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The GST and Abbott's fair go for all

  • 07 April 2014

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