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35 responses to “GST votes, a decade on”

  1. Mercurius

    Happy 10th Birthday GST — just don’t ask John Hewson about the cost of the cake and candles!

    Robert, the macroeconomic arguments for the GST I think were, and remain, watertight. Remember, in the 1980s as Treasurer Keating was for it before he was agin’ it as PM in the 1990s?. The GST introduced a broad-based, growing revenue stream for government and ensured that the wealthy couldn’t avoid paying tax on their (large, and growing) expenditures, even if clever accountants meant they could largely avoid paying much on their income. A particular innovation of the Australian model was to reserve GST revenue to the States, ostensibly making it available for service delivery (schools, roads, hospitals) to the communities that had paid it. We can quibble over how much in % terms each state pays and gets, the competence of the state governments as service providers, and the difficulty businesses face in complying with their collections and remittance obligations — but still I think the macroeconomic argument has proven its validity ten years on.

    However, the social argument is still open to question, and I don’t think there has been conclusive evidence either way that the effect on the least wealthy was unfair or disproportionate. Happily (and this is a fortunate contigency, not a result of the GST itself), the cost of most consumer durables in real terms has fallen considerably since the mid-1990s, which means the least wealthy are now paying a smaller proportion of their real incomes (and consequently, less GST) for these items than they otherwise would have 10 years ago. Furthermore, since unprocessed foodstuffs were excluded from GST, and the cost of those has risen in real terms, the least wealthy have avoided a nasty GST hit there. The role the Senate played in winning certain key exclusions shows how important all those meddling Democrats were — a grave responsibility that is today borne by the Greens and Independents.

    Well, that meandered to a conclusion eventually, didn’t it?

  2. Paul Burns

    When the GST first came in I tried to refuse to pay the GST component of my bill at the local supermarket. Several times. And to encourage other people to do the same. No luck, of course. People just thought I was a nutter.
    Buying books on-line avoids it, of course, but I suspect the cost of postage cancels out any advantage. So, we’re stuck with it.

  3. Nickws

    Yes, the GST was not as ideologically bad as we thought it would be, even if there was a downside to the admitted utility of the bloody thing (it’s funny to still see some RWDBs carp on about what free market hardmen they are, and will forever be, because they always supported consumption taxes).

    Of course if the Howard government had decided to use the introduction of the GST to radically slash income taxes for upper-income earners, as happened in New Zealand where the top rates were dropped down into the 30/40 % range at the time they brought in a GST, then it would have been a Thatcherite paradise. Instead the Coalition actually raised the top PAYE bracket up a percent or two, IIRC.

    Anyway, what’s up with the ‘blame Harradine’ sounding post by A.Bartlett? I can understand how an LP blogger can put a pox on both Harradine and the late Democrat party, but an ex-senator of the late Denocrats blaming the man who empowered them on this issue? How does that work?

  4. Sam

    Looking back, the rhetoric and emotion over the GST were quite absurd. But it wasn’t just the GST opponents. Some of the proponents, particular in the business community, seemed to think that the GST would be the nation’s salvation.

    It turned out to be just another tax.

    Meg Lees ruined her career over it. She was vilified at the time, but history will judge her well.

  5. Mercurius

    Paul, it’s still perfectly possible to avoid paying any GST if you want to — just buy only fresh meat, bread, fruit and vegies, ride a (second-hand) bicycle, make your household cleaners from vinegar and bi-carb, and get everything else you need from garage sales and eBay. However, you will probably be stuck making your own loo paper, or nicking it from work, along with the pens and stapler 😉

  6. DeeCee

    Paul @ 2 Buying on-line (overseas or from “small” Oz sellers) fresh food & “home-made/DIY” generally avoid all or most GST – when we found a professional painting job we didn’t feel like doing ourselves (getting too old & tired) would cost us more in GST than the actual cost of paint etc, we reverted to DIY & our own ladders & planks very quickly. Happy paying local tradies; hate paying GST!

    On-line OS buying only “pays” if the saving outweighs the postage, the A$ is high and prices low – uk (inc ebay) is currently a bargain hunter’s delight! We find it much cheaper to buy spares for the Boy’s Toy in the UK & airmail them out (VAT free) than to buy them here & pay freight (often more than air freight from the UK, even at $1=40p!) In Feb, when we needed a small but not cheap part, Oz dealers’ prices (freight extra) ranged from almost $400 to $700 (inc GST, customs’ charges, warehousing, reasonable profit etc etc … which they offered to support their prices) – the UK price (airmail inc) was $186! And that’s typical! People fly overseas for expensive services which attract GST in Australia – and enjoy a holiday & shopping as well, often for less than the Oz total.

