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Coalition must come clean on plans for GST

There is almost unanimous agreement among mainstream economists, tax experts, Treasury, business and even politicians (albeit very quietly) that the Goods and Services Tax will have to be increased and…

The Coalition has ruled out increasing GST, despite calls from former Prime Minister John Howard for GST to apply to food. But could a policy change be in the wings? AAP

There is almost unanimous agreement among mainstream economists, tax experts, Treasury, business and even politicians (albeit very quietly) that the Goods and Services Tax will have to be increased and broadened.

We can leave aside the flat earth Hayekians and their prescriptions to abolish most taxes and almost all Government spending. At the moment, the GST is at the rate of 10% and applies to about 60% of all transactions. Fresh food, health, education and childcare are among the exemptions, costing about $15 billion in “lost” revenue.

The current consumption wariness among Australia’s workers means that the GST collections have slowed over the last few years.

For example, the Australian Taxation Office’s statistics say: “For the 2010–11 financial year, net GST liabilities totalled $46 billion, an increase of 2.4% from 2009–10.”

It was only a few years ago that collections were growing at 8%. That $46 billion is distributed to the states and territories. The integration of the Australian economy into the global economy, its dependence on capital imports to grow, its aging population, the expectation of workers for decent public health, public education and public transport systems all mean that the ruling class and their economists are looking for ways to increase tax on workers in the coming years, or to cut government spending enough to fund tax cuts for business and the rich. Or do both.

The Henry Tax Review took the approach that if it moved finance capital (for example), tax it lightly; if it didn’t move workers’ consumption (land, resources and labour), tax it more highly. Big business and other members of the one percent have been very loud in their support of an increase in the GST rate and a broadening of the base to tax fresh food, health, education and child care.

At a recent forum I attended at the ANU, John Hewson mentioned a possible 20% rate. John Howard is the latest to join the screeching banshees.

In his now-famous “Bring back WorkChoices” speech to the Westpac Deeper Insights Forum, the former Prime Minister also argued that the decision to exempt fresh food from the GST, imposed on him by the Democrats in 1999, meant there was now “a painful effect on state revenue”.

This is not some genteel walk down memory lane. It is Howard arguing for an incoming Coalition government to impose the GST on fresh food.

If the base is broadened and/or the rate increased the State and federal governments could then use the extra GST revenue and the gains from a broad-based land tax to abolish inefficient state taxes like stamp duties and the exemption ridden payroll taxes (which are consumption taxes under another name) and, here’s the main game: deliver tax cuts to companies and the rich.

The GST was deeply unpopular. Although John Howard won the majority of seats in the 1998 election, he lost the popular vote. The Liberals and Nationals formed government with 48.1% of the vote on a 2 party preferred basis; the Labor Party won 51.9% but not government.

Any attempt to increase the rate or expand the base of the GST would produce an electoral backlash.Tony Abbott recently ruled out any increase in the GST.

He has previously ruled out expanding its base to include fresh food, education, health and childcare.

But the plot thickens, because a few weeks ago Shadow Treasurer Joe Hockey said: “If you are going to have a discussion about changing the GST, the states have to lead the argument because they are the ones that need the revenue. They have to take the community with them and they are not doing that.”

Hockey is not ruling out increasing the rate or expanding the base. This is because business wants both and the Abbott government will, like Labor, be a government of business. The difference is that at this juncture they will be even more brutal in their attacks on workers.

The attacks on jobs and government spending on the poor and less well off and workers in Queensland, Victoria and New South Wales will be magnified and deepened across the country by Abbott in power.

Abbott is not a fool. He knows a Labor scare campaign about the GST might cost him some votes. So his strategy is to promise not to touch it before winning government.

Perhaps Abbott should come clean and say “there will be never ever by any GST changes under any Government I lead”. You know, just to provide that level of Howardian certainty we all crave. But because the bosses and their capital accumulation process demand tax cuts for business, the Liberals need to let their rich mates know the issue is still on their agenda.

