Tax reform should be easy as GST, but we continue to get it wrong

The GST was supposed to have been about tax reform. It quickly became a grubby combination of bureaucratic meddling and self-interested political machination.

Former Head of Treasury Dr Ken Henry.

Here we go again. The annual carve-up of the now-$90bn GST pie. And so, who wins and who loses.

The GST was supposed to have been about tax reform. It quickly became a grubby combination of bureaucratic meddling and self-interested political machination.

Although, it does now serve as a half-useful demonstration of the all-but inevitable squalid reality of what you really get from so-called tax reform. At best, a mess; more accurately, the actual antithesis of reform.

The GST was supposed to do two things.

Give the states a ‘growth tax’; weaning them off their reliance on inefficient taxes like property stamp duty and payroll tax.

The outcome? Two words will do: yeah, right.

The second objective was broader tax reform, mostly at the federal level but also at the state level.

And there it broadly worked, replacing in particular the long-standing, complex and highly inefficient, wholesale sales tax.

But all this really required a second leg - Tax Reform Version 2.0 - which we never got and now, almost certainly never will.

Before he went on to bigger things as chairman of the National Australia Bank, treasury head Ken Henry actually identified how this could be quite easily done, even though he didn’t actually see it, in his Tax Reform Report.

That was to sweep away around 100 minor, very minor, taxes and government charges – that were actually more burden on the economy than raising any real revenue – and replace them by lifting the GST from 10 to 15 per cent.

So, more than a dozen years on, all we have is more and more income tax ripped from you.

That’s, even after the supposed revamped Stage Three; and indeed, precisely because of the revamp and its return of the bracket-creeping 37c rate.

And the income tax take would be even higher, much higher, but for the fortuitous tens of billions raised by resource group company tax and mineral royalties.

Right now, these revenues equate to just about as much as is raised by the GST. And they all depend, directly and indirectly, on China keeping its glorious growth music, not just playing, but playing ever louder.

Plus of course, this entire government, from the unknowing and so often absent prime minister down, wanting to close down all those mines that generate all those revenues.

Even though, right now, they are desperately also trying to make it easier to open more and more of them; just like the coal-fired power stations that must be closed and blown up soonest, but must also be kept open to keep the lights on.

Go figure.

It should be easy with the GST: just give the states back the money that is raised by their citizens spending.

But oh no, the returns have to be ‘equalised’. So WA has to get less to offset its resources royalties, SA, Tasmania and the NT have to be lavished with other peoples – Victorians and New South Welshmen’s – money.

Tax reform: the bastard child of three parents. Starry-eyed idiot expert idealists; meddling bureaucrats; and, of yes, of course, grubby pollies.

Originally published as Tax reform should be easy as GST, but we continue to get it wrong