Treasury Secretary Dr Martin Parkinson has slammed sections of the business community for repeatedly calling for the federal government to cut the corporate tax rate and increase the GST, saying “a lot of what this debate is about is people saying of government, ‘take money from the citizenry at large and give it to me’.”
Dr Parkinson, who spoke at a Committee for Economic Development of Australia in Melbourne on Thursday, says Australians need to start talking more about the trade-offs we have to make to achieve important economic objectives.
This means different groups in society need to agree on the best ways to create a “more prosperous and stable country” and this will necessitate a debate about tax reform.
But he said some of the loudest voices in the current tax reform debate were coming from ‘vested interests’ who keep calling for a cut to the corporate tax rate and an increase in the GST.
He said this argument had not been thought through properly because, if it were pursued, it would increase the consumption tax burden on the average Australian by “40 to 45 per cent.”
“You can open the paper almost any day of the week and find a business leader out there saying you should lower company tax rates and if the government [wants] more revenue it should jack up the GST,” Dr Parkinson said on Thursday.
“You see state premiers out there saying ‘we need more revenue from the Commonwealth.’ So let’s just do the maths. If you lowered the company tax rate from 30 cents in the dollar to 25 cents in the dollar you’d need to increase the GST by a couple of percentage points. That would cost about $10 billion.”
He said if the states wanted that much additional revenue then the GST rate would have to rise “by maybe 4 percentage points.”
That means the GST would have to rise to 14 per cent.
“Let’s say that overnight some dictator was suddenly able to deliver that tax cut to the corporate sector and increase revenues to the states by pushing up the GST,” Dr Parkinson said.
“What would you have just done? Well, you would have increased the consumption tax burden on the average Australian by 40 to 45 per cent, and you’ve given them nothing back.
“So the silent majority here are actually the citizens, and a lot of what this debate is about is people saying of government, ‘take money from the citizenry at large and give it to me.’
Dr Parkinson, who steps aside as Treasury Secretary on December 12 – with no replacement yet named – said the ‘vested interests’ calling for the GST to rise and the corporate tax rate to fall ought to realise that such policies would have consequences.
“That’s the bit that we’ve got to get over. It’s the vested interests,” Dr Parkinson said.
“Whether it’s other levels of government, whether it’s university vice-chancellors, or corporate leaders or whomever, we have to understand that there’s no magic bucket of money out there and … everything involves trade-offs.”
Dr Parkinson’s comments come just days after he took a swing at critics who have derided Treasury’s forecasting ability and performance in recent years, saying his department had not “lost its way” but had found a way to do its job better.
They also come after Prime Minister Tony Abbott said Australians ought to have a “mature” debate about Commonwealth-State relations, and the way in which taxes were collected and distributed between different levels of government.
This would by definition include a debate about the GST.
On Thursday, Dr Parkinson told the CEDA conference that Australia was in a good position to capitalise on the shift of global economic weight to the Asia-Pacific region, but the public needed to be engaged in the debate about how to do so.