Saturday, July 08, 2006

GST Windfall or Fairytale

Peter Costello and John Howard have underpinned their centralisation crusade with a simple message, the States have never had it so good (fiscally) since we introduced the GST and gave the revenue to the States.

I've always wanted to test that out - because the corollary would be profligate spending by the States, which in NSW at least I can't see.

At last Ross Gittens in the SMH has - and as I suspected the truth and the Howard/Costello team are not companions.

Nor should this surprise anyone, since so many of the taxes that were wound back were State taxes.

Underneath all this there is the more distressing fact that in 2000 we went through all the political agony of the GST without getting most of the potential economic gains. The GST at 10% represented primarily an administrative simplification of consumption taxation, and not the shift to greater reliance on consumptio tax that it could have been. And let's not forget that a GST acts like a "negative tarriff" as it makes exported goods cheaper than goods consumed domestically, that is, it creates an incentive to export (which we still dearly need). Further higher consumption taxes makes restructuring of income tax to include "negative tax credits" as a substitute for multiple welfare programs viable.

I'll tell anyone who'll listen that the GST needs to be 15% to really attract benefits. But I doubt we'll ever here that out of this coalition Government. Not because they think it is unsalable, but because they are full of hubris about the genius of their economic management.

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