At a recent press conference, the Prime Minister Malcolm Turnbull asked the audience for any good ideas for tax reform.
It is good that he is open to suggestions, but it’s a bit of a worry that he’s run out of ideas already.
There are a number of ideas widely canvassed as a solution to Australia’s debt, deficit, spending and revenue problems: reforming taxation on superannuation, raising or broadening the GST, modifying negative gearing, et cetera et cetera
But here is one that never seems to get any traction.
Vary the GST.
Why should the GST on a loaf of bread be the same as the GST on a Rolls-Royce?
There is no logical or equitable answer to that. Given the Prime Minister’s concern about about equity in taxation reform and the strongly argued case that GST is a regressive tax and increasing to 15% will have an undue impact on low income earners, surely it’s time to start arguing the case for a variable GST rate.
After all, at present fresh food, health and education are exempt so we do have a degree of variation in the way the tax is applied. Having a sliding scale of GST would allow the targeting of luxury /discretionary goods purchased by the rich.
The huge advantage of a GST as it is a tax on expenditure some of which is discretionary. The more expensive and discretionary the purchases are, the higher the GST should be. So there is an argument for a very low, or perhaps no, tax on fresh food.
Given the exceptionally inequitable federal funding for state and private schools perhaps it’s now time for private school fees to be subject to the GST. The higher the school fees, the higher the GST. Now that’s equitable!
The downside of a variable GST is that its administration would be difficult at best and at worst an absolute nightmare. Decisions about the application of the rates of tax will produce screams of agony from various interest groups. Expect Rolls-Royce dealers and Toorak hairdressers to be extremely unhappy.
But it’s worth a try because it provides an opportunity to make the GST less regressive and move the taxation base away from earnings and on to consumption.
Let me know what you think, Malcolm.