Today Australia begins a new tax regime. No tax change has been subjected to so much publicity, information and misinformation. Much of that has centered around whether a partifular family configuration will be better or worse off under the new regime or whether a particular item will cost more of less under the new regime. They have been arid arguments of little moment centered around whether the Opposition or the Democrats might capture a few votes among a given class of people: motorists, caravan dwellers, tampon purchasers – and yes, the “”debate” went there, too – artists supplies or whatever.
Fundamentally, though, John Howard and his government have been right to tackle tax reform and implement fundamental changes. It was in the words of Sir Humphrey Appleby of “”Yes, Minister”” fame, a “”courageous decsion”. That was a euphemism for doing the right thing but at a cost of many votes. It was a euphemism for doing something that the well-informed knew was sensible and worthwhile but which was open to attack by opponents byu preying on the fear of change by the ignorant and ill-informed. It is so easy for an Opposition to be opportunistic when a Government engages in significant change. Oppositions know that those in favour of change will at best be lukewarm about it, while those against will be veciferous.
The fundamentals of these tax changes are worthwhile. The incidence of tax will move from income to consumption. It will away from exports. It will tax services – used more by the rich than the poor – for the first time. Under the new regime tax will be collected on growing areas of the economy, particularly services, but in general on areas of the economy where value is added. Indeed, that is the very nature of the tax – the greater the value added in any part of the production chain, the greater the tax. Hitherto, the old wholesale sales tax hit manufactured items disproportionately. But these items are a shrinking proportion of our economy. The new tax system is designed to to pick tax up at whatever point value is added. As the economy changes, the tax incidence goes with it. It means that governments will have revenue available to do the things that governments should do – educaiton, health, defence, infrastructure and so on. It was this element of the Coalition’s tax package that rightly struck a chord with the Democrats/
That said, the Government should not escape criticism for the way it introduced the tax. It did not give enough compensation to pensioners, especially self-funded ones. It did not give enoguh compensation to low-income earners who spend a disproportionate amount on items taxed for the first time under the GST. Further, the Democrats’ extraction of a wider range of exemptions — particularly, food, education and charities – is open to criticism. These exemptions have yielded unnecesary complexity to the tax system. And once you start every deserving case seeks an exemption.
For all the waving about of addities and unintended consequences, the fundamentals of the tax reform are right. Onc ein place they will rightly lead to fine tuning.
The important thing for Governments to focus upon is to broaden and simplifiy the tax system. This leads to greater efficiency, greater fairness and greater accountability. It runs against he grain for politicians who prefer to work with special deals, sectional interests and marginal-seat strategies.
It is a profound change