That is why Joe Hockey put the pressure on the four conservative-run states to lead the push. Abbott might be tempted to do a John Howard and, once elected and in the run-up to the next election, announce his intention to increase the GST rate and/or expand its base if his government is re-elected at the 2016 election.

By then, if the states have joined all the economists, tax experts, senior public servants and the like in publicly pushing for major changes to the GST, there will be real momentum for increasing the consumption tax burden on workers by upping the rate and expanding the base.

This would especially be the case if some of the business tax cuts could be diverted to income tax cuts for workers; tax cuts that are eroded over time through bracket creep.

Of course, as China slows and Europe and North America prove incapable of escaping the Great Recession, the Australian economy could take a dive before that far-off 2016 election.

The response of the parties of austerity from left and right in Europe to economic crisis has been, apart from sacking people and slashing government services, to increase their consumption taxes. Given the electoral unpopularity of the GST in the 1990s, the Coalition will be careful about the way it deals with the tax.

But make no mistake: its goal is to increase the GST and expand it, probably in the longer term but possibly short term, especially if the economy tanks when they are in power.

It is time for Mr Abbott to tell us his long-term plans for the GST and tax reform.

Join the conversation

47 Comments sorted by

  1. R. Ambrose Raven

    none

    Ha, ha, ha, laughed John Howard, hee hee hee. He deliberately locked the States into the GST in lieu of existing Revenue Replacement Grants as their main revenue base, to greatly limit States' financial independence. It was sold to them as compensation for - among other things - the removal of a range of inefficient state taxes, the loss of revenue replacement payments (originally levied in place of franchise fees) and the loss of financial assistance grants. In return the States guaranteed the…

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    1. David Arthur

      resistance gnome

      In reply to R. Ambrose Raven

      For a start, how about State governments hand the keys (and deeds) to all their schools and hospitals over to the Commonwealth?

      Federal politicians hold the purse-strings - it's about time their re-election became dependent on adeauacy of public health and education in their electorates.

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    2. Bernie Masters

      environmental consultant at FIA Technology Pty Ltd, B K Masters and Associates

      In reply to David Arthur

      Conversely, how about the federal government remove itself from state responsibilities and allow competition between the states to improve education standards (although I agree this may well result in a race to the bottom!). More seriously, the federal government shouldn't have any education responsibilities other than seeing higher standards being set if the states want to use federal money. The same should apply to health, many aspects of the environment, tourism, transport, the arts and agriculture. Imagine how small the federal public service could be, allowing the states to employ more people at the coal face rather than (in my case here in WA) 3500 km away at desks in air conditioned offices.

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    3. David Arthur

      resistance gnome

      In reply to Bernie Masters

      Good question Bernie. As it happens, a letter to the editor of the Sydney Morning Herald dated 15 February 2008 made the case quite eloquently.

      Extra level of government means we're tripping over ourselves

      "I agree with Ross Gittins ("It's messy, but at least it works", February 13) in general, but disagree in detail. Our federation is messy, but that is not a signal that it's working, or anywhere approaching the best model of governance for this country.
      "The problem is we have a tier of…

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  2. John Phillip
    John Phillip is a Friend of The Conversation.

    Grumpy Old Man

    John, as evidenced by our current "There will be no carbon tax under a government I lead" prime minister, it doesn't seem to matter what they say in order to get into power.

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    1. Michael Shand
      Michael Shand is a Friend of The Conversation.

      Software Tester

      In reply to John Phillip

      A little slow on the uptake are we, do you recall a mr howard pledging that he will "Never, ever, re-introduce GST" in 1996?

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    2. John Phillip
      John Phillip is a Friend of The Conversation.

      Grumpy Old Man

      In reply to Michael Shand

      No not at all, Michael. Howard at least went to an election based on introducing a GST. I'm sure if Gillard had done the same with the carbon tax, her ratings would be much higher.

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    3. John Phillip
      John Phillip is a Friend of The Conversation.

