Ideas@TheCentre brings you ammunition for conversations around the table. 3 short articles from CIS researchers emailed every Friday on the issues of the week.
The Goods and Services Tax (GST) turns 20 next Wednesday, but policy wonks have been talking about it for at least twice as long: first, whether to have it; then how it should be designed; and now whether to make it bigger.
A higher rate or broader base for the GST plays a central role in many a plan for tax reform. The most common ideas are for an increase in the rate to 15% and/or a broadening of coverage to include one or more of food, water, health and education services.
Australia has left the GST rate unchanged since inception and it is well below the international average of 16%. Those favouring an increase think this points to unused taxable capacity waiting to be tapped.
Moreover, the proportion of consumer spending covered by the GST has been eroded as expenditure on exempt items has risen relatively fast. A broader base would better serve the original objective of a simple, efficient, non-distorting tax.
Either way, a lot of extra revenue could be raised and traded off for lowering or abolishing other taxes such as personal income tax and the most economically harmful state taxes.
What could possibly go wrong?
For a start, there would be enormous pressure to compensate — and over-compensate — low income households (generously defined), which would divert a lot of the extra revenue before a single cent became available for anything else.
Don’t forget the GST is a Commonwealth tax, so any change to it must run the gauntlet of the Senate, where horse-trading and compromise would produce something very different from an elegant trade-off.
Then there is the likelihood that the bigger GST would end up financing higher government expenditure, not reductions in other taxes. GST revenue all goes to the states, whose budget plans have been derailed by the pandemic — leaving theme hungry for more revenue.
A trade-off between a higher GST and lower other taxes is theoretically appealing, but in the real world of politics is a mirage. The trade-off would collapse over time as governments change and priorities change, leaving the higher GST in place without the reductions in other taxes.
The GST and what came with it (such as abolition of wholesale sales tax) was a very worthwhile reform, but the case for increasing it 20 years later raises many concerns for those favouring lower taxes and smaller government.
After much angst, school students have belatedly returned to the nation’s classrooms. But recovery from the educational damage is now being obstructed by progressives’ pursuit of an ‘education new deal.’
We don’t need a ‘new deal’ on education. What we need is to redouble efforts on becoming the clever country aspired to all those years ago.
Unnecessary — and in many cases, prolonged — school closures have harmed our education prospects.
Recent CIS research has estimated the damage to students’ progress in literacy and numeracy — with disadvantaged students falling up to three weeks further behind over the period schools were closed.
Recovering this lost learning is achievable, but cannot be treated with complacency.
Yet, education progressives have opportunistically leapt upon the pandemic to argue “the time is right to transform schools” in a more progressive image.
In particular, that involves overhauling what students learn, how progress and performance is (not) tracked, and privileging social and emotional wellbeing over learning.
But this would only further deteriorate the quality, rigour, and outcomes of the long-suffering education system.
Policymakers and schools will need to combat the concerted efforts of progressives if there’s any hope of a V-shaped educational recovery.
And that’s indispensable in Australia coming from the pandemic and toward a more prosperous future — since education is key to securing long-term human capital potential on the supply side of the economy.
To get there, priorities must be: promptly identifying students’ learning gaps; assessing schools’ pandemic responsiveness; ensuring flexible school funding to address identified needs; and constructively leveraging technology.
As in the past, it’s wrong to conclude more funding is needed to fuel the recovery.
Nonetheless, it hasn’t taken long for the usual, predictable lobbying for school funding boosts to bolster the educational rescue; with unwarranted calls for smaller classes, more teachers’ aides, and overtime pay for teachers. Another proposal is for extra ‘catchup funding’ to right the course, particularly using taxpayer money to back expensive approaches supported by little evidence.
But existing funding — which is significantly more than in previous years anyway — is more than adequate for the task.
What’s needed is not more money, but more flexibility. Schools face vastly different challenges — including varied success with home-based learning efforts — and need the autonomy to address them as appropriate.
As with so many areas, policymakers’ decisions as we emerge from the pandemic will define the educational and economic trajectory for years to come.
We’ve belatedly flattened the curve on lost learning with the return to school. A V-shaped education recovery is possible, but we can’t let the progressives slam the brakes on it.
This is an edited extract of an opinion piece published in the Canberra Times as Towards a V-shaped educational recovery.
It’s hard to imagine anyone thought the sight of Bob Katter dressed as the Grim Reaper, being slowly circled by vintage Holden cars, would make a serious policy argument. Katter’s protest was in support of his motion calling for the re-establishment of an Australian car manufacturing industry, supported by the federal government (inevitably).
It is tempting to dismiss Katter’s stunt as ridiculous, but more serious claims than Katter’s — and equally flawed — are being made in favour of protectionism in response to Covid-19, positing the best way to speed up the return to growth is to support local industry.
For example, last month saw reports that a key advisory taskforce associated with the government’s COVID-19 Co-ordination Commission was recommending massive government investment in gas as a way of boosting the manufacturing industry.
This is nonsense, by far the best thing the government could do to aid the recovery is to get its own house in order by figuring out where it is blocking efficiency and frustrating the efficient functioning of the market; and get out of the way.
Like King Canute attempting to issue orders to the tides, there are some things governments just cannot will into being.
Australia has long been a global champion of free trade, though we are constantly fighting protectionist instincts in parts of the economy. Some industries, like manufacturing, retained tariff protection for far too long, or replaced this with ongoing industry assistance, even though other more efficient industries struggled under foreign tariffs.
It is not just business that favours protectionism. Unions have an equally long history of seeking to shelter workers and businesses from foreign competition. As we saw with the failed car manufacturing industry, businesses that are beholden to government are easy targets for union wage and condition demands.
Protectionist policies that purport to ‘put Australian jobs first’ are inevitably more popular during economic downturns such as the Covid recession, especially in light of the rapidly rising unemployment we’ve seen recently.
But these arguments are no more valid now than ever. Protectionism doesn’t work. Protected industries don’t gain the strength to stand on their own two feet. Jobs propped up by government simply do not become viable: they tend to remain dependent on government support, and they disappear once the subsidies end.
Government can’t spend its way to viable industries, and it cannot just re-create the jobs that have been lost in the coronavirus recession (or indeed during the decline of manufacturing over the past few decades).
Protectionism, much like Australia’s car manufacturing industry, belongs to the past. It is not our future.
This is an edited extract of an opinion piece published in the Canberra Times as It’s time to consign protectionism to the history books.