Tax reform doesn't begin and end with the GST - Breaking Politics





SUBJECT/S: Deloitte tax reform report

CHRIS HAMMER: Andrew Leigh, Deloitte Access says Australia has its tax mix wrong. Just as a basic principle, would you agree with that or do you think the status quo is pretty much right?

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Chris, I always welcome the chance to talk about tax and I've enjoyed many conversations with the lead author, Chris Richardson, over the years. I do think this Deloitte report though misstates the efficiency benefits of the GST and undersells the efficiency costs of raising the GST.

HAMMER: That is pretty much at the core of the report, as I understand it. There are lots of other things in it but the basic argument is that the GST is an efficient tax and that it can be increased or broadened without being regressive because it's possible to compensate people. There's more than enough money to compensate low income earners. Is that correct?

LEIGH: Let's step through a couple of those things, Chris. First of all, the report suggests that the GST is highly efficient, but it quotes the Government's tax white paper which says that the efficiency cost of raising $1 through the GST is about 20 cents, which makes it about as efficient as income taxes. That therefore suggests that a trade-off which raised the GST and cut income taxes would have no efficiency benefits for Australia. It also, I think, undersells the extent to which the household assistance to compensate for a GST rise would, itself, have an efficiency cost. The highest effective marginal tax rates in Australia aren't those paid by multimillionaires; they're the effective marginal tax rates for welfare recipients. An assistance package that accompanied a GST rise would have to raise effective marginal tax rates at the point at which they're highest. So the household compensation would have an efficiency cost. 

HAMMER: So are there any circumstances under which Labor would support increasing the GST or broadening its base?

LEIGH: No, we've said we don't support those measures, Chris. I think the attraction of the GST for many people is the magic pudding notion. Mike Baird wants to spend the increased GST on health, Joe Hockey would like to spend it on cutting taxes, Chris Richardson is suggesting that it can be used for a variety of different purposes but that's largely because he is estimating a very small share being spent on compensation. When Peter Costello introduced the GST, he spent 55 per cent of it on compensation. Chris Richardson is suggesting he can spend just 24 per cent of the GST increase on household compensation.

HAMMER: But even if it was 55 per cent of any increase, that would still leave people no worse off. And that leaves a significant amount of money with which to address other issues like health spending or cutting other taxes. Why not even consider that?

LEIGH: We don't believe that it has an efficiency benefit, for the reasons I've outlined before. And in fact the Government doesn't believe that the GST is more efficient than income taxes – that's what its own tax white paper says. We do think it's a much less equitable tax, and at a time when inequality is at a 75-year high, it just doesn't make sense to be raising the tax that hits low income workers hardest.

HAMMER: Ok, one of the other elements proposed is using that money to cut company tax down to 25 per cent, making Australian companies more competitive. Isn't that a good idea?

LEIGH: We should always be looking at ways of getting the company rate down, Chris. One of the things I like about the Deloitte report is that it does make the point that anyone who suggests a tax cut without suggesting where the revenue will come from shouldn't be taken seriously in the debate. While I disagree with the report's proposal on the GST, it does have a way of bringing down company tax rates. We supported the Government's decrease in the company tax rate for small business, and said we're willing to have a constructive conversation with them about bringing that rate down further still. We know the company tax rate is a significant drag on growth, largely because capital is more footloose than labour and so there's potential for us to miss out on high-quality investment if we have too high a company tax rate. But we do have imputation too, which most countries don't have. If you want to seriously compare Australia's corporate rate with other countries, you need to consider the fact that we give back somewhere between a quarter and a third of the company tax take to individuals so that they're not double-taxed.

HAMMER: Ok Andrew Leigh, thanks for your time.

LEIGH: Thanks Chris.



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