I had a good chat this morning with Terri Begley on 612 ABC Brisbane regarding proposals to raise more revenue from the GST:
What raising the GST actually means
I noted that raising the GST and cutting more inefficient taxes (e.g. income tax, payroll tax or stamp duty) would be good from an economic perspective, but may have adverse equity implications, because the GST is regressive in its impact (see Townsville ABC radio interview on GST). Hence the total tax reform and compensation package would need to be carefully designed so poorer households are not adversely affected to a large extent. Abolishing the unpopular fuel excise and motor vehicle registration fees, options apparently being considered by the Government, may go someway toward lessening the pain of a GST increase.
Terri and I also discussed whether it would be desirable to raise more revenue by broadening the coverage of the GST to currently excluded items such as fresh food, health and education (rather than increasing the GST rate on the current base). I noted that, while it would be preferable to have as broad a base as possible, it may not be politically feasible, and that there may be some significant adverse impacts which would partly offset the benefits of having a broader base. For example, applying the GST to fresh food may lead to some switching in consumption to less healthy food choices. Also, applying the GST to school fees may lead to some parents taking their children out of private schools and sending them to State schools, costing State Governments more in education spending. This is a point that was previously made on this blog in a guest post from Michael Willis:
Gene, I think the whole GST changes will be a hard sell for the Govt anyway, particularly in the North where it compounds the effect of higher prices that we endure due to lack of competition, freight etc. Fuel, electricity, insurance, are just a few of the areas where a higher GST will have more effect on the North than in the cities. The LNP are already on the nose in the North and are a real chance of losing a lot is the seats in Nth Qld that have been held for many years, Labor have identified this and Bill Shorten has already been up to promise another $100m towards the new stadium and other projects. John Howard spent plenty in the north when the GST first came in as the public was very sceptical, Malcolm may have to do the same. I would say as with most things the political numbers will have a higher consideration that the economic numbers.
Great points about the issues from an NQ perspective. Thanks Glen!
The government should be focussing on reducing the GST to 5% to get the economy moving.
The government already wastes a large proportion of the taxes collected by mismanagement – think $6B rorted from the VET-FEE-HELP scheme, think the $2.6B rorted in the roof insulation scheme, think industry grants, think medicare rorts. There are rorts and waste of outstanding largesse in almost every in every government scheme you care to shine the spot light on.
Their focus should be fully concentrated in stopping the rorts, stopping the waste.
A better scheme for GST, would be to have a floating quarterly GST rate set by a central agency, such as the Reserve bank sets base interest rates, Take the % rate out of the hands of politicians. Governments could then be judged by their economic performance as the GST rises and falls.
The GST certainly should not be applied to fresh food. This concession serves as a ‘fat food’ tax of 10% on packaged and unhealthy food. Australians desperately need incentives to improve their health, and reduce there spend on sick care.
Glenn makes excellent points on the NQ perspective. !
Katrina, as an ex-Treasury man I applaud your commitment to cutting waste and ending the rorts. However, I also recognise governments will keep spending more and more money, and there is a need to fund their spending. We should raise those funds in the most efficient way possible. Hence there is a case for raising more revenue from the GST and less from other taxes.
The idea of an independent fiscal policy agency is an interesting one, assuming you can draft its mandate so it doesn’t run a perverse pro-cyclical fiscal policy. I can’t see politicians giving up control over fiscal policy, of course. I think they were happy to give up control of monetary policy to the Reserve Bank because they could never understand monetary policy in the first place.
Good interview with Terri, but the way, I did listen to it on ABC.
Thanks heaps, Katrina.