    Nothing more illustrates the current international tax problem more than OS on-line shopping. In most cases, privately-imported purchases from UK or wherever, books from Amazon, whatever from ebay wherever etc pay VAT/GST neither here nor in the seller’s country – since ebay etc, OS sales volumes have become huge. I’m sure it’s only a matter of time before an international HoS/ Treasurers’ talkfest, like G20, decides to tax everything at the point of sale, and standardise the VAT/GST. The international average is well above 10%

  7. Ben Eltham

    One group of politicians in particular can thank their lucky stars for the GST: state treasurers. Many of the Australian states would be practically insolvent without the revenue from the GST … it was the first significant redress of the vertical fiscal imbalance since the states voted to hand over their income tax powers in the 40’s …

  8. Robert Merkel

    Nickws: I don’t think Andrew’s done that at all.

    I have drawn together two separate posts of his to draw some conclusions.

  9. Milton Keynes

    It was Beazley’s policy to “roll back” the GST that lost the election for Labor in 2001.

  10. Robert Merkel

    Don’t feed the trolls…

  11. Mercurius

    Another factor overlooked in the original GST debate is that much of the heat was directed at the “G” part, and comparatively little attention paid to the “S” part.

    The general taxation of Services was the most innovative and important component of the GST, and the one that has and will contribute most to the long-term stability of the taxation base. Like all developed economies, the Australian economy was and is in a long-term trend towards an ever-growing services sector, which was largely excluded from the old goods-focussed Sales Tax regime. You know the mantra: the broader the base, the lower the rate. Without introducing broad-based taxation of services, then the ever-shrinking goods sector would have been left to carry an ever-increasing share of the tax burden, at ever-increasing rates — and that would’ve impacted the lowest earners far more than many were willing to admit at the time.

    The S part of the GST is the most progressive element. Openning white- and blue-collar managerial-level services to taxation ensured the wealthy (who consume more services relative to their income than they do goods), would end up paying more GST for them. Suddenly the wealthy had to pay a tax slug for all those gardeners, pool-cleaners, nannies, personal trainers, tennis-court hire and interior decorators. This was often forgotten in all the argy-bargy over the cost of birthday cake.

  12. wilful

    I was a member of the Australian Democrats back then, and I was entirely supportive of the party platform, which included passing a fair GST (with amendments). The final result was within the ballpark of what the ADs promised to the people as part of their election commitments.

    Of course, some other party members seem to recall differently.

    People criticising the GST need to remember the utter idiocies of the wholesale taxes that it did away with.

    Also, IIRC, the Democrats successfully introduced fuel standards as part of the GST negotiations that have greatly cleaned up our urban air quality and allowed the introduction of nifty Euro diesels that our disgusting old standard fuels were precluding. And this change of course was credited to Howard, not the ADs.

    What happened to Australia’s gGini coefficient score 1999 to 2009?

  13. Clinton

    I am a member of the Australian Democrats and today is a sad anniversary. The Dems, babes in the woods, came up against by far the smartest politician in our country’s history. Someone had to pay the political price for passing an unfair tax, shame it wasnt the b&stards who introduced it.

  14. Paul Burns

    Thanks to those of you that gave me some hints about avoiding the GST. Guess I’ll just have to buy more fresh fruit and pinch toilet paper from Armidale’s public toilets.
    The thought of the G20 getting together to put a GST/VAT on stuff bought on line is frightening. I hope the Liberal capitalists and Right-Wing ALP Liberal look-alikes that occasionally appear on LP don’t pass it on to the pollies. In any case, I don’t think it’d work. The point of buying on line (apart from getting access to out of print books, etc) is to save money isn’t it? (Assuming the bank fees don’t break you.)

  15. Dave McRae

    Ben #7, where did you get the figures for your assertion that states are better off?

    I’d thought I’d do a wee google and that’s not the impression I get – http://www.aeufederal.org.au/Publications/impgst2006.pdf – from that doc, which outlines the Budget Balancing Assistance – a federal payment to states should the revenue from GST fall below 1998 levels.

