Tampon tax debate 'could open up can of worms'

Australian Treasurer Joe Hockey’s pledge to consider excluding tampons from a sales tax has raised concern the government could end up shrinking its revenue base at a time when it needs expanding.

Hockey asked the Treasury to cost the removal of the 10% goods and services tax from the sanitary product after women holding a giant tampon questioned the treasurer on the fairness of the levy on Australian Broadcasting Corp.’s Q& A program.

The debate over removing the GST from the item has shone a spotlight on a sclerotic tax system that has failed to keep pace with Australia’s changing spending patterns and left the government struggling to plug its budget deficit. Hockey’s move to review the levy on tampons, in place for 15 years, could prompt a flood of demands for essential items to be excluded.

“It opens up a can of worms,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada in Sydney. “The debate should not be about excluding more from the GST, it should be about making it apply to a broader range of items.”

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Hockey, in his budget released two weeks ago, forecast a budget shortfall for the 12 months through June 2016 of A$35.1 billion ($27.2 billion), wider than its December estimate of A$31.2 billion. It also wiped more than A$50 billion from its predicted tax revenue over the next four years due to a collapse in iron ore prices and low wage growth.

The government has already ruled out tightening tax concessions for property investors and private pensions that might have helped boost revenue, and said it won’t increase the rate or broaden the scope of the GST in this term of government.

The treasurer Tuesday asked his department to calculate how much the tax exemption for tampons would cost. The night before, a university student told him on live television that it was inconsistent to apply the GST to tampons when it wasn’t levied on condoms, lubricants, sunscreen and nicotine patches because they were classed as important health goods.

Hockey agreed that based on this principle, sanitary products should be GST exempt. “It probably should, yes. The answer is yes,” he told Q& A.

The GST is raised by the federal government and then distributed to Australia’s states to allow them to fund services such as health and education.

Prime Minister Tony Abbott, who sought to play down his treasurer’s comments, told parliament Wednesday it would be up to the states to make the decision on excluding tampons.

“If they all agree on this, obviously we’d be happy to be accommodating,” Abbott told lawmakers. “If the states decide that they’d prefer to forego the revenue, then let it be.”

- Bloomberg