Why raising the GST to fund health would make the poor less healthy

July 24, 2015
The Council of Australian Governments meeting in Sydney on July 23.

The neoliberal agenda for the Council of Australian Governments (COAG) meeting in Sydney on July 23 was set by NSW Premier Mike Baird, who proposed increasing the GST from its present 10% to 15%.

Baird wants the extra funds to be primarily used to fund health services, which account for almost 30% of state budgets, including spending on hospitals of about 20%. What he neglected to say was that under his mate Tony Abbott’s federal government, spending has been drastically reduced on health along with education. The total reduction across both areas is about $80 billion.

Under the previous Labor government of Julia Gillard, a formula was worked out which would deliver annual health spending growth of 3.7% per capita until 2016-17. The 2014 budget of Treasurer Joe Hockey reduced this to zero.

The Australian Hospitals and Healthcare Alliance says the Commonwealth has shifted $57 billion in hospital funding costs alone to the states over an eight-year period.

The GST is a regressive tax that makes those on lower incomes pay a greater proportion of their meagre income in tax than the wealthy. The proposition that an increase in the GST could help fund the health system ignores the rather inconvenient fact that reducing access of the already poor to life’s basic necessities would result in a greater burden and increased costs on the health system that the tax is supposed to fund.

Increasing the GST is also a recipe for recession, a lesson learned from Japan that is completely lost on Baird and Abbott. After the Japanese government increased consumption tax from 3% to 5% in 1997, it led to an economic downturn. When the same tax was raised from 5% to 8% early last year it tipped a stagnant Japanese economy into official recession.

With the Chinese economy slowing down as the country’s factories continue to slash jobs, a recession in Australia becomes an increasingly likely prospect.

The Australian economy is growing at the sluggish rate of less than 2.5%. As the latest Reserve Bank board minutes show, the only reason why the official unemployment rate is at 6% is because of a decline in net migration.

Reducing health spending is an austerity measure that has been implemented across OECD countries since the onset of the global financial crisis. In the rich world, health expenditure has declined from about 3.8% per capita in 2009 to 1%. Greece is the example par excellence. Between 2004 and 2008, health spending was increasing at an average of 5.4% per capita. From 2010, it has contracted at an annual rate in excess of 7%.

The pre-COAG meeting where increasing the GST was formally discussed was called a “retreat”, which in this case is best understood in the ecclesiastical sense — a temporary retirement for neoliberal religious exercises.

It made no firm decisions, but instead referred the notion of an increase of $36 billion in the GST to federal committees drafting white papers on tax reform and the structure of an archaic federation whose lineage can be traced back to colonial times.

What these policy option papers do not canvass is increasing company tax, cracking down on tax avoidance in offshore tax havens, and eliminating state and federal government subsidies to big business.

The white papers are supposed to be released by the end of this year, but the earlier discussion paper contained the proviso that the Abbott government would consider proposals to increase the GST only if there is agreement by all state and territory governments.

Treasurer Joe Hockey has said the release of the final white papers would feed into the Liberal Party policy preparation process for the federal election next year.

When Baird fired the first shot in the GST debate, in the space thoughtfully provided for him in the Murdoch press, he asserted that it would provide a chance to take the nation forward and that “this is what the people who elected us deserve”.

What the people of NSW deserved was for him to take the issue of a huge rise in the GST to the state electors in March this year. But had he done so, it may well have resulted in him losing it.

With Abbott’s government still six percentage points behind the ALP in the latest opinion polls he is unlikely to be game enough to make the next election a referendum on the GST, but the electorate should.

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