COMMON Wealth No. 1 of Volume 7

Moral Imperatives and The 1999 Tax Package:
Equity Implications of the Tax Reform Debate

"...economic activity is to be carried out according to its own methods and laws but within the limits of morality..." (Gaudium et spes, n64)

The purpose of this document is to challenge key aspects of the Commonwealth Government's tax package according to moral principles which promote equity and defend the common good. This document argues that the proposals of a regressive tax on food and other essentials of life, unfair income tax cuts which favour high-income earners, and inadequate compensation to vulnerable Australians who will be most disadvantaged by the introduction of a broad-based consumption tax (`GST') are fundamentally unfair and fail the test of equity. It calls on the Senate to address the most regressive elements of the tax package - a GST on essentials and unnecessary income tax cuts to high-income earners.

The Australian Catholic Social Welfare Commission believes the package's key proposals increase the opportunity of those who already benefit most from the nation's economy to contribute less to the revenue base while increasing the living costs for the majority of low- and middle-income earners and are therefore unfair. A GST on food and other essentials risks seriously damaging the social fabric that is already under strain by impacting harshly on vulnerable individuals and families. Food and other essential goods and services such as clothing, rent, and utilities of gas and electricity etc. are necessities of life. A tax which disproportionately increases the costs of essentials for low- and middle-income earners is neither a good nor a just imposition on the Australian community.

Whatever changes to the present system of taxation are proposed, the injustice of any regressive impact of taxation on essentials such as food must be prevented. Justice demands that food and other essentials of life be exempted or zero-rated from the ambit of a broad-based consumption tax. To continue to justify the introduction of a GST on the essentials of life on the grounds of efficiency with little or no reference to its equity implications ignores the social responsibility of all people to help and support one another for the common good of society, particularly those with a reduced ability to purchase the essentials necessary to sustain a basic quality of life.

The tax package must be revised so that the well-being of vulnerable citizens and the assessment of whether individuals and families are `deserving of special consideration' is not overly dependent on the generosity and discretion of future governments. A just taxation system must be progressive and proportioned to the capacity of the people contributing. It should not be made conditional upon the dispensation of charity or welfare but should deliver social and economic justice before there is the consideration of the need for compensation. The needs of the most vulnerable must be made central to the operation of a fair tax system and not subject to ineffective and uncertain `add-on' compensation measures. Alternatives safeguarding the common good and distributive justice must be found. The Government's consideration of the moral dimensions of tax reform remains questionable until the alleged benefits of its tax package can be demonstrated and guaranteed for all Australians. <!-- Generation of PM publication page 2 -->

 

Message from Bishop Patrick Power, Chairman of the Bishops' Committee for Social Welfare The Australian Catholic Social Welfare Commission has been actively involved in the issue of taxation reform since the 1985 Tax Summit when we raised concerns about the introduction of a consumption tax. And in 1992 the Commission was a strong advocate for the exemption of food from the Hewson GST proposal. It is well positioned to make comment on the present tax reform package before the Australian Parliament. In 1998 the Commission made a submission to the Government's Tax Consultative Task Force which made it clear that the Commission's assessment of the final tax package would be judged on how well it addressed a number of moral issues relating to tax reform. Subsequently, the Central Commission of the Australian Catholic Bishops' Conference, issued a position paper On the Moral Reference Points for Tax Reform. The Bishops of Australia enunciated the moral aspects of taxation and the reform of taxation systems according to principles of Catholic Social Teaching which emphasise a special concern about the impact of tax reform on poorer sections of the community. In this document, the Australian Catholic Social Welfare Commission examines the major components of the Commonwealth Government's tax package and highlights some fundamental concerns regarding the impact of a GST, particularly as it will apply to the essentials of life. It has become very clear in the course of the tax reform debate that a GST on food and other essentials in addition to unfair income tax cuts to high-income earners and inadequate compensation for disadvantaged citizens calls into question the equity of the overall tax package. It is unlikely to deliver many of the long-term benefits its advocates claim if these unfair aspects of the package are not reformed so as to enhance the fairness of the system and reduce the tax burden and cost of living for vulnerable Australians. The Commission is among a range of Church and community representatives to call for a revision of the tax package arising out of a concern for the poor and oppressed. This call is based firmly on moral principles which defend the human dignity of all people, with a particular regard for the responsibility of standing by the most vulnerable members of our society. I join with the Commission in calling on the Senate to exempt the essentials of life, especially food, from the Government's tax reform package.

