tag:theconversation.com,2011:/uk/topics/gst-1107/articlesGST – The Conversation2024-02-01T19:05:15Ztag:theconversation.com,2011:article/2189112024-02-01T19:05:15Z2024-02-01T19:05:15ZBuying a renovated home? You could be up for an extra 10% GST, but it’s a grey area. Here’s a way to end the uncertainty<figure><img src="https://images.theconversation.com/files/567017/original/file-20231221-27-8ftn73.jpg?ixlib=rb-1.1.0&rect=0%2C9%2C6218%2C4123&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/construction-new-part-old-house-before-535324108">CapturePB/Shutterstock</a></span></figcaption></figure><p>A home buyer usually does not pay goods and services tax (GST) on a home except if they buy a new home that has not been sold before as residential property. However, when a home that has been “<a href="https://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/antsasta1999402/s40.75.html">substantially renovated</a>” is <a href="https://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/antsasta1999402/s40.65.html">sold</a>, the buyer may have to pay GST. This can add 10% to the price of the home for the buyer. </p>
<p>The problem home buyers face is that what qualifies as a “substantial renovation” is uncertain. The Australian Taxation Office does provide some guidance on this in a <a href="https://www.ato.gov.au/law/view/document?docid=GST/GSTR20033/NAT/ATO/00001">ruling</a>. However, the <a href="https://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/antsasta1999402/s195.1.html">definition</a> is subject to interpretation.</p>
<p><a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4605598">My research</a> has looked at the approaches to answering this question in Australia, Europe and Canada. Whether a renovation has transformed an existing home into a “new home” for GST purposes has been the subject of litigation in almost all countries where such a distinction is made. The experience of other countries may provide a guide to reforms that could be made in Australia to provide home buyers and sellers with more certainty.</p>
<p>If tax law applied a test based on the renovation cost as a percentage of the post-renovation resale value of the home to determine if there is a substantial renovation, that would give buyers greater certainty.</p>
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Read more:
<a href="https://theconversation.com/how-much-can-i-spend-on-my-home-renovation-a-personal-finance-expert-explains-160696">How much can I spend on my home renovation? A personal finance expert explains</a>
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<h2>Renovation boom has added to uncertainties</h2>
<p><a href="https://theconversation.com/more-rented-more-mortgaged-less-owned-what-the-census-tells-us-about-housing-185893">Two-thirds of Australians</a> live in homes they own (outright or with a mortgage). Home renovations appear to have <a href="https://www.abs.gov.au/statistics/economy/finance/lending-indicators/latest-release">become increasingly popular</a>. </p>
<p>Housing is becoming less affordable, the latest <a href="https://www.corelogic.com.au/news-research/reports/housing-affordability">ANZ CoreLogic Housing Affordability Report</a> shows. Housing prices and rents have increased, along with the cost of debt. It is taking longer to save for a home deposit. There is a housing supply shortage. </p>
<p>Fewer home owners can afford to move. Many are renovating instead. Landlords, too, are often renovating to take advantage of higher rents. </p>
<p>Not all renovations are publicly reported, but <a href="https://www.abs.gov.au/statistics/economy/finance/lending-indicators/latest-release">Australian Bureau of Statistics data</a> show both owner-occupiers and investors have been taking out more loans for alterations, additions and repairs since the start of COVID-19. </p>
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<h2>Why renovations can make buyers liable for GST</h2>
<p>Most existing home purchases are not subject to GST. GST is payable when buying a newly built home and potentially when buying a “substantially renovated” home. </p>
<p>GST taxes the value of consumption of many goods and services. The value of consumption is assumed to be the market value. </p>
<p>GST is charged when a “new home” is first bought. For the sake of simplicity, it is assumed the purchase price of a new home when it is first bought is equal to the present value of all future consumption of the home. This means future buyers of the home generally don’t have to pay GST.</p>
<p>However, where a home is substantially renovated it is assumed most of the original value of the home that was subject to GST the first time it was sold has been consumed. The value added by a substantial renovation means the home is regarded as new. A buyer of a substantially renovated home may be required to pay 10% GST. </p>
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Read more:
<a href="https://theconversation.com/building-costs-have-soared-is-it-time-to-abandon-my-home-renovation-plans-188298">Building costs have soared. Is it time to abandon my home renovation plans?</a>
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<h2>But what is a ‘substantial renovation’?</h2>
<p>A minor repair will clearly not lead to substantial value being added to a home. On the other hand, if a home is demolished and replaced by a new one, the buyer of the new home may have to pay GST. It’s less clear what the GST treatment should be when a renovation falls somewhere in between these two extremes. </p>
<p>Canadian cases provide helpful examples of renovations falling along the spectrum. This issue is often litigated in Canada partly because home owners may be eligible for GST rebates where they live in a substantially renovated home. The outcomes of these legal cases have been inconsistent. </p>
<p>In <a href="https://www.canlii.org/en/ca/tcc/doc/2003/2003tcc929/2003tcc929.html?autocompleteStr=Lair%20v%20The%20Queen&autocompletePos=1">one case</a>, a basement was added, one floor of the house was gutted and renovated, the electrical system, plumbing, flooring, roof and windows were replaced, and a kitchen was extended. The court decided this was a substantial renovation. </p>
<p>In <a href="https://canlii.ca/t/fznbj">another case</a>, a new hallway was added, part of the roof and the ceilings were raised, the house was re-insulated, and a porch was added. A garage was demolished and replaced with a two-storey addition and basement. The addition included living space, a bedroom and bathroom. The court decided this was not a substantial renovation, despite significant value being added.</p>
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Read more:
<a href="https://theconversation.com/nzs-housing-market-drives-inequality-why-not-just-tax-houses-like-any-other-income-208003">NZ’s housing market drives inequality – why not just tax houses like any other income?</a>
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<h2>So how can we settle the issue?</h2>
<p>A test could be adopted in law to provide certainty about what is a substantial renovation. </p>
<p>A logical test could deem a home renovation to be substantial if its cost is 50% or more of the post-renovation resale value of the home. The cost of the renovation could be verified with receipts.</p>
<p>This means minor changes that do not add significant value to a home would not lead to a future buyer having to pay GST. GST would be potentially payable only when most of the value of the home being bought has been added by a renovation.</p><img src="https://counter.theconversation.com/content/218911/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christine Peacock does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A buyer could have to pay GST on a ‘substantially renovated’ home, but there’s often uncertainty about whether a renovation counts as substantial or not. A simple test could resolve the issue.Christine Peacock, Lecturer in Law, Federation University AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2075982023-06-15T20:03:40Z2023-06-15T20:03:40ZCutting GST on fresh produce won’t help those most in need – a targeted approach works better<figure><img src="https://images.theconversation.com/files/532075/original/file-20230614-21-svlhd5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">GettyImages</span> </figcaption></figure><p>Food prices are rising at the <a href="https://www.rnz.co.nz/news/national/489686/fruit-and-vegetable-costs-up-22-percent-as-annual-food-price-inflation-soars">fastest rate</a> in almost four decades, with fruit and vegetables up more than 22% in the past year. As often happens during a cost of living crisis, there have been calls to remove the goods and services tax (GST) from fresh produce. </p>
<p>But is this actually a good idea? And if not, what alternatives might there be to help people currently struggling to afford fruit and vegetables?</p>
<p>Supporters of removing GST argue the move will make healthy food <a href="https://www.rnz.co.nz/news/political/489746/removing-gst-splitting-up-supermarkets-what-s-the-best-way-to-bring-food-prices-down">more accessible for struggling families</a>. Removing GST from fresh produce is also meant to <a href="https://www.nzherald.co.nz/nz/gst-and-produce-removing-tax-on-healthy-food-can-help-reduce-maori-diabetes-stats-health-coalition/RKQKXACLSJDBLKQ5VO2LUKQOKY/">help tackle</a> New Zealand’s <a href="https://www.health.govt.nz/nz-health-statistics/health-statistics-and-data-sets/obesity-statistics">persistent obesity epidemic</a> – which accounts for <a href="https://www.oecd.org/health/the-heavy-burden-of-obesity-67450d67-en.htm">8.2% of total health expenditure</a> (around NZ$135 million) annually. </p>
<p>It is a popular idea. In 2022, <a href="https://www.newshub.co.nz/home/politics/2022/05/newshub-reid-research-poll-majority-of-kiwis-want-gst-removed-from-food.html">76% of New Zealanders surveyed</a> supported removing GST from food. But as some <a href="https://www.rnz.co.nz/news/political/489746/removing-gst-splitting-up-supermarkets-what-s-the-best-way-to-bring-food-prices-down">economists have warned</a>, tinkering with the tax system might not actually deliver the desired results for low-income families. Put simply, those with the income to buy more fruit and vegetables – high-income households – will benefit the most from GST exemptions on fresh produce. </p>
<p>New Zealand currently has one of the most comprehensive and effective goods and services tax systems globally. Any changes would require substantial evidence demonstrating the benefits of change.</p>
<p>Additionally, as many households struggle to cover costs, any additional cash gained from eliminating GST from fresh produce will go towards more pressing expenses like rent and power. If the government wants to fight <a href="https://www.nature.com/articles/s41366-022-01242-9">obesity during a cost-of-living crisis</a>, it needs to develop a more targeted approach. </p>
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<h2>Looking beyond GST</h2>
<p>My research, to be published later this year, looks into the literature on GST and tax expenditure from New Zealand, Australia, the United States and United Kingdom. I examined how different countries use a variety of tax measures to help low-income families buy fruit and vegetables. </p>
<p>I wanted to examine whether dropping GST would help reduce obesity by making nutritious food more accessible. In fact, the literature suggests it does not significantly improve affordability and healthy eating choices for such families. </p>
<p>These households tended to allocate additional income (or tax saved) to other food or non-food items, such as meats, clothing or housing.</p>
<p>My study shows there are more targeted options within New Zealand’s welfare system that can be used to help struggling families afford healthier foods.</p>
<h2>Targeted assistance overseas</h2>
<p>One option is to issue a <a href="https://theconversation.com/removing-gst-on-food-is-back-in-the-news-proving-some-bad-ideas-just-never-go-away-182592">GST refund</a> on fresh fruit and vegetables purchased. </p>
<p>But there is no guarantee the extra money will be spent on purchasing healthy food. Similar to removing GST before purchase, the extra money will likely be diverted to other more pressing priorities, particularly in low-income households. </p>
<p>If the primary aim of making fresh fruit and vegetables more affordable is to increase healthy eating, then a cash rebate won’t help. But there are policies in use overseas that New Zealand could use as a starting point to directly help low-income families afford fresh produce. </p>
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Read more:
<a href="https://theconversation.com/cheaper-food-comes-with-other-costs-why-cutting-gst-isnt-the-answer-181463">Cheaper food comes with other costs – why cutting GST isn't the answer</a>
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<p>One particularly interesting option is the targeted smart-card system for buying fruit and vegetables. In the US, it’s known as the Supplemental Nutrition Assistance Program scheme (<a href="https://www.feedingamerica.org/our-work/hunger-relief-programs/snap">SNAP</a>), and in Britain as the <a href="https://www.healthystart.nhs.uk/">Healthy Start</a> scheme. </p>
<p>SNAP provides monthly funds for people to buy food using a benefit card (similar to a debit card) to buy groceries. They can’t use it to buy non-food items or alcohol. Healthy Start is for pregnant women and mothers with children under four to buy healthy food and milk, also delivered via a type of debit card. </p>
<h2>What targeted help could look like</h2>
<p>In New Zealand, we already have the food or hardship grants available through Work and Income. But these are only given in exceptional circumstances, and are limited to once every six months. </p>
<p>These food grants can also be used to buy anything an individual or family needs, including toiletries and other non-food items. </p>
<p>Introducing a regular and targeted healthy food grant via an electronic smart card would be a more effective way to ensure low-income families are able to access healthy food. </p>
<p>The cards could be protected with biometric data to prevent abuse or transfer. Eligibility criteria and account limits could be revised annually depending on the inflation rate to avoid any erosion of the card’s value. </p>
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<span class="caption">A targeted smart card could help low-income families access fruit and vegetables, regardless of the cost of living.</span>
<span class="attribution"><span class="source">Peter Cade/Getty Images</span></span>
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<h2>Other ways to encourage healthy eating</h2>
<p>The literature shows that a targeted smart-card system could help reduce New Zealand’s high obesity rate during the current cost of living crisis, if combined with an increase in education to prioritise healthy eating. </p>
<p>Instead of removing GST, the revenue gathered could be used to provide that extra nutritional information and education. </p>
<p>In 2013, the <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/nbu.12074">UK government implemented</a> its “<a href="https://www.education-ni.gov.uk/publications/healthy-food-healthy-outcomes">Healthy food for healthy outcomes</a>” policy. Healthy food – and knowledge about nutrition – is treated as a vital element of school life and learning.</p>
<p>My research found that the costs of tampering with New Zealand’s current GST system far outweigh the benefits likely to accrue from such a change. A targeted smart-card scheme is arguably a more effective measure to improve affordability and healthy eating habits – and the benefits would outweigh the setup costs.</p><img src="https://counter.theconversation.com/content/207598/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ranjana Gupta does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Overseas experiences suggests a targeted system using smart cards for buying fruit and vegetables would be more effective than broad-brush changes to the tax system.Ranjana Gupta, Senior Lecturer Taxation, Auckland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2067452023-05-31T20:05:48Z2023-05-31T20:05:48ZMaking NZ’s tax system fairer is a good idea – but this proposed new law isn’t the answer<figure><img src="https://images.theconversation.com/files/529220/original/file-20230531-27-ruatts.jpg?ixlib=rb-1.1.0&rect=30%2C100%2C6679%2C4365&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>It’s no secret that Revenue Minister David Parker has <a href="https://www.newshub.co.nz/home/politics/2023/03/david-parker-pushing-ahead-with-new-tax-principles-legislation-plan.html">long been interested in tax reform</a> in New Zealand. In 2022, he announced plans for legislation requiring future tax policy changes to be measured against a set of tax principles, notably fairness. </p>
<p>The <a href="https://www.parliament.nz/en/pb/sc/make-a-submission/document/53SCFE_SCF_691E5C66-AA17-43F0-208D-08DB57320DB1/taxation-principles-reporting-bill">Taxation Principles Reporting Bill</a>, just released for public submissions, is the result of Parker’s ambition. But while it is reasonable to support a tax system that is fairer than the current system, I believe the bill is confusing, unnecessary and pointless. </p>
<p>Unlike the <a href="https://taxworkinggroup.govt.nz/">Tax Working Group</a>, which clearly and adequately stated tax principles that most people could understand, the bill introduces highly technical ideas that could exclude ordinary people from the debate.</p>
<p>The bill also attempts to tie the hands of future governments by legislating principles that are not accepted across the political spectrum. </p>
<p>My main concern, then, is that the bill appears to close down democratic debate about taxation by claiming certain viewpoints are universally accepted. Secondly, the tax principles, as they are stated, are vague and poorly explained. </p>
<h2>Horizontal equity</h2>
<p>The bill introduces the concept of “horizontal equity” and defines this as meaning “people with similar levels of income should pay similar amounts of tax”. </p>
<p>But a more accurate way to explain horizontal equity would be to say “people who are in similar situations should be treated similarly”. </p>
<p>For instance, tax systems often view people with young children as being in a different situation from people with adult or no children. The <a href="https://www.ird.govt.nz/working-for-families">Working for Families</a> (WFF) programme is an example of such a distinction based on a political value judgment. </p>
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Read more:
<a href="https://theconversation.com/new-zealands-tax-system-is-under-the-spotlight-again-what-needs-to-change-to-make-it-fair-198492">New Zealand's tax system is under the spotlight (again). What needs to change to make it fair?</a>
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<p>The principle of horizontal equity as outlined in the bill is incompatible with the Income Tax Act because people with similar levels of income won’t pay similar levels of tax due to programmes like WFF. </p>
<p>If the principle of horizontal equity needs to be stated, it should be that “taxpayers in similar circumstances should pay a similar amount of tax”. </p>
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<img alt="" src="https://images.theconversation.com/files/529214/original/file-20230531-23-mupx7.jpg?ixlib=rb-1.1.0&rect=64%2C8%2C5327%2C3581&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/529214/original/file-20230531-23-mupx7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/529214/original/file-20230531-23-mupx7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/529214/original/file-20230531-23-mupx7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/529214/original/file-20230531-23-mupx7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/529214/original/file-20230531-23-mupx7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/529214/original/file-20230531-23-mupx7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Revenue Minister David Parker has long been interested in making changes to the New Zealand tax system.</span>
<span class="attribution"><span class="source">Hagen Hopkin/Getty Images</span></span>
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<h2>Time and money</h2>
<p>There is also no concept of income that everyone accepts. A standard tax textbook distinguishes between legal, accounting and economic conceptions of income.</p>
<p>According to the bill, “the time value of money matters when considering horizontal equity”. I presume the authors of the bill mean that some will get a tax benefit by deferring their tax liability when others with a similar income can’t. </p>
<p>But the phrasing in the bill makes it difficult to understand. A set of principles that affect everyone should be understandable by as many people as possible. </p>
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Read more:
<a href="https://theconversation.com/why-a-proposed-capital-gains-tax-could-mean-tax-cuts-for-most-new-zealanders-112852">Why a proposed capital gains tax could mean tax cuts for most New Zealanders</a>
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<p>The bill also introduces the phrase “economic income”, but again a clear definition isn’t included. </p>
<p>The bill’s authors then appear to endorse a particular conception of comprehensive income – that is, the increase in economic capacity during the tax assessment period. </p>
<p>Understood broadly, this conception of income not only includes increases in wealth that a taxpayer hasn’t received (unrealised gains), but also capital gains and capital transfers. But New Zealand doesn’t currently tax capital gains or capital transfers.</p>
<p>This means there would be a significant gap between the ideas set down in the principles and how most people think of income. </p>
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<h2>Vertical equity</h2>
<p>The bill also states: “The tax system should be progressive. Tax is progressive if people with higher levels of economic income pay a higher proportion of that income in tax.” This is in line with the principle of “vertical equity”, which requires people in different circumstances to be treated differently. </p>
<p>It is not uncommon for countries to lock in the ability to pay tax, which traditionally includes both horizontal and vertical equity, within their constitutions. But the bill is not a constitutional document and represents the opinion of one government – and perhaps just one minister – at a particular point in time.</p>
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Read more:
<a href="https://theconversation.com/forget-a-capital-gains-tax-what-new-zealand-needs-is-a-tax-on-inherited-wealth-143604">Forget a capital gains tax – what New Zealand needs is a tax on inherited wealth</a>
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<p>Using the word “economic” in the explanation of vertical equity is unnecessary. The <a href="https://www.oecd.org/ctp/glossaryoftaxterms.htm">OECD</a> defines progression as meaning “an increasing proportion of income must be paid in tax as the income increases”. </p>
<p>The inclusion of “economic” in this context could be seen as an attempt to neutralise debate about a particular theory of income that isn’t universally accepted.</p>
<h2>The bill doesn’t solve our tax problems</h2>
<p>The bill then states: “A progressive tax system does not mean that every tax should be progressive (e.g. GST is regressive) but the overall system ought to be.” </p>
<p>This is a reasonable and pragmatic approach to including GST in the tax mix. But the following sentence is problematic: “In practice, wealthy people should at the very least pay no lower a rate of tax on their economic income than middle-income New Zealanders already do.” </p>
<p>Why “in practice” and not in principle? The income of so-called “middle-income New Zealanders” is most likely fully taxed under the current provisions of the Income Tax Act. </p>
<p>Certainly, some wealthy people may engage in arrangements to reduce their income tax liabilities. But most don’t pay “enough” tax because successive governments have lacked the courage to tax capital gains, wealth, and gifts and inheritances. </p>
<p>The Tax Principles Reporting Bill does nothing to remedy this.</p><img src="https://counter.theconversation.com/content/206745/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonathan Barrett does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New Zealand’s tax system might be in need of updating, but Revenue Minister David Parker’s new tax legislation is unnecessarily complicated at a time when we most need clarity.Jonathan Barrett, Associate Professor in Commercial Law and Taxation, Te Herenga Waka — Victoria University of WellingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2066632023-05-31T07:01:33Z2023-05-31T07:01:33ZIt’s time to end Western Australia’s $4 billion-per-year GST bonus<figure><img src="https://images.theconversation.com/files/529268/original/file-20230531-29-7wcrs9.png?ixlib=rb-1.1.0&rect=245%2C574%2C3748%2C1826&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The Morrison government’s decision to give a special deal to Western Australia for the distribution of the income from the goods and service tax is one of the worst public policy decisions made in Australia in the past two decades. </p>
<p>The departure of the WA premier and treasurer, Mark McGowan, this week gives us an opportunity to fix the mistake.</p>
<p>Under a deal struck by McGowan and then-federal Treasurer Scott Morrison in 2018, WA gets a much greater share of the centrally collected goods and services tax (GST) than it is entitled to under the formula administered by the Commonwealth Grants Commission.</p>
<p>At the time, the formula awarded the state only 45% of what it would have gotten if it had received all of the GST collected from its citizens, in recognition of its lesser need for support because of its high iron ore royalties.</p>
<p>Morrison and McGowan’s deal placed a floor on how much of the GST each state could get. This climbed to <a href="https://ministers.treasury.gov.au/ministers/scott-morrison-2015/media-releases/all-better-fairer-way-share-gst">70%</a> of what was collected from its citizens in 2022-23, and will climb further to 75% from 2024-25. </p>
<p>The other states that miss out because WA gets more than it should receive a top-up from the Commonwealth government, originally costed at <a href="https://ministers.treasury.gov.au/ministers/scott-morrison-2015/media-releases/all-better-fairer-way-share-gst">$293 million</a> in 2021-22, but now estimated to be <a href="https://www.smh.com.au/politics/federal/scott-morrison-s-gst-deal-on-track-to-cost-taxpayers-25-billion-20230314-p5cs0m.html">$4.1 billion</a>. But this is not “free”. The extra billions have to be paid for by Australian taxpayers.</p>
<h2>Who collects, who spends?</h2>
<p>All federal systems have to decide who should collect each tax – the states or the government at the centre. </p>
<p>In Australia, we mostly let the federal government raise taxes, and this has several virtues. One is that it provides consistent rules for all Australians no matter where they live. Another is that it keeps down administrative costs – it gives us one personal income tax system instead of six.</p>
<p>Strong arguments can be made that we should move closer towards such a system, allowing the federal government to collect <a href="https://www.afr.com/policy/tax-and-super/let-the-states-specialise-in-services-and-leave-tax-to-the-feds-20220706-p5azkg">all of the tax</a> and the states to provide most of the services.</p>
<p>The arrangement generates two problems. </p>
