States must unite for GST reform

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By Leith van Onselen

Business Day’s Michael Pascoe has written an excellent article this afternoon arguing that the states must unite in order to drive GST reform:

Barnett called for leadership on the GST issue from Tony Abbott, but it’s not the federal government that needs tax reform, let alone the political cost of broken promises and scare campaigns. The “leadership” is going to have to come from those who most urgently require it – the states. Only when the states unite in demanding change will Abbott be able to wash his hands of it, pointing out as his treasurer already has that the GST is the states’ tax merely administered by the commonwealth…

[The states have]…trashed their own tax bases and show little inclination to take politically unpopular decisions to fix their inequitable and damaging revenue sources, but they’re all facing soaring health, education and infrastructure needs. Which is why it has been argued here before that we’ll only get serious about changing the system when the states demand it…

The bigger and more beneficial potential reform that’s already in the states’ own hands is to move from reliance on economically and socially damaging real-estate stamp duty to a broad land tax without exceptions…

Nailed it. It’s a lot easier for the Federal Government to duck and weave like Tyson on tax reform when there is disagreement within the states and territories. And until such agreement is reached, the states will find themselves remaining overly reliant on a narrow base of volatile (not to mention economically inefficient and inequitable) taxes, like stamp duties, which rise and fall with the fortunes of the property market (see next chart).
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It’s also interesting to note that the state which seems most opposed to raising the rate of GST is Victoria, presumably because it is also the one most heavily reliant on stamp duty for revenue, which it would likely be required to give-up in return for a higher rate of GST (see next chart).
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Getting eight jurisdictions to unite for a common goal is always going to be difficult. But unite they must if they are to continue to self-fund the basic services and infrastructure required to accommodate their growing and ageing populations.
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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.