 

The Commonwealth Government's Taxation Package

In August 1998, the Commonwealth Government introduced its tax package Tax Reform: Not A New Tax, A New Tax System and, in December, the Treasurer introduced 16 Bills of the package into the House of Representatives. The Bills are subsequently under review in the Senate. The three major components of the tax package which are relevant to the well-being of the majority of citizens are: a broad-based indirect consumption tax; reductions in personal income taxes; and, compensatory measures for those deserving of special consideration (Commonwealth of Australia, 1998).

The complexity of the proposed changes to Australia's taxation system and the assessment of the likely impact of the major components of the package on ordinary citizens has not been aided by the highly politicised nature of the tax reform debate over the past two years or the continuing lack of clear and transparent information from the Government on the implications of the overall package. Prior to the release of the tax package, many in the community understood it was the Government's intention that any changes to the present tax system would be structured progressively to ease the burden of tax on low-income individuals and families and ensure that those with relatively greater resources would pay their fair share. Similarly, many were led to believe the proposed consumption tax would comprise only a small component of the overall tax package. <!-- Generation of PM publication page 3 -->

The Government is now asserting that the introduction of a GST is the key means by which problems of efficiency, complexity and inequity of the current tax system will be solved (Commonwealth of Australia, 1998, pp.14-18). However, it has long been established in tax reform debate over the past decade that the nature of a GST is inequitable (ACSWC, 1992). Genuine doubts remain as to whether it is necessary or able to solve many of the problems its promoters believe it will (ACSWC, 1991). The impact of a GST and other components of the tax package is highly questionable on the most important issue of equity.

The Commission asserts that the major components of the tax package contained in Bills currently before the Senate are unfair and unjust to many Australian citizens. The Government's package as it currently stands seeks to introduce a form of taxation that is regressive and unfair. It will impose the same burden on all Australians regardless of their income and disadvantage low- and middle-income earners who already carry a high burden of indirect taxes on the consumption of goods and services which are essential to their continued well-being. Adding to the regressive impact of the overall tax reform package are reductions in personal income taxes which are skewed heavily in favour of high-income earners and compensation measures which are flawed in terms of their adequacy and sustainability.

 

A Regressive GST on the Essentials of Life

The present regime of wholesale sales taxes, excise taxes and taxes levied by the states are forms of indirect taxation on consumption. Those concerned with issues of justice and equity of tax reform were encouraged by the potential of the reform process to reduce the regressive impact of these taxes on the daily costs of living of low- and middle-income families. As early as 1992, the Commission was advocating changes to the current wholesale sales tax system and arguing against the Coalition Opposition's proposed GST on food and other essential goods and services so as to relieve the burden of indirect taxes on vulnerable individuals and families (1992). In the context of the current tax reform debate, this opportunity is at risk of being squandered under the Coalition Government's radical proposal to introduce a broad-based indirect consumption tax set at a flat rate of 10% to be applied to all goods and services at their point of sale. It is proposed the GST will replace the wholesale sales tax and some state taxes. In recognition of the expected regressive impact of the GST on low- to medium-income groups purchasing the essentials of life, some health, education and childcare services have been exempted from the tax (Commonwealth of Australia, 1998).

However, food has not been exempted. Until now there has been no direct taxation on food. This has been in recognition of the fact that a tax on food is one of the most regressive and unfair taxes that can be levied on a community. A tax on food would contribute in the order of $5 billion of the total $6 billion in revenue increased on consumption through the GST (ACOSS, 1999a; Warren, 1998). A GST on essential household expenditure items such as food, clothing and utilities will fall most heavily on low-income groups. This tax, by its very nature and design, will fail to account for the various expenditure patterns of families on essential goods and services according to basic human need. It does not discriminate the ability of citizens to pay tax in accord with their capacity of income nor does it recognise that some citizens have a need to spend a higher proportion of their income on the essentials of life. <!-- Generation of PM publication page 4 -->

