Should the GST be raised?

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?

42 comments on “Should the GST be raised?

  1. Migs, excellent post as always. My immediate memory of the spiel leading up to the introduction of the GST was that it would mean an end to the ‘cash in hand’ economy. Of course this couldn’t be further from the truth.

  2. Yes Min, the GST certainly was a fillip to the cash economy, benefitting whom ?

    Show me a sub-contractor/small business owner and I’ll show you a Liberal how-to-vote card.

    However. I find that discussion of the merits or otherwise of the GST as about as engaging as Aquinas’ thoughts on angels and pins.

    At its root, the purpose of taxation is demand management, like the RBA’s fiddling around with the cash rate.

    Contrary to the myth that taxation funds government spending, it funds nothing. The government funds itself using alchemy, the principle ingredient being fresh air.

    But if you can get the people to accept that taxation finances govt expenditure, it then becomes a simple exercise to sell the idea that budget deficits have to be borrowed, leading to the universal acceptance that surpluses must be good.

    And that locks the government of the day into policies that are inimical to the interests of the working class, but benefitting whom ?

    As a strategy it has been very successful, and will continue to be so whilst ever we choose to stay dumb.

  3. Yes, i remember the black economy would vanish, blah, blah blah. I don’t know anyone who thought it would even slow down and I think it’s actually grown since the GST was introduced.

    I’m a bit skeptical of the claim that it’s too expensive to collect. The BAS costs the taxation department bugger all because business has to prepare the statements for zip and then the ATO gouges the cash in the usual manner.

    MJ not all small business owners vote for the Liars Party, but having said that I’m probably the solitary one bucking the trend.

    I’ve never been able to figure out why small business and tradies vote Liars; they couldn’t give a toss about them. I’ve always thought that they imagine it confers elevated social standing by association.

    However, it does bugger all for the bank balance. And who gives a toss about standing in the imaginary reflected glow of a bunch of Hooray Henrys?

    To get back to tax, the Rodent government has painted all governments into a taxation corner with its cretinous worship of surpluses which afaic are an admission of extreme government inefficiency coupled with a pathological refusal to invest in infrastructure.

    So now we have economic morons like the Liars Party bamboozling Joe Public into thinking that budgets should never be in deficit even if the country is falling down around their ears.

    Hence all the hand wringing and dire predictions by the Liars when the government decided to build and repair infrastructure and tackle the GFC. They would rather the country sink into deep recession with double digit unemployment than let the moths out.

    Otherwise what the hell use is a surplus?

  4. Mangrove jack, However. I find that discussion of the merits or otherwise of the GST as about as engaging as Aquinas’ thoughts on angels and pins.

    You have such a way with words. 😀

  5. Surpluses aren’t all they’re made out to be. If Swan had have held back his spending during the GFC, we would have one, but we might easily have entered a recession. And jobs wouldn’t have been saved.

    Yet we have the opposition, the media and Joe Public condemning the deficit.

    Go figure.

  6. Just look at the numbers of $20 and $100 notes in circulation. The number of $100 first equaled and then exceeded the number of $20 notes shortly after the introduction of the GST. You can bet that the average PAYE wage earner sees nowhere near the number of large cash notes as your sub-contractor/small business owner.
    Cut out large cash notes and see who squeals, you would have a good indication of who the tax avoiders are in our economy.

  7. Migs @5.11pm, my point exactly. What’s the point of a bloody surplus if the country has to go into recession to hold onto it?

    Although, I’m sure all the unemployed would be extremely grateful that although they don’t have a job and can’t feed, house or clothe themselves or their families, they’d be able to warm themselves in the warm glow of a surplus.

    lunalava, that would be because the average subbie or small business owner deals with a lot of people and their $100 and $50 notes every day. And large denominations are a lot less bulky in the wallet, although my wallet would be overjoyed to see a $20.

    handy, your idea has a great deal of merit. Now if we can just convince someone to start sending it our way……..

  8. Nice to see you Handyrab..you usually only show up on my music topics 😉 We must have another one of those some time soon.

  9. Migs the bins over here —-> all deposits welcome.

    I think the DEMs (and Labor ) made a mistake by not including ‘food’ in the GST. It would have made life a lot easier these days as far a the need to increase the rate.

    Now I reckon an increase to 15% with sufficient trade-offs in inevitable. There are so many crap taxes (mostly state) that would have been and should now be abolished…..they are hidden in so many transactions that we make.

    Good to see you out and about Migs. A fine post BTW but I doubt any increase will be a poisoned piss pot (can’t spell chalice) (oh wait I can) at the moment.

  10. Thanks Min

    I’m here every day but I’m sorta over politics so don’t tend to become engaged by commenting. But don’t worry I’ll be here tomorrow.

  11. Ok guys, treat me gently. I am nothing resembling an economist. But might I ask, what would be the benefit in raising the GST?

  12. The promise with GST originally was that it would eliminate ‘inefficient’ State taxes; but we ended up with both!
    Why is it so hard to get the statistics on GST? How much each State collects, how much is distributed to which States? This information the Governments keep very close to their chest.
    With petrol we still have 37.5 cents per litre excise, then GST is charged on top of that! We probably also pay 3 cents GST tax on the tax

  13. You’re right, michaelangelica. Shortly after the GST was introduced, petrol prices skyrocketed for whatever reason, giving Howard even more GST than he planned.

    It begs the question of why is petrol subject to all sorts of taxes PLUS the GST.

