By Sue Boland
The federal government's campaign to convince us that we'll all be winners under its tax package (code for the goods and services tax) has suffered setbacks from criticism by lobby groups representing people on low incomes.
After initially welcoming parts of the government's package, the Australian Council of Social Service (ACOSS)has analysed the package and concluded that it "gives most benefit, in absolute and proportionate terms, to high income earners, shifting the balance of the taxation system from progressive income taxes to regressive consumption taxes". It "endangers the well-being of low income people ... by greatly increasing taxes on consumption and including food in the GST".
Despite presenting evidence that would justify outright rejection of the package, ACOSS stops short. Instead it argues that while the tax package is "unsustainable, unbalanced, unfair, and therefore unacceptable in its present form", it will be "encouraging the Government to substantially modify it ..."
ACOSS points out that the government's own figures show the package to be regressive in overall terms.
However, ACOSS says the package is even more regressive than the government's figures reveal because the method used to calculate the impact of the GST is seriously flawed. It assumes that everyone, regardless of income, has the same spending and saving patterns. The government thus underestimates the price increases facing low income people and overestimates those for high income people.
The proposed GST is unfair for two reasons, according to ACOSS: it will increase overall consumption taxes by $6 billion, and it includes food. Low and middle income earners spend 20-30% of their total budget on food, and they spend all of their income on essentials, whereas high income people tend to spend only 80% of their income and save the rest.
ACOSS does not accept that people on low incomes will be fully compensated for the impact of a GST that includes food, especially when increases in pensions and benefits could be eaten up by increases in public housing rents.
ACOSS also debunks the myth that the income tax cuts will benefit workers on low incomes. It says, "The new tax rate of 30% on income from $20,000 to $50,000 will give a single person on median full-time earnings (around $30,000 per annum) a 1.3% reduction in their taxable income ($7.70 per week). By contrast, it will give someone on $75,000 per annum a 3.6% reduction in their taxable income ($52.35 per week)".
Another criticism is that the package makes virtually no attempt to close tax loopholes.
Churches, pensioners' associations, youth lobby groups, student unions and the ACTU have joined ACOSS in criticising the tax package on the grounds of lack of justice and fairness to people on low incomes.
However, while many groups have made sharp criticisms of the package, most have followed the lead of ACOSS, calling for the package to be amended rather than rejected.
Democrats
Repeatedly, the Australian Democrats' leader, Meg Lees, has said that the Democrats will keep an "open mind" on a GST. In a press release on August 19, Lees said that the "task of bringing the package up to the fairness threshold is huge — but not yet impossible".
She said, "The Democrats ... will not walk away from the work of trying to fix the package just because the task is difficult".
The Democrats took a similar position in 1996, when they negotiated with the government to allow the Workplace Relations Act through.
Even if the government was prepared to exempt food from the GST, this wouldn't change the unfair tax package into a fair one.
Any indirect tax, except one confined to luxuries, is going to affect workers and others on low incomes the most.
People on low wages or pensions pay income tax on, at most, only part of their income. Under a GST, they pay tax on all of it, because they spend all of it. (Retired people often spend more than their income, by drawing on their savings, and will therefore be taxed on more than their income.) So income tax reductions or pension increases will not adequately compensate them.
Regardless of what compromises the Democrats manage to extract, a GST in any form will tax workers and people on benefits and pensions while relieving the corporate sector of taxation.
The government has clearly stated that the GST is "not a tax on business". Business simply collects the GST from consumers; it doesn't pay the GST itself.
The first meeting of the Democrats to discuss the detail of the tax package was addressed by both ACOSS and the Business Council of Australia. The Democrats are clearly trying to conciliate the interests of business with a few sops to the poor.
However, the interests of business are fundamentally opposed to the interests of workers, pensioners and people on benefits. The government and business are advocating a GST precisely because it transfers taxation from business to workers and poor people.
ALP
While the ALP has opposed a GST since it became part of Liberal policy in 1992, only in May did it change position and pledge to vote against it in the Senate even if the government wins re-election.
Paul Keating, then treasurer in the ALP government, tried to bring in a GST in 1985. The ALP increased indirect taxes after the 1993 federal elections. While the ALP is yet to release its own tax package, it is unlikely to increase corporate taxation.
One Nation has had difficulty balancing its populism with the interests of big business. After initially saying that she had concerns but had "an open mind" about the GST, Pauline Hanson said that the tax package appears to "let the wealthy off the hook again".
Hanson's press release criticises some of the inequities in the package, hints that she approves of the government's support for lowering the corporate tax rate to 30%, then says that One Nation will release its own "completely different" tax package during the federal election campaign.
Carbon tax
The Australian Greens have joined the ALP in opposing a GST outright. A press release from Senator Bob Brown, the Greens' leader, challenges the Democrats and Brian Harradine to reject the GST, before the federal elections. This is because the government plans to call early elections and pass its package before the newly elected senators take their seats in parliament (on July 1).
The Greens are not opposed to all indirect taxes. They call for the introduction of a tax on services and advocate making indirect taxes more progressive by taxing goods and services at differential rates.
As an alternative to the GST, Brown told Green Left Weekly, they argue for a carbon tax, as exists in some European countries.
Brown acknowledged that carbon taxes are regressive taxes which affect people on low incomes disproportionately. However, he said that could be ameliorated by providing an adequate compensation package.
In arguing for an indirect tax on services, Brown said that "not all indirect taxes are inherently regressive". An example of a service which he thought should be taxed because it was used more by people on low incomes was the hospitality industry, especially five star hotels.
He agreed that corporations' profits could be taxed more, although that does not appear as part of the Greens' official policy on tax and revenue.
Arguing against any form of indirect taxation is the Democratic Socialist Party. John Percy, national secretary and a federal election candidate, said, "There's no point negotiating with the government. The tax package should simply be rejected and an alternative put forward.
"The more that ACOSS and the Democrats negotiate with the government and business, the more likely it is that they'll get caught in the trap of supporting the business agenda."
Percy said that a poll shortly after the release of the tax package showed 33% thinking that the tax package would make them worse off, and only 21% thinking they would be better off. This indicated "a potential to build a campaign that could defeat the GST.
"When the mainstream media and the government are trying to snow us with figures which demonstrate how we'll all be winners, a grassroots campaign of opposition is necessary to break through the media monopoly".
Percy said that his party doesn't support indirect taxes because they get away from the principle of people paying tax according to their ability to pay. He advocated rejecting the GST and abolishing the wholesale sales tax.
In their place, he advocates increasing the tax on corporate profits to the previous rate of 49%, and the top marginal income tax rate back to the previous rate of 60%. Some $15 billion could be obtained immediately by forcing companies to pay the official 36% corporate tax rather than the 18.8% that they currently pay.
He said that these two measures need to be combined with indexing the tax brackets to ensure that workers on average incomes are not being pushed into higher tax brackets, and cracking down on the main tax avoidance measures of the big corporations.