John Hewson has succumbed to the pressure of the opinion polls and his party colleagues and announced that he will make changes to the Coalition’s Fightback program. In doing so he treads a fine line between becoming “”just another politician”, bending like a reed in the face of the latest opinion polls and being seen as a responsive leader being flexible in the face of a changing political and economic climate. How he is ultimately seen at election time will depend very much on the extent and nature of the changes he makes to Fightback.
Fightback is a detailed policy, but it contains three essential elements: tax reform, industrial-relations reform and cutting public spending. The first of these present Dr Hewson with a greatest difficulty. The electorate has shown a remarkable lack of sophistication in its response to the Coalition’s tax reforms. It sees just a 15 per cent tax on the necessities of life. Full stop. Churches, welfare groups, people responding to polls, the Government and others have highlighted that single point, neglecting the other side of the equation. That is unfortunate, but it is the fact, and Dr Hewson would be wise to deal with it.
Obviously, changes to the GST will have a negative side. Exempting food and clothing will be an administrative labyrinth as traders jostle to re-categorise their merchandise into any new exempt area. Even the present education and health exemptions will result in grey areas requiring expensive administration to adjudicate. Suddenly holidays on the north coast become visits to health farms. Suddenly computer software of all kinds becomes educational. Suddenly $400 tennis shoes become clothing and so on. Ideally, there should be no exemptions, just targeted compensation to those in need. But clearly the Australian people either cannot understand that, or they simply do not believe that the compensation will happen. In the year since Fightback the Coalition has failed to explain its policy or failed to establish enough credibility to make people believe there will be compensation for the needy. Given that failure of the past year, there is no point thinking that it can be remedied in the few months before an election.
Dr Hewson will now have to compromise. The compromise requires an acknowledgment that unless he changes the GST on necessities, the rest of Fightback will simply be academic; he will be in no position after the next election to implement it. It requires him to accept political wisdom, even if that is not real wisdom. Dr Hewson set out thinking Australians meant what they said when they called for strong, consistent leadership which looked at the long-term good of the country. Now they are calling for something else. The public is fickle.
Dr Hewson will now have to make an intellectual leap, which may mean burying some of his idealism. It is no longer a question of setting out a blueprint which he and in colleagues believe in their hearts to be for the long-term best for Australia. Doing this cannot be for the long term good of the nation if a sufficient proportion of the electorate won’t vote for it, because the plan will go into the rubbish bin, never implemented. If he wants to act for what he sees as the long-term good, Dr Hewson will now have to change Fightback so it is acceptable, so he will be elected and so he can implement as many of his remaining reforms as he can. This is politics: the art of the possible.
The reforms that remain will be as important as the ones he changes. Australia must address its foreign debt before someone else does it for us. We must nurture industry more intelligently. But we must not assume that this can be done with an unbridled faith in the market.
Dr Hewson can well retreat on the GST on necessities. In doing so he might maintain a 15 per cent tariff on imported food and clothing. He might also abandon some of the more radical proposals to cut public spending. He might give his health policy a less wealth-driven edge. However, it would be a grave mistake to abandon the GST altogether or to make any significant change to the industrial-relations policy.
It is of fundamental importance to shift taxation from income and on to consumption. This is a far more potent way of controlling the urge to spend on imported consumer goods than raising interest rates. The former has no impact on Australian exporters; the latter stifles them. Taxing consumption rather than income also encourages saving. It reduces tax evasion and is therefore fairer. High income earners in Australia can easily shift income into capital, obtaining large tax deductions for interest on the way and the tax on the capital gains has only a limited effect in recouping the shortfall. There will be some avoidance of the GST through cash trading, but high income earners will have to pay tax if they want to enjoy the fruits of their earnings.
Equally, the industrial-relations proposals in Jobsback are essential. The dead hand of external union control over enterprises has to cease if Australia is match the productivity of international competitors and reduce foreign debt. Perhaps, John Howard has a more difficult task than Dr Hewson. He has to prove to the Australian public that the Coalition will not do a Kennett. He has to ensure the electorate understands he has rejected the Kennett legislative approach on abolishing leave loadings and penalties changes (leaving them to enterprises) and that there will be proper parliamentary debate on legislative changes to make unionism voluntary and to promote genuine enterprise bargaining (not the ersatz union-controlled model of the Government).
Without significant industrial-relations and taxation changes, Australian Governments in the future will be left with only one weapon in the armoury against the tide of foreign debt: raising interest rates. This is a twin-edged sword. Sure, it stops the consumption of imports, but it also stops investment in export and import replacement industries and throws people out of work. This has been the damnation of economic policy in the 1980s and it should be the damnation of the Government that relied on it. But unless Dr Hewson makes some intelligent changes to Fightback, it will get away with it.