In my view, taking critical tax reform issues off the table and abandoning the Tax White Paper process is a lost opportunity to make the sort of structural tax changes essential to Australia’s long-term prosperity. What we need is a mature debate, but instead we see a flurry of headlines on isolated issues. This has substantially narrowed the discussion on tax reform.
Lots of people invested lots of time and effort to make detailed submissions to the Tax White Paper. Despite the hope, it seems that the political tax debate has returned to its natural base, simplistic slogans and name calling.
In an effort to purge my pent up frustration on this, I have penned this blog.
Earlier this year, the Opposition leader, Mr Shorten, took to the supermarkets to talk to the battlers about how an increase in GST would affect them. He asked a lady “What’s your favourite type of lettuce?”. This led to a flurry of comments on social media, including the tweet:
“Bill Shorten really proving the political truism this week: you don’t win friends with salad.”
For the record, the woman responded “iceberg”, and Bill Shorten said “I like all sorts of varieties of lettuce”.
With these comments, the Opposition set the battle lines; they would not be countenancing any increase in the GST rate. The Government held its line for a while but then moved to distance itself from any increase in the GST.
Mr Turnbull said:
“It’s not a question of politics here. At this stage I remain to be convinced that a tax mix switch of that kind would actually give us the economic benefit that you’d want in order to do such a big thing.”
This reflects a subtle change, rather than the “turnaround” that the media are suggesting. It is a subtle change because the government had indicated that all potential changes to tax that may help the economy were on the table. In concentrating only on a rate increase for the GST without considering broadening the base, Mr Turnbull is largely correct in saying that economic benefit would be limited.
By doing this, the Government now avoids having to consider any changes to the GST and it now seems that any moves for real tax reform in this Budget are gone.
Why should a change to the GST be considered?
In its submission to the recent White Paper discussions the Tax Institute said:
“The Government should adopt a policy of shifting away from being dependent on income tax for the bulk of revenue collections towards more simple and efficient consumption taxes.
In light of this, the Government should undertake a comprehensive review of the current exemptions and special rules in the current GST law to determine their ongoing necessity/appropriateness and to ensure that the simplicity and efficiency that is sacrificed by the presence of these exceptions is still justified.”
By comparison, Australia has one of the lowest rates of GST among OECD countries and a smaller than average base (due to the number of exemptions) than other OECD countries with a GST or VAT.
Consumption taxes are generally regarded as efficient taxes due to their broad base. However, introducing exemptions brings complexity and detracts from the efficiency and simplicity offered by a broad-based consumption tax. For this reason, changes to rate and scope of the GST should at least be considered.
How could the GST change?
1. Increase the rate
2. Broaden the base.
There are currently 18 sub-divisions within the GST-free category but those most likely for review would be:
a. Food
b. Health
c. Education
d. Child care
e. Supply of a Going Concern
f. Farmland
3. Combination of both
Simply increasing the rate is a blunt tool, and unlikely to be classified as “tax reform”. It seems our political masters have reached the same conclusion, if for more basic reasons.
While any changes are worthy of consideration, it seems to me that a comprehensive review would be most beneficial, if also most politically dangerous (witness current events). Provided compensation is afforded to those that need it, a more efficient and resilient tax system should be the outcome. How that compensation is determined and delivered is the test of any government.

Political Reality
“Always back the horse named self-interest, son. It’ll be the only one trying.”
Jack Lang – Labor premier