      Grumpy Old Man

      In reply to Peter Ormonde

      Yeah, I agree. That wasn't my point. I was just identifying the differences between the election bs before the Howard gov and Gillard gov were elected.

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    4. Byron Smith
      Byron Smith is a Friend of The Conversation.

      PhD candidate in Christian Ethics at University of Edinburgh

      In reply to John Phillip

      That the election was (amongst other things) about a price on carbon was clear from the Greens policies. That they were voted into balance of power means that the outcome is hardly surprising. Australians really haven't grappled with the notion of minority governments and their relation to campaign promises.

      Campaign promises are always contingent upon forming government. We don't hold opposition parties responsible for their failure to implement their policy promises, and if we elect a minority government, then it is foolish to expect it to hold to every campaign promise. Compromise is necessary in order to form agreements with other parties. It is entirely unremarkable and predictable that the Greens were going to put a more aggressive climate policy as the price of their support to either side since that is at the heart of their agenda.

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    5. John Phillip
      John Phillip is a Friend of The Conversation.

      Grumpy Old Man

      In reply to Byron Smith

      No Byron. You are wrong on that point. When the leader of the ALP made her statement, it indicated to the public that to vote for her would ensure that there would be no carbon tax. In the context of this 'conversation' piece, I think it is important that such deceptions are becoming an almost expected part of our election process. The author is clearly taking an anti conservative stance when really, the deceptions seem endemic to all sides of politics.

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    6. John Passant

      Graduate Teaching Fellow

      In reply to John Phillip

      I attack both sides of conservative politics. The same demographic etc pressures will be on Labor to fashion a tax regime to increase revenue from the working class, and diminish it on mobile capital, or alternatively they'll cut spending on social goods like public health and education. Because I attack one branch of neoliberalism doesn't mean I welcome the other branch, as any reading of my previous articles here and elsewhere would make clear.

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    7. David Boxall

      logged in via Facebook

      In reply to John Phillip

      John Phillip: "When the leader of the ALP made her statement, it indicated to the public that to vote for her would ensure that there would be no carbon tax." John, your belief that you know how the public interpreted Gillard's words is ill-founded. I took it the same as any other political promise; that is, with a grain of salt.

      For a start, there's no consensus that what we have is a tax. In fact, expert opinion seems to be that it isn't.

      If Gillard broke a promise (which, apparently, she didn't), then is it a lie? A lie is something said which is known to be untrue at the time it is said. What evidence do you have that Gillard knew at the time she made her promise that she would not be able to keep it?

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    8. John Phillip
      John Phillip is a Friend of The Conversation.

      Grumpy Old Man

      In reply to David Boxall

      C'mon David, do you really believe that it doesnt fall under the category of a lie or a broken election promise ? If the carbon tax (- for that is what it is referred to, not necessarily what it is -) is such a non event, how can it a) achieve anything, and b) become the millstone that Gillard has had to spend months trying to recover from?

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    9. John Phillip
      John Phillip is a Friend of The Conversation.

      Grumpy Old Man

      In reply to John Passant

      Why attack only the 'conservative side'? Surely there's plenty of fault to find in the 'progressive' side as well?

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    10. Byron Smith
      Byron Smith is a Friend of The Conversation.

      PhD candidate in Christian Ethics at University of Edinburgh

      In reply to John Phillip

      Perhaps I was not clear. When it became apparent that no party had secured a majority of seats in the House of Representatives, then unless another election was to be called, then negotiations were always going to be necessary in which one or more parties would break campaign promises. That is the nature of minority/coalition governments. Europe is very used to such scenarios. Australia is not. It is fairly pointless to hold a minority government to every statement it made during a campaign when they obviously needed to negotiate with parties holding other positions (and it's not like the Greens position or priority on climate was a secret).

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    11. David Boxall

      logged in via Facebook

      In reply to John Phillip

      John Phillip: "... do you really believe that it doesnt fall under the category of a lie ...". I consider misrepresenting what's, at worst a promise broken when circumstances prevented it being kept, as a lie to be perverse, misleading and mendacious.

