Thursday, 23 July 2015

Baird's Bare Balls

You've got to hand it to Mike Baird. He's the only politician in this country who could propose a tax increase and probably get away with it. And if you were in his position, why wouldn't you? A 60% approval rating and well-regarded even by your political opponents, Baird has attributes the federal government and opposition could only dream of possessing.

Baird has found the holy grail every politician yearns for: not being perceived as a politician. He claims to have entered politics for the same reason many career politicians do so - to make a difference - except his difference is that the electorate seems to believes him. 

Like a certain other perennially popular politician from New South Wales, Baird was an investment banker and according to some, desires to return to the private sector at the conclusion of his premiership.

Emboldened by his electoral success with the sale "long-term lease" of NSW's electricity network, Baird has turned his sights on a policy area with potentially greater ramifications: the goods and services tax.

So why has Baird called for an increase in the GST? Simple, because he sees an increase as the best way to cover for the increasing cost of state-run services (particularly healthcare). As the Abbott government has cut billions in federal funding for healthcare and education, states have been left scrambling for funds. Bereft of their own sources of revenue (commonwealth grants make up around 40% of total revenue in the 2015-16 NSW budget), Abbott is hoping the states will call for an increase in the GST, effectively outsourcing the hard sell of a tax increase to the states. 

But the GST is regressive, it hits the poorer first and hits them harder. As David Hetherington points out, there are many other areas of foregone revenue that could be addressed with less regressive pain and still achieve the desired federal budgetary outcome.

While fixing multinational tax avoision and super tax concessions would be great, Baird knows this would not guarantee any more funding for state governments. Changes to these two tax areas would result in more revenue for the commonwealth, not the states. The GST is the only tax that is exclusively distributed (after horizontal fiscal equalisation) to the states.

So where to from here? As "courageous" as Baird's stance is, it will almost certainly end in failure for now. The Labor states are unlikely to countenance an increase in the rate of GST and it will be supremely unpopular with voters. Federal Labor will no doubt run a campaign against an increase at the next election and if it's anything like the 2013 campaign, it will be successful.

Given Abbott's stated refusal to alter the GST without parliamentary consensus (a challenge for a PM with no political capital) and federal and state opposition to any change, we are unlikely to have any sound tax reform package before the next election.

The nation's political leaders from learn a lot from Baird. They can learn that the best way to champion change is to come out openly for it, not hide behind broken promises and vague rhetoric. Then they can learn to clearly explain and articulate the reasons for the change. Then they can earn the respect of both supporters and opponents.

Simple, eh?

No comments:

Post a Comment