LABOR could now stop the evolution towards paralysis in Australian politics — with a bit of courage and boldness. It could go beyond merely saying we will oppose the nasties. It could lay out its vision and state now, early in the electoral cycle, the way it is going to pay for it.
For more than two decades the GST has been regarded as poisonous – to introduce it (Hewson and Howard) was election losing or almost election losing. So to increase it or expand its net has been seen – quite wrongly — the same way.
Because now the GST has been around for 15 years, the electorate has broader understanding of it. Moreover, voters might prefer an increase in the GST rather than what is staring them in the face now — the slashing, cutting and wrecking of things they hold dear.
Labor should get the nasty over now. It should say it will increase the GST to 12.5% or 15% and that it should apply it to everything.
Then Labor should say that the money raised will be used to reverse a list of cutbacks proposed in the first Abbott-Hockey Budget.
This would have several effects. First, it would portray Labor as responsible – not as a yapping Opposition from the sideline (which is effective only over at least two terms) and as acknowledging that governments must get their budgets in order. Secondly, it would deprive the Government access to the best, most effective fiscal policy in the armory of the Australian Government because Abbott could hardly steal Labor’s policy.
Labor would have two years to explain its position. And, let’s face it, it takes about two years to explain to the apathetic Australian electorate a few basic principles that should take half an hour at most.
The GST is less avoidable than other taxes. Companies and individuals avoid income tax by winding their income through trusts and into capital. But, by and large, if they want to enjoy the fruits of their income they have to pay the GST.
Yes, you can pay cash to a few tradespeople, but if you want to buy an expensive car, house, holiday or dinner in a restaurant, you pay tax through the GST, even if you can connive to make you taxable income zero – as many high-wealth people do.
Moreover, the more you spend, the more you pay. So the GST is a progressive tax.
Labor could explain, too, that by applying the GST to everything – including health, education, rental accommodation and unprocessed food – it will hit the people who can afford to pay more than those who cannot. School fees and all sorts of alternative and optional medicine would come within the ambit of the GST.
The GST on rent would be paid for by the landlord, because the lease states the rent which cannot be changed and the market would not bear rent increases of 12.5 per cent on lease renewal.
Further, often it is the well off who buy fresh food and the less well off buy the processed food upon which the GST applies.
Then Labor would be able to argue that many of the cuts in this Budget are unnecessary. An Opposition cannot just oppose austerity measures without saying where the money is coming from.
And which are the worst of those measures? Without doubt the cuts to science and the environment.
This would be hand-on-heart national-interest stuff. It would not be cheap vote buying. Labor will have to argue that, in the long term, improvements in standards of living come through science and technology. Just look around you.
We do not know which science or which technology until after the event. We cannot pick winners before the event. But we do know that without general funding of research across the board there will be no winners to point to after the event. The CSIRO’s invention of wi-fi and the royalties now pouring in from it is a case in point.
The Abbott Government’s cuts to science are economic vandalism.
Its pandering to populist “cure-for-cancer” dreams with a $20 billion medical research fund financed through the $7 GP co-payment does not even pass the Year 7 arithmetic test.
We would need nearly three billion doctor visits to get to the target. We would each need to go to the doctor about 900 times in the next four years to raise the money – about four or five visits a week.
Ah, but contrary to this, isn’t the “price signal” supposed to reduce visits to the GP? Or should we listen to other government voices saying that the $7 is only a couple of beers, so it should not affect your decision.
But then again, doesn’t the government want to reduce budgetary burdens by reducing long-term health spending — which is done by early intervention in the GP’s room?
Muddle, incoherence, illogicality.
After pointing this out and saying there will be no co-payment, Labor then may as well bite the bullet on other revenue measures. Instead of hitting all pensioners with a reduced pension by changing the indexation rules, Labor could say pensions will be increased – but only for those who need them.
Those who are sitting on millions of dollars worth of real estate in their own home would be means tested out – and as they will be voting for the Coalition anyway, it is good politics as well as good policy.
And Labor could look at negative gearing. You do not have to abolish it, but you can make changes. For a start, landlords should not be able to claim deductions for state and local government levies.
We had the absurd situation this week of the ACT Government meeting cuts in federal funding with increased land taxes on landlords, who then promptly deduct them against their federal income-tax liability. The buck passes endlessly.
On the mining tax, Labor should explain that the mineral wealth of Australia is owned by all and should not be dug up by mainly foreign-owned companies without them paying a fair share. Yes, it is a difficult sell in the face of the mining industry’s well-financed propaganda campaign, but the Labor Party should be up to it.
In short, we need a coherent, comprehensive plan from Labor that acknowledges poor trends in government debt, but shows that Australia can deal with that not by putting the bulk of the burden on the less well off and on slashing worthwhile government spending programs, but by also looking at revenue and by looking at government largesse given to those who do not need it.
Further, Labor will have to promise that if it gets back to power it will not follow previous patterns of looking after its mates in the unions contrary to the national interest in the same way that when the Coalition gets into power it looks after its mates in business.
It will require some courage to break the mould.
CRISPIN HULL
This article first appeared in The Canberra Times on 7 June 2014.
The two problems I have with the GST are (a) it is inherently regressive therefore requiring offsets for low-income taxpayers which reduces the net revenue gain (b) it makes services, which employ Australians, relatively more expensive than goods, which are increasingly imported.
The un-taxed cash economy has been less affected by the introduction of the GST than the gnomes of Treasury might like to believe and the grey economy (bartering, particularly of specialised services and casual labour) probably not at all.
With respect to the assumed expenditure patterns of the various socio-economic groups, I wonder how much empirical research has been done e.g. on the very detailed expenditure surveys the ABS does (at least I hope they still do them)? Such analysis needs to be done by other than conventional economists who tend to be constrained by the neo-liberalist mores of their profession. In my observation and experience, people are often much more economically rational in pursuit of their individual interests than those who think they have “their hands on the levers of the economy” assume.