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Would you accept a 15% GST for a BIG income tax cut?

Peter Switzer
25 May 2022

Look out! It’s only four days in and the new Labor Government is already linked to tax reform, which always means that if changes happen down the track, some people will pay less tax and others will pay more.

To be clear, no one from PM Albanese’s team is publicly spearheading this tax talk in The Australian today, but you can never rule out that Labor could have a PR outfit working on putting tax on the table for discussions in the corridors of power and society generally via the media.

And here I am already playing ball!

Before looking at what might lie out there, if Labor got the support to change our tax system, you have to remember that most countries have a secret battle going on between the undertaxed and the overtaxed. And the funny thing is that both groups believe they’re overtaxed!

The trigger for this tax talk is the OECD, which tells us we are the fourth overtaxed country in the world! Well, that’s an exaggeration but it is what people hear when someone like me covers this story in the media.

To be precise, the Paris-based think tank, the Organisation for Economic Co-operation and Development (OECD), says we’re the fourth highest country when it comes to income taxes and it’s why lots of famous Aussie politicians (such as John Hewson, Malcolm Turnbull and more) have tried to cut income taxes and raise the GST. They’ve all either been dumped by voters or their party or they’ve dumped the issue that has always looked to be in the ‘too hard’ basket.

In fact, at Albo’s Business Sydney speech before the election, a journalist asked him whether he had plans for tax reform and his answer was essentially: “No! Next!”

Our new PM might not read enough economics to know all the current readings on the economy, but he knows his politics and you can’t easily win an election promising more taxes, as Bill Shorten found out in 2019.

John Howard got away with it when he got us to cop a GST in 1998 but it was a close-run thing, as Wikipedia reminds us: “Before the 1998 election, Howard proposed a GST that would replace all existing sales taxes, as well as applying to all goods and services. At the election, the Howard government suffered a swing against it of 4.61% at the election, achieving a two-party-preferred vote of only 49.02%, compared with Labor [at] 50.98%. Nevertheless, the incumbent government retained a majority of seats in the lower house and Howard described the election win as a “mandate for GST”. Lacking a Senate majority, and with Labor opposed to the introduction of GST, the government turned to the minor parties such as the Australian Democrats to gain the necessary support to get the necessary legislation through the Senate.”

To entice us to buy a GST before an election, Howard gave us big income tax cuts, but these haven’t helped because, over time, future governments haven’t had the guts to raise the GST and promise income tax reductions.

That’s why the OECD says:

• The total income tax burden on the ­average wage earner is 23.2% of their income.

• The average for the 38 nations in the OECD is 14.9%.

• The Kiwis are at 19.4%.

• Britain, 14.3%.

And as Patrick Commins in the Oz reports: “Only Denmark, Iceland and Belgium imposed a higher income tax burden on their workers.”

The ANU tax and transfer policy institute director, Bob Breunig, said policymakers need to tax income less, which means he’s also saying raise the GST. And that’s why politicians run a mile from this tax debate.

And what makes it harder to sell is the full story.

The OECD report showed that including additional imposts such as social security contributions made by workers and employers, the picture was much improved, with the total tax burden on an employee at 27.1%, against the 34.6% OECD average, placing Australia’s total wage tax burden at the 14th lowest.

Putting on my academic hat, I’d argue that we should increase our GST and cut our income tax, as well as dump terrible taxes such as stamp duty. However, when university professors suggest a land tax to replace stamp duty, they lose a lot of normal people (voters) and less courageous politicians.

Academics tell you a higher GST would help create a more efficient tax system and catch a lot of the black (tax dodging) economy money out there. This all looks good on paper but not in the real world of a politician.

And facts like this put tax reform in the ‘too hard’ basket — the UK’s income tax slug is 14.3% but its VAT is 20%.


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