<p>The first is called <a href="https://www.investopedia.com/terms/f/fiscalimbalance.asp">vertical fiscal imbalance</a>, which is the imbalance between the federal government’s extensive ability to raise revenue and the responsibility of the states to provide services. In Australia, we address it by transferring funds (including all of the GST revenue) from the federal government to the states and territories.</p>
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Read more:
<a href="https://theconversation.com/chalmers-has-a-70-billion-a-year-budget-hole-here-are-13-ways-to-fill-it-203331">Chalmers has a $70 billion a year budget hole: here are 13 ways to fill it</a>
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<p>The second is <a href="https://www.investopedia.com/terms/f/fiscalimbalance.asp">horizontal fiscal imbalance</a>. Different states have different needs and different capacities to meet those needs. NSW has a greater landmass than Victoria, for example, and requires more roads per resident.</p>
<p>In Australia, we deal with both of these problems through the <a href="https://www.cgc.gov.au/">Commonwealth Grants Commission</a>, which distributes the money from the federal government to the states through a formula that determines what’s “fair”.</p>
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<p>Here’s how it works. If one state is poorer and has less ability to raise revenue, it receives more money. If another state is richer and needs less, it gets less. </p>
<p>The commission also looks at how expensive it is to deliver services to its population. Health, education and infrastructure are much easier and cheaper to deliver in densely populated areas and temperate climates.</p>
<p>Australia has long been a shining example to the rest of the world in how to make this work. The grants commission is seen as an efficient organisation not subject to political influence. As a result, Australians have good access to opportunities and services irrespective of where they live. </p>
<p>Morrison’s decision, <a href="https://cdn.theconversation.com/static_files/files/2699/Gmail_bowen.pdf">backed by the then Labor opposition</a>, ruined this and injected politics into what had been a world-leading system for making federal revenue distributions fair and efficient.</p>
<h2>Sharing Western Australia’s wealth</h2>
<p>Western Australia got rich during the mining boom. The grants commission process implicitly takes the extra income it gets from mining royalties and shares it with the others. </p>
<p>The state hasn’t liked it. It felt it was sacrificing more than its “fair share”. What is particularly funny is that throughout most of its history, WA received more from the rest of Australia than the rest of Australia has received from it.</p>
<p>Western Australia received special grants from the Commonwealth continuously from 1933 through 1968, and from 1981 to 2000. Victoria and NSW never got more than their citizens put in.</p>
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<a href="https://theconversation.com/what-australias-new-gas-tax-will-mean-for-new-projects-the-economy-and-the-climate-205197">What Australia's new gas tax will mean for new projects, the economy and the climate</a>
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<p>The 2000s mining boom changed that. Suddenly WA was paying money to the other states rather than getting it from them. And it wanted none of it.</p>
<p>It developed the mentality of a job seeker who was happy to get benefits when times were tough and expected them in retirement, but didn’t want to pay income tax while working. It was as ridiculous as that.</p>
<p>In defence of WA, it must be acknowledged the state takes the view that its mineral resources belong to it and not to other Australians, so at least it is consistent.</p>
<h2>Sharing Australia’s mineral wealth</h2>
<p>But in my view, this isn’t defensible. Why have a horizontal equalisation scheme if what each state has belongs only to it? Our system has always, at least implicitly, treated Australian resources as belonging to the entire country. </p>
<p>This is as true of the wealth generated through human capital in the form of education as it is for resources. </p>
<p>If we don’t want this to be the case, we should move to a system where each state raises as little or as much as it wants and spends it and no more, regardless of need. It would give the grants commission less to do.</p>
<p>And it would be a bad idea. It would be better to seize the moment created by McGowan’s departure and undo a bad decision that never seemed to be about anything other than politics. </p>
<p>And even on that level, it didn’t work. The Coalition won just five of the 15 federal seats in WA in the last election – a record low.</p>
<p>Last year, Morrison described his arrangement with McGowan as a “forever deal”. It should not last as long as that.</p><img src="https://counter.theconversation.com/content/206663/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Breunig is on the board of the Committee for the Economic Development of Australia.</span></em></p>Imagine taking money from others when times were bad, and not paying it back when times improved. That’s Western Australia’s approach to the other states.Robert Breunig, Professor of Economics and Director, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2026302023-03-28T23:13:31Z2023-03-28T23:13:31ZInheritance taxes, resource taxes and an attack on negative gearing: how top economists would raise $20 billion per year<figure><img src="https://images.theconversation.com/files/517641/original/file-20230327-485-73myrj.png?ixlib=rb-1.1.0&rect=143%2C395%2C3808%2C1814&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Asked to find an extra A$20 billion per year to fund government priorities like building nuclear submarines and responding to climate change, Australia’s top economists overwhelmingly back land tax, increased resource taxes, an attack on negative gearing and extending the scope of the goods and services tax.</p>
<p>The 59 leading economists surveyed by The Conversation and the Economic Society of Australia were asked to pick from a list of 13 options (many of them identified in the government’s 2022-23 <a href="https://theconversation.com/tax-breaks-cost-a-reported-250-billion-but-handle-these-new-figures-with-care-200819">Tax Expenditures and Insights Statement</a>) and reply as if political constraints were not a problem.</p>
<p>The economists chosen are recognised as leaders in their fields, including economic modelling and public policy. Among them are former International Monetary Fund, Treasury and <a href="https://www.oecd.org/">OECD</a> officials, and a former member of the Reserve Bank board.</p>
<p>Asked to choose tax measures on the basis of <a href="https://www.investopedia.com/terms/e/economic_efficiency.asp">efficiency</a> – minimising the economic damage the extra taxes or tightening of tax concessions would do – 40% chose increased or new taxes on land, while 39% choose increased resource taxes.</p>
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<p>International consultant Rana Roy said every major economist in every strand of modern economics had found taxes on the use of land and natural resources to be the least damaging way of raising money.</p>
<p>This was confirmed in Hong Kong, which charged for the use of crown land; in Norway, which heavily taxed oil and gas resources; and in countries such as Australia, which charge for the use of broadcast spectrum.</p>
<p>Former OECD official Adrian Blundell-Wignall said Australia’s natural resources were the birthright of every Australian. It was time for a resource rent tax along the lines of the one introduced by the Rudd and Gillard governments and abolished by the Abbott government in 2014. </p>
<p>Blundell-Wignall said politicians should ignore the usual hysteria that arose whenever the idea was discussed.</p>
<p>Centre for Independent Studies economist Peter Tulip said he would lump income from inheritances in with income from changes in land value. In both cases the income was unexpected, undeserved, and not compensation for sacrifice. And it disproportionately went to the already fortunate.</p>
<h2>Negative gearing an ‘easy win’</h2>
<p>A quarter of those surveyed backed winding back the ability to negatively gear (write off against tax) expenses incurred in owning investment properties, a concession costed by Tax Expenditures Statement at <a href="https://treasury.gov.au/publication/p2023-370286">$24.4 billion per year</a>.</p>
<p>Blundell-Wignall said negative gearing should have been wound back years ago. Few other countries allowed it, and it contributed to the build up of exposure to property in Australia’s banking system and financial risk as interest rates climbed.</p>
<p>University of Sydney economist James Morley described getting rid of negative gearing as an “easy win”. There were better ways to support home building.</p>
<p>Independent economist Saul Eslake said while he was inclined to extend capital gains tax to the sale of high-end family homes, the problem with the idea was that it might allow owners to write off against tax their mortgage payments (as is the case for investors who negatively gear), encouraging even larger mortgages.</p>
<p>One quarter of those surveyed wanted to broaden the scope of the goods and services tax (at present it excludes spending on education, health, childcare and fresh food) and one fifth wanted to increase the rate, pointing out that a 10%, it was low by international standards.</p>
<h2>‘Unfair’ super concessions and tax-free inheritances</h2>
<p>Asked to choose measures on the basis of equity – not treating similar people differently – 52% backed inheritance taxes, 37% backed winding back superannuation tax concessions and 32% backed increased resource taxes.</p>
<p>None would broaden the GST on equity grounds, and only 3.4% would increase its rate on equity grounds.</p>
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<p>Grattan Institute chief executive Danielle Wood said two-thirds of the value of super tax breaks went to the top fifth of income earners, who are already saving enough for their retirement and would do so without tax concessions. </p>
<p>Wood said the government should go further than the measures taken against super accounts worth more than $3 million announced in February. </p>
<p>The University of Adelaide’s Sue Richardson said super concessions had a negative impact on budget revenue, amounting to tens of billions per year. They were used for tax minimisation by high earners who obtained expensive advice. </p>
<h2>Missing fixes: Stage 3 and a carbon tax</h2>
<p>Guyonne Kalb of the University of Melbourne said the most important tax measure for fairness was one not listed as an option: scrapping the legislated “<a href="https://theconversation.com/stand-by-for-the-oddly-designed-stage-3-tax-cut-that-will-send-middle-earners-backwards-and-give-high-earners-thousands-182751">Stage 3</a>” tax cuts for high earners, due to take effect in 2024.</p>
<p>The tax cuts scheduled for people earning between $120,000 and $200,000 would not have much or any positive impact on Australia’s labour supply and would cost the budget more than $100 billion in their first seven years. </p>
<p>Three panellists, Frank Jotzo, Michael Keating and Stefanie Schurer, said they would have selected “carbon pricing to raise revenue” had it been an option.</p>
<p>Jotzo said if Australia fully taxed emissions at $100 per tonne, the revenue would be around $15 billion per year from electricity, $18 billion from industry, and $9 billion from transport – very large sums in relation to other options.</p>
<p>Schurer would also take away all subsidies to fossil fuel industries. In 2021-22 measures that wholly, primarily or partly assisted fossil fuel industries cost federal, state and territory governments $11.6 billion. </p>
<p>If the government needed $20 billion per year, it could raise around half from fossil fuel subsidies alone.</p>
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<p><em>Individual responses:</em></p>
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Read more:
<a href="https://theconversation.com/how-can-australia-pay-368-billion-for-new-submarines-some-of-the-money-will-be-created-from-thin-air-202150">How can Australia pay $368 billion for new submarines? Some of the money will be created from thin air</a>
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<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Asked to choose the fairest ways to raise billions, half of the economists backed introducing inheritance taxes. Around a third chose winding back super tax concessions and increased resource taxes.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1984922023-01-30T01:52:47Z2023-01-30T01:52:47ZNew Zealand’s tax system is under the spotlight (again). What needs to change to make it fair?<figure><img src="https://images.theconversation.com/files/506949/original/file-20230129-18-c3nesz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">GettyImages</span> </figcaption></figure><p>Aotearoa New Zealand’s new Prime Minister, Chris Hipkins, has said we should look at ways to make the <a href="https://www.newshub.co.nz/home/politics/2023/01/incoming-prime-minister-chris-hipkins-hints-at-tax-changes-says-some-new-zealanders-aren-t-paying-their-way.html">tax system fairer</a>. Finance associate minister David Parker made a <a href="https://thespinoff.co.nz/money/28-04-2022/david-parkers-long-long-game-towards-a-fairer-tax-system">similar point almost a year ago</a>, though there was little real action after his comments. </p>
<p>Generally, people don’t object to fairness. The problem is that we don’t all agree on what fairness looks like – especially when it comes to tax. </p>
<p>Nonetheless, <a href="https://www.newshub.co.nz/home/money/2023/01/wealth-tax-higher-gst-and-lower-income-tax-prominent-economist-cameron-bagrie-reveals-how-he-would-overhaul-tax-system.html">several commentators</a> and politicians have outlined what they believe to be the ideal structure of a fairer tax system. </p>
<h2>Tax everyone, or tax those who earn the most?</h2>
<p>Some of these ideas include reducing income tax rates and increasing the goods and services tax (GST). </p>
<p>Whether you think either of these is fair will depend on whether you see fairness as everyone paying the same via GST – or people paying differently according to their ability to pay through income tax. </p>
<p>Of course, a tax system generally has components of both. </p>
<p>A GST could be considered fair as everyone who buys the same good or service pays the same amount of tax. </p>
<p>But a GST cannot take into account ability to pay. Higher income earners generally pay more GST overall, as they can afford to buy more goods and services. However, they pay less GST as a <a href="https://www.nzherald.co.nz/business/where-do-the-poor-and-rich-really-spend-their-money/SGIRFMOLJBODVQIE4VJSIKFMGE/">proportion of their income</a>.</p>
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<p>Increasing GST to fund lower income taxes would have the greatest impact on those who have the least income. </p>
<p>The current economic environment is also a factor. At a time when <a href="https://www.stats.govt.nz/news/annual-inflation-remains-at-7-2-percent/#:%7E:text=The%20consumers%20price%20index%20increased,in%20the%20June%202022%20quarter">inflation is over 7%</a>, is it fair to increase the tax on almost every good or service that will be consumed? </p>
<h2>Targeting wealth</h2>
<p>By way of contrast, if you believe fairness results from ability to pay, then Cameron Bagrie’s suggestion of a <a href="https://www.newshub.co.nz/home/money/2023/01/wealth-tax-higher-gst-and-lower-income-tax-prominent-economist-cameron-bagrie-reveals-how-he-would-overhaul-tax-system.html">wealth tax is relevant</a>. </p>
<p>Data from <a href="https://www.stats.govt.nz/news/distribution-of-wealth-across-new-zealand-households-remains-unchanged-between-2015-and-2021">Stats NZ</a> shows that household wealth inequality in New Zealand is significantly greater than income inequality. The richest 20% of households own around 184 times the median household wealth of the lowest 20%: NZ$2,024,000 vs NZ$11,000. The median net worth is $397,000. </p>
<p>As the top 10% of New Zealand households hold around 50% of New Zealand’s total household net worth, there is a strong argument that taxing some of this wealth is fair. </p>
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Read more:
<a href="https://theconversation.com/the-groundswell-protest-claimed-regulation-and-taxes-are-unfair-to-farmers-the-economic-numbers-tell-a-different-story-179281">The Groundswell protest claimed regulation and taxes are unfair to farmers – the economic numbers tell a different story</a>
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<p>Bagrie also suggests reducing income taxes. No one would argue that there hasn’t been a certain level of <a href="https://theconversation.com/feeling-that-fiscal-drag-why-you-could-be-worse-off-even-if-your-pay-has-gone-up-188287">bracket creep</a> in recent years. But whether reductions in income taxes are fair depends on how they are reduced and, again, your views on fairness. </p>
<p>When the lowest income tax rate is reduced, this benefits not only the lowest income earners, but all other income earners. When middle or higher income tax rates are reduced, only those who have middle or high income benefit – low income earners miss out. </p>
<p>That said, income inequality is less pronounced than wealth inequality. Data from <a href="https://www.stats.govt.nz/information-releases/household-income-and-housing-cost-statistics-year-ended-june-2021/">Stat NZ</a> shows that, as at June 2021, the highest 20% annual household median income was around four times that of the lowest 20%. This also supports an argument for focusing on wealth taxes. </p>
<p>A further argument for a wealth tax comes from the suggestion that the wealthy pay a <a href="https://www.stuff.co.nz/national/politics/300238241/more-than-40-of-millionaires-paying-tax-rates-lower-than-the-lowest-earners-government-data-reveals">small proportion of their total income</a> in tax. This is because we comprehensively tax income in NZ but we do not comprehensively tax wealth. Is it fair that 42% of millionaires pay tax rates below those of the lowest income earners? </p>
<h2>Capital gains under the spotlight</h2>
<p>Taxes become particularly politicised in election years, but perhaps none more so than the suggestion of wealth taxes. </p>
<p>So, what are wealth taxes? These are taxes on assets, such as land or shares. </p>
<p>A <a href="https://theconversation.com/why-a-proposed-capital-gains-tax-could-mean-tax-cuts-for-most-new-zealanders-112852">capital gains tax</a> is a wealth tax, as is an inheritance tax or a land tax. The different terminology refers to what is specifically included in the tax. </p>
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Read more:
<a href="https://theconversation.com/government-funds-are-not-taxpayer-money-media-and-politicians-should-stop-confusing-the-two-153195">Government funds are not 'taxpayer money' — media and politicians should stop confusing the two</a>
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<p>One of the benefits of wealth taxes is they can be flexible by way of what is included or excluded. This flexibility means some assets can be excluded if there are good policy reasons to do so, such as productive land or owner-occupied homes. </p>
<h2>Fairness might be just collecting what’s due</h2>
<p>The challenge for any proposed tax reduction is how it will be paid for. </p>
<p>If we want to think more broadly around tax and fairness, we could invest more resources into collecting tax that is due. </p>
<p>Inland Revenue <a href="https://www.ird.govt.nz/-/media/project/ir/home/documents/about-us/publications/annual-and-corporate-reports/annual-reports/annual-report-2022.pdf?modified=20221018010503&modified=20221018010503">wrote off $688 million of tax</a> debt in the year to 30 June 2022 and $812 million in the previous year. </p>
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<p>This write off is not the result of tax evasion or fraud. This happens when people, such as those who are self-employed, have earned the income but do not pay the tax that is due. </p>
<p>Non-payment of tax is not an option for a wage or salary earner: is it fair that this is an “option” available to others? Greater investment in debt collection is another way of increasing fairness in the tax system. </p>
<p>Whatever your perspective on what a fair tax system looks like – whether it be increased GST, changes to income tax, or targeted wealth tax – one thing is certain. Tax is going to be a 2023 election year issue and we’re all going to be talking about it in the months to come.</p><img src="https://counter.theconversation.com/content/198492/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lisa Marriott does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Heading into the 2023 election, politicians and commentators have said New Zealand’s tax needs to be fairer. But opinions on how to make the system fairer vary wildly.Lisa Marriott, Professor of Taxation, Te Herenga Waka — Victoria University of WellingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1825922022-05-12T01:58:26Z2022-05-12T01:58:26ZRemoving GST on food is back in the news, proving some bad ideas just never go away<figure><img src="https://images.theconversation.com/files/461892/original/file-20220509-20-irdi3s.jpg?ixlib=rb-1.1.0&rect=0%2C16%2C5411%2C4036&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>Removing the goods and services tax (GST) from food is not a new idea. Te Pāti Māori are <a href="https://www.1news.co.nz/2022/03/16/te-pati-maori-want-to-remove-gst-from-all-kai-in-nz/">currently pushing</a> for its removal from all foods. In 2011 Labour campaigned on removing GST from fruit and vegetables. In 2017 NZ First wanted GST removed from “basic food items”. </p>
<p>It’s an idea that voters like. A <a href="https://www.newshub.co.nz/home/politics/2022/05/newshub-reid-research-poll-majority-of-kiwis-want-gst-removed-from-food.html">recent poll</a> suggests 76% of New Zealanders support removing GST from food. But regardless of the support, removing GST on food always was, and still is, a bad idea.</p>
<p>The problem starts with the issue of motivation. Over the years, there has been no single clear goal for removing GST on food. Sometimes advocates argue it’s to encourage healthy eating or reduce obesity, sometimes it’s to help low income families afford better food. </p>
<p>As inflation increases to levels not seen for 30 years, the main reason given now is to ease the cost of living stress on those struggling to keep up. </p>
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<h2>Sacrificing simplicity</h2>
<p>But the beauty of New Zealand’s tax system is its simplicity. Removing GST on food, or some types of food – for example, “healthy food” – makes that system more complex and costly. </p>
<p>There are a number of potential complications. </p>
<p>Let’s start with the obvious – what would count as “food”? Is milk powder food? Probably yes, so what about milk? Or flavoured milk? Oranges are food, so what about 100% natural orange juice? A broad definition of “food” would include lollies, potato chips, McDonalds and KFC, but many would object to removing GST from these on health grounds. </p>
<p>We would then need to decide what is acceptable to exempt and what is not. The arguments would go on and on. </p>
<p>In Australia, the quesion of whether an “oven baked Italian flat bread” is a bread (so not subject to GST) or a cracker (subject to GST) <a href="https://www.smh.com.au/national/fair-crack-of-the-biscuit-is-this-mini-ciabatte-a-bread-20100101-llrx.html">went to court</a>, and involved flying a bread certification expert from Italy to testify. The only reason why that job exists is due to complexity in tax systems around the world. </p>
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<strong>
Read more:
<a href="https://theconversation.com/factcheck-is-the-gst-as-efficient-but-less-equitable-than-income-tax-45052">FactCheck: is the GST as efficient but less equitable than income tax?</a>
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<p>In Ireland, the court was <a href="https://www.stuff.co.nz/life-style/food-wine/food-news/300122087/subway-bread-isnt-bread-irish-court-rules">required to rule</a> on whether Subway was serving “bread” or “confectionery or fancy baked goods” due to the difference in GST treatment. </p>
<p>In the UK, guidance on how GST on food is applied runs to 40 pages with 130 example categories; in Australia, an 87 page document covers some 1500 food types.</p>
<p>NZ First <a href="https://www.stuff.co.nz/national/10289008/NZ-First-wants-GST-off-food">campaigned on exempting</a> “basic food items” but this is also difficult to define. Are pies basic food items? Is a cold pie sold in a supermarket that you heat yourself different from a heated one sold in a bakery or one served at your table in a café?</p>
<p>Even worse would be to define “basic food” as what is sold in supermarkets. We already have an issue with a lack of competition in the supermarket industry and that sort of exemption would hand the existing duopoly even more market power.</p>
<figure class="align-center ">
<img alt="Woman standing in front of supermarket shelves." src="https://images.theconversation.com/files/462352/original/file-20220511-22-b5pvn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/462352/original/file-20220511-22-b5pvn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/462352/original/file-20220511-22-b5pvn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/462352/original/file-20220511-22-b5pvn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/462352/original/file-20220511-22-b5pvn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/462352/original/file-20220511-22-b5pvn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/462352/original/file-20220511-22-b5pvn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">GST exemptions are complicated because they require strict definitions of food. Overseas, the courts have been used to decide some food categories.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com.au/detail/photo/rear-view-of-young-asian-mother-with-a-shopping-royalty-free-image/1308615771?adppopup=true">Getty Images</a></span>
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<h2>Food costs won’t drop that much</h2>
<p>Exempting some things and not others adds cost to the system. </p>
<p>Food outlets sell more than just food. With the proposed exemptions some things they sell will be subject to GST and some not. Some predominantly non-food outlets such as petrol stations also sell food. </p>
<p>Ultimately, someone has to pay the cost of complexity and the ones most happy about that will be the accountants.</p>
<p>Another issue is one of expectations. Food prices will drop but not by the full amount of GST. Basic economics teaches us that when something is taxed, producers and consumers share the burden of that tax. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cheaper-food-comes-with-other-costs-why-cutting-gst-isnt-the-answer-181463">Cheaper food comes with other costs – why cutting GST isn't the answer</a>
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<p>The price rises for consumers but producers have to absorb some of that extra cost. When the tax comes off, therefore, the reverse happens, and producers and consumers share the cost reduction.</p>
<p>The 2018 Tax Working Group (TWG) <a href="https://taxworkinggroup.govt.nz/sites/default/files/2018-09/twg-bg-gst.pdf">didn’t support</a> removing GST on food. It emphasised how such exemptions lead to “complex and often arbitrary boundaries”, particularly when trying to target specific types of food such as “healthy food”. </p>