For example, the poorest 20% of households spend around 25% of their income on food; double the proportion of the richest 20% of households (Johnson et al., 1998). However, when accounting for the fact that poor households often spend beyond their available income on essentials (i.e. they dissave), the poorest in our community will bear at least four times the burden of a GST on items such as food compared to the rich (Neville, 1999; Quiggan, 1998). The official Treasury modelling which is based on `household disposable income' rather than `household consumption' has failed to account for important variations in the expenditure patterns of households according to their financial circumstances and therefore underestimated the regressive impact of a GST on low-income individuals and families (ACSWC, 1999). Imposing a flat-rate consumption tax on essential goods and services will impose a disproportionately high tax burden on those who consume essentials in larger amounts proportionate to their financial capacity. Families with dependents, the sick and elderly, the unemployed and those in crisis are among those who will suffer the greatest impact of this tax.

The Government has not been able to substantiate claims that its changes to the indirect tax system will actually reduce or, at the very least, not increase the tax burden on vulnerable Australians. On the contrary, evidence presented to the hearings of the Senate Select Committee on A New Tax System by a variety of community representatives and independent economists has warned of the regressive impact of this tax and the additional costs to be borne by low-income individuals and families for everyday items. Recent analysis, which challenges the Government's modelling of the effects of the GST, has revealed at least one million low-income households will be worse off during the first year of the tax package's implementation, that a significant number will remain worse off in subsequent years, and that a greater number of low and fixed income earners will be more adversely affected by the price impact of the GST than estimated by the Government (ACOSS, 1999b; Warren et al., 1999).

The Commission, along with many church and community sector organisations, believes the removal of food and other essentials of life from the ambit of the proposed GST is justified on the grounds of equity and that this could definitely be achieved through the restoration of progressivity to the income tax system. Restricting the application of a GST while reducing the proposed income tax cuts to high-income earners and closing income tax loopholes would remove the most regressive and potentially socially divisive element of the tax package. The package must be redesigned in such a way that all essential items required for the daily sustenance and wellbeing of Australians can be safeguarded from the regressive effects of a GST.

The GST should be restricted as a revenue collection mechanism. Essential goods and services should be zero-rated if not fully exempted from the GST (O'Connor, 1998). This would be in line with the policy decisions of almost all OECD countries that have introduced such tax regimes to have a reduced rate, a zero-rate, or a complete exemption of food and basic food stuffs. A 1995 survey of 60 countries reported that only six countries tax food (Earnst & Young, 1995). This trend would suggest that the importance of basic food to the well-being of the citizenry has been recognised by these social democracies. Countries that have exempted or zero-rated essential items such as food have exhibited their social responsibility to ensure their own communities have equal access to purchasing power for essential items through the tax system. The Australian taxation system must do the same.

There is no evidence why the proposed GST could not introduce differential rates <!-- Generation of PM publication page 5 -->
thereby providing concessional treatment on necessities. Excluding essential goods and services would significantly reduce or eliminate the regressive and unjust impact of this form of tax on low-income individuals and families. The GST and broader tax package should be revised to discriminate and account for the needs and circumstances of low-income earners who will be most disadvantaged under currently proposed arrangements. As part of this revision, the Commission proposes that the reform to indirect taxation outlined in the Government's package should be made revenue neutral and not be used to fund income tax cuts.

 

Income Tax Cuts for Those on High-Incomes

The tax package includes significant reductions in personal income taxes through an increase in the tax free threshold and decreases in all but the top marginal tax rate. This proposal would lower the marginal tax rate for low-income groups from 20% to 17%, lower the top marginal tax rate of those earning less than $50,000 from between 34 and 43% to 30%, reduce the rate of those up to $75,000 from 47% to 40%, while maintaining the top rate for those earning over $75,000 at 47%. (Commonwealth of Australia, 1998)

The inequity of the Government's intended changes to the income tax system is highlighted by the accrual of approximately 50% or $7 billion of the $14 billion worth of income tax cuts to the top 20% of income earners. The proposed flattening of the income tax schedules are skewed heavily in favour of higher income earners both in real dollar terms and percentage of income gains. For example, a high-income earner on $75,000 p.a. would gain a tax cut of $86 (or 6% of income) each week whereas average wage earners on $30,000 would gain by only $16 (or 2.8% of income).

