Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here’s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

GST reform discussion requires facts and analysis, not ideology

By Geoff Carmody - posted Monday, 14 April 2014


Treasury Secretary Martin Parkinson has highlighted structural Budget pressures facing Australia. He wants a conversation about spending cuts and reforms to our tax 'system', including the GST.

Labor won't discuss GST reform. It supported a GST in the mid-1980s, but opposed it in the early- and late-1990s, wanted more GST exemptions in 2001, and barred the Henry Review from considering it in 2009.

Labor says a GST is regressive, hitting the poor more than the rich. Yet, even when we had wall-to-wall Labor governments, not one called for GST abolition. (The states were, and are, too busy squabbling over why each should get a larger share of its revenue.)

Advertisement

Does this 'regressive' argument stack up?

As Parkinson (again) reminds us, we must do everything more efficiently if we are to deal with falling terms of trade, sluggish productivity growth and an ageing population. The alternative is falling living standards. Average real per capita net national incomes have already been falling for the last two years.

Amongst other reforms, inefficient low-income support measures must be replaced. Using GST exemptions or a low GST rate to assist the poor is very inefficient from all perspectives, not least Budget cost.

Suppose we offer the poor, say, $1,000 a year in tax concessions, but do so using a policy that also gives high income earners $2,200 to $2,700 a year. Even if $1,000 is a proportionately larger concession for the poor, most would agree this is a very wasteful approach.

Thanks to Labor and Australian Democrat opposition to the original Howard Government GST in 1999, that is what current GST exemptions for fresh food, health and education deliver. The dollar benefits of these exemptions are far greater for higher income groups than for the poor (see Chart).

Proportion of total household spending on food and health by equivalised income quintile (%)

Advertisement

Source: ABS Household Expenditure Survey, Cat. No. 6530.0, 2009-10 (latest release).

Most of the Budget cost of these exemptions does not go to the groups they supposedly are meant to support. It is sprayed increasingly up the income scale, reducing Budget scope to finance better ways of helping the poor. The top 60% of households get about 70% of the total cost of GST exemptions for fresh food and health. Only about 30% goes to the bottom 40% of households.

  1. Pages:
  2. Page 1
  3. 2
  4. All

A version of this article was published in the Australian Financial Review.



Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

8 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Geoff Carmody is Director, Geoff Carmody & Associates, a former co-founder of Access Economics, and before that was a senior officer in the Commonwealth Treasury. He favours a national consumption-based climate policy, preferably using a carbon tax to put a price on carbon. He has prepared papers entitled Effective climate change policy: the seven Cs. Paper #1: Some design principles for evaluating greenhouse gas abatement policies. Paper #2: Implementing design principles for effective climate change policy. Paper #3: ETS or carbon tax?

Other articles by this Author

All articles by Geoff Carmody

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 8 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy