Zen and the art of GST reform

If we are going to stuff up the Australian economy, journalists are going to have to take a very large part of the blame. For it is the news media that has, in the interests of a ‘good story’, convinced Mr and Mrs Average to score a number of own-goals.

The most obvious is the looming replacement of a least-cost/tonne carbon trading system with a tax-funded scheme that means Australia will either miss its carbon abatement target or pay a lot more to hit it. Goal!

Likewise, in the years when the minerals resource rent tax was set to collect some revenue, it will be scrapped, meaning that domestic taxpayers will shoulder more of the revenue burden, so that foreign shareholders who own around three quarters of our big miners don't have to.

And news that the asset test for part pensions won’t be touched means that average working-age Australians will keep paying more tax than necessary to pay part-pensions to people who don’t need them.

No wonder Mr and Mrs Average are breaking out the champers! 

All those policies push more of the tax burden onto middle Australia and -- despite lobbying to the contrary by sectional interest groups -- do not make the economy more efficient. Quite the opposite.

So what else can we stuff up? Well, how about fanning a fear campaign to stop anybody looking at the GST? 

Given the current news media environment, it’s little wonder that economist Judith Sloan took a pessimistic view on Friday of the nation's ability to give a sensible, productive boost to the economy by broadening and raising the GST.

Having noted, as this columnist did before the last election, that economists are on a "unity ticket" with regard to the efficiency of the GST, Sloan despairs that: "The real problem of any proposal to change the GST is that it is perfectly designed for the classic political fear campaign ... At this stage it looks as though the GST will stay as it is. We need to wait for a monumental break in the weather, politically speaking, before any change is possible."

Sloan is to be applauded for raising this important topic, and explaining in such detail why a GST hike will make everyone, including the poor, better off.

Value added taxes have been a great success around the world, and though John Howard has won praise from economists for introducing our own version of the tax in 2000, as a nation we were late to the party.

It was France that first introduced a VAT in the 1950s, and its success in raising revenue without distorting economic activity saw the idea spread rapidly around the world -- around 130 countries now have a VAT of some kind. 

In Britain, which introduced VAT at a rate of 10 per cent in 1973, the tax has worked well and has been raised to take pressure off other less efficient taxes. 

The UK system is more complex than Australia’s -- something to avoid if possible -- and includes a ‘zero rate’ for some goods, a low rate for some essential goods and a headline rate of 17.5 per cent for most goods. That was temporarily dropped to 15 per cent during the GFC, adding just a bit more complexity. 

However, the point remains that economists cheer the tax as providing solid revenue that does not put perverse incentives into the economy -- it does not, crucially, put a disproportionate burden on Mr and Mr Average to transfer funds to the more well-off. 

However, there is something in Judith Sloan’s pessimism (and perhaps in my own comments last week regarding 'wedge' issues) that needs to be corrected. 

It is a kind of fatalism that brings to mind a passage from the 1970s pop-philosophy best-seller, Zen and the Art of Motorcycle Maintenance. The author, Robert M. Pirsig, expresses his horror at what so-called 'mechanics' have done to his friend's BMW motorcycle. 

He writes: "They sat down to do a job and they performed it like chimpanzees ... They were involved in it but not in such a way as to care ... They were like spectators. You had the feeling they had just wandered in there themselves and somebody had handed them a wrench."

This might well describe the attitude of the news media in Australia -- publishing and broadcasting stories as if we were not part of the society that has to pay the bill. 

That fatalism needs to be expunged by media commentators (yes, that’s a note to self as much as anything). 

If the Abbott government is brave enough to look at raising and broadening the GST, economic thinkers who are on that ‘unity ticket’ need to avoid standing back -- like the feckless mechanics described above -- and saying “isn’t it a shame the media won’t give this a fair hearing”. 

Actually, we are the media. We create the environment in which destructive wedge politics triumphs. And it’s time we stopped.