<p>They also stated that such exemptions are a “poorly targeted instrument for achieving distributional aims”. </p>
<p>This is important given the current push to help New Zealanders, particularly those on low incomes, with the cost of living. </p>
<h2>Alternative solutions</h2>
<p>The working group explained that if the goal was to support those on low incomes, and the government was willing to give up the GST revenue from food, then it would be better to continue to collect the GST and simply refund it via an equal lump sum payment to every New Zealand household or taxpayer. </p>
<p>Higher income households pay more GST on food because they spend more on food than lower income households. Hence lower income households would get more back via a refund than what they pay in GST on food. </p>
<p>This would be simpler and a more effective way to address an issue faced by low income households.</p>
<p>The intentions with removing GST on food are good, but good intentions don’t always equal good policy. If the government wishes to increase support to New Zealand households it should do so in the most efficient way, which removing GST on food is not.</p><img src="https://counter.theconversation.com/content/182592/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Hickson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The call for GST exemptions on food is a regular feature of New Zealand politics, but it’s far from the simple cost of living solution many seem to think it is.Stephen Hickson, Economics Lecturer and Director Business Taught Masters Programme, University of CanterburyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1814632022-04-19T19:11:25Z2022-04-19T19:11:25ZCheaper food comes with other costs – why cutting GST isn’t the answer<figure><img src="https://images.theconversation.com/files/458482/original/file-20220419-76482-7ej3hh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">GettyImages</span> </figcaption></figure><p>As New Zealand considers the <a href="https://www.scoop.co.nz/stories/PO2203/S00177/te-pati-maori-launch-petition-calling-to-remove-gst-from-all-food.htm">removal of the goods and services tax</a> (GST) from food to reduce costs for low income households, advocates need to consider the impact cheap food has on the environment and whether there are better options to help struggling families. </p>
<p>Globally, we have become used to an abundant, season defying food supply. For decades, the price of our food was on a sustained downward trajectory before prices began to <a href="https://theconversation.com/why-global-food-prices-are-higher-today-than-for-most-of-modern-history-168210">rise again</a> in the mid-2000s. </p>
<p>In many developed countries the proportion of income that we spend on food has <a href="https://www.vox.com/2014/7/6/5874499/map-heres-how-much-every-country-spends-on-food">declined to around 10%</a>. However, the price we have been paying for our food does not represent its true cost to the planet and to our health. </p>
<p>Nowhere is this more obvious than in New Zealand. </p>
<p>We have the third highest adult obesity rate in the OECD, at an estimated cost of <a href="https://www.auckland.ac.nz/en/news/2021/12/24/cost-of-excess-weight-in-nz.html">NZ$2 billion</a> in healthcare services each year. Our agricultural sector accounts for nearly half of our greenhouse gas emissions, and has been associated with <a href="https://www.pce.parliament.nz/media/1008/update-report-water-quality-in-new-zealand-web.pdf">declining water quality</a> and biodiversity loss.</p>
<p>The issue is that many of these costs don’t just come from the food we eat, but also from the food that is lost or wasted. </p>
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<img alt="Cows being milked by a milking machine." src="https://images.theconversation.com/files/458493/original/file-20220419-24-2ll66q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/458493/original/file-20220419-24-2ll66q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/458493/original/file-20220419-24-2ll66q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/458493/original/file-20220419-24-2ll66q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/458493/original/file-20220419-24-2ll66q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/458493/original/file-20220419-24-2ll66q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/458493/original/file-20220419-24-2ll66q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Demand for cheap food has lead to an increase in large-scale farming, with negative consequences for the the environment.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com.au/detail/news-photo/general-view-of-milking-dairy-cows-on-a-farm-north-news-photo/157182759?adppopup=true">Martin Hunter/Getty Images</a></span>
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<h2>The cost of waste</h2>
<p>Globally, it’s estimated <a href="https://www.ipcc.ch/site/assets/uploads/2019/08/2f.-Chapter-5_FINAL.pdf">between 20% and 40%</a> of food is lost or wasted each year and New Zealand is <a href="https://lovefoodhatewaste.co.nz/food-waste/what-we-waste/">just as guilty</a> as other countries. </p>
<p>Food loss occurs throughout the supply chain due to factors such as harvest losses and poor storage. It mainly occurs in developing economies. Food waste occurs at the point of sale (retailing or food service, for example) and in the home, and is more of an issue in developed economies.</p>
<p>All this lost and wasted food is a serious environmental issue. If <a href="https://www.bbc.com/future/article/20200224-how-cutting-your-food-waste-can-help-the-climate">food loss and waste was a country</a> it would be the third largest global emitter of greenhouse gases after the US and China.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/to-reduce-world-hunger-governments-need-to-think-beyond-making-food-cheap-142361">To reduce world hunger, governments need to think beyond making food cheap</a>
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<h2>Cheap food losses its value</h2>
<p>Many reasons have been put forward for the high levels of waste in our food system, from supermarket marketing (buy one get one free offers, for example) to a general lack of understanding of “use by” dates. </p>
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<img alt="Field of rotting fruit." src="https://images.theconversation.com/files/458495/original/file-20220419-144614-8uxv3z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/458495/original/file-20220419-144614-8uxv3z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/458495/original/file-20220419-144614-8uxv3z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/458495/original/file-20220419-144614-8uxv3z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/458495/original/file-20220419-144614-8uxv3z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/458495/original/file-20220419-144614-8uxv3z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/458495/original/file-20220419-144614-8uxv3z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Globally, between 20% and 40% of food is lost in the supply chain or wasted at the point of sale or by consumers.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com.au/detail/photo/discarded-fruit-and-vegetables-royalty-free-image/1131358468?adppopup=true">Andreas Coerper Mainz/Getty</a></span>
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<p>However, a key reason for food waste is that with low prices food is <a href="https://www.stuff.co.nz/environment/climate-news/112911360/new-zealands-most-wasted-food-items-beef-bread-cakes-and-oranges">not properly valued</a>. We only have to look back to the second world war or to those living now with real food shortages to see that when food is scarce it is not wasted.</p>
<p>Things are starting to change. The downward trend in food prices has been reversed over the past decade and this reversal has become particularly noticeable over the past three years. The interruptions in our food supply chains due to COVID-19 and the Russian invasion of Ukraine have pushed up the price of food, with further price rises expected as <a href="https://www.rnz.co.nz/news/country/464845/russia-tariffs-expected-to-raise-farmers-fertiliser-outlay">increases in resource costs</a> are fed through to the consumer.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/how-food-prices-are-affected-by-oil-trade-agreements-and-climate-change-164652">How food prices are affected by oil, trade agreements and climate change</a>
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<h2>The blanket tax</h2>
<p>These rises are exacerbated in New Zealand because GST is applied on all foods.</p>
<p>According to <a href="https://www.merriam-webster.com/dictionary/Engel%27s%20law">Engel’s Law</a>, as we become richer, the proportion of our income that we spend on food declines. Therefore, any tax on food falls disproportionately on low income households. </p>
<p>Inevitably, when food prices rise the call to remove GST resurfaces. </p>
<p>The general arguments <a href="https://www.stuff.co.nz/business/120325511/calls-to-cut-gst-but-how-does-it-actually-work">for and against removing GST</a> on food have been well canvassed in New Zealand. As recently as 2018 the Tax Working Group <a href="https://taxworkinggroup.govt.nz/sites/default/files/2018-09/twg-bg-gst.pdf">advocated against it</a>. </p>
<p>Those against removing the tax argue it will do little to tackle inequality, that it will be complicated and costly, and the lack of competition in the supermarket sector may mean that prices will <a href="https://comcom.govt.nz/about-us/our-role/competition-studies/market-study-into-retail-grocery-sector">not actually fall</a>.</p>
<p>The problem with GST in New Zealand is that it <a href="https://www.stuff.co.nz/environment/climate-news/128329364/big-climate-reports-take-on-meat-boiled-down-to-11-chunky-quotes">does not discriminate</a> between “good” and “bad” foods in terms of their impacts on our health or the environment.</p>
<figure class="align-center ">
<img alt="Hand placing food into boxes." src="https://images.theconversation.com/files/458496/original/file-20220419-16-v368l5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/458496/original/file-20220419-16-v368l5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/458496/original/file-20220419-16-v368l5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/458496/original/file-20220419-16-v368l5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/458496/original/file-20220419-16-v368l5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/458496/original/file-20220419-16-v368l5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/458496/original/file-20220419-16-v368l5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Rather than cutting GST on some products, the government could address food poverty through targeted support schemes.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com.au/detail/news-photo/boxes-of-food-are-prepared-before-the-bbm-foodbank-opens-news-photo/1343929368?adppopup=true">Fiona Goodall/Getty Images</a></span>
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<p>Targeted cuts in GST have been called for (for example on fruits and vegetables), but again concerns have been raised over the complexity of selective GST and possible costs associated with exempting some products and not others. You only have to look at the difficulties faced by Ireland when trying to <a href="https://www.stuff.co.nz/life-style/food-wine/food-news/300122087/subway-bread-isnt-bread-irish-court-rules">create tax distinctions between foods</a> to understand some of these challenges.</p>
<h2>Maybe GST isn’t the issue</h2>
<p>However, we could look at the issue of rising food prices and associated GST costs in a more positive light. </p>
<p>Higher prices encourage us to value food more appropriately and to waste less. This could provide major benefits by reducing the overall resource costs associated with our food system. </p>
<p>As GST is a percentage of the cost of food, price rises increase the government’s tax take. So instead of cutting GST it might be better to use the extra tax funds to alleviate the financial pressure on low income households through other means such as tax credits and support. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/turning-supermarkets-into-public-utilities-could-be-the-solution-to-new-zealands-grocery-problem-179192">Turning supermarkets into public utilities could be the solution to New Zealand's grocery problem</a>
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<p>In addition, concerted efforts to change our relationship with food could be supported with the additional tax revenue. These could include campaigns to educate our children on good eating, advice on how to cook and store food to prevent waste, and pressure on supermarkets to stop promoting excessive purchases. </p>
<p>These measures could help improve our health, reduce expenditure on food (as we are not wasting so much) and reduce the pressure on our environment.</p>
<p>If we can offset the negative financial impacts on low income households, then high prices signalling the true value of food, coupled with targeted interventions using the revenue from the tax, could work to tackle our dysfunctional food system. If we do it right then the gains in terms of our health and environment could be secured for future generations, regardless of economic shifts.</p><img src="https://counter.theconversation.com/content/181463/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alan Renwick does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Ending GST on some foods is being touted as a way to reduce food poverty. But cheap food comes with a high environmental and health cost. Is there a way to value food but reduce hardship?Alan Renwick, Professor of Agricultural Economics, Lincoln University, New ZealandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1762362022-02-07T19:07:58Z2022-02-07T19:07:58ZHow to camouflage $150 billion in spending: call it ‘tax expenditure’<figure><img src="https://images.theconversation.com/files/444488/original/file-20220204-21-1rth932.png?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">tatement</span> </figcaption></figure><p>This financial year the Australian government plans to spend at least A$150 billion on so-called <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook45p/TaxExpenditures">tax expenditures</a> – tax concessions or exemptions applying to particular activities or classes of taxpayer. </p>
<p>And that’s just on the top ten tax categories, covering homes, superannuation, trusts, depreciation, food, education and health.</p>
<p>In 2020-21 the cost of these ten tax breaks totalled $118.6 billion. This suggests revenue lost to tax expenditures has climbed 24% in the past financial year. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/444492/original/file-20220204-15-1ceuf2o.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/444492/original/file-20220204-15-1ceuf2o.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/444492/original/file-20220204-15-1ceuf2o.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444492/original/file-20220204-15-1ceuf2o.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444492/original/file-20220204-15-1ceuf2o.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444492/original/file-20220204-15-1ceuf2o.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=498&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444492/original/file-20220204-15-1ceuf2o.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=498&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444492/original/file-20220204-15-1ceuf2o.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=498&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">2021 Tax Benchmarks and Variations Statement.</span>
<span class="attribution"><a class="source" href="https://treasury.gov.au/publication/p2022-244177">Commonwealth Treasury</a></span>
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</figure>
<p>Tax expenditures are spending by another means. Although accounted for in the budget as <a href="https://cdn.theconversation.com/static_files/files/1961/Budget_Paper_1_202122.pdf">revenue forgone</a>) rather than revenue spent, they have the same effect as revenue spent on their beneficiaries and on the budget.</p>
<p>Here’s a quick quiz:</p>
<ul>
<li><p>Are Family Tax Benefits accounted for in the budget as direct spending or revenue forgone?</p></li>
<li><p>Is the Private Health Insurance Rebate accounted for in the budget as direct spending or revenue forgone?</p></li>
</ul>
<p>The answer is it makes no difference. Both of these examples have been classified one way, and then the other. The effect for beneficiaries and the budget is the same.</p>
<p>Optics, however, do make a difference to which accounting measures governments prefer.</p>
<h2>Spending attracts attention</h2>
<p>Measures on the books labelled as “spending” attract attention. The government’s <a href="https://www.directory.gov.au/commonwealth-parliament/cabinet/cabinet-committees/expenditure-review-committee">expenditure review committee</a> tries to keep spending down. Measures labelled “concessions” get less attention, and are seen as a way to keep tax down.</p>
<p>So measures with similar purposes get treated differently. Spending on age pensions gets scrutinised, for example, while superannuation tax concessions become part of the landscape.</p>
<p>If you want government support for your cause or your type of people with minimal attention, therefore, you should get that support classified as a “concession” rather than “spending”.</p>
<h2>Tax breaks ‘disguise’ expenditure</h2>
<p>The term “tax expenditure” was introduced to Australia by the 1973 report of the review of <a href="https://pmtranscripts.pmc.gov.au/sites/default/files/original/00002872.pdf">expenditure policies</a> established by the Whitlam government in 1972.</p>
<p>The review, led by former Reserve Bank of Australia governor H.C. Coombs, had been asked to examine spending but also looked at 48 “<a href="https://eprints.qut.edu.au/49837/2/49837.pdf">disguised</a>” tax expenditures.</p>
<p>Since 1980, major tax expenditures have been included in budget papers. Since 1986, at the behest of then treasurer Paul Keating, the federal treasury has prepared an annual <a href="https://cdn.treasury.gov.au/uploads/sites/1/2017/09/P2017-T169275-Working-Paper.pdf">tax expenditures statement</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/boosting-super-will-cost-the-budget-more-than-it-saves-on-age-pensions-119002">Boosting super will cost the budget more than it saves on age pensions</a>
</strong>
</em>
</p>
<hr>
<p>In 1996 then treasurer Peter Costello made the statement a formal requirement in the <a href="https://archive.budget.gov.au/1996-97/ministerial_statements/honest.pdf">Charter of Budget Honesty</a>.</p>
<h2>Benefits for the better-off</h2>
<p>This year (as with most years) the biggest tax expenditures are:</p>
<ul>
<li><p>exemptions from capital gains tax for private homeowners ($64 billion)</p></li>
<li><p>tax concessions on superannuation fund earnings ($22.6 billion)</p></li>
<li><p>tax concessions on superannuation contributions ($20.5 billion)</p></li>
<li><p>the treatment of only half of each capital gain as taxable ($11.7 billion)</p></li>
</ul>
<p>Soaring home prices have pushed up the cost of the homeowner tax concessions 28%, while the stronger share market has pushed up the cost of the concession on superannuation fund earnings 15%.</p>
<p>At least in these two big instances, the biggest tax expenditures go to the most well-off Australians. This isn’t universally the case – the exemption of fresh food from the goods and services tax, for example, disproportionately benefits Australians on low incomes – but generally the more of a tax someone would be liable for, the greater their gain from any concession. </p>
<h2>‘Revenue forgone’ versus ‘revenue gain’</h2>
<p>The cost of tax concessions has traditionally been described in terms of revenue forgone. But critics make the point this <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/House/Tax_and_Revenue/Tax_Expenditures/Report">isn’t equal</a> to the revenue that would be gained if the concessions were removed. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/444699/original/file-20220207-23-1olnrdn.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/444699/original/file-20220207-23-1olnrdn.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/444699/original/file-20220207-23-1olnrdn.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=968&fit=crop&dpr=1 600w, https://images.theconversation.com/files/444699/original/file-20220207-23-1olnrdn.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=968&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/444699/original/file-20220207-23-1olnrdn.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=968&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/444699/original/file-20220207-23-1olnrdn.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1217&fit=crop&dpr=1 754w, https://images.theconversation.com/files/444699/original/file-20220207-23-1olnrdn.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1217&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/444699/original/file-20220207-23-1olnrdn.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1217&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Australians are likely to save for retirement regardless of tax.</span>
<span class="attribution"><span class="source">shutterstock</span></span>
</figcaption>
</figure>
<p>It might be (for instance) that people would put their money elsewhere if they knew the capital gains on their homes would be taxed the same way as other assets. It might be that they would put less into superannuation if they knew the returns would be taxed at standard rates.</p>
<p>Partly to reflect these concerns, the name of the “tax expenditures statement” was changed to “tax benchmarks and variations statment” in 2018.</p>
<p>The federal treasury has begun preparing what it calls “revenue gain” estimates alongside “revenue forgone” estimates – an acknowledgement that less will be gained by removing tax breaks than appears to be lost by putting them in place.</p>
<p>For example, the GST exemption for fresh food is said to cost $8.4 billion in forgone revenue, but the treasury estimates only $8 billion would be gained if exemption was removed because some people would switch to prepared food.</p>
<p>Probably the most striking thing about the treasury’s revenue gain estimates is how little they differ from the revenue forgone estimates. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/election-tip-23-9-is-a-meaningless-figure-ignore-the-tax-to-gdp-ratio-115432">Election tip: 23.9% is a meaningless figure, ignore the tax-to-GDP ratio</a>
</strong>
</em>
</p>
<hr>
<p>The concessions for superannuation fund earnings, for example, are said to cost $20.5 billion, and the gain from abolishing a similar $19.6 billion. This reflects both the compulsory nature of superannuation and a belief that most Australians who save for retirement will continue to do it, if not through super then through another mechanism that attracts tax.</p>
<p>Tax expenditures tell us a lot about the size of government commitments and what they cost. The Coombs review wanted each limited to <a href="https://eprints.qut.edu.au/49837/2/49837.pdf">three years</a> and then replaced with direct spending that achieved the same effect.</p>
<p>We’ve yet to get a treasurer prepared to embrace that reform.</p><img src="https://counter.theconversation.com/content/176236/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins was formerly a Treasury officer and served as secretary to the Senate Economics Committee. </span></em></p>The Australian government’s spending on its biggest tax concessions has jumped 24% in the past year.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society and NATSEM, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1569482021-04-20T05:11:19Z2021-04-20T05:11:19ZSometimes people can do with a break: 3 ways tax debt relief rules are too tough<figure><img src="https://images.theconversation.com/files/391321/original/file-20210324-23-177otlr.jpg?ixlib=rb-1.1.0&rect=0%2C404%2C6000%2C3206&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Rawpixel.com/Shutterstock</span></span></figcaption></figure><p>When Debbie (not her real name) lost her main client and was left without a reliable income, the sole trader sold her home and adjoining investment unit to pay off her debts and ensure she had the means to support her daughter and herself.</p>
<p>But things didn’t work out as she had hoped. </p>
<p>A year later she was still mired in debt – only now to the Australian Tax Office, owing more than A$70,000 in capital gains tax from the sale of the investment property. By the time the payment deadline came, she still owed about A$61,000 plus A$13,500 in ATO-charged interest. </p>
<p>So she applied for tax relief under the “serious hardship” relief provisions that have been part of Australian tax law since 1915. </p>
<p>Her case might seem exactly the sort of reason why Australia’s <a href="https://www.legislation.gov.au/Details/C2021C00169">Taxation Administration Act</a> gives the Commissioner of Taxation discretion to release individuals “in whole or in part” from tax debts, if they will “suffer serious hardship” by being required to pay. </p>
<p>Debbie had always paid her taxes on time. A single mother, she had never drawn child-support payments. She was not in good health, having had breast cancer and depression. But her application was rejected. Twice. </p>
<p>Because Debbie’s claim had a fatal flaw, according to the rules governing the tax commissioner’s discretion. She couldn’t show that having her tax debt waived would, on its own, save her from serious financial hardship. </p>
<p>That is, the rules effectively say a tax debt can only be waived if it is the only debt pushing a person into serious hardship. But even without the tax debt, Debbie couldn’t meet her living expenses. Her application was therefore rejected.</p>
<p>So, perversely, the greater the financial hardship a person finds themselves in, the less likely a tax debt will be waived.</p>
<p>This, and a few other significant quirks, is why the ATO’s tax relief rules need reform.</p>
<h2>No published data since 2013</h2>
<p>We know Debbie’s story because she is one of a very small number that have appealed the tax commissioner’s decision to the federal Administrative Appeals Tribunal. </p>
<p>Just 34 appeals have been made in the past 50 years, according to <a href="https://www.sydney.edu.au/content/dam/corporate/documents/sydney-law-school/research/publications/slrv43n1mar2021final.pdf">our analysis</a>. All but four lost those appeals. </p>
<p>One interpretation of these numbers is the tax office almost always makes the right decision – granting relief when appropriate and denying it when not. We’re not convinced.</p>
<p>How many people apply and are granted relief in any year? We don’t know. </p>
<p>The Australian Tax Office hasn’t published those figures since 2013. The numbers for that year show about 15,000 people applied. About 2,500 were granted full or partial tax debt forgiveness.</p>
<p>We can only speculate about why this data is no longer published. But one effect is to minimise awareness that people in financial hardship can apply for tax debt relief. Our <a href="https://www.aph.gov.au/DocumentStore.ashx?id=5bf846c5-135e-43d6-8f9b-6253b61a7f36&subId=684946">research suggests</a> many more than 15,000 people could potentially qualify.</p>
<h2>Perverse rules</h2>
<p>But the perversities of the rules mean those most needing help don’t necessarily get it, as shown by the 34 cases we have examined.</p>
<p>The median tax debt in those cases was about A$80,000. A majority (19 of the 34) represented themselves, while the tax office was represented by lawyers.