The unfairness of the tax cuts is graphically illustrated by comparing the situations of the highest and lowest income earning groups according to family composition. A single person with no dependents earning $75,000 who will gain $86 per week is significantly better off than a single income couple with two children earning only $25,000. This low-income family will gain tax cuts of only $12 per week . Even when accounting for increases in Social Security payments the low-income family would still be at a comparative disadvantage by gaining a weekly increase of only $26 in disposable income before the regressive impact of a GST is considered. (ACSWC, 1999; ACSJC, 1999; Commonwealth of Australia, 1998)

For the majority of wage earners remunerated at or below average incomes, the proposed tax cuts will be clawed back through a GST. Individuals and families who would benefit little from the proposed tax cuts will still be required to pay a GST, the effect of which has been underestimated on many low-income households by at least 100% (ACOSS, 1999b). The so-called `tax reform' which uses income tax cuts to increase the disposable incomes of households which is then taken away and possibly further disadvantages vulnerable families via the GST cannot be regarded as credible or genuine reform.

The GST contributes to the overall regressivity of the tax package by funding $6 billion of the $14 billion necessary to cover the proposed income tax cuts. A GST extended to include food, which has not until now been directly taxed, will net the Government around $5 billion of the $6 billion in revenue necessary to partially fund the income tax cuts. These income tax cuts will also be funded from the Federal <!-- Generation of PM publication page 6 -->
Budget surplus to the tune of $7.25 billion by the third year of implementation. This signifies a major `tax mix switch' whereby the package relies on higher consumption taxes and draws down on the Federal Budget surplus to fund unfair tax cuts. The package will shift the incidence of taxation from income to consumption, from direct to indirect taxes, from business to consumers, and from high-income to low-income earners. (ACSWC, 1999)

The proposed tax package introduces a system which is more regressive than the present system. The wisdom of its overall contribution to national economic management also needs to be questioned when a surplus gained largely through the harsh Federal Budgets of recent years which severely cut assistance to unemployed and disadvantaged citizens is redirected to benefit the comfortable and relatively well-off (ACSWC, 1999, p.17; Johnson & Hellwig, 1997).

Australia's taxation system could surely be reformed and the declining tax base restored in a manner which is more equitable, through the removal or restriction of the GST on food and other essentials of life, and more adequate in raising and wisely spending national revenue.

The imposition of an unjust tax on the majority low- and middle-income Australians, the raiding of the Budget surplus to dole out tax cuts to the rich, and distractions from the fundamental question of what level of revenue is necessary to address the needs of an increasingly unequal society hardly satisfies any claim of responsible economic management in the process of tax reform. Indeed, if the justice of a tax system is to be judged according to the progressivity of the system - the degree to which those who have more enhance the situations of those who have less - these regressive components of the tax package hardly approximate the notion of `fair tax reform' on even the most favourable assessment.

 

Compensation Measures for Those `Deserving of Special Consideration'

In an attempt to redress the regressive nature of a consumption tax, it is the Government's intention to introduce a range of compensatory measures to provide income relief to those persons in the community deemed not to have the capacity to pay the tax. These measures include: the increasing of tax-free thresholds from $5,400 to $6,000; additional assistance through the Family Tax Initiative which will further lift tax-free thresholds according to family type and the number and age of children; and, the relaxation of income tests on Family Allowance and sole parents and pensioners' benefits which will ease high effective marginal tax rates which cause poverty traps for many social security recipients. In addition to these measures, it is proposed that maximum rates of all income support payments will be increased to compensate for the inflationary impact of a GST. (Commonwealth of Australia, 1998)

The problems associated with high effective marginal tax rates for low-income families have been partially relieved under the proposed Family Tax Benefit system by increasing the level of income that can be earned from $24,350 to $28,200 before an income test is imposed on income support payments and recipients begin to lose benefits. Additionally, the rate at which the benefit is reduced as income increases (i.e. the income test taper rate) has been reduced for family payments from 50% to 30% and for sole parents and pensioners from 50% to 40%. This means that sole parents and pensioners, for example, will lose only 40 cents (down from 50 cents) of their benefit for every dollar earned over $100 per fortnight. However, this positive initiative has not been extended to all groups in need. People who are unemployed and families with children aged over 16 years remain relatively disadvantaged under the proposed reform. While sole parents and pensioners will benefit from the relaxed income test and taper rate arrangements, unemployed people will continue to lose 50 cents for every dollar they earn over $60 and up to $140 per fortnight and 70 cents for every dollar of earned income above this amount.

