Schumann / Fear, loathing and the GST

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LET’S see if I have this right. There was, for about 18 months anyway, a “budget emergency” that was entirely the fault of the Rudd/Gillard/Rudd government, before which the administration of the Australian economy was marked by unmitigated fiscal rectitude. The argument went that unless we “structurally reform” by slashing spending and greatly increasing revenue, we were all to die a lingering, painful death after which everything we knew would be swept into a black hole.

John Schumann
John Schumann
The Government’s decision, a year or so ago, to reduce Commonwealth grants to the states by $80 billion over the next decade was seen by some as an uncharacteristically clever move designed to slash spending and, at the same time, wedge the state premiers into agreeing to modify the GST. This has been repeatedly, but rather unconvincingly, denied by Abbott and Hockey but whenever the tax reform drums beat, the GST will always be found hovering ominously at the edge of the firelight. Damn. We were all hoping never to have to think about that again.

The GST was introduced in July 2000 amidst much fear, loathing and unbridled hysteria. Why then, some 15 years after its introduction, does the mere mention of the GST still fire up opprobrium all along the political watchtower? It’s a broad-based consumption tax, for crying in a bucket, not an Ebola outbreak at the MCG on Grand Final Day.

Australia’s GST replaced a plethora of unwieldy and mostly illogical wholesale taxes, all of which were dreamt up in ad hoc desperation by erstwhile Commonwealth treasurers. The fundamental change, really, was the application of a tax on services, not entirely unreasonable given that Australia is now much more of service economy than a manufacturing one.

Two years after the GST washed through the Australian economy, its impact on about 50 cohorts across Australian society was modelled. To the disappointment of its shrill and opportunistic opponents, the modelling found that most cohorts – particularly those in the lower-income band – were better off though, admittedly, some more than others. There were a couple of cohorts in the middle-income band where the advantage was discernible but only marginal. Those with incomes above $180,000 a year were worse off as were a few low-income earners with no access to social security benefits and for whom the compensatory tax cuts meant little.

As well, the GST continues to provide a very significant revenue stream to the states – most of which they used to bloat their bureaucracies. This is something they regret now.

I was a parliamentary staffer when Prime Minister Howard put the GST back on the agenda before the 1998 election. As the policy debate unfolded it generated a tsunami of hatred and hysteria. Friendships were fractured, political alliances were irretrievably damaged and the cleverly ambitious wove their way through the smoke and the rubble to positions of power.

Labor MPs, senators and staffers thrashed around like cut snakes in a sugarbag. Sidelined in the Senate, their contribution to the debate comprised idiotic scare campaigns and abusive phone and email trees. I found this behaviour quite amusing as I seemed to be one of the few who recalled Paul Keating’s valiant but failed attempt to introduce a GST in 1985.

Notwithstanding the confected hysteria of their federal colleagues, Labor premiers at the time could not sign the agreement quickly enough. In the years that followed, all premiers and treasurers, Liberal and Labor alike, have come to love the GST with a deep, abiding passion. They also squeal long and loud if they think their share is at risk or there might not be quite enough of it to sustain their swollen bureaucracies.

From the depths of their woeful economic illiteracy, the Greens’ opposition to the GST comprised opportunism propelled by sanctimony and hypocrisy. Simply put, then-Greens’ leader Bob Brown saw his chance to assume the balance of power on the crossbenches of the Senate. However, the question never answered satisfactorily by the Greens – or the ALP for that matter – is how social welfare, education, aged care and environmental agendas can be funded adequately without a broad-based consumption tax.

As a nation we have to be grown up enough to accept fiscal reality when it’s presented to us. And by fiscal reality, I don’t mean puerile drivel like “budget emergency”. I suspect there are many Australians who would cop a fair and reasonable increase in the GST if it meant maintaining Medicare, a decent aged-care system and the capacity to educate our children without saddling them with a mountain of debt.

Arguments about the modification of the GST always involve the fresh-food exemption, one of a number of compensations negotiated by the Australian Democrats. The putative architect of the GST, Treasurer Peter Costello, was distinctly less than happy about that at the time. He saw the fresh-food exemption as someone daubing a moustache on his Mona Lisa.

Now that the GST is back on the agenda, albeit briefly, the fresh-food issue will come to the fore. Both sides of the fresh-food debate will, once again, reach for their knuckledusters. The arguments now for its inclusion are predictable rehashes: less red tape and lower administrative costs, i.e. simplicity. The counter argument these days is that the cost of fresh, ostensibly “healthier”, food has increased much more since the introduction of the GST than snacks, takeaway food and confectionery. In essence, the argument has always boiled down to this: what’s more important – fairness or simplicity?

I am one who doesn’t think the GST is any less fair a taxation system than that which it replaced. Nor do I think it spoiled Australia forever – though it could be argued that its introduction in 2000 had a direct and deleterious impact on the conduct of our national affairs. How? Because, eventually in July 1, 2011, brought the Greens to the balance of power in their own right for a time, anyway.

Had Australian Democrat members held their nerve, Australia might still have a moderately intelligent, moderately sane, centre-left force on the crossbenches of the Senate. The smarties in the ALP who machinated hard behind the lines to rid the Parliament of the Democrats might well reflect on this – and what it meant for the Rudd/Gillard/Rudd years. Instead, we now have the Greens and a fractured little band of senatorial desperados on the crossbenches. Mercifully though, those who suffered Clive Palmer’s hand up the back of their jumpers making their lips move, have since dispensed with his sage political advice.

Nothing is certain but change – and that pertains to the GST as it does to everything else. It’s interesting to note that NZ has raised its GST a number of times since its introduction there in 1986. There have been no lingering deaths, mass grave sites and black holes down there. Unless I’ve missed something, of course.

– Originally published in “The Spectator”

 

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1 COMMENT

  1. Ah John … you might be right … but I remember you putting shit on Bill Hayden at a Redgum gig in Canberra in 1980 for a similar argument (not GST related) and calling him a “traitor” … I wondered about your leftist credentials and thought well perhaps you are more left of Mao and might be justified … but then later came Meg and you seemed slightly ambiguous … am I right?

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