Treasurer Joe Hockey has this afternoon shunned raising the GST, arguing that there is not enough money in the Budget to provide the necessary compensation to middle and lower income earners. From The AFR:
[Hockey] said the recommendation earlier this week by the OECD that the 10 per cent GST should be raised to between 15 per cent and 18 per cent could not be made in isolation.
“They are not looking at the full picture. If you increase the GST, you need to compensate middle and low-income Australians with significant tax cuts,’’ he told Channel Seven.
“We haven’t got the financial capacity to do that at the moment. Also, I don’t think it is the right time at all to increase prices for Australians. I think they have got enough pressure on family budgets as it stands.
“Therefore, we should not be increasing the GST.”
So Joe, I assume this means you are more than happy to let lower and middle income earners bear the brunt of never-ending rises in personal income tax through bracket creep, making the tax system less efficient in the process? At the same time, I assume you are happy to slash benefits to the young, poor and unemployed, rather than taking action to restore Australia’s tax base?
Have you not read any of Dr Martin Parkinson’s speeches on tax reform, in which he warned that if the tax structure is not changed, then an ordinary taxpayer will experience a 20% increase in their personal income tax bill over the coming decade. Or that lower income earners would be even more badly impacted as bracket creep makes the tax system less progressive? (see next chart).
As argued by Dr Parkinson, “genuine tax reform… requires more than an across the board cut in tax rates – it is about improving the structure of the tax system to reduce the cost that raising revenue imposes on the economy. In other words, it is as much about how much revenue is raised, as how it is raised“. Refusing outright to raise/broaden the GST, which is a relatively efficient tax, violates this very principle.
The fact of the matter is that it would be fairly easy to design reforms that raise/broaden the GST without unfairly punishing the poor via a combination of income tax cuts, welfare increases, and unwinding egregious tax concessions that overwhelming benefit the wealthy (e.g. superannuation, negative gearing and capital gains tax concessions).
Relying on never-ending increases in personal income tax via bracket creep, while the base of workers shrinks as the population ages and the proportion of retirees rises, is neither efficient, equitable or sustainable in the long-term. We need fundamental tax reform and we need it sooner rather than later.
Unfortunately, this would require Joe Hockey to have a backbone, which sadly seems to be missing.