Families with teenage children will also be disadvantaged under the Family Tax Payment when their children turn 16 years of age. A family on $27,000 p.a. receiving a maximum rate of payment of $144 per fortnight under the Family Tax Payment will have this payment reduced by around $22 per fortnight when the child turns 16 years of age and enters the Youth Allowance system. Questions must be asked about the Government's resolve to reduce poverty and increase work incentives of vulnerable individuals and families when hundreds of thousands of young and unemployed people are excluded from these measures to eliminate poverty traps (ACSWC, 1999; ACSJC, 1999).

The family-friendly rhetoric surrounding the promotion of the package would suggest the particular needs of families and the costs of raising families are more than adequately covered by compensation arrangements (Commonwealth of Australia, 1998, p.15). However, many families will in fact be worse off. The new tax system will not recognise families with a 17 to 21 year old dependent for the purposes of compensation. The additional costs of raising children and the level of compensation necessary to cover increased costs of living for families under a GST has been significantly underestimated (Senate Community Affairs References Committee, 1999, pp.17f). The increased burden of a regressive system of taxation and inadequacy in compensation for ordinary Australian families casts doubt over how much recognition has really been afforded to the work of raising a family - Australia's future tax payers.

There are broader concerns that the proposed compensation measures to assist low-income individuals and families will be inadequate in countering the price impact of a GST. Independent economists and community sector representatives appearing before the Senate Select Committee on A New Tax System have already highlighted a significant underestimation by Treasury of the price effects of a GST on the living costs of low-income households.

The figures used by the Government as the basis for proposed compensation measures are misleading at a number of levels. Evidence presented by independent economists suggests that the impact of a GST on the CPI will be above 3.0%. Added to this is the concern that, if all of the proposed indirect tax cuts resulting from the removal of wholesale sales and other state taxes are not immediately passed on to consumers, the immediate inflationary effect will be as high as 4 or 5% (Senate Community Affairs References Committee, 1999, pp.13f; Senate Select Committee On a New Tax System, 1999, p.44). Further, those who recognise the particular needs and consumption patterns of low-income households have estimated that the price impact of the tax package may be as high as five times the Treasury projection at 9 or 10% (SVdP, 1999; Senate Select Committee On a New Tax System, 1999, p.30).

For vulnerable individuals and families who rely on income support payments and <!-- Generation of PM publication page 8 -->
for middle-income families with children the price effects of a GST will be greater than the Government's uniform estimate of 1.9% (Senate Community Affairs References Committee, 1999, p.17; Warren et al., 1999). This evidence reveals the size of the compensation package will be inadequate to address the regressive impact of the GST on low-income individuals and families. The Government's claim that it is `overcompensating' vulnerable Australians through the 4% increase to pensions and benefits is now totally disproven. (ACSWC, 1999; ACOSS, 1999a; Commonwealth of Australia, 1998, p.56).

In addition to the immediate inadequacy of compensatory measures, their value is likely to be eroded over time. The increase of the tax-free threshold from $5,400 to $6,000 is not indexed to the CPI and will immediately be eroded by inflation. The initial increases to pensions and benefits by 4% which will subsequently be maintained at 1.5% above the CPI will be eroded to the point where this measure will be of no benefit to those receiving the compensation (ACSWC, 1999). This is because legislation benchmarks the value of pensions and benefits at 25% of Male Total Average Weekly Earnings and not to increases in the CPI. Because wages grow faster than the CPI, it is only a matter of time before the existing 25% wages benchmark overtakes the increases offered in the tax reform package and they are reduced to nothing (Australian Food and Grocery Council, 1999, p.18; Senate Community Affairs References Committee, 1999, pp.22f).

