The AFR has some excellent coverage of Paul Keating today – especially option C at the 1985 tax summit.
The tax summit was held that year after months of preparation and a white paper on May 12 had recommended “option c” – a trade off that would see marginal tax rates cut and a broad-based consumption tax introduced.
Yet as Keating bitterly notes, option C was hijacked by an unholy alliance between business, unions and the welfare lobby.
“The tax summit was an abortive event, not withstanding the massive amount of work that went into it.
“It was a failure because the Business Council under Bob White said the Business Council doesn’t agree with options a, b or c. The welfare sector opposed a one level only retail consumption tax with massive compensation. And the ACTU rejected the lot as well – though they probably would have accepted a consumption tax if the Business Council and the welfare lobby gave some ground.”
Despite this loss Keating still hoped to prevail in cabinet where he had some support. Then education minister Susan Ryan said he lectured them long into the night. “He was at his best, he would explain the complex things, he’d be dramatic, he’d draw graphs and diagrams about what would happen. He educated us about tax, how it worked and why it had to be reformed,” she says.
Despite his efforts, Keating lost. On August 12 cabinet decided not to pursue the tax …
Of course Keating then went on the destroy John Hewson at the 1993 election campaigning against a broad-based consumption tax. So what’s the story? It turns out that Keating thought a consumption tax to be unnecessary (emphasis added).
In an interview with the Financial Review to mark the public release of confidential cabinet papers from 1984 and 1985, Mr Keating also aired his frustration about the “abortive” 1985 tax summit and argued Australia did not need the GST eventually introduced by the Howard government.
…
Referring to the 1985 tax summit, Mr Keating said that after the failure to proceed with “option C” – a broad-based consumption tax that was scuttled by opposition from the ACTU, business, the welfare lobby and eventually prime minister Hawke – he spent five years as treasurer cutting government spending back to the point where the tax was no longer necessary.“When that [the consumption tax] was refused I then got back to the long-hand route of cutting outlays over five years back to the level of GDP that obtained before the Whitlam government came to office,’’ he said.
Well done that man. You can see the effect of that in the Expenditure as a percentage of GDP data.
Although I don’t think it is fair to say that expenditure was back to pre-Whitlam era levels. Nonetheless Keating should be given credit for that.
At the same time, however, it isn’t fair to dismiss the eventual introduction of the GST as being “just a tax change” as Keating does. The GST wasn’t just a new tax on top of existing taxes – it saw the abolition of many highly inefficient state-based taxes. If anything the GST tax reform was timid – more state-based taxes should have gotten the chop. It is correct to argue that the Howard government was too timid in the area of tax reform generally, but the GST was a serious reform.
More importantly we should recognise Keating’s contribution – when he couldn’t raise new taxes, he cut spending. If only more politicians followed that example we’d have much less public debt.
Howard government was only too timid to get something done. Better some then none.
stackja
2 Jan 13 at 1:52 pm
More state based taxes would have been deleted if the then Labor governments in the states had followed through with the agreements they had made with the Federal government in return for GST receipts.
Fred Furkenburger
2 Jan 13 at 2:34 pm
What does the graph look like extended to the present ?
Keith
2 Jan 13 at 2:53 pm
I’d have to find a new job ( tax/smsf accountant) but does anyone know what rate of GST would be needed to scrap all other taxes, ie income tax, CGT, FBT WET Payroll Tax all stamp duties and maybe even local govt rates? Then as a Western Australian I’d like the tax allocated on a per capita basis.
Surely that would be massively attractive to a business. Literally a tax free environment, no tax on labour inputs, on income or capital. Coupled with a first world nation of workers, governance levels and for the most part first world infra structure where else in the world would you rather invest?
Pensions would have to be altered accordingly from a political and genuine fairness point of view but that can be done.
Massive reduction in compliance costs for business who are already doing BAS.
kingsley
2 Jan 13 at 3:12 pm
Shame he didnt cut back spending further. Down to 10% of GDP should be sufficient to run the place.
Hristos
2 Jan 13 at 3:18 pm
Pity it blew out after 81/82, what was going on there, and also after 89/90 when it started to blow out again?
Yes I know I was alive then but I can’t remember.
Poor Old Rafe
2 Jan 13 at 3:54 pm
In other tax related news:
June 30, 2011
Treasury reference modelling showed that without a carbon (sic) tax, manufacturing was expected to grow more slowly than the rest of the economy, by about half a per cent annually to 2020 in real terms.
So. How is that carbon (sic) tax going:
January 2, 2013
Australian manufacturing activity fell for the 10th consecutive month in December amid continued weakness in the global economy, a private survey shows.
It is obvious.
The way to get manufacturing businesses going is to tax them more heavily.
If the carbon tax does that then why not double it?
handjive
2 Jan 13 at 4:01 pm
Howard also had to dilute the GST down because of the Democrats in the Senate and the states. GST was still a very important tax reform.
Andrew
2 Jan 13 at 4:04 pm
I don’t believe the story. Keating was so busy filling out travel allowance claim forms he didn’t have time for much else.
Sid Vicious
2 Jan 13 at 4:09 pm
“GST was still a very important tax reform”.
For many Australians, this is the only tax they pay. Burdening government expenditure on a minority of citizens is unproductive and unsustainable, so the GST is a must.
The Beer Whisperer
2 Jan 13 at 4:24 pm
Keating was the man who committed the great crime of introducing CGT. That is a complex and useless tax. Capital should be exempt from tax.
Rococo Liberal
2 Jan 13 at 4:27 pm
What that graph also shows is the remarkable fecklessness of the Fraser government. Which is no surprise.
