Imagine you are a coffee wholesaler. That it costs you $25.40 per kilo to buy coffee beans*, and you sell them for $23.60 per kilo. I don’t think you or your bank would be too tolerant of the losses. Should the Australian tax payer be?
We’ve discussed before how the Australian government spends 25% of our gross domestic product, but only collects 23% (mainly via taxes). This ~2% equates to a deficit (a Budget Deficit), which has to come from somewhere… In our coffee example, it’d probably be from a bank.
But how do we close the nation’s 2% gap?
Our coffee wholesaler would have to look at either cost cutting or sourcing cheaper beans, and they might also consider increasing the sale price of goods.
An economy is of course far more complex. Constituents have different needs, and their views on spending priorities differ. As do their views on where the savings or revenue increases revenue should come from.
The Turnbull Government has thrown the cat amongst the pidgeons. Talk of lifting the GST to address the government’s cash flow shortfall is making us question whether our tax system is sustainable and efficient. Having reached the end of the mining boom, we no longer have the solid cashflow buffer that company taxes and royalties put into Australian coffers. Instead we have an increasing demand on government spending. Add to the mix the pressures an aging population is putting on health services, pensions, and aged care. We all want what the “lucky country” has to offer… but how will it be paid for?
Iron ore is no longer our greatest export. Instead services, hospitality and tourism have taken over. What if we could tap into the tourists visiting our shores to help contribute to our essential services, our free roads and the like… and we get a tax cut at the same time?
Most other countries have a far higher GST than our 10%, and it tends to target a greater percentage of goods and services. For instance, according to ABC’s fact check, the average GST of the OECD is 19.2%. Almost double Australia’s. Do we complain when we travel to Europe and pay 20% or more on each transaction? Or that over 90% of goods and services in New Zealand attract an extra 15%?
If we don’t want to raise the GST, then as Premier Weatherill points out, we will have to find savings from somewhere. Are we happy to have an American style healthcare system which will only widen the gap for the most vulnerable Australians?
In Australia, things like fresh food, health or education services, water rates, housing purchases, and some financial services are GST free. A higher GST would naturally affect lower income families, but this can always be managed through carve outs or greater compensation through existing benefits.
Last year, Deloitte Access Economics modelled a 12.5% and 15% GST, as well as changes to the base. They did this alongside providing greater compensation to the poorest families, and lowering other taxes. Under these scenarios, they extracted a further $20-30b a year while still leaving these families better off.
Arthur Sinodinos takes another view: “If you want to have bigger tax cuts you have to have a bigger pool.” He’s referring to the revenue taxes generate. To improve our state provided services such as education and medical care, we either need the extra revenue raised from GST or our state governments need to be more efficient with their spending.
Prime Minister Turnbull may “remain unconvinced” on the GST, but the fact remains we need urgent debate by ALL of our politicians on tax reform, and not one based around opinion polls.
Australia needs a “business” plan that will look after all Australians.
* For the record, we believe coffee beans are GST free
