Taxation reform is not reform unless it has provable economic dividends
Last weekend Malcolm Turnbull, via intermediaries, floated a proposal to increase the GST to 15 per cent: the first leg in a long race to an election in   September next year. Predictably, Bill Shorten reacted with a scare on rising prices. It is unlikely to save the Opposition Leader's neck but the Premier of Queensland is living proof that anything is possible.
At least the GST debate we have to have will be a relief from the comedy surrounding the anti-coal protest letter "To President Hollande and World Leaders" from Australians posing as intellectuals and the tragedy of objections from Hizb ut-Tahrir spokesman -Uthman Badar posing as a freedom-loving liberal accusing -Australia of forced assimilation for Muslims. If only. 
If there is to be an upside to the GST debate, besides distraction from idiots, it has to be this. It is an opportunity to focus on how the economy works. Taxation reform is not reform unless it has provable economic dividends.
The 2010 Henry tax revue (Australia's Future Tax System) pressed for extensions to the GST. It did so on the basis that "consumption is potentially one of the most efficient and sustainable tax bases available to governments".
It argued that a GST was "one of the least damaging taxes to economic growth". Now let that sink in: "one of the least damaging". You see, all taxes are damaging to growth. An increase in the GST will discourage output and activity. If a government is to do this, there have to be real and significant gains, elsewhere in the economy.
Labor, the Australian Council of Social Service and the ACTU will bleat about fairness, but Australia is no longer in a position to pay for their extravagance. Someone has to pay the bills. Raising more tax is not the same as paying the bills.
The Prime Minister may be a mate of David Gonski, but he should remind him there is no new money for schools. Nor should there be. There is no new money for healthcare, either. Nor should there be. Not unless and until several things are made clear.
Australia has to become more productive, and productivity will come from lower taxes, less regulation, and making as much of the education and health industries subject to competition as politically feasible.
How the GST rise fits into the agenda is a mystery that needs explanation. The GST rise should not deliver a big bucket of new money to raise pensions and have fun, fun, fun. It is a swap. A swap to more efficient fundraising, but it is nonetheless taxing. If the GST swap is to make the economy more productive, the ways in which it does so need to be -explained. Every taxpayer will -demand to know how the gains are to be made.
Last year's National Commission of Audit recommended re-examining the base and rate of the GST as part of broader tax reform. It made clear that the overall tax burden should not increase and any changes to the GST should be offset by the elimination of -inefficient state taxes.
The Henry tax review recommended the abolition of various relatively inefficient state taxes such as conveyancing duties and insurance levies. However, to maintain revenue for the government, other relatively more efficient taxes needed to be raised to fund the abolition of the inefficient taxes. Henry stated this had "the potential to improve overall efficiency of the economy by reducing costs for businesses and households, and increasing overall productivity".
Taxpayers need more than -"potential" gains. They need hard evidence that the changes will be worthwhile, certainly enough to withstand whingeing from non-taxpayers and public sector -unions.
Some of these gains were mapped in the report Economic Analysis of the Impacts of Using GST to Reform Taxes (KPMG for CPA Australia, 2011). It is but one of many that attempted to put numbers on the gains and losses associated with a GST-other-taxes swap. Of four scenarios, one modelled net gains of a GST -increase rate to 15 per cent to fund the abolition of selected relatively inefficient taxes, such as the -insurance duty and fire insurance levy, and stamp duty among -others.
The KPMG model suggested annual rises in living standards of $5 billion a year result from the swap. This is the bit the voters have to believe. How does it raise living standards? How are the gains to be felt?
Turnbull will need all of his powers of persuasion if he is to win the GST-other taxes swap race and raise the trophy of economic dividends.garytjohns@gmail.com