34. Taxes and GST

Hi. I am Greg and I want to grumble about taxes. It’s a familiar theme – in fact, my first Grumble here was that constantly cutting taxes erodes the revenue base and leads to cuts in vital services.

But since then the political debate has moved. The Federal Treasurer is now saying taxes will never cover projected levels of spending, the Head of Treasury is openly canvassing increasing the GST and the Governor of the Reserve has also weighed in on the tax reform.

Of course this is a bit weird when the government is pursuing the abolition of the mining super-profits tax and pushing to sell-off assets like Medibank Private – which, while boosting the coffers in the short term, would leave a revenue hole over time.

However, at least we are beginning to have a debate about how we fund services, without pretending there is a magic pudding that can provide comprehensive government services with low taxes.

But I am still grumbling because it remains an economists’ debate – devoid of analysis of power and the impacts on real people who will lose income support or services.

At least many business groups have moved on from dreams of low or no taxes and are calling for a comprehensive overhaul of the tax base. But hey surprise, they favour increasing the main tax that business doesn’t pay – the GST.

But if we were to increase the GST, who would be most affected? Generally consumption taxes impact most on the lowest income earners as a larger proportion of their household budget goes on consumption, rather than savings or investment.

However, it is not that simple.

GST revenue could be increased simply by raising the rate – say from 10% to 12%. Or it could be increased by extending the range of items it applies to. One option mooted is to extend it to health costs. This would impact disproportionately on people living with chronic health conditions, many of whom are on low incomes.

By contrast, extending the GST to education would be progressive as those who can afford private education would pay more than low income households in the public school system.

And there could be other suggestions – what about increasing the GST rate but removing it from necessities like utilities. That would ease the burden on low income households.

But I suspect that progressive tax change is still not really on the agenda.

I am Greg and I am grumbling.


This Grumble can be heard online or by podcast.
First Broadcast: 8 April 2014