The ghosts of 1993 still haunt John Howard. The then Liberal leader John Hewson laid out the fine detail of his economic policy months before the election. There was ample time for the then Labor leader Paul Keating to pick it to bits. John Howard does not want to make that mistake. Instead, it seems, he will make entirely new kinds of mistakes.
Kim Beazley is not a Paul Keating. Mr Howard is in Government, whereas Dr Hewson was in Opposition. The electorate is now more scared of hidden agendas than it is of an artificial scare campaign. In short, the events of 1993 should not direct the way this Government behaves. Yet they are.
Mr Howard has had more than a year to put his tax policy together. Yet the delay continues. Does he seriously imagine that all he needs to do is truncate the time between the release of the tax package and the election and the electorate will embrace it without scrutiny? Where has he been for the past 28 months? The electorate feels powerless in the face of change it is told it must have.
Equally, Mr Howard appears not to have learned the real lesson of Dr Hewson’s dealings with the electorate. It was not the timing that offended the electorate, but the intransigent delivery of detail that denied discussion and compromise. Fightback was not a policy framework; rather it was a set of detailed drawings down to the colour of the last doorknob. Mr Howard is repeating the error. In response to Primary Industries Minister John Anderson’s assertion that delaying the tax package was hurting the Government, Mr Howard said yesterday that the reason for the delay was that “”it’s a big reform, the details have got to be right.” It appears Mr Howard, Like Dr Hewson before him, is to release a very detailed package. The trouble with a detailed package is that it appears arrogant. It appears that the Government has worked it all out and that there is not room for argument on details. That is politically foolish. Inevitably people will cavil at some elements of the package. Some groups will point out things that the Government would not have foreseen. Inevitably upon publication some groups will present very cogent and persuasive reasons to vary the detailed package. The government would then face the choice of being seen as stuborn or being seen to back down. How much better it would have been for the Government to present some broad parameters and then to seek discussion and counter proposals and then present a detailed package.
This secrecy and delay smacks of arrogance. It invites the conclusions that Opposition Leader Kim Beazley drew that the delay is an attempt to disguise unfairness.
The Government’s methods are unfortunate because a real prize for Australians is at stake here. Tax reform will result in great efficiencies in the economy that can raise standards of living generally. Mr Howard is right in saying that tax reform is crucial. But because it is so important, it is equally important that it be presented in form and substance in such a way that it can be embraced by a substantial majority of Australians.
A Melbourne University report commissioned by the Committee for Economic Development of Australia and the Brotherhood of St Laurence found that a goods a services tax — presumably, the linchpin of the Government tax package — would boost economic growth by up to 3.75 per cent over the next decade. The trouble is that the tax would hurt low-income-earners whereas it would be a small benefit to middle and high-income earners. So a GST on its own would be rejected by low-income-earners on hip-pocket grounds and at least some in the other income brackets would reject it on the grounds of fairness. It means that for the whole community to reap the benefits of the efficiency of a GST, the tax package must deal with the disadvantage to low income earners. This can be done in a couple of ways. One it to exempt necessities, like food and clothing. But this will count against the efficiency dividend, so there will be less benefit to share around. The other way is to upgrade social welfare benefits and reduce income tax at the lower end to compensate for the GST’s disproportionate burden on low-income-earners. This should not be beyond the wit of Government.
The latter path, however, presents a major difficulty. The trouble is that over the past couple of decades politicians have used up most of their political capital. There is not much trust around. Moreover, the dividends from other economic reform such as privatisation do not seem to have percolated down to low-income earners. So, they might well ask, what will be the difference this time?
The test for Mr Howard is to convince Australians that first the overall benefits of tax reform will be achieved and next that the benefits will not be creamed off by high-income earners. Tax reform has large benefits. The inefficiencies and inequities of the present tax system have been amply demonstrated.
The six or seven classes of goods for wholesales tax all with different rates are an administrative nightmare. Incomes taxes and welfare structures which cause disincentives to work must we changed. And loopholes caused by family trusts, income splitting and negative gearing must be changed to give relief to the PAYE taxpayer.
The GST presents an excellent opportunity to attack tax avoidance. Those paying — strictly in accordance with our highly complicated tax law — very minimal levels of tax, will at least have to contribute the GST if they wish to spend their high incomes.
Moreover a GST will tax services, which at present escape taxation. Yet services are used disproportionately by higher-income earners. Tax reform need not be an all-out-assault on high-income earners, but it must aim at fairness.