    These payments continued until 2003 for most states, 2004 for NSW, by when I guess inflation finally gave a revenue increase in numerical terms. Apparently this assistance can come back into play if the states drop some of their taxes that they haven’t got around to dropping yet, or by june2006 (that doc was made in 2005 and said they may be an extension to 2009) whatever earliest. So I guess that may be a reason why the states are reluctant/slow to drop all of their state taxes – ie without the federal Budget Balancing Assistance and keeping some of their old taxes they would backwards in absolute let alone real terms.

    So it looks as if real terms, most states, esp NSW are getting a caning, even before the recent GFC fall of GST revenues

  16. hannah's dad

    GST was and is and always will be a regressive tax.

  17. Lynda Hopgood

    It’s the tax on services that I have always objected to. When I get my car serviced, I expect to pay for parts (plus GST) and labour, but not an additional charge to the government on top of that. This has been the real windfall for the government; removal of sales and other taxes and the impost of GST on goods pretty much cancelled each other out, but the tax on services was a new tax, and a very lucrative one at that.

  18. Nickws

    Robert, I commented at the most recent of Andrew Bartlett’s posts on this subject at his blog. This is what he’d written over there:

    It was an almost universally assumed, including by everyone in the Democrats, that the stated positions of the Democrats and the government on the GST were much too far apart for there to be any prospect of an agreement being reached. Brian Harradine was seen by all parties and all pundits as being the only plausible path for the GST to pass the Senate. This was highlighted by the frequently repeated view that the government needed to get his agreement prior to July 1.

    Certainly amongst the Democrats Senators and staff there had been almost universal assumption for months that Harradine would reach some sort of deal prior to July 1. I had certainly often said so, and also heard it stated frequently by virtually everyone else I had contact with over the preceding months – sometimes with resignation, sometimes with contempt, sometimes with admiration and sometimes with anger, depending on who was speaking and perhaps what mood they were in at the time.

    To me it sounds less like Bartlett is commenting on Harradine’s policy and more on the fact the Tasmanian Independent lumbered the ADs with the responsibility to shit or get off the pot, if you’ll pardon the expression. And the unspoken part of Andrew’s post is the belief that tackling this issue killed his party (though to be fair to Bartlett he hasn’t had the opportunity to respond to what I wrote at his blog).

    Right-Wing ALP Liberal look-alikes that occasionally appear on LP

    Actually, Paul, the Labor people you talk of look and sound just like you or me, they’re not the stereotypical betrayers of the workers you imply they are.

    I can identify them by the fact they have a dismissive attitude towards Paul Keating’s project (sorry, comrade, I know that isn’t the kind of thing you want to hear, but that’s what the path of least resistance in Australian social democracy is today, and it frightens me).

  19. Jacques Chester

    I remember the sound and fury surrounding the GST. Apart from “Sorry” it was the leftie cause je jour when I was first at uni (christ I’m a terrible student).

    I was young and curious then, doing the rounds of the different political clubs. One fine afternoon I was sitting in a Labor club meeting as a visiting observer and the GST was being discussed.

    “It’s regressive”, began one bloke.
    “Why?” asked a girl who clearly had no future in politics.
    “Because the poor spend more of their income, they will get taxed more”, he replied. Pretty standard stuff. At that point though, I spoke up.
    “But the rich already get away with a lot because proportionally more of their income is spent on services — lawyers, accountants, decorators etc. Besides, there’s already a tax on goods — the Wholesale Sales Tax.”
    “Then,” said the first girl, “Why don’t we introduce a services tax?”

    I had to pause a bit before answering. I was being intently watched by people who apparently thought I had just been trounced.

    “Because,” I said, slowly, wondering if it was all a joke, “then you would have a Goods tax, and a Services tax … or as some people call it, a GST …”

    That’s the day I ticked the Labor club off my list.

  20. hannah's dad

    “But the rich already get away with a lot because ….. lawyers, accountants.”

    That is what needed to be changed.

  21. joe2

    I dispute that toilet paper cannot be bought via Ebay minus G.S.T. You might need to pick it up personally, on the second hand bicycle, and balance it on your head to get it home but it can be found.

    http://cgi.ebay.com.au/10-Cartons-of-700sheet-Toilet-Paper-Top-quality_W0QQitemZ350201412247QQcmdZViewItemQQptZAU_Toilets_Bidets?hash=item350201412247&_trksid=p3286.c0.m14&_trkparms=66%3A2|65%3A1|39%3A1|240%3A1318|301%3A0|293%3A1|294%3A50

  22. Robert Merkel

    Hannah’s Dad: yes, it almost certainly is a regressive tax. But surely what matters is the effect of the tax and welfare system on the overall level of inequality, not just one tax.

