A row has broken out over the state of the Federal Government’s accounts. Labor’s Treasury spokesman, Bob McMullan, accused the Government this week of trying to cover up the fact that it is the highest taxing government in Australia’s history by not including the GST as a federal tax. He said it was not some mere technicality, “”this is the Auditor-General conducting the official audit of the Commonwealth’s books and saying they don’t meet the proper accounting standards”. He demanded that Treasurer Peter Costello return from holiday to clarify the state of the nation’s books.
The auditor may have a technical point, but it is only that. Mr McMullan’s call for Mr Costello to return from holidays was a hyperbolic absurdity. The Auditor-General brought down his report on December 21 – before the holiday began. It seems that the Opposition (and the media) were on holiday and missed the report and its significance, if there was any. The nation rolled on. It was an opportunistic politicians’ grandstand.
Whether the GST is put under the column of state revenue or federal revenue is not of huge moment. The Federal Government has argued that because legislation guarantees that all GST revenue goes to the states it should be counted as a state tax. That argument has some merit, in the same way that the taxes for tobacco, alcohol and petrol have been collected by the Commonwealth on behalf of the states ever since the High Court ruled that under the Constitution they were excises – a form of tax over which the Constitution grants the Commonwealth exclusive jurisdiction – and not “”licence fees” as the states had pretended.
True, the excise collection replaced exactly what the states would have otherwise had collected, whereas the GST replaced the Commonwealth wholesale sales tax in addition to a range of state taxes. Nevertheless, all the money is automatically transferred to the states, so there is an argument that it should be on the state ledger. Certainly no state, Labor or Liberal, would be willing to surrender that automatic transfer and replace it with the old system of the states going cap in hand to the Commonwealth every year for the lion’s share of their revenue.
Mr McMullan has an arcane argument. It does not matter whether the Commonwealth is seen to be historically higher taxing because it taxes on behalf of the states. The real question is whether the total taxation burden of both the Commonwealth and the states is rising or falling.
On that score neither Labor nor the Liberals have clean hands. The total tax grab – despite Prime Minister Howard’s pious claims of fiscal frugality – steadily rises. In particular, neither the Liberals nor Labor have ever enacted indexation of income tax rates. Labor did well to reduce the top marginal rate, but the general pattern has been for Governments to allow inflation to do their dirty work. As income levels rise with inflation more people are pushed into high income-tax brackets. Every now and then – usually just before and election – a government hands back what inflation has taken away in the form of a “”tax cut” and expects the voters to be grateful.
In meantime, governments go on collecting unnecessarily high amounts of money and inefficiently wind it back through administratively expensive government programs.
When Mr Costello comes back from holiday it would be refreshing for him – supported by Mr McMullan – to introduce the only tax cuts that count – a reduction in the top marginal rate and indexation of the tax rates. Until that happens, voters have every right to take what any politician says about government revenue with large doses of salt.