It's a sure bet that Malcolm Turnbull will try to raise the GST

Date
    November 3, 2015
    Canberra Times

About a year ago, I began confidently predicting the Coalition would not be going to next year's election with any proposal to increase the goods and services tax. I've been tardy in advising you that. With the removal of Tony Abbott and the ascension of Malcolm Turnbull, that prediction has become, as George W. used to say, inoperative.   

Indeed, I now confidently predict the Coalition will be seeking the voters' agreement to an increase in the GST.

    The whole country knows Turnbull will be a better manager of the economy than Abbott and that if this silver-tongued barrister can't 'sell' economic reform, no one can. 

Why the reversal? Turnbull doesn't have much choice but to run with a GST increase for pretty much the opposite reasons that Abbott had little choice but to avoid one.


Abbott and his treasurer, Joe Hockey, would love to have championed a GST rise – and, early in their term, fully intended to do so – but their disastrous first budget, with its blatant unfairness and broken promises, robbed them of their popularity, authority and trustworthiness. They repeatedly demonstrated their inability explain complex and controversial policy proposals.

But the government's big-business backers – not to mention most economists – have convinced themselves the only cure for the sluggish economy is major economic reform, and top of their list is a cut in the rate of company tax, plus a cut in the top rate of personal income tax. This is why they became so dissatisfied with Abbott and Hockey, and so expectant of better things from one of their own, Turnbull.

The whole country knows Turnbull will be a better manager of the economy than Abbott and that if this silver-tongued barrister can't "sell" economic reform, no one can. So great is the confidence in the confident Turnbull that the best way for him to stumble would be to baulk at this challenge.


Prime Minister Malcolm Turnbull will learn from his predecessors' mistakes and ensure any reform package appears fair.

Trouble is, by the time he's knocked tax reform into political shape, it will have fallen well short of its proponents' grand vision, won't deliver the promised economic benefits and won't make much difference to anything, apart from making the tax system less fair.

Right now, Turnbull is grappling with the desired shape of the GST increase. My guess is he'll definitely want to increase the rate of the tax, and won't go through all the angst for a piddling increase to 12.5 per cent. No, he'll go all the way to 15 per cent.   

Broadening the tax's narrow base is more problematic, as the academics say. My guess is he'll avoid the practical minefield of extending the tax's coverage to health and education (even though taxing private health insurance and private schools would do much to reduce the tax's regressiveness​), but may include financial services.

His big temptation will be to tax fresh food but, though this would greatly increase his takings, it would also greatly increase the tax's regressiveness (because low-income households devote a much higher proportion of their budgets to food than high-income households do) and thus require much of this gain to be returned as "compensation", while adding much agonising and indignation from the elderly.

Of course, the GST increase will just be part of a much bigger package of tax reforms. Since the object of the exercise will be to change the "mix" of taxation – increasing indirect taxes on consumer spending while reducing direct taxes on income – it will include big tax cuts.

Turnbull will learn from his predecessors' blunder and ensure his reform package looks fair by including imposts aimed mainly at high-income earners. If he decides to cut the top rate of income tax – benefiting just the wealthiest 3 per cent of taxpayers – he'll probably include a crackdown on superannuation concessions and discounted capital gains tax favouring the well-off.

He'd also want to throw in abolition of some inefficient state taxes, such as the stamp duty on insurance policies.

He's making it very clear that low- and middle-income families would be protected from the effect of the higher GST by adequate compensation, in the form of special increases in pensions, dole payments and family benefits. People on low wages would be compensated by tax cuts.

But just because Turnbull has the smarts, political credit and credibility to raise the GST and hope to keep his job, this doesn't give him a magic wand to wave away the iron laws of arithmetic.

The sad truth is that the untiring advocates of a higher GST have plans to spend the proceeds many times over. Big business wants to devote the proceeds to covering the cost of cutting the rate of company tax.

comments so far    

        Raising the GST won't put a rocket under the economy - it would nuke it. It would mean even lower retail sales, with subsequent job losses and business closures. If you want to stimulate the economy - CUT the GST to 5%   

    Commenter
        Great Steaming Turd
    Location
        somewhere
    Date and time
        November 03, 2015, 4:26PM

        To compare the issue of raising GST rate from 10% to 15%, one needs to consider the following:

        - Singapore, a successful economy with no natural resources like Australia, has a 7% GST.

