The GST debate continues, with much attention focused on the regressive nature of the GST. That is, because poorer households typically consume higher fractions of their incomes than richer households, they pay proportionally more of their incomes in GST. Hence there would be a need to compensate low-income earners, particularly pensioners, who would be adversely affected by any GST increase. Of course, this would reduce the amount of money available for other purposes, such as providing greater funding certainty to State governments, and cutting income tax and highly inefficient state taxes such as stamp duty. Last week, I discussed the difficult choices to be made with Pat Hession from 630 ABC North Queensland:
While the Queensland Government appears opposed to a GST increase, at least one courageous policy officer in the Department of Premier and Cabinet supports a GST increase to replace payroll tax and stamp duty, based on recommendation 11.02 in the leaked Economic Action Plan that created so many headlines last month. It was correctly noted in the document that:
GST is a tried and well understood tax with lower negative effects than the current payroll tax and stamp duty.
I hope that the Queensland Government would reconsider its position if the Federal Government is able to develop a well-crafted tax reform package that improves the tax system while providing sufficient compensation for those adversely affected.