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Election 2016: The Taxation Debate

From multinational tax avoidance to GST to everything tax related, ESSA’s Louise Yun takes a look at the changes to the tax system that are proposed by the Liberals, the ALP and the Greens.

Election 2013 – let’s talk tax reform!

This article forms part of an ongoing series looking at economic issues as Australia heads into the Federal Election. More coverage can be found on the Election 2013 page of ESSA’s website.

This election campaign has already seen its fair share of gaffes, negative ads and costings claims. Perhaps it’s time we debated the pressing need to reform our tax system, starting with the GST.

The Problem

As I watched ABC’s Q&A Monday episode, The National Economic Debate, I sat despairing at yet another missed opportunity to talk ambitiously about policy reforms in Australia. After an excellent question from the crowd about the merits of reforming the Goods and Services Tax (GST) to broaden its base and potentially increase the rate (whilst concurrently reducing and eliminating other inefficient and distortionary taxes), both Treasurer Chris Bowen and Shadow Treasurer Joe Hockey manoeuvred their way out of discussing what is a sensible reform. It was arguably the most disappointing element of what was a very entertaining and substantive debate between Bowen and Hockey that covered the breadth of economic issues facing Australia.

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“Let’s Stick Together”, They Said. But At What Cost?

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.

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