Australia's Treasury Secretary Martin Parkinson Blew Open The Debate On Income Tax And The GST Today

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Treasury Secretary Martin Parkinson has put an increase in the GST and cuts to personal income tax on the table in a speech in Perth today to the Mining and Exploration Companies Convention.

As Secretary to Joe Hockey’s Treasury department, Parkinson is arguably the most important economic bureaucrat in the country. He’s probably just edged by RBA Governor Glenn Stevens.

But unlike Stevens, Parkinson doesn’t have a guarantee of independence, so when he speaks it is easy to believe that he is speaking on behalf of his bosses, the government of the day. And at the moment that’s Joe Hockey and Tony Abbott.

This is why today’s speech is so important in helping to set the tax debate and economic reform process in Australia. Parkinson essentially articulated a defence of the budget when he addressed the structural necessity for change and the budget priorities going forward.

Parkinson said that now that both the terms of trade and the mining investment boom peaks have passed, we face lower growth. He explained:

net resources investment… is set to shift from being a major contributor to economic growth to a detractor from growth.

Exports… will rise as completed projects go into production, but the net effect of these two forces… means that the economy will heavily rely on other sectors if it is to return to trend growth over the medium term.

That’s the worrying thing about the crash in consumer sentiment since the budget.

But, back to Parkinson and the key message that he was making about the future of the Australian taxation system.

Parkinson said:

It is hard to overstate the need for reforming the tax system. If our public finances are not placed on a sustainable footing, tax reform becomes more difficult as time passes.

Our tax mix is heavily weighted toward direct taxes on income — personal and corporate. If we were to leave our tax rates and bases as they are, our reliance on income taxes would grow over time.

We will move even further in this direction if, as we anticipate, the relative share of total indirect taxes continues its long-term decline, including the GST.

Australia needs a debate about tax and how it will fund an ever growing proportion of over 60’s with a steadily falling worker-to-retiree ratio in the years ahead.

Changing the GST, increasing it and spreading its reach, is the obvious way to address the structural problems coming from a system relying too heavily on personal income tax to prop up the budget.

The burning question, though, after the appalling job the government has done on selling the budget is this: does it have an political capital, ability, or will, to do what needs to be done?

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