Australia’s peak welfare body has warned that the tax debate should not be reduced to crude arguments about increasing the rate of the Goods and Services Tax.
Speaking after the release of the Federal Government’s tax discussion paper on Monday, the CEO of the Australian Council of Social Service, Cassandra Goldie, said that undue public focus on boosting tax collected through the GST risked compounding the financial disadvantage of low-income people.
“Tax reform must not be reduced to a narrow argument over increasing taxes on consumption such as the GST,” Ms Goldie said. “This would concentrate the risks of reform on those least able to bear them: people on low incomes.”
The government’s discussion paper identifies Australia’s 30 per cent corporate income tax rate as a disincentive for foreign investors and a possible threat to future economic growth of the country. It also notes that the government’s reliance on corporate and personal income taxes would account for 77 per cent of all tax revenue collected in 2025 unless the tax mix was reworked.
At the moment the government collects 72 per cent of its tax revenue through income earners.
Hockey begins GST push
Treasurer Joe Hockey plans to raise proposals for boosting the GST from the current rate of 10 per cent when he meets with state treasurers in April.
The government’s proposals might also include options to widen the GST to include food and some other essential commodities that are currently exempt from the consumption tax regime.
While Mr Hockey signalled his preference for boosting the GST, he said that such reform would only occur with the support of state governments.
“Now there are no state elections, maybe, just maybe, we can have a fair dinkum discussion about the best interests of the nation without having parochial interests at play,” he said.
Also standing in his way will be the Labor Party and the Greens, which both reconfirmed their opposition to extending the GST this week.
“Tony Abbott said 33 times before the election that he wouldn’t increase the GST,” said Shadow Treasurer, Chris Bowen. “Well today we see a Coalition tax paper again arguing the case for increasing the GST.”
The Greens would also vote to block any plan to hike the GST. Greens leader Christine Milne said the government’s overhaul of the tax system should be focussed on tightening loopholes that allowed avoidance to occur.
“Instead of cutting from the people who most need our support, we need to crack down on tax avoidance and raise revenue from those who can afford to pay,” she said.
“That means ending taxpayer support of polluting fossil fuels; it means actually collecting the tax owed by corporate Australia and multi-nationals, and it means closing tax loopholes for the richest among us.”
Super tax breaks under review
The tax paper highlighted some of the inequitable effects of lucrative superannuation tax breaks that allow high-income earners to slash their annual tax bills.
“While there are policy grounds for superannuation being taxed at a lower rate than labour income, there are issues around the distribution of the impacts and their effectiveness in supporting higher retirement incomes, as well as their complexity,” the tax paper observed.
Mr Hockey said the government was reviewing whether the existing super tax concessions needed to be overhauled, but he stressed that any reforms would be “prospective” so that people planning for retirement now were able to do so with certainty.
Both major parties appear more willing to rein in some of the tax advantages of high income earners, with Mr Bowen indicating that some concessions needed to go.
“I don’t think the current system is fit for purpose,” he said.
Bank deposits will be taxed
Labor and the Greens have signalled they will not stand in the way of the government reintroducing a tax on bank deposits. While the Greens’ want the tax only levied on accounts held with the four major banks, the ALP appears set to wave the government’s reforms through the parliament.
However, the introduction of a new deposit levy casts doubt on the worth of previous tax reform packages. The last big overhaul of the tax system occurred under Treasurer Peter Costello in 2001, which included the introduction of the GST.
A key part of the GST package was the Howard government’s promise of tax relief through the abolition of a swathe of indirect taxes, including a levy on bank deposits.
Mr Hockey, who was an assistant minister in the Treasury portfolio at the time, appears to have forgotten why those taxes were abolished.
Although ACOSS says it is prepared to consider all proposals raised in the discussion paper, Ms Goldie said the prospect of a deposits tax eroded an important part of the tax relief association with the GST’s introduction.
“A tax on bank deposits is a consumption tax since it will be passed on to consumers, just as the former State Government bank deposit taxes were,” she said.