GST key to tax reform, says Nick Greiner
by: DAVID UREN, ECONOMICS EDITOR
From: The Australian
November 03, 2012
THE former premier hand-picked to review the carve-up of the GST has warned the tax is failing to deliver the revenue expected of it and has called for a national debate about its rate and scope.
The GST review, led by Nick Greiner, was delivered to Wayne Swan yesterday and says the tax is becoming an unstable source of revenue for the states.
The review, which was called by the Treasurer in March following complaints by Western Australia about the fairness of the system for dividing the GST pool, was not designed to look at the rate of the tax or what it covered.
The former NSW Liberal leader said yesterday they were "a much more important issue" and the distribution of the GST was a "second-order issue".
"It's not in our terms of reference but the report does deal with the size and stability of the (GST) pool as well as its distribution, although I don't know that the Prime Minister or the Treasurer, who asked us to go do it, really wanted us to go there," Mr Greiner told the Securing Australia's Future conference sponsored by The Australian and Melbourne University.
Mr Greiner said that although the distribution of the GST was important to state treasurers, it did not go to the heart of the fiscal challenge they faced. "The overwhelming problem is that the size of the GST isn't growing the way it was intended to and not growing anything like the growth in health expenditure," he said.
The deal concluded by the Howard government before the 2001 introduction of GST included the exemption of food, health and education.
Mr Greiner's comments are likely to intensify the fight over the $50 billion in annual GST collections as sluggish consumer spending leads to a slowdown in revenue growth, forcing state treasurers to slash their revenue forecasts.
The big Coalition states are demanding a new approach to the way GST is allocated, including a bigger share for the major resource states, but are divided on whether to consider increasing the overall take.
NSW Premier Barry O'Farrell and Treasurer Mike Baird both declared in September that the base and rate of the tax could be up for debate, but Mr Baird told The Weekend Australian last night that his "first consideration" was the way many online purchases were exempt.
Queensland Treasurer Tim Nicholls said his government did not support a GST increase but instead wanted Canberra to close loopholes in the tax to prevent revenue being lost.
Business Council of Australia president Tony Shepherd and chief executive Jennifer Westacott have made the case for a shift in the nation's tax mix to collect more from consumption taxes, to ease other imposts on businesses and households.
Former Treasury secretary Ken Henry warned in July that states were at risk from slowing GST growth and that the nation needed to adjust to higher consumption taxes, while former Board of Taxation chairman Dick Warburton has urged a debate on increasing the tax.
Finance Minister Penny Wong said yesterday the government's opposition to increasing the GST was well known. "The Treasurer has made very clear he's ruled out changes to the base or the rate," she told the conference.
Senator Wong conceded the budget did face long-term structural problems, with the tax base getting narrower as the ageing reduced the share of the population in the workforce.
"Without change and on current settings these factors will lead to a sustained period of fiscal imbalance," she said.
"This will require more than just policy. It will also require the polity to face up to these facts."
Grattan Institute director John Daley said the GST tax base appeared to be permanently damaged. He said budget forecasts anticipated that company and individual taxes would rise above the level of 2008-09, when the global financial crisis struck. He expected GST receipts would still be below that level by 2015-16.
"It's not that people are buying stuff off the internet," he said. "It is that they are increasingly buying things that are not subject to GST, particularly health and education.
"Also, people are saving a lot more and GST is an expenditure tax. Australian consumers are now saving about 10 per cent of their disposable income and that doesn't fall to the GST net."
Deloitte Access Economics director Chris Richardson said one of the reasons why GST receipts were falling was because economic growth was now being driven by business investment, whereas in the lead-up to the global financial crisis it was led by consumer spending. Investment spending was tax deductible.
Opposition finance spokesman Andrew Robb said that if successful at the next election, the Coalition's first priority would be removing the carbon and mining taxes. However, it would prepare a white paper on tax reform in its first term of office to take to the 2016 election. He said reform should be comprehensive, not a piece-meal change to a single tax such as GST.
Tony Abbott recently said the Coalition had no plans to change the GST - "none whatsoever". Mr Greiner said there needed to be a debate involving all levels of government about the scope of government and the preparedness of the community to pay for the services it delivered.
He said state governments had no choice but to cut public servants if they wanted to make savings, because that is where 80 per cent of their spending was.
Mr Greiner said at it was naive to imagine that the funds raised by an increase in the GST could simply be directed to lowering other taxes. He said when the GST was eventually increased, funds would be directed to expenditure and to delivering compensation.
Reserve Bank board member and Keating government adviser John Edwards said he did not believe that raising the GST rate and extending it to food, education and health, and using it to lower the company and personal income tax rates, was politically feasible. "In fact, there is very little revenue to be gained in the net sense from health and education, which are very largely funded by government," Dr Edwards said.
"What you are really suggesting ... is we are going to increase the price of fresh food by 10 per cent and we are going to give the proceeds to a reduction in corporate tax and to marginal personal rates. Politically, that has nothing going for it. It has no chance of being adopted by any political party."
This is why the Chinese/Indians/etc are so evil by selfishly prioritising silly things like living standards for the poverty stricken over the environment.
