Sep 18, 2012

Ask the economists: should the GST remain a sacred cow?

Crikey intern Frances Mao asks the experts whether the GST should be increased (or broadened) to bail out cash-strapped state governments.

The states are crying out for more cash — so should the sacred cow of the GST remain untouched? New South Wales Premier Barry O’Farrell is leading the charge for kick-starting the debate on increasing the GST and expanding its coverage. Federal political parties aren’t having a bar of that, unwilling to even raise the prospect of GST reform in the face of a hostile public. So what do the experts think?

Steve Keen, associate professor at the University of Western Sydney:

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8 thoughts on “Ask the economists: should the GST remain a sacred cow?

  1. Mack the Knife

    All these funding shortfalls for infrastructure etc are a direct result of Howard and Costello wasting 11 years of mining boom to porkbarrel for votes rather than improve the country.

    To have the GST rate lifted means effectively all the tax cuts he gave out are having to be paid back

  2. Gavin Moodie

    Join the rest of the OECD in having probate duty, remove the outrageous concessions on superannuation, remove the concessions on capital gains tax, extend capital gains tax to all property including residences and remove the exemptions from fuel excise. Once you’ve done that you can then consider the regressive broadening or increase of the gst.

  3. Liz45

    The damned cheek of O’Farrell! He’s the one who insists that an inflated price on our utilities accounts states the (incorrect) amount attributed to the carbon price, but now he wants to increase our cost of living via hiking up the GST. Introduced by Howard, the first time any Australian govt has taxed pensioners and others on low incomes. What a bloody hypocrite!

    He has no mandate to do any of the things he’s doing/done, and certainly the Federal Govt lacks a mandate on increasing this already unjust tax. That a person relying totally on a pension is charged the same GST on electricity/gas etc is most unjust. When it’s considered that the upper middle to rich people have lawyers etc to ensure that their wealth is almost untouched! Even self funded retirees get a tax break that’s more than my annual income. So, is it fair to charge pensioners and low income the same GST? Let alone increase it!

    He has no mandate to even look for uranium reserves, let alone mine the stuff; nor to cut almost $2 BILLION from education and sack people who mostly help those who are vulnerable. God help us from Abbott if this is an indication of what conservative govts do?

  4. Pinklefty

    As Gavin Moodie pointed out, the GST is regressive. Its major problem is that the burden is disproportionately borne by the poor and any increase will only worsen this.

    However, I see little merit in plundering deceased estates. The social burden imposed by retiring baby-boomers (and others) should be substantially eased by encouraging superannuation contributions — not stifling them — with the benefits to be taken as pensions.

    The family home ought to remain exempt from capital gains tax and fuel excise exemptions should be removed, except where the need for a ‘level playing field’ can be established (i.e. shipping).

    The big (and best structured) candidates for providing revenue increase are personal income tax and company tax, including resource rent tax. Good luck on finding any collection of politicians with the will, the guts and the collective death wish necessary to tackle reform in this area. (Principle? … you have to be joking!)

    The beauty of increasing GST is that the problem will be disproportionately borne by the poor. There is no point mollycoddling all those single mothers and lazy bastards or they’ll have no incentive to get decent jobs. The political consequences of hitting these bludgers are minimal, so I’m betting that soon after the next election — budget time at the latest — if other revenue sources prove insufficient we’ll see a hike in GST.

  5. Gavin Moodie

    The extremely favourable tax concessions for superannuation are overwhelmingly taken by the wealthy, most of whom would never qualify for a means tested pension anyway, so tax expenditure on superannuation is a dead weight loss – ie, revenue forgone for no change of behaviour.

    Most other transfers of wealth attract tax in the hands of the recipient, so why should gratis transfers on death of the transferor be exempt?

    The exemption of the family home from capital gains tax has distorted investment from productive investments to unproductive investment in excessive houses, and has inflated house prices.

  6. Gavin Moodie

    We agree that the gst is regressive, but didn’t Howard compensate pensioners for introducing the gst? Mightn’t one assume that pensioners would be similarly compensated were the gst to be extended or increased?

