The body politic of Australia is showing signs of destructive immaturity over taxation reform. The past week of shadow-boxing over the goods and services tax has been quite childish. Much of it is due to a misreading of the history of the 1993 election. In that election, the Coalition, under the leadership of John Hewson, presented Fightback, a detailed program of radical change to the Australian economy and the role of the Government in society. Part of the program was a proposal for a GST to replace the wholesale sales tax and to fund reductions in income tax and company tax. The program was launched 18 months before the election and initially received a fairly favourable response. The Labor Government, then under Bob Hawke, seemed to lose the initiative and fell well behind in the opinion polls. The Government was disliked because it was seen to be pandering to special interest groups and ignoring mainstream Australia which was suffering due to the influences of globalisation. The Government was headed for defeat. Then Labor changed leaders and the new leader Paul Keating attacked Fightback and the GST with great success and won the election. The Coalition lost the unlosable election.
Those events have profoundly affected the next half decade of Australian politics and will affect them for some time to come. Since then, political parties have been very wary of putting forward detailed reform proposals too far in advance of an election. Last election, the Coalition put very few detailed proposals up at all. It relied on a negative campaign against what it saw as Mr Keating’s arrogance. This election it has put the GST back on the agenda, but is refusing to give details even though an election is likely in the next few months or in the next nine months in any event.
This week we had Prime Minister John Howard telling us that no matter what the rate of the GST would not go up, but refusing to tell us what that rate would be. The “”debate” is descending to the absurd. The Coalition, as before the previous election, has been so spooked by Dr Hewson’s fate, that it feels it cannot put detailed proposals forward for full debate by the Australian public. But then it realised that it should not lock itself in forever lest that promise come back to haunt it when as a government it must act some time in the future. Before the last election Mr Howard ruled a GST out forever, but now realises that tax reform, including a GST, would be best in the national interest. So almost immediately, that promise was discounted to mean that it would not go up unless there were a further election to ratify an increase. We go from the absurd to the contradictory.
Labor is in no better position. Its Hewson legacy is the belief that opposition to a GST will give it lots of popular support and possibly government. So it has opposed fundamental tax reform and instead thrown a few crumbs to the voters in the form of some tax relief for middle-income earners.
Both sides have a very narrow view of the Hewson loss. It was caused by more than just the GST. Changes to Medicare and industrial relations were also included in Fightback and caused people to reluctantly stay with labour. Of more importance, though, was the cumulative influence of the total program. As a whole it looked like a Hewson Government would lead Australia on an ideological path that emphasised the individual over the community and the economic over the social.
Is true that GST opposed by a majority now, but that does not mean that a party which proposes it will lose and election. Moreover, it does not mean that a party which opposes it will win. It will take more than a GST to lose or win an election. Further, properly explained and as part of a total tax-reform proposal a GST could be a vote-catcher not a vote loser.
The GST is low in the opinion polls now because the details are not out there and people fear what they do not know and make assumptions that may be misguided. Ironically enough, it is precisely because the Government has not given some details that voters have assumed the GST will be on the first Fightback model and are therefore suspicious of it. They assume that a GST will apply uniformly and will apply to clothing and food which are at present tax free. They fear that if food and clothing are taxed, there will not be adequate compensation by reduction in sales taxes on other things or increased social welfare for those who spend a very high proportion of their income on food and clothing. With extra information some of these fears could be dispelled.
The onus is on the Government to present a case for tax reform that is in the broad national interest and is fair to the various sections of society. One thing is reasonably clear: the replacement of a plethora of wholesale sales taxes with a single-rate GST will be more efficient and the efficiency will result in savings. So it is worth doing. What is less clear, however, is how that efficiency dividend gets shared out and how any anomalous effects on the uniform rate will be compensated.
It is also very likely that a GST will pick up tax from people who now manage to avoid it. People who understate their income through the cash economy or avoidance schemes have to spend their money eventually. If they are taxed higher on consumption of goods and services (at present untaxed) they will pay more tax overall.
But the fairness of a GST can only be tested when the details are known. The major parties should grow up. The Coalition should work on the details and make them known well before the election. Labor should abandon its absolute objection to a GST of any kind. And the electorate should remain open to argument.