GST reform is long overdue and should not be a partisan debate Peter van Onselen Contributing editor AUSTRALIAN NOVEMBER 01, 2014 THIS week the government flagged its intention to consider reforming the GST — “consider” being the operative word. There is no commitment to do so; in fact Tony Abbott specifically said state support would be necessary for any reform to take place. Joe Hockey previously has said the same thing. Given that getting the states to agree on almost anything is like herding cats, the chance of the government doing more than just talking tough on GST reform is doubtful. Predictably, the opposition overreacted to the news that the GST just might be under review, with Bill Shorten using parliament to claim that the Prime Minister was increasing the GST. It was a premature attack. There is enough to lambaste this government about without making up facts and drawing on misinformation. It was a disappointing approach by the Opposition Leader, albeit reminiscent of the way Abbott often conducted himself when on the wrong side of the Treasury benches. This goes to the debilitating state of modern politics. Opposition leaders reduce themselves during the process they undertake to tear down prime ministers. It makes it much harder for them to rise to the role of prime minister if they ever get there. Abbott did get there, but every time he seeks to raise the tone of debate he is reminded of the way he conducted himself in opposition. And Labor is understandably intent on paying Abbott back. The last opposition leader to rise above cheap political point scoring was John Hewson, whose policy package Fightback had a 15 per cent GST at its core. If that package had been introduced the budget would still be in surplus and even Labor wouldn’t have managed to build up the debt that it did over the past six years. Hewson lost the so-called unlosable election in 1993, which John Howard learned from. Howard then went into the 1996 election as a small target, ruling out a GST for ever and a day. Once Howard had reduced Labor to 49 seats in the 148-seat chamber, decimating Paul Keating’s government, he politically reloaded and took a GST to the 1998 election. Howard learned a lesson from Hewson: fight an election arguing for a GST in government only with a sizeable majority at your disposal. The 94 seats the Coalition won at the 1996 election was reduced to 80 at the GST poll of 1998. Howard almost lost that election, winning just 48.9 per cent of the two-party vote. He, however, won votes where it counted — in the key marginal seats. Otherwise Howard would have become a oncer. The problem with GST reform now is that Abbott learned very different lessons than Howard from the twin GST elections of 1993 and 1998. As Hewson’s press secretary in 1993, Abbott saw the GST as a reform that cost his team power rather than a policy imperative the nation needed. He took an apparatchik’s view of the policy, clouding his ability to recognise the policy imperative of taxing consumption. When Howard almost lost in 1998, Abbott learned the lesson that a government winning its first re-election bid is tougher than commentators generally think. He saw the same phenomenon on display in 2010 when Julia Gillard almost lost that election for Labor. Howard, in Abbott’s view, made it that much harder for the Coalition to win the 1998 election because he complicated the debate with GST reform. As a result, it would be an optimistic observer who thinks that Abbott will take GST reform to his first re-election campaign. It is unlikely, making significant GST reform in the second term of an Abbott government even more remote. But at least we are talking about it. And, more important, so is the government. Because GST reform is long overdue. Broadening the GST and upping the rate would help address the revenue problem both sides of politics now acknowledge exists. It would extend the tax system into currently untaxed parts of the cash economy. (Consumption taxes can’t easily be avoided.) With costs in state areas of responsibility such as health on the rise, not least courtesy of the ageing of the population, more money flowing to the states (as the GST does) would help overcome vertical fiscal imbalance. States collect a mere $130 billion in revenue, in no small part via highly regressive taxes such as gambling and payroll taxes. Yet they spend more than $230bn annually, which is why top-ups from the GST and commonwealth grants are so necessary. This $100bn hole will keep growing larger without GST reform. The case for adjusting the GST is becoming compelling, yet Labor utterly refuses to be part of the debate — this despite Keating having kicked off debate on the need for a consumption tax back in the 1980s. A broader and higher consumption tax would remove the debilitating fiscal situation the country has long found itself in, whereby it engages in unwise spending or revenue reduction during the good times, only to be left with a gaping hole in what the taxman collects when company taxes, income taxes and mining royalties dwindle. Which is why GST reform needs to be part of wider federation reform. The mere fact the population is ageing and a smaller share of people will be of working age in the years ahead may be reason enough to transfer from our reliance on income taxes to consumption taxes. But the need to do so goes much deeper than that. While a GST can be simplistically viewed as mildly regressive, it also offers a way to pay for a robust social agenda. The GST can and should be used to fix the structural soundness of the budget, but it can do so much more than that. It could help improve business competitiveness, as well as Australia’s capacity to attract human capital, by lowering company and personal income taxes. This would be the approach Liberals would favour. It could also sustain funding for services Labor regards as core ingredients of its social liberal agenda. Any regression can be ameliorated on the spending side, in a highly targeted way. Broadening the GST and increasing its rate should not be a partisan debate but what adjustments get made with the sizeable returns it reaps absolutely should be. It offers a chance for both major parties to spell out the kind of Australia they want to see, with the revenue streams to implement the vision. The contest of ideas would burst to life in the aftermath of GST reform, and the nation would be all the better for it. Peter van Onselen is a professor at the University of Western Australia. Illustration: Eric Lobbecke Source: Supplied
Posted on: Sat, 01 Nov 2014 11:19:02 +0000
Trending Topics
Recently Viewed Topics
© 2015