Economics and finance, Government and governance | Australia

8 February 2016

The goods and services tax may not be the answer to all of Australia’s tax questions, but it’s surely part of the answer, writes John Hewson.

Was it hindsight, hypocrisy, or just for headlines?

Last week ex-PM, Paul Keating, entered the tax discussion under the headline The GST a socialist tax and raising it sharply would be fiscal folly.

This is the man who offered a “tax reform” package in the mid-1980s the fundamental foundation of which was the introduction of a “broad-based consumption tax”, a GST.

As Paul Kelly noted in his book The End of Certainty: “In selling his package Keating betrayed an absolution which stunned his colleagues. He signaled that he might resign from politics unless it was accepted”.

To quote Keating: “If this sort of proposal doesn’t get up, one has to decide if there’s much point in someone like me worrying about the Australian institutional processes, and in Australian institutions much longer”.

As Kelly pointed out, Keating admitted that he might fail to win approval for this tax package, but with the interpretation that; “If finally there is a failure it may be a failure of the institutional process rather than my own failure”.

Last week Keating dispensed with the idea in the following terms; “An increase in the GST is not tax reform, it is tax penury. There is nothing reformist about it… The GST is just a flat, bang you over the head, tax. It changes nothing; no behaviour, other than to put the tax weight on the wrong people”.

Of course, you don’t need me to point out that Keating has form in manipulating this issue for short-term political gain. He argued his capacity to counter my Fightback package as the main reason why he needed to unseat Bob Hawke as PM.

He then went on to run the completely dishonest, hypocritical campaign against the GST in the 1993 election campaign, specifically arguing that he could deliver my promised tax cuts, without a GST – indeed, he even went as far as legislating those L-A-W Tax Cuts prior to the election. This promise was never deliverable with the economy near the bottom of our worst recession in some 60 years.

More on this: Navigating international tax | Miranda Stewart

So, a mere four months after the election he admitted that he couldn’t deliver the promised tax cuts, to be followed by an absolute “shocker” of a budget – optometry was removed from Medicare; the wholesale sales tax was extended; unleaded petrol taxes were increased; and childcare benefits abandoned; all resulting in a bruising parliamentary process.

Keating’s speechwriter and biographer, Don Watson, has described the ‘93/94 Budget as “a political monster…old ladies jammed the office phones at night; the faxes clogged with hostile messages from optometrists and builders and women’s groups. Owners of old cars abused us on the airwaves. The newspapers tore shreds from us. The ACTU and people all over the country who had voted Labor and cheered when Paul Keating said he would look after them talked about ‘betrayal’.”

That’s fiscal policy, Keating style. That Budget set government spending at over 26 per cent of GDP, higher than now, or presently projected. That “betrayal” and that Budget drove Treasurer Dawkins from politics, and cemented the end of the Keating Prime Ministership.

While I sympathise with some of Keating’s remarks last week concerning the “folly” of just giving present politicians access to significantly more revenue, especially in an election year, and the importance of “cutting our cloth” to accept global economic realities, I would emphasise the urgent need for a genuine and mature debate on budget and overall economic management, not just more short-term, opportunistic political point scoring.

While further expenditure restraint is essential, we need to recognise that both sides of politics have already committed, with electoral support, to significant, but unfunded, programs in school reform, health, disability care, the NBN and various infrastructure projects, and that we have a tax system that is complex, unfair and inefficient, with significant disincentives to improve productivity, growth and jobs.

The GST is not “the answer”, but surely part of the answer.

We need genuine leadership in this debate.

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Hewson, J. (2016). Hindsight, hypocrisy and headlines - Policy Forum. [online] Policy Forum. Available at: