Michelle Rowland (Greenway, Australian Labor Party, Shadow Assistant Minister for Communications) Share this | Link to this | Hansard source

I rise today to discuss the extremely damaging impact that an increase in the GST would have on small businesses around the country. As the Turnbull government continues to soften the ground for an increase in the GST, it is prudent to examine the devastating effect this would have on Australia's small business community. Small businesses employed around 4.5 million people in 2012-13, approximately 43 per cent of private sector employment. In the same period small businesses contributed around 33 per cent of private industry-added value, that is, the contribution by businesses to GDP. It is therefore crucial that we do all we can to assist small businesses in their growth and reject proposals that stifle this growth. A vital part of this is protecting household consumption.

Members of the government like to rattle off these figures but, when it comes to the crunch, they are completely ignorant about the impact that a hit to consumer confidence from a GST increase would have on these businesses. This is also at a time when the national accounts show that, for the past three years, average wages have been falling by 0.4 per cent a year after allowing for inflation, and wage growth is the lowest in records going back to the early 1960s. As well as this, consumer confidence just had its worst start to a year since 2008, just before the onset of the global financial crisis. This is the context in which those opposite want to increase the GST.

In Australia, household spending constitutes about three-fifths of the Australian economy. When we shop, visit restaurants and cafes, hire tradespeople or purchase services, we are providing income to other people and adding to the growth of small businesses in our local communities. That is the nature of our economy. The key to sustaining and improving this is protecting consumption and encouraging people's ability to spend and consume goods and services throughout the economy. If this is our motivation—and it should be—then one of the worst things a government could do is jack up a regressive tax on consumption.

Increasing or broadening of the GST would have a devastating impact on low-income earners and small businesses throughout Australia, and small business owners know it. They are telling me in my local community, they are telling me as I travel around Australia, and I know for a fact they are telling government MPs. What disdain from an out-of-touch Prime Minister and Treasurer that their own backbenchers are being referred to as 'bed-wetters' by their own colleagues over their concerns, as reported in today's media.

I recently had the pleasure of visiting some small businesses in the Queen Victoria Market with Labor's outstanding candidate for Melbourne, Sophie Ismail, and the message we received, loud and clear, was that an increased or broadened GST would mean people will consume less.

This is supported by the research. A paper for the International Tax and Public Financejournal explored the effect of a change in the effective VAT rate on the level of per capita aggregate household consumption in EU countries from 1960 to 2005, and it found that under all estimation methods and empirical specifications, the VAT is negatively related to the level of per capita private consumption. Specifically, the paper found that a one percentage point increase in the VAT rate typically leads to a one percentage point reduction in the level of private consumption in the short run and a larger reduction, about 60 per cent, in the long run. In other words, an increase in the GST—or, in this case, the VAT—was found to result in an equivalent reduction in consumption in the short turn and a larger reduction in the long turn. As the shadow Assistant Treasurer, the member for Fraser, has succinctly pointed out:

Individual businesses can’t afford to see their sales shrink, and neither can the Australian economy. Falling consumption can actually tip a nation into outright recession, as one of our major trading partners recently found out. In 2014 the Japanese government raised their consumption tax from 5 per cent to 8 per cent. Consumption dropped by almost 2 percentage points in the months that followed, taking Japan’s weak economy into recession.

We on this side of the chamber know that an increased or broadened GST will hit the family budget. It will hit Australian small businesses and the economy as a whole.

As David Uren writes in a very insightful piece in The Australian today:

There is a risk that the government’s tax reform may be a hit to consumer confidence, which may already be softening under the impact of falling share prices and softer housing markets.

This is a stark warning and one that must be heeded. It is one of the many reasons why Labor will not support an increased or broadened GST that will smash confidence and hit small businesses right around the country.