Archive Article: GST and the taxation debate. 4 Sep 98.
December 23, 2008

Now that Australia is going to have a federal election fought partly on a Goods and Services Tax, it is worth looking at the taxation debate that will come after the GST one. I have just returned from Germany. I was a guest at last week’s luncheon at the Rotary Club of Hamburg-Blankenese, where there was a speaker on new environmental taxes. Before looking at the new form of taxes, it is worth noting that Germany has had a Goods and Services Tax – what is called the Value Added Tax – for three decades. This is a policy of the European Union, which now has 15 member-countries. The European Union aims to have a single Value Added Tax system in the year 2001.

The German experience of Value Added Tax has three points worth noting. First, it is very popular with governments; they promise not to increase the VAT percentage but they always do. Second, it has not stopped the underground economy; trades people for example, still find ways of being paid in cash. Third, having a VAT has not stopped the continuing debate over taxation; there are always issues of what ought to be included and at what percentage.

However, Germany is now leading Europe in a new debate on taxation: environmental or “green” taxes. I was most impressed by the way in which a local Rotary Club could devote almost an hour to a speech and then questions in a well informed examination on green taxes. The Germans are taking this issue far more seriously than is happening in Australia.

Taxes do not tell the ecological truth. In other words, taxes do not reflect the true costs of using resources. Governments should use taxes to make polluters pay the full costs of they harm they do. This would give them an incentive to operate more efficiently and cleanly.

This is part of the more general problem of taking the environment into account. For example, the hidden costs of driving in the United States – including the value of time wasted in traffic jams, the decline of property values near roads because of noise, the cost of financing a formidable military presence in the Middle East, lung disease and global warming – total at least US$ 350 billion per year. But this is rarely acknowledged, particularly by industry.

During the last three decades, governments have generally preferred legal codes over tax codes in addressing environmental problems. They have introduced tough environmental legislation. But they have not exploited the market approaches to their full potential. They have not used the tax system fully to make sure that the polluters pay.

In Germany attention is now being given to a trade-off between taxation and labour costs. The theory is that incentives should be given to employ more people and to use fewer resources. In other words, the payroll tax should be abolished and greater taxation be applied to resources. This will help protect the environment and give a greater scope for reducing unemployment.

The Germans have yet to work out the details but this seems a most promising development. As the Rotary speaker explained, there are many practical problems. But this is a tax debate that Australia ought to have.

BROADCAST ON FRIDAY SEPTEMBER 4 1998 ON RADIO 2GB’S “BRIAN WILSHIRE PROGRAMME” AT 9 PM, AND ON SEPTEMBER 6 1998 ON “SUNDAY NIGHT LIVE” AT 10.30 PM.