The reasons they found themselves in debt were generally complex – involving serious mental and physical health problems, relationship breakdowns, carer responsibilities preventing full-time return to work, and so on. Seven were self-employed.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/hard-bump-ahead-drop-in-insolvencies-and-bankruptcies-is-a-ticking-time-bomb-155744">Hard bump ahead? Drop in insolvencies and bankruptcies is a ticking time bomb</a>
</strong>
</em>
</p>
<hr>
<p>Looking at the reasons most of these claims were rejected, we see the need for three key reforms.</p>
<p><strong>1. The greater the hardship, the less relief offered</strong></p>
<p>As outlined above, the tax commissioner can release someone from a tax debt only when it is “solely” the payment of that tax debt that will cause “serious hardship”. </p>
<p>This was the case in the two appeals that succeeded. In cases such as Debbie’s, no relief was granted because waiving the tax debt would not resolve all the person’s financial troubles.</p>
<p>This causal link should be removed.</p>
<p><strong>2. Penalised for paying other debts</strong></p>
<p>This leads to the second reform. Evidence of a person paying off other debts is grounds to disqualify them from tax debt relief.</p>
<p>The rationale is that tax obligations shouldn’t be treated as less important than other debts. But it has the perverse outcome that someone who pays off a credit card debt before their tax is effectively barred from serious hardship relief. </p>
<p>Rather than a “one strike and you’re out” approach, the law should recognise degrees of culpability - distinguishing between someone who deliberately and intentionally disregards their obligations and someone who gets in financial trouble due to losing their job, sickness, business failure, relationship breakdown and so on. </p>
<p><strong>3. GST-related debts are excluded</strong></p>
<p>Arguably the most problematic aspect of the rules is they make no provision for financial difficulties arising from being a sole trader or running a small business. In particular, the rules exclude forgiving GST debts. </p>
<p>On one level this makes sense. GST is meant to be collected with every invoice, then forwarded to the tax office with quarterly Business Activity Statements. A GST debt is therefore pocketing other people’s tax.</p>
<p>But these days many people are forced into being small business people, such as through working as contractors. They can be overwhelmed by the paper work, and not have the cash to pay a bookkeeper to do it for them. In our experience from <a href="https://www.aph.gov.au/DocumentStore.ashx?id=5bf846c5-135e-43d6-8f9b-6253b61a7f36&subId=684946">running a tax clinic</a>, people who come to us for help on average are eight years behind on tax returns and seven years on business activity statements. </p>
<p>The rules should recognise this reality and allow GST-related tax liabilities to be forgiven in some circumstances.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/performers-and-sole-traders-find-it-hard-to-get-jobkeeper-in-part-because-they-get-behind-on-their-paperwork-137997">Performers and sole traders find it hard to get JobKeeper in part because they get behind on their paperwork</a>
</strong>
</em>
</p>
<hr>
<h2>Time for a serious rethink</h2>
<p>When someone is genuinely experiencing serious financial hardship, it is futile to chase them for money they cannot pay. Forcing them into bankruptcy doesn’t help anyone.</p>
<p>We need more compassionate rules that reflect the reality of why people find themselves in debt. </p>
<p>Such reform has been made even more urgent by the COVID economic crisis.
Federal government subsidies and relaxation of normal rules have enabled many small businesses to stay afloat during the COVID crisis.</p>
<p>It hardly makes sense, given all the public money spent in other ways, for outdated tax-relief laws to force people into insolvency and bankruptcy now.</p><img src="https://counter.theconversation.com/content/156948/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ann Kayis-Kumar is Founding Director of UNSW Tax Clinic, which receives funding from the Federal Government's National Tax Clinic Program. </span></em></p><p class="fine-print"><em><span>Kevin O'Rourke chairs the Indirect Tax Committee for Chartered Accountants Australia and New Zealand.</span></em></p><p class="fine-print"><em><span>Michael Walpole receives funding from the Australian Research Council and is also involved in the running and promotion of the UNSW Tax Clinic which receives funding from the Federal Government's National Tax Clinic Program.</span></em></p>Australia’s tax relief rules are outdated. Here are three key points for reform.Ann Kayis-Kumar, Associate Professor, UNSW SydneyKevin O'Rourke, Lecturer, UNSW SydneyMichael Walpole, Professor, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1531952021-01-14T19:13:04Z2021-01-14T19:13:04ZGovernment funds are not ‘taxpayer money’ — media and politicians should stop confusing the two<figure><img src="https://images.theconversation.com/files/378702/original/file-20210114-20-3dfif9.jpg?ixlib=rb-1.1.0&rect=16%2C16%2C5407%2C3656&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>Rhetoric plays an important role in tax debate and therefore tax policy. If your side manages to gain traction in the public imagination with labels such as “<a href="https://www.npr.org/sections/thetwo-way/2010/12/16/132031116/a-history-of-how-we-got-from-estate-tax-to-death-tax">death tax</a>” or “<a href="https://www.theguardian.com/society/2017/may/22/theresa-may-u-turn-on-dementia-tax-cap-social-care-conservative-manifesto">dementia tax</a>”, you have gone a long way to normalising the labels and winning support. </p>
<p>Some truth underpins these particular labels — an estate tax is triggered by a person’s death, and the United Kingdom’s abandoned levy for end-of-life care would have been particularly relevant for dementia sufferers. </p>
<p>Nevertheless, these tags are essentially political messages and we should expect unbiased media to use neutral terminology. Fair reportage would not, for example, repeat the extreme libertarian claim that “<a href="https://www.libertarianism.org/columns/is-taxation-theft">tax is theft</a>” — a baseless slogan incompatible with the rule of law. </p>
<p>However, both reputable media and politicians of every stripe invariably use the phrase “taxpayer money” to describe government funds, despite the phrase having no constitutional or legal basis. </p>
<p>This article argues that truth-based media should avoid the phrase, and progressive politicians should recognise they fall into a conservative trap when they repeat it.</p>
<h2>Taxpayers don’t own their taxes</h2>
<p>Richard Murphy, one of the founders of the UK’s <a href="https://www.taxjustice.net/">Tax Justice Network</a> and author of <a href="https://openaccess.city.ac.uk/id/eprint/16536/">The Joy of Tax</a>, explains that “taxpayers’ money” is the money left in our pockets after we have paid taxes that are legally due. Money payable through taxes is the government’s property. </p>
<p>This is quite easy to prove — try not paying your income tax and see if the courts will enforce government property rights in that money. </p>
<p>Murphy also observes that “taxpayer” is typically understood as “income tax payer”, thereby implicitly preferring high income earners while excluding beneficiaries. But a goods and services tax (GST) ensures everyone is a taxpayer, and indirect taxes disproportionately affect the poor. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/whats-at-stake-for-nz-in-australias-case-against-china-at-the-world-trade-organisation-153098">What's at stake for NZ in Australia’s case against China at the World Trade Organisation?</a>
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</em>
</p>
<hr>
<p>Similarly, at a local level, “ratepayer” has become synonymous with the propertied voice to which councils should pay heed, even though renters (rather than the registered ratepayer for a leased property) bear the effective burden of local rates.</p>
<p>If the government is the legal owner of its funds, then, does it hold tax revenue in trust for taxpayers? Not at all. Subject to the rule of law, governments can do what they choose with their money. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1349448884448235520"}"></div></p>
<h2>Elections decide how taxes are spent</h2>
<p>Self-appointed watchdogs such as the <a href="https://www.taxpayers.org.nz/">Taxpayers’ Union</a> claim to bring government waste to public notice. Rightly so — as citizens, we should demand proper stewardship of government funds. </p>
<p>But our actionable right as electors is to vote a wasteful government out of office. The electorate as a whole, rather than an ideological interest group, determines the size of government we should have. </p>
<p>Unlike trust beneficiaries, we do not have an equitable interest in the government’s money. If it were otherwise, groups of taxpayers might have some claim on the government to spend or not spend its money in particular ways.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/world-economy-in-2021-heres-who-will-win-and-who-will-lose-152631">World economy in 2021: here's who will win and who will lose</a>
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<hr>
<p>For example, paying taxes to fund belligerent activities is problematic for pacifists, notably certain religious groups. A <a href="https://www.congress.gov/bill/116th-congress/house-bill/4169/text?format=txt&r=260&s=2">Religious Freedom Peace Tax Fund Act</a>, which has been regularly introduced to the United States Congress, would permit dissenting taxpayers to assign the defence portion of their taxes to supporting peace work and social services. </p>
<p>Proponents of the legislation have not sought to pay less tax than their fellow citizens but to direct how their tax contribution is spent. These attempts have failed, as they must do. Democratic political communities permit dissent, but nonconformism does not extend to directing how taxes should be spent. </p>
<h2>Tax is part of the social contract</h2>
<p>In <a href="https://books.google.co.nz/books/about/The_Variorum_Civil_Disobedience.html?id=GHFAAAAAIAAJ&redir_esc=y">The Variorum Civil Disobedience</a> (1849), a reflection on his imprisonment for failing to pay a highway tax, Henry David Thoreau recognised that an individual citizen can protest against government by refusing to pay tax (and accept the consequences), but they cannot treat the government’s choices in its expenditure as if it were a cafeteria. He wrote: </p>
<blockquote>
<p>It is for no particular item in the tax-bill that I refuse to pay it. I simply wish to refuse allegiance to the State, to withdraw and stand aloof from it effectually. I do not care to trace the course of my dollar, if I could, till it buys a man or a musket to shoot one with — the dollar is innocent — but I am concerned to trace the effects of my allegiance.</p>
</blockquote>
<p>Liberal democracies are based on some form of metaphorical <a href="https://plato.stanford.edu/entries/contractarianism/">social contract</a>, most obviously manifest in the constitution. Under this arrangement, parliamentarians are elected representatives, not agents for particular groups. </p>
<figure class="align-right ">
<img alt="Henry David Thoreau" src="https://images.theconversation.com/files/378701/original/file-20210114-19-1r42qxl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/378701/original/file-20210114-19-1r42qxl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=849&fit=crop&dpr=1 600w, https://images.theconversation.com/files/378701/original/file-20210114-19-1r42qxl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=849&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/378701/original/file-20210114-19-1r42qxl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=849&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/378701/original/file-20210114-19-1r42qxl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1066&fit=crop&dpr=1 754w, https://images.theconversation.com/files/378701/original/file-20210114-19-1r42qxl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1066&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/378701/original/file-20210114-19-1r42qxl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1066&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Henry David Thoreau: ‘the dollar is innocent’.</span>
<span class="attribution"><span class="source">www.shutterstock.com</span></span>
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</figure>
<p>Like any government that fails to comply with the basic values of society, groups that seek to control government expenditure outside the electoral process can be seen as bending, if not breaching, the social contract.</p>
<h2>A handbrake on decisive action</h2>
<p>A progressive government should reject the suggestion that its funds are not its own to use as it sees fit for the betterment of society — as always, in accordance with New Zealand’s two fundamental constitutional principles of <a href="http://www.ldac.org.nz/guidelines/legislation-guidelines-2018-edition/constitutional-issues-and-recognising-rights/chapter-4/">parliamentary sovereignty and the rule of law</a>. </p>
<p>Kowtowing to a myth of “taxpayer money” may act as a handbrake on decisive action. We are taxed in accordance with statutory law. If Inland Revenue seeks to collect more from us than is due, we have access to various tribunals and courts. </p>
<p>These legal rules and processes determine what is mine and what belongs to the government. Broadly, we are free to deal with our own property as we see fit — and the government is too. </p>
<p>Media and progressive politicians should stop perpetuating the untruth that taxpayers retain some residual property interest in the taxes they pay. Taxpayer money is nothing more than their after-tax property and the government’s money is its own.</p><img src="https://counter.theconversation.com/content/153195/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonathan Barrett does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Once paid, tax becomes the property of the government. Pretending otherwise undermines the basic principles of the social contract.Jonathan Barrett, Senior Lecturer in Taxation, Te Herenga Waka — Victoria University of WellingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1515762020-12-31T20:19:58Z2020-12-31T20:19:58ZCabinet papers 2000: the Coalition before climate denialism, but on the path to offshore detention<figure><img src="https://images.theconversation.com/files/376059/original/file-20201220-15-jsysuy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> </figcaption></figure><p>Australian Cabinet papers from 2000, released today, reflect a relatively quiescent Australia where Islamic militancy and offshore detention were barely glimpses on the horizon, and climate science denialism was not a factor in cabinet considerations at all. </p>
<p>It was the year before the “<a href="https://insidestory.org.au/the-year-of-living-anxiously/">year that changed everything</a>”: 2001, when <a href="https://www.reuters.com/news/picture/defining-images-from-the-9-11-attacks-idUSRTS2Q0UX">Al-Qaeda attacked the United States on September 11</a>, and the Howard government created its “<a href="https://www.aph.gov.au/about_parliament/parliamentary_departments/parliamentary_library/pubs/bn/2012-2013/pacificsolution">Pacific Solution</a>” asylum-seeker deterrent. They would both become prisms through which Australian politics would be refracted for many years to come.</p>
<p>In contrast, in 2000, <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=ZD4">John Howard</a> (prime minister 1996-2007) later mused, “we had no conception of the challenges which would engulf the world in the next few years”.</p>
<p>The government’s concerns half-way through its second term, with a 14-seat majority, were overwhelmingly domestic. The approach to global issues mostly prioritised local implications over international obligations. </p>
<h2>Minchin throws a stick in the wheel of an ETS</h2>
<p>On climate change, the papers reveal a working consensus among cabinet ministers, with one exception, that an emissions trading scheme (ETS) was not only a possible but a likely route by which Australia would eventually fulfil its international environmental obligations.</p>
<p>The market-based nature and sectoral neutrality of an ETS made it the quality choice, cabinet submissions and departmental co-ordination comments make clear. The papers show early work being done on an ETS within the government. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=513&fit=crop&dpr=1 600w, https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=513&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=513&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=645&fit=crop&dpr=1 754w, https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=645&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/376060/original/file-20201220-15-1u1fz3o.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=645&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Senator Nick Minchin stood alone in his objection to an ETS to tackle climate change.</span>
<span class="attribution"><span class="source">Alan Porritt/AAP</span></span>
</figcaption>
</figure>
<p>Industry and Resources Minister Nick Minchin stood out against the ETS consensus. Advocating a massive expansion of the gas industry, Minchin pushed for compensation for carbon-intensive industries so large and across so many sectors that it would have massively blunted an ETS’s impact. This drew sharp adverse comments from across the key departments. </p>
<p>Treasurer Peter Costello and his department supported expansion of the gas industry, but drew the line at Minchin’s proposed emasculation of a future ETS. Costello would unsuccessfully bring an ETS proposal to cabinet three years later, in 2003. Howard announced one in the lead-up the 2007 election. </p>
<p>So the 2000 papers contain foundational documents at the heart of this policy arc. They show Minchin as central in swerving cabinet from its consensus ETS support in 2000, to hostility by the time he helped install Tony Abbott as Liberal opposition leader in 2009.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/bushfires-wont-change-climate-policy-overnight-but-morrison-can-shift-the-coalition-without-losing-face-129354">Bushfires won't change climate policy overnight. But Morrison can shift the Coalition without losing face</a>
</strong>
</em>
</p>
<hr>
<h2>The GST takes flight</h2>
<p>Costello’s implementation of the <a href="https://treasury.gov.au/sites/default/files/2019-03/Whitepaper.pdf">goods and services tax (GST)</a> was the centre of heavy cabinet deliberations ahead of its implementation on July 1 2000.</p>
<p>It was the culmination of a textbook exercise in conceiving, publicly advocating for and then successfully implementing a major, complex public policy – an object lesson for governments today. </p>
<p>It begs the question whether, had the Coalition won the 2007 election, an ETS might now be an unremarked-upon aspect of public finance in Australia too, just like the once controversial GST.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/S-DrA4gnuFA?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>Rural and regional Australia was a major focus, with cabinet submissions generally including rural impact statements. </p>
<p>Howard benefited from a congenial relationship with the National Party leader and deputy prime minister, <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=4K4">John Anderson</a>. </p>
<p>Anderson was the best-educated Nationals leader since <a href="http://adb.anu.edu.au/biography/page-sir-earle-christmas-7941">Earle Page</a>. He was aligned with the National Farmers Federation (NFF) push for market-oriented policy over the old Country Party “deal-making” policy style, to which the Nationals later reverted. </p>
<p>Howard could count on Anderson’s support in cabinet. In exchange, Anderson ran a massive infrastructure program bringing concrete benefits to the bush and regions and kept its voters welded to the Coalition.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=435&fit=crop&dpr=1 600w, https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=435&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=435&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=546&fit=crop&dpr=1 754w, https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=546&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/376061/original/file-20201220-13-n7xg18.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=546&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Howard had a strong relationship with Nationals leader John Anderson (right), which offered advantages to both men.</span>
<span class="attribution"><span class="source">AAP/Alan Porritt</span></span>
</figcaption>
</figure>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cabinet-papers-1998-99-how-the-gst-became-unstoppable-128844">Cabinet papers 1998-99: how the GST became unstoppable</a>
</strong>
</em>
</p>
<hr>
<h2>On many issues, little has changed in 20 years</h2>
<p>Women are barely mentioned in the papers and were almost non-existent in Howard government decision-making. There was only one woman in the 17 strong cabinet: the family and community services minister, <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=BE4">Senator Jocelyn Newman</a>. </p>
<p>In the outer ministry, the aged care minister, <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=SE4">Bronwyn Bishop</a>, came under pressure when it emerged <a href="https://www.theage.com.au/national/kerosene-bath-nurses-banned-20020329-gdu35d.html">residents at Riverside Home in Melbourne were being subjected to kerosene baths</a>, with lethal consequences. Problems in other aged care homes quickly emerged.</p>
<p>Bishop’s cabinet submission in the wake of the crisis trumpeted the government’s Aged Care Act 1997 as “the basis for a sound and sustainable aged care system” and “the most significant change for the industry in its history”.</p>
<p>There was no need to restore nursing ratios, she argued. A “return to ratios would return the industry to detailed input regulation and reduce its efficiency” the submission, which cabinet backed, said.</p>
<p>Indigenous Australians are little mentioned other than in relation to workforce disadvantage and the Northern Territory’s move to mandatory detention for minors.</p>
<p>Cabinet supported only a fraction of the assistance requested by Aboriginal and Torres Strait Islander Affairs Minister <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=VW4">John Herron</a> to address deep and worsening Indigenous unemployment.</p>
<p>The government decided not to override the NT government’s mandatory detention move. Instead, it asked Attorney-General <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=7V5">Daryl Williams</a> to write to his NT counterpart about its concerns. A week later, cabinet was outraged when it found a United Nations committee investigating potential human rights breaches in Australia against Indigenous citizens, without consultation.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=498&fit=crop&dpr=1 754w, https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=498&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/376063/original/file-20201220-13-o4dtrb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=498&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Indigenous Australians receive little mention in the 2000 cabinet papers.</span>
<span class="attribution"><span class="source">AAP/Marianna Massey</span></span>
</figcaption>
</figure>
<p>What the 2000 cabinet papers reveal concerning the growing issue of unauthorised boat arrivals in Australia, and in particular the “deterrent” approach Immigration and Multicultural Affairs Minister <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=0J4">Philip Ruddock</a> recommended, and cabinet adopted, is historically significant. </p>
<p>They show a government under increasing pressure and moving quickly down a particular path. Departmental comments show this rang increasingly loud alarm bells in the major departments, even as they broadly supported the “deterrent” approach. </p>
<p>There are, and likely always will be, different opinions about the deterrent strategy, and public discussion usually turns on the binary question of whether it was right or wrong.</p>
<p>The 2000 papers are important, not least because they open up critical additional questions, even for its supporters, about whether this strategy could have been implemented differently and better.</p>
<p>Anglosphere politics had begun to make a particular kind of shift to the right, and the Howard government was in the vanguard. It was still relatively early days in that shift, as the fact the government had a cabinet position that included “multicultural affairs” in its title attests.</p>
<p>To put this shift into international context, media mogul Rupert Murdoch would not appoint Roger Ailes CEO of his Fox News channel in the United States until the following year.</p>
<figure class="align-left ">
<img alt="" src="https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1019&fit=crop&dpr=1 600w, https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1019&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1019&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1280&fit=crop&dpr=1 754w, https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1280&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/376062/original/file-20201220-57963-z5xrgn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1280&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Pauline Hanson’s arrival in Canberra in 1996 marked a shift to explicitly nativist politics in Australia.</span>
