Read part one of Bernard Keane on the GST here.
After 20 years of the GST there’s little evidence it delivered any of the benefits claimed for what is now called “the last great reform”.
It was, at best, a workmanlike reform that captured previously tax-exempt services, and was used as an excuse to remove some nuisance taxes — but at the cost of imposing a massive paperwork burden on small business.
It did nothing to dent the black economy or lift household savings, its benefits for state services proved only temporary, and there’s no evidence of any efficiency benefits claimed by advocates.
Certainly there is no evidence from national economic indicators of any broader economic benefits. According to Productivity Commission data, productivity went into a prolonged slump after 2000, except for a brief period when Labor and its Fair Work Act 2009 delivered a boost in 2010-13.
What’s now forgotten, too, is that while the GST was made more complicated by the Democrats’ social engineering, the Howard government also complicated it for its own ideological reasons.
Private school fees were exempted from GST, as the Howard government ramped up its agenda for the commonwealth to subsidise private education. And private health insurance fees were exempted, adding to the billions wasted subsidising a favoured sector of the Howard government.
Both were part of an agenda of taxpayer handouts to sectors favoured by the Coalition: private schools, wealthy retirees, private health companies, “mum and dad investors”.
But the dewy-eyed nostalgia for a reform era in which the GST could be achieved is merely one variant of a longing within the business lobby and the commentariat for “economic reform”.
That is something that in Australian policy debate has long since morphed from any sort of nuanced discussion that would produce significant benefits into a festering resentment about the failure of politicians — on both sides — to bulldoze through deregulation, wage reductions, union disempowerment and company tax cuts.
Actual economic reform that might deliver overall improvements in national well-being and the economy — for example of the kind articulated by the Productivity Commission — is ignored.
That’s why the business lobby has long called for the GST to be expanded and/or increased to fund company tax cuts, and why there’s pressure now from neoliberal commentators to increase the GST and cut income taxes.
The latest effort comes from the Berejiklian government in NSW, which yesterday unveiled an “independent” draft report, from a panel led by David Thodey, calling for tax reform. Its main recommendation is a dramatic expansion of and/or increase in the GST. This would “provide an avenue to reduce Commonwealth income taxes” and “abolish more harmful state taxes” — specifically “damaging taxes on income, capital and property transactions”.
Peculiarly, that’s despite the review identifying company tax as the tax with the lowest economic cost — based on a modelling that explains that the windfall company tax cuts give to foreign shareholders reduces national income. Company tax is thus somehow both “damaging” and has a net economic benefit. Go figure.
That inconsistency underlines how this is just another iteration of the push to shift the burden of taxation away from large corporations — which routinely avoid billions in tax and pay nothing close to the 30% headline company tax rate — and high-income earners, and on to lower-income-earners and working families.
Thodey has an op-ed in The Australian Financial Review today calling for the GST to be used as a “workhorse” for the post-pandemic recovery. What does he expect will happen to consumer confidence — desperately needed to lift GDP growth and fuel business investment — if households are told the GST is about to be increased by 50%, on top of wage stagnation?
As for the honour of being the “last great reform”, that belongs not to the GST but to the Gillard government’s carbon pricing scheme, which achieved a significant reduction in Australia’s carbon emissions with a minimal — and lower-than-forecast — impact on the economy.
That reform, of course, was destroyed by the Coalition (whose term “great big new tax on everything” far better applied to the GST).
The likes of The Australian Financial Review now lament the lack of quality reform but cheered on the Coalition when it destroyed a successful carbon price. Even now, the AFR attacks that reform as a “debacle” while insisting it supports a carbon price.
Like the Business Council, that in-principle “support” for carbon pricing never quite extends to supporting an actual real-world policy. It’s the kind of “support” that canny climate denialists use to undermine climate action.
Whatever the nostalgia for the past, calls for “economic reform” now are almost always a cover for vested interests rather than the national interest.
Great report BK – there are plenty of better ways to repair the tax system that will work to improve the economy without slugging the defenseless PAYE workers yet again.
This government is rotten to the core and the sooner a real ICAC gets stuck into them, the better.
It’s funny to see the introduction of a tax bludgeon at the moment when computing capacity made far more sophisticated options feasible. A sales tax regime that was instantly and universally sensitive to products’ health costs and social utility could make it possible for governments to subtly nudge consumer preferences in the most beneficial direction. They’ve done it with the sledge-hammer of cigarette taxes. Why not do it more widely? Tax bad things more, good things less. A computer programme that every business could run would be easy to devise, so price variability would put no extra strain on shopkeepers or consumers. Of course this will never happen. We can expect no courage for change from the government that clings to coal.
An excellent article, as ever.
The site is usually followed by a few experienced, interested, thoughtful people, so is not widely known or popular..!! Hah. But, a weighted average of views on voluntary sites is a good guide to possibilities. The GST got rid of a poxed and distorted range of old wholesale taxes, so that wasn’t all bad. A consumption tax (ours is low) is universally accepted and acceptable. USA states, e g, California, with a huge economy, run quite well with sales tax, property tax, education tax, few intrusive or excessive taxes. Collection in Australia is appalling; corporations rent politicians and whole governments, pay buggerall and sneer at the peasants (we can’t afford shiny lawyers, accountants, publicists, “advisors”, consultants) Real tax reform must start at cornering and bleeding big tax bludgers. (donors/patrons)
“but at the cost of imposing a massive paperwork burden on small business.”
This point should never be understated. I often wonder about the emotional, physical and social impact of reporting four times a year as required by the GST. It was once a year back in the days of sales tax. It wrote the “meal ticket” for anyone with an accountancy practice but left contractors, SME’s and the public to pick up the cost. The function and time required with GST is suboptimal, wretched and as mentioned by BK, has never fulfilled it’s intended purpose other than for the bigger end of town.
Surely this should be less of a problem with the availability of accounting packages whether open sources, cloud or software based integrating income gathered/receipts/invoices (that’s why many prefer manual system?) and generating required GST payments versus old days of cash, manual book keeping and ‘estimating’ GST payments (that can be challenged later)?
Some nations it’s now compulsory to run a Tax Department approved/registered accounts and invoicing system, available free for sole operators (and/or below a threshold) through to more complex corporate systems that are fee based; this precludes much paper work, more efficient accounting of income, automatic calculation of GST and accurate payment.
“more efficient accounting of income, automatic calculation of GST and accurate payment.”
You can fk that off.. Drewsie.
Why? You imply that those sole and SME operators can avoid paying on the basis of ‘massive paperwork’ (which does not exist in an end to end system), while the majority do and should pay?
I did n’t infer that Drew.
But what I will say is that when the gst was first implemented it was no coincidence that the tax paying client base suddenly were called upon by their accountants to start paying more tax in general..ie PAYG, Company tax etc. The Australian Tax Act can actually be very generous and sympathetic to those who look for tax relief or who wish to pay no more than what tax law requires. Is that a crime Drew? I know you love taxation for taxation’s sake because you believe it filters down to those who need it most…if only, but I obviously agree with you somewhat. It was the accountants who through the Tax Act out the window to the detriment of their clients as a pay-off for receiving the holy-grail gst from the govt and replaced it with their own “common law” interpretation which is exactly the outcome the govt wanted. More capital tax and Job done. I am refering to SME’s and sole traders and not multi-nationals or larger corporations.