In recent months, a new voice has been added to the call for the coalition to cut personal income tax rates. Government MPs are the latest group to publicly urge the Prime Minister to use his Senate majority to implement radical tax reform.
Less than a quarter of the Liberal MPs are directly involved in the campaign, but there is a depth of feeling among the back bench over the topic that should not be underestimated. So it was significant that a few days after Christmas John Howard announced he had ruled out major tax reform. This was perhaps to be expected, as to say otherwise would be to admit that the coalition had failed to achieve one of the purposes of the GST, which was to reduce the burden on pay-as-you-earn taxpayers.
After all, on the eve of the 1987 federal election, Howard, as leader of the opposition, pledged the Liberal Party to a set of fundamental principles, including "smaller and less interventionist government" and "lower taxation".
Unkind critics might claim that over the past two decades he has shifted somewhat from that position and, worse, that he has encouraged an attitude that has led voters to expect more spending from government, not less. The coalition's election promises of 2004 could be cited as the latest example of its behaviour since coming to power.
When the Prime Minister rejected the idea of tax cuts he said, "I think everyone's in favour of lower taxation. I've never met a person who is not it's human nature. But you've got to pay for certain things".
While this is true, it is incorrect to imply that therefore government should automatically pay for those certain things. Except for traditional public goods such as defence, there are very few things that are required to be paid for or supplied by government.
Invariably, when individuals themselves fund and purchase products from private providers, the outcome is more efficient than if government were involved and this is obvious when the quality of the health and education services offered by the public and private sectors around the country is compared. Reducing personal income tax rates does more than just promote economic efficiency, it encourages individual choice and responsibility ideals at the heart of the Liberals' philosophy.
Given the attitude of the Prime Minister, it is understandable that backbenchers are becoming nervous and frustrated. It is not that they fear retribution at the ballot box, for there is no overwhelming demand from the public to lessen taxes and, indeed, this is the nub of the problem confronting Liberal MPs and anyone else committed to tax reform.
Backbenchers are nervous because if the coalition doesn't use its Senate majority to institute tax reform, the Howard years could pass into history as have the Fraser years, and as MPs they will have been complicit in the wasting of a historic opportunity.
Perhaps it is out of cabinet solidarity that as yet no minister has added his or her voice to the call for changes to the tax system. This is a worrying sign, for it reveals that ministers are a long way removed from the concerns of their party-room colleagues. Crucially, it also demonstrates that there is little recognition around the cabinet table that the government's industrial relations and welfare reform objectives cannot be achieved if personal taxes are not reduced at the same time. There's no point freeing up the labour market to encourage the low-skilled to enter the workforce if there are no financial incentives to do so because of high effective marginal tax rates.
Of course, there is a famous precedent for activities of this sort in the Liberal Party.
In the early 1960s, a South Australian backbencher, C.R. (Bert) Kelly, began agitating for tariff reform. Ultimately, he was successful, but it took him 20 years and he sacrificed a potential ministerial career in the process. Whether any of the current generation of Liberal MPs campaigning for tax reform are willing to wait that long, or pay the price that Kelly did, remains to be seen.
ADVERTISEMENT
No comments:
Post a Comment