{"id":134806,"date":"2023-11-12T18:19:03","date_gmt":"2023-11-12T18:19:03","guid":{"rendered":"https:\/\/fin2me.com\/?p=134806"},"modified":"2023-11-12T18:19:03","modified_gmt":"2023-11-12T18:19:03","slug":"higher-gst-negative-gearing-changes-why-weve-got-to-talk-about-tax","status":"publish","type":"post","link":"https:\/\/fin2me.com\/economy\/higher-gst-negative-gearing-changes-why-weve-got-to-talk-about-tax\/","title":{"rendered":"Higher GST? Negative gearing changes? Why we\u2019ve got to talk about tax"},"content":{"rendered":"

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Most younger Millennials and all Gen Z-ers would have never purchased clothing, shoes, books or even petrol without also paying a 10 per cent levy on top of the base price of that product.<\/p>\n

It\u2019s probably not something many think about regularly, if at all, given that tax \u2013 the goods and services tax, or the GST \u2013 came into effect in 2000.<\/p>\n

<\/p>\n

Imagine no GST: Younger Millennials and Generation Z probably can\u2019t.<\/span>Credit: <\/span>Natalie Boog<\/cite><\/p>\n

While that was more than 20 years ago, the introduction of the GST was the last major tax reform successfully introduced by any federal government. And that\u2019s a problem.<\/p>\n

As our population ages, Australia is going to need to spend more on increasingly expensive services such as health and aged care, while facing fewer people of working age to pay income tax \u2013 which happens to make up the greatest proportion of federal income.<\/p>\n

The problem is one that all economists (who can never usually agree on anything) are in furious unison over: Australia needs tax reform.<\/p>\n

Danielle Wood, who starts as head of the Productivity Commission today, said in a recent speech that Australia has a fiscal challenge.<\/p>\n

Spending on the NDIS, increasingly costly medicines through the Medicare Benefits Schedule, aged care and defence are all forecast to grow at a rapid pace.<\/p>\n

The government also relies heavily on income tax to fund these necessities. In this year\u2019s federal budget, it expected individuals to pay more than $300 billion in income tax, more than half the government\u2019s total tax revenue take (excluding GST, which gets handed straight back to the states).<\/p>\n

This is a problem, said Wood in her Fairbairn lecture in Melbourne last month because,\u201cWe are asking future generations to bear the costs of today\u2019s inaction.\u201d<\/p>\n

So why aren\u2019t the major political parties talking about it?<\/p>\n

Wood said that tax reform is not for the faint-hearted, as political scare campaign rumblings begin at the first whiff of it.<\/p>\n

Indeed, Independent MP Allegra Spender said the major parties had done such a fantastic job of wedging each other on tax that it\u2019s almost impossible for them to talk about it.<\/p>\n

\u201cIt means that they don\u2019t stand up and have some of the more difficult conversations,\u201d she says.<\/p>\n

It\u2019s not just politicians who make reform hard for each other. The media does a great job of that as well \u2013 Wood rightly pointed out that the media finds tax beat-ups are almost irresistible, which feeds on the scare campaigns of politicians and vested interests.<\/p>\n

She also highlighted how tax changes get a disproportionate share of coverage when compared with other government reforms.<\/p>\n

The government\u2019s superannuation tax changes \u2013 to wind back tax breaks for about 80,000 individuals with more than $3 million in their super accounts \u2013 garnered front-page coverage across the country\u2019s newspapers, and generated more than 1200 news articles in the month following its introduction, Wood discovered.<\/p>\n

<\/p>\n

Independent MP Allegra Spender wants to address how Australia\u2019s tax system will work in the future.<\/span>Credit: <\/span>Eamon Gallagher<\/cite><\/p>\n

By contrast, Labor\u2019s policy to extend the Commonwealth paid parental leave scheme to 26 weeks, which would affect about 180,000 families a year, received less than a quarter of the coverage in the month following its announcement.<\/p>\n

(This masthead covered both reforms, and I wrote several stories on each myself. You can read some of those stories here and here.)<\/p>\n

Part of the problem with political opposition and media reporting around the issue is the fact that the losers from changes can be quite obvious while winners are less clear \u2013 in Wood\u2019s words, babies are poor advocates for reform. This can make it hard for people to swallow the idea of tax change.<\/p>\n

But it also doesn\u2019t help when the experts disagree about the best way to go about tackling reform. Spender is trying to get around that with a series of roundtables involving economists, business experts, unions and charities to find common ground on how Australia\u2019s tax system should look.<\/p>\n

These roundtables are about what the tax system should look like in 2035 \u2013 not the next budget \u2013 and focus on what sort of mix of taxes the country should have, rather than the amount of tax the country should gather.<\/p>\n

Spender\u2019s goal is to get consensus across parliament and find common ground politicians can tackle together, but she admits some people have very strong views.<\/p>\n

Despite the difficulties, reform is<\/em> possible, she said, and it can come in four key steps.<\/p>\n

First up is putting reform on the agenda, and that might take an external push, be it advocacy or a crisis.<\/p>\n

Second, there needs to be a package of changes. It might sound counterintuitive, but changing several taxes at once is potentially easier than changing just one: it doesn\u2019t provide one large target for opposition, and a package that includes compensation can help dull some of the pain.<\/p>\n

The third step is to make a strong pitch to voters, which takes time and political capital. The GST is an example of that, with former prime minister John Howard and treasurer Peter Costello spending years building their case and highlighting the structural issues with the tax base, before taking it to an election.<\/p>\n

Spender has had people in her eastern Sydney electorate tell her they were worried about their children and grandchildren\u2019s futures, and many understood that while they might not benefit from changes to capital gains tax or superannuation tax settings, those conversations were needed.<\/p>\n

\u201cI think there\u2019s actually a lot of concern out there,\u201d she said.<\/p>\n

The fourth step is to make sure the changes stick \u2013 because depressingly, once reforms pass parliament, the job isn\u2019t done, Wood said. Just take the recent NSW example, where the Labor government unwound the previous government\u2019s short-lived stamp duty changes.<\/p>\n

Despite all the hurdles, Wood remained optimistic that our politicians can find the will to do the heavy lifting.<\/p>\n

\u201cTax reform is simply too big an economic prize to be left on the shelf,\u201d she said.<\/p>\n

The work needs to start soon because there is no quick fix. Spender hopes the federal government takes reform to the next election.<\/p>\n

\u201cIs it worth the political capital and campaign to deal with it? The answer has to be yes. Because if we can\u2019t face these long-term issues, then we are letting people down.\u201d<\/p>\n

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. <\/i><\/b>Sign up to get it every weekday morning<\/i><\/b>.<\/i><\/b><\/p>\n

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