<span class="attribution"><span class="source">AAP/Alan Porritt</span></span>
</figcaption>
</figure>
<p>Australia’s insurgency of explicitly nativist politics was marked by the arrival in Canberra in 1996 of One Nation’s <a href="https://www.aph.gov.au/Senators_and_Members/Parliamentarian?MPID=BK6">Pauline Hanson</a> as the member for Oxley. Internationally, this wave may have peaked in the election of another nativist redhead, US President Donald Trump, 20 years later. </p>
<p>The fierce conduct of the “<a href="https://www.evatt.org.au/post/the-history-wars">history wars</a>” in Australia from the 1990s, the prominent role of <a href="https://theconversation.com/with-friends-like-these-just-how-close-are-the-liberal-party-and-ipa-60442">conservative think tanks</a> in it, and the early challenge and ongoing political consequences of unauthorised boat arrivals in Australia – which has only relatively recently emerged as an issue in Europe – make Australia an early example of a phenomenon that shifted mainstream conservative politics to a distinctly different place from that occupied before.</p>
<p>In 2000, elements of it were evident but not yet fully activated. The following year, from September 11, they would be supercharged.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/pauline-hanson-built-a-political-career-on-white-victimhood-and-brought-far-right-rhetoric-to-the-mainstream-134661">Pauline Hanson built a political career on white victimhood and brought far-right rhetoric to the mainstream</a>
</strong>
</em>
</p>
<hr>
<p><em>Chris Wallace is the official historian for the 2000-2001 cabinet papers release from the National Archives of Australia. You can read her full essay on the 2000 papers <a href="https://www.naa.gov.au/explore-collection/cabinet/latest-cabinet-release">here</a>.</em></p><img src="https://counter.theconversation.com/content/151576/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Chris Wallace has received funding from the Australian Research Council. </span></em></p>In the Howard government, there was near-consensus in Cabinet that an ETS was eventually likely. A spike in asylum-seeker arrivals stimulated the hard “deterrent’ strategy” that would morph into the “Pacific Solution” in 2001.Chris Wallace, Associate Professor, 50/50 By 2030 Foundation, Faculty of Business Government & Law, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1461862020-09-15T19:52:54Z2020-09-15T19:52:54ZTasmania’s tax system is broken: here are three ways to fix it<figure><img src="https://images.theconversation.com/files/358052/original/file-20200915-24-8eavaz.jpg?ixlib=rb-1.1.0&rect=1341%2C341%2C2739%2C1553&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">SevenMaps/Shutterstock</span></span></figcaption></figure><p>For two decades now, meaningful tax reform has proved elusive. </p>
<p>At the federal level, there hasn’t been any comprehensive reform since the Howard government’s <a href="https://treasury.gov.au/publication/economic-roundup-winter-2006/a-brief-history-of-australias-tax-system">New Tax System of 2000</a>, the one that brought in the goods and services tax.</p>
<p>It’s much the same for the states. </p>
<p>With the exception of the reforms that accompanied the introduction of the GST in 2000, state tax systems haven’t changed much since the 1970s, which began with the transfer of payroll tax from the Commonwealth to the states, and ended with the abolition of death duties.</p>
<p>For their part, state governments have spent most of the following four decades narrowing the bases of the few taxes over which they do have control, in order either to curry favour with important groups of voters such as small business people and home owners, or to compete with other states to attract employers.</p>
<p>Australia’s two largest states have become increasingly reliant on a tax uniformly condemned as a “<a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">bad tax</a>” – stamp duty on the transfer of land. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">Abolish stamp duty. The ACT shows the rest of us how to tax property</a>
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</em>
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<hr>
<p>The next two largest states have ridden booms in royalties from mining and gas which have, for the most part, allowed them to avoid the need for even thinking about reforming their taxes.</p>
<p>Only in the Australian Capital Territory has there been a genuine (so far successful) effort to undertake a reform that enjoys almost unanimous support among economists, the replacement of stamp duties on land transfers with a <a href="https://theconversation.com/abolish-stamp-duty-the-act-shows-the-rest-of-us-how-to-tax-property-105378">broadly-based land tax</a>. </p>
<p>The fact that the ACT government is also in effect the Canberra city council has allowed it to accomplish this by raising rates rather than breaking the taboo of imposing land tax on the “family home”.</p>
<h2>Tasmania specialises in bad taxes, and the GST</h2>
<p>The Tasmanian government raises less from its own resources (taxes, royalties, user charges and dividends) than any other jurisdiction except the Northern Territory. </p>
<p>That’s largely because, as identified by the <a href="https://www.cgc.gov.au/sites/default/files/tas_summary.pdf">Commonwealth Grants Commission</a> in its annual reviews, Tasmania’s revenue-raising capacity is less than that of any other state or territory, although it also partly reflects decisions by successive Tasmanian governments of both political persuasions to raise less than they could.</p>
<p>Perhaps because Tasmania has been able to rely on GST allocations and other grants from the Commonwealth, there have been no serious conversations about its tax system since a tri-partisan parliamentary inquiry was <a href="https://www.theadvocate.com.au/story/698684/review-of-state-taxes-suspended/?cs=87">abruptly terminated</a> almost nine years ago.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/our-states-are-crying-poor-they-wouldnt-if-they-charged-for-rezoning-142838">Our states are crying poor. They wouldn't if they charged for rezoning</a>
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</em>
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<hr>
<p>Since then, Tasmania’s political parties have been more anxious to make commitments about what they would not do, than to outline plans for what was needed.</p>
<p>That complacency is likely to be challenged by the abrupt decline in revenue from the goods and services tax as a result of the current recession, as well as by its longer-term decline as a share of GDP for reasons recently identified by the <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/Publications/Research_reports">Parliamentary Budget Office</a>. </p>
<p>The collapse in GST revenue will hurt Tasmania’s budget more than that of any other state or territory (other than the Northern Territory).</p>
<hr>
<p><strong>Goods and services tax revenue as a proportion of GDP</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/358031/original/file-20200915-18-86y8on.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Per cent of gross domestic product.</span>
<span class="attribution"><a class="source" href="https://www.aph.gov.au/-/media/05_About_Parliament/54_Parliamentary_Depts/548_Parliamentary_Budget_Office/Reports/2020-21/Structural_trends_in_GST/Structural_trends_in_GST_-_PDF.pdf?la=en&hash=FF8291FA10365CC45C88BC2EF94F109D5378786F">Parliamentary Budget Office</a></span>
</figcaption>
</figure>
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<h2>There’s a way out</h2>
<p>The report I’ve written for The Australia Institute published this morning entitled <a href="https://www.saul-eslake.com/reforming-tasmanias-tax-system-some-options/#full_version">Reforming Tasmania’s state tax system: Some options</a> notes that Tasmania gets a higher proportion of its total state tax take from “bad taxes” (stamp duty on land transfers, and taxes on insurance premiums) than any state or territory except Victoria.</p>
<p>It gets a smaller proportion of its tax take from what are generally thought to be “good taxes” (payroll tax and land tax) than any state or territory except Queensland.</p>
<p>It proposes three reforms which can be implemented by a Tasmanian government without requiring a lead from the larger states.</p>
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Read more:
<a href="https://theconversation.com/models-only-give-part-answer-to-real-tax-reform-54160">Models only give part answer to real tax reform</a>
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<p>None would require financial assistance from the Commonwealth (although that would be helpful, especially with transitional arrangements, if the Commonwealth is as serious about encouraging productivity-enhancing reform as the <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/speeches/4th-sir-john-downer-oration-university-adelaide">Treasurer</a> says he is).</p>
<h2>1. Land tax instead of stamp duty</h2>
<p>The first is to replace existing “conveyancing duties”, as stamp duties on the transfer of land are officially called in Tasmania, with a land tax whose base should include owner-occupied homes and “shacks”, which are currently exempt or otherwise not taxed.</p>
<p>It should be levied on individual land holdings (rather than the aggregate of them) at progressive rates on the per-square-metre value of each holding.</p>
<p>There would need to be a transitional provision, such as a credit for stamp duty paid on recently-acquired property. </p>
<p>And there would need to be a deferral provision for “asset rich, income poor” homeowners such as pensioners. Both are possible.</p>
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Read more:
<a href="https://theconversation.com/ideas-for-australia-five-ideas-to-help-fix-australias-tax-system-56272">Ideas for Australia: Five ideas to help fix Australia's tax system</a>
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<p>The average residential land-owner would not have paid more in land tax under this proposal than he or she would have by way of stamp duty on the purchase of the property until he or she had lived in it for more than nine years. </p>
<p>By that time, as the recent <a href="https://www.treasury.nsw.gov.au/sites/default/files/2020-06/FFR%20Review%20Draft%20Report%20.pdf">Thodey Report</a> to the NSW government points out, any reasonable interpretation of “fairness” demands owners should be paying more than they currently do.</p>
<h2>2. Proper payroll tax</h2>
<p>The second proposed reform is cutting the threshold for payroll tax to the average annual earnings of five Tasmanian employees from its current level, which is equivalent to the average annual earnings of 36 employees.</p>
<p>The extra revenue would be used to lower the rate from what is currently the second-highest in Australia to what would likely be the second-lowest, and to exempt new businesses from payroll tax altogether for the first so many years of their existence, where the number of years could be, for example, three or five.</p>
<p>This will produce howls of outrage from small businesses, a larger proportion of which are exempt from payroll tax in Tasmania than in any other state, and from others who (<a href="https://www.saul-eslake.com/reforming-tasmanias-tax-system-some-options/#full_version">wrongly</a>) believe that small business is the engine room of the economy.</p>
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<span class="caption">Small businesses are anything but the engine room of the economy.</span>
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<p>My report shows that exempting small business from payroll tax has not done anything to enhance job creation, innovation or any of the other blessings commonly claimed.</p>
<p>On the contrary, Bureau of Statistics figures show that over the four years to 2018-19, during which time Tasmania’s economy in many respects out-performed the rest of Australia, small business was responsible for only <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/ProductsbyCatalogue/48791677FF5B2814CA256A1D0001FECD?OpenDocument">13%</a> of Tasmania’s net increase in private sector employment.</p>
<p>Big businesses (who had to pay the second-highest payroll tax in Australia) were responsible for 34%.</p>
<p>Medium-sized businesses, many of whom also had to pay the second-highest payroll tax in Australia, accounted for 52%. </p>
<p>Indeed, over the 12 years to 2018-19, employment at Tasmanian small businesses declined by 11.6% – more than double the national average – despite Tasmania having the most generous payroll tax concessions for small businesses.</p>
<p>Of course the fact that payroll tax is paid in the first instance by employers doesn’t mean that it is a “tax on jobs” any more than is the goods and services tax, which in the first instance is paid by shoppers.</p>
<p>Preferencing <em>new</em> businesses would do far more to spur entrepreneurship and to stimulate job creation and innovation than preferencing <em>small</em> ones simply because they’re small.</p>
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Read more:
<a href="https://theconversation.com/memo-to-australias-states-try-renovating-your-tax-system-before-asking-for-a-new-one-141893">Memo to Australia's states: try renovating your tax system before asking for a new one</a>
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<p>It would also cost less: which would mean the special treatment for new businesses could be more generous, if desired. </p>
<p>And since new businesses can’t prevent themselves from becoming an old businesses, other than by going out of business, there would be no perverse incentives such as those that currently result in small businesses ceasing to grow at just below the point at which they become ineligible for preferential treatment.</p>
<h2>3. Death duties on estates over $1 million</h2>
<p>The third, and probably the most controversial, proposal is the reintroduction of death duties: specifically, on estates valued at over A$1 million (which would exclude 91% of the estates granted probate by Tasmania’s Supreme Court over the past three years), at rates ranging from 5% on amounts between $1 million and $5 million, 10% on the next $5 million, and 20% on anything over $10 million (which in Tasmania has been just 10 estates, 0.1% of the total, over the past three years.</p>
<p>However, the report also proposes that people whose estates would be liable to such a tax could obtain a credit against it (a reduction) for donations to Tasmanian-based deductible gift recipients – up to the point where, if they wished, they could completely extinguish their liability. </p>
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Read more:
<a href="https://theconversation.com/house-prices-and-demographics-make-death-duties-an-idea-whose-time-has-come-114175">House prices and demographics make death duties an idea whose time has come</a>
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<p>Such an arrangement would provide a powerful incentive for philanthropy in Tasmania, as it has <a href="https://theconversation.com/philanthropy-is-funding-serious-journalism-in-the-us-it-could-work-for-australia-too-79349">in the United States</a>. </p>
<p>There will of course be predictable cries of outrage against such a proposal, not so much perhaps from those whose estates would be subject to the tax as from their children and others who hope to benefit the inheritances without sharing any of the windfall – a requirement a surprising number of Americans don’t seem to find at all objectionable. </p>
<p>No doubt opponents of such a proposal will also find it convenient to ignore the stipulation that fewer than 10% of estates would be liable for the tax, or the suggestion that estates passing to surviving spouses (though not to other people) would be exempt.</p>
<h2>This needn’t mean more tax, or less tax</h2>
<p>All or any of these proposals could be used to raise more revenue than Tasmania’s present tax system. </p>
<p>Or they could be used to raise less revenue, by a party that wanted to argue that reducing the overall state tax burden would improve Tasmania’s competitiveness.</p>
<p>My report <a href="https://www.saul-eslake.com/reforming-tasmanias-tax-system-some-options/#full_version">doesn’t take a position in favour of either option</a>, instead it advocates for a fairer system.</p>
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Read more:
<a href="https://theconversation.com/rethink-inheritances-these-days-they-go-to-the-already-middle-aged-122029">Rethink inheritances. These days they go to the already middle-aged</a>
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<p>The system I propose would be more efficient in the sense of doing less to distort the choices businesses and households make as to how they allocate their capital, where they live, how often they move home and how they do other things.</p>
<p>And it would make Tasmania’s financial position less vulnerable to forces entirely beyond its control or influence.</p>
<p>Which is another way of saying it would represent real reform: something that has been sorely lacking, no less in Tasmania than anywhere else, for 20 years.</p><img src="https://counter.theconversation.com/content/146186/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The report referred to in this article was commissioned by The Australia Institute</span></em></p>Tasmania gets more of its revenue from “bad taxes” than any state or territory other than Victoria, and less from “good taxes” than anywhere other than Queensland.Saul Eslake, Vice-Chancellor’s Fellow, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1459162020-09-09T22:57:52Z2020-09-09T22:57:52ZWith their conservative promises, Labour and National lock in existing unfairness in New Zealand’s tax system<p>Ability to pay is the basic principle of tax fairness: people in a similar financial position should pay similar amounts of tax; people who can afford to pay more tax than others ought to pay more tax.</p>
<p>The first proposition is about <a href="https://www.oecd.org/ctp/glossaryoftaxterms.htm#H">horizontal equity</a> (similar treatment of similarly placed people). The second relates to <a href="https://www.oecd.org/ctp/glossaryoftaxterms.htm#V">vertical equity</a> (different treatment of differently placed people). But identifying what constitutes “similar” and “different” is not science, it’s a matter of social or political judgment.</p>
<p>For example, someone who earns NZ$200,000 a year faces a higher marginal tax rate than someone who earns $20,000 because their situations are different. But someone who earns income from employment is taxed in the same way as someone who earns the same amount from investment because their situations are considered the same. </p>
<p>So, how do the political parties’ proposals measure up from the perspectives of horizontal and vertical equity?</p>
<p>The <a href="https://www.greens.org.nz/progressive_tax_reform">Greens</a> and <a href="https://www.top.org.nz/tax">TOP</a> both propose expanding the (horizontal) tax base, as Labour did three years ago with its now abandoned capital gains tax (CGT) proposal. This is a basic form of horizontal equity. </p>
<p>ACT proposes <a href="https://www.act.org.nz/middle_income_tax_cut">broad cuts</a> to income tax and GST. But since none of the minor party policies seem likely to be adopted in their raw form by the next government, for now we must focus on the Labour and National proposals.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1303480093113630720"}"></div></p>
<h2>A dubious revenue-raising exercise</h2>
<p>By focusing on income tax rates, both major parties ignore horizontal equity and focus on vertical equity.</p>
<p>In his <a href="https://www.labour.org.nz/tax?gclid=Cj0KCQjw-uH6BRDQARIsAI3I-Ue4oqMHxS4l7hvo7yiIIaV7I3OOl_SKXjvU77dJ1_0H1QYiEpBDZhcaAlfsEALw_wcB">speech</a> announcing a new highest marginal rate of 39% for annual incomes over $180,000, finance minister and Labour finance spokesperson Grant Robertson argued the additional revenue (a predicted $550 million) will support COVID-19 recovery.</p>
<p>Robertson did mention fairness in his speech – in relation to multinational corporations not paying their fair share (by reporting profits in low-tax jurisdictions rather than the country they were earned). But despite huge amounts of work by the OECD, we still don’t really know what a fair share means. </p>
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Read more:
<a href="https://theconversation.com/forget-a-capital-gains-tax-what-new-zealand-needs-is-a-tax-on-inherited-wealth-143604">Forget a capital gains tax – what New Zealand needs is a tax on inherited wealth</a>
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<p>Besides, the equity issue that really matters is fair treatment of individuals.</p>
<p>As a pure revenue-raising exercise, the marginal rate increase is dubious. There is <a href="https://www.business.uwa.edu.au/__data/assets/pdf_file/0006/2937822/160927-Shane-Johnson-bunching.pdf">ample evidence</a> from Australia that “bunching” of incomes occurs when marginal tax rates increase: while high-salary earners have little option but to pay at the highest rate, we are likely to see many self-employed earners with incomes capped around $180,000. </p>
<p>Similarly, while Inland Revenue has had some success in combating the <a href="http://www.nzlii.org/nz/journals/AukULawRw/2011/12.pdf">manipulation of trusts</a>, the opaque nature of such arrangements facilitates tax planning. </p>
<h2>Locking in existing unfairness</h2>
<p>So, a higher top marginal rate is a gesture of vertical equity. But it does nothing to address the implausible assumption that an extra dollar in the hands of someone earning $70,000 a year is the same as an extra dollar in the hands of someone earning $179,000.</p>
<p>National also proposes improving vertical equity by <a href="https://www.stuff.co.nz/national/politics/300074099/judith-collins-says-no-tax-cuts-from-national-this-election">combating bracket creep</a>. This occurs when tax bands are not adjusted for inflation. While not inherently unfair, bracket creep is somewhat underhanded because it draws more taxpayers into higher tax brackets when the real value of their income hasn’t increased. </p>
<p>Under National’s proposal, the current thresholds would be index-linked and automatically increase. At the current annual inflation rate of 1.5%, then, the threshold for the highest marginal rate would increase next year to $71,050. </p>
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Read more:
<a href="https://theconversation.com/new-zealand-is-violating-the-rights-of-its-children-is-it-time-to-change-the-legal-definition-of-age-discrimination-145685">New Zealand is violating the rights of its children. Is it time to change the legal definition of age discrimination?</a>
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<p>This is a modest increase, but over years indexing could be significant. Even so, the change would do little to promote fair treatment between earners at the bottom of the threshold and a person earning $500,000 a year.</p>
<p>Labour argues that its proposal will affect only 2% of people. National says the vast majority of taxpayers would gain some benefit under its policy. The problem is, while both proposals promote modest vertical equity, they lock in existing unfairness in the tax system. </p>
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<h2>A narrow tax base is the real problem</h2>
<p>It may seem intuitively unfair that the current highest marginal tax rate applies at a relatively low level of income, but there is no science to setting tax rates. Economists might argue over whether higher tax rates are disincentives to work or enterprise, but ultimately tax laws are a matter of political judgment.</p>
<p>The real unfairness in New Zealand lies in its narrow tax base. The absence of taxes on general capital gains, capital transfers and wealth all <a href="http://morganfoundation.org.nz/new-zealand-income-tax-unfair-favours-rich/">benefit the wealthy</a>, whereas GST disproportionately <a href="https://www.taxresearch.org.uk/Blog/2011/01/04/why-vat-is-regressive/">affects the poor</a>.</p>
<p>If we had an appropriately broad tax base, we could lower income tax rates – the 33% rate on income above $70,000 could be reduced, as could the 15% of GST. </p>
<p>No doubt National can’t risk looking reckless by promising tax cuts during the COVID-19 crisis and recovery, and Labour can’t risk jeopardising its current broad popularity by offering more radical ideas. </p>
<p>But the result of these conservative proposals, even if they are tempered by gestures of vertical equity, is to entrench the horizontal inequity that bedevils the New Zealand tax system.</p><img src="https://counter.theconversation.com/content/145916/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jonathan Barrett does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Both major parties refuse to grasp the nettle of New Zealand’s narrow and inherently unfair tax base.Jonathan Barrett, Senior Lecturer in Taxation, Te Herenga Waka — Victoria University of WellingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1420372020-07-06T19:54:13Z2020-07-06T19:54:13ZAustralia needs a six-month GST holiday<figure><img src="https://images.theconversation.com/files/345734/original/file-20200706-33909-m3li1u.jpg?ixlib=rb-1.1.0&rect=551%2C659%2C3444%2C1012&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Treasurer Josh Frydenberg has spent billions trying to save us from recession. The winding down of JobKeeper scheduled for <a href="https://theconversation.com/whatll-happen-when-the-moneys-snatched-back-our-looming-coronavirus-support-cliff-138527">September</a> means he’ll have to spend billions more.</p>
