The GST and Abbott's fair go for all

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'Taxes' woodcut graphic

Federal Treasury secretary Martin Parkinson has called on the Government to increase the GST, by lifting the rate above ten per cent and broadening its scope to include some essential services such as health care. He also wants to see a cut in personal income tax.

The thinking, which is backed by Reserve Bank governor Glenn Stevens, is that it will provide us with an incentive to work harder. We need to do this because our standard of living is threatened by weak productivity growth, as well as falling commodity prices and an ageing population.

Traditionally governments facing fiscal challenge have responded by hitting those who can afford it most. Past federal treasurers have increased income taxes and relied upon 'bracket creep', which forces workers to pay a higher percentage of their income in taxes as their wages increase and they can cope with it.

Such 'progressive' means of taxation are equitable, but they discourage individuals from boosting national productivity by working harder. 

This is because bracket creep requires them to pay a disproportionate amount of their extra income to the government in taxes. The reasoning is that cutting income taxes and relying instead on an increased GST will make us do more work. It will serve the worthy goal of increased productivity and benefit the nation as a whole.

The problem is that it imposes an unfair burden on the jobless and those on low incomes. An increase in the price of goods and services will force them to put less food on the table and diminish their lifestyle. It won't make any difference to those in work, especially those on higher incomes, because the increased GST is balanced by lower income taxes.

The problem with the argument of Parkinson and others is that they do not mention the range of generous tax concessions enjoyed by those on high incomes. Sometimes referred to as tax avoidance strategies, they include superannuation concessions, negative gearing and trusts. There is also a lack of will to countenance an inheritance tax, which has been on the list of political unmentionables along with an increase in the GST. 

Now that the GST is apparently on the table, is it surely time to discuss taxation issues that wealthy Australians find unpalatable. Cassandra Goldie of the Australian Council of Social Services has signalled that welfare groups are willing to countenance an increase in the GST if there is also discussion of reining in tax concessions enjoyed by high income earners:

'We need to take a long hard look at the unfair superannuation tax arrangements which cost as much as the age pension, at the inconsistent way different kinds of investments are taxed — including negative gearing arrangements — and at the ability of people with high incomes to avoid tax using private trust and companies.'

The bottom line was articulated by the Prime Minister himself in the Coalition's election policy platform Our Plan — Real Solutions for all Australians. It refers to 'a decent and respectful society that gives a 'fair go' to all and encourages people to thrive and get ahead'. This goal must be at the fore in all discussion of tax reform.


Michael MullinsMichael Mullins is editor of Eureka Street. 

Taxation graphic by Shutterstock.

Topic tags: Michael Mullins, Martin Parkinson, Glenn Stevens, Tony Abbott, taxation, superannuation, GST, treasury

 

 

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Existing comments

Why increase the GST? Why not cut out the super benefits for high income earners, reduce or remove negative gearing, remove the the family allowance for those earning over $100K a year and make the miners pay full whack for their diesel rather than getting a rebate? It is time to cut out the welfare - at all, levels.
The other John | 04 April 2014


Here's a novel proposal. Instead of increasing the rate of GST, why not impose it, at the present rate, on mineral exports? This would mean that a company in, say, Yokohama or Seoul would have to pay the same prices as you or me! Radical, isn't it? It would also disadvantage less efficient mining companies and so increase the economic health of the sector. You know it makes sense -- about $13billion a year of sense.
John Vernau | 06 April 2014


Increasing (or broadening) GST isn't necessarily bad, it depends on how low income people are protected. It should also, as others have suggested, be accompanied by addressing high income rorts, including trusts.
Stephen | 07 April 2014


St Thomas Aquinas, following on from Aristotle, thought one of the main purposes of government was to work for "the common good" of all. I would contend that the governments in Scandinavia and the Netherlands, by providing the sort of welfare net they do, are far more equitable in this regard than our own, whether Labor or Coalition, have tended to be. Income inequity and the consequent lack of access to certain things, such as education, in our society are becoming a real problem. I would be very wary of just increasing the GST without proper safeguards to protect the poorest families. We need to be very careful we don't create a permanent underclass. I see this as already having happened in the USA where we seem to get most of our economic ideas from.
Edward Fido | 07 April 2014


Edward Fido, your concerns about creating a permanent underclass by adopting economic ideas from the USA are well-founded: think of the perpetual flow of employed 'illegals' from Mexico; and the 'druggies' who are made to subsidise their incarceration in US private prisons.
Bob Groves | 07 April 2014


Surely a consumption tax, like the GST, either reduces demand, where demand is susceptible to price, or just increases the cost to the purchaser, where the purchase is essential. Doesn't that mean we should only use consumption taxes to reduce the demand for goods and services whose use we might want to discourage, e.g. alcohol, tobacco, gambling, private vehicle travel in congested areas, etc. And if low wages are supposed to encourage poor people to work harder, surely higher income tax rates for richer people will encourage them to work harder too.
Ginger Meggs | 07 April 2014


Recently the ABC''s Alan Kohler summing up the fortunes of the stock exchange on the nightly news pointed out that GST had been rising steadily. Getting to the truth of Australia's financial position is too hard for ordinary people like me. W e still have triple A ratings There is debt so is the government making too much of an issue to bury Labor for ever?
mac | 08 April 2014


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