      John Phillip: "... or a broken election promise ?" They're a long way from being the same thing. I don't claim to understand the purported difference between a genuine tax and what's popularly called the Carbon Tax.

      John Phillip: "... is such a non event ...". Did anyone say that?

      A Carbon Tax was not Labor's policy at the time Gillard made her promise. There's therefore good reason to believe that she had every intention of keeping that promise. Retaining government required her to compromise with the Greens; what we have is the consequence.

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    12. John Phillip
      John Phillip is a Friend of The Conversation.

      Grumpy Old Man

      In reply to David Boxall

      All right, David it's a broken promise. Sorry that you think I was being " perverse, misleading and mendacious". However, if one accepts your interpretation of Gillard's reasoning then how can we expect any different from any of the alternate governments that we might encounter? Does this make ay future backflips simply a part of the compromise process?
      Why, for heavens' sake, did you insist on saying the carbon tax wasnt a tax when you go on to say that you " don't claim to understand the purported difference between a genuine tax and what's popularly called the Carbon Tax"
      Cheers.

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    13. David Boxall

      logged in via Facebook

      In reply to John Phillip

      John Phillip: "All right, David it's a broken promise." Perhaps. If, as some say, the "Carbon Tax" is not a tax at all, then it isn't even that.

      John Phillip: "... how can we expect any different from any of the alternate governments that we might encounter?" What makes you think we can? Remember John Howard's "core" and "non-core" promises? On that evidence, we don't even need a minority government for promises to be broken.

      John Phillip: "Why, for heavens' sake, did you insist on saying the carbon tax wasnt a tax ...". What I said was "... expert opinion seems to be that it isn't." I don't claim to understand the basis of that opinion.

      Tony Abbott is a diabolically effective liar, aided and abetted by high profile liars like Alan Jones and Andrew Bolt. They've succeeded in establishing the lie about Gillard in public perception, to the extent that even Gillard doesn't bother trying to set the record straight. I don't blame you for being confused.

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    14. John Phillip
      John Phillip is a Friend of The Conversation.

      Grumpy Old Man

      In reply to David Boxall

      So basically, what you are saying is the the Right side of politics is populated by evil liars and, as we move across to the Left, passing through the middle (ALP) and in to the Left (Greens) the motives and actions of the respective proponents become increasingly pure.

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    15. John Passant

      Graduate Teaching Fellow

      In reply to Peter Ormonde

      Gillard said about 6 or 12 months ago that it was a tax. I suspect this was to avoid going into complex legal arguments about why it wasn't a tax which might only reinforce the idea to most that she was trying to avoid responsibility for her seemingly clear statement that there would be no carbon tax, although she did, in an interview with the Australian from memory, add there would be a price on carbon. For political purposes that admission by Gillard seems to settle the discussion

      There is…

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    16. John Passant

      Graduate Teaching Fellow

      In reply to John Phillip

      I do attack the Labor Party constantly for its tax gutlessness. Read my other articles on this site, or on my blog or on SSRN. I single out the Liberals in this case because the pressure is on to find a secure taxing base - that is basically what the Henry tax Review was about - and their side are stirring, eg Hewson, Howard and then Hockey's ambiguous comments and because they will be the next government.

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    17. John Phillip
      John Phillip is a Friend of The Conversation.

      Grumpy Old Man

      In reply to John Passant

      Fair enough John. I did say 'progressive' and was actually referring to the Greens, :) What do you mean by 'stirring'? Are you talking about past and present Liberal 'luminaries' putting in their two-bobs worth and thereby failing to present a united front??

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    18. David Boxall

      logged in via Facebook

      In reply to John Passant

      John Passant: "... the carbon pricing scheme is a tax." But is there consensus on that?

