ABC NEWS RADIO
FRIDAY, 6 NOVEMBER 2015
SUBJECT/S: GST and tax fairness.
Andrew Leigh, the Government is still only talking in broad terms about its objectives for tax reform but one objective is that it be fair. I imagine Labor shares that. But another one they've indicated is that there be no overall increase in the tax rate – does Labor share that view?
Marius, we need to make sure that we have the tax base necessary in order to fund the services Australians demand. For example, we saw that when we put in place the National Disability Insurance Scheme that Australians, by and large, accepted that there would be an increase in the tax share to fund a new part of the social safety net. Because any of us could fall victim to a profound disability. So I don't think there's any magic about the tax rate, but tax reform should always be equitable, efficient and simple. I'm just not sure that the Government's plans for a higher GST meet those tests.
I want to ask you about the GST but can I just clarify that point: Labor does have the door open on the idea of increasing the overall tax rate as part of tax reform?
There's no magical tax rate, Marius. Australia is among the lower-taxing, lower-spending countries in the advanced world. Government is about a third of the total economy here compared with around 40 per cent in New Zealand or Britain and 50 per cent in Europe. I certainly don't think we want to going towards those 50 per cent levels, but it is important to make sure that we get the balance right. Scott Morrison's approach of saying that it all needs to be about cutting spending seems to fly in the face of his turning around and saying we need to raise the GST. So I'm frankly a bit puzzled about how the Treasurer regards this issue.
On the GST, do you believe the existing GST is unfair?
The GST certainly has a regressive impact. That is largely driven by differences in spending rates. If you look at the top fifth of the distribution, they put about a quarter of their income away into savings. If you look at the bottom fifth, they actually spend more than they get in; they're borrowing on net. So that means that if you have an expenditure tax, that will hit the bottom more than the top – it's an inevitable result of our GST.
So any consumption tax, any GST, is unfair at any rate?
It's certainly regressive. There are, I think, economic arguments to be made for having an expenditure tax which isn't zero if we want to go into fine public finance points about it. But Labor's argument has not been about the existing system. It has been about the Government's proposal to increase the GST by 50 per cent.
The proposal is that compensation would go hand-in-hand with that: is there no fair way to increase the GST?
Certainly I haven't seen a model of compensation that would leave low-income households better off. One of the factors which has been missed in this debate is that the effective marginal tax rates of low-income earners are the highest in the community. No-one else is paying an effective marginal tax rate of 50, 60 or 70 per cent. Household compensation for low-income households would have the effect of pushing up those marginal tax rates even further, perhaps deterring people moving from welfare into work and having a significant efficiency cost. That needs to be considered alongside any change to the GST.
The Labor alternative to a GST, the changes you're advocating for on tax are to hit the multinationals hardest so that they pay a fair share of tax, and close tax breaks for the wealthiest superannuants. Have you priced that? Have you determined how much you can get from that?
Those two reforms amount to around $20 billion. But Marius, I would demur from your description of 'hitting the multinationals hardest'. We worked very hard on putting together a multinational tax plan that we believe is grounded in good economic principles. The changes we'd make to debt deduction rules bring them, I believe, more into line with where good economic policy should sit. Similarly with the changes to superannuation – these are changes which we believe won't have an impact on growth but will have a positive impact on the budget bottom line. You can't say that with the GST. After all, we've seen Japan slide into recession after raising its expenditure tax. So there is a risk that if you push up the expenditure tax, it's not just unfair but also really hits retail sales.
Andrew Leigh, thank you very much.
Thank you, Marius.