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Goods and Services Tax

Speeches in Parliament
Richard Di Natale 5 Feb 2016

Senator DI NATALE

I rise today to speak to the issue of the Turnbull government's plans to increase the rate of the goods and services tax to 15 per cent and to broaden its base to include fresh food, education and health.

In the discussion around the goods and services tax, we have lost touch with the central idea of why it is that governments raise revenue. Governments raise revenue to pay for the services that the Australian community want and deserve. Governments raise revenue to ensure that our society prospers together, and the choices that we make about how we raise that revenue are an expression of our values. They are an expression of the things that we as a society believe are the foundation of what it means to live in a decent, more caring society in which we look after the people and the planet that sustains it.

It is a question of values. When it comes to those values, the key principles of the Greens are fairness, social cohesion and ensuring that we as a society collectively understand that being able to fund things like health care, education and a decent social safety net are indeed the pillars of a decent society. We must remember that this is a battle that has continued in our national parliament since the federation of Australia. A consensus has emerged that says, 'We are better when, together, we are able to fund services like education and health care.' That not only means that we deliver those services efficiently—because we know that the collective provision of universal health care is not just an equity measure; it is also an efficiency measure. When you look at countries like the US, which has adopted a user-pays system in areas like health and education, you see that it is a much more expensive way of delivering those services. But there is also an important principle of fairness and equity here. We understand that, in a society like ours—one that is founded on the principle of egalitarianism—everybody should be able to access a doctor and get a decent education.

Our tax system reflects those values. Our tax system also reflects the key principle of egalitarianism: we want a society where there is not a huge gap between the super-rich and the ordinary people. And that is why we have developed a system of progressive taxation. I will talk about that in a moment. Often these debates are abstract debates. They are debates where we throw numbers around and talk about GDP and about tax take as a percentage of GDP, and it becomes an abstract and, sometimes, theoretical exercise. But let's talk about some real-world examples. Let's start with Mark.

Mark is a man who earns $290,000 a year. He has enough equity in his home so that he can leverage that to buy investment properties. That enables Mark to drive his taxable income down. He claims 100 per cent of the losses against his income, and only half of his capital gains will be assessed for taxation purposes. He gets a further 32 per cent discount on his super contributions, and, because Mark has just turned 60, he does not pay any tax on super earnings, while the rest of us pay 15 per cent. He is also churning $35,000 of his salary through super and drawing the same amount out the other side, saving him a further $10,000 a year in income taxes. He spends about four per cent of his disposable income on GST. Let's contrast that with Louise.

Louise is someone who works full time. She is a healthcare worker, and she is on a median income of $63,000. But she is not a baby boomer, so she cannot afford to buy a house. She is renting. She is helping, in fact, to pay down Mark's investment property and, each year that she does that, the gap between her income and house prices gets bigger and bigger. She is saving what she can for a house, but the amount that she needs for a deposit keeps inching upwards faster than the savings, while she is getting taxed on her savings. Even if she has enough to reach a deposit, she is going to find it tough to outbid other investors who get all the tax benefits that she doesn't. She only gets a 17 per cent discount on her super contributions, and she has no capacity to make voluntary contributions, due to her disposable income. She pays about seven per cent of her disposable income on GST.

These two real-world examples demonstrate how our tax system is benefiting those people on high incomes, providing them with huge tax breaks, at the expense of ordinary people, people on the median wage, who simply do not have the disposable income or indeed the capacity to grow their wealth in the same way that somebody on the high end of the income scale can do. That means that in Australia we are saying one per cent of income earners receive 10 per cent of all income. The top one per cent get 10 per cent of all income. You can drill down on that a bit further: the top 10 per cent of all income earners get one-third of all income. So what we are seeing is that the gap between those people at the high end of the income scale and those people on the median wage is growing.

You will find that those in the top decile of income earners spend about four per cent of their disposable income on GST. When you are in the lowest quintile, you are talking about spending 13 per cent of your disposable income on GST. That is why we call the GST a regressive tax. The wealthier you are, the less you spend on GST as a proportion of your income. The less well-off you are, the more money you will contribute through an increase in the goods and services tax.

NATSEM modelling showed that lifting the GST rate to 15 per cent would see the bottom income earners paying seven per cent more, while top earners would be paying an additional three per cent of disposable income. At a time when the gap between the rich and the poor is growing, we are considering implementing a tax that will make that problem much, much worse.

We had achieved consensus on this issue, and the post-war era saw the greatest narrowing of income inequality in human history. That post-war era saw a consensus that said, 'The huge gap between the rich and the poor is not something that we as a civilised society should accept', and we made huge progress towards that end. It was due in part to steeply progressive income tax rates, where you had high marginal rates for people on very high incomes. It was in part due to the work of those people who came before us in this place, and of course the Labor Party were a significant part of that story. The problem is, of course, that the trend is reversing. Some prominent economists argue that this worldwide trend to reduce income tax rates is very closely correlated with the issue of income inequality.

Inequality was low when income rates collected more off wealthy people, when societies valued strong wages at the expense of huge super profits, and when the power yielded by wealthy interests over our political class was much, much less than it is today. One of the first lessons that I learned when I was elected to the parliament was that it was the power of those vested interests, those large corporations who spent day after day in this place arguing for their share of profits to increase, all the while knowing that the cost of that was that the gap between the rich and the poor would continue to grow. The problem is that inequality is now built into our system. It is an in-built problem within the system and we have to challenge it. We have wages that are growing at one to three per cent a year, while those people who are already on high incomes look at investments that return six to eight per cent a year.

