Like much ‘reform’, the GST is about powerful interests, not the national interest

Read part one of Bernard Keane on the GST here.

After 20 years of the GST there’s little evidence it delivered any of the benefits claimed for what is now called “the last great reform”.

It was, at best, a workmanlike reform that captured previously tax-exempt services, and was used as an excuse to remove some nuisance taxes — but at the cost of imposing a massive paperwork burden on small business.

It did nothing to dent the black economy or lift household savings, its benefits for state services proved only temporary, and there’s no evidence of any efficiency benefits claimed by advocates.

Certainly there is no evidence from national economic indicators of any broader economic benefits. According to Productivity Commission data, productivity went into a prolonged slump after 2000, except for a brief period when Labor and its Fair Work Act 2009 delivered a boost in 2010-13.

What’s now forgotten, too, is that while the GST was made more complicated by the Democrats’ social engineering, the Howard government also complicated it for its own ideological reasons.

Private school fees were exempted from GST, as the Howard government ramped up its agenda for the commonwealth to subsidise private education. And private health insurance fees were exempted, adding to the billions wasted subsidising a favoured sector of the Howard government.

Both were part of an agenda of taxpayer handouts to sectors favoured by the Coalition: private schools, wealthy retirees, private health companies, “mum and dad investors”.

But the dewy-eyed nostalgia for a reform era in which the GST could be achieved is merely one variant of a longing within the business lobby and the commentariat for “economic reform”.

That is something that in Australian policy debate has long since morphed from any sort of nuanced discussion that would produce significant benefits into a festering resentment about the failure of politicians — on both sides — to bulldoze through deregulation, wage reductions, union disempowerment and company tax cuts.

Actual economic reform that might deliver overall improvements in national well-being and the economy — for example of the kind articulated by the Productivity Commission — is ignored. 

That’s why the business lobby has long called for the GST to be expanded and/or increased to fund company tax cuts, and why there’s pressure now from neoliberal commentators to increase the GST and cut income taxes.

The latest effort comes from the Berejiklian government in NSW, which yesterday unveiled an “independent” draft report, from a panel led by David Thodey, calling for tax reform. Its main recommendation is a dramatic expansion of and/or increase in the GST. This would “provide an avenue to reduce Commonwealth income taxes” and “abolish more harmful state taxes” — specifically “damaging taxes on income, capital and property transactions”.

Peculiarly, that’s despite the review identifying company tax as the tax with the lowest economic cost — based on a modelling that explains that the windfall company tax cuts give to foreign shareholders reduces national income. Company tax is thus somehow both “damaging” and has a net economic benefit. Go figure.

That inconsistency underlines how this is just another iteration of the push to shift the burden of taxation away from large corporations — which routinely avoid billions in tax and pay nothing close to the 30% headline company tax rate — and high-income earners, and on to lower-income-earners and working families.

Thodey has an op-ed in The Australian Financial Review today calling for the GST to be used as a “workhorse” for the post-pandemic recovery. What does he expect will happen to consumer confidence — desperately needed to lift GDP growth and fuel business investment — if households are told the GST is about to be increased by 50%, on top of wage stagnation?

As for the honour of being the “last great reform”, that belongs not to the GST but to the Gillard government’s carbon pricing scheme, which achieved a significant reduction in Australia’s carbon emissions with a minimal — and lower-than-forecast — impact on the economy.

That reform, of course, was destroyed by the Coalition (whose term “great big new tax on everything” far better applied to the GST).

The likes of The Australian Financial Review now lament the lack of quality reform but cheered on the Coalition when it destroyed a successful carbon price. Even now, the AFR attacks that reform as a “debacle” while insisting it supports a carbon price.

Like the Business Council, that in-principle “support” for carbon pricing never quite extends to supporting an actual real-world policy. It’s the kind of “support” that canny climate denialists use to undermine climate action. 

Whatever the nostalgia for the past, calls for “economic reform” now are almost always a cover for vested interests rather than the national interest.