It's the tax debate we have to have

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Australian Financial Review 11th April, 2014

The pity about the debate we're having on the GST is that it's not a debate about how to cut taxes and how to cut government spending. The debate is not a debate at all.

Almost no one is talking about reducing the overall tax burden. Instead a handful of former public servants led by former Treasury secretary Ken Henry, and supported by current Treasury secretary Martin Parkinson, are trying to drum up support for the higher taxes they claim are to pay for the extra government services they assume the public wants.

There are few things more dangerous than public servants pronouncing on what they think the public wants.

When voters are asked if they want more spending on health, they say yes. When they're asked if they want lower taxes, they also say yes. Sometimes quiz questions to voters don't prove much.

(Henry and Parkinson have a habit of getting things wrong. They both thought a carbon tax was a good idea.)

Discussion about the GST has now been going a few decades. But perhaps the best insights about the tax appeared on these pages back in February 2001 in an exchange between a former executive director of the Institute of Public Affairs, Mike Nahan, and Paul Keating.

Nahan is now the treasurer of Western Australia. Keating is, as he was in 2001, a retired politician.


Nahan had written an opinion piece on how the Howard government should deal with the rise of Pauline Hanson.

He said: "The first step is to stop the demonising of Hanson and One Nation. She may be a spiteful, ignorant populist, but so are a large number of other politicians, commentators and so-called experts. She is less spiteful than either Phillip Adams or Bob Ellis, is no more ignorant of economic issues than Robert Manne and is no more populist than Bob Brown or Bob Katter."

Nahan explained the Coalition could attract voters disillusioned with the two main parties by doing something different and championing small government. The GST at the time was "sucking up more money than ever expected [and the Howard government's] much-heralded income tax cuts did no more than give back a little bracket creep". Further, the government had also "jacked up taxes on petrol, booze and smokes under the guise of tax reform".

It was Nahan's remark about the GST that set Keating off. Two days after Nahan's article, Keating fired back under the headline: "Dopey Right wakes up on tax."

Keating's reply was 900 words of invective against everyone who did not see the world as he did, which included, and he named them: the IPA, the Business Council of Australia, the Australian Council of Social Service and the Commonwealth Treasury.


Despite their differences, the two actually agreed on some key GST points.

They agreed the GST makes it easy for the government to spend money. As Keating put it (and remember this was from a former Labor prime minister) - "If the tax take rises, over time the political system will spend the money," and "Tax is off and running and nothing will stop it."

Keating and Nahan also agreed that the large cuts to personal income tax were promised as a result of the GST, never happened. About this Keating had a nice line - "big business luminaries were in the GST push largely because they thought the high marginal tax rates on their incomes would come down ... and what happened?

They were conned, too. The top marginal rate has not changed. The lower cut-in point for the top rate would not save them enough to buy a cashmere jumper."

This is relevant because there's no indication that if the GST was raised (either by a Coalition or ALP government) in say 2016 after the next federal election, that what happened when it was introduced would not happen again, ie, the GST goes up but income tax does not come down. Finally, Keating and Nahan agreed the GST does nothing to solve fundamental problems plaguing the federation, which have the commonwealth government raising the money that the states spend.

Before Tony Abbott and Joe Hockey do anything about the GST, they should go back and read The Australian Financial Review from February 2001.

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