Wealth creates more wealth, and the problem is that those ordinary Australians on the median wage are struggling to stay afloat. A report from ACOSS, Anglicare, the Salvos and Vinnies last year showed how that trend was playing out. It showed that the wealth of the top one-fifth of households grew 28 per cent since 2004 while the bottom fifth grew just three per cent.

It is our tax and transfer system that allows us to reduce this inequality. It is one of the reasons we have a progressive taxation system and a decent social safety net. The tax and transfer system has as its principle the notion that income inequality is unacceptable. It is true of the way we decide to give preferential tax treatment to things like housing and other forms of investment, and it means that we are locking out a whole generation of young people from home ownership—making them much more susceptible to poverty later in life, without a house paid off that they can live in. Isn't it remarkable that here we are at a time when we are seeing the sale of luxury cars like Maseratis and Ferraris increase at record rates, close to a 50 per cent increase in 2015, and we have over two million people living in poverty. One in 10 new cars sold today are luxury vehicles. In 2000, it was one in 20 cars.

The government says that the revenue from the GST gain will go towards two key priorities: one, to cut income tax rates; and, two, to cut the company tax rate. Theirs is not a solution that says the foundation of a decent society is to pay for health care, to pay for education and to pay for income support to look after people on pensions. Theirs is a recipe that says: 'We want to raise the GST, a regressive tax that targets those disproportionately on lower incomes so that we can give a tax cut to those people on high incomes and so that we can cut the company tax rate'. True, you can ameliorate some of the regressive impacts of the GST from compensation. You can do that through the income tax system, but that is not what this government is trying to do. It is ironic that when we saw the introduction of a price on carbon through—as the government liked to call it—'the great big new tax on everything' that we now have a government that is looking to introduce a great big new tax on everything. And isn't it remarkable that when the government at the time criticised the carbon tax for being a merry-go-round because of the compensation that was applied, it is now considering a great big new tax on everything and a great big tax merry-go-round through its reported efforts to compensate people who will be impacted by an increase of the GST. What we will see as a result of the GST is a widening of that gap: greater income inequality at a time when the rich are getting richer and those ordinary people are struggling to make ends meet. If income tax cuts from the GST were not exclusively focused on low- to medium-income earners, all we would be doing is exacerbating that long-term trend.

NATSEM modelling did show that when you have a straight five per cent tax cut for each marginal income tax rate as a result of the GST, two-thirds of households earning less than $100,000 are going to be worse off. The third above that would be better off with GST increases and income tax cuts. It is going to be a hard, hard thing to sell to the public, let me tell you.

Yesterday the PBO revealed that the government's harsh cuts to public spending, which are now languishing in the Senate, are adding another $9 billion to the budget deficit. What we need from the government is a plan B. We need them to recognise that their plan to cut essential services, to slash Medicare, to reduce spending in education, to reduce spending on family supports and to reduce spending on income support is not going to address the budget deficit because it is not going to get through the Senate, because this Senate is reflecting the will of the Australian community. Instead, it has an opportunity to look at ending unfair tax breaks that disproportionately favour those on higher incomes.

The member for Melbourne, Adam Bandt, commissioned research from the Parliamentary Library which showed that a GST of 12.5 per cent would raise the same amount of revenue for the government as a carbon price of $28 but that the GST increase would cost households three times more. We had this government mounting a relentless campaign against the implementation of a price on carbon. A price on carbon did so many other things apart from its impact on raising revenue. It was designed with the central purpose of reducing emissions and driving innovation in the Australian economy. The government was relentless in its criticism of the impact—you remember Barnaby Joyce's $100 roasts—yet it is proposing to increase the GST—a GST which, at 12.5 per cent, would cost households three times more than the price on carbon ever did.

If the government wants to boost economic growth in new areas, if it wants to create a 21st century economy, a new economy with new jobs, attracting international investment and encouraging innovation, as a first step it would put back a price on pollution and set some ambitious climate targets to help attract that international investment—those innovators and entrepreneurs—to Australia and drive the transition that is so desperately needed.

The Greens have been leading the debate about how we can address that critical issue of income inequality but also raise revenue to pay for services like health care, education and a decent social safety net, which we think are the foundation of a decent society. Before the Mid-year Economic and Fiscal Outlook the Greens released four measures that would reduce those unfair tax breaks and close the budget deficit by $38 billion over the forward estimates. Let us go through some of those.

We would make superannuation more progressive and end the huge concessions that disproportionately benefit those on higher incomes. That would bring in close to $9 billion. We would remove negative gearing for anyone considering a future purchase of a property while grandfathering existing properties. That is $4½ billion over the forward estimates. We would do something about the unsustainable growth that has occurred in the housing market, which is locking people out and fuelling the housing bubble. We would look at removing capital gains tax discounts. There are different models for how that would be achieved. We have costed a range of models. A reduced capital gains tax discount would bring in $2½ billion over the forward estimates. We have costed removing those huge fossil fuel subsidies—subsidies, in the form of the diesel fuel rebate, that mean that people like Gina Rinehart, one of the richest women in the world, get subsidised fuel for their operations, while other people have to pay the full rate of excise on their fuel. Abolishing that tax break would bring in $20 billion over the forward estimates.

We can do that. The tax take to GDP ratio in Australia is lower than in most other OECD countries; certainly much lower than it was under John Howard. By raising the tax take to GDP ratio, through ending those unfair tax concessions, we would be able to pay for services like Medicare and schools and make sure that people on income support are looked after. We would continue to build the foundations of Australian society. We would create the investment settings that drive investment in productive areas of the economy, rather than distorting our economy by further fuelling investment in areas like mining and the housing market. We would get Australia back to its core belief that as a wealthy society the gap between rich and poor needs to narrow.

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