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It’s Time to Visit Tax Reform Including the GST

Business and citizen groups are starting to pressure the Government for a path out of the Covid 19 crisis. The National Rugby league has announced that it is going to resume its competition on May 28 although health officials seem to be less than enthusiastic. The AFL will be watching what happens to the NRL with interest.

Innes Willox of the Australian Industry Group says that if business does not get a plan for economic recovery then it will either take matters into their own hands or relocate their operations. However, as the Chief Medical Adviser, Professor Brendan Murphy, told the media on Thursday: “at the moment we are in the life raft but we don’t know which direction to go and we don’t have compass.”

At the moment we don’t have a vaccine and there is no guarantee that we will ever have one. So far no one in the world has developed a vaccine for any coronavirus. This means that, as Jane Halton who is leading the world wide search for a vaccine has said, we need to develop a plan B. That will involve gradually reviving the economy while containing the virus.

However this plan is likely to leave the economy in rubble. Public finances will be depleted; there will be record levels of unemployment and business will be struggling to recover. Moreover the $200 billion cash splash is due to run out in six months.

This means that sooner rather than later the national cabinet needs to develop a plan for recovery and reform. The reform package must include a way for the states and the commonwealth to replenish their coffers. The logical way to achieve this is to increase and extend the GST.

In early March, former treasurer Peter Costello gave a speech in which he addressed the issue of economic reform. He argued that the tax system should be simplified through changes to the GST and the elimination of state taxes, like stamp duty and payroll tax that inhibit economic activity, but he says this will be hard work.

Reflecting on the GST reforms in the late ’90s when he was the federal treasurer, Mr Costello said “we’ll never see a tax reform as big as that again in Australia; however, it doesn’t mean the country should be shying away from tax reform”.

He said there was an attempt with the Henry Tax Review in 2009 to get reform going again, but even in that case, chair Ken Henry lamented that so little came out of his report.

“But I don’t think the 2009 report had learnt the lessons of [the GST reforms] of 1998, ’99 and 2000. You can’t just produce your report. You’ve got to have a plan. You’ve got to fight for it. You got to take political responsibility,” Mr Costello said.

“It’s got to be done over multiple years. The reason we haven’t had tax reform of that dimension in 20 years is it’s hard. That’s why.

“I used to say, [if] you think balancing a budget is hard, you ought to try tax reform.”

Now is the time to do the hard tasks. The country is receptive to change. If changes in tax are accompanied by reforms to the welfare system, that ensure that the unemployed do not lose their new benefits and business gets the benefit of tax cuts to enable their recovery, then there should be widespread public acceptance.

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