14 reasons to vote against a GST
By Sue Boland
Once introduced, the rate of a GST is likely to increase.
In countries with a GST, it was increased by an average of 42.41% within 10-15 years of its introduction. Only three out of 26 countries did not increase the rate. Denmark and Sweden have increased the GST rate by 150% and 125.23% respectively.
The GST would increase the cost of living. It would be equivalent to an income cut of 5-10%.
The Coalition claims that prices overall would increase by only 1.9%, but they do acknowledge that the price of essentials would increase by much more: food by 4.4%; textiles, clothing and footwear by 5.9%; electricity, gas and water by 5.2%; accommodation, cafes and restaurants by 6.7%; communications by 4.7%; library charges by 7.7%; and rail transport by 5.8%.
Price rises under a GST are understated by the Coalition because it assumes, unrealistically, that businesses would pass the full value of the removal of the wholesale sales tax and the reduction in fuel taxes on to consumers.
Prices are likely to increase by at least 5% overall. However, the overall cost of living might increase by more because many previously untaxed goods and services would be taxed, such as food, clothing, electricity, gas, nappies, prams, public transport, sport, postage, haircuts, funerals, second-hand cars, tampons ... the list goes on.
The Australian Democrats will not stop the GST.
Even if the Australian Democrats convince Howard and Costello to exempt food and books from a GST, the prices of all other goods and services would increase by 5-10% and the Democrats are not calling for a comparable wage or pension increase.
If the government exempts food from the GST it is likely this would apply only to raw food, as in Britain. Any food bought from a take-away shop, cafe or restaurant would still be charged a GST for the service component.
The imposition of a GST would eradicate the principle of a tax system based on capacity to pay.
People on low incomes would pay a GST on 100% of their income because they tend to spend 100% of their income on basic expenses. In contrast, rich people pay a GST only on a proportion of their income because they spend a much smaller proportion on living expenses, and save or invest the rest.
Already, the top 20% of income earners pay only 17.3% of their incomes in indirect tax, while the bottom 20% pay 30.8%.
The "compensation" offered by the Coalition would not fully compensate for the impact of a GST.
The proposed 4% increase in pensions and benefits would not even cover the increase in the price of food, clothing, electricity/gas/water and public transport that the government admits to. The proposed one-off grant of $3000 would not compensate self-funded retirees for a new tax on everything for the rest of their lives.
The 63% of workers who earn less than average weekly earnings would only get a tax cut of 3-4%. This won't compensate for a cost of living increase of 5-10%.
Some people won't be compensated at all.
Workers who have been retrenched or injured have to use up their retrenchment pay or workers' compensation money before they are eligible for government benefits. This means that they won't get any compensation for a GST.
Future governments would be unlikely to increase the compensation if the GST rate was increased.
Once a GST has been introduced, it is very easy for a government to remove the compensation at a later date. The New Zealand government cut social security benefits by 25% in 1991, after they had been increased to compensate for a GST.
The GST won't stop tax evasion.
The main tax avoidance culprits are big companies. The GST would do absolutely nothing to stop tax avoidance because businesses would be fully reimbursed for any GST paid on business inputs.
In 1995-96, companies paid an average tax rate of 18.8% on "taxable income" (the official rate is 36%). Many of the biggest companies get away with paying no tax or only nominal amounts.
The GST won't fix the problem of workers on medium incomes being pushed into the top income tax brackets.
Neither the Coalition nor the Labor Party are proposing to index income-tax brackets automatically each time workers win a pay rise. Under the Coalition's package, workers on average incomes would be pushed into the top marginal income tax bracket within a few years, despite the tax cuts.
A GST would result in a massive transfer of wealth from the rich to the poor.
Because businesses can avoid paying company tax, they won't have to pay either a wholesale sales tax or a GST, and the Coalition has indicated that it will cut the company tax rate from 36% to 30% or lower. The withdrawal of the wholesale sales tax and introduction of a GST would reduce business taxes by an estimated $10 billion annually.
While the total wealth of Australia (GDP) grew by $125.86 billion between 1984-85 and 1995-96, average household income in the poorest neighbourhoods dropped by 23%. The top 20% of income earners accounted for 47.5% of all income whereas the bottom 20% only earned 3.8% of all income.
The GST won't create jobs.
While a GST would definitely increase private profits, there is no guarantee that these profits would be spent on increasing production and jobs.
The glut of products on the world market means that factories are not producing at full capacity. Instead of employing more workers, they are likely to cut costs by introducing new technology, making workers work faster and cutting jobs.
Introducing a GST won't stop governments from cutting funds for public services and won't ensure adequate funding for pensions and benefits.
Funds for public services are being cut by both Coalition and Labor governments. The problem is not a lack of revenue, because the total wealth in Australia (GDP) has increased. Rather, both parties think the working class as a whole (including unemployed workers, pensioners and others on benefits) should provide the taxation revenue for public services, while companies are only lightly taxed or not taxed at all.
Both parties are advocating cutting corporate taxes, and some 91×ÔÅÄÂÛ̳ of big business are arguing for the total removal of company taxes. Yet funding for public services could easily be provided by lifting the company tax rate to 60% and preventing tax avoidance.
By supporting a GST, the Australian Democrats and the Australian Council for Social Service are advocating "do-it-yourself" welfare — people on low incomes will provide their own welfare by paying a GST. Even that won't stop governments from telling us they can't afford to provide services unless the GST rate is increased.
The Coalition's GST/tax package is based on unrealistic annual economic growth targets of 3.5%.
As the Coalition insists it will not allow the budget to go into deficit to fund the "compensation" for the GST — the tax cuts and pension increases — a Coalition government is likely to cancel or reduce the compensation package, or cut public services to pay for the package.
It is unlikely that any future ALP government would rescind a GST, despite its campaign against it.
International experience shows that a GST has never been rescinded, even by governing parties which had opposed it while in opposition.