Jack Lacton
2 Jan 13 at 4:32 pm
Totally agree, although there are still quite a few unnecessary taxes at state level which need to be abolished and perhaps compensated through a modification of some parts of the GST.
Andrew
2 Jan 13 at 4:41 pm
Definitely. Looking at some of the decisions and spending choices of the Fraser Government is really shameful.
Andrew
2 Jan 13 at 4:44 pm
Rococo, CGT is at the core of these bastards beliefs.
Tax the unworking wealth and give it (minus circa 25% handling fees) to the unworking poor.
Jack, Fraser was worse than feckless, he was and is a useless shitheaded snobby fucking idiot.
JimD
2 Jan 13 at 4:57 pm
Met Fraser, Killen and Chipp circa 1968. As the saying goes…
JimD
2 Jan 13 at 5:01 pm
To call Howard timid is perhaps a bit much. He had to get it through a senate where the Dems were holding sway (yes, thanks for that too, unthinking voters) and the ALP/Media collective were putting up end-of-the-world scenarios.
blogstrop
2 Jan 13 at 5:44 pm
Yes, agree with Rococo and JimD. CGT is a bloody stupid tax and is designed to tax the middle class (aka working families). The wealthy can make arrangements to avoid it.
The other stinker is FBT and the way it is applied holus-bolus to every possible scenario. A jealousy inspired tax which (again) only affects middle income earners as the big-wigs always get their car or lunch or whatever (and good luck to them).
Don’t get me started on the lack of family unit taxation!
Billy the Kidder
2 Jan 13 at 6:42 pm
A GST may have worked before the advent of the internet and overnight international parcel delivery.
Jon at Wa
2 Jan 13 at 7:38 pm
If government learned to keep their spending under control then tax would not be such a big issue.
However, if you have to have tax then:
* simple tax is good.
* hard to dodge tax is good.
* don’t listen to whingers, because there will always be whingers and listening just encourages them.
Also, did I mention that keeping spending under control is our biggest problem in government right now? What was that about two public sector pay rises one after another (at a time of supposed belt tightening)? Need someone at the helm who can keep the looters on a short leash.
Tel
2 Jan 13 at 7:44 pm
Keatings biggest tax mess was the Luxury Car Tax.
Despite being shown by several car companies that they would in fact receive less tax by dampening demand excessively. Which turned out to be true, I have seen (but no longer have reference for).
In the long run it has choked sales of mid-to-high level vehicle sales, and coupled with the ridiculous ban on parallell imports, led to Australia having an old vehicle fleet.
But hey, the roads are choked with Kias and Hyundais these days, so well done Keating, you ass. I bet you got a whole round of applause at some hippie festival for making sure middle class families could never park their rears in an entry level Benz.
brc
2 Jan 13 at 8:20 pm
Ah yes, Billy the Kidder has brought in Keatings other mess – FBT. What a giant mess that has caused.
brc
2 Jan 13 at 8:23 pm
I’m also of a firm belief that forcing the states to rescind or massively reduce stamp duties would definitely have positive economic benefits as it would free families up to upsize/downsize homes much easier, as well as allow simpler relocations to places of opportunity.
brc
2 Jan 13 at 8:25 pm
Whilst I supported Fightback! and I detested Keating, given Hewson’s more recent fuckwittery, it seems that Australia dodged a bullet in 1993.
Skuter
2 Jan 13 at 8:32 pm
Let’s not forget superannuation as one of Keating’s failures. We have higher effective marginal tax rates as a result, people are forced to borrow more than they otherwise would to make large purchases and the super pool is effectively handed to the unions, from which the fees are used to pay ALP cronies and fund ALP election campaigns.
Skuter
2 Jan 13 at 8:37 pm
Except that welfare payments were raised to account for the introduction of the GST. Effectively its just tax churn, not a lot different from middle class welfare paid for by higher income taxes. In the case of welfare payments their higher value to take into account the GST results in a bigger disincentive to work.
Chris
2 Jan 13 at 9:42 pm
Any evidence of this?
Andrew
2 Jan 13 at 10:15 pm
Yeah. Go back to budget papers at the time of the GST’s introduction and all the gory details of the increased welfare payments will be laid out.
From memory, Howard increase welfare payment by around double what the modelling suggested the impact would be, just so he wouldn’t get caught out as hitting the poor.
johno
2 Jan 13 at 10:22 pm
I’m not an economist but if we had to have a Labor treasurer I’d much rather Keating than the present clown.
Grant B
2 Jan 13 at 11:16 pm
Absolutely spot on. That is 100% my view also.
tbh
2 Jan 13 at 11:19 pm
I’ve had a look. There were some moderate increases but there were also some decreases in spending. Unless I have missed a certain area of the budget, I am not so sure on the accuracy of what you have stated.
Andrew
2 Jan 13 at 11:31 pm
Hewson has got to have the worst case of sour grapes Australian politics has ever seen. Knocks Peter ‘the internally angry smirkster who had his Prime Ministership ripped off’ Costello for six!
John Mc
2 Jan 13 at 11:37 pm
I wonder where Turnbull is going to fall in the batting order?
John Mc
2 Jan 13 at 11:57 pm
Andrew
Here is a link to a Treasury Paper released by Costello as part of the ‘A New Tax System’ which was the monkier that Howard gave the full suite of reforms that included the GST.
I don’t know if it covers all of the welfare increases and spending decreases that you found in the budget papers, but it does give a full account of the various measures Howard introduced as compensation for the GST. It includes personal income tax cuts along with increased welfare payments.
johno
4 Jan 13 at 8:30 am