        - In OECD group, Australia's social expenditure is made up of:
        - 4.8% income support for working age population
        - 3.6% for pension,
        - 6.1% for health, and
        - 3.5% for all social services excluding health.
        18.1% total (including rounding error) of GDP.

        It is below the OECD average of 21.4%
        (source:
        http://www.oecd.org/els/soc/OECD2014-Social-Expenditure-Update-Nov2014-8pages.pdf).

        This means Australia is far from being a welfare dependent country as some politicians imply.

        But now they already in the process of paving the way for raising GST rate by 50%. I'd suggest it's a lazy and unimaginative way of tackling Australia's long term budgetary position. For example, the inequalities of other policies such as the negative gearing, car novated lease and super tax concession and.

        In a nutshell, negative gearing effectively subsidies negative geared property investors through tax system while greatly disadvantages prospective home buyers, especially first home buyers. As for the argument of higher rental costs of accommodation, facts do not support this argument.

        We will soon have no local car manufacturer, what is then the point of car novated leases? What about the rich transferring income to lower-tax super and promptly retire overseas?

        On a different angle, what about a strategic plan to help build sustainable exports of Australian goods and services, other than in the ground, to the increasing affluent Asians around us to earn a reasonable standard of living in the decades to come?

        All they want to concentrate on is raising GST.

        The real question is why these well-paid politicians simply want to take the easy way out?

        We deserve much better politicians. Not lazy bums.

    Commenter
        An Observer
    Date and time
        November 03, 2015, 6:30PM

Raising the GST won't put a rocket under the economy - it would nuke it. It would mean even lower retail sales, with subsequent job losses and business closures. If you want to stimulate the economy - CUT the GST to 5%   


That.

And increase the dole to equal the pension rate.

Actually, increase the pension rate as well, now that's still not even a rocket.

I'm sure 90% of that money would flow back into the economy.

There's no point in forcibly increasing the cost of living, that will have the opposite effect and cause small businesses to close.

Quote:


If you want to play 'compare the GST rate' then use UK at 17.5%, Sweden at 25% and a whole slew of countries higher than ours and still higher after we go to 15%. In fact, Singapore is probably the only place that is lower.

So raise GST and cut company and top tax brackets?
And people thought Turnbull was a progressive lefty 

Class warfare is back to normal.

Kat wrote on Nov 4^th, 2015 at 7:11am:


Yes the Govt should indeed change its tack and stop pandering to the Lazy ochlocrats that want to live out of everyone else's pocket.

Kiron22 wrote on Nov 4^th, 2015 at 7:27am:


Yes, the rank smell of the politics of envy is very ripe in the Leftist media (but then again what's new?)

Politics of Envy? that when concessions and loopholes are taken into place, poor people pay more tax than the rich on percentage?

Yes I'm envious, I'm envious that Australias landed wealth oligarchy has held this country back for decades and is kicking everyone else down.

Class warfare, is exactly what it is. Its funny whenever infrastructure needs to be built or hospital funding increased, you reactionary scum cry "class warfare" but whenever it really happens, the kicking down of the population by the landed oligarchs with their immense political and social power, its "politics of envy"

Well guess what bucko, in 50 years when Australia is relegated to a global backwater, climate change has destabilized the earth and millions are out of work due to automation, that "politics of envy" is going to have people like you lined up against a wall.

Kiron22 wrote on Nov 4^th, 2015 at 7:39am:



The leftard ego hates success so much, it will even wish death upon the successful to try to protect itself.
The lefty...ruled by their emotions.

Heres a suggestion for lefties.

study hard, work hard, save hard

buy a big estate and employ liberal voters to clean your toilets and trim your hedges...

oh, but that would require EFFORT.

far easier to just let the ego spit venom then to go thru a process of growth and improvement
carry on