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Only surety is a dearth of taxes

18 Jan 2013 THE AGE - MICHAEL PASCOE



WHAT'S in a name? Potentially the solution to a couple of our more pressing fiscal challenges, if anyone really wants sustainable budget surpluses. Rename the GST as the HST and make the NDIS a real NDIS and you're well on the way.

Being an election year, any chance of dealing with our demographic destiny remains on hold - stack it over in the corner, next to Sydney's second airport. But the medicine Australia has to have in the not-too-distant future is an increase in tax collections to pay for what we already demand, let alone the extra stuff politicians can't help promising.

So here are a couple of ideas not in the Henry review to achieve the politically difficult:

■ GST becomes HST

Rename the "Goods and Services Tax" as the "Health Services Tax", explicitly linking the revenue raised to health spending. Electors are more willing to pay tax if they understand where the money goes, effectively knowing what their tax dollar is buying instead of watching it disappear down government's dubious maw to go the way of party politics, Cabcharge vouchers and suspected welfare cheats. As the growing needs of the health system become obvious and the cries for more/better beds/drugs/nurses/doctors/surgery/aged care mount, the necessary solution of expanding the GST base and raising its rate becomes politically possible.

■ Make the NDIS the NDIS

The proposed National Disability Insurance Scheme is a misnomer as it is not an insurance scheme - there are no premiums, it is not actuarially based. Both sides of politics want to give the electorate another big serving of social welfare but neither side presently has a clue about how it could be sustainably paid for if rolled out to more than its test sites. The solution is that, if the electorate wants the NDIS, it has to pay the premiums the same way it has to pay life insurance. Again make the premiums an explicit part of the taxation system, including a charge (albeit at a humanely reduced rate) for those on social welfare.

■ Play hard ball with the states

This idea was implicit in the Henry review, fairly explicit in the 2011 tax forum and quite explicit lately in Treasurer Wayne Swan's rhetoric. The Commonwealth, whichever party is in government, has to force the states to fix their revenue base by moving from dud stamp duties to a broad-based land tax. They all know it's the right thing to do on economic, equity and ethical grounds, but only the ACT government has had the integrity to start the process. As has been written here before, the states are on the real front line of tax reform as they are all, to a greater or lesser degree, hitting the fiscal wall. While they're at it, they'll have to reinvigorate their payroll taxes.

■ End largesse

The first step to improving tax collections is to improve the perceived quality of government spending. It's time to end all the political slush funds, grants and handouts so beloved by your local MP. Government exists to do collectively what can't otherwise be done. To use one example, if a professional sport wants to open a franchise, it is not up to taxpayers to subsidise it. There are many cuts yet to be made to the middle-class welfare bandwagon that ran wild under Howard and Costello and continued under Rudd and Swan, never mind those sucking on the corporate welfare teat. Whatever Peter Slipper did with his Cabcharge vouchers, it makes people less willing to pay their fair share of tax.

■ Scrap the family trust

This is another bridge too far for a parliament full of members (and their backers) enjoying tax minimisation through the rampant use of trust structures. The tax industry will promise Armageddon if the family trust is touched - but it is a lurk for the few at the expense of the rest of us to the enrichment of accountants and tax lawyers.

There's more and better in the Henry review, but that's enough to get on with, and it's not as if we have a choice, as Treasury secretary Martin Parkinson has been trying to warn people.

Whatever your ideology, the demographic reality bell was rung when Kevin Rudd was trying to take over the funding of state hospitals. It was admitted that just the hospitals would soon enough chew up the entire GST and that understates this one part of the problem.

New South Wales has a health budget for 2012-13 of $18.3 billion. If all states had that per capita spend, the total bill would be nearly $57 billion. The total GST pool this year is about $50 billion. The Commonwealth's health portfolio budget is running at $61 billion. You get the idea?

This is before demographics start to bite, before the proportion of old people soars and our dependency ratio (the proportion of working age people to the rest) drops, never mind the need for a greater education investment if we want to maintain our living standards. Hop to it.

Michael Pascoe is a BusinessDay contributing editor.