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October 1, 2011
George Megalogenis is one of the better columnists in the News Ltd stable. He discusses policy issues instead of politics, and he does research instead of the polemics against, and yelling slogans about, the Gillard Government. It makes a welcome change from the superficial nonsense that is routinely peddled by the mainstream media.
His Swan needs to read the bottom line; the GST is burning a hole in his budget column in The Australian is a good example as it highlights one of the issues that needs to be addressed in tax reform. The Australian tax system does require an overhaul to facilitate a more productive economy.
In his column Megalogenis raises an important issue:
The GST was supposed to abolish inefficient indirect taxes and take the weight off income taxes. It was also meant to leave the states better off, because the GST replaced the annual begging-bowl festival of the premiers' conference. The GST achieved all three goals for a while, but the past few years have seen John Howard's proudest reform lose its value to the nation.
The temptation on the Coalition side is to blame every red mark on fiscal policy since 2007 on Labor, but the GST is unarguably the Coalition's baby. At the peak of its revenue-raising powers in 2002-03, GST collections were worth 3.9 per cent of gross domestic product. The final Peter Costello budget in 2007-08 left them at 3.7 per cent. Next financial year, they will be 3.4 per cent. The gap of 0.5 per cent of GDP may well be the difference between federal surplus and deficit in 2012-13.
Simply and directly stated: the GST is no longer a growth tax. That has implications for the states since they depend on the commonwealth for nearly a half of their revenue.
It cannot be laid at the door of the Gillard Government because the GST was the Coalition's baby and three of the nation's four biggest states - NSW, Victoria and Western Australia - are already in conservative hands. Every dollar Canberra doesn't raise from the GST is one more dollar the states have to find elsewhere in their own budgets.
Megalogenis also give us an explanation for why the GST is no longer a growth tax. The advice in this year's budget is that the GST is losing ground because the items not in the base - food, rent, health and education - have experienced faster price rises than the goods and services that are taxed.
Megalogenis also highlights the significance of the GST 's decline for the federal government and states:
Swan and the conservative states have a mutual reform interest in the GST. Swan needs to restore federal revenue as a share of GDP, while the states know they have to secure their budgets beyond the phony accounting of property and gambling booms. Voters in NSW and Victoria, in particular, dismissed their Labor governments because they had not spent enough on public infrastructure. If Barry O'Farrell and Ted Baillieu want to avoid history's stain of being do-nothing premiers, they need more revenue from Canberra so they can open their wallets on behalf of their states.
So Australia has a policy problem that rises above the current right left polemics hostilities. Should there be a 12.5 per cent GST? Or a GST with an expanded base? What should be done with the inefficient indirect taxes (eg., stamp duties) of the states? Should the GST continue to be used to take the weight off income tax?
These are issues that should be included for discussion amongst others in the two-day tax forum this month. A tax forum discussion paper has been released.
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The Federal Treasurer, Wayne Swan, has emphatically ruled out any change to the GST.