Bid To Get Rid Of Fid - And The Other Bad Taxes
The Age
Monday March 30, 1998
CANBERRA
Financial transaction taxes were being over used, driving away international investment and undermining Australia's pitch to be one of the financial capitals of the world, the Investment and Financial Services Association said yesterday.
The financial institutions duties (FID) and bank account debits taxes (BAD) raised almost $2 billion last year for the states. The states have told the Federal Government they want to abolish these taxes as part of an overhaul of the tax system that gave them a fixed share of revenue.
In a tax reform submission released yesterday, the association said the taxes, which were imposed on about two billion financial transactions a year, "throw sand in the wheels of commerce".
"Australia's heavy reliance of these taxes leaves us at a competitive disadvantage," it said.
The association represents companies controlling $400 billion in savings in managed investments, superannuation and life insurance. The acting chief executive, Mr John Maroney, called for FIDs, BADs, insurance taxes and stamp duties on financial and business transactions to be abolished.
BAD taxes apply to cheque withdrawals and were introduced as a federal tax in 1982. They were given to the states in December 1990.
The tax is paid on the number of transactions and based on a sliding scale.
The submission said if a person writes one cheque worth $200 in Victoria then the tax is 70 cents. If they write 10 cheques worth $200 each the tax totals $7, but one cheque for $2000 is taxed at $1.50.
FIDs apply to deposits but Queensland does not charge this tax.
The chief executive of Westpac Bank, Mr Bob Joss, has described FIDs and BADs as "two of the strangest taxes I've ever come across" and said they encouraged artificial transaction flows and discouraged efficient use of banking.
"Apart from faithfully raising revenue, these taxes appear to have no economic rationale," he said. "They certainly do not meet the usual criteria for taxes of being equitable, simple and efficient."
Mr Joss said Westpac had one customer in Norfolk Island who avoided the tax on deposits of $100,000 by going to the Gold Coast for a holiday and banking the money in Queensland where there was no tax.
The Investment and Financial Services Association submission also called on the Government to boost savings by removing the double taxation on income and interest.
It recommended the Government make no change to the tax rules for superannuation, it keep the $2 billion savings rebate and said financial services should be exempt from a GST.
© 1998 The Age