  23. JohnL

    Well, on the question of whether the GST is a fair tax, one can consider some of the things that are exempt and those that are not. For example, water rates do not have a GST component, apparently because water is considered a necessity of life. But what about energy? Electricity, in particular, is s necessity of modern life and, in a broader sense as a more efficient form of energy in cooking and heating, so is gas. But they both attract GST.
    It’s a fallacy to think that the services component is adhered to strictly and that the wealthy do not take advantage of paying by cash. Many service providers will tell you that the more affluent in our society will suggest a 10 per cent reduction in a quote for payment by cash.

  24. Bingo Bango Boingo

    I’ve said it before and I’ll say it again, the only moral tax is a progressive consumption tax. Pity the infrastructure simply isn’t there (yet?) to do it properly (and no, having higher rates on ‘luxury’ items is not a sane way to do it).

    BBB

  25. Bingo Bango Boingo

    Actually, a very-low-rate land tax on the value (perhaps even the improved value?) of all land everywhere without exception, in conjunction with a progressive consumption tax, would still be morally defensible I think.

    BBB

  26. Graeme

    an overlooked unfortunate effect of the GST is to increase the disposable society.
    10% on a repairer’s quote, combined with reduced cost of consumer goods means it’s uneconomic to repair most whitegoods let alone electronics well within their lifetimes.

  27. Mercurius

    OK, good, so we’ve recycled all the nostrums from ten years ago – “it’s a regressive tax”. Now, ten years on, there should be plenty of evidence for that…right?

    Where is the evidence to show that the GST as implemented in Australia unfairly or disproportionately hit low-income earners? If anyone can produce it, this would be a good place to do so. I’m sure there would be a receptive audience.

    Remember families, pensioners, and persons with disabilities earning up to as much as $40K in Australia pay no net income tax at all due to rebates and tax concessions. And if they buy fresh food and second-hand goods as their incomes allow, use public transport (it attract GST I know, but much less cost than private travel), schools and hospitals, then those families’ GST bill will be negligible. Pretty much the loo paper and school shoes. Seriously, where’s the regressive tax hit? I don’t see it.

    I can think of three taxes that are far more regressive in fact that the GST might be in theory. They are tobacco excise, alcohol excise, and petrol excise. Do you think you could save some of your outrage for those? A pack of Winnie Blues attracts about the same tax as a Monte Cristo. And a bottle of Bundy Rum attracts about the same tax as a bottle of Louis XIII cognac. And a clerk who battles up the M5 every day from Minto pays a lot more in petrol excise than a barrister who cruises 3 miles into the city from Vaucluse. Seriously, these excises impact low income earners in a very disproportionate fashion, so spare me the selective outrage about the GST — at least with GST you get a receipt that itemises exactly how much you’re paying (try getting that from the servo, bottlo or smoke shop), and it’s the same proportion for everybody, the essentials of life don’t attract GST (thanks Democrats!), and there are plenty of other ways to reduce the amount of GST you pay through careful purchasing.

    Lynda @ 17. Ok, I get that you don’t like paying for tax on services, but you do like schools and roads and hospitals don’t you? Seriously, with goods shrinking as a proportion of the economy, and services growing, and we’re already collecting 40-50% (inc. Medicare levy + surcharge) of the marginal income of everybody earning over about $80K, where else can you find the money? The narrower the tax base, the higher the rate has to be — if you make it super-narrow, you’re going to wipe out your tax base altogether. Seriously, you can gripe about paying tax on services, but unless you have a better suggestion (ie. one that won’t destroy the economic base it’s attempting to tax), then I’m afraid you’re just whingeing.

  28. hannah's dad

    “Remember families, pensioners, and persons with disabilities earning up to as much as $40K in Australia pay no net income tax at all due to rebates and tax concessions’

    I earn less than $40,000 pa and pay income tax and GST.
    I obviously don’t fit into any of your exempt categories.
    I wonder how many others don’t?

  29. Razor

    The worst thing about the GST is all the stupid exemptions which meant the states kept all the stupid multitude of taxes and charges that should have been abolished.

