Decision time for the GST is drawing dear. No doubt there will be a number of unforeseen consequences which will require fixing after the event. All the modelling and Senate inquiries in the world will not be able to fully predict human behaviour and the introduction of a new tax will inevitably affect economic behaviour which will in turn affect the impact of the tax. The Government has made the obligatory promise that no-one will be worse off. The promise is obligatory because in modern politics every interest group is capable of squealing disproportionately to any inconvenience change might bring. The promise is silly because inevitably such a major change cannot be beneficial to everyone. So the promise must be taken with a grain of salt.
Of more importance is the question of whether the tax changes overall will on balance be beneficial. The answer to that question is almost certainly yes. Australia must change its tax mix. It must broaden it to include services and it must tax the act or consumption more and the acts of wealth generation, like income and employment, less.
The last days of Senate hearings were taken up with the question of compensation for pensioners. As the Government had made a separate promise that the pension would reach 25 per cent of average weekly earnings, any compensation would get absorbed in that and they would be no better off under the GST. Indeed they would be worse off because their pension would not buy as much if food were taxed. This may be so. The answer would be to increase the pension promise a few percentage points to account for the GST, so that the pension would be 27 or 18 per cent of weekly earnings.
In general the Government needs to take a closer look at its compensation measures. That might help the Democrats come around to allowing the GST to go on food. The more universal the tax the easier it is to administer, but it must be fair.
The other event in the GST question is the growing importance of Senator Brian Harradine whose vote will be critical at least up will July 1 when the new senators take their seats and the Democrats take the full balance of power in the Senate. After July 1, Senator Harradine becomes and irrelevance. In the meantime, he is being treated with deference, if not reverence by a Coalition anxious for his vote to approve the GST. Senator Harradine may not see the link, but clearly the Coalition is giving him more say on key items on his moral agenda than it otherwise would, particularly censorship and regulation of television content. This spectacle should really irk the Democrats whose self-proclaimed job it is to “”keep the bastards honest”. The Democrats should be holding the Government to its election promise, not demanding that it deviate substantially from it. They should also be ensuring that Senator Harradine is not able to extract more concessions from the Government for his pet policies however unprovable is any linkage between his attitude on the Government’s economic agenda and his success on censorship and family-planning matters.
The best way for the Democrats to provide a better option for the Government than the wooing of Senator Harradine by agreeing with the substance of a wide-ranging GST, including one on food, but entering into serious discussion of the extension of the compensation for people on lower incomes, particularly in light of what has been revealed at the Senate inquiries.
The position of the Senate has been made a little odd by the other major GST development in the past week. The state Premiers (with their territory counterparts) have all agreed with the Commonwealth to a GST package. Surely