The GST has escaped the bag

Benjamin Franklin though taxation, like death, was inevitable.

Benjamin Franklin though taxation, like death, was inevitable.

Mungo MacCallum

Let’s be absolutely clear about this: we are not, repeat not, contemplating any changes to the GST. Tony Abbott and Joe Hockey have both assured us of this, and we know we can trust them.

And the state premiers (three of whom, in New South Wales, Victoria and Queensland, happen to be facing elections in the next 12 months) emphatically agree. Even Judith Sloan, The Australian’s iron-hearted economic fundamentalist, concurs, for a reason totally out of character: the political cost for her soul mates in government would be just too great.

So that’s it: there will be no changes to the GST, never, ever – or at least not until after the next round of elections, including the federal coalition’s own, due in 2016, are out of the way.

But funnily enough even a number of Abbott’s own colleagues are not convinced. A number of federal backbenchers, led by the former frontbencher, Ian Macdonald, insist that we should be talking about it – and, to Abbott’s embarrassment, they are. And they are joined by an influential mob: former premiers John Brumby (Labor, Vic) and Nick Greiner (Lib, NSW) have been joined by the Australian Chamber of Commerce and Industry, the Australian Industries Group and, more surprisingly, the Australian Council of Social Services in urging that the GST should at least be discussed.

So let’s discuss it: and the first thing to be said is that the GST is a cop-out – was, is and always will be. Everyone acknowledges that the GST, like all flat-rate taxes, is regressive: it hurts the poor more than the rich. Ten per cent of a grocery bill or the cost of a washing machine is bugger-all to someone on $100,000 a year, but for a single mother on Newstart it can gouge a huge hole in the weekly budget. But for the boffins who design tax, its unfairness is less important than its efficiency: the GST is hard to avoid and easy to collect.

Of course, in its Australian form it is less efficient than the purists would like: the exemptions demanded by the Democrats to pass it through the Senate in 1999 seriously sullied the elegant simplicity of John Howard’s proposed model. Food, health, education, water and sewerage are left out, and so are financial services; the money-changers remain secure in their temples.

And imported purchases made through the internet were not even thought of, an omission which is now the subject of regular and often bitter debate. And even with these exemptions, various compensations had to be negotiated for low-income earners. Despite the best efforts of its zealous proponents, our GST has ended up a bit of a dog’s breakfast. But: it is still harder to avoid and easier to collect than the time-honoured alternative, progressive income tax.

The intrinsic fairness of this system was a no-brainer for nearly a century: the more you earn, the more you pay, and as you pass various milestones, the rate at which you pay rises.

And the revenue raised is used to finance the works and services that private enterprise either cannot or will not provide, and those, such as defence, which are the exclusive role of the government.

Obvious and transparent, and accepted as a fact of life: Benjamin Franklin acknowledged that death and taxes were inevitable and Oliver Wendell Holmes even rejoiced: he was happy to pay taxes, he said, because it was with taxes that he bought civilisation. But in Australia, over the last 40-odd years at least, a contrary attitude has taken hold, both among individuals and governments: regular tax cuts have become the expectation and tax increases political suicide.

And if there can’t be cuts, at least there can be loopholes, lurks, wangles and hornswoggles, so many of them that for some years it has become a cliché that for those with the will and resources to hire a wallet-guard of lawyers and accountants, paying income tax has become an option.

In the days when he was Australia’s richest man, Kerry Packer used to boast openly that he paid as little tax as possible; he preferred to buy his own version of civilisation.

In the years since then, many if not most of Australia’s super-rich elite have taken the same approach; and with this shining example before them, ordinary wage earners have followed suit. Tax avoidance has become a national sport.

So sometime in the 1980s, the treasury and its tax officers effectively threw in the towel.

Collecting income tax was just too hard; and in any case there was a wonderful alternative available; substitute the current sales tax regime (which was actually progressive: luxury items attracted a higher rate than everyday goods) and substitute a universal model along the lines of Great Britain’s openly regressive Value Added Tax (VAT).

They went proselytising among the politicians and made converts: first Paul Keating, then John Hewson and at last, triumphantly, John Howard. And now they are going in for the final kill: remove the existing exemptions (well, most of them – the sanctity of financial transactions is to remain) raise the rate, or preferably both.

It will be a hard sell: Treasury itself is not unanimous. The outgoing secretary, Martin Parkinson, is telling the states to forget the GST and concentrate on other areas, like jacking up payroll tax, which he says performs essentially the same function.

And of course the political pain and risk in revisiting what was always a much-loathed innovation (remember it nearly cost John Howard office in 1998, and he was a much better spruiker than Abbott will ever be) may yet prove too much. But the hard fact is that the feds’ budgetary king hit on the states means that something will have to give, and the GST is the obvious target.

And after all why not? Even with some additional compensation raising it would be regressive, unfair, another hit on those who can least afford it – but isn’t that the way Abbott and Hockey are going anyway? And of course it would make room for another round of pre-election income tax cuts for the well off.

3 responses to “The GST has escaped the bag”

  1. Gavin R. Putland says:

    There’s a way to replace PAYG personal income tax by a consumption tax
    without raising the cost of living; see “Maximalist ‘fiscal devaluations’ for Greece and Australia“.

  2. Roma Newton says:

    “No changes to the GST – never ever” means:- NEVER until the next election; then, EVER AFTERWARDS in typical Abbotspeak.

    The proposed Budget is an ignorant Budget designed by ignorant minds.

  3. Pryce Allsop says:

    I believe the the State Governments are missing out on Millions if not Billions of Tax Dollars by not Collecting GST on online import sales. The fact that they don’t collect this Tax puts Australian retailers and manufacturers at a 10% disadvantage right from the get go. Local manufacturers are no better off. Retailers or manufacturers in Australia are penalised for being Australian. I’d love the government Labour Liberal or Greens to charge Offshore/ online retailers and wholesalers a twenty percent charge of GST. We have very high running cost retailing in Australia and small businesses and manufacturers are hitting the wall left right and centre. Retailers & manufacturers work hard in Australia collecting Tax’s on the Governments behalf, not because they want to but because that’s the law in Australia. Why not collect Tax from the very source of problem, the offshore businesses are not paying tax in Australia and they are likely not paying their own worker well, they have been eroding our business economy for a long time. I understand free trade but what about equal trade. How about the banks do their bit collecting GST for online credit card payments to offshore businesses or accounts. Then we might have some more money for Hospitals and rest of our problems. Charging twenty percent would even the playing field a little and would help create employment here in Australia. I don’t want to see tax increases for the simple reason we know from experience that we pay enough. We have been in surplus before and should be again with better Governing. The more tax the government gets given the more they learn to spend so let’s not encourage more stupidity in spending. Create more jobs through creating a more even playing field and have more Australians people paying tax.

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