  7. Liz45

    @GAVIN MOODIE – As a person on a DSP pension at the time of the GST introduction, the more wealthy pensioners received more monies from Howard than people like my mate (aged pension at the time) and myself. We weren’t wealthy enough for the best ‘compensation’ – from memory in excess of $1000? I didn’t receive it! Mine was a few hundred at best – as was my mates! We were in the majority!

    The ongoing middle class welfare has extended to such an extent, that so-called self funded retirees tax concessions will outdo the pensions etc of Centrelink – it’s already almost $30 Billion and expected to rise over the next few years. When this is added to those millionaires in receipt of family benefits and aged pensions, it’s easy to see who the real ‘bludgers’ are! As I’ve learnt recently, some wealthy retirees tax concession can exceed $20,000 per year, more than the annual income of many pensioners?

    Those who support the conservatives never bring up these situations when they decry the pension/benefit yearly cost to taxpayers. When this is also added to the Billions$$$ clever lawyers assist wealthy companies to dodge their taxation responsibilities, plus the Billions to the Superannuation industry, it’s clear to see who are ‘draining’ the public purse – and it sure as hell are NOT people like myself. What adds insult to injury, no mention of the always trying to make ends meet, is the reality that I have to pay the same GST as these wealthy Australians. I raised three kids who all have excellent jobs involving responsibility and skills etc, they and their wives are taxpayers also- I’m proud to say that none of them have achieved their status by ‘leaving footprints in the shoulders of others’?

    These are just a few of the examples where pensioners are not compensated, but are actually forced into further poverty in many cases. I live in public housing, the envy of many, in an area that is sought after; I’m one of 9 children; I’ve raised three now adult sons, I save money by sewing almost all my own clothes; I have a small appetite; I’m used to jostling dollars, but some people on a pension pay more than 50% plus on private rent – how they survive I do not know? My eldest son gave me this computer (new) (my third from him), a car and pays my broadband access, my youngest just gave me an Iphone – I’m blessed, but thousands at least are not so fortunate!

    Incidentally, even though I’m in public housing, I pay 25% of my income in rent! I heard on ABC radio that most people who pay rent pay about 19% of their income in rent, and those who pay a mortgage, 20%? So when it’s boiled down to actual income, people who only have a fortnightly pension, with only limited assets (furniture, car etc) are certainly not bludging off the taxpayer at all, quite the contrary!

    Prior to the ’07 Election Howard’s spending spree amounted to a million dollars every couple of minutes – maybe more! None of these morsels were to the poorest people in the country. Indeed, the conservatives have voted against every effort by the present Govt to remove just a couple of blatant handouts to the rich – private health insurance ‘gifts’ is one notable example. Abbott has said that public education receives an unjust amount of funding from the commonwealth? Imagine what he’d do if elected?

    The dental program introduced when Abbott was Health Minister has blown out to over $90 million per month – it’s once annual budget. It has been rorted, because I was one of the people who was charged extra and got it back from the Dentist concerned after actions undertaken by Medicare! I was NOT the only patient – there were many such incidents and even more complaints in the Illawarra. I have no doubt of the national ‘carnival of money’ that some unscrupulous dentists enjoyed – at taxpayers expense – again! The same wealthy pensioners have rorted this system (cosmetic dentistry?) at the expense of others not financially endowed!

  8. Pinklefty

    Polite nod to Liz45.

    Gavin Moodie, I don’t think that we fundamentally differ on superannuation. In keeping my post brief I may have given the wrong impression. By all means stamp out the rorts, but be careful not to throw the baby out with the bathwater. We need a superannuation structure that makes most people pay for their retirement over the course of their working lives. As we live longer this becomes more important. On top of a basic levy people should be encouraged to pay more (sacrifice now, benefit later) and I prefer the carrot to the stick.

    Deceased estates are a tempting source of funds that other nations happily use, but, to me, it feels a little like interfering with a corpse. It’s probably just a psychological inhibition.

    There are good reasons for not taxing the family homes of poorer people, and selectively applying GST to the homes of wealthier people would only create greater distortion to housing prices.

    Progressive taxation is the way for me, but trying to persuade the middle-and-upper-class beneficiaries of government handouts that they need to start making sacrifices is a difficult proposition to sell. Perhaps ‘The Gruen Transfer’ could try it on ‘The Pitch’.

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