<p>Many of the stimulus measures talked about are focused on the traditional targets of <a href="https://theconversation.com/look-beyond-a-silver-bullet-train-for-stimulus-136834">infrastructure</a> and <a href="https://theconversation.com/homebuilder-might-be-the-most-complex-least-equitable-construction-jobs-program-ever-devised-140162">residential construction</a>. </p>
<p>But this recession is different to previous ones. It has wrought most of its damage to restaurants, retail, entertainment and the holiday industry. </p>
<p>These service sector industries employ the lions share of the Australians at risk.</p>
<p>No matter how much traditional stimulus we offer, very few baristas or chefs are going to be able to find work building high-speed rail lines.</p>
<p>The COVID recession requires a different response. </p>
<h2>A GST holiday would fight the recession we’ve got</h2>
<p>One that would work would be a GST holiday. </p>
<p>Instantly, and for the next six months, all goods and services covered by the 10% tax would become more affordable. </p>
<p>The concession would be timely, targeted and would generate the maximum economic bang for the government’s buck.</p>
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Read more:
<a href="https://theconversation.com/the-charts-that-show-coronavirus-pushing-up-to-a-quarter-of-the-workforce-out-of-work-136603">The charts that show coronavirus pushing up to a quarter of the workforce out of work</a>
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<p>It would be targeted because the GST doesn’t cover many of the goods people are already buying such as fresh food and medicines. </p>
<p>What it does cover is extra, less essential, spending on things such as clothes, tourism and restaurants – the exact kind of spending we need to stimulate. </p>
<p>Cutting income tax or cash splashes wouldn’t deliver as big a bang for the buck – much of the bonus would be saved, or spent in sectors that don’t require stimulus.</p>
<p>However the only way to get the GST discount would be to buy goods and services, many of them produced by workers who will need support.</p>
<h2>It’d be direct money where it is needed</h2>
<p>The benefit would also be progressive. Calculations by Peter Varela, an economist at the Australian National University, suggest that the <a href="https://taxpolicy.crawford.anu.edu.au/sites/default/files/uploads/taxstudies_crawford_anu_edu_au/2016-11/gst_varela_stewart_complete_jan_2016.pdf">poorest households</a> pay the highest share of their income in GST. </p>
<p>Removing it would eliminate this burden, if temporarily, helping the poorest households the most.</p>
<p>Making it temporary would encourage Australians to spend right now.</p>
<p>A GST holiday that only lasted only six months would force households to consider bringing forward planned future purchases to the present, when they are needed, in the same way as the government’s six month extension of the <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/extending-instant-asset-write">instant asset write-off</a> is meant to for businesses.</p>
<h2>It’s been done elsewhere</h2>
<p>The idea was considered by Australia’s treasury during the global financial crisis. Britain’s treasury did it, cutting its GST (called value added tax) from 17.5% to 15% for a year in a measure <a href="https://www.ifs.org.uk/conferences/crossley_nta2009.pdf">judged a success</a>.</p>
<p>Britain is reported to be planning to do it <a href="https://www.theguardian.com/commentisfree/2020/jun/22/vat-stealth-tax-time-cut-rishi-sunak-alistair-darling">again</a>. </p>
<p>Germany has already <a href="https://www.theguardian.com/world/2020/jun/04/germany-unveils-huge-130bn-coronavirus-recovery-package">done it</a>. It has cut its value added tax from m 19% to 16% until the end of the year.</p>
<p>Australia baulked at the idea during the global financial crisis because it was considered too difficult to get the premiers to agree to it. </p>
<p>But it mightn’t be as difficult now. The COVID-19 response has generated a new surge in cooperation between state and federal leaders for the good of the nation.</p>
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Read more:
<a href="https://theconversation.com/cutting-unemployment-will-require-an-extra-70-to-90-billion-in-stimulus-heres-why-141376">Cutting unemployment will require an extra $70 to $90 billion in stimulus. Here’s why</a>
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<p>A fly in the ointment would be who paid for it. The six month holiday might cost A$35 billion. While the states traditionally receive the GST revenue, in this instance the bill for the cut should be paid by the federal government. </p>
<p>It’s the federal government that is responsible for managing the national economy. State budgets, already hard hit, shouldn’t be further damaged. </p>
<p>Over to you Treasurer Frydenberg. Your economic statement is due on <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/update-economic-and-fiscal-outlook">July 23</a>. The budget is due on <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/2020-21-budget-announcement">October 6</a>. You could do worse than emulate Germany and the United Kingdom.</p><img src="https://counter.theconversation.com/content/142037/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Isaac Gross does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Going GST-free for six months would cost the budget $35 billion. Very little of it would be wasted.Isaac Gross, Lecturer in Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1418932020-07-05T19:50:06Z2020-07-05T19:50:06ZMemo to Australia’s states: try renovating your tax system before asking for a new one<figure><img src="https://images.theconversation.com/files/345456/original/file-20200703-29-1ns9ko0.jpg?ixlib=rb-1.1.0&rect=957%2C202%2C3009%2C1498&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>A <a href="https://www.treasury.nsw.gov.au/federal-financial-relations-review">major report</a> commissioned by the NSW government has proposed lifting and expanding the goods and services tax and replacing stamp duty with a broad-based land tax.</p>
<p>Launched at the <a href="https://iview.abc.net.au/show/national-press-club-address/series/0/video/NC2011C023S00">National Press Club</a> on July 1 by NSW Treasurer Dominic Perrottet, panel chair David Thodey and panel member Jane Halton, the report said what has been said before – that these particular big bold changes will set Australia up for the future.</p>
<p>But they’ve fallen flat in the past.</p>
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<a href="https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=971&fit=crop&dpr=1 600w, https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=971&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=971&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1220&fit=crop&dpr=1 754w, https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1220&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/345433/original/file-20200703-33918-57q0bj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1220&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Former Telstra chief David Thodey launching the Federal Financial Relations Review on July 1.</span>
<span class="attribution"><span class="source">MICK TSIKAS/AAP</span></span>
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</figure>
<p>Big bold proposals have losers as well as winners. When the losers are identified, it is hard to get traction, even if the winners want them.</p>
<p>NSW residential stamp duty is roughly equivalent to a tax on property of one and a half to twice the current municipal rates. Transitioning from one to the other might take <a href="https://www.ahuri.edu.au/__data/assets/pdf_file/0020/15338/Pathways-to-state-tax-reform-Executive-Summary.pdf">10 to 20 years</a>. </p>
<p>The losers (people paying higher rates) are more numerous and likely to be more vocal than the winners (people finding it cheaper to move home).</p>
<p>And proposals involving the goods and services tax lead to finger pointing – towards the Commonwealth for waiting for the states, and towards the states for waiting for each other. </p>
<p>Proposing the Commonwealth fix state problems is attractive to everyone but the Commonwealth.</p>
<p>Thodey’s <a href="https://www.treasury.nsw.gov.au/sites/default/files/2020-06/FFR%20Review%20Draft%20Report%20.pdf">report</a> is an improvement on many past reports, but it too has shot for the big headlines. The states do have genuine problems with tax design and the current federal arrangements, but a more worthy strategy might be to focus on renovating the system they’ve got.</p>
<h2>Renovation is slow, but effective</h2>
<p>Repairing what states already have is simpler, less contentious and almost certainly just as effective as big bold programs, albeit less exciting.</p>
<p>A recent review I took part in, commissioned by the Australian Housing
and Urban Research Institute, found it was best to start <a href="https://www.ahuri.edu.au/research/final-reports/291">small</a>, build each case, and move incrementally. </p>
<p>First, state governments should wind back the current array of <a href="https://www.budget.nsw.gov.au/sites/default/files/budget-2019-06/Appendices-A5-BP1-Budget_201920.pdf">tax concessions</a>. Doing so in NSW could increase land tax collections by 27%, payroll tax collections by 19% and conveyancing stamp duty by 9%.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cutting-out-the-insurance-free-rider-when-it-comes-to-funding-fire-services-15852">Cutting out the insurance "free rider" when it comes to funding fire services </a>
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<p>Second, in NSW there would be value in revisiting the failed 2017 proposal to replace insurance stamp duties with a property-based fire and emergency services levy applying to all homes needing fire protection, not just those that are insured, a proposal the new NSW review <a href="https://www.treasury.nsw.gov.au/sites/default/files/2020-06/FFR%20Review%20Draft%20Report%20.pdf">supports</a>.</p>
<p>Most states have already done it. The levy would lay the foundations for property making a greater contribution to state revenue and build the architecture needed for a land tax for stamp duty swap.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/post-coronavirus-well-need-a-working-tax-system-not-more-taxes-and-not-higher-rates-137232">Post-coronavirus, we'll need a working tax system, not more taxes and not higher rates</a>
</strong>
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<p>Third, and very unexciting, states should renovate their tax administration. One initiative would be a national harmonised payroll tax administered by the Australian Tax Office.</p>
<p>Another would be publishing <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/">tax gap</a> estimates. The tax office has found publishing estimates of what is not being collected compared to what could be collected is <a href="https://www.ato.gov.au/Media-centre/Speeches/Other/Future-of-tax-administration/">fundamental</a> to identifying what is not working.</p>
<p>None of these ideas make for big headlines. But on the track record of ideas that attract big headlines so far, they are likely to achieve more than those that do.</p><img src="https://counter.theconversation.com/content/141893/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Neil Warren has received funding in the past from the Australian Housing and Urban Research Institute.</span></em></p>Boosting the GST and swapping land tax for stamp duty get headlines, but they never seem to happen.Neil Warren, Emeritus Professor of Taxation, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1418732020-07-02T02:48:47Z2020-07-02T02:48:47ZPolitics with Michelle Grattan: two leading economists on Australia’s post-COVID economy<p>With three months before JobSeeker is due to end and calls for <a href="https://theconversation.com/cutting-unemployment-will-require-an-extra-70-to-90-billion-in-stimulus-heres-why-141376">billions of dollars in extra spending</a>, there is a growing debate about how Australia’s post-coronavirus economy will actually look.</p>
<p>While Scott Morrison has said Australia will need to lift economic growth by “more than one percentage point above trend” through to 2025, a <a href="https://theconversation.com/no-big-bounce-2020-21-economic-survey-points-to-a-weak-recovery-getting-weaker-amid-declining-living-standards-141184">22-economist panel </a> hosted by The Conversation forecast a bleaker result. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/no-big-bounce-2020-21-economic-survey-points-to-a-weak-recovery-getting-weaker-amid-declining-living-standards-141184">No big bounce: 2020-21 economic survey points to a weak recovery getting weaker, amid declining living standards</a>
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<p>Growth one percentage point above trend would average almost 4% per year.</p>
<p>The Conversation’s economic panel forecast an annual growth averaging 2.4% over the next four years, much less than the long-term trend.</p>
<p>In this podcast, Michelle Grattan discusses the economic pathway ahead with two economists featured on the panel: Professor of Economics at the UNSW Business School Richard Holden, and Professor of Economics and Public Policy at the Australian National University Warwick McKibbin.</p>
<p>McKibbin argues for a major change to the national cabinet. “I think it would be very useful if the leader of the opposition was on that cabinet, and perhaps even a couple of the key ministerial portfolios from the opposition side, so that you truly have… both sides of the political spectrum represented.”</p>
<p>Making the body more inclusive, McKibbin says, would assist a bipartisan approach. “If you are going to go for the big bipartisan approach, which I think is fundamental to most of the problems we face, you have to do something like the national cabinet,” he said.</p>
<p>“It worked very effectively during the worst parts of the virus, it is breaking down now it appears, because Australians seem to think things are okay now. But I think you’ll see it re-emerge very shortly.”</p>
<p>Richard Holden warns an increase in taxation should not be contemplated to pay for some of the large spend the COVID crisis is requiring. </p>
<p>“I don’t think there will be an increase in taxation under this government, and I definitely don’t think there should be under any government,” he says. </p>
<p>“The coalition has made the debt and deficits mantra part of their political brand, and I understand that from a political perspective. And there’s nothing wrong with aspiring to balancing the budget over the economic cycle.”</p>
<p>“But when you’re in one of the largest economic crises in a hundred years, it is not the time to be penny-pinching and focusing on economic management credentials as measured by the budget bottom line in the short term.”</p>
<p><a href="https://itunes.apple.com/au/podcast/politics-with-michelle-grattan/id703425900?mt=2"><img src="https://images.theconversation.com/files/233721/original/file-20180827-75984-1gfuvlr.png" alt="Listen on Apple Podcasts" width="268" height="68"></a> <a href="https://www.google.com/podcasts?feed=aHR0cHM6Ly90aGVjb252ZXJzYXRpb24uY29tL2F1L3BvZGNhc3RzL3BvbGl0aWNzLXdpdGgtbWljaGVsbGUtZ3JhdHRhbi5yc3M"><img src="https://images.theconversation.com/files/233720/original/file-20180827-75978-3mdxcf.png" alt="" width="268" height="68"></a></p>
<p><a href="https://www.stitcher.com/podcast/the-conversation-4/politics-with-michelle-grattan"><img src="https://images.theconversation.com/files/233716/original/file-20180827-75981-pdp50i.png" alt="Stitcher" width="300" height="88"></a> <a href="https://tunein.com/podcasts/News--Politics-Podcasts/Politics-with-Michelle-Grattan-p227852/"><img src="https://images.theconversation.com/files/233723/original/file-20180827-75984-f0y2gb.png" alt="Listen on TuneIn" width="318" height="125"></a></p>
<p><a href="https://radiopublic.com/politics-with-michelle-grattan-WRElBZ"><img class="alignnone size-medium wp-image-152" src="https://images.theconversation.com/files/233717/original/file-20180827-75990-86y5tg.png?ixlib=rb-1.1.0&q=45&auto=format&w=268&fit=clip" alt="Listen on RadioPublic" width="268" height="87"></a> <a href="https://open.spotify.com/show/5NkaSQoUERalaLBQAqUOcC"><img src="https://images.theconversation.com/files/237984/original/file-20180925-149976-1ks72uy.png?ixlib=rb-1.1.0&q=45&auto=format&w=268&fit=clip" width="268" height="82"></a> </p>
<h2>Additional audio</h2>
<p><a href="http://freemusicarchive.org/music/Lee_Rosevere/The_Big_Loop_-_FML_original_podcast_score/Lee_Rosevere_-_The_Big_Loop_-_FML_original_podcast_score_-_10_A_List_of_Ways_to_Die">A List of Ways to Die</a>, Lee Rosevere, from Free Music Archive.</p><img src="https://counter.theconversation.com/content/141873/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Michelle Grattan discusses the economic future of Australia post-COVID with economists Richard Holden and Warwick McKibbinMichelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1372322020-05-03T19:50:09Z2020-05-03T19:50:09ZPost-coronavirus, we’ll need a working tax system, not more taxes and not higher rates<figure><img src="https://images.theconversation.com/files/331672/original/file-20200430-42918-1bauua.jpg?ixlib=rb-1.1.0&rect=168%2C343%2C3585%2C2141&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Oliver Wendell Holmes Jr famously observed in 1927 that “taxes are what we pay for civilised society, <a href="http://www.worldlii.org/us/cases/federal/USSC/1927/178.html">including the chance to insure</a>”. </p>
<p>Whilst tax as a price for civilised society is well understood, less appreciated is the second part of his observation – that tax provides a chance to insure against a crisis. </p>
<p>As nations emerge from the COVID-19 crisis with policies unthinkable just six months ago, and associated debts previously unimaginable, it is becoming clear that while some were well insured and able to respond rapidly, most were underinsured, exposing their civilisations to previously unthinkable risks.</p>
<p>In many ways Australia is an exemplar in its use of taxation to provide the “chance to insure”. It funds Medicare; the Pharmaceuticals Benefit Scheme; the Higher Education Loan Program; the Superannuation Guarantee Charge and contingency-based welfare payments.</p>
<h2>COVID has exposed the weakness in our system</h2>
<p>COVID-19 has exposed how underinsured Australia is in other ways. It will have to borrow heavily to protect the economy, but for many years won’t be able to impose the extra taxes that will be needed to pay down the debt.</p>
<p>Introducing new taxes or increasing existing tax rates would threaten what will be a fragile recovery.</p>
<p>The only realistic option is to review what Australia gives away, such as <a href="https://treasury.gov.au/sites/default/files/2020-01/complete_tbvs_web.pdf">tax concessions,</a> and what it fails to collect, as measured by the so-called <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/">tax gap</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/did-you-cheat-on-your-taxes-heres-why-your-days-may-be-numbered-57622">Did you cheat on your taxes? Here's why your days may be numbered</a>
</strong>
</em>
</p>
<hr>
<p>The tax gap is the difference between the amount the Tax Office collects and what we would have collected if every taxpayer was fully compliant with tax law. </p>
<p>In 2016-17, the Commonwealth raised <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/5506.0">A$389 billion</a> in taxes, intentionally gave away an estimated <a href="https://treasury.gov.au/publication/p2019-357183">$166 billion</a> and unintentionally failed to collect a further <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/?anchor=Summaryfindings#Summaryfindings">$30-35 billion</a> that the Tax Office knows of. </p>
<p>Mapping out a pathway to winding back government debt and funding programs to better insure our civilised society has to begin with ensuring those who are not currently carrying their fair share of the legislated tax burden do so through reforms to reduce non-compliance. </p>
<h2>Many of us aren’t paying the tax we should</h2>
<p>The Tax Office conservatively estimates that non-compliance for the taxes it has so far examined is equivalent to more than <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Tax-gap/Australian-tax-gaps-overview/?anchor=Summaryfindings#Summaryfindings">8%</a> of the tax revenue it collected in 2015-16.</p>
<p>The Treasury also estimates that tax concessions in 2017-18 were equivalent to <a href="https://treasury.gov.au/sites/default/files/2020-01/complete_tbvs_web.pdf">41%</a> of Commonwealth government revenue, or more than 9% of GDP (although it cautions against adding estimates together as reducing one concession can affect the use of others).</p>
<p>Given the scale of the Commonwealth response to COVID-19, the government will need additional tax revenues of around 2.5% of GDP (about $50 billion) for some years. </p>
<p>This should not prove insurmountable. In comparison with other advanced economies, Australia is a relative low taxer with a total tax burden of 28.6% of GDP in 2017-18, well below the OECD average of about 34.5%. </p>
<h2>There’s revenue going begging</h2>
<p>The tax gap estimates show billions can be raised from integrity measures such as addressing overclaimed work-related expenses ($3 billion), unreported cash wages ($1 billion) unreported rental property net income ($2 billion) and unreported business income ($2-3 billion). </p>
<p>There’s much more available from reducing tax concessions, removing the personal tax-free threshold, winding back retirement savings concessions, and broadening the goods and service tax (especially from fully taxing the food that is already partially taxed). </p>
<p>Lower income groups affected by the changes should be compensated by improved targeting of expenditure programs.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cabinet-papers-1998-99-how-the-gst-became-unstoppable-128844">Cabinet papers 1998-99: how the GST became unstoppable</a>
</strong>
</em>
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<hr>
<p>Right now we’ve a near-universal welfare system and a targeted tax system.</p>
<p>The way out of our present problems is to make the tax system more universal and the welfare system more targeted.</p>
<p>New taxes and higher rates should be resisted, especially if made more palatable by more concessions.</p>
<p>What we are proposing would not only result in a tax system that was simpler and harder to escape – but one that was capable of funding the insurance we will need to preserve our society into the future</p>
<p>There’s no reason to think there won’t be another pandemic exposing the weaknesses in our tax system that remain.</p><img src="https://counter.theconversation.com/content/137232/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>We are failing to collect and giving away in tax concessions hundreds of billions.Neil Warren, Emeritus Professor of Taxation, UNSW SydneyRichard Highfield, Adjunct Professor of Taxation, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1288442019-12-31T13:27:26Z2019-12-31T13:27:26ZCabinet papers 1998-99: how the GST became unstoppable<figure><img src="https://images.theconversation.com/files/307389/original/file-20191217-58321-l6ielv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">John Howard called an election a fortnight after announcing the GST on August 13 1998, which he only narrowly won.</span> <span class="attribution"><span class="source">National Archives of Australia</span></span></figcaption></figure><p>Twice the goods and services tax had been rejected, the first time by Labor, which came close to introducing something similar in <a href="https://www.smh.com.au/national/how-the-hawke-keating-team-unravelled-over-tax-20121231-2c2t8.html">1985</a> and then by the Australian electorate, which rejected the Coalition’s Fightback tax reform package in <a href="https://www.smh.com.au/politics/federal/the-fightback-lesson-how-politics-can-stymie-good-public-policy-20111225-1p9aq.html">1993</a>.</p>
<p>It had been recommended to the government by the <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/Publications_Archive/Background_Papers/bp9798/98bp01">Asprey Tax Review</a>, which reported to Prime Minister Gough Whitlam in 1975 after being set up by Prime Minister William McMahon in 1972. </p>
<p>By the end of the 1990s, there was a GST in almost every other developed country, including New Zealand, which had introduced it at 10% in 1986 and increased it to 12.5% in 1989.</p>
<p>The cabinet records for 1998 and 1999 released this morning by the National Archives don’t give us much of an idea about what made Prime Minister John Howard try one more time, within a year or so of being elected on a promise that there is “<a href="https://www.smh.com.au/opinion/lets-have-the-honest-truth-once-and-for-all-20040818-gdjkkl.html">no way a GST will ever be part of our policy</a>”.</p>
<p>“<a href="https://www.youtube.com/watch?v=ZNyYeyUeKSg">Never ever?</a>” the interviewer asked Howard. “Never ever. It’s dead. It was killed by voters at the last election,” Howard replied.</p>
<p>Some of the momentum came from a series of <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/Publications_Archive/Background_Papers/bp9798/98bp01">High Court decisions</a> in 1997 that made it illegal for Australia’s states to continue taxing petrol, alcohol and tobacco. </p>
<p>The Commonwealth had to step in. And according to cabinet historian Paul Strangio, who has reviewed the papers released this morning, part of it came from a feeling the government had lost its way, amid “rumblings about the security of the prime minister’s leadership”.</p>
<p>But the <a href="https://www.naa.gov.au/">papers</a> do give us a good idea of how the momentum became unstoppable. </p>