  30. Bingo Bango Boingo

    This retrospective also highlights the stupidity of the Rudd Government in setting the terms of reference for the Henry Tax Review. The Review absolutely should consider whether the balance between the GST and other taxes is right, whether the whole system can be re-cast and simplified. But it won’t, at least not thoroughly, because of the idiotic political baggage that the ALP carries on consumption tax issues. I have high hopes for the Review (payroll tax abolition, anyone?), but the most obvious way in which to massively improve the system (i.e. replacing a variety of regressive and/or economically/morally indefensible taxes with an increased GST tax + progressive adjustments to the income tax regime) is not available. The one consolation is that if Costello were still around there would be no review at all, and certainly no prospect of any meaningful change on the tax front.

    BBB

  31. wilful

    Pretty much 100% with Mercurius at #27 on this one. By report, the social inequity in the past decade has remained pretty stable, even narrowed a bit between the bottom and middle (widened a lot between middle and top), so any argument about the GST needs to provide evidence that it’s such a bad thing.

  32. The Intellectual Bogan

    Many service providers will tell you that the more affluent in our society will suggest a 10 per cent reduction in a quote for payment by cash.

    Everyone I know habitually utters the magic question “Discount for cash?” when making any major purchase or payment. It has nothing to do with affluence in my experience.

    Seriously though, a couple of random observations.

    I object strongly to GST on books. Even Thatcher at her loopiest didn’t try that one in her attempts to keep the lower orders as uninformed as possible.

    At the time the GST came in, i was looking to buy a TV and a fridge. My completely unscientific observations suggested that, on July 1st 2000, fridges rose in price whilst TVs became cheaper. As refrigeration is, whilst not an absolute necessity, extremely useful in the Australian climate, whilst a TV is not, i was a bit dubious about the effects of the GST.

    Overall, though, it hasn’t turned out as bad as I and many others feared. I still look at the number at the bottom of my weekly shopping bill and feel a little smug about what a small percentage of my overall expenditure it actually is.

    Besides, like DeeCee, I find that my major GST eligible purchases are best made offshore due to the venality of Australian importers, distributors and retailers of anything remotely specialist.

  33. Mercurius

    Hannah’s dad, please read what I wrote: no net income tax. Yes, you pay some taxes, but have you looked at the other side of ledger? As in if you are a family earning under $40K, what income tax you pay comes back to you in the form of either (a) low-income tax rebate or (b) family tax benefit. There is no net income tax bill for families with children in that situation. That’s not my supposing, that’s Treasury analysis and Budget papers.

    And I never said you don’t pay GST — I said you can effect to pay negligible GST by purchasing fresh foods and second-hand goods, as I have habitually done in the years when my income has been low.

    Unless you’re prepared to offer more specific information than just blanket assertions, there’s not much I can address directly. I will say for my own situation my income has fluctuated wildly and in recent years I have on several occasions been not just below $40K, but below $20K as well. In those years, I found my income tax bill was balanced by tax rebates I received – and I don’t even get family tax benefits or baby bonuses or any such thing. I even got extra rebates for some very large and unwelcome medical out-of-pockets I had to pay. So the income tax situation for low income earners is pretty much balanced in net terms, from what I can see. And how much GST you pay is a function of what you buy and how you buy it. In my lean years, I’ve done fine on fresh food, second-hand goods, and libraries (and there’s no GST on the largest item of household expenditure: rent & mortgages).

  34. chinda63

    Mercurius – I do think income tax should be higher. I am more than happy for my taxes to pay for infrastructure and essential services; as far as I am concerned, that is what income tax is for. It just makes me want to scream when I get a contractor in to build fences and discover that nearly $500 of what is already a huge bill has nothing whatsoever to do with the work that he has done. I have paid for the materials he purchased on my behalf and I have paid for his labour. As far as I am concerned, that should be the end of the story.

    If I am going to give an extra $500 to the government, then I’d rather it comes out at $10 a week, every week, rather than as a lump sum that I can’t afford, if you get my drift. But that’s me thinking as a single parent pensioner; I don’t have a huge disposable income like many who don’t see what the big deal is with the GST. It’s no wonder that there are so many people out there who do “cash” work – if I had organised a fencing contractor on those terms (or the electrician and plumber) those jobs would have cost me at least $1,000 less and I would have money to spend on other renovation jobs that are currently on hold.

    And yes, I guess that is a whine 😉

  35. Mercurius

    Hi Chinda – I hear ya. I would love to pay $1 million in income tax! 😀