21 May 2015
GST reform can drive productivity not kill votes
The inclusion in the federal budget of a "Netflix tax" is a heartening development. While many will oppose the application of GST to online subscriptions and services, to me, the announcement is a good sign the government is capable of taking steps, albeit small ones, on the path to GST reform.
Until now, reforming the GST to increase the rate or remove exemptions has been considered politically untouchable. Last week's budget was the first indication the government has the political chutzpah required to implement changes to Australia's GST system.
Over recent years the calls for radical GST reform have become louder, from the Henry Tax Review, to the IMF encouraging Australia to increase the rate of GST to OECD parity or broadening the base to include all goods and services rather than allowing exemptions on health, education and food.
Yet each time "GST reform" makes an appearance in public debate it is hijacked by a multitude of interests keen to exempt themselves from GST, or to cut the GST pie to secure a larger slice. This develops into intractable debates about the competing state interests, cost of living and equity concerns.
While the equity challenges of changing the GST need to be adequately addressed, they should not prevent a sensible debate.
Collectively, the challenges outlined above have led to our current situation where the government has avoided the GST political hot potato. It seems like an unwinnable area of reform.
But it doesn't have to be. GST reform needn't be radical and revolutionary, instead it could be implemented in modest, incremental steps, just like the "Netflix tax".
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