I posted the following comment to a Business Spectator article (http://www.businessspectator.com.au/news/2015/8/21/tax/nsw-presses-case-15-gst) yesterday:
An increase in the GST [goods and services tax] rate is probably the way to go. When a country raises a large proportion of its taxes from income, as in Australia, it is more susceptible to the ups and downs in the economic cycle. This is because income (and therefore taxes on it) fluctuates more than consumption (and the taxes raised on it). Thus it would probably make sense to increase the proportion of tax on consumption, such as an increase in the GST to 15%. What’s in and what’s out can be discussed. At the same time, we would need to lower tax rates on income, especially at the lower levels, to compensate.
But the net change in tax wouldn’t amount to much. It might be a relatively small increase and we would still be running the large deficits we’ve had ever since the GFC pushed revenue through the floor, and it still hasn’t recovered. Practically every government (left, right and centre) in the world ran deficits at the time of the GFC to keep their economies out of recession or in many cases to ease the severity of an inevitable recession.
The Coalition is now pushing the federal government debt up by $5 billion a month because they have reduced taxes and increased expenditure. Expenditure by the Coalition will average 25.6% of GDP in 2014-15 to 2018-19 compared with Labor’s average of 24.9% in 2008-09 to 2012-13 and that period included the GFC and stimulus packages to keep us out of recession. But fundamentally, it remains a revenue problem rather than an expenditure one. The Coalition has pushed the federal government debt up from $265 billion to $380 billion in 23 months. At that rate, the debt will be around $900 billion by 2023-24.
The problem started in the early and mid 2000s with endless tax cuts and high expenditure with the government not putting much away for a rainy day. The previous Coalition government was wasteful according to a 2013 IMF report using data to 2011 that found the Australian government “profligate” in 2003, 2005, 2006 and 2007 (and 1942 and 1960). Also, public service numbers increased by 40,000 from 2000 to 2007 compared with 5000 between 2008 and 2013.
In order to fix the problems that the previous and current Coalition governments have given us, we will need to do much more than fiddle with GST. We would still need to look at the overly generous tax concessions on property investment and superannuation. Tax concessions amount to about $120 billion a year or 8% of GDP, far higher than comparable countries.
We would also need to look at some form of carbon pricing rather than the expensive and ineffective Direct Action which has pushed emissions back up after we saw a fall during the time of the carbon tax. Getting rid of carbon pricing will cost the budget $18 billion over four years according to the Parliamentary Budget Office or about $800 a person.
Land tax is another option that should be discussed.
We might also need to abolish the states and save $50 billion a year according to a 2007 estimate in a PhD study by Dr Mark Drummond. At the moment we have eight systems (six states and two territories) all basically doing the same thing, which the federal government (one system) could do, rather than all the current inefficiencies, overlapping and fighting.
But the problem at the moment is that we have a federal government that wants a “mature” debate on tax but has ruled out most areas of potential reform, or has placed various conditions such as with any changes to the GST making agreement unlikely. They will probably just keep on playing the blame game like kids. There will be plenty of talk but in the end nothing much will be done.