Key points

Input taxation of financial services under the GST is inefficient, reduces competition and harms Australia's position as a regional financial services centre.

Financial services should be taxed in an equivalent way to other forms of consumption. That is, the consumption of financial services by Australian households should be fully taxed and financial services used by businesses should be treated like any other business input. There are a range of options for achieving this, although the actual design of the tax should be informed by extensive consultation with the financial services industry.

A financial services tax could replace input taxation under the GST, and complement a cash flow tax.