A fair go for all means a higher GST

11 Comments

Discussion of increasing the GST to a rate higher than 10 per cent is off the agenda at this week's tax summit. The likely reason is that because GST is the most visible of our taxes, any increase is likely to make the Government more unpopular.

On the surface, the GST appears unfair, as it is a regressive tax that hits the poor much harder than it does the wealthy. But that's due to the way it is implemented, and it doesn't need to be that way, according to the St Vincent de Paul Society, whose economics advisor John Wicks would like to see it doubled to 20 per cent.

Wicks advised Vinnies to support the GST in the lead up to the Howard Government's decision to introduce the tax on 1 July 2000. Vinnies' submission in 1999 pointed out that because such taxes are regressive, governments around the world have recognised that they must include compensation in order to minimise the hardship they will cause for people on lower incomes.

The crucial issue, the submission said, was 'the method and the degree of compensation that should be implemented'. 

The compensation the Howard Government opted for was limited to an exemption on basic food. All other countries except Sweden incorporated a much more sophisticated and fairer compensation mechanism in their GST type tax. Wicks says the decision to opt for minimal compensation benefited the wealthy by $3 billion and cost the poor $2 billion, as the wealthy spend more on food.

Rather than an across the board exemption, he advocated a 'Get out of GST' card for food purchases. It would be given to those on lower incomes and include a limit to prevent misuse.

He also wanted the percentage of the tax to be on a sliding scale determined by the contribution of the particular good or service to the common good. This might see luxury items such as designer clothes taxed at 30 per cent and textbooks with very low or no GST.

John Wicks told Eureka Street last week that he has not changed his advice to Vinnies, and that the Society still supports a raising of the GST in conjunction with a fairer compensation mechanism, even though discussion of GST changes is taboo at this point.

Vinnies is not alone in its disquiet about Australia's unfair tax system. UnitingCare Australia’s National Director, Lin Hatfield Dodds, said last week that most Australians would be surprised to learn the tax system provides more support and concessions to high income households than to Australians living below the poverty line.

She was releasing UnitingCare's discussion paper What Price Dignity, which focuses on tax breaks that enable wealthy Australians to accumulate hefty retirement savings. It says taxpayers contribute a massive $27 billion a year in tax concessions to help some of the wealthiest Australians.

The underlying principle is that everyone is entitled to a fair go, and Australia is a wealthy country that can afford to ensure everyone lives a decent life. All taxpayers fund schemes such as negative gearing, which benefit only wealthy Australians such as those with investment properties.

The St Vincent de Paul comments on the GST, and the government's ruling GST discussion off the agenda at this week's tax summit, suggest that event will avoid risky positions that might further diminish the popularity of the Government. But we can hope that the concern that underlies it — a fair go for all — will be incorporated into the shape of Australia's future tax system.


Michael MullinsMichael Mullins is editor of Eureka Street.

Topic tags: Michael Mullins, GST

 

 

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Existing comments

The amount of money spent on food as a percentage of income is much higher for the lower income families than those on a higher wage. Therefore any GST increase onfood results in the lower income families having less disposable income.
John Jones | 03 October 2011


Typical of a tax free organisation to demand that others in society pay higher taxes to cover for the free loading of religions, of a possible $30 billion a year of untaxed income flows.

When Vinnies start to advocate for a repeal to tax rorts, legal and illegal, then they have a right to move beyond to discuss other aspects of tax raising and spending.

As for GST hitting 'poor people' harder, is that because they buy takeaway foods instead of cooking, a common shibboleth to be heard from the 'non poor' in society?

I spent $132.10 at Woolworths on 35 grocery items and paid $2.55 GST. Not too excessive a hit I would have thought.

I then spent $65.08 at a local green grocer,for 31 items and paid zero GST.

I really do not see that, albeit small, example as showing an excessive hit to anyone, never mind 'the poor' in our midst.

I also bought a compost bin for about $380 and paid about $35 GST. OK, an impost (of sorts) but how many compost bins do 'poor' people need to live on?

