The Goods and Services Tax is one of those issues that we tend to look at in isolation. By this I mean that a lot has been said as to its design and reach, yet seldom do we seem to discuss the GST in context. That is, what the overarching objective of the GST is. There’s little point in talking about the GST’s technicalities if we don’t also talk about this.
Firstly, as a consumption-based tax, the GST has proven to be extremely lucrative over the years and thus a seemingly unwavering source of tax revenue. It was the rational legislative replacement for a plethora of other inefficient taxes. Revenue grants from the Federal government sourced from the funds raised by the GST are a key source of revenue for state and territory governments, and hence the GST’s economic and political importance.
This being true, however, the GST’s underlying objective must also be considered. The reality is that the covert objective is, in essence, to subsidize economically poorer performing states and territories (i.e. to achieve Horizontal Fiscal Equalization). It is an old redistribution mentality from the early days of our Federation of “sticking together”. We aim to ensure states and territories have the same revenue capacity to pay for its services in the hope that there will be some long-term benefit from it all and that in the end all states will be equally prosperous*. It is a flawed ideal in that it cannot guarantee an equal outcome as it tries to work against more profound economic changes across the nation.
The GST itself is the flawed means to this flawed end.