Over the past month, almost all discussion on tax reform has reverted to whether or not the Turnbull Government will seek to raise/broaden the GST.
Labor has vowed to oppose any GST change, as have the Greens and several cross-bench senators. Even members within the Coalition are skeptical about the merits of GST reform, but for different reasons.
On the face of it, therefore, it would appear that the Turnbull Government faces a near impossible task of getting GST reform through both houses.
To date, MB has been in favour of sensible GST reform provided its regressive impacts are addressed. At the same time, we also believe that there more important tax issues that need to be addressed, which risk being ignored so long as the GST remains front-and-centre.
This raises the pertinent question: should the Turnbull Government rule out GST reform now in order to focus on more pressing issues? While such a move would conflict with the “rule nothing out” approach promised by Malcolm Turnbull, it would also allow clean air to discuss more pressing tax-related issues.
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.
Put simply, there are a lot of things the Government could do that would help improve the sustainability of the Budget whilst also improving equity. But it is difficult to have this conversation as long as the GST is sucking all of the oxygen.
Moreover, as long as the tax debate is framed by simple slogans such as “lower taxes”, which seems to be the catch-cry of the Coalition, we won’t achieve much progress on tax reform.
The reality is that the Budget is suffering a revenue problem as much as an expenditure problem. As the population ages, Australia will need to find new revenue sources to meet the public’s expectations around healthcare and other essential services.
In short, debate needs to move beyond the GST to these higher order issues.
