National Reform Summit: Garnaut says carbon tax is better than GST

Renowned economics professor Ross Garnaut has poured cold water on the push to increase the rate or broaden the base of the GST, calling on state governments to follow South Australia’s and the ACT’s lead in moving away from stamp duty on property sales.

Speaking on the sidelines of yesterday’s summit, the Melbourne University professor said the requirement for unanimous agreement among state, territories and the federal government to change the GST would stymie ­reform.

“At least one state, Western Australia, would not sign on to major increases in the GST without a change in the horizontal ­fiscal equalisation; on the other hand, other states would not sign on to if there were any change,” he said, referring to the controversial distribution of GST revenue that penalises WA and subsidises Tasmania and South Australia.

The economist, who helped model the economic implications of Labor’s ill-fated carbon tax, said a carbon tax was preferable, ­having much the same impact of a GST with greater environmental benefit.

“It would not be a great big new tax on everything like the GST, but a big tax on pollution would end up affecting many prices like the GST,” he said.

Grattan Institute chief John Daley, also a participant at the summit’s tax reform discussion, said the whole tax reform process had been clogged by self-interest.

“The correlation between self-interest and measures proposed in those submissions [to the government’s current tax inquiry] is vanishingly close to one,” he said. “Going forward we should simply refuse to accept any submission that argues for a reduction in tax that doesn’t also argue for an equal increase in tax on itself,” he said.

David Linke, KPMG’s national managing partner for tax, agreed the process was blighted by self-­interest but was pleased the hour- long discussion had teased out the consensus that tax reform needed to consider the system as a whole rather than focus on the impact of individual taxes.

He also questioned the previous government’s dramatic ­increase in the tax-free threshold to $18,400.

Peter Whiteford, a ANU specialist on tax and welfare, was frustrated by the implication taxpayers stayed in the same tax bracket throughout their working lives.

“Over a 10-year period a lot of people in the top fifth aren’t there a decade later,” he said.

“In thinking of progressivity we need to take ­account of the risks that face ­people in the population. The idea people are in the same tax bracket all their lives is quite wrong.’’

Professor Garnaut said restoring the budget to surplus required both increases in tax and cuts in spending. “We have a very serious ­medium-long term budget problem that will not be solved without both,” he said.