Editorial: Taxation: reform or reaction?
The Coalition government has relaunched its bid to introduce a consumption tax after the next election. The government and big business won't give up on their plans for a GST.
Having learned that it is best to be evasive in such matters, the government is reluctant to provide much detail about its policy, but it is issuing a new taxpayer-funded booklet which will no doubt trot out all the possible arguments and all the promises that will later be broken.
Because of the GST's unpopularity and because it has already been stopped twice (in 1985 under Bob Hawke and 1993 under John Hewson), the Liberals will try a number of devices to convince voters the tax is fair.
As a sweetener, income tax will be cut. Treasurer Peter Costello has already said that this would be done by reducing the marginal rate in each bracket, a method of cuts which guarantees the most substantial cuts for the rich.
A slight decrease in income tax, combined with a big increase in the cost of living, would leave most working people worse off. Some goods may initially be exempted, or the GST may be set at a lower rate, but once it is in place, it can easily be increased and broadened.
The Liberals and the establishment media describe a GST as "taxation reform". It is nothing of the kind. It is not a reform, but a reactionary measure, under which rich and poor pay the same rate.
Big business wants a GST to replace payroll tax, which, it claims, is a "tax on jobs". But since when has business been concerned about jobs? The truth is that payroll tax is one of the few remaining taxes that big business can't evade. Replacing it with a GST, which will be paid mainly by working people, is just another money grab.
The Liberals say the current tax system is "unfair" because taxpayers on average weekly earnings will, next year, move up from the 34% marginal tax rate to 43%. They also argue that the wholesale sales tax system is inconsistent when the sales tax on ice-cream is 12% while there is none on opera tickets.
No doubt the current tax system is riddled with unfairness and inconsistency — but that's no reason to increase the bias in favour of the rich.
Income taxes on ordinary workers are too high thanks to Labor, which cut corporate tax in the 1980s and reduced the top marginal tax rate from 60% to 47%. To make up the lost revenue, it allowed inflation to push ordinary workers into higher marginal brackets.
Real reform of taxation requires making income tax really progressive, so that everyone pays according to their means. The rich should pay at least a 60% marginal rate, the level before Labor's reactionary "reforms". This should be combined with a crackdown on all the loopholes for the rich (in 1996, some 100 companies, each making more than $300 million, paid no tax at all).
Together, these measures would allow a big reduction in the taxes paid by ordinary workers and the elimination of existing sales taxes on most goods and services. That would be a taxation reform worthy of the name.