Ideas@TheCentre
A bigger GST? Be careful what you wish for
The value added tax (VAT) (GST to Australians and New Zealanders) was a French invention that spread gradually to almost every corner of the globe. With remarkable consistency, nowhere has the rate of VAT ever subsequently been cut (other than as a temporary measure to counter recession), and in almost every country it has been increased from its initial level, usually more than once. Australia (so far) is one of the very few exceptions. Our GST started at 10% and recently passed its tenth anniversary with the same 10% rate and the same base.
With tax reform back on the political agenda, there are those who don't want our GST to last another 10 years, or even another five, without being increased. The Business Council of Australia (BCA), for example, wants a GST increase taken off the political taboo list at next year's tax summit so that the extra revenue can be used to cut taxes on capital and income. Others see a GST increase as the fast route to abolishing various state taxes. Their motives are honourable, but in our new political climate they are all playing with fire.
The Key government in New Zealand has just engineered a neat trade-off between higher GST and lower income tax, including a lower top rate, but Australia is not New Zealand. John Key does not have an upper house to worry about. If an Australian government were to propose such a trade-off, the welfare lobby would be screaming about the 'regressive' GST and the unfairness of it all, and their screams would fall on the sympathetic ears of Greens senators. We have been there before. The GST only got through the Senate in 1999 because the offsetting income tax cuts were reshaped, and social benefits increased, to meet the Australian Democrats' definition of 'fairness.'
The Coalition is hardly likely to vote for a GST increase under any circumstances. That leaves the Greens senators in the key position. The Greens have said that they don't like the GST and they would like to swap it for higher personal and company income tax – the very opposite of the switch the BCA and, for that matter, the Henry tax review have in mind. If, despite that, they could somehow be persuaded to go along with a GST increase, the trade-off would not be pretty. Anyone who thinks the Greens would agree to increase the GST to pay for lower company tax or cuts in the upper rates of personal income tax is in cloud-cuckoo land.
Those pushing for a higher rate of GST should be careful what they wish for – they may get it, but along with a lot of other things they didn't bargain for. In the new political climate, the GST is best left alone.
Robert Carling is a senior fellow at The Centre for Independent Studies.
