It’s a valid question for a meaningful overhaul of our tax system, but it is one both sides of politics would rather ignore and leave in the too-hard basket.
That’s despite a wealth of economists, tax experts and international institutions, like the Organisation for Economic Cooperation and Development and the International Monetary Fund, urging changes to the GST to be included in any tax reform.
If we are honest, former prime minister John Howard and his treasurer Peter Costello’s introduction of the Goods and Services Tax – to give it its formal title – was the last major reform to taxation.
The GST is 20 years old on Wednesday (July 1) and the sky is yet to fall in.
Yes, there have been cuts to both business and personal income tax in the interim, which politicians love to boast about as “reform”, when actually they are just tax cuts.
Genuine reform, as in the case of the GST, means changing the way things are taxed – getting rid of the economic deadweight of a web of inefficient taxes and being able to redistribute the revenue more effectively.
Revenue raised from the 10 per cent GST goes straight to funding the states and territories.
While there is an annual squabble about who gets what, it’s a lot less messy than premiers and chief ministers making an annual pilgrimage to Canberra with begging bowl in hand.
And when Howard and Costello introduced the GST, it allowed them to cut personal income taxes and get rid of numerous state imposts like sales taxes.
But introducing such a new consumption tax was far from easy, even though countries like the UK and New Zealand had their versions of the GST for years.
Labor argued it would impact severely on the poor. Even some coalition backbenchers at the time of GST negotiations were getting cold feet as the government’s popularity nose-dived.
Deloitte Access Economics partner Chris Richardson recalls there were plenty of newspaper headlines at the time saying it was a disaster, but he admires the fact that Howard and Costello stuck with it.
“It was a very courageous moment,” Richardson told AAP
“At the time there were all sorts of warnings that this big new tax on everything would take the life of your first-born.”
Howard had seen former Liberal leader John Hewson lose the “unlosable” 1993 election to Labor for trying to peddle his own version of the GST.
That’s not to say life was perfect when GST graced the nation’s cash registers. Inflation soared to six per cent as it accounted for the 10 per cent impost.
The economy also narrowly avoided plunging into recession because people, particularly in the construction industry, had bought goods ahead of the July 1 deadline to avoid the tax.
The economy subsequently fell into a brief vacuum.
The GST is not perfect. To steer the legislation through a hostile Senate, major concessions had to be made, like making fresh food, health and education GST-free.
It has meant billions of dollars of forgone revenue each year, particularly in the major growth areas of health and education.
And to counter fears that future governments could lift the GST rate at whim, Costello imposed that every state and territory and both the House of Representatives and Senate would have to agree to any change.
And that’s largely the reason why the structure of the GST remains untouched to this day, because it is so politically hard to make changes.
Even if the Morrison Government had the slightest inkling to change the make-up of the GST as part of a major reform package, don’t expect it to run with it any time soon if it wants to see success.
Former Liberal senator, Arthur Sinodinos, who was Howard’s influential chief of staff at the time of the GST negotiations, said reform could not be rushed.
“I think particularly when it comes to big issues, government should take their time, set out their case and explain what they’re doing,” Sinodinos told AAP in an interview late last year before taking up the post of US ambassador.
He nominated being involved in the 2000 tax package as one of his proudest achievements, but it took years to get it in place.
“It took us four years from when they were formulated to when they were implemented to when they were ticked off at a subsequent election to get them to stick,” he said.
Despite the worryworts on Howard’s backbench, he went on to win both the 2001 and the 2004 elections before losing power in 2007.
In an era of short-term politics, major reform has become increasingly difficult.
“It doesn’t matter how sensible it is,” Richardson said.
“The old rule of thumb I have is any tax reform at any moment is three banner headlines from defeat.”
-AAPJump to next article