  14. Agree 100% on GST on fule excise michaelangelica!

    The GST distribution is detailed in the federal budget each year if you’re interested. Collection statistics are a bit more problematic though. States don’t collect GST. Where is the GST collected by large corporations – Telstra or Myer for example? Is the GST collected by them subdivided into the region where it was collected, or all lumped together at the HQ of the corporation? I would suggest the latter…

  15. Bacchus, my feeings too. I cannot work out given how the system works (or rather doesn’t work), what the benefit might be in raising the GST. I was thinking that firstly the system needs to be fixed before raising it up a notch. But then as stated, I am nothing resembling an economist..except for those couple of years of an Accountacy degree via TAFE Melbourne 🙂

  16. Miglo @ 5.56pm, It begs the question of why is petrol subject to all sorts of taxes PLUS the GST.

    A small oversight by the architect ??

  17. The moot point is as per Tony Windsor Tony Windsor has suggested the GST should rise by 1 percentage point to allow 115 “inefficient” taxes to be eradicated.

    But would they? I will believe in tax reform when someone bites the bullet and irrespective of the political backlash starts to wind back Howard’s Middle and Upper Class Welfare.

  18. Pip, according to Noosepoll Julia Gillard is the most unpopular Prime Minister in the entire history of the civilized universe, why? Because she LIED. But wait for it, the PM didn’t actually lie now did she. So let’s think of another reason. The PM is unpopular because the media tells us so.

  19. I agree, Pip, and why do that without taking it to the next election as a proposal first? It may be a good idea but it needs thrashing out and to have guarantees that the States will really eliminate the taxes which are so inefficient in return for an increased take in the GST.

    Look at what our Premier Barnett did with hiking up royalties – completely undermined the Federal govt’s mining levy.

  20. Re Tony Windsor

    But what’s an efficient tax ? One that’s cheap to collect ?

    I remember the economics commentariat saying we had to “broaden the tax base” and me thinking that was just code for let’s pluck the small feathers from the goose, and more of them, rather than yanking out fistfulls of tail feathers and making it quack (or honk). Us being the goose.

    Given that orthodox economics demands that spending equals receipts, “over the cycle”, and given that orthodox economics always has an agenda, I wondered what that might mean for us.

    Given also that a goods and service tax is a flat tax, meaning that it affects the lower income constituency disproportionately, where would the adjustments come from that would restore the progressiveness of the tax system (the more you earn, the more you pay) in the event of an increase ?

    Who would be the beneficiaries of say the abolition of stamp duties at the state level ?

    Efficiency has nothing to do with it. Put your money on Self Interest, always a tryer.

  21. Never lost money backing Self Interest yet, Min.

    PS I guess we all know that expression came to us from Jack Lang via Paul Keating. I just love it. It’s the absolute pinnacle of cynicism.

  22. According to Richo next year we will have Liberal state govts, so as the GST is for the states and states have to give up their inefficient taxes, Let the bloody Liberals own the GST raising debate.

  23. Then after the Liberal states demand a raise after 2013, the federal govt (labor) can take out an account keeping fee, with the words stuff you barnett, that fixes the royalties issue.,

  24. Migs, no the GST should not be increased. Besides being a regressive tax, it also works like a hidden tax. No one has any idea how much the pay in a year. When they do their income tax, they know the amount.

    Most things such as stamp duty and other taxes are documented when we paid them. Most are one off taxes.

    There appears to be evidence that the GST has not done what was promised.

    The cash economy is still around. It is not a growth tax. It has not stopped the squabbling among the states. It is an impost on business. The taxes that the GST were to replace are still in operation.

    As it is over an decade since it was introduced. It is time for an in depth review of the GST before any change was made.
    Maybe there are other more efficient answers to the States plight. I suggest that returning to the states some type of income tax, collected by the Commonwealth government could be a fairer option. The States would be responsible for what they raised.

    Another negative of the GST, as I see it, that it has allowed progressive income tax on the wealthy to be reduced.

    GST introduction was social engineering by the Coalition, allowing them to transfer wealth from those at the bottom to those at the top.

    Review the GST before any thought is given to raising or extending what it covers.

  25. Min @7.50pm. Exactly. And again @8.17pm. You’re on a roll!

    CU, I agree. We should hasten slowly wrt any changes to the GST.

  26. Migs

    I am vehemently agfainst any increase in the GST. The GST increases each and every time a business or services increaes their rate. In this way the GST take has skyrocketed since introduction.

    The increase has severely effected the lower income earners and pensioners simply through the increase of costs of living and services.

    The business community wishes to increase the GST for one main reason. Businesses offset the GST collected by the GST paid. A PAYG earner has no such ability whatsoever and ends up paying full GST cost with no offset.

  27. Shane, my concern tends to be with pensioners et al also. The Howard Handouts were supposed to compensate for these but I doubt that it ever did.

  28. Michalangelica, with the introduction of the MRT might we see some other taxes abolished?

    Let’s suppose the tax is introduced, and Abbott forms government, can we expect to see the money raised used for middle class welfare a la Howard?

  29. Shane, governments like it for one reason, people do not notice they are paying it.

    If they do notice on receipts, they have no idea of how much they spend in a year.

    For this reason, I believe it is a dishonest tax.

  30. Within a few days of the GST being introduced a couple of things didn’t seem right.

    On day 1 the manager of the fruit and veg section at our local Coles was pleased that mushrooms could now be sold at their “right” price, which was $3 a kilo lower than they were the day before. Within a few days they were back up to their pre-GST price. Somebody was ripping off the customer.

    Flavoured milk had been subject to a luxury tax, the rate of which was about 32 or 33 per cent. After the introduction of the GST at 10 per cent I expected to see an immediate drop in the price of flavoured milk. Golly gosh, it was still the same price on the supermarket shelves. Again, somebody was ripping off the customer. The GST made it easy to do so.

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