Australians have to endure waves of disinformation around the tax reform options before us. Every vested interest in the country is sharp-elbowing for advantage and the yelps of pain are deafening.
GST is a vile tax because of who pays it.
It does not matter whether tax is taken under one name or another or even when you earn it or spend it. What matters is the entire tax system, and to get a clear picture you must add it all up.
A 20 per cent income tax may look small and feel reasonable. But if I am also paying a 10 per cent Payroll Tax, 9.5 per cent superannuation, a HELP debt from investing in work skills and a 15 per cent GST – ignoring whatever surcharges government dreams up along the way – my life is pretty miserable.
Income is spent on Consumption or Savings:
Y = C + S
Which can be expressed:
C = Y – S
Taxing consumption produces a formula like this:
tC = t(Y – S)
Therefore GST is just a flat rate income tax.
But it does not tax savings. GST is thus identical to an income tax surcharge with an unlimited tax deduction for savings. If the Turnbull government wants to do that, it could equally abolish the super concessional contribution caps and tax all incomes at 15 per cent from one dollar up!
There is more. Income goes to both Residents and Non-Residents. So:
Y = Yr + Ynr and C = Cr + Cnr
But only residents consume locally and the GST only taxes local consumption.
So GST is actually an income tax with an exemption for savings and foreign investors.
Do Australians want to reduce the tax foreign investors pay on Australian-derived income flowing overseas to foreigners while increasing taxes on themselves? Really!
Worse still GST is actually, in serious part, a tax on production. It is not a consumption tax as so many pseudo-economists think. We tax alcohol, tobacco and petrol to discourage their consumption – all taxes have this effect – and the more we tax production, the more it will shrink.
Production requires labour as well as capital. Labour – the minds, blood, sweat and tears of human beings – is just as much an input to production as machinery or buildings. Labour supply has to be repaired and replaced just as machines are.
This is why Adam Smith and the classical economists condemned taxes on wages and the necessities of life. The Corn Laws (1815-46), introduced by Conservative landowners, nearly drove Britain to bloody revolution. Taxing bread increased the cost of living of workers and thus added to manufacturers’ wage bills.
Sticking the tax burden onto workers has limits.
GST is refunded on replacements of machinery, but not on money spent raising children to replace worn out labourers.
Income tax should be a tax on net income after ALL costs of production. The cost of food, clothing, shelter, health, education and child-raising should be deductible if the labour force is to be maintained. This is the reason for the tax-free threshold on incomes. These costs should be exempt from the GST, and many countries do have some exemptions.
Yet virtually all business or capital inputs are exempt from GST. A GST is thus inherently discriminates against labour considered as a factor of production.
Do the Australian people want a tax system that –
• Taxes all incomes without any tax-free threshold
• Exempts foreigners buying up their land and resources
• Exempts cattle feed while taxing the food nourishing workers and their children?
Only a seriously stupid country would inflict that upon itself. A smart one would do the reverse and look to make the people who own the lands and resources of the country pay for running it, instead of bleeding ordinary people.
With acknowledgements to a paper given by Dr Terry Dwyer of Dwyer Lawyers, Canberra