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  3. Gavin R. Putland

    logged in via Twitter

    In terms of both efficiency and equity, taxes on the earnings of labour -- which dominate the present system -- are manifestly worse than consumption taxes: http://t.co/NOZe6e2W .

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  4. Michael Brown

    Professional, academic, company director

    Just quietly John, I think you'll find that there almost unanimous agreement among mainstream economists, tax experts, Treasury, business and even politicians (albeit very loudly) that the mad irresponsible spending by the current government needs to be reined in. Which areas do you think should be targetted for spending reductions? Once that area is debated and fixed, we can talk about taxes.

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    1. John Passant

      Graduate Teaching Fellow

      In reply to Michael Brown

      OK, if government cuts the disguised spending program going to business and the rich through the tax system (called tax expenditures) maybe then we can talk. And which mad irresponsible spending are you talking about? On teachers, nurses, doctors, infrastructure, the Army, Nauru, etc etc ...

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  5. Bernie Masters

    environmental consultant at FIA Technology Pty Ltd, B K Masters and Associates

    Well, John Passant, at least you're not leaving us wondering what side of politics you're on. "flat earth Hayekians"; "John Howard is the latest to join the screeching banshees."; "they will be even more brutal in their attacks on workers."; etc. As Michael Brown states, where is the vitriol against the Gillard government and its unfetted spending.

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    1. Gary Cassidy

      In reply to Bernie Masters

      Seems like a scaremongering article. Suggestions of 20% GST, GST on Health, Fresh food etc., even a reference to bring back WorkChoices.

      If the following statement holds true: "unanimous agreement among mainstream economists, tax experts, Treasury, business and even politicians (albeit very quietly) that the Goods and Services Tax will have to be increased and broadened", does it not apply equally to Labour?

      Where is the balance? Discussed!

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    2. John Passant

      Graduate Teaching Fellow

      In reply to Gary Cassidy

      I suggest you read some of my other tax articles on here for their criticisms of Labor's tax policies. I am even handed in my rejection of both parties of neoliberalism. My more general point is that changes in the economy demand a fixed tax base and bourgeois thinking on the subject has highlighted consumption taxes as one very good way of raising revenue. In reply to others, as to cutting government spending, perhaps we could start with cutting out all the largesse that goes to business through our tax system, known in the lingo as tax expenditures. These expenditures are worth about $113 bn a year, much of it to workers (eg non-taxation of capital gains on homes) but much of it to the well off and business (superannuation concessions, CGT business concessions etc.) When Governments attack this disguised spending first then I'll hear what they have to say about spending on public schools and hospitals. As to deficits, not all bourgeois economists think deficits are a bad thing.

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    3. Peter Ormonde

      Farmer

      In reply to John Passant

      Mr P....

      Are there any non-bourgeois economists left?

      Maybe a few of you have found cracks in the crumbling walls of academe in which to insert yourselves but out here it's all about managing the status quo ... like oilers on a ginormous machine.

      Incidentally, from a purely theoretical perspective I don't have much trouble with neo-liberalism actually - at least to the extent that it is genuinely concerned with stripping away the powers of the state to prop up the owners and interests of capital. An Adam Smith sort of liberalism.

      But of course that's not what it is about at all is it? It's about putting the boot into the poor and the people and snaffling the proceeds while handing the whip over to the bosses. Not really neo-liberalism at all is it?

      If these fellas were real neo-liberals we'd be looking a lot more like Somalia by now.... talk about small guvvermint and low taxes!!!! Those Somalis are streets ahead of us on the road from serfdom.

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    4. John Passant

      Graduate Teaching Fellow

      In reply to Bernie Masters

      If you read my other artcles Bernie you might see my vitriol is for both conservatives sides of politics, Labor and the Coalition.

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    5. David Arthur

      resistance gnome

      In reply to Bernie Masters

      "flat earth Hayekians" are less terrifying than "scorched earth Ayn Randians".

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    6. John Passant

      Graduate Teaching Fellow

      In reply to Peter Ormonde

      You mean the Adam Smith (and David Ricardo) of the labour theory of value fame?

