Today marks the tenth anniversary of the introduction of the Goods and Services Tax (GST). The idea had been around Australia for 25 years before finally being adopted.
A GST-type tax was first proposed in 1975. A serious consumption tax proposal was rejected by the Hawke Labor government in 1985. It was again proposed in the early 1990s by John Hewson. After being asked to explain how his tax would impact the price of a birthday cake the proposal was deemed too complicated by a sceptical electorate. At the 1996 election the Liberals promised ''never ever'' to introduce a GST and went on to win government.
''Never ever'' lasted about two years -- John Howard fought the 1998 election with the introduction of a GST as the party platform. It was a close run affair -- the government scraped back in having lost the popular vote but winning enough seats to retain office. The GST experience ultimately destroyed the Democrats. The Labor Party promised to ''roll-back'' the GST with Wayne Swan describing it as a ''bastard tax'', but lost the subsequent election. Two elections were fought over the GST, three if you count 2001 and the ALPs somewhat vague roll-back promise.
The GST was a true tax reform and not just a revenue grab. It replaced a raft of inefficient State nuisance taxes that imposed high deadweight costs while raising little revenue and also replaced the out-dated Wholesale Sales Tax. Personal taxes were reduced. The distribution of GST revenue to the States while concentrating the costs of introducing a new tax at the federal level ensured that there is little incentive to ramp up the tax rate. There is no political will to change the GST tax rate -- not just yet. The GST was explicitly excluded from the Henry Review. The proposal to retain from GST revenue to fund the health system could see pressure to raise the rate.
It is well-worth reflecting on the GST experience and contrasting that with the Carbon Pollution Reduction Scheme (CPRS) and the Resource Super Profit Tax (RSPT). The Rudd government proposed these two new taxes and failed to implement either of them. Yesterday Jonathan Green posed the question, "I was under the impression that governments had the right to legislate to raise revenue where and how they saw fit. Am I missing something here?" He is more or less correct -- government does have the right to tax. Taxpayers have the right to complain and voters have the right to throw out the government. The differences between the introduction of the GST and the CPRS and RSPT couldn't be greater.
Extensive debate and community acceptance of any new tax is vital. The political cost of introducing the GST was high -- but politicians have not been willing to pay any price for the CPRS or the RSPT. Cheap policy cannot be good policy.
The introduction of the RSPT has been particularly inept. The Rudd government tried to introduce an extraordinarily complex tax with just ten days warning before expected revenue was included in budget estimates. Another point is that new taxes should form part of a genuine package of tax reform that leads to a reduction of the overall tax burden. Again the CPRS and RSPT offered nothing on that front -- they were tax grabs that would simply lead to Australians paying more tax.
The GST was the last great tax reform that Australia experienced. In the subsequent ten years we have become accustomed to tax cuts, not new taxes. The GST was a well-known and well understood idea that had been tried and tested at the ballot box.
As Jean-Baptiste Colbert, Louis XIVs finance minister, famously said, ''The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the least possible amount of hissing''. The CPRS and RSPT have failed that test while the GST eventually passed.
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