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