At yesterday’s press conference Prime Minister John Howard used the term GST-free or GST exempt, rather than zero-rated, a term used in “”another document”.
That was an oblique reference to Fightback, the nemesis of his predecessor John Hewson.
Yesterday’s package has several critical differences with Fightback that make it more politically saleable and make it a better proposal.
The five critical ones are: marginal tax rates; Medicare; industrial relations; tax dodging and simplicity.
Howard did not fall into the Hewson trap of cutting the top marginal tax rate. Sure, he raised the amount of income at which it cuts in to $75,000 but that is still saleable. The biggest tax cut (of $4472) goes to those on $75,000, but that is where it stops. People on $1 million a year also get a tax cut of just $4472 as well.
Under Fightback the top marginal rate was cut, so people on $1 million a year got very large cuts. A 1 per cent cut in the top marginal rate meant a $10,000 tax cut for those on $1 million. It made bad press for Hewson.
Medicare is not touched under the Howard proposal. Fightback would have abolished it. Sure, Howard has thrown good taxpayers’ money to the private health funds via a tax rebate, but that is a different matter. Giving a blanket to the private sector is different from taking away the security blanket of the public health system.
Howard has wisely left industrial relations out of this equation. Hewson abolished awards under Fightback making people very insecure.
Fightback did not acknowledge tax dodging and the black economy. Howard, on the other hand, acknowledges it and does something about it. Both Howard and Treasurer Peter Costello profess religious beliefs which while adopting the Protestant work ethic also acknowledge the need for fairness and personal morality. Fightback smacked too much of the religion of the market. The former is less likely to alienate voters.
Fightback ran into trouble with complexity. Yesterday’s package is not simple, but is less likely to run into the “”birthday cake” trouble of Fightback. After Hewson exempted food, he found it impossible to remember which elements of which goods attracted higher or lower taxes under his new regime. Howard has side-stepped that difficulty with his exemptions on education and health by saying the grey areas are open for discussion by a committee. He will also set up another body to oversee anomalies.
And that’s another difference. Fightback was laid down as an uncompromisable blueprint for a new society. Howard’s proposals, while far from a consensus-achieved plan, are not so dogmatic. Nor are they an all-embracing plan to irrevocably transform society.
Perhaps most significant, the main attacker of Howard’s proposals will be Kim Beazley not Paul Keating. Moreover, the electorate has had the experience in Keating of listening to and accepting the words of an opponent to tax reform and remember that the result was three years of Keating Government which did not do much for them.
Howard’s Government has been quite pitiful in the social arena, but its economics have not been so far off the mark that the electorate will easily swallow another scare campaign against a much-needed tax overhaul.