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Issue #1635      April 16, 2014

Editorial

Preparing the ground for GST increase

Hardly a day goes by without the Coalition government, a big business representative or economist warning that spending on aged care, health, pensions or some other area of social spending is unsustainable. The sale of Medibank Public and other privatisations are defended with similar references. Increasingly, there are calls for an increase in the GST.

The public is being softened to accept the unacceptable as the unavoidable or inevitable. This is particularly so with the GST which is a regressive tax that hits those on the lowest incomes the hardest.

The Hawke-Keating Labor government had attempted to introduce a goods and services tax in the 1980s but, not wishing to commit political suicide, backed off under considerable pressure from the public and within its own ranks.

Liberal leader John Hewson made a GST the centrepiece of their “Fightback!” platform in the 1993 election and lost the “unlosable” election.

It took the Howard government with the support of Australian Democrats leader Meg Lees in the Senate to get the highly unpopular GST up and running. It came into force in July 2000. The never-to-be-increased GST was set in concrete with a requirement that there be unanimous support of the federal and all state governments for it to be increased.

Some goods and services were exempt from the GST, a concession gained by the Democrats from the Howard government before agreeing to the tax. It was the beginning of the end of the Democrats; the other nail in their coffin was Kevin Andrews’ support for WorkChoices in the Senate in 1995.

Unlike a progressive tax system, where those on higher incomes pay at a higher (marginal) rate in the dollar, the GST is a flat tax. Everyone pays 10 percent, regardless of whether they are on unemployment benefits of $255.25 a week or a business person on $25,000 a week. Those on lower incomes also spend a far higher proportion of their income on GST taxable goods and services.

The PAYG income tax system is more progressive, with those on higher incomes paying a higher rate in the dollar once their income reaches certain thresholds. It is an unfair tax that shifts the tax burden onto those least able to pay and lets the corporate sector completely off the hook. Not surprisingly big business is keen to slash company tax rates and increase the GST.

Big business is in the driving seat with the Abbott government. Their aim is to eventually abolish company taxation. Labor Treasurer Paul Keating began winding back the company rate in the late 1980s. Since then it has gone from 46 cents in the dollar to 30 cents and is set to be further reduced in 2015 and the years to follow.

According to Treasury figures, GST income last year was just over $50 billion. An increase in the GST to 12 or 15 percent would bring in an additional $10 billion or $25 billion.

The extra take could be used by the Commonwealth to reduce its contributions to the states and so fund corporate tax cuts or purchase a few jet fighters or missiles!

Lifting the present exemptions on fresh food, education, health, community care and residential services, childcare, water, sewerage and drainage, financial related exemptions could raise more than $20 billion in additional GST revenue – the equivalent of almost $1,000 extra per person. (Treasury’s Tax Expenditures Statement 2013)

If the federal and state governments agreed to lift the exemptions and increase the rate, then the amount collected might rise from just over $50 billion to $85 billion (12% rate) or $95 billion (15%). That’s more than the corporate sector presently pays on its profits!

These estimates fail to take into account the impact of a higher GST on people’s pockets. For the millions of Australians who are already financially stretched, it would be disastrous. It would result in increased hardship and the purchase of fewer goods and services and have a serious contractionary effect on the economy. As demand declined, more businesses would go belly up, and more workers would be sacked.

The tax system needs reform. The GST should be abolished. Company tax and the marginal rates on higher incomes should be increased. At the same time billions could be raised to meet social needs by slashing corporate welfare and closing the loopholes that allow highly profitable transnational corporations to pay peanuts or no tax at all.

Next article – Statement – Friends of Cuba

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