The Guardian August 1, 2001


A rise in the rate of GST? It's ON!

by Anna Pha

In a speech to the right-wing Sydney Institute last week, Treasurer Peter 
Costello as good as admitted that the GST would be increased. In answering 
a question about the balance of direct and indirect taxation he said, "if 
you think there is global competition in tax  and there is  and you 
think that Australia has to be competitive, what you will be doing is re-
weighting ... from direct to indirect tax. The last thing you would be 
doing, because you would be alone in the world, would be going in the other 
direction."

He said, "obviously, if a country wants a competitive taxation regime and a 
decent level of social services, then it needs a taxation base to sustain 
it. To stay competitive the weight must be kept off direct tax  income 
tax and company tax  and the indirect tax base must carry the burden of 
funding social services. A narrow-base indirect tax cannot do it."

The Coalition Government has already taken a number of steps to increase 
reliance on indirect taxation. It has introduced the GST and, at the same 
time, cut corporate tax rates, halved capital gains tax and substantially 
reduced the marginal tax rates on higher personal incomes and companies.

These "reforms" result in a transfer of the tax burden to the ordinary 
working people and a reduction of taxes paid by high income earners and the 
big corporations.

The GST is a particularly regressive flat tax. People pay the same rate in 
the dollar, regardless of ability to pay. Those on lower incomes pay this 
tax on a higher proportion of their income, most of which (if not all) is 
spent on goods and services. 

The taxing of incomes on a sliding scale related to a person's income is a 
far more progressive tax system. In addition, the capital gains tax and a 
higher rate of tax on company profits are essential if the objective of the 
wealthy paying a greater rate of tax than those on low incomes is to be 
achieved.

By the introduction of the GST and other measures, the Howard Government 
has turned the previous progressive tax system on its head. It is now a 
totally regressive and unfair system. 

This policy approach comes from the OECD and is being carried out by most 
industrialised countries. It is being done at the behest of the 
transnational corporations who benefit from it. 

The statement by Costello is a de facto admission that the Government does 
not intend leaving the GST at 10 per cent. It will continue to wind down 
direct taxes (PAYG and corporate) and we will be sold the need to increase 
and extend the GST to sustain a "decent level of social services". 

Costello claims that the Howard Government is a low taxing government. This 
is a lie! He fails to mention how the GST is substantially increasing the 
taxes paid by low income earners.

However, the Government, during the election campaign, is likely to offer 
the promise of more tax cuts as a vote-catcher while hiding its intention 
to subsequently increase the GST rate.

It was always certain that the GST would be increased. This has happened in 
every other country where a GST was introduced. Furthermore, the 
legislation guaranteeing that it cannot be raised without the support of 
all States can easily be changed or agreement reached with the States who 
stand to benefit from a higher GST? All State Governments agreed to the GST 
despite it being against ALP policy!

The media has already started a softening up campaign. The Business Review 
Weekly featured an article (29/6/01) which wrote of the GST being 
"rolled forward". By that the author, Michael Laurence, meant broadening 
the base, removing the exemptions and lifting the rate to 12.5 per cent.

Labor leader Kim Beazley remains silent on the question. Does it mean 
Labor's promised roll-back on certain items would be used as an excuse to 
also support an increase in the general rate of the GST? 

The only uncertainty is the amount of the increase  to 12.5 per cent or 
15 per cent. A rate of 15 per cent was proposed by the Liberals in their 
"Fightback" policy document during the 1993 election campaign.

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