According to Prime Minister Malcolm Turnbull, when it comes to tax reform, nothing is off the table. Except of course a wealth tax, more income tax on the rich, taxing the family homes of the wealthy, death and estate taxes on multimillionaires for instance.
The tax ‘reform’ debate has concentrated on increasing the Goods and Services Tax from 10 per cent to 15 per cent and including in the tax base things like fresh food, and health and education spending. These items are currently exempt from the GST.
Nationals MP David Gillespie did the Prime Minister’s dirty work by suggesting we adopt the New Zealand model. The rate there is 15 per cent and it applies to fresh food, health, education, financial services and water and sewage.
The current Australian GST applies to 47 per cent of what we consume. Adopting the NZ model would see it apply to 97 per cent of consumption, and raise many many billions. The Parliamentary Budget Office figures show it would double the money raised by the GST, from $65 billion to $130 billion a year.
That extra $65 billion is the main reason Labor leaders like South Australian Premier Jay Weatherill and ACT Chief Minister Andrew Barr have not ruled out supporting GST “reforms”.
Consumption taxes are regressive. This means that they take more from the income of a poor person than from a rich person.
According to Ben Phillips from the National Centre for Social and Economic Modelling, increasing the GST to 15 per cent would see the poorest 20 per cent pay 7 per cent more of their income in GST while the richest 20 per cent would pay only an extra 3 per cent of their income.
Broadening the base to fresh food and the other currently non-taxed items would force the 20 per cent poorest people to pay 4.6 per cent more of their income but only 1.7 per cent more of the income of the richest 20 per cent.
On a smaller scale, Labor’s proposal to increase the excise on cigarettes would adversely impact poor people because of the regressive nature of consumption taxes in general and because poor people smoke more, as one way to deal with the alienation capitalism imposes on them. By increasing the price of cigarettes Labor wants to rip an extra $47 billion out of workers and poor people over the next decade.
Back to the GST. A government could do a lot with an extra $65 billion a year. However increased spending on public health, education and transport or using the money to really address climate change or Aboriginal poverty aren’t on the agenda.
Turnbull and Treasurer Scott Morrison have made clear that the overall amount of tax raised will not increase. This means tax cuts elsewhere.
Business wants a cut in the company tax from 30 per cent to 25 per cent “to remain internationally competitive”.
Stripped of all Turnbull’s subterfuge and weasel words, this is what tax “reform” is really about—cutting taxes on business in order to boost their profits.
Compensation for the GST increase is also likely. Tax cuts only benefit those in work or earning more than the tax free threshold of, effectively, $18,200 this year, which means, together with the Low Income Tax Offset means you can earn $20,542 without paying any tax.
In any event bracket creep—wage increases moving workers into higher tax brackets—eat the tax cut compensation away over time. One union estimate is that bracket creep eroded the Howard GST compensation tax cuts within four or five years.
Even if poor people receiving social welfare and pensions are “over-compensated” that extra money erodes over time in real terms.
Changed government policies, such as cutting payments or tightening eligibility in the years after the introduction of the GST will wipe out any compensation.
Turnbull and his Treasurer may put lipstick on the GST pig by making changes, for example, to the superannuation tax concessions which see the top 20 per cent of income earners get 37 per cent of the benefits, about $12 billion in revenue forgone.
He might also fiddle with negative gearing and the 50 per cent capital gains tax discount, both of which overwhelmingly favour the well off. These rorts for the rich should be abolished anyway, not used as some sort of sales pitch for the regressive GST.
What else can be done? We on the left can and do campaign for taxing the rich. However growing tax inequality in Australia is a consequence of growing income and wealth inequality.
The best way to address that is to win big real wage increases and reverse the shift in wealth and income from labour to capital that Hawke and Keating set in train in the 1980s and Howard, Rudd, Gillard, Abbott and Turnbull have and are continuing.
By John Passant, a former Assistant Commissioner of Taxation in the Australian Tax Office