You may recall that one of the fabricated fears planted in people’s’ minds before the last election was that a Labor Government would raise the GST. Those of us who remember the perceived threat may also remember the public outcry expressed by readers who left comments on popular sites like news.com.
Someone, somewhere, dreamt up that Gillard would raise the GST, the papers ran with it, and public rage followed. Now who would have raised such an idea? Given the negative aspects and the timing of the alleged threat I’m sure the Liberal camp might have had a small bit to play in it. Might they now be a little bit bemused that there are genuine calls to have it raised, with many of the callers being the end of town that the Liberals party with?
The calls became more vociferous leading up to the recent Tax Summit.
But you may ask: “Why should we raise such a repressive tax?” Well, there are a number of reasons. Independent MP Tony Windsor starts of with the most simplest of these.
Tony Windsor has suggested the GST should rise by 1 percentage point to allow 115 “inefficient” taxes to be eradicated.
Mr Windsor and fellow crossbencher Tony Crook . . . called for the GST to be examined . . . following Treasury warnings that the tax has become increasingly inefficient.
Mr Windsor’s suggestion was in the wake Treasury’s executive director of revenue Rob Heferen’s statement that the GST was costing more to collect than other taxes and was “less than robust” because of increased spending on tax-free items.
The OECD Centre for Tax Policy and Administration highlighted the “practical reality” of an increase, being was essential to achieve many of the reforms recommended by the government’s tax review (The Henry Review) of 2009.
“There would seem to be a fairly compelling logic to GST base broadening and a slightly higher rate (eg 12.5 per cent) as a means of rationalising the major state taxes and compensating low-income citizens who would otherwise be unfairly impacted by GST expansion,” said the centre’s senior adviser Richard Highfield.
Viewing the current tax system as unfair and inefficient, accounting bodies also put their weight behind the call. Among them, CPA Australia suggest that:
increasing the GST to 15 or 20 per cent, accompanied by cuts to business and personal tax rates, would improve the economy and raise the standard of living. “Our research helps demystify concerns that an increase in GST would hurt Australians,” CPA Australia chief executive Alex Malley said.
But the sharpest call and strongest argument comes from the big end of town; the business groups with the Australian Industry Group leading the call.
The Australian Industry Group is urging an increase in the rate of the GST – or a broadening of its application to more goods and services – as a way to pay for the removal of inefficient state taxes.
The Ai Group – whose chief executive Heather Ridout was involved in the Henry tax review – says the states and territories have among the most inefficient and poorly designed of all Australia’s taxes.
Ideally, the group says, insurance taxes and conveyancing duties would be removed and payroll tax remodelled or removed. Land tax could be improved substantially.
Compliance costs could be reduced by harmonising remaining state taxes, and economies of scale exploited by using the Australian Taxation Office to collect state revenue.
A more broadly based or higher GST should finance the removal of as many existing state taxes as possible, it says.
Another architect of the Henry Review, Professor Greg Smith has also extolled the reasons and benefits of raising the GST, in particular the pressure it could take of income tax, and believes the increase to be inevitable, but is wary of one major obstacle, profoundly declaring it:
would require a selling job of which governments no longer seemed capable.
The tax summit has been and gone. So has any talk of an increase to the GST. In numerous media releases leading up to the summit the Government clearly ruled out the increase, or that it will be tabled for discussion. To do so would have been political suicide. It may have also been seen as an easy solution to return to surplus, even though it clearly would not have been for that purpose. It is a mute point that the Government has been widely criticized for not heeding many of the recommendations of the Henry Review, namely from those critics who sit on the opposition benches.
I was opposed to the introduction of the GST and the manner in which the Howard Government hoisted it upon us, as many people were. But it is with us, and despite its obvious flaws it nonetheless could unwittingly be the vehicle that will be used to overhaul the inequalities of the current tax system. However, this is unlikely to happen for a few reasons:
- The negativity around the GST during the last election campaign and the Government’s reluctance to pursue the matter, particularly as it is in the minds of the electorate that the Labor Government has been painted as the party most likely to raise the GST if it ever were to be raised.
- Foregoing the above, the Government has a poor track record in selling major policies or extolling the virtues of those policies.
- An Abbott Government – should the country ever suffer one – after having planted the fear of an increase to be the child of a Labor Government, would also continue to ignore the benefits that an increase to the GST could deliver.
I must admit that I’m a bit swayed by the arguments in favour of an increase. What do you think?