Behind the push for a GST

Wednesday, October 16, 1996


By Jorge Andres

Arguably, the only submission to the National Tax Reform Summit really sympathetic to the needs of the working majority was United Distillers' proposal for a cut in the excise for rum. Apart from that, all "serious" parties involved in the summit achieved basic consensus on shifting tax from business to consumers.

When the Australian Chamber of Commerce and Industry and the Australian Council of Social Service concluded their tax summit last week, these "representatives" of opposite ends of the community had agreed that the tax base should be broadened in the areas of consumption, income and assets.

The main proposals from the ACCI were a value-added tax on goods and services (GST alias VAT) and the abolition of the wholesale tax. ACOSS agreed to consider a GST as part of a general "reform" of taxation, including the elimination of some fringe benefit tax concessions, the removal of capital gains tax exemption on luxury homes and introduction of gift and inheritance taxes.

The summit proved the consuming passion that business has for a GST as much as the bankruptcy of "welfare economics". Big business used the summit to further entrench acceptance of the view that community well-being is tied to increasing business profitability. Instead of countering this view, the community sector restricted all its proposals to this same framework.

Consumer taxes

Most corporate submissions stressed the preference for shifting taxation from income and capital to consumption. Business commentators were at pains to stress the overburdening of the income tax system, which today accounts for 72% of tax revenue.

The Australian Society of Certified Practising Accountants put forward one of the most radical proposals for shifting to indirect taxes, that is, taxes aimed at income spent on goods and services. It proposed to drop all company and personal tax rates to 20%, introduce a 5% tax on retail sales and replace the social security system with a negative income tax.

The "beauty" of this proposal is that it would get rid of "middle-class welfare". Any family on an annual income of $50,000 or even less which receives social security assistance would be cut off.

Like most other corporate "special interest groups", the ASCPA pitched its submission at winning support from the welfare-community sector by maintaining high tax revenue to provide for minimum welfare but shifting the burden to middle-income earners.

This, incidentally, is why no politician wants any association with the tax summit. While big business can reach an alliance with a community sector most concerned about the absolutely underprivileged sections of the population, it is the "middle income" earners who more often win elections.

More influential business heavies, like the Committee for the Economic Development of Australia and Coopers and Lybrand, focused their submissions on more achievable targets. The wholesale tax came under concerted fire. Imposed at rates of 12-32% on wholesale prices, this tax is said to cut profit margins to a "fraction of our overseas competitors". Dr Vince FitzGerald, who prepared the CEDA discussion paper and was instrumental in developing the previous Labor government's national savings policy, argued that ideally Australia should move to a full expenditure taxation system. The CEDA paper also recommended lowering the corporate tax rate from 36 to 33% and "in time a little lower".

Other submissions, like that of the accounting firm Price Waterhouse, also recommended abolishing the tax-free threshold. The attraction of this is squeezing another $8 billion dollars of revenue from the poor.

The growing push for taxing expenditure, GST or otherwise, has its roots in the national taxation summit organised by the Labor government in 1985. There Labor stated its preference for replacing the wholesale tax system with a 12.5% consumption tax. The Hawke government proposed compensating workers for loss of spending power by social security payments and income tax cuts.

The major business justification for the renewed attack on income-based taxation is the distortion it creates in "savings". High taxes on private savings, equity investments and shares are blamed for restricting capital mobility and investment.

The existing taxation system is incapable of the flexibility that Australian big business now requires. Maintaining international competitiveness requires increasingly lower costs of production and distribution and tax breaks, subsidies and investment allowances to help business through the dry spells.

In addition, a number of particular circumstances have increased the urgency of tax "reform" for big business. Over the last two decades, the Australian taxation system has been reshaped only around the edges. The main fear restricting business was that a move to expenditure-based taxation would spill over to a wages "blow-out", given the residual strength of the union movement. After 13 years of the Accord straitjacket, this is considered much less likely.

For business, the system still has too many "welfare state hangovers", like significant taxes on business inputs (wholesale tax, payroll tax, stamp duty), which while also affecting wage earners at least milk something from business to help pay for social security. According to Coopers and Lybrand, Australia is being left behind, with 100 countries already levying a value-added tax and another 30 (including the US) imposing a general tax on goods and services.

Beyond 'welfare economics'

For decades, the "welfare economics" lobby promoted extending the system of progressive taxation — making the income tax to be paid by the richest higher, and increasingly alleviating the burden on the poorest and hopefully at some stage on middle-income earners. If ACOSS is any indication, it seems that this lobby has now retreated even further from challenging the economic might of the corporate sector and in fact hopes to get some crumbs for the poor by hanging on business's coat-tails.

Most disheartening is the refusal of ACOSS to rule out support for a GST/VAT tax. Any taxation on general expenditure increases the selling price of goods and services. The average "consumer" of these goods and services is the wage earner, who spends a much higher proportion of their income on consumer goods and services than does the corporate owner. In terms of living standard, working people will be much more severely hit by an expenditure tax.

The real challenge is to make the corporate sector pay for the economic woes that it has created. This challenge is first and foremost a political and not economic one. It means patient and persevering work to mobilise consistent opposition to the neo-liberal agenda.

Each battle must be turned into a platform from which to promote a fundamentally different approach to solving the periodic economic crises we face. We must argue for the development of social-community control of all investment decisions, production systems and outcomes, and income distribution. Socialism, one might call it, even if just to stir up the cynics.

We should oppose all attempts to impose expenditure-type taxes and argue for a combination of an improved income tax system that further burdens the wealthiest, massive reduction of tax avoidance by companies and individual capitalists, increasing direct taxes on corporate profits, introducing heavy inheritance taxes and promotion of publicly owned firms by tax breaks and allowances. We should argue for increased tax revenue not just to maintain a "safety net", but for the development of a generalised system of free and accessible education and health, as a start.

What specific proposals we make for tax reform should be guided by the overriding aim to fundamentally restructure the economy and by the exigencies of winning increasing social support for this project. The aim must be to win support among working people for a socially and environmentally sound economy and for mass political action to overthrow the economic and political power of big business.