Liberal elders, former Prime Minister John Howard, and former Victorian Premier, Jeff Kennett, have thrown their weight behind raising and/or broadening the GST.
According to Howard:
It was “overwhelmingly sensible” to have a broader-based GST, he said. The GST had been introduced in an “imperfect form” because Labor and the Democrats had insisted on taking food and some other items out…
The states were paying quite heavily for the exclusions, Howard told a function in Perth.
“If the GST had applied to food – as it should have and it would have but for the actions of the Senate – we would have been seeing I think $10-$11 billion a year more flowing to the states.”
It was harder for the states to raise money in an efficient fashion other than via the GST, Howard said.
And Kennett:
“I have advocated for a long time, whether you like it or not, we should broaden the GST,” he said, according to the newspaper.
“Both parties said no to it in the election campaign and that is to Australia’s detriment. If you applied it to everything you would probably raise another $40 billion.”
And McKibbin:
One can legitimately debate how the burden of this strategy has been distributed across the population but the overall macro-economic strategy is the correct one. Also the focus mostly on cutting spending rather than raising taxes is good for Australia in the long run. Income redistribution is better done through direct payments rather than hidden transfers and distortions that cause aggregate economic losses in order to disguise political choices. However, there is a rise in taxation on wage earners (admittedly on the higher-income earners) whereas the best long-term strategy for Australia would be to replace taxes on working with taxes on spending.
Clearly there is a political strategy in the budget of cutting payments to states for education and health which ultimately will lead to a call by states for higher GST revenue to finance these activities.
Again politics has trumped economics because of fearmongering against a change in the GST. The best choice of more revenue from the GST and less from taxing work effort has been postponed. It would have been better to grasp the GST/income-tax switch now rather than later, but the politics has clearly prevented this. The strategy of an eventual substitution is in place but there are many hurdles yet to jump before this will be realised.
Almost nobody likes paying tax, but revenue has got to be raised somewhere. And with Budget revenues in long-term structural decline, owing to rising old-age dependency and the unwinding of the commodity price boom, Australia’s governments will need to find additional sources of revenue, rather than merely attempting to cut spending.
Better to obtain such revenue from efficient sources, like the GST, and broadening the tax base in the process, rather then relying more and more on growing income taxes (via bracket creep), and in turn increasing the tax burden on the shrinking working-aged population.
This is not to say that other measures should not also be taken to shore-up the revenue base. Certainly, closing egregious tax lurks, such as negative gearing and superannuation concessions on high income earners, should also be pursued with vigor, along with implementing broad-based taxes on land and resources (preferably in place of highly inefficient stamp duties).
But Australia does have one of the lowest reliances on GST in the OECD, and an over-reliance on taxes on income and profits, which is looking increasingly unsustainable in light of the structural headwinds facing the economy (population ageing and falling commodity prices). All of which makes tax reform an increasingly pressing issue.
