Goods and nervousness: Turnbull’s GST gamble
There is an ominous number playing on the minds of Liberal marginal seat holders: 19. That’s how many seats Labor won back in the 1998 GST election. At one stage on election night, John Howard was convinced he had lost. He ended up losing the two-party-preferred vote but holding on to enough seats to fall across the line. The current federal government has a 17-seat majority. It’s not a comforting thought and it’s disturbing to MPs such as Dr Peter Hendy.
He holds the bellwether seat of Eden-Monaro. A redistribution has made it marginally safer for him, with a notional 2.9 per cent buffer. Still too thin to calm nerves about the prospect of Malcolm Turnbull taking to the next election a tax package that has at its centre a rise in the GST and even a broadening of its base.
Last year Hendy, an economist, former staffer to treasurer Peter Costello and at one time head of the Australian Chamber of Commerce and Industry, told parliament that speculating about increasing the revenue take was “playing with fire”. He said the core of the reform that came with the GST was the ditching of the old wholesale sales tax. It was a cascading cumulative tax that added massively to business costs. Replacing it saved business, especially exporters, billions. “However, it is a reform that is completed,” Hendy said. “It was long overdue but now it’s done.”
Tellingly, he said raising the rate now would simply be a tax grab. He, like his former boss, has a jaundiced view of the states. He claimed, somewhat unfairly, the states didn’t deliver on their side of the bargain in scrapping taxes. They did, but not as many as Costello would have liked. Hendy warned his federal colleagues that the states could not be trusted to do anything more this time than to take the money and spend it, again without ditching payroll tax or other inefficient imposts.
Hendy is now assistant minister to the PM for productivity, and even in that role he couldn’t see any gains in boosting the GST take. “The efficiencies and productivity benefits have already been booked many years ago.” I’m told his views haven’t changed but as a new frontbencher he’s not about to rain on his prime minister’s “all options on the table” parade.
Hendy’s assessment about the cost of electioneering on big tax reform is shared by veteran Liberals who remember 1998 with a shiver up their spines. Hendy explained there was not any sustained attempt at further tax reform by the Howard government in its latter years: “Not surprisingly, due to the near-death experience of that government when it courageously took massive tax reform to the electorate.”
None of this appears to be spooking Malcolm Turnbull. Though “courage” is a loaded word in politics, he has never lacked it in his public life. Cabinet secretary Arthur Sinodinos puts it this way: “If you’re someone like Malcolm, I think you want to do something substantial. You’ve got to do it quickly and upfront and you’ve got to do it when you’re in a capacity to maximise the use of your political capital to sell a story to the Australian people.” The jury is out on how successful he will be but the softening up of the electorate is in full swing.
The week began with little-known Nationals MP David Gillespie releasing the analysis of the Parliamentary Budget Office after it modelled what a New Zealand 15 per cent GST on almost everything would mean for Australia. The answer: the government would hit the jackpot. An extra $65.6 billion revenue in the 2017-18 financial year, transforming the total GST into a mammoth $130 billion cash cow. It would certainly dwarf Julia Gillard’s “great big tax on everything” carbon price.
Gillespie insists he’s not advocating just a tax grab. “We’ve got to put our income taxes down, our small taxes down, our small business taxes down, we have to fund roads and infrastructure in the regions more,” he told the ABC. “And in my part of the world I have an awful lot of pensioners and people on low fixed incomes and there will be a CPI increase with this so we need to compensate them and increase the base rate of their pension.”
Labor was quick to point out the GST is beginning to sound like a magic pudding or a perennial money tree. “When you get an extra dollar from the GST you spend it once – these proposals spend it two or three times,” shadow treasurer Chris Bowen says. “You can’t do everything.”
But the Nationals MP spruiking the proposal says he has canvassed views widely in his electorate and found support for the New Zealand model. This is curious, given Gillespie’s electorate. While he is a former medical specialist and extensive property owner, his seat of Lyne is one of the poorest in the nation. The Australian Electoral Commission rates its socioeconomic status as low. It’s in the middle of the 30-seat band rated this way. Enormous compensation would need to be paid out to neutralise the harm done to low- and no-income earners by a tax that would massively hit their cost of living.
The Grattan Institute think tank estimates 30 per cent of the extra revenue earned would need to be paid back as compensation. The reality is, of course, that this compensation would quickly fall behind the higher GST, which is a tax floating on top of prices.
While pensioners and those on social welfare benefits may be able to retain something of this relief as their payments are tied one way or another to prices, it’s a different story for low-income earners. It is estimated 2.5 million Australians earn just on the tax-free threshold of $18,200 or below it. Compensating them would require some very agile thinking. In his parliamentary ruminations, Hendy wondered whether the money churn was worth it.
Turnbull is alive to the risks: “We’ve got to make it absolutely clear that any changes to the tax system or the payments transfers system are ones that are fair, that are seen to be fair across the board.”
He may be able to persuade enough voters on that but he won’t be persuading Labor or the Greens. Both centre-left parties see any move away from progressive taxation as inherently unfair. Put simply, those who earn more can afford to pay more tax. This is the basis of an egalitarian society and prosperity. By giving lower-income earners more purchasing power, you are boosting demand in the economy and profits.
Labor’s Anthony Albanese says you don’t advance social justice by promising higher-income earners a tax cut while hitting low-income earners with an increase in taxation. By definition, indirect taxes apply to everyone indiscriminately, but the burden is vastly disproportionate. Where is the fairness in not expecting a millionaire to pay any more in taxes than someone below the poverty line?
Labor is vowing to fight the GST all the way up to election day but not beyond it. Paul Keating’s 1993 ploy that helped defeat John Hewson’s 15 per cent GST will be used again. Labor in the senate will not block the GST rise if Turnbull wins the election. One senior figure tells me it won’t matter who leads the party after the election should it lose, the entire frontbench is of one mind on the strategy.
Of course, Turnbull could come to the conclusion that raising the tax is not worth the trouble it’s causing. He’s experiencing push-back, with six MPs and senators warning they will not support any rise without tax cuts elsewhere. One Queensland senator, Ian Macdonald, is threatening to cross the floor if the rate goes beyond the current 10 per cent. This overlooks that the whole debate was generated when then treasurer Joe Hockey signalled to the states that the Commonwealth would be cutting $80 billion from health and education outlays to them within a decade.
Something has to give and one of the saner observations came from the Abbott-appointed head of last year’s National Commission of Audit, Tony Shepherd. The business leader said a higher GST is the only way to give the states the money they need for essential services and to allow Canberra to begin repairing the structural budget deficit. Australians demand more from their governments and should realise they also have to pay for it. Shepherd argues only the bottom 25 per cent of low- or no-income earners should be compensated.
Of course, raising the GST is not the only way. Hockey used a budget repair income tax levy on wealthier taxpayers. Victoria’s Daniel Andrews suggested raising the Medicare levy. That’s just another income tax rise. It has the benefit of being fairer and not pushing up the cost of living.
Australians won’t know what Turnbull is really like until they see his government’s first budget or the agenda he takes to the next election. Whatever comes first.
This article was first published in the print edition of The Saturday Paper on Nov 7, 2015 as "Goods and nervousness". Subscribe here.