GST increase will hit growth and inequality - AM Agenda





SUBJECT/S: Tony Abbott, Australian Republic, GST, Tax reform, bracket creep.

KIERAN GILBERT: This is AM Agenda, with me now is Shadow Assistant Treasurer, Andrew Leigh, a lot to get across today. First of all the fact that Tony Abbott stays in Parliament, there's one thing in Australian politics over the years that many have commented on and that is our inability to use former Prime Ministers well in terms of their capacity. Mr Abbott wants to keep providing service to the community, why not? 

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Kieran I think you're completely right about our inability to make best use of former Prime Ministers on both sides, it sometimes takes them a while to find their feet. But make no mistake, Tony Abbott is not staying in Parliament because he wants to continue serving his local constituents, he's there reflecting the massive fissure that's going on in the Liberal party between the extremists and the moderates. You're seeing this in New South Wales with the place being ripped apart through a series of factional in fights between different camps of the Liberal party.

GILBERT: You'd know that well, being in Labor. I know you're an independent within Labor but you know that better than most?

LEIGH: You're seeing an outbreak of harmony in the Labor party by contrast to the NSW Liberal party. There's barely a NSW Liberal who isn't under challenge at the moment. And that reflects the ideological differences in the party and the fact that this is such a divided Liberal party at the moment. If it weren't, I hardly imagine that Mr Abbott would be staying on.

GILBERT: Let's look at the republican issue, as Minister Fifield pointed out quite rightly, we get a story about this every year. This one has a bit more weight to it in the fact that it's every state and territory leader except Colin Barnett who is a republican anyway sign this letter of support for a republic. What's your take on this, do you agree that it won't necessarily generate enough momentum until after the reign of the current monarch?

LEIGH: Well it's got lovely echoes of the federation era campaign. There were different models for federation, but people pushed because they recognised federation would be good for the country. Kieran, there will be a couple of hundred Aussie babies born today and none of them under the current rules could grow up to be our head of state. Despite the fact that they'll grow up around eucalyptus, they'll cheer for the baggy greens and they'll speak in ocker accents. Instead, it's a group of people who have none of those traits who supply our heads of state. I think that needs to change, I reckon every Aussie baby born today, yesterday, ought to be eligible to be our head of state. It's a simple change and it's a bit embarrassing frankly, that people would suggest that it needs to wait for the current monarch to pass on. 

GILBERT: Do you accept that is isn't a first order issue for most Australians today?

LEIGH: We can walk and chew gum at the same time. There's a range of different issues we confront in Australian politics and this is a central issue to who we are as a people.

GILBERT: On the tax debate, Scott Morrison has said everything is on the table. It seems to me having a very constructive discussion right now about tax reform, Labor for its part, ruling things out at the moment when one of your most respected leaders right now, Jay Weatherill, is open to the idea of a tax mix that would see the consumption tax increase yet the federal Labor is not having a bar of it. Is that a bad look for you?

LEIGH: Jay is a terrific contributor to the public policy debate, but on the issue of the GST federal Labor has a clear position. Our view is that at a time when consumption and growth are fragile and inequality is high you don't want to raise a regressive tax that hits consumption. The economy went backwards when we first introduced the GST in 2000, so we want to be wary of that happening again after all of these growth downgrades. Real income per head is 2 per cent down of what it was a couple of years ago.

GILBERT: OK, that's fine, it is a regressive tax, but if you have parallel compensation and significant compensation that would see low income earners potentially, we don't know the details they were never announced as their form of policy but if you have compensation like you had with the carbon tax, again a regressive tax, and lower tax rates on personal income tax, why not? Because you would see people suitably provided for in the face of a higher consumption tax.

LEIGH: Scott Morrison has ruled that out. He's said that he wouldn't want to see an increase in the GST raise the total tax share. That means automatically you're not increasing pensions, you're not increasing family assistance because that would by definition raise the size of government. So that means that anyone that's on a fixed income would be pretty scared about this.

GILBERT: He said there would be compensation and in fact you couldn't have that sort of reform unless you did have appropriate compensation to those on transfer payments?

LEIGH: It might be dangerous, Kieran, but I'm just taking Scott Morrison for his word. He says that if he were to raise the GST it wouldn't increase the tax share, I'm taking the next obvious step from that which is that it means no compensation to pensioners, no compensation through family payments.

GILBERT: But how is that the next step because if you have compensation at that level, those at the higher end aren't compensated. Doesn't that automatically make that a fairer system where it's almost a luxury tax of sorts, those that spend more are being taxed more?

LEIGH: If you compensate people on fixed income the tax share must go up. So Scott Morrison is either lying to you when he says a GST rise wouldn't push up the tax share or else he simply doesn't understand what is going on in this pretty fundamental area of tax reform.

GILBERT: Do you think there is enough to do in terms of tax reform without the consumption tax and still make our economy competitive, lower the company tax rate and provide tax cuts to people who are moving in through the second highest tax rate when they are low to middle income earners, that's not viable?

LEIGH: Well we've got four tax brackets and it'll be a while before the median income earner goes into the second highest of those tax brackets. But overall, federal Labor has put forward proposals around multinational taxation which I think are looking pretty good in light of some of the Google news coming out of Britain. The idea that at a time when Australians are concerned about multinational tax that we'd go soft on multinationals so we could go hard on low-income earners is crazy. Inequality is high, we ought to be looking at the measures that won't hurt growth and won't hurt inequality. 

GILBERT: If there is compensation though, and I know you're saying that if you take Morrison at his word that you wouldn't see a substantial increase in welfare payments but if they do pursue it like the Prime Minister has indicated, welfare increased, tax cuts, what is wrong with this as an idea, as an economist yourself, what is wrong with making the consumption tax a bigger part of the pie?

LEIGH: Kieran, Japan recently raised their consumption tax from 5 to 8 per cent. Their economy immediately went into recession. Our economy is pretty fragile at the moment, we've got consumer confidence down this year, more than a hundred billion dollars wiped off the stock market. Concerns about what is going on in China. In that atmosphere do you really want to have a huge hit to consumption with a regressive tax?

GILBERT: Just finally, what is happening with the markets in your view, we've only got about 30 seconds left, but it's just all over the shop?

LEIGH: There are the huge negative impacts on markets. I am concerned about some of the geopolitical risks this year and worried that the Chinese transition might be in for a hard landing. There's a few bright spots, you look at the lower oil prices, the lower exchange rate, they may provide some stimulus to the Australian economy. But that's why we need a long-term plan for productivity and that's why the tax reform conversation is so vital; that it isn't just about solving a political problem but it's about laying the groundwork for decades. 

GILBERT: Andrew Leigh, thanks very much for your time this morning.

LEIGH: Thank you.


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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.