Tuesday, August 26, 2008

The Alcopops tax mess

The tax increase was a good idea. It is doing working as intended.

But what if it is disallowed? Who gets the hundreds of millions that will have been collected?

The government’s alcopops tax increase is turning into a timebomb. In effect from the date it was announced, April 27, it remains law until it is disallowed by the Senate.

It is raking in cash at the rate of $100 million every two months.

In the four months since it was introduced it has raised around $200 million, paid to the government by the drink manufacturers who have collected it from retailers who have collected it from their customers.

In the month or two it will take the Senate to get around to deciding whether to disallow the tax, it’ll rake in another $100 million.

The ever-growing problem is that if the Senate does knock it back, the lot will have to be refunded.

But to who?

Government and independent experts contacted by The Age agree. It’ll have to be handed to the distillers.

A $300 billion handout to an industry that has nothing to deserve it would be an embarrassment to both the government and the Opposition.

Michael Dirkis, tax counsel at the Taxation Institute of Australia says even if the distillers pass it on, the outcome will be untenable.

“The publicans would end up with the money. Or Wollies, or Dan Murphy, or Coles Liquor. There’s no way to stop it.”

Once a tax regulation has been disallowed, it is as if it was never law. The government can’t hold on to money it is not empowered to collect.

Dirkis says a sensible solution would be for the Senate to block only continuing collections going forward and to approve the tax collected to date.

But he says this isn’t possible.

“It is an all or nothing in the Senate. If they disallow it, it is as if it never happened. They can’t disallow it from a particular date.”

In the 1990s when the High Court found that state governments had been collecting alcohol and tobacco excises illegally, the states avoiding having to give the money back by passing special legislation permitting themselves to keep it.

It would be possible to do that with the alcopops tax, but it might require more goodwill than the Government and the Opposition have.

The same problems don’t apply for the other tax measures the Coalition has pledged to block – the 13 May imposition of excise on crude oil condensate, the July 1 tax hike on luxury cars, and the July 1 adjustment of the Medicare Levy surcharge threshold.

In each case the changed rate of tax hasn’t yet been collected.

Tax dollars at risk:

Alcopops $640 million per annum
(date of effect: April 27, 2008)

Crude oil condensate $564 million per annum
(date of effect: May 13, 2008)

Luxury car tax hike $130 million per annum
(date of effect: July 1, 2008)

Medicare tax changes $75 million per annum
(date of effect: July 1, 2008)