Broadening the base: Tax reform and the Australian economy

In 1993 Opposition Leader, Dr John Hewson released his 650-page vision for Australia’s economic future. In the manifesto, Fightback, Dr Hewson detailed the introduction of a 15 per cent GST and the reduction of other, more antiquated taxes. As history went on to show, Dr Hewson lost the 1993 election, returning Prime Minister Paul Keating to another term of Government.

In 2000 Prime Minister John Howard introduced the GST, at a cost of 10 %, on a variety of items, with the exclusion of fresh food, education and health. The fall out for the tax saw the Australian Democrats lose faith with the Australian voters as they were perceived to have back-flipped by supporting the new tax.

In a new report released by ACOSS on Wednesday November 4 2015, modelling from the National Centre for Social and Economic Modelling (NATSEM) showed increasing the GST to 15 per cent and broadening the base on which it is applied will leave low income households across the country worse off.

“The NATSEM Modelling of an increase to 15 per cent on the existing base of the GST or a broadening of the GST base to fresh food, health and education confirms that either change would be regressive. Low and modest income households would clearly pay a higher proportion of their income, in comparison to higher income households through an increase in the GST, whether by increasing the rate or broadening the base by removing exceptions,” ACOSS Chief Executive Officer, Dr Cassandra Goldie.

While the Federal Government is open to increasing the GST and broadening its base, the Australian Financial Review reported on Tuesday November 3 2015, that health and education would remain exempt. This does raise the question of the impact of a 15 per cent increase on the weekly shopping bill to low and modest households.

While GST has always been a political hot potato, the Opposition has confirmed they would not try to repeal an increase to GST should the Turnbull Government win another term, and the increase pass the senate. In 2001, Opposition Leader Kim Beazley lost the election to John Howard after campaigning on an election promise to increase the exemptions for the current GST.

When discussing tax reform it appears only GST is being seriously considered, despite a range of tax breaks and cuts that could easily be made that would help Australia’s economic bottom line. In an article in the Australian Financial Review on Thursday, 5 November 2015 Dr Hewson addressed the need for the Turnbull Government to address a range of taxation issues including; negative gearing, capital gains taxes, and superannuation taxes.

Another area the Government should be seriously considering is the so-called “Google Tax,” which see’s large multinational companies making billions of dollars in Australia yet shipping it through countries such as Singapore and paying only a small percentage of tax.

Whichever Government brings about tax reform in Australia, it will take more than slogans and platitudes to get the message across. After the introduction of the Carbon Tax, Tony Abbott ran a campaign focused on repealing the tax and generally lowering taxes across the board. During the 2013 election, Mr Abbott said;

Scrapping the Carbon Tax “means every household will be $550 a year better off,” a statement that has since proved to be at best an overstatement.

Taking tax reform to a National election requires real leadership. The Australian Taxation System has been in trouble for quite some time and stop-gap measures and patches are no longer appropriate for the nations long-term economic health.

“The political reality is that there will be pluses and minuses, and winners and losers, “Dr Hewson wrote in the Australian Financial Review. “It is not a situation to be avoided, but managed and explained. It calls for leadership. The tax system can’t be patched up any more – it needs a fundamental restructure.”

Whether or not the good will generated by the replacement of Tony Abbott by Prime Minister Malcolm Turnbull will allow the electorate to listen to the need for tax reform to fix Australia’s economic issues is yet to be seen.

As Prime Minister Turnbull said on November 5 2015, “fairness has to be central to tax reform."

To create a truly fair taxation system in Australia a new, modern taxation system needs to be developed with the long-term economic vision clearly explained to the people of Australia at the next election. Avoiding slogans and fear campaigns on both sides of Parliament is the only way for a truly mature discussion about the nation’s economic future.  

Mike Cullen has recently returned to Akolade after a period as the conference producer for one of Australia's leading economic think tanks. Mike began working in the conference industry in 2007 after looking for a career change from the high pressured world of inbound customer service. Mike has worked for some of the most well known conference and media companies in the B2B space and in his spare time is working on his first novel in a planned Epic Fantasy trilogy.