We may be stuck with the world’s worst GST

The GST applies to less than half of the goods and services being consumed, but any changes require unanimous approval of the states. Will it be another year of fruitless debate?

This month is the 40th anniversary of the final report of the Asprey committee on tax reform, which means it is four decades since a goods and services tax was first put on the Australian agenda.

Asprey wrote: “the Committee has reached one recommendation that it believes should be acceptable to a broad spectrum of public opinion and is consistent with a wide range of attitudes to social policy.

“It believes that the weight of taxation should be shifted towards the taxation of goods and services and away from the taxation of income.”

Oh boy, how wrong can you get! His honour Mr Justice Asprey was right about the second bit, but not the first: he knew a thing or two about the law and tax, but he had no idea about politics.

Apart from a five-year obsession with one particular tax on goods and services -- the one on carbon -- the GST has weighed on Australian politics for 30 years and will apparently do so again this year. In fact it could be seen as the source of the empty cynicism that now defines politics in this country.

A proposal for a GST finally made it into a White Paper 10 years after Asprey, following eight years of general policy inaction under Malcolm Fraser. The then treasurer, Paul Keating, was in favour of it and so was the majority of Cabinet.

But it didn’t happen. Unions, business and welfare all opposed it and prime minister Bob Hawke, sniffing the wind, pulled the rug from under his treasurer, lighting the fuse for Keating’s eventual challenge.

In 1993, the Coalition included a GST in its election policy. Keating flipped, cynically, and thereby won a recession election he should have lost.

When John Howard won the Coalition leadership in 1995, he declared that he would “never ever” introduce a GST.

Sure. He won with that promise in 1996 and then he, too, flipped, going to the 1998 election promising to introduce a GST. He almost lost and in fact got a lower vote than Labor, but nevertheless declared he had a mandate for a consumption tax.

But what he got through the Senate was a very bad GST -- no food, health or education, all the money to go to the states, and any changes requiring unanimous approval of the states.

Despite those compromises, passing it destroyed the Australian Democrats and ushered in Bob Brown’s Greens.

At the next election, in 2001, the ALP based its campaign on a “roll-back” -- that is, rolling back the GST -- and it would have won if it hadn’t been for 9/11 and Tampa in the weeks before the election.

Of course the reality of the GST wasn’t so bad after all, and in 2004 the Coalition won control of both houses. Next stop, WorkChoices, destruction of the Coalition and then the carbon tax from the ALP.

It’s often said that ideology has replaced proper policy in modern politics, but it could also be suggested that empty cynicism has replaced both.

From the GST elections of the 90s, Australian politicians learned that it’s best not to believe in anything at all, and certainly nothing unpopular.

It’s far more rewarding simply to oppose what you know to be unpopular, such as any kind of tax -- e.g. on carbon, mining or consumption.

But as Paul Keating told Parliament on September 19th, 1985: “few of the people in the top bracket have paid the 60 cents in the dollar asked of them. They have arranged their affairs to evade, avoid or minimise that liability.”

The top marginal rate has been obligingly cut to 47 per cent, including the Medicare levy, but the problem remains. Added to it is the ease with which multinational companies can now evade tax through cost-shifting.

The great challenge facing all governments is the fact that taxes on income are becoming easier to evade, not harder. Australian tax revenue is simply insufficient to fund government, especially with the end of the commodity bubble.

The issue identified by Ken Asprey, and then Paul Keating, John Hewson and John Howard, and now restated by Andrew Robb, is that if government services are to be funded at a time when human life expectancy is creeping towards 80, pushing the cost health and retirement up by double digit percentages each year, then consumption must be taxed more, and more efficiently.

But Australia has the world’s worst consumption tax, levied, as it is, on less than half of the goods and services being consumed and virtually impossible to change.

2015 is shaping up as another year of fruitless debate about it. The Government will talk about it -- that’s already started -- the Opposition will oppose it, and nothing will happen.

Will 2016 be another 1998, with a Coalition Government having the courage to take a bigger GST to an election and seek a mandate for what it knows to be necessary? Will the Opposition and the state premiers support it for the same reason?

That‘s hard to imagine.

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