Meanwhile, family trusts, negative gearing, minute capital gains taxes, tax free religions, public subsidies to incompetent industry managers, public funding of private schools, and so on, all continue unchallenged by Vinnies.
Harry Wilson | 03 October 2011


And another point:

"Rather than an across the board exemption, he advocated a 'Get out of GST' card for food purchases. It would be given to those on lower incomes and include a limit to prevent misuse."

(Urr, like not on takeaway foods? Or on what the religious feel are luxury items?)

Here we go again. The 'religious' amongst us still cling to the notions of 'the deserving poor', where, in order to be treated as a human, they have to publicly identify themselves as being poor (and therefore a sinner). But this suggestion, to wear a yellow star on the lapel (metaphorically) goes one step further.

Because we all know the poor cannot be trusted, this man suggests 'limits' to prevent rorting!

No doubt, amongst the noblesse oblige and deserving poor supporters on this blog, this will be a non issue, of course the poor need to be identified and curbed in their slothfulness and sin, but perhaps we need a new paradigm, that moves beyond this charity based world that serves the religious so well, while perpetuating their role in society?
Harry Wilson | 03 October 2011


A sliding scale of GST depending on the goods purchased looks good and practical. But the suggestion for exemption cards, although well-intentioned, would be complicated and difficulr to apply.
A moderate increase in tax on very high incomes would be fair, and more effective.

Bob Corcoran | 03 October 2011


Another application of the great fallacy, "Christ's preferential option for the poor"??? Or is this "preferential option" more heresy than fallacy?
john frawley | 03 October 2011


I find it incredible that Vinnies are proposing an increase in GST which is a fundamentally regressive tax which they then propose to make less regressive by targeted exemptions. The tax law is complicated (and therefore rortable) enough now; why not a wind back (abolition is too much to expect) in GST and an increase in the maximum rates of personal income tax and in company tax with a removal of all the exemptions?
Ginger Meggs | 03 October 2011


The rich do not want to pay their fair share of taxes. Most land and mineral wealth is owned by the rich. The poor pay their taxes on their work and consumption which does two things. First supports government endeavours and infrastructure which in turn increases land values. The rich are reimbursed by higher land values while the landless struggle to catch up. GST affects prices. They rise. A tax on land affects land prices. They go down. It is good that this phenomena is being given some consideration at last as it is clearly obvious that our present tax arrangements are becoming increasingly clumsy.
Anne Schmid | 03 October 2011


One of the biggest tax rorts of them all is the sacred cow of superannuation. It is, in effect, a giant tax shelter. The biggest winners by far are people on high incomes. The revenue lost in all this is comparable with the annual cost of the whole system of age pensions! Where is the sense in that? Why not a package that reduces GST in exchange for a reduction in tax concessions for superannuation?
RPS | 03 October 2011


I fail to understand how anybody with a sound mind could advertise an increase in a GST! Australia needs less poverty traps and not more incentives for the poor to remain poor.
Beat Odermatt | 03 October 2011


Michael's reference to UnitingCare's discussion paper "What Price Dignity" be interpreted as suggesting that UnitingCare is of one mind with Vinnies about GST. In fact, "What Price Dignity" makes no reference to GST at all, and certainly doesn't suggest that it be increased to 20% with or without 'compensations'.

Furthermore, on reading Vinnies' 1999 submission, I can't find any evidence of Vinnies supporting the GST, rather it's all about minimising its adverse effects on the poor of a tax that was going to happen anyway.

So while I can concur with Michael's hope expressed in his last sentence, that '"a fair go for all" will be incorporated into the shape of Australia's future tax system', I don't understand why the article is so focused on GST.
Ginger Meggs | 04 October 2011


The idea of increasing the rate of the gst has gained momentum and reached talkback radio.The truly rich avoid the GST easily by taking world trips and purchasing goods overseas placed in the hands of foreign,yet Australian controlled entities.The less rich,including some pensioners,spend time in Bali and other third world countries,which do not tax and purchase international goods on the internet.To increase the rate of the GST would require the consent of all houses of parliament in Australia, an unlikely event.Different rates of GST would be a compliance nightmare for small business,akin to that of the abolished sales tax regime.At the moment we are getting a new tax every year or so.We need effective leadership and a plan,followed by a debate for anything to be achieved.
lewis p buckingham | 04 October 2011


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