<p>Once Howard set up a taskforce in August 1997 and asked it to come up with a plan to cut income tax, introduce a broad-based indirect tax and reconfigure Commonwealth-state financial relations, he had a sense of direction.</p>
<p>He called an election a fortnight after announcing the GST on August 13 1998, which he only narrowly won.</p>
<p>His ministers found themselves sidelined, being reduced to offering suggestions for presentation, given that the direction of the policy was already public.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/307337/original/file-20191217-187581-1sjc73c.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/307337/original/file-20191217-187581-1sjc73c.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/307337/original/file-20191217-187581-1sjc73c.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=682&fit=crop&dpr=1 600w, https://images.theconversation.com/files/307337/original/file-20191217-187581-1sjc73c.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=682&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/307337/original/file-20191217-187581-1sjc73c.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=682&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/307337/original/file-20191217-187581-1sjc73c.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=857&fit=crop&dpr=1 754w, https://images.theconversation.com/files/307337/original/file-20191217-187581-1sjc73c.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=857&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/307337/original/file-20191217-187581-1sjc73c.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=857&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Cabinet decisions JH1998/253.</span>
<span class="attribution"><a class="source" href="https://cdn.theconversation.com/static_files/files/820/32319235.pdf?1576550819">National Archives of Australia</a></span>
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<p>“Were there doubters in the cabinet? Of course there were,” Howard’s treasurer, Peter Costello, said today’s release. “But by that stage we had said several times we were doing it, there was no point in saying let’s not do it.” </p>
<blockquote>
<p>So I’d walk out of cabinet meetings with lists of suggestions, one goes on for several pages, instructing the treasurer to do better in explaining the role of the tax on this sector, do better on explaining the exemption for diesel fuel, it went on and on.</p>
</blockquote>
<p>Costello made history by presenting to the cabinet on PowerPoint, using slides that have long-since been lost. He also displayed computer modelling of the effect of every income group and family type of every proposed variation in rates and thresholds. He said:</p>
<blockquote>
<p>You’ll find one minute in there that says the treasurer presented a proposal for tax reform, which was adopted. That’s the minute of a meeting that went on for seven hours saying how every group would be in front or behind. I became the government’s PowerPoint guy. </p>
<p>As we were coming out of that cabinet meeting after seven hours I asked one of my senior colleagues, how do you think this is going to go? He said he didn’t know, but he liked the colours.</p>
</blockquote>
<p>The cabinet made a momentous and expensive decision; that on average no income group of family type would be made worse off. </p>
<p>It lifted pensions and other payments by 4% in order to “overcompensate”, and found itself overcompensating even more when fresh food was excluded from GST in order seal a deal with the Australian Democrats.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/307351/original/file-20191217-164429-6ecc4n.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/307351/original/file-20191217-164429-6ecc4n.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/307351/original/file-20191217-164429-6ecc4n.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=681&fit=crop&dpr=1 600w, https://images.theconversation.com/files/307351/original/file-20191217-164429-6ecc4n.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=681&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/307351/original/file-20191217-164429-6ecc4n.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=681&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/307351/original/file-20191217-164429-6ecc4n.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=856&fit=crop&dpr=1 754w, https://images.theconversation.com/files/307351/original/file-20191217-164429-6ecc4n.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=856&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/307351/original/file-20191217-164429-6ecc4n.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=856&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Cabinet decisions JH1998/253.</span>
<span class="attribution"><a class="source" href="https://cdn.theconversation.com/static_files/files/820/32319235.pdf?1576550819">National Archives of Australia</a></span>
</figcaption>
</figure>
<hr>
<p>Costello had been determined to get the tax in by July 1 2000, just before the Sydney 2000 Olympics. This would allow him to tax hoards of overseas visitors, most of them from countries that already had goods and services taxes.</p>
<p>He admits to nervousness in the lead-up to the date when almost every price in Australia had to change, some coming down as higher wholesale taxes were revoked, and some going up by as much as 10% which was to be the new standard rate. By design, the GST was to be hidden from consumers, incorporated in new prices.</p>
<blockquote>
<p>I remember having having a meeting in the cabinet room. We called in (Chief Executives) Peter Bartels from Coles Myer and Roger Corbett from Woolworths. One of them I think it was Roger, said to me: ‘you are telling us to change one billion prices on June 30. One price at a minute to midnight, another on the stroke of midnight. How we do that?’ </p>
<p>I had never thought of it in those terms, I began to wonder whether it was a good idea. </p>
</blockquote>
<p>The GST created millions of tax collection points, making it far more complex than other attempts at reforming taxes such as the Rudd governments mining tax and the Gillard government’s carbon price.</p>
<p>Each had to be issued with an Australian Business Number.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/307363/original/file-20191217-164409-1iubwr0.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/307363/original/file-20191217-164409-1iubwr0.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/307363/original/file-20191217-164409-1iubwr0.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=723&fit=crop&dpr=1 600w, https://images.theconversation.com/files/307363/original/file-20191217-164409-1iubwr0.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=723&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/307363/original/file-20191217-164409-1iubwr0.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=723&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/307363/original/file-20191217-164409-1iubwr0.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=908&fit=crop&dpr=1 754w, https://images.theconversation.com/files/307363/original/file-20191217-164409-1iubwr0.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=908&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/307363/original/file-20191217-164409-1iubwr0.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=908&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Cabinet decisions JH1998/253.</span>
<span class="attribution"><a class="source" href="https://cdn.theconversation.com/static_files/files/820/32319235.pdf?1576550819">National Archives of Australia</a></span>
</figcaption>
</figure>
<hr>
<blockquote>
<p>We thought there were 800,000 businesses in Australia. By the time we finished, we had issued two million Australian Business Numbers, including many businesses that had never been known before. </p>
</blockquote>
<p>It didn’t go smoothly at first. Businesses, like the cabinet, were new to computerisation. But by the time Labor’s Kim Beazley was defeated in the 2001 election on a platform that included a “rollback” of the GST, it had come to be accepted as part of the Australian way of paying our way.</p>
<p>Costello’s biggest surprise is that it didn’t go up. It remains at 10%, in part because of a deal that <a href="https://www.smh.com.au/politics/federal/whatever-their-real-plan-coalition-could-increase-rate-of-gst-20130813-2rukk.html">lacks legal force</a> requiring every state to agree before it does. </p>
<p>He says he thought the deal would hold for a while because there would usually be a state going into an election that would veto an increase. He never thought it would hold for 20 years.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/factcheck-is-the-gst-as-efficient-but-less-equitable-than-income-tax-45052">FactCheck: is the GST as efficient but less equitable than income tax?</a>
</strong>
</em>
</p>
<hr>
<p>Today’s release of archival documents contains lessons for Howard and Costello’s successors. One is that over time, almost any change will come to be accepted as normal. In the language of tax veterans, and “old tax is a good tax”. </p>
<p>It’s what Costello’s predecessor Paul Keating discovered when he introduced the capital gains tax and the fringe benefits tax. After a while, they become normal.</p>
<p>The other lesson is that it pays to buy off likely losers. It also pays to bring in a change that at first loses more than it brings in. Overcompensation is expensive, but if the change is a good one, it can be worthwhile.</p>
<p>It sometimes isn’t enough, though, as Gillard discovered when she brought in the carbon price and overcompensated almost everybody. </p>
<p>Another secret ingredient might have been the broad support from groups that were normally opposed. </p>
<p>Business backed it as a way of getting taxes off incomes and the welfare lobby backed it as a guaranteed stream of money the government could use to provide social services.</p>
<p>It’s an agreement about means, if not ends, that doesn’t come along often.</p><img src="https://counter.theconversation.com/content/128844/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The introduction of the GST got off to a wobbly start, but has since become accepted as the Australian way of paying for things.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1149242019-05-01T00:58:34Z2019-05-01T00:58:34ZIssues that swung elections: the ‘unlosable election’ of 1993 still resonates loudly<p><em>With taxes, health care and climate change emerging as key issues in the upcoming federal election, we’re running a series this week looking at the main issues that swung elections in the past, from agricultural workers’ wages to the Vietnam War. Read other stories in the series <a href="https://theconversation.com/au/topics/issues-that-swung-elections-69985">here</a>.</em></p>
<hr>
<p>The 1993 election is known as the “unlosable election” for the Liberal Party. It highlights how the course of a campaign can shift voter opinion to produce a result few would have predicted a month out from polling day. </p>
<p>As the current election campaign unfolds, a foreboding message may resonate from the 1993 campaign. Namely, that being the clear frontrunner tends to foster complacency, and touting a “big target” invites more intense scrutiny.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/fake-news-is-already-spreading-online-in-the-election-campaign-its-up-to-us-to-stop-it-115455">'Fake news' is already spreading online in the election campaign – it's up to us to stop it</a>
</strong>
</em>
</p>
<hr>
<h2>Labor’s unlikely triumph</h2>
<p>Labor in 1993 was a triumph, comparable to Whitlam’s 1972 win. After a year languishing in the polls, Labor won a fifth term and increased its majority by two seats. </p>
<p>In his <a href="https://www.youtube.com/watch?v=IwtR6bIIYKY">victory speech</a>, Prime Minister Paul Keating declared it “the sweetest victory of all”, and “a victory for the true believers – the people who in difficult times have kept the faith”.</p>
<p>For some, these words reflected one of the great Labor speeches; for others, they reflected the hubris that would eventually envelop the Keating government. </p>
<p>To win a fifth term having recently presided over a severe economic recession and a bitter leadership challenge was unprecedented. The combination of these factors should have sunk the Keating government.</p>
<h2>Why Labor should have lost</h2>
<p>The <a href="https://en.wikipedia.org/wiki/Early_1990s_recession_in_Australia">early 1990s recession</a> was far worse than the 1974 or 1982-3 recessions that contributed to the Whitlam and Fraser governments’ defeat. And Keating appeared heartless when, as treasurer in November 1990, he <a href="https://theconversation.com/cabinet-papers-1990-91-lessons-from-the-recession-we-didnt-have-to-have-52153">remarked</a>: </p>
<blockquote>
<p>This is a recession that Australia had to have.</p>
</blockquote>
<p>A year later, he challenged Prime Minister Bob Hawke in a leadership spill and defeated him by 56 votes to 51. </p>
<p>For the nation, mired in recession, Labor seemed indulgent and power-hungry. It was no surprise that the Liberals led comfortably in the polls. </p>
<h2>Hewson’s policy platform was a ‘large target’</h2>
<p>Keen to move beyond the bitter rivalry between Andrew Peacock and John Howard during the 1980s, the Liberal party turned to John Hewson after the 1990 election. </p>
<p>Hewson was inexperienced in politics, having only entered Parliament in 1987, but skilled in his working life as a merchant banker, former advisor to John Howard and professor of economics at UNSW. </p>
<p>Hewson was a visionary who managed to unite both the Liberal and National Parties around one of the most significant policy platforms ever enunciated in Australian politics: a 650-page document titled “Fightback!”. </p>
<p>Fightback’s enduring virtue lies in its coherent articulation of reform, accompanied by detail. Its problem was that it pushed too far into the realms of a neo-liberal economic reform. With such a “large target” as Fightback, Keating was able to make the opposition the issue during the campaign.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-budgets-dirty-secret-is-the-tax-hikes-youre-not-meant-to-know-about-115457">The budget's dirty secret is the tax hikes you're not meant to know about</a>
</strong>
</em>
</p>
<hr>
<p>Fightback’s centrepiece was a 15% GST, set alongside big personal income tax cuts. Fightback also detailed the introduction of enterprise bargaining, cuts to Medicare bulk billing, the sale of government owned assets, and other commitments aimed at limiting the size of government expenditure. </p>
<p>Over the course of 1992, voters observed a colossal political struggle as Hewson worked at selling Fightback to voters, and Keating warmed to the task of dismantling its vision. This would reach a crescendo in February-March 1993, with one of Australia’s most memorable election campaigns. </p>
<p>The <a href="https://australianelectionstudy.org/wp-content/uploads/Trends-in-Australian-Political-Opinion-1987-2016.pdf">Australia Election Study</a> surveys show this election stood out because voters recognised that there was “a good deal of difference” between the parties. </p>
<h2>Different styles of leadership</h2>
<p>Arguably, this was not just about policy, it was also about the fact that Hewson and Keating had different leadership styles. </p>
<p>Hewson was committed to “policy as an end in itself” and he tended to shun the hard sell, preferring a more earnest type of advocacy delivered through public rallies. </p>
<p>Hewson’s problem was with Fightback’s complexity. According to the political journalist Laurie Oakes, he often appeared “mean and shifty” when he tried to explain the details. This was most evident when he tried to explain on television how the GST would apply to a <a href="https://en.wikipedia.org/wiki/Birthday_cake_interview">birthday cake</a>. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1101327228674035712"}"></div></p>
<p>Keating fundamentally believed that the strength of political leadership would prevail. Lampooning Fightback, Keating said: </p>
<blockquote>
<p>If you don’t understand it, don’t vote for it; if you do understand it, you’d never vote for it! </p>
</blockquote>
<p>With his superior command of rhetoric, Keating framed the campaign as one about core Australian values. Keating shied away from defending Labor’s achievements, instead making his opponent the focus. He championed Australian egalitarianism while painting Hewson as a radical. Keating once referred to Hewson as “the feral abacus”, a theorist hopelessly out of touch with average voter. </p>
<p>By the eve of the election, the parties were evenly balanced, but pundits were still predicting a Liberal win.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/discontent-with-nationals-in-regional-areas-could-spell-trouble-for-coalition-at-federal-election-115364">Discontent with Nationals in regional areas could spell trouble for Coalition at federal election</a>
</strong>
</em>
</p>
<hr>
<h2>In favour of a detailed policy platform</h2>
<p>Why did Hewson take such a political risk with Fightback? The answer can be found in Hewson’s <a href="https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;adv=yes;orderBy=_fragment_number,doc_date-rev;query=Dataset%3Ahansardr,hansardr80%20Decade%3A%221990s%22%20Year%3A%221995%22%20Month%3A%2202%22%20Day%3A%2227%22%20Speaker_Phrase%3A%22dr%20hewson%22;rec=0;resCount=Default">valedictory speech to parliament</a>. </p>
<p>In the speech, Hewson reflected on the purpose of Fightback. He said it was to convince voters “in the midst of the worst recession in 60 years” that significant change was required, that the Liberal Party was once again credible because it “stood for something”, and that it was prepared to “challenge vested interests”. </p>
<p>He also said that entering government required a mandate based on detailed policy if there was to be any hope of getting legislation through the Senate. It is worth noting how pertinent this last point is today.</p>
<p>Since Fightback, no opposition has put forward such detailed policy. Putting aside one’s own ideological preferences, Hewson’s Fightback should be viewed as positive because voters deserve to be presented with detailed policy choices rather than just <a href="https://www.abc.net.au/news/2014-05-21/hewson-i-live-in-hope-of-spin-free-politics/5465054">political spin</a>.</p><img src="https://counter.theconversation.com/content/114924/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Haydon Manning does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>All the polls suggested the Keating government would be finished at the 1993 election – until Opposition Leader John Hewson launched a 650-page policy document called “Fightback!”.Haydon Manning, Adjunct Associate Professor, Politics, Policy and Global Affairs, College of Business, Government and Law, Flinders University., Flinders UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1146322019-04-08T20:10:41Z2019-04-08T20:10:41ZWhat will the Coalition be remembered for on tax? Tinkering, blunders and lost opportunities<p><em>This article is part of a <a href="https://theconversation.com/au/topics/coalition-record-2019-69102">series</a> examining the Coalition government’s record on key issues while in power and what Labor is promising if it wins the 2019 federal election.</em></p>
<hr>
<p>Politicians often invoke the word “reform” to convey the significance, or gravitas, of a particular policy change they are proposing.</p>
<p>However, the tax policies implemented over the six years of the Abbott-Turnbull-Morrison government should be more aptly described as: no reform, lots of tinkering, two blunders and some lost opportunities.</p>
<p>To be fair to the leaders of the Coalition, both Abbott and Turnbull began their prime ministerships professing a large appetite for tax reform.</p>
<p>In opposition Abbott and his treasury spokesman Joe Hockey had promised a major inquiry. Hockey said it would pick up where Labor’s <a href="http://taxreview.treasury.gov.au/content/Content.aspx?doc=html/home.htm">Henry Tax Review</a> left off:</p>
<blockquote>
<p>We thought the Henry Tax Review was going to be a proper process. Now, that has obviously been an abject failure. We’ve said - Tony Abbott announced
in Budget and reply speech - we will have a proper process for proper tax reform, and whatever comes out of that process, which will be a white paper, we will take to a subsequent election, seeking the mandate of the
Australian people - their approval.</p>
</blockquote>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=852&fit=crop&dpr=1 600w, https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=852&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=852&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1071&fit=crop&dpr=1 754w, https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1071&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/268000/original/file-20190408-2931-11w27mj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1071&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Treasury’s Re:think tax discussion paper, which is as far as the tax white paper process got.</span>
<span class="attribution"><a class="source" href="https://treasury.gov.au/sites/default/files/2019-03/c2015-rethink-dp-TWP_combined-online.pdf">Source: Commonwealth Treasury</a></span>
</figcaption>
</figure>
<p>It got as far as a <a href="https://treasury.gov.au/consultation/c2015-tax-white-paper-dp">discussion paper</a>, seeking submissions.</p>
<p>When Turnbull assumed the leadership, the draft white paper, which would have followed the discussion paper, was <a href="https://www.smh.com.au/business/the-economy/malcolm-turnbull-halts-tax-white-paper-in-major-reset-20150923-gjstsm.html">scuttled</a>, and the process ended.</p>
<h2>Tinkering…</h2>
<p>Instead what resulted were marginal changes to personal income tax. One of the brackets was expanded and a new <a href="https://theconversation.com/its-the-budget-cash-splash-that-reaches-back-in-time-114188">low and middle income tax offset</a> was added.</p>
<p>Marginal changes to superannuation tax further added to the complexity of the tax system as a whole. The current superannuation system disproportionately rewards higher income earners because most contributions are taxed at the same low rate (15%) regardless of the taxpayers’ income tax rate.</p>
<p>The Coalition’s response was to apply a 30% tax on contributions for those earning $250,000 or more (down from the previous threshold of $300,000) and to cut the cap on concessional contributions from $30,000 ($35,000 for those aged 49 and over) to $25,000. And it capped at $1.6 million the amount that could be transferred into the “retirement phase” where fund earnings in retirement were exempt from tax. </p>
<p>It <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview201617/Superannuation">made the system much more complex</a>, and it could have been done more simply, perhaps by reimposing tax on super earnings in retirement (at a low rate) or by taxing by contributions at a standard discount to taxpayers at a marginal rate, as <a href="http://taxreview.treasury.gov.au/content/Content.aspx?doc=html/pubs_reports.htm">recommended by the 2009 Henry Tax Review</a>.</p>
<p>Alongside these marginal changes, there was also a failed attempt to cut the company tax rate (only the tax rates <a href="https://theconversation.com/what-economists-and-tax-experts-think-of-the-company-tax-cut-72198">for small companies</a> were cut) and a muddled discussion about the progressivity of the income tax system.</p>
<p>All in all, many a tinker, but no reform.</p>
<h2>Blunders…</h2>
<p>Human-induced climate change is compromising the sustainability of our planet. The only way to solve it is by changing incentives using the economic toolkit at our disposal. The Carbon Tax was <a href="https://theconversation.com/axing-the-carbon-tax-saving-households-costing-climate-20065">a good tax</a>. It shifted the costs of pollution onto those who created it, instead of subsidising processes that damaged the environment. </p>
<p>No solution to climate change is possible without corrective taxes. </p>
<p>At some point we’ll have to <a href="https://theconversation.com/for-this-generation-and-the-next-its-time-to-bring-back-the-carbon-tax-38224">climb that mountain again</a>, assuming the mountain is not underwater before politicians come to their senses.</p>
<p>The repeal of the <a href="https://theconversation.com/coalition-to-axe-mining-tax-but-petroleum-will-keep-on-giving-17952">Minerals Resource Rent Tax</a> was also a step backwards. By taxing rents (excess profits) instead of profits, it avoided the disincentives created by traditional company taxes. And, it was a good example of the kind of taxes that could eventually replace or supplement company tax.</p>
<h2>…and lost opportunities</h2>
<p>Changing the GST could have ensured at least one significant contribution to overall tax reform. At 10%, the rate is relatively low by international standards and applies to a shrinking share of spending, as more and more of our money is spent in places or on goods that aren’t taxed. </p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=300&fit=crop&dpr=1 600w, https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=300&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=300&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=377&fit=crop&dpr=1 754w, https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=377&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/268019/original/file-20190408-2931-x3k3zv.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=377&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Value-added (GST) tax rates in OECD and selected Asian countries.</span>
<span class="attribution"><a class="source" href="https://treasury.gov.au/sites/default/files/2019-03/c2015-rethink-dp-TWP_combined-online.pdf">Re:think, Treasury tax discussion paper, March 2015</a></span>
