Abolish the GST, don't increase it

October 31, 2014
Raising the GST will mean the poorest get taxed more.

Prime Minister Tony Abbott has indicated his government plans to increase the Goods and Services Tax (GST).

Before last year’s election, Abbott promised the Australian people that “the GST won't change, full stop, end of story”. But on October 27, he called for a “mature debate” on the topic, making it clear his government intends to increase GST revenue.

More revenue could be gained by “broadening” the tax. That is, by extending the tax to basic food, health care, water and education, which were exempted when the tax was introduced. This could raise $13 billion on top of the $48 billion now collected in GST.

Alternatively, the government could increase the rate of the tax. An increase from 10% to 12.5% would raise approximately $12 billion dollars.

Much of the mainstream criticism of Abbott's call for a “mature debate” on the GST relates to the irony of Abbott making such a call when his record is one of steadfastly refused to have a “mature debate” on the mining tax, the carbon price or anything else.

Several state premiers have called for changes in the way GST revenue is distributed to the states before entering discussion about increasing or broadening it. However, none of them are opposed to the basic plan to increase the tax.

The real outrage, though, is that all the ideas being discussed in establishment media and political circles are about increasing the tax burden on working people and the very poor. Often this is explicitly linked with plans to cut company tax rates further.

“There is no such thing as a fair GST,” Socialist Alliance councillor Sue Bolton told Green Left Weekly.

This is because it is a tax that inevitably falls much more heavily on poor people than rich people.

“Even homeless people have to pay GST,” Bolton said, “whereas businesses effectively pay no GST at all [because it is credited back to them].”

People on low incomes spend a far higher proportion of their money on consumer items than rich people do.

Investments and overseas holidays are just two examples of expenditure that does not attract GST yet is more likely to be made by high-income earners. Further, tax on luxury items was reduced when the GST was established. Business owners can also avoid GST by having their business make purchases on their behalf.

The poorest 20% of people spend a greater proportion of their income on food, water and health care — exempted from the tax — than the richest 20%. This means that calls to “broaden” the GST are explicit calls to tax the poorest more.

Former assistant taxation commissioner John Passant told GLW that attempts to increase the GST are part of a long-term neoliberal project of shifting wealth from labour to capital. Increasing the tax burden on working people is a key means of doing this.

It is likely that extra revenue raised by increasing the GST would be used to benefit the corporate elite, Passant said. This would probably include further cuts in the company tax rate and spending on infrastructure that is in effect a subsidy to businesses, such as the mining industry. “It is not like they would use the extra money for more public transport [that would benefit ordinary people] for example,” Passant said.

However, the lie put forward by the ruling class is that we need to increase the GST to pay for basic government services. For instance, former NSW premier Nick Greiner said: “We either are going to reduce our spending, especially in health, or we’re going to have to do something to more efficiently raise revenue”.

However, raising government revenue fairly would be easy for a government that truly represented the interests of working people. Passant pointed out that a modest wealth tax of 1% on the richest people, such as Gina Rinehart, would raise about $20 billion.

Imposing a minimum company tax rate — to reduce corporate tax avoidance — and eliminating concessions on company taxes could raise a similar amount.

Bolton said the company tax rate should be returned to the 49% that was levied until Labor cut it to 30% in 1988.

Bolton and Passant both called for the return to a more progressive income tax system so that those with the highest incomes pay the most tax — the exact opposite of the regressive GST.

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