of dairy farmers and other suppliers, just so they can use cheap milk and bread to lure us into their stores.

This may sound like a good thing for consumers beset by an ever-rising cost of living, but don't be fooled, we're told. The wicked retailers may be undercharging for a few staples, but they make up for it by overcharging for everything else.

Then there are all the people discovering from the internet just how much lower prices are in other countries. More proof we're being ripped off.

In the hands of the media, it's a morality tale. The farmers and manufacturers are the good guys getting squeezed; the big retailers and other middlemen are the bad guys raking it in and doing us down.

It would be good to measure all these impressions against some hard statistical facts - facts supplied by an article in the latest issue of the Reserve Bank's Bulletin, on which I'll be drawing heavily.

Part of the problem is our lack of imagination. Many of us have only a vague idea of the role played by the businesses that operate between primary and secondary producers and you and me.

Most retail goods - including food and non-alcoholic drinks, clothing, footwear, electrical equipment, furniture and home appliances, and motor vehicles, but not "meals out" or takeaways - are produced in factories, whether locally or overseas.

The basic cost of producing those goods includes the cost of transporting them to wholesalers' warehouses, plus import duty where still applicable. Wholesalers incur costs in storing goods and transporting them around the country to retailers, plus normal administrative costs. Retailers incur costs of rent, storage, display, finance and other costs.

Naturally, both wholesalers and retailers employ many workers to help them carry out their role, not of making goods, but of distributing them into hands of consumers across the nation. Indeed, the work of this "retail supply chain" accounts for about 7 per cent of the final value of all goods and services sold in Australia (gross domestic product) and about 10 per cent of total employment. So one worker in 10 is employed as a supposedly unproductive "middleman".

On average, the manufactured cost of the goods we buy accounts for about half the retail prices we pay. About 40 per cent of the prices we pay covers the costs incurred by wholesalers and retailers, with wage costs accounting for a bit less than 20 per cent and other costs for a bit more than 20 per cent.

That means the wholesalers' and retailers' net profits account for only about 10 per cent of the prices we pay, with about three-quarters of that going to the retailers.

Of course, these overall averages differ for different products. Whereas the gross profit margin (that is, before allowing for expenses) averages 50 per cent, it's closer to 60 per cent for clothing and footwear, a bit over 50 per cent for electrical equipment, a bit under 50 for furniture and appliances, about 40 per cent for food and drink, and just 25 per cent for motor vehicles.

Gross margins also vary according to the size of retail outlets and the speed at which stock turns over. Margins are higher in boutique stores than department stores, and higher in small convenience stores than big supermarkets, where the profit-making emphasis is on rapid turnover rather than high margins.

The Reserve Bank's detailed examination covered the figures for the nine years to 2007-08, though other checks suggest they have not changed much since then. It found the production prices of locally manufactured goods rose quite strongly over the period. As well, the wage rates and other costs paid by wholesalers and retailers rose by more than 3 per cent a year.

Even so, the final prices of retail goods rose by only about 1 per cent a year. So much for the notion that retailers have been getting greedier.

But how have they managed to turn costs rising by 3 per cent or so a year into retail prices rising by 1 per cent and do so without suffering any squeeze in their net profit margins?

Because, though business people are always assuring us there's nothing they can do but pass higher costs on to us, in truth there's a lot they can do.

One thing they've done is increasingly substitute cheaper imported goods for ever-more-expensive locally made goods. If that worries you, have a look at my little video on the website or iPad app.

The other thing they've done is raise the productivity of their labour, with the volume of their sales rising a lot faster than the total hours of the workers they employ. They've invested in labour-saving equipment.

And note this: why have they been working so hard to limit their price rises? Because of the power of market forces - in this case, customers who don't like paying more.


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