In Error: Hockey Wrong To Squib GST Changes

REMARKS BY Joe Hockey that there is “no point” amending the GST because any changes would be blocked miss the point; instead of delivering budgets full of insipid but politically lethal measures aimed at a patchwork fix to the gaping hole in government finances, the government would be better served building a case — and arguing — for tough, crucial structural reforms that are simple, efficient, and more durable than a box of Band-Aids.

In and around the obligatory furore over Monday night’s episode of the ABC’s #QandA programme (the indecency of certain suggestions by one of its guests this column will not dignify with comment) and the unsurprising Newspoll that was released shortly after it, the issue behind this morning’s comment piece might well have escaped a great deal of public attention.

But I nonetheless wish to talk about Treasurer Joe Hockey’s theories about the pointlessness of GST reform, interlaced as they are with justifications for the awful budget he delivered last year; a number of things about the Treasurer’s — and the government’s — views on reform become alarmingly clear here, and suggest that either the Coalition came to power with no forethought around how to implement difficult but necessary policies or that really, when it came to it, it really couldn’t be bothered.

I pray — for the sake of the country — that it is the former.

Yet to some extent and in his bruising yet ineffectual way, Hockey is right.

Yes, GST reform — especially where broadening the reach of the tax or increasing the rate at which it is levied is concerned — will get blocked in the Senate, and certainly few if any of the state Premiers will support such changes; be they Labor or Liberal, no state Premier wants to be associated with engineering a big tax rise even if it is offset by steep cuts in income tax and compensatory increases to pensioners and welfare recipients.

But does the fact such an overhaul would almost certainly fail to be legislated make it pointless to try?

There are a number of glaringly obvious (and, indeed, increasingly urgent) economic reforms this country must undertake if it is not only to bring the commonwealth budget back to a sound structural footing, but to ensure Australia’s long-term prosperity; the GST is one of these, as making the “tax switch” from taxes on income to taxes on expenditure more pronounced places government revenues onto a surer trajectory.

Consumption taxes like the GST — properly structured and executed — are growth taxes, which is why so many countries have them; and to the readers who seek to retort that the United States doesn’t, I direct them no further than the multi-trillion dollar US deficit and debt pile that is the logical end consequence of unsustainable spending based on a contracting revenue base.

The world did not end in 2000, when the GST was introduced by the Howard government, although the sharp, near-recessionary downturn caused by businesses being compelled to squeeze 18 months of tax payments into 12 months was a big reason behind Howard’s poll numbers collapsing in early 2001; the architecture of Peter Costello’s New Tax System is bedded down — a process that does not need to be done a second time. And properly managed, very few people would be worse off by expanding and lifting the GST.

Doubling the rate at which it is levied to 20% would pay for one-off increases to pensions and welfare benefits, along with a further flattening of marginal tax rates and a rise in the tax-free threshold, just as Howard delivered 15 years ago; expanding the base to cover everything except healthcare, education and those housing costs currently exempted would streamline the tax, making it even more efficient, and delivering additional revenues that may be directed in part to help facilitate the goodies I’ve mentioned, and in part to cutting the company tax rate (for all companies — none of this two-tier garbage Hockey is flirting with) to between 20% and 25%.

Cutting company tax significantly (whilst guaranteed to provoke outrage from the ALP and, more notably, the Communist Party Greens) brings benefits of its own, all of which would stimulate a net increase in government revenue: it would make Australia a more competitive environment for businesses to operate in internationally, allowing Australia to attract investment and corporate relocations; it would help enable businesses to hire more staff, promoting jobs growth and lowering unemployment; in turn, this would generate increased receipts from both income tax and GST; and it would organically cut expenditure from Australia’s embarrassing welfare obligations, which account for one dollar in every three spent in the federal budget.

GST is a growth tax because as the population increases, so does expenditure on goods and services; by contrast, the retirement of the baby boomer generation — coupled with the numerically smaller generations following it in the workforce — means that the PAYE proportion of commonwealth tax receipts is already receding, and whilst there are a number of factors at play in comprising the structural deficit the federal budget is burdened by (and not least Labor’s tens of billions in unaffordable additional recurrent outlays) the GST is actually the easiest, the least painful and the most efficient way to redress some of them.

