Support for reforming the GST continues to grow, with senior Coalition senator, Ian Macdonald, breaking the cone of silence and declaring his support for broadening the tax’s base to include items such as fresh food, education and some utilities:
”I will never support an increase in the GST but I think we should extend it to what we originally proposed prior to the 1998 election,” he said. ”I could also support states having a smidgen of income tax; if we want them to run schools and education that seems fair”…
”(But) if that’s not possible then we need to look at the GST”…
Senator Macdonald’s public comments reflect the private views of many in the Coalition party room and will create another political headache for Prime Minister Tony Abbott, who said on Sunday his government had no plans to change the GST…
Meanwhile, former Victorian Labor Premier, John Brumby, has joined his old adversary, Jeff Kennett, in endorsing a broadening and/or increasing the rate of GST, arguing that such a move is inevitable in light of the pressures facing state government budgets, and that the real debate was about ensuring that vulnerable groups were compensated and how funds were distributed:
“We have a federation that over time has become increasingly out of balance”.
…existing taxes and charges were not adequate to provide the health and education services the community expected governments to provide…
The rapidly ageing population was a key driver of increased costs for the states, Brumby said, and GST revenues had fallen well short of the “rivers of gold” they were promised.
He said the GST had a large and growing structural weakness in its revenue base because fresh food, health and education expenses were exempt…
“But when we look at the possible other outcomes of either crushing deficits, or failing to care for our most vulnerable people, GST reform looks more and more like the best option we’ve got,” Brumby said.
“In my view the real debate about the GST is not about whether it needs to increase; I think that’s inevitable. The real debate is about the nature of the increase (base versus rate, or both), the compensation provided to low-income earners and pensioners, and the distribution of the proceeds (the states versus the rest).”
Brumby’s views of course echo those of World Vision CEO, Reverend Tim Costello, who over the weekend also backed GST reform provided there is adequate compensation to vulnerable members of society, via say cash transfers and other welfare programs.
According to the Grattan Institute, broadening the base of the GST alone (let along increasing the rate) would raise another $15 billion for the states, significantly boosting public finances while also leaving enough revenue left over for compensation to poorer members of society.
It would also broaden the tax base, reducing Australia’s over-reliance on taxes on productive effort (i.e. taxes on incomes and profits), which is becoming increasingly unsustainable in light of the structural headwinds facing the economy, including population ageing (rising old-aged dependency) and falling commodity prices.
That said, Western Australia is looking as if it could be a key roadblock to GST reform, vowing to oppose any moves to broaden and/or raise the rate unless it receives a bigger share of distributions.
While many hate the idea of paying more GST, the fact remains that Budget revenues are in long-term structural decline, owing to rising old-age dependency and the unwinding of the commodity price boom. And unless citizens want to see social programs cut further, then revenue will have to be be raised somewhere.
In my view, it is much 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 these measures should be pursued alongside reform to GST, with adequate compensation provided to overcome concerns about its regressivity.
