$852 billion in gross debt, a budget deficit of $280 billion, all by mid-next year.
Young Australians will be saddled with this debt and deficit for the next 30 years of our working lives.
Young Australians will be disproportionately affected by this economic crisis. This is already evident from the June youth unemployment rate of 16.4%.
While the Morrison Government has done an excellent job in responding to the short-term economic challenges, Australia needs widespread reform to set up our next economic growth streak.
Luckily, a roadmap to reform already exists. In early July, the NSW government released the Draft Report of the Thodey Review on Federal Financial Relations commissioned by former Young Liberal and NSW Treasurer Dominic Perrottet. Three of the review’s recommendations stand out for the future of our nation and young people: GST reform, stamp duty reform and abolition of payroll tax.
Earlier this month we celebrated the 20-year anniversary of the GST. The tax remains one of the crowning economic achievements of the Howard-Costello era. In January, Costello said that, “[t]here'd been nothing like it before and there will be nothing like it again”. While, Costello’s comment was uttered in pre-pandemic Australia, it recognised the need for two key pre-conditions for major reform: political will and economic necessity.
The COVID-19 cloud has a silver lining. The economic and fiscal challenges to be faced by our nation were made clear by the Treasurer late last week. While the political will has been delivered in Morrison’s formalisation of the National Cabinet (a key recommendation of the Thodey review) and his record high approval ratings have bought him the credibility to champion wide-ranging reform.
The GST reform proposed by the Thodey review includes raising the rate and broadening the base. Australia’s GST as a percentage of GDP is 3.5%, the second lowest amount in the OECD. Further, Australia’s GST rate is the fourth lowest in the OECD compared to New Zealand’s 15% and the UK’s 20%. Consumptions taxes like the GST are highly efficient. They ensure that higher taxes are paid by purchasers of more expensive goods, encourage more saving, and encourage investment in productive assets (like home ownership).
Reforming GST would ensure essential services like health care (more important than ever thanks to the pandemic) can continue to be delivered by State Governments. To Liberals, increasing tax rates seems anathema to our creed and core values. However, GST reform is not suggested by the Thodey Review in isolation. Rather, the political cost of the GST is to be funded by the abolition of inefficient state taxes such as stamp duty and payroll tax.
Stamp duty is the remnant of a bygone era - you don’t even get a stamp anymore!
Stamp duty remains the most inefficient form of tax. It acts as a drag upon the transfer of assets from old to young and disincentivises older Australians from downsizing. It is one of the most significant barriers for young Australians to home ownership by adding a staggering upfront cost. Home ownership is a crucial factor for individual and national prosperity. This is a truth recognised by our party’s founder, Robert Menzies, and by the Morrison Government in its First Home Loan Deposit Scheme.
The announcement by the NSW Government earlier this week to temporarily suspend stamp duty on new homes for the first $800,000 is a good start. Other states and territories should follow this lead and seek to make it broader and permanent. Abolishing stamp duty is a necessary economic reform that will help young people for generations to come. The sugar hit it provides to state governments will be supplemented by an increase in GST revenue.
Speaking of inefficient taxes, payroll tax presents itself as an incredibly destructive example. Simply put, it is a tax upon employing people – the more people you employ, the more the taxman gets. Payroll tax creates a significant barrier for young people to employment. This tax on jobs punishes small businesses and disincentivises the employment of less experienced young people. Payroll taxes can only be abolished through co-ordination by federal and state governments– something more achievable than ever thanks to the National Cabinet.
A tax on jobs and job creation is also damaging to our nation’s long-term recovery.
The conventional Liberal wisdom stands true – you can’t tax your way into prosperity. Young Australians will undoubtedly benefit from this necessary reform. Australia’s future hangs in the balance. Never before have we had the economic necessity and political will to achieve such widespread reform.
The time for tax reform is now. While Young Labor are busy whinging about how bad everything is, Young Liberals are continuing to develop and champion the ideas that will spur us into prosperity. If you want to fight for the ideas that will guarantee Australia’s future, join the Young Liberals today!
Dimitry Palmer is Secretary of the NSW Young Liberals
The views and opinions expressed in article are those of the author and do not necessarily reflect the views of the Young Liberal Movement of Australia.