The Federal Government should seize the opportunity given by Australia’s peak welfare body that would not oppose the introduction of a goods and services tax (GST) as part of a comprehensive review of the tax system. This week the president of the Australian Council of Social Service, Robert Fitzgerald said the council had never rejected the concept of a consumption tax, but rather the style proposed by the coalition in its 1993 Fightback package.
Mr Fitzgerald’s comments widen the horizon for the Coalition. After it lost the 1993 election, a GST in any shape of form was off the political agenda. No-one dared go near it. On the two occasions when oblique references were made to it by the GST, Labor attempted to rerun its scare campaign. It was a shame that the GST was so comprehensively damned, because despite its politically unacceptability at the time, it is a better and fairer tax than has been painted. The main fear in 1993 was that any new tax is bad because history shows us that new taxes are rarely replacements for existing taxes, they are usually additions. However, as it turned out, Labor’s increase in the overall tax take between 1993 and 1996 was greater than would have been taken by the GST.
Mr Fitzgerald rightly suggested that a GST must be part of overall tax reform. He pointed out that his body opposed the Fightback package which contained a GST, not just because of the GST, but because the overall package would have resulted in substantial decreases to welfare payments and community services. He said that widening the tax base to include taxes on goods and services would be acceptable to his group. The Coalition might agree with that, but it would oppose any overall tax increase.
A GST has valuable economic features. By taxing services, it imposes taxes on tourists and business visitors who otherwise pay fairly low taxes in Australia, compared to what Australians pay overseas. Service taxes also fall on the wealthy who use services more. By taxing all goods and services at a uniform rate, the tax is very efficient. It makes administration easier and avoidance difficult. The latter is important. If the very wealthy want to enjoy their wealth they have to pay tax as they do it, unlike some now who use tax avoidance schemes. Further, by taxing consumption of goods and services with a commensurate cut in income tax, a GST sends the right messages. It would discourage consumption and encourage work and saving.
The Coalition has promises not to impose new taxes. However, in the next three years some rationality should be injected into the tax debate. It is good that Mr Fitzgerald has started the process. The Australian Chamber of Commerce and Industry has also proposed a tax summit in Canberra in September to convince a wide variety of groups of the need for structural change to the tax system, including a GST. Mr Fitzgerald has rejected the idea of a summit, but he said he was willing to work with the business community on tax reform.
There will have to be give and take. Mr Fitzgerald has rightly pointed to Australia’s declining tax base. It is important for the nation to maintain its social and capital public infrastructure. To do so will require sensible tax reform. The present tax base … both state and federal … is too narrow. To increase present taxes is a worse option than creating new ones.
High taxes in narrow fields create economic distortions. Taxes add to prices and costs and people and businesses change their conduct, wherever reasonably possible, to avoid tax, even though that conduct would otherwise be quite sensible.
The narrowing of the states’ tax base over the years has caused these distortions. The states rely far too much on stamp duty for property, which discourages people from moving to more suitable housing with its attendant social and economic cost. The states rely too much on “”sin” taxes … gambling, tobacco and alcohol … and therefore do not take a disinterested policy view on discouraging these activities. Further, the states get too much revenue from Commonwealth grants, rather than raising themselves. This causes a responsibility gulf. It becomes too easy for the states to blame the Commonwealth. It would be better for Australia to get away from the annual ritual of state premiers coming to Canberra cap in hand for money and then to whinge that it is not enough.
Further, the states and Commonwealth have for a long time engaged in artificial cost-shifting exercises which add nothing to overall efficiency. This happens particularly in health where responsibilities and financing frequently overlap.
It may be that the Coalition feels it is locked in by promises this term not to do anything about tax, but with both business and ACOSS expressing their concern, it is timely for politicians to join a rational debate on the GST.