The risk of compensation measures being both inadequate and eroded over time is aggravated by the virtual annexing of these measures as `add-ons' to the core operation of the Government's proposed tax system which may be unduly influenced by economic and political pressures to reduce public spending. Because the total range of compensation measures rely on the availability of sufficient general revenue to fund them, and because Treasury's projections on economic growth are overstated, it is likely that the budget surplus will be smaller than estimated in the tax package and there will be increased pressure on Government to reign in Federal spending. The Government's outlays into the compensatory measures would almost certainly be the first to feel the effects of any future reductions in spending as a result of economic downturn and recession. (ACSWC, 1999)

Overseas experience has shown that compensation arrangements are extremely vulnerable to reductions and broad based consumption tax rates to increases depending on the economic and political prerogatives of the day. In the mid-80s a 10% GST was introduced in New Zealand which provided compensation through a similar range of tax and income support measures. In subsequent years of economic recession, the GST was increased to 12.5% without corresponding increases to compensation. Social Security payments were later slashed by up to 30% (ACSWC, 1999; ACOSS, 1999a). Catholic welfare agencies in New Zealand confirm that the majority of families now are overall significantly worse-off.

Evidence presented to the Senate Select Committee On A New Tax System which refutes both the adequacy and sustainability of the compensatory measures to low-income earners lends weight to the claim that the need for a `compensation package' in the first place highlights the regressive and inequitable nature of the overall tax package.

The Government's reliance on providing compensation to vulnerable individuals and families as a means of gaining support for a GST and the inadequacy of this <!-- Generation of PM publication page 9 -->
compensation amounts to an admission that the tax package is intrinsically unfair and unjust. If the Parliament was to legislate the package in its current form, it would effectively introduce a tax system which entrenches further inequality in Australia.

 

The Moral Imperative of Equity in Taxation and Tax Reform

A taxation system which places a disproportionate or regressive burden on those who earn less and have less is an unjust system. It contravenes society's responsibility toward the poor and inhibits equitable access to a fair share of the goods and services of the community (Laborum exercens, n19; Familiaris consortio, n21). Furthermore, such an indiscriminate tax as the proposed GST, which is unable to account for the amount of income earned and therefore the capacity of citizens to pay would force those on a lower incomes or with a greater number of dependents to pay a higher proportion of their income on essential items, such as food, compared to those on higher incomes or with fewer dependents.

The morality of taxation and the reform of taxation systems is highlighted by the principles of Catholic Social Teaching which emphasise the necessary priority for the common good and a special concern for vulnerable individuals and families when addressing the increasing fragility and inequity of our social structures. The economic system must always be at the service of social goals and the common good and be regulated according to moral principles (Centesimus annus, nn11,49)

The social teaching of the Church maintains that ...economic activity is to be carried out according to its own methods and laws but within the limits of morality... (Gaudium et spes, n64). Accordingly, reform of Australia's taxation system must be based on sound moral principles that move beyond any preoccupation with achieving greater economic efficiency; the principle claim of proponents for the inclusion of food and other essentials under a GST. The drive for efficiency that comes at the price of greater inequity will undermine the social fabric of the nation. The principle of the Common Good holds that individual fulfilment can never be at the expense of the social well-being and development of all people living in a community. The access of citizens to basic resources and entitlements such as food, clothing, housing and other essentials of life are regarded as prerequisites of human and social fulfilment. It would be a mistake for any government pursuing tax reform to assume that service of a majority, or even a minority, of citizens necessarily attains the common good. (Catechism of the Catholic Church, n1908; Gaudium et spes, n26; Pacem in terris, n11)

The principle of a Preferential Option for the Poor demands that those in power pay more attention to the weaker members of society who are at a disadvantage when it comes to defending their rights and asserting their legitimate interests (Pacem in terris, n56). The greater the needs of a person, the greater should be the obligation on governments to protect that person's human dignity. In terms of the current debate on tax reform, the demand that the more fortunate should renounce some of their rights so as to place their goods more generously at the service of others supports the progressive redistribution of an adequate quantum of national wealth through tax arrangements. <!-- Generation of PM publication page 10 -->

Catholic tradition holds that the goods and the burdens of a community are to be distributed on the basis that not all persons can contribute in the same way. Wherever possible burdens should be distributed equitably with due emphasis on a person's capacity to contribute. (Mater et magistra, n132; Rerum novarum, n27) Thus, a system of taxation based on justice and equity would proportion taxes according to the capacity of the people contributing. Applying the principle of Distributive Justice to tax reform means that progressive taxation must be preferred to regressive taxation and that revenue raising arrangements must be sensitive to the existence of `extreme inequality' of wealth as long as there are poor, disadvantaged and homeless citizens. Distributive justice demands that the basic needs of the poor are met before the wants of the rich. (ACBC, 1998, para. 2.3; ACBC, 1992, p.19)

