Obstacles toward raising the GST continue to mount, with Coalition backbenchers threatening revolt if Prime Minister Malcolm Turnbull and Treasurer Scott Morrison go ahead with their plan to increase the GST to 12.5% or 15%. From The Age:
The revolt centres on two groups of MPs: hard-headed small government advocates who oppose any tax hike, particularly if it also means an increase in welfare spending and compensation and, secondly, backbenchers in marginal seats – nicknamed “bedwetters” by some in the Liberal Party – who fear Labor’s scare campaign on the GST and the difficulty of explaining the reform to voters.
One MP even claimed to Fairfax Media that as much as 50 per cent of the Liberal backbench were opposed to the rise. Fairfax Media spoke to 14 Liberal MPs on Wednesday about the prospect of an increase in the GST and was told that at least 17 MPs are now opposed to a rise.
Let’s summarise the situation facing the Turnbull Government.
Labor and The Greens have already stated that they will oppose any changes to the GST, making passage through the Senate fraught.
The state premiers are at logger heads both internally and with the Federal Government about whether the GST should be raised at all, and if so, how the proceeds should be spent.
The Coalition is facing dissent within its own ranks.
Finally, any increase in the GST would require giving away a large chunk of the proceeds as compensation to vulnerable groups, diluting any revenue gain.
With these factors in mind, one wonders why the Coalition is wasting its political capital, and the tax reform debate, on raising the GST, which appears both unpopular electorally and politically difficult even if it a moderately useful reform. As well, in this environment of opposition and amid a deteriorating economy, a raging debate about hiking an in-your-face tax like the GST will hit consumer confidence at the worst possible time.
Surely a better option for Budget repair would be to instead focus its efforts on superannuation reform?
We already know that Labor and the Greens support superannuation reform, given they have launched policies of their own. This would make passage of any reform through the Senate a relatively easy prospect.
We know that making superannuation concessions more progressive could raise significant Budget revenue – $6 billion according to Deloitte and maybe even up to $10 billion according to the Parliamentary Budget Office. If the Coalition wants even bigger revenue gains, it could go after the transition-to-retirement rort and bring back the 15% super earnings tax for those aged over-60.
We know that the overwhelming majority of economists and commentators support making superannuation concessions fairer, meaning that the media would likely get behind any reform effort.
And we know that more than 60% of Australian voters support raising the tax on superannuation contributions for higher income earners, making reform reasonably popular electorally.
In short, the Turnbull Government would be wise to ditch the GST and turn its attention to reforming superannuation. It offers big Budget revenue gains without the political backlash attached to the GST and the risks to the economy, whilst also promoting fairness.
