Abbott follows the Howard blueprint on GST


More than a decade after the Howard Government introduced a goods and services tax, political pundits remain divided over whether the accompanying GST campaign was effective.

Some point to Howard’s re-election after proposing the new tax as proof of the campaign’s success, while others claim Howard almost lost because of it.

Despite the lack of consensus it appears the Abbott Government is using the same campaign blueprint, this time in an attempt to create public acceptance for increasing or broadening the GST.

Back then, Howard was saddled with an earlier promise to “never, ever” introduce a GST but was being pressured to introduce one. According to one account, senior members of the business community were openly questioning Howard’s economic reform credentials, while the press gallery were asking why he wouldn’t lead (or at least follow).

So the then PM created a situation where journalists and economists, business and welfare organisations and even voters called for him to “reverse” the never-ever promise for the good of the nation. Howard did this by focusing the numerous fragmented commentaries into one national discussion: one that centred on Australia’s “broken” tax system and how it could be “fixed” by scrapping a bunch of inefficient taxes and replacing them with just one.

The mechanism Howard used to focus the conversation was a taxation taskforce (incidentally chaired by Treasury official and former Keating adviser, Ken Henry). It was established to prepare options for tax reform, and recommended that a consumption tax be part of the mix.

A year later, following much public discussion, the Howard government presented voters not only with a proposed GST but an entire package of tax reforms. The package included personal income tax cuts, increases in the tax-free threshold and pensions, and the scrapping of wholesale sales tax. Nine other taxes imposed at the state and territory level were also slated for elimination. Most importantly, all the money raised by the GST was to be provided to the states and territories, supposedly ending their dependence on the federal government’s largesse.

Howard then blitzed voters with a controversial advertising campaign before immediately plunging the nation into a moderately early federal election, which he either cleverly won, or foolishly almost lost, depending on whose analysis one finds more convincing.

PM Abbott is clearly banking on the campaign having been a success for Howard, because his “increase the GST” campaign looks eerily familiar.

A bevy of Treasury boffins is currently developing a tax reform paper, while the general public’s awareness is slowly being raised through discussion in the media about the need to broaden or increase the GST.

Comments such as those made last week by government backbenchers and ministers serve to kick along the public discussion while keeping the PM’s hands clean of the debate until the Treasury report is released later this year.

Those Treasury findings will shape a tax reform package that Abbott will – like Howard – take to the next federal election, which is due in mid to late 2016. Unfortunately for Abbott, even if one accepts the Howard GST campaign blueprint was a winning strategy, his is unlikely to deliver similar dividends.

For a start, the Abbott Government’s “budget emergency” narrative is a harder sell than the “broken tax system” one used by the Howard government to justify its tax reforms.

Back then, voters could see the impact of inefficient taxes on their everyday lives, such as the balance on their bank statements being whittled away by a debit tax AND a credit tax. They also took quickly to the notion that wholesale sales tax was illogical and expensive to administer. In short, voters understood the proposed tax reform was for the public good.

In contrast, the Abbott Government has singularly been unable to explain the budget emergency or what it means for voters. Not long after the budget was announced, 32 per cent of voters remained unconvinced there was a budget emergency, and while another 24 per cent accepted the need to fix the budget they didn’t think the new measures would help.

This lack of a compelling narrative is going to make it considerably harder for Abbott to focus public attention and discussion on the benefits his tax reforms would bring.

It should also be remembered that much of Abbott’s GST conundrum is of his own making. He is hindered by the voter perception that new and increased taxes are bad – largely created by him in opposition – and by the expectation that his would be a low-taxing government.

This difficulty is compounded by the fact that the main tax in people’s lives these days (other than income tax) IS the GST. While Howard offered to scrap 10 taxes and replace them with one, Abbott will be constrained to offering what is essentially an increase to an existing tax, perhaps with modest income tax cuts and compensation for those on low incomes.

Lastly, Abbott’s Finance Minister, Mathias Cormann has helpfully placed the bar particularly high in identifying the level of support the Government will take as being permission to change the GST. According to Cormann, any proposed change will have to have broad support across the community and the parliament as well as the unanimous support of all state and territory governments.

That will be no easy feat, particularly with a contested strategy, a distrusted salesman, and a dubious product.

It is said by those who favour Howard’s tax reform campaign that it rejuvenated his electoral prospects by giving the then PM a new purpose and stature in the eyes of voters. Even if this were true, it’s hard to imagine any reform proposal involving the word “tax” endearing estranged voters to Abbott or making him more electable.