The Commission holds that the Government's consideration of these moral dimensions of tax reform remain questionable until the alleged benefits of its tax package and the protection of poor and vulnerable Australians from the regressive impact of a GST can be demonstrated and guaranteed. The threatened increase of inequity that would be visited upon the Australian community through the introduction of a regressive GST on food and other essentials of life, the funding of wasteful tax cuts which unfairly advantage high-income earners, and the questionable value of compensation measures comprising the tax package are an affront to human dignity and do not amount to genuine tax reform.

The lack of robust and transparent modelling by the Treasury on the impact of the GST and broader tax reform package on low-income individuals and families, not to mention the revelations from senior Treasury officials that the figures underpinning the package are at best only `informed guesses' (Department of Treasury, 1998, pp.20f) and that compensation will effectively be eroded over time (Department of Treasury, 1999, pp.2389f) should be a cause for great concern in a community that prides itself on the egalitarian ethic of a fair go for all and the display of a special concern for `the battlers' of our community - those who are poor, disadvantaged and finding it difficult to make ends meet.

Our elected representatives must ensure that taxation and tax reform is just and progressive. The findings of the extensive Senate Inquiry have strengthened the case for restricting the use of a GST as a revenue collection mechanism and restoring a greater level of progressivity to the income tax system. It is now beyond doubt that the impact of a GST and the tax package on low-income individuals and families is underestimated and that the proposed compensation measures are inadequate. Statements emerging from the Treasury which finally concede that arrangements which compensate for higher prices flowing from a GST will be eroded to nothing over time have effectively put an end to the myth that `the new tax system will be fairer' (Commonwealth of Australia, 1998, p.15) and that no one will be worse off.

It is clear that the most regressive aspects of the package - a GST on food and other essentials and wasteful tax cuts to high-income earners - must be addressed. These aspects of the package which would undermine equity in the taxation system and threaten the ability of low-income families and the poor to access the essentials of life must be reviewed and altered in a manner which safeguards the common good and promotes distributive justice.

The moral imperative of ensuring the equitable distribution of goods and services generated in a community through the taxation system would justify the rejection of the tax package in the Senate if its most regressive aspects were not addressed. <!-- Generation of PM publication page 11 -->

 

References

Australian Catholic Bishops' Conference, 1998, A Position Paper of the Central Commission of the Australian Catholic Bishops' Conference on the Moral Reference Points for Tax Reform. Canberra: ACBC. (www.catholic.org.au)

Australian Catholic Bishops' Conference, 1992, Common Wealth for the Common Good: A Statement on the Distribution of Wealth in Australia. North Blackburn: Collins Dove.

Australian Catholic Social Justice Council, 1999, Submission to the Senate Select Committee on a New Tax System. Sydney: ACSJC.

Australian Catholic Social Welfare Commission, 1999, Submission to the Senate Select Committee on a New Tax System. Canberra: ACSWC.

Australian Catholic Social Welfare Commission, 1992, `Taxation and Food'. Catholic Social Welfare, Vol.1, No.2. Canberra: ACSWC.

Australian Catholic Social Welfare Commission, 1991, Consumption Tax: Is it Necessary?, Discussion Paper No.6. Canberra: ACSWC.

Australian Council of Social Service, 1999a, Making The Tax Package Fairer, Main ACOSS Submission to the Senate Select Committee on "A New Tax System". Sydney: ACOSS. (www.acoss.org.au)

Australian Council of Social Service, 1999b, At Least 1 Million Worse Off: Effects of the GST on Low-Income Social Security Recipients -ACOSS Analysis of Melbourne Institute Modelling. Sydney: ACOSS.

Australian Food and Grocery Council, 1999, Submission to the Senate Select Committee On A New Tax System. Canberra: AFGC.

Catechism of the Catholic Church (English Translation), 1994, Homebush: St. Paul Publications.

