It’s not quite a Damascene conversion for Malcolm Turnbull on the worth of a GST hike, but commendably — if belatedly — he has realised the basic problem with hiking the GST: it’s not actually going to do much for the real economy. It’s a fizzer, even as tax reform, let alone economic reform.
But Turnbull’s grasp of the economic non-benefits of lifting the GST appears to have been facilitated by Coalition backbenchers — either of the “bedwetting” or small government variety — who have been making it clear they were deeply unhappy about the direction the government was heading on tax. To mangle Upton Sinclair, it is easy to get a man to understand something when his salary depends on his understanding it.
As Laura Tingle has pointed out, this creates a real problem in Commonwealth-state relations given the states are anxious to find ways to make up for the massive cut in health and education funding inflicted on them by Tony Abbott and Joe Hockey.
There’s another, more powerful and more dangerous constituency that is also unhappy: big business. Their mouthpiece, the Business Council of Australia’s Jennifer Westacott, today put the government on notice that its expectations that a higher GST to pay for lower company taxes should not be disappointed. “Our business taxes are some of the most uncompetitive in the world,” Westacott insisted, politely skipping over the point that many of her members either don’t pay any, or pay very little, tax. The Business Council insists company tax must be slashed for the economy to grow. There’s no sound evidence from anywhere in the world that one follows the other, but don’t let a small dearth of evidence come between friends.
Fiddling with the GST to put a greater tax burden on consumers for the financial benefit of large companies would be simply more of the crony capitalism that we had from the Abbott government. That Turnbull might actually want to pursue genuine economic reform rather than simply hand a windfall to multinationals and big business — or at least only hand windfalls to them that won’t upset voters — is heartening, but don’t doubt the BCA will put its substantial lobbying efforts into fighting it. Westacott has already flagged one tactic — portraying walking away from a GST rise as evidence of policy pusillanimity and Abbott-like inertia on the part of the government.
“I am concerned,” Westacott wrote, “that tax reform runs the risk of being the latest victim of Australia’s dysfunctional political debate.”
The truth is, the BCA is a key perpetrator of that dysfunctional debate. It is the BCA that parades a big business wishlist that would only benefit its members’ (frequently foreign) shareholders — and benefit them at the expense of workers, taxpayers and consumers — as a genuine reform agenda that would serve the national interest. It is the BCA that peddles the myth that cutting company taxes yet further and removing workers’ protections will somehow unleash a surge in economic growth, jobs and productivity. And voters have a healthy bullshit detector for such self-serving stuff — that’s why “economic reform” has been proving a tough sell for politicians.
The GST retreat might upset premiers and annoy key Liberal donors while calming backbench nerves. But with the exception of Treasurer Scott Morrison’s willingness to consider curbing super tax concessions — an important reform the government deserves support for if it proceeds — the government has allowed the GST to become the be-all and end-all of what tax reform “debate” we’ve had. In doing so, it never implemented the Turnbull mantra of explaining what problem it actually wanted to address with GST changes — especially after it abandoned the already ailing green paper-white paper tax reform process.
Now, the government doesn’t even have the benefit of having convinced the electorate that there’s a problem that needs a major and potentially unpopular tax solution, even if it’s not going to be a higher GST.
Fortunately for Morrison, voters are gung-ho for changes to superannuation tax concessions, which they perceive rightly as primarily benefiting high-income earners, and Labor has already put forward its own proposals. It’s economic and fiscal reform, but of the low-hanging variety, a bit like Labor promising to retain the Gonski funding framework.
But if Turnbull and Morrison want to do anything more than curb our increasingly expensive and misfocused retirement policy, however, they have to go back and start again from square one.
The big problem with the GST is that raising it is not a bipartisan policy position. While Labor opposes it, it has no chance of getting up and Turnbull understands this. So when Shorten was campaigning hard against a non existent policy, Crikey painted the government as heartless. Now it’s dead, well, the government is weak.
Raising the GST and reducing income tax has the benefit of shifting the tax burden from producers of wealth to consumers of wealth. It is an adjustment that middle Australia needs.
All the politics of course is around the edges. The “most vulnerable” are trotted out yet again the make reformers look bad when there are a plethora of social welfare measures in place to protect them.
Ever since Keating won the 93 election with “A vote for the Coalition is a vote for the GST” campaign, Labor has made political capital from opposing it even though they support it in their hearts and will never repeal it should it come in. So the next generation will continue to pay for our profligacy today.
It’s interesting, David, how many of the Crikey usual suspects have steered clear of this topic. Unless of course the Crikey Censor has finally come to his senses and is delaying those who deserve censorship far more than those who regularly suffer from his attentions do.
What he does with this Post will show if he’s as consistent in some of his prejudices as is usually the case.
Turnbull has blinked in his ” selling ” of the Abbott legacy of poor economic management. First mistake was not to publish the tax review papers– but to jump to budget and stifle debate as Abbott did previously — by hoping that he will have the numbers to implement tax changes pre election. The tax flip/ flop / flap has been extraordinary and where both ” L plate” Treasurers have managed the economy by denial and the deficit by deceipt further weakening business and consumer confidence. Its not Labor’s mess that is the problem anymore its the mess that this government has created for itself. In an election year — a government in chaos — idelogocally divided– concerned more with vilifying and bullying the Unions than governing to achieve real jobs and real growth not solely dependent on the mining and housing market — but long term GNP growth by capitalising on the FTA’s positively and constructively with cooperation from Business and the Unions equally not disadvantaging one to benefit the other. Abbott had the IPA agenda and the Commission of Audit as his plan both which has proved disasterous, Turnbull has no plan at all — except three word slogans. Lets not have a 2013 election of a government elected in a policy desert — at least Labor has some policies — the LNP has none– it does not even have a full and functioning cabinet.
Supamals special power was allegedly his ability to explain complex positions to the electorate and convince them of the national interest..At the moment he can’t even win an argument inside his own party..he has however been very agile in that he has managed to position himself on all sides of the GST “discussion” simultaneously..
The big problem with the GST is that raising it is not tax reform, it’s just tax fiddling, and that it shifts the burden of taxation from those who have money, to those who don’t.
There are no substantive economic benefits of shifting the tax burden away from producers to consumers, only ideological positions.
As you point out Bernard, reducing corporate tax has no substantive connection with employment or economic growth. That is at the heart of this debate. If anyone can put together the real connections between reduced tax rates and increased economic activity, can you please point me to it, so that I demolish those arguments point by point.
It’s classical economics, in that it seems to be so, but doesn’t actually have any connection with the real world.
If you really wanted to increase economic activity, you would put money in the hands of the consumers, not the producers.