The MSM is awash today with articles claiming that Treasurer Scott Morrison will take an increase in the GST to the upcoming federal election.
Here’s a sample of those articles.
Treasurer Scott Morrison has all-but confirmed the government is moving towards a potentially explosive GST rise, arguing tax reform is essential, that he is “no stranger” to unpopular causes, and that he is determined to do what is right for the country…
The new signalling suggests the GST will become ground zero of a bitterly fought election contest with the Coalition betting its superior reserves of public goodwill will be enough to see off a Labor scare campaign whenever the election is held.
The Turnbull government is leaning towards delaying the release of its tax package until the second half of this year in order to minimise the time for a scare campaign by the federal opposition and others opposed to the change…
At the moment, the government is inclined towards a 15 per cent GST applied to the existing base with the extra revenue to be spent on tax cuts and compensation. It contends that a more efficient tax system will generate growth and revenue.
And The Australian:
The signs are that the Turnbull government intends to run a goods and services tax reform debate this year, and it appears likely to take some form of a package to the next election. The polls will partially dictate what that reform package looks like, and how far Turnbull and his Treasurer Scott Morrison are prepared to go…
So it looks like this year’s election will be fought over the GST, with the Coalition facing stiff opposition from Labor and The Greens, as it did in 1998 Federal Election. The state and federal governments also remain at odds over the GST, which also makes the reform process more difficult.
Since day 1, MB has been in favour of sensible GST reform provided its regressive impacts are addressed. At the same time, we also believe that there are far more important tax issues that need to be addressed. We are also concerned that these issues will be ignored by all and sundry so long as the GST remains front-and-centre.
As the Henry Tax Review showed, there is much that can be done on tax reform without touching the GST. These include, but are not limited to:
- Unwinding the many tax concessions that are broadly inequitable, cost the Budget significant sums in revenue foregone, and reduce the progressiveness of the tax system, including: negative gearing, the capital gains tax discount on investments held for more than one year, along with FBT concessions on cars ‘purchased’ under a novated lease for private use.
- Taxing superannuation contributions/earnings at a progressive but concessional rate, as advocated by Deloitte, MB and the Henry Tax Review.
- Taxing superannuation earnings in the retirement phase, thus extending the 15% tax rate to fund earnings in that stage (perhaps with an offset for people earning below the tax-free threshold).
- Reducing superannuation contributions limits.
- Placing a lifetime cap on superannuation nest eggs.
- Tightening means testing of the Aged Pension by including one’s principal place of residence in the assets test, supported by an expansion to the Pension Loans Scheme, so that asset-rich retirees can continue to receive income support via a government-run reverse mortgage.
- Eliminating inefficient taxes like stamp duties in favour of a broad-based land tax and greater taxes on resource rents.
- Extending the 2% Medicare Levy to incomes sheltered from tax by the above tax concessions (e.g. the CGT discount).
- Cracking down on discretionary trusts and private companies, which allow relatively well-off individuals to avoid tax by diverting and ‘sheltering’ their income or income producing assets.
- Abolishing the private health insurance rebate (which, less face it, is inflationary and hasn’t reduced pressure on public hospitals).
- Similar treatment for different types of savings.
Reform in these areas would do much more to help improve the sustainability of the Budget than raising the GST, whilst also improving the equity and efficiency of the tax system. But again it is difficult to have conversations about these topics so long as the GST is sucking all of the policy oxygen.
A related problem is that the Coalition views the Budget deficit as solely a problem of excessive expenditure. However, as the population ages, Blind Freddy can see that Australia will need to find new revenue sources to meet the public’s expectations around healthcare and other essential services.
In short, there is much that needs to be done around tax reform, and simply raising the GST doesn’t even touch the sides. Moreover, as long as “lower taxes” remains the catch-cry of the Coalition, the Budget will remain stuck in deficit.
