The progressive case for raising the GST

The Business Council of Australia (BCA), according to Crikey’s Bernard Keane last week, is “Australia’s most vile business lobby”, a pack of “profiteers and gougers” engaged in “a policy pantomime driven by greed and amnesia”. Whack!

His broadsides were largely fair — the BCA has been reheating the same corporate rent-seeking disguised as policy for decades, and its latest report continues this tradition. Among some unobjectionable lines about integration with Asia, lifelong learning and achieving net zero, we see predictable calls for lower corporate tax rates and a more “flexible” industrial relations regime.

But one of its suggestions is gaining broader traction: raising the GST. Independent MP Allegra Spender, who is conducting an independent review of the tax system, publicly jumped on the BCA bandwagon this weekend, echoing former Treasury secretary Ken Henry by calling our tax system an “intergenerational tragedy”.

But Treasurer Jim Chalmers quickly hosed down such suggestions. And Labor Party president Wayne Swan backed Chalmers, his former adviser, saying, “a move to a more regressive tax system” would create “a more unequal Australia”.

One might naturally think Swan’s position is the progressive one — why tax a millionaire the same amount on their groceries as someone on JobSeeker? And using the proceeds to cut corporate taxes, as the BCA and Henry propose, is certainly a galling suggestion amid record corporate profits and a cost-of-living crisis.

But in isolation, or as part of a package of tax increases, our unpopular consumption tax deserves a second look from the nation’s left.

The rich spend… eventually

The GST isn’t quite as regressive as it looks. It certainly eats up a greater proportion of income for lower earners, because higher earners save more on average each year. But higher earners eventually spend a lot of their savings; they just do so in larger, lumpier sums.

Australian National University and OECD reports have found that the GST, when measured as a portion of consumption (which can be financed by money earned that year or saved from previous years), is roughly proportional across the income spectrum.

More importantly, by focusing on the tax side of the ledger, progressives often ignore the spending a GST raise would enable. If social services or welfare payments were subsequently increased, the benefits to most low-income earners would outweigh the money lost at the checkout.

Instead of demanding the GST’s revenue be spent equitably, Australia’s mainstream progressives spent the early 2000s backing away from the welfare state, leaving dole recipients to languish on frozen rates, while fussing about GST carve-outs for fruit, vegetables and other items. The BCA quite reasonably laments the absurd complexities this created for businesses, such as “taxing pizza rolls based on the thickness of topping” and “taxing unfilled meringue cases but not unfilled cannoli”.

Bigger is better

Looking historically and around the world, one usually finds the most Robin Hood-esque governments are those with more money to spend, regardless of how they raise it. The Nordic countries have huge GSTs and other “regressive” taxes, and they don’t “target” their welfare payments to the poorest nearly as stringently as Australia does. Yet their societies are much more equal than ours.

The Scandinavians don’t worry excessively about whether each individual tax or spending program is the most pro-poor it can possibly be; they just get on with building big welfare states with world-class social services. Their citizens accept higher overall taxes because they see the benefits. And the total effect is much more redistributive than puritan fiddling.

Since the Occupy Wall Street movement, the left has rallied around “taxing the rich”, as if tax were a punishment. But it shouldn’t be seen that way. Tax isn’t just about redistribution — though that’s important. It’s also the membership fee we all pay for having a decent society, where we’re insured against the shocks of unemployment, disability, old age and more.

The pioneering Labor governments of Curtin and Chifley discovered this early. Having initially promised not to raise taxes on low-income earners, they had to artfully backtrack in order to finance their WWII effort and burgeoning welfare state. Thank God they did, or else we might not have the dole or aged pension today.

Fiddling while the poor burn

Contrast this maximalist approach with the shy minimalism of the Albanese government last week. On Thursday it released the latest intergenerational report, which projects we’ll need more revenue for social spending to service an aging population. Yet Chalmers immediately dismissed calls for a tax overhaul, instead looking for “bite-sized” measures.

Some of his hors d’oeuvres have indeed been anti-rich, such as tax changes on multinationals and high-value super accounts. Other measures have been pro-poor, such as the $40 increase to JobSeeker. But the magnitude of these measures is pretty puny.

It’s not only external critics frustrated by such small fries. The Australian recently reported that activists from Labor’s left faction have called the federal government’s policy approach “overly cautious” and “increasingly out of step with the public mood”.

Don’t get me wrong — raising the GST isn’t the meaty tax reform I prefer most. Removing concessions on superannuation and housing assets and introducing an inheritance tax would be better, while the stage three tax cuts remain a ticking time bomb.

But, absent the courage to lead from the front, the government may need cover. If it can’t find any elsewhere, and some unlikely bedfellows can stand athwart the naysayers, I’d rather Chalmers imperfectly hack his way through the fiscal thickets than bury his head in his tortoise shell.

Is raising the GST a fair way to pay for the increasing cost of Australia’s social services? Let us know by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.