</figcaption>
</figure>
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<p>These factors, combined with the fact that GST is difficult to evade and less costly to administer, suggest that broadening the base is low hanging fruit on the tax reform tree, ripe for picking. </p>
<p>Instead, it may as well be forbidden fruit from the Garden of Eden. We’ve gone in the wrong direction by adding <a href="https://www.austaxpolicy.com/seeking-sanity-gst-sanitary-tax-debate/">even more exemptions</a> and <a href="https://www.smh.com.au/politics/federal/off-the-table-why-the-gst-wont-be-lifted-to-15-per-cent-20151209-gljold.html">cutting short</a> talk of increasing the rate.</p>
<p>The failed debate on company tax cuts was another <a href="https://theconversation.com/myth-busting-claims-on-the-impact-of-the-company-tax-cut-75226">missed opportunity</a>. </p>
<p>What remains is a system that applies <a href="https://theconversation.com/why-small-business-tax-cuts-arent-likely-to-boost-jobs-and-growth-72658">different rates to different company sizes</a>, one of <a href="https://theconversation.com/how-the-government-can-pay-for-its-proposed-company-tax-cuts-92739">few remaining</a> dividend imputation systems in the world, and no discussion about the sustainability of corporate income tax revenue in the future.</p>
<p>All up, the government’s approach over the past six years has largely been piecemeal. It also managed to dismantle two of the most significant tax reforms that could have contributed to a more sustainable tax base in the long run.</p>
<h2>Would Labor be better?</h2>
<p>It remains to be seen whether a Labor government will be able to achieve more. Some of the party’s proposed changes, such as the treatment of capital gains, head in the right direction, but what it is offering falls short of comprehensive reform.</p>
<p>At the same time, many of its proposed changes will add additional complexity, fail to account for interactions within the entire tax system and use tax exemptions to reach goals that <a href="https://theconversation.com/what-just-happened-to-our-tax-heres-an-explanation-youll-understand-114913">could be better achieved with payments</a>.</p>
<p>Many an international tax reform was engendered by crisis, so there’s hope, of a sort. The opportunity still remains to get in early before weaknesses inherent in the current system become grossly apparent.</p>
<p>What we’ve got is unfair and its complexity rewards those with the resources to pay to understand and exploit it. It is overly reliant on income and company tax in place of indirect taxes, like consumption tax, and it tries to achieve too many disparate objectives, without consideration for the workings of the family and social security payments system.</p>
<p>There is much scope to improve things. What we need most are fearless leaders, from all sides of the political spectrum, who treat comprehensive tax reform as important and can work together to achieve it.</p>
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<a href="https://theconversation.com/what-will-the-turnbull-morrison-government-be-remembered-for-114618">What will the Turnbull-Morrison government be remembered for?</a>
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<img src="https://counter.theconversation.com/content/114632/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Breunig directs the Tax and Transfer Policy Institute which is partly funded by a grant from the Australian Commonwealth Government.</span></em></p><p class="fine-print"><em><span>The Tax and Transfer Policy Institute (TTPI) is funded in part by a grant from the Australian Commonwealth Government.</span></em></p>Six years of Coalition government has had little impact on the tax system. It’s not clear whether a Labor government would be any different.Robert Breunig, Professor of Economics and Director, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityKristen Sobeck, Senior Research Officer, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1044862018-10-05T03:00:02Z2018-10-05T03:00:02ZVIDEO: Michelle Grattan on Labor’s election focused policies and the government’s new GST formula<figure>
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<p>Michelle Grattan speaks with University of Canberra Vice-Chancellor Deep Saini about the week in Australian politics. They discuss the Labor party’s announcement of a series of roundtables to hear more banking victims where the Royal Commission hasn’t visited, and their announcement that a Labor government would subsidise preschool education for three-year-olds. They also talk about the Morrison government’s new formula for carving up the GST revenue.</p><img src="https://counter.theconversation.com/content/104486/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Michelle Grattan speaks with Deep Saini about the week in Australian politics.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1044332018-10-04T11:37:19Z2018-10-04T11:37:19ZGrattan on Friday: Liberals plan for May election but Morrison might look better in March<p>While the Coalition took a hit in its two-party vote after the leadership change, the next few Newspolls will tell whether Scott Morrison - who’s started better than many anticipated - restores the government to the 49-51% position of Malcolm Turnbull’s last days.</p>
<p>That would still leave Labor election favourite, not least because the government has no fat in terms of seats and the redistribution works against it. Plus, of course, the voters’ sour mood.</p>
<p>But the narrowing would put Labor nerves on edge. It would judge that if, come election time, it goes into a campaign against Morrison with a lead around 51-49%, the fight could be tougher than if the margin were similar but the opponent had been Turnbull. Turnbull was a poor campaigner; Morrison shows the signs of a good one.</p>
<p>Labor has had plenty of luck, but it needs to keep up the momentum, to look the positive alternative, not just a fallback for disillusioned voters.</p>
<p>This week again saw Bill Shorten on the move. His proposed funding to extend subsidised pre-schooling to three-year-olds is playing to Labor’s policy strength in education.</p>
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<a href="https://theconversation.com/a-shorten-government-would-subsidise-pre-school-for-three-year-olds-104349">A Shorten government would subsidise pre-school for three year olds</a>
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<p>His other initiative – roundtables to hear the stories of more victims of the banks and other financial institutions – exploits the potent politics of a scandal that has gripped most people’s attention. Labor’s research tells it the public are red hot with anger about what’s come out at the royal commission.</p>
<p>The government accuses the opposition of disrespecting the commission by launching its own listening tour.</p>
<p>But it’s unlikely too many voters will see it that way. And the sessions, especially those in regional areas, will build on another strength. As leader Shorten has held town hall meetings all over the country. Such grassroots gatherings are useful for establishing Labor’s presence on the ground.</p>
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<a href="https://theconversation.com/labor-to-hold-its-own-hearings-for-bank-victims-104170">Labor to hold its own 'hearings' for bank victims</a>
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<p>Between now and Christmas Shorten will be rolling out more policy. Meanwhile, the government continues working on removing negatives.</p>
<p>Morrison as treasurer had started on one of these when in July the government announced a new formula for distributing the GST revenue, rectifying Western Australia being disadvantaged under the existing one. To smooth the way, the Commonwealth threw in an extra $9 billion over a decade so no state or territory would be left worse off.</p>
<p>With several WA Liberal seats at risk, getting this sorted was urgent; the government decided not to haggle with the states for an agreement but to legislate the change.</p>
<p>But, despite the assurance there’ll be no losers, state treasurers on Wednesday conjured up possible adverse scenarios and insisted the “no worse off” guarantee must be in the legislation, a demand the federal government is resisting.</p>
<p>The legislation is expected to pass in the end, but only after more argy bargy. It is another example of how messy barnacle-removal can be.</p>
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<a href="https://theconversation.com/states-want-the-gst-guarantee-set-in-legislative-stone-104341">States want the GST guarantee set in legislative stone</a>
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<p>Especially when it involves state governments that have elections pending: Victoria goes to the polls on November 24 and NSW on March 23. NSW treasurer Dominic Perrottet was particularly vocal on the GST guarantee.</p>
<p>The Berejiklian government has its elbows out more generally. It recently attacked the Morrison deal to give a pot of money to the Catholic (and other non-government) schools to buy peace. NSW complained this was unfair because it left out government schools and distorted the Gonski-based policy announced by Turnbull.</p>
<p>The Morrison and Berejiklian governments might be of the same stripe but, with both facing elections in the first half of 2019, their interests rub up against each other uncomfortably.</p>
<p>Each is on the nose. The thinking is that whichever goes to the people first could get a double hit, with NSW voters taking out their anger simultaneously against both administrations.</p>
<p>This is a big strike against a March federal poll in the eyes of federal Liberals, apart from the problem of partially overlapping campaigns. The NSW government would dearly like Morrison to run first but all the federal Liberal planning appears to be heading towards May.</p>
<p>“Morrison needs time,” is the mantra. Maybe. But there is a counter argument, even if it is not being run.</p>
<p>Morrison hasn’t received a honeymoon bounce in the two-party vote, but he has had good publicity. He’s been cast as a can-do guy. But will this fade as the months wear on?</p>
<p>By the time the government gets to the weeks before a May election, the arguments about policy will have deepened, and how will Morrison go then?</p>
<p>In particular, will the Coalition’s energy policy uncertainty be difficult to handle as the weather starts to chill and people look to another winter?</p>
<p>It is unlikely there will be serious good news on consumer prices. It’s early days but the new energy minister, Angus Taylor, has not at yet come across strongly or indeed been much in evidence. Will he be convincing when he’s put under pressure?</p>
<p>An election launched at the start of February for early March would come off a non-parliamentary period; one launched in April for May (with, incidentally, Easter falling awkwardly during the campaign) would come after parliamentary sittings, which often are difficult for the government.</p>
<p>One reason for the May timetable is that the government needs to fit in a pre-election economic statement (because there would not be a budget before the poll). But though a squeeze, it wouldn’t be too hard to have that statement early.</p>
<p>A factor in the government’s standing over the summer will be the October 20 Wentworth byelection – the outcome will affect its morale and subsequent media coverage.</p>
<p>The conventional wisdom is that a prime minister (who can choose the date, unlike a premier faced with a fixed date) will go when the evidence suggests they can win. This is trickier if a loss seems more probable than victory, whatever the date.</p>
<p>So the assessment becomes: when will the government be at its peak, whatever that peak might be?</p>
<p>Whether Morrison would be at his strongest in March or May is a moot point.</p><img src="https://counter.theconversation.com/content/104433/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Morrison and Berejiklian governments might be of the same stripe but, with both facing elections in the first half of 2019, their interests rub up against each other uncomfortably.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1041702018-10-01T20:09:21Z2018-10-01T20:09:21ZLabor to hold its own ‘hearings’ for bank victims<p>Labor will flush out more victims of the banks and other financial institutions by holding a series of roundtables in cities and towns that have not been visited by the royal commission.</p>
<p>Opposition leader Bill Shorten has announced that shadow minister for financial services Clare O'Neil will lead these meetings. He said they would give victims the “opportunity to share their stories and consider options for reform to ensure that the shocking misconduct exposed by the royal commission is stamped out.”</p>
<p>The opposition argues the commission should be given extra time. The government says this is up to Commissioner Kenneth Hayne – who has not up to now indicated he wants his inquiry – due to make its final report early next year - stretched out.</p>
<p>Shorten pointed out that so far the commission had only heard from 27 customers despite more than 9,300 customers making written submissions. Moreover, the hearings had been only in three capital cities (Melbourne, Brisbane and Darwin), meaning “regional and rural customers have not had a sufficient chance to have their say”.</p>
<p>“Misconduct in the financial services sector is a national issue – and Australians across the country deserve their chance to be heard. Unlike the Liberals, Labor will listen to victims,” Shorten said.</p>
<p>“Labor now wants victims to have a seat at the table when the royal commission considers what reforms are required to clean up this sector. Scott Morrison doesn’t want to give bank victims a voice. He always has been, and always will be on the side of the big banks”.</p>
<p>O'Neil is set to start the roundtables this week with Adelaide on Wednesday the first location, followed by Geelong on Friday. Local Labor MPs and senators will be used to speak to victims in areas O'Neil can’t get to. Labor may put in a submission to the commission from its consultations. Submissions close late this month.</p>
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<a href="https://theconversation.com/royal-commission-shows-banks-have-behaved-appallingly-but-weve-helped-them-do-it-103998">Royal Commission shows banks have behaved appallingly, but we've helped them do it</a>
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<h2>GST legislation</h2>
<p>On another front, the government on Monday announced it will legislate its new plan for dividing the GST revenue between the states and territories.</p>
<p>In July it unveiled a deal to give Western Australia a bigger share - with more funds being provided all round to smooth out the politics of improving WA’s position. It initially flagged this could be put in place by an agreement with the states and territories.</p>
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<a href="https://theconversation.com/turnbull-government-says-no-losers-in-its-new-gst-carve-up-plan-99415">Turnbull government says no losers in its new GST carve-up plan</a>
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<p>But despite the additional money for all jurisdictions, a fresh argument erupted.</p>
<p>Tasmania said it wanted extra time to work on the new arrangement. In the wake of the prime ministerial change, a leak revealed there had been a slanging match between Scott Morrison when he was treasurer and the Tasmanian treasurer.</p>
<p>The move to legislation is another example of Morrison acting to clear away irritants where he can. This is especially important on the GST deal, given the Liberals have several seats at risk in WA. Morrison is campaigning there in the early days of this week.</p>
<p>In a statement, Morrison and Treasurer Josh Frydenberg said: “Unfortunately it became clear some states intend to grandstand and play politics on this issue, including in the lead up to this week’s scheduled meeting of the Council on Federal Financial Relations.</p>
<p>"We will now introduce legislation that locks these reforms into place, providing the certainty needed for the new GST distribution system. It prevents the system becoming a political football.</p>
<p>"The government is not going to get into running multiple GST arrangements,” Morrison and Frydenberg said. “The new system is fairer and because of the $9 billion over the next ten years in additional contributions by the federal government, all states and territories benefit.”</p>
<p>Morrison told reporters in Perth the legislation would cover the “whole package” he had earlier announced, including “the floor, the allocation and the change to the formula, the transition period and how the transition period is broken up over those six years.”</p>
<p>He said he was pleased to hear Bill Shorten “says he’s on a unity ticket with this […] I hope it’s true.”</p>
<p>Asked what had changed since he said in July that legislation might not be needed, Morrison said: “Well back then, the Labor Party were all over the place on this issue. … I didn’t want to get us into a situation where this whole process could have been disrupted by people playing political games.</p>
<p>"But given the Labor Party says they’re going to support our plan, well, that means that we can go forward with legislation and we can lock it in”.</p>
<p>Shadow treasurer Chris Bowen said the decision to legislate was “a big back down for Scott Morrison but a big win for Western Australia and the nation”.</p>
<p>“Bill Shorten has consistently argued for the deal to be legislated,” Bowen said.</p>
<p>But Labor was concerned the proposed legislation “fails to explicitly guarantee that no state will be worse off. As we review the legislation, we will be seeking answers about why this guarantee has been excluded”.</p>
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Read more:
<a href="https://theconversation.com/was-economic-mismanagement-is-not-a-reason-to-review-how-the-gst-is-carved-up-76944">WA's economic mismanagement is not a reason to review how the GST is carved up</a>
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<img src="https://counter.theconversation.com/content/104170/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Shorten’s extra royal commission hearings and legislating the GST carve-up.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/994392018-07-06T05:35:16Z2018-07-06T05:35:16ZWhy the government will be sending more GST funding to Western Australia<p>If the Commonwealth government’s proposed reforms for the distribution of the GST revenue between the States and Territories is implemented, about a billion dollars a year of additional commonwealth funds will be spent to ensure “<a href="https://theconversation.com/turnbull-government-says-no-losers-in-its-new-gst-carve-up-plan-99415">no state will be worse off</a>”. But where the extra funds will come from is left to the imagination. </p>
<p>A key aim of the reform is to reduce the wild swings in how much states receive from GST collected. The Productivity Commission <a href="https://www.pc.gov.au/inquiries/completed/horizontal-fiscal-equalisation/report">had recommended</a> GST be apportioned using an average of the states ability to provide services (known as “fiscal capacity”), but the government has decided to use Victoria and New South Wales as the benchmark.</p>
<p>Given both the current allocation and the proposed reform are instruments for meeting equity and efficiency objectives, the unknown loser is who pays for the additional commonwealth funding. </p>
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<a href="https://theconversation.com/explainer-coag-and-the-gst-carve-up-40323">Explainer: COAG and the 'GST carve-up'</a>
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<p>GST is collected by the Commonwealth and then redistributed. The share of the GST given to each state is designed to meet the objective that “each of Australia’s States has the same fiscal capacity, under average policies, to provide general government infrastructure and services.”</p>
<p>The government’s proposed reform claims not to reduce the revenue provided to each state. However, it will change the relative shares of the larger sum to be allocated to the different states. </p>
<h2>Vital state revenue</h2>
<p>State and Territory governments depend on transfers from the Commonwealth government for <a href="https://www.budget.nsw.gov.au/">about half of their revenue</a>. </p>
<p>About half of this is special payments for things such as education, health, housing and infrastructure. The other half is the GST, and these funds are free for the states to spend as they desire. </p>
<p>How much each state receives is determined so that if each state applied similar state-based taxes, the revenue from state taxes plus their GST share would fund similar levels of state government services to its citizens - fiscal capacity. </p>
<p>Those states that have a greater ability to raise taxes (say they have a large mining industry) or can provide services more cheaply (due to a smaller remote and elderly population) receive less than an “equal” per capita share of the GST. </p>
<p>Currently, NSW, Victoria and Western Australia receive less than an equal per capita share of GST. </p>
<p>By contrast, states who can raise less revenue, or have a higher cost of providing services, receive more than an equal per capita share. </p>
<p>South Australia, Tasmania and the Northern Territory are all currently net recipients of GST - they receive more than they pay in.</p>
<h2>Changing the distribution</h2>
<p>Giving some states more and others less than an equal per person share of GST is done for both equity and economic efficiency. For equity, the idea is that citizens in similar incomes, demographic and other circumstances should enjoy similar levels of state government services regardless of where they live. </p>
<p>For efficiency, the distribution aims to neutralise the need for different state tax rates; if the states are to fund similar levels of services, particularly on mobile labour and capital.</p>
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<a href="https://theconversation.com/factcheck-is-the-gst-as-efficient-but-less-equitable-than-income-tax-45052">FactCheck: is the GST as efficient but less equitable than income tax?</a>
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<p>Up until the mining boom the current distribution of GST revenue among the states was generally accepted. </p>
<p>But the large increase in mineral royalties, and especially iron ore in WA, resulted in WA shifting from being a net recipient to receiving only a third of a per capita share in 2017-18, many years after the end of the mining boom. </p>
<p>The data used to determine the allocation of GST lags, meaning the 2017-18 allocation is based on average 2012-13 through 2015-16 data.</p>
<p><a href="http://www.abc.net.au/news/2018-04-08/wa-gst-ripoff-continues-under-labor-despite-barnett-criticism/9626240">Western Australia</a>, and more recently the <a href="https://www.ntnews.com.au/news/northern-territory/northern-territory-loses-cash-in-gst-distribution/news-story/568b8e9f8d277695a1f0215ebee987fb">Northern Territory</a>, have been vigorous critics of their smaller share, and at the same time South Australia has <a href="https://www.news.com.au/national/south-australia/state-government-to-reject-any-change-to-gst-share-for-south-australia/news-story/d0b3c5b036a51ab40525063cd8425283">vigorously argued they retain at least their current share</a>. After all, resolving these conflicting political claims is a <a href="https://www.investopedia.com/terms/z/zero-sumgame.asp">zero-sum game</a>!</p>
<h2>Introducing a benchmark</h2>
<p>In order to deal with wild swings, such as that introduced by the mining boom, the Productivity Commission (PC) considered several reform options. </p>
<p>A key proposal was to replace the current model of bringing all states up to the fiscally strongest state with a more stable benchmark. </p>
<p>The preferred benchmark proposed in the draft report was the second highest state. The final report recommended an average across the states. The commission assumed a larger share for one state would mean a smaller share for other states.</p>
<p>But the federal government’s proposal includes additional funds to top up the GST.</p>
<p>The federal government’s interim response to the PC final report has a few more differences to the PC’s recommendation. </p>
<p>The benchmark for allocation will be the fiscal capacity of NSW or VIC, whichever is the largest. This will provide stability for major structural and cyclical economic shocks, and a high level of fiscal capacity for state government services. </p>
<p>A “floor” will also be established at 0.7 to 0.75 of the benchmark, creating a safety net.</p>
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Read more:
<a href="https://theconversation.com/was-economic-mismanagement-is-not-a-reason-to-review-how-the-gst-is-carved-up-76944">WA's economic mismanagement is not a reason to review how the GST is carved up</a>
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<p>The recommended reforms for distribution of the GST revenue between the states by both the PC and the commonwealth government seek to reduce volatility of the shares while roughly maintaining previously accepted principles of equity and efficiency. </p>
<p>For the additional revenue cost, the commonwealth government argues no state will be worse off.</p><img src="https://counter.theconversation.com/content/99439/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Freebairn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The unknown loser is who pays for the additional Commonwealth funding.John Freebairn, Professor, Department of Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.