And remember — those of you who want to scream about a “great big new tax rise” — GST reform goes hand-in-glove with income tax cuts and welfare increases, so the objection is based on a false premise.

But could Jockey be bothered trying to do the hard work to make the changes fly?

No, because it would be “pointless,” as the Senate and the state Premiers would line up to block them.

Yet this minor consideration did not stop Hockey from delivering a budget last year that was filled with measures certain to either be blocked and/or mangled to the point they represented a fraction of their intended value to the government, if anything at all.

A fuel excise increase rather deliciously rendered obsolete by a collapse in world oil prices, but not before it inflicted incalculable political damage on the government, and not before it played an unquantifiable role in costing the Liberal Party government in Victoria.

A $5 Medicare co-payment for some bulk-billed Australians to visit their GP — which if implemented as just that would probably have been snuck through the Senate — but which instead morphed into a $7 compounding ogre that applied to everything from GP visits to blood tests, medical imaging, other diagnostic procedures, specialist consultations for common medical conditions, and God only knows what else.

A “temporary” income tax levy for middle earners on more than $80,000 per annum: a slug aimed squarely at Liberal voters with families in marginal seats, and anyone who believes raising a couple of kids on two $80,000 incomes with rents/mortgages, day care fees, school fees (even in a state school), and all the basic costs of life is a cakewalk through the clover is kidding themselves.

The cut to eligibility for the same families to allowances (yes, handouts!) that made bringing up children and having two parents in work consistent with getting ahead in life rather than marking time. Yes, this is widely and correctly decried as “middle class welfare.” Yet aimed at the same group of predominantly Coalition voters described in the preceding paragraph, these cuts salted the wound inflicted on those who work hard and carry the burden of the country’s tax take whilst the government they elected — too frightened of offending anyone whose lobby is too noisy — left the monolithic budget trap of $22 billion in recurrent NDIS spending, on those who contribute nothing, intact.

Not a dime was shaven from this obscene attempt by the Gillard government to sabotage the federal budget in readiness for a Liberal election win (and in fact — and I stand to be corrected on this point — my understanding is that the NDIS is the only comprehensive government programme that was completely insulated from any budget cuts whatsoever last year).

You get the point. A whole stack of patchwork fixes that add up to not a hell of a lot of money anyway in the context of a $50bn annual deficit — but which have all either been rejected by the Senate completely or gutted to render them next to useless — were all items Hockey didn’t find pointless.

Yet something that could make a real difference to the long-term health of the country, its finances, and to the people who live in it — almost all of them — is just too hard.

There is also the tiny point to make that if the government was populated with real advisers, communications specialists, marketers, tacticians and strategists rather than the compliant band of lemmings favoured by the vetting brigade that hired them, this government might be able to actually sell GST reform — or anything else that is actually worth doing.

But it isn’t, and therefore it won’t, because it can’t.

A government that was properly resourced in this way instead of badly served by well-meaning but poorly selected foot soldiers would find a way around the Senate, too, one way or another, but this government can’t, and won’t, because it isn’t equipped with the tactical and strategic tools to do so.

And even now, Hockey (and the rest of the government) continues to maintain that those measures still locked in the Senate from his budget shocker last May will be persisted with, even if blind Fred can see there is absolutely no prospect of securing their passage.

Hockey’s next budget — if he remains Treasurer long enough to deliver it, God forbid — should be a cracker.

His quip, quoted in the article I linked to at the top of this one, that last year’s budget aimed to solve 40 years of problems in one go is trite, patronising, disingenuous, and an insult to the millions of Australians who can see what this government is doing — and what is wrong with it.

And I am not talking about “unfairness” or “cruelty” or any of the other bullshit that drips from Bill Shorten’s lips every time he opens his mouth.

Rather, people can see the “easy fix” that is nothing of the sort; they recognise the conflicting and poorly targeted “initiatives” that are being held aloft in the place of genuine, structural budget reform; and they perceive the political panic of a government desperate to convince voters that its prescriptions are the best way forward when they know that all the Hockey budget really amounted to was an assortment of revenue grabs to cover for the fact the government couldn’t — or wouldn’t — cut deeply and efficiently into recurrent expenditure legislated by the Labor Party as it was in fact elected with a mandate to do.

