NO.115

GST AND FINANCIAL SERVICES:- LABOR MEANS HIGHER TAXES AND CHARGES

Under the Government’s proposed new tax system financial services are input taxed. This means that there is no tax on outputs but the supplier cannot claim input tax credits. The financial service (and the fee for the financial services) is not subject to GST.

Fees for opening and keeping bank accounts, cheque accounts and the like are not subject to GST.

Where a financial institution provides a service such as investment advice or insurance for which there is a readily identifiable separate fee, that will be subject to GST. This is required to preserve neutrality between a financial institution and other institutions (such as an investment adviser or an insurer) rendering the same service subject to GST.

As a result of tax reform the input costs to banks are expected to fall by approximately $670 million.

In addition, Financial Institutions Duty and the Bank Accounts Debits Tax are abolished. This abolishes $2.4 billion of current taxes on bank accounts.

The Australian Labor Party policy is to maintain this additional $2.4 billion of annual fees on bank users.

CANBERRA

24 November 1998