By Sue Boland
Shortly after the Coalition parties' disastrous result in the Queensland election, an International Monetary Fund delegation to Australia urged the Australian government to maintain its commitment to tax "reform". In an earlier visit, IMF managing director Michel Camdessus had said that to "stay competitive" Australia needs "a VAT-type tax on goods and services, lower marginal tax rates and more industrial reform".
The IMF view on tax "reform" is shared by big business, which is attracted to a goods and services tax (GST) because the tax burden would be massively shifted from big business and the wealthy to individual consumers, people on low incomes shouldering a disproportionate share. A GST would be a bonanza for business.
While it is not surprising that corporations support a GST, what is surprising is that groups meant to represent the interests of people on low incomes, such as the Australian Council of Social Service (ACOSS), have not opposed it.
ACOSS's "Tax Reform Pack" (September 1997) states, "ACOSS has neither advocated nor rejected 'a GST' ... The impact of any GST proposal would be determined not only by its precise nature (such as the rate and coverage) but also by the total package of which it is part."
The ACOSS position is further explained in "ACOSS Agenda for Tax Reform" (June 1998): "The ACOSS Agenda incorporates a broadening of the consumption tax base, but without any overall increase in consumption taxes".
ACOSS president Michael Raper told Green Left Weekly that one part of the solution to the government's problem of a shrinking tax base was "to broaden the consumption tax base from goods to include services".
The Australian Democrats and the WA Greens have both refused to commit themselves to unconditionally opposing a GST. Pauline Hanson's racist One Nation party, which has been touted in the mainstream media as an anti-GST party, has also refused to commit itself to opposing a GST outright. Both Hanson and adviser David Oldfield have said One Nation may support a GST if there is "adequate compensation" for small businesses, pensioners and low-income earners.
Public support for a GST has plummeted since last August, when 45% supported a GST and only 33% were against. Starting with the Taverner Research Poll (Sun Herald, May 17), opinion polls in 1998 have consistently showed majority opposition. The most recent, the Newspoll survey in the June 3 Australian, found 44% against a GST and 38% in favour.
In a scandalous use of workers' taxes, the government is running a $10 million advertising campaign to win public opinion for "tax reform" centred on a GST.
Crucial to winning acceptance will be the illusion that a GST can be fair and equitable. After churches and ACOSS responded negatively to treasurer Peter Costello's May 13 statement that a GST could be used to pay for income tax cuts, Howard tried to allay the fears of welfare groups by saying that tax cuts would come from the budget surplus rather than from a GST, thereby maintaining the current tax mix.
While initially refusing to rule out increases in the rate of a GST, Howard was forced to back down a week later and "promise" not to increase the GST rate in the next term of parliament. The government is considering starting with a lower rate to reduce opposition, knowing it can increase the rate later.
Business and government argue that a GST is needed because income tax is "too high". In fact, business is enthusiastic about a GST because it will tax poor people, in and out of the work force, who now do not pay income tax, or pay very little.
It is also easier to increase a GST than it is to increase income tax rates, especially if Costello's proposal that the GST be "embedded" in the price of goods is adopted. This would make the amount of the GST invisible to the consumer.
ACOSS has based its support for a broader consumption tax, in conjunction with a crackdown on tax avoidance, on the need to arrest the decline in government revenue.
"ACOSS Agenda for Tax Reform" notes, "Our public revenue base has shrunk by at least $10 billion per annum since the mid-1980s, and will continue to decline without thorough-going tax reform". The document claims the decline of government revenue is the cause of cuts in public services.
The reason for the decline dates back to the 1980s, when the Hawke/Keating Labor governments cut the corporate tax rate from 49% to 33% and the top marginal tax rate from 60% to 47% — a massive windfall for the capitalist class. The rich also benefited from the dividend imputation scheme, which makes most company dividends tax free.
At the same time, ordinary workers were paying an increasing proportion of their income in tax because they were pushed into higher tax brackets as wages increased due to inflation.
The simplest and fairest solution would be to reverse the tax cuts on the rich, rather than introduce a new flat tax for everyone.
ACOSS naively says, "Consumption tax reform is only acceptable if it does not disadvantage people on low incomes". A GST is inherently inequitable, regardless of the rate at which it is levied, and regardless of what items are exempted.
People on low incomes spend a higher proportion of their income on goods and services than do wealthier people. The government is not going to raise welfare payments enough to compensate for a GST when it is on a drive to force people off welfare.
With the conversion of many full-time jobs into part-time or casual jobs, the proportion of people on low incomes is increasing. All levels of government are on an ideological mission to privatise government services, or convert free services into "user pays", so there will be a more and more essential services that will attract the GST.
Genuine taxation reform would involve indexing income tax brackets for inflation, increasing corporate taxes and taxes on high-income earners to at least the levels of the early 1980s, closing all loopholes that allow companies to avoid paying tax and cracking down on the scams available to those who can afford tax lawyers, increasing the tax-free threshold for workers on low incomes, removing the means test for social security payments to eliminate poverty traps and abolishing indirect taxes.
There is a danger that a GST could be pushed through by an alliance between the federal government, big business and ACOSS. The government may at first compromise on the mix between indirect and direct taxes to win the support of ACOSS.
It may even promise "compensation" to people on low incomes, but it can never be enough to compensate for the cost of a GST. Once the GST is in place, it can be increased, exemptions decreased and compensation measures cancelled.