Centesimus annus (`On the Hundredth Anniversary of Rerum Novarum') 1991, Encyclical Letter of Pope John Paul II. Homebush: St. Paul Publications.

Commonwealth of Australia, 1998, Tax Reform: Not A New Tax, A New Tax System: The Howard Government's Plan for A New Tax System. Canberra: AGPS. (www.taxreform.gov.au)

Department of Treasury, Evidence from the Department of Treasury to the Senate Select Committee on A New Tax System, 17 December 1998 & 8 April 1999, Hansard. Canberra: Parliament of Australia.

Earnst & Young, 1995, VAT and Sales Tax Worldwide. London: John Whiley.

Familiaris consortio (`On the Role of the Christian Family in the Modern World') 1981, Apostolic Exhortation of Pope John Paul II. Melbourne: ACTS Publications.

Gaudium et spes (`The Pastoral Constitution of the Church in the Modern World') 1965. In A. Flannery (Ed.), 1975, Vatican II: The Conciliar and Post Conciliar Documents. New York: Costello Publishing Company.

Johnson, D., Freebairn, J., Creedy, J., Scutella, R., Cowling, S. & Harding, G., 1998, Tax Reform: Equity and Efficiency. Report No.2, `Indirect Taxes: Evaluation of Options for Reform'. University of Melbourne: Vanderstadt Printers.

Johnson, D. & Hellwig, O., 1997, Evaluation of the Distributional Impact of the 1996-7 Budget on Australian Households. Perth: Melbourne Institute-NIEIR.

Laborem exercens (`On Human Work') 1981, Encyclical Letter of Pope John Paul II. Homebush: St. Paul Publications.

Mater et magistra (`Christianity and Social Progress') 1961, Encyclical Letter of Pope John XXIII. Homebush: St. Paul Publications.

Neville, J., 1999, Why Food Should Not Be Taxed. Sydney: UNSW.

O'Connor, P.T., 1998, `Fair Tax Reform for All Australians', In Australian Catholic Social Justice Council, Taxation Reform: A Fair Go?, Catholic Social Justice Series, No.32. Sydney: ACSJC.

Pacem in terris (`Peace on Earth') 1963, Encyclical Letter of Pope John XXIII. Homebush: St. Paul Publications.

Quiggan, J., 1998, `Should food be taxed?' In J. Disney et. al., Perspectives on the GST Package. Canberra: The Australia Institute.

Rerum novarum (`On the Condition of the Working Classes') 1891, Encyclical Letter of Pope Leo XIII (Reprinted 1942). Homebush: St. Paul Publications.

Senate Community Affairs References Committee, 1999, The Lucky Country Goes Begging. Report on the GST and A New Tax System, Senate Printing Unit. Canberra: Parliament House. (www.aph.gov.au/senate/committee/clac_ctte/gst/index.htm)

Senate Select Committee On A New Tax System, 1999, First Report. Senate Printing Unit, Canberra: Parliament House. (www.aph.gov.au/senate/committee/gst/report1)

St Vincent de Paul Society, 1999, Submission to the Senate Inquiry into GST. Sydney: SVdP.

Warren, N., Harding, A., Robinson, M., Lambert, S. & Beer, G., 1999, Distributional Impact of Tax Reform Packages. Report to Senate Select Committee on a New Tax System. NATSEM, Canberra: University of Canberra.

Warren, N., 1998, Food: Staple of Life or Staple of the GST? ATAX, Faculty of Law, Sydney: UNSW.

The Australian Catholic Social Welfare Commission is established by the Australian Catholic Bishops’ Conference with a mandate of advocacy, co-ordination, support, research and advice in the field of social welfare. As part of this mandate, the Commission puts out public statements and promotes public discussion, on the understanding that views expressed in the statements are its own.

© Australian Catholic Social Welfare Commission, 1999
This work is copyright. It may be reproduced in whole or in part for research, study or training purposes subject to the inclusion of an acknowledgement of the source and no commercial usage or sale. Reproduction for purposes other than those covered above, requires the written permission of the Australian Catholic Social Welfare Commission. Requests and inquiries concerning reproduction and rights should be addressed to:
Mr Toby O’Connor - National Director, PO Box 326, CURTIN ACT 2605.

ISBN: 0 949258 12 1