Any school child knows that just because something is difficult doesn’t mean you don’t do it; you try, try, and try again, and if at first you do not succeed, you pick yourself up — and try again.

There are real reforms around the GST, welfare, workplace flexibility and so many other things that Australia is crying out for: the future of the country depends on them.

But Hockey has said it himself, at least in the case of the GST: it’s pointless to try, because as far as he is concerned, the requisite reforms cannot be delivered.

If anyone has any further arguments as to why Hockey should remain as Treasurer, and/or why he shouldn’t be replaced by someone better suited to the portfolio in which he is clearly out of his depth, now would be the appropriate time to share them.



6 thoughts on “In Error: Hockey Wrong To Squib GST Changes

  1. Totally agree about Hockey, he’s out of his depth and his laughable attempts to sell last year’s budget and the follow up whinging emphasises his limitations.

    And yes, a GST increase should be a major part of tax reform. Just one thing, wasn’t the income tax levy was on those earning $180K and over not $80K.

    • The problem with Hockey is that the kites he flies have a nasty habit of become a reality later…even so, despite $180k being the eventual threshold — you are right Bob D — the flirtation with the $80k figure persisted right up to the weekend prior to budget week.

      It goes to show how cavalier Hockey has been about the Coalition’s own core constituency. Targeting these people in marginal seats is akin to seppuku. God alone knows what another budget from him will contain, but as a staunch Liberal I really don’t want to find out.

  2. The signs were not good when Hockey specifically asked for that moron Parkinson to be kept on to ‘help’ with the first budget. The results speak for themselves. Crucially, the new Secretary is not a great believer in Keynesian pseudo-economics even if Hockey is.
    I do feel for Hockey whenever he is discussing budget deficits or the economy. Let alone, God forbid, any changes to taxes such as the GST. Look at the lack of knowledge and the huge degree of self-interest he is up against.
    I pay too much tax

  3. A simple comparison of Wayne Swan’s proposed expenditure for 14/15 and 15/16 and Joe Hockey’s proposed expenditure for the same years is as follows:
    Fin Year 14/15 – Swan $415.7 Bil. – Hockey $414.8 Bil.
    Fin Year 15/16 – Swan $431.0Bil. – Hockey $431.1 Bil.
    Clearly spending is the same or higher than that of the previous government. It is obviously untrue to say they are cutting costs when the published budget figures show they are not.
    Experience tells us that promises to cut spending after the next election are seldom fulfilled.
    To make their narrative believable, they must act as though they believe it.

    Their Key Performance Indicator is “Spend less than Wayne Swan planned to spend”.

    I am totally uninterested in any tax increases until they have achieved that KPI.

    • There are two issues here Jeremy.

      On the one hand is the myth that revenue is “deteriorating” when in fact revenues continue to grow; the “deterioration” lies in the rate of increase. I do not have the figures to hand, but in both cases the Coalition and Labor were booking average annual revenue growth of 7%.

      The problem on this side of the ledger, as you correctly point out, is spending, which at best remains flat but which now contains several tens of billions of dollars in outgoings legislated by Gillard as a budget booby trap to prevent the Liberals from eliminating the deficit.

      In other words, my criticism of Hockey (and the government under its present “strategic” direction) for not taking the axe to those expenditure programs appears to be one you and I share.

      On the other hand, GST reform isn’t so much about tax “increases” as a measure to ensure the integrity and growth of revenues over the medium to long term.

      Where I take issue with all the silly patch-it measures in Hockey’s budget is that a) they are in fact tax increases, pure and simple, and b) they are, perversely, aimed at the Coalition base.

      So in broad terms I agree with you. That does not, however, preclude an overhaul of the GST into a form it arguably ought to have been introduced in, but which political limitations at the time dictated was not possible: whAt we have is better than nothing (or the WST regime it replaced) but the reform as it stands is half-made. To say finishing it is “pointless” (when instituting tax rises as a Liberal Treasurer) is grotesque.

  4. Yale, for discussion in a pub, I may agree with you. In the current circumstances, Joe should talk about nothing other than reducing spending. If he can’t reduce spending below Wayne Swan there is no hope for him.

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