No to increasing the GST

Reform of the Australian federation should not serve as the stalking horse for worsening our already uncompetitive taxation burdens.

On the 125th anniversary of Sir Henry Parkes' famous Tenterfield federation speech, Prime Minister Tony Abbott spoke of the need to reform what is widely seen as an increasingly dysfunctional federal system.

Abbott posed a question that many would not have foreseen a Liberal Prime Minister, rhetorically inclined to lower taxation, to ask: "might the states be prepared to accept responsibility for broadening the indirect tax base?"

With the commonwealth government imposing a goods and services tax (GST) since 2000, and transferring all the revenues raised to the states and territories, Abbott's question was code for suggesting the GST rate be increased, or its base be broadened.

But the arguments in favour of a heavier GST tax load for Australia are weak.

They ignore the fact Australia already imposes a very heavy taxation burden, from an international perspective, and that institutional arrangements preventing the commonwealth unilaterally increasing the GST are in place for good reason.

Numerous academics, social welfare lobbyists and trade union officials cite published OECD statistics, showing our tax-to-GDP ratio some seven or eight percentage points below the OECD-member average, as irrefutable proof that Australia is a "low taxing country".

However these figures do not present a "apples with apples" tax comparison since they include European social security contributions, but not Australia's compulsory superannuation guarantee scheme which fulfils similar policy purposes.

Within the latest OECD Revenue Statistics publication a "apples with apples" comparison (excluding European social security contributions) is also published, illustrating that Australia's tax-to-GDP ratio is over a full percentage point greater than the OECD average.

In our globalised world, Australian tax policymakers also need to bear in mind that international tax burden comparisons should incorporate much lower taxing non-OECD member countries in our region, which we compete against for capital and skilled labour flows.

Much of the frustration for those supporting a higher GST stems from the fact that a longstanding intergovernmental agreement indicates changing the GST rate or base requires unanimous support from the commonwealth and all states and territories, as well as the successful passage of legislation through Parliament.

The rationale, and indeed importance, of this GST "fiscal constitution" becomes apparent when one considers the frequency of increases in similar taxes in other developed countries.