Increasing the GST will target those less well off

There is a real need for tax reform, but the answer is not an increase in the GST.

THE debate on increasing the GST continues to rage among federal politicians, with the Government currently testing the appetite of the electorate for such reform. Taxation policy is one of the greatest equalisers that we have in society. The sheer effectiveness of tax policy is the reason why it sparks so much debate. 

Currently, Government expenditure as a percentage of Gross Domestic Product (GDP) is over 26 per cent, the same level as at the height of the Global Financial Crisis (GFC). Yet, I believe there still isn’t enough money being raised to meet the needs of the community. The question that should be being asked then is, what is the level of revenue that we need to raise in order to meet the demands of the community and how do we reform the tax system to make a fairer and a more egalitarian Australia?

The Federal Government is floating the idea of an increase in the GST to 15 per cent and a dramatic broadening of the base. The Parliamentary Budget Office have indicated that this would raise $130 billion in 2017-18, generating an additional $65.6 billion in revenue, but impose a GST on basic food, health and education services, which are currently GST-free. It is argued that if implemented, payroll tax could be abolished; the small business tax rate could be set at 25 per cent and some personal income tax cuts could be implemented. This proposal, it is argued by the government would encourage jobs and economic growth. 

The reality is that the more money people have in their ‘‘back pocket’’, the more they will spend and demand  products and services. Business meets this demand by increasing their product and or service offering by employing more staff to cater for the increased demand. Business does not get a tax cut and think, ‘‘you beauty’’ let’s hire new staff, unless their customers demand it.

By increasing the rate of the GST by 50 per cent and potentially imposing a 15 per cent tax on items currently exempt, you take money directly out of the pockets of the less well off, as they have to proportionately pay more of their income under an expanded and increased GST. In the same breath, the Government is also arguing that we have a spending problem, not a revenue problem. If this is the case, then why not cut expensive policies like superannuation tax concessions for the wealthy. The top 20 per cent of income earners currently receive 60 per cent of superannuation tax concessions, which costs $18 billion annually. These Australians will never claim an age pension, and  not reduce the fiscal burden on the budget. Yet we blindly subsidise our wealthiest, but are going to demand our most vulnerable do more of the heavy lifting through increasing the rate and base of the GST.

The GST is a tax on final consumption, with many arguing that the wealthy will inevitably pay their fair share of GST, as they buy more expensive items that attract a GST. The reality is that the wealthy and a large proportion of the upper middle class don’t buy items in their personal names, which would attract the GST. 

There is a real need for tax reform, but the answer is not an increase in the GST. The focus must be on limiting superannuation tax concessions, which are set to eclipse the cost of the age pension in 2017-18, stopping the perpetual inequality of negative gearing that is causing a housing affordability crisis in our cities and winding back capital gains tax discounts that only benefit the wealthy. 

- Adam Shultz lives in Valentine and is a former consultant at PricewaterhouseCoopers with degrees in Business, Commerce and a Masters of Public Policy


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  • commented 2016-02-08 21:02:21 +1100
    James
    “Brett, so why are the VATs 20-25% across Europe? They have a 25% VAT in Sweden. What are we missing here?” We are missing a unfair, regressive value added tax.

    “Would you prefer the G.S.T. be dropped to zero? Then we have to raise income taxes on nurses and teachers”. Income tax would have to be raised on them, and others, because the Labor and Liberal Governments have over the years privatised a lot of our income producing assets, instead of investing for the future, investing in dividend producing assets. It does not make sense to cut off the income from public owned assets by privatising them, and then increase taxation to make up the shortfall.

    “The G.S.T. hits everyone, even income tax dodgers and the criminal class.” Yes, everyone, even the lowest of the income earners, and the people on the various pensions.

    “What is wrong with taxing people who buy Audis, Armani suits and $400 restaurant bills?” There is nothing wrong with that, but should they be taxed by a system which penalises the low income people? Life is already financially quite difficult for them.

    If the G.S.T. is raised in the next year or two to 15%, it is only a matter of time until there will be another push to raise it again, perhaps to the 25% of the some European countries. A little bit now, and a little bit more later on, and so on.

    Yesterday I sent a fax to Prime Minister Turnbull, and to Mr. Morrison, the Federal Treasurer, to express my opposition to an increase in the G.S.T.
  • commented 2016-02-08 16:13:58 +1100
    Brett, so why are the VATs 20-25% across Europe? They have a 25% VAT in Sweden. What are we missing here?

    Do you really want BMWs, business class airfares and Louis Vutton goods to be taxed this low?

    Would you prefer the GST be dropped to zero? Then we have to raise income taxes on nurses and teachers.

    The GST hits everyone, even income tax dodgers and the criminal class. Its a very open tax, you know what people are paying when they buy a 60" TV. Income tax is very uneven in how it affects certain industries. Rich migrants to Australia arent paying income tax, their cash is parked overseas…what is wrong with taxing people who buy Audis, Armani suits and $400 restaurant bills?!
  • commented 2016-02-08 10:21:54 +1100
    Private enterprises invest, because they want the income from the dividends. The dividends are distributed amongst the shareholders. When a Government owns a profitable enterprise it being the sole shareholder, receives all the dividends.

    Over recent decades Labor and Liberal Governments, State and Federal, have been privatising Government owned profitable assets. This has cut off a significant amount of income. As a result of those privatisations there are now members of the Labor and Liberal Parties calling for a 50% increase in the G.S.T. Those people who are on high incomes, like Queensland Premier Annastacia Palaszczuk, who now has an annual salary of $385,719, or Malcolm Turnbull on $504,000 each year, will not notice the increase in the G.S.T. However, those people who are on low incomes or pensions will be hit hard, because they will have a reduced usable income. I do not see why these people should pay for the bad policy of privatisation which has been pursued by both Labor and Liberal Governments. There should be no G.S.T. increase, and our Governments should be investing on our behalf, not divesting.
  • commented 2016-02-07 17:49:35 +1100
    Further,

    many people acquire, inherit or migrate-to-Australia with great wealth. Their accumulated wealth is naturally offshore…one good way of taxing these people is when they buy their Ferraris or jetskis.

    There is simply no other way to subject these people to Australian income tax. And certainly the criminal class dont lodge returns do they. But they cant avoid the GST when they visit Maccas, Hoyts or buy a Holden.
  • commented 2016-02-07 13:12:01 +1100
    Hi Adam,

    so tell me, what should the tax be on Mercedes-Benz? What should the tax be on a business class airfare? What should the tax be on champagne?

    If the GST was dropped then many groups in society would be paying even less tax because they dont pay income tax.

    The GST is one effective way of taxing people who, rightly or wrongly, pay little or no income tax.