See your whammy and raise you

The carbon tax has been resurrected. It’s a double whammy. No, a triple! Pensioners will freeze and manufacturers will go out of business. The cost of living will skyrocket with a great big tax on everything.

Raising the GST to 15% is, however, very sensible.

Can they not see the incongruity?

Instead of collecting over $13.5 billion from polluters, hence encouraging them to invest in energy efficiency, we are paying out over $3 billion in public subsidies through the emissions reduction fund and the Green Army.

Getting rid of the mining tax was supposed to boost investment, employment and GDP. It has done none of those things. We gave up a projected $4 billion in revenue and were then supposed to lose the increase in the Superannuation Guarantee, the low income super co-contribution, the school kids bonus, the instant asset write-off increase, accelerated depreciation on motor vehicles, the twice yearly supplement, and the tax loss carry back.

Rescinding the changes to the Fringe Benefits Tax regarding car leases was supposed to save the car industry. All it did was cost us almost $2 billion to allow people to continue to fraudulently claim business usage of their vehicle, while the manufacturers were thrown under a bus and tens of thousands of people will lose their jobs.

Cutting the corporate tax rate to 28.5% was predicted to cost the economy $4.2 billion in 2016-17.

But back to the GST.

The following is from the Senate committee that investigated the introduction of the GST back in 2000.

Impact on the Living Standards of Households

Compensation – An Introduction

2.1 The Government’s proposed Goods and Services Tax is a regressive tax. It is a flat rate tax and like all flat rate taxes the lower one’s income, the greater the negative impact of the tax on the person’s living standards. Put simply, a household earning $100,000 pays exactly the same amount of GST on the same goods and services as a household earning $10,000.

2.2 The Government’s proposed Goods and Services Tax is even more regressive. This means that lower income households will pay the same rate of tax as high income households, and will pay it on a higher proportion of their spending – a double tax whammy.

2.3 The Government acknowledges the GST is regressive in the document Tax Reform: not a new tax, a new tax system (ANTS). They propose a complex system of compensation comprising tax cuts and increases in social security payments. The compensation is also highly regressive. The tax cuts for higher income households far outweigh the increases in social security payments for lower income households. A single person earning $100,000 gets an extra $64 a week – twenty five times the weekly benefit of the poorest single person. A couple with no children earning $100,000 gets $80 a week, five times the benefit that the poorest single income family with three children gets.

2.4 Under the Government’s proposed tax changes, the top 20 per cent of income earners get 50 per cent of the benefits from the Government’s compensation package.

2.5 The Government’s tax package claims that there are no households that are made worse off. Evidence presented to the Committee leads us to strongly question the validity of this claim.

2.6 Indeed the Treasury has revised its estimate of the real price effect of the GST in the first year from 1.9 per cent to 3.1 per cent. However, Treasury uses the 1.9 per cent to produce the compensation package which means many low income individuals and families become losers. Treasury has presumed prices will fall because of a 100 per cent pass through of tax reductions. Witnesses to the Committee said that a 70 per cent pass through was a more realistic assumption. Therefore a more reasonable estimate of the price impact of the GST is between 4–5 per cent.

Those calling for the GST to be raised suggest that the regressive effect on the cost of living could be offset by lowering income tax rates and abolishing other state based taxes like motor vehicle taxes, insurance taxes and conveyancing duties.

The problem with this is that you have to be employed for lower tax rates to be of benefit and the taxes they are considering cutting are mostly used by wealthier households.

Modelling by KPMG estimated that raising the GST to 15 per cent and applying it to all goods and services would raise an extra $42.9 billion in the first year but this assumes that lower income tax rates would lead to people working more hours. This is unrealistic as there are not the jobs available.

KPMG suggested leaving the top marginal tax rate steady at 47 per cent for those earning $180,000 or more, but cutting the next bracket to a rate of 33.1 per cent from 37, the one below to 32 from 32.5 per cent and the lowest tax bracket to 13.5 from 19 per cent.

However, despite leaving the top tax rate untouched, this scenario would result in the highest 20 per cent of income earners being $1,551 a year better off, while the lowest fifth of earners would be just $273 ahead.

There may be an argument for increasing the GST but without a significant increase to welfare payments, which Joe Hockey has already told us we can’t afford, it will just send more people into poverty while mooted changes to other taxes will leave wealthier households better off – again.