It’s not quite a Damascene conversion for Malcolm Turnbull on the worth of a GST hike, but commendably — if belatedly — he has realised the basic problem with hiking the GST: it’s not actually going to do much for the real economy. It’s a fizzer, even as tax reform, let alone economic reform.
But Turnbull’s grasp of the economic non-benefits of lifting the GST appears to have been facilitated by Coalition backbenchers — either of the “bedwetting” or small government variety — who have been making it clear they were deeply unhappy about the direction the government was heading on tax. To mangle Upton Sinclair, it is easy to get a man to understand something when his salary depends on his understanding it.
As Laura Tingle has pointed out, this creates a real problem in Commonwealth-state relations given the states are anxious to find ways to make up for the massive cut in health and education funding inflicted on them by Tony Abbott and Joe Hockey.
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There’s another, more powerful and more dangerous constituency that is also unhappy: big business. Their mouthpiece, the Business Council of Australia’s Jennifer Westacott, today put the government on notice that its expectations that a higher GST to pay for lower company taxes should not be disappointed. “Our business taxes are some of the most uncompetitive in the world,” Westacott insisted, politely skipping over the point that many of her members either don’t pay any, or pay very little, tax. The Business Council insists company tax must be slashed for the economy to grow. There’s no sound evidence from anywhere in the world that one follows the other, but don’t let a small dearth of evidence come between friends.
Fiddling with the GST to put a greater tax burden on consumers for the financial benefit of large companies would be simply more of the crony capitalism that we had from the Abbott government. That Turnbull might actually want to pursue genuine economic reform rather than simply hand a windfall to multinationals and big business — or at least only hand windfalls to them that won’t upset voters — is heartening, but don’t doubt the BCA will put its substantial lobbying efforts into fighting it. Westacott has already flagged one tactic — portraying walking away from a GST rise as evidence of policy pusillanimity and Abbott-like inertia on the part of the government.
“I am concerned,” Westacott wrote, “that tax reform runs the risk of being the latest victim of Australia’s dysfunctional political debate.”
The truth is, the BCA is a key perpetrator of that dysfunctional debate. It is the BCA that parades a big business wishlist that would only benefit its members’ (frequently foreign) shareholders — and benefit them at the expense of workers, taxpayers and consumers — as a genuine reform agenda that would serve the national interest. It is the BCA that peddles the myth that cutting company taxes yet further and removing workers’ protections will somehow unleash a surge in economic growth, jobs and productivity. And voters have a healthy bullshit detector for such self-serving stuff — that’s why “economic reform” has been proving a tough sell for politicians.
The GST retreat might upset premiers and annoy key Liberal donors while calming backbench nerves. But with the exception of Treasurer Scott Morrison’s willingness to consider curbing super tax concessions — an important reform the government deserves support for if it proceeds — the government has allowed the GST to become the be-all and end-all of what tax reform “debate” we’ve had. In doing so, it never implemented the Turnbull mantra of explaining what problem it actually wanted to address with GST changes — especially after it abandoned the already ailing green paper-white paper tax reform process.
Now, the government doesn’t even have the benefit of having convinced the electorate that there’s a problem that needs a major and potentially unpopular tax solution, even if it’s not going to be a higher GST.
Fortunately for Morrison, voters are gung-ho for changes to superannuation tax concessions, which they perceive rightly as primarily benefiting high-income earners, and Labor has already put forward its own proposals. It’s economic and fiscal reform, but of the low-hanging variety, a bit like Labor promising to retain the Gonski funding framework.
But if Turnbull and Morrison want to do anything more than curb our increasingly expensive and misfocused retirement policy, however, they have to go back and start again from square one.