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    7. John Passant

      Graduate Teaching Fellow

      In reply to David Arthur

      Maybe. It was a dig at the Catallaxy Files talk fest for their attacks on me. Too obtuse I suspect.

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    8. Peter Ormonde

      Farmer

      In reply to John Passant

      Actually I think Smith isn't all that famous out here for the labour theory of value - an ugly theoretical reef onto which many an economist has been lured - but more for his excoriating castigations of the morals and high purposes claimed by the self-interest of capitalists and their states. At least that's why he's famous for me. Wonderful tongue-lashings he dished out.

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  6. Peter Ormonde

    Farmer

    Ah yes John - give us that John Howard certainty ... the soft woolly blanket of truth in politics. Excellent.

    Not much of a futurologist myself re global collapses and the like - given history it's likely but then the GFC should have done that. We're a clever lot when it comes to dodging bullets and reality.

    But I do think there is actually a case for tinkering with the GST - not so much as a revenue raising strategy (especially for the bloody States) but rather to make it a more flexible…

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    1. David Boxall

      logged in via Facebook

      In reply to Peter Ormonde

      Agreed; no need to tamper with the GST, just supplement it. First, avoid the word "TAX". Call it Goods and Services Enhancements (GSE).

      In a former life, I had a lot to do with the old Sales Tax. That system was horrendously complex; partly because it had been lobbied to within an inch of death, but mostly because it was intended to encourage the good and discourage the bad. I can't see GSE being any simpler, but a nice little earner, nonetheless.

      Instead of a single block of legislation, GSE might be established under the administration act. Charges, levies, taxes or tariffs could then be created by order, rather than legislation.

      Let's start with an export tariff on minerals.

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    2. David Arthur

      resistance gnome

      In reply to Peter Ormonde

      Differential GST rates:

      Fossil fuels could have a GST component based on their fossil carbon content.

      Tobacco could have a GST component to fund 100% of the health care costs proceeding from its use. The same approach could be applied to alcohol ... Treasury and the Productivity Commission will then see that marijuana and heroin should be legalised.

      With all these improvements, it may no longer be necessary to abolish the States. Mind you, it will still be highly desirable.

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  7. Eddy Schmid

    Retired

    QUOTE; "The current consumption wariness among Australia’s workers means that the GST collections have slowed over the last few years."UNQUOTE.
    Let's think a little about that remark, then ask the question, WHY IS THERE SUCH WARINESS AMONGST AUSTRALIAN WORKERS in the first place ?
    Could it be, the GFC and the lack of gainfull employment in the Eastern staes,, could be the continual rising costs of basic services eroding the pay packet ? And WHY, have these so called 'experts' not factored that…

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  8. Martin Cahill

    logged in via Facebook

    This article is an opinion piece, and as such it should be clearly labelled as such. It satisfies neither 'acedemic rigour, nor journalistic flair'. By publishing this without clearly noting it as an opinion piece, you do this publication no favours.
    Expect better

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    1. John Passant

      Graduate Teaching Fellow

      In reply to Martin Cahill

      All pieces here are opinion pieces. I assume what you disgaree with is the content and the politics. I expect better from you next time.

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  9. David Arthur

    resistance gnome

    "Current consumption wariness"? You're kidding.

    Australia Post are flat out, delivering goods purchased via internet from overseas ... GST free.

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  10. Mark Goyne

    Lawyer

    Yes, it must go up. To 15% and broaden the base. The average Australian is always wanting more services from the Government but not to pay more tax. This attitude is fairyland nonsense. I predict whichever Government wins the 2013 election will raise and broaden the base of the GST.

    The new Government must lead and sometimes electorally unpopular decisions have to be made.

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  11. John Passant

    Graduate Teaching Fellow

    Anybody else notice Barry O'Farrell call today for an increase in the GST rate and broadening its base ? Right on cue and in line with Hockey's comment I quote in the article. Surprise, surprise.

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