Smarter, higher taxes make us better off

THE Coalition’s willingness to rule in discussion of the GST reminded me of an encounter some years ago. I was in the checkout queue at Manuka Coles and who should be behind me but a leading economist in one of Australia’s leading think tanks.

We nattered away and I bemoaned that journalists do not get research funds. We often go on hunches. But you lot, I said, referring to the think tanks have money (albeit not much) to look seriously at the Big Ticket Items.

Here’s a go for you, I said, have a look around here.

Manuka has the extremes and little middle. Desperados from the Stuart Flats buy long necks (beer) and Longbeach (cigarettes) and processed carbonated drinks, processed TV dinners, cakes, pastries, pies, sausage rolls, biscuits, savoury snacks, confectionery and ice-cream. And the other half are high-paid execs, political advisers and lobbyists (like by co-queuee). In their trolley you see fresh food – the raw, wholesome ingredients.

The GST applies to the former and not the latter. The high-income people are buying the GST-free food and the strugglers are paying GST on the highly processed sludge.

Why don’t you do a survey on this to confirm the anecdotal evidence, I asked? Alas, nothing came of it. And the Henry Tax Review commissioned by the Labor Government was enjoined from going there, too.

The Democrats got it wrong in 1999 in their great GST compromise. No GST on fresh food, they argued. It is unfair to low-income earners. And if there is no GST on fresh food, people will be encouraged to buy it, which will be better for their health.

Wrong. Wrong.

Food habits have not changed. The exemption favours the wealthy.

But Australian politicians’ attitude to the GST is totally coloured by the 1993 and 1998 elections.

The Coalition under John Hewson effectively lost the 1993 election because of his proposal to introduce a 15 per cent GST. And the Coalition under John Howard lost the popular vote (though winning a majority of seats) after promising a GST, notwithstanding it record majority in 1996.

Salutary lessons indeed. But ones which could be overcome with a bit of explanation.

Small wonder Kevin Rudd jumped on the Opposition’s proposal, waving jars of vegemite and cartons of milk about.

This paralysis over the GST is not doing Australia any good. The GST is a superb tax. The more you spend the more you pay. For once the very wealthy cannot avoid tax. And if it goes up all those oldies who got richly undeserved tax breaks from the Howard Government will have to pay more.

We should increase it and widen it. At the same time the extra revenue can go to targeting help for the less well off.

We cannot go on with magic-pudding policies – promising tax cuts, increased government benefits and putting the Budget into surplus.

The other leg of the Coalition’s tax policy, however, is shameful – the cut in the company tax rate. The company tax hardly applies to most Australians. If a company pays tax, the tax is credited to any Australian who receives dividends from that company.

So the cut in company tax will really only benefit foreign shareholders.

It was the same with Labor’s backdown on the mining tax and the Coalition’s promise to abolish what remains of it. Foreign shareholders stand to benefit.

And in the case of mining, 80 per cent of shareholdings are held by foreigners.

While the Coalition has shied away from the Charter of Budget Honesty and independent review, the Greens have not. The Parliamentary Budget Office says the Greens’ proposed levy on the big banks, its mining tax restructure, ending tax breaks to “big miners”, abolishing funding for so-called clean coal technology and increasing the marginal tax rate on incomes above $1 million would raise $43 billion.

Of course, the Greens will never get a chance to implement the proposals.

But they show the money is there – in a week that the Commonwealth Bank announced a $7.8 billion full-year profit, a record for an Australian bank.

But we are told, “Business is doing it tough”.

Ultimately, the major political parties are going to have tell us that we must raise more tax in smarter ways or forget expectations of more and better health and education spending.

The alternative is chronic deficits and in the longer term and someone else making the choice for us. It is better, of course, to make the choice ourselves. That way we can weave in the important consideration of equality and social cohesion into our decisions.

So far we are doing reasonably well – better than nearly all the rest, but it is quite silly to rule out major tax options because of fear of misguided public backlash over widening or raising the GST or fear of a vicious campaign by mining and banking interest over taxing those sectors more equitably.

That fear should be met by patient explanation not by cutting and running or waving vegemite jars in the air.

Australian politicians have become beholden to a couple of silly media traps on tax policy: “Will you rule out X?” and “Can you guarantee no-one will be worse off under your proposal?”

These questions are not geared to an exploration of public policy, but to obtaining a story for the next newscast.

“Minister Bloggs failed to rule out XYZ yesterday.” or “Minister Bloggs refused to guarantee that no-one would be worse off.”

And it is so easy for the media to find a birthday-cake making baker, or a one-legged disability pensioner living in an inherited mansion who will be “worse off” and make a song and dance about it.

It rips things out of context. Ultimately, we are all better off if we have a fairer, more efficient tax system.

Even people whose tax goes up can benefit. They get the benefit of their wealth being more secure in an ordered society with fewer disaffected people. We could abolish the dole and cut income tax, but income tax payers would certainly not be better off because they would have to pay for private security to defend themselves against the desperate.

I think we would be better off with a 12 to 15 per cent GST applying to everything. Revenue streams would be more even and other less efficient taxes could be removed.
CRISPIN HULL
This article first appeared in The Canberra Times on 17 August 2013.