To paraphrase a certain former prime minister, Australia seems poised to have a conversation it apparently needs to have. This conversation – at least in the Government’s view – will be about convincing voters to accept an increase to the GST.
The weekend tabloids carried a shock, horror story about the Government’s “secret” plans to hike or broaden the nation’s consumption tax.
Except this expose isn’t exactly a revelation, given the Coalition Government has made various attempts since being elected in 2013 to create momentum for tax reform – including changes to the GST – in a way similar to that initiated by former PM John Howard in 1997.
Howard created a national discussion about 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 campaign started with a comprehensive report from a taxation taskforce (similar to the Government’s current tax reform white paper process), followed a year later by a package of initiatives that included the GST as well as personal income tax cuts, increases in the tax-free threshold and pensions, and the scrapping of wholesale sales tax.
Just weeks later, Howard took the GST to an election that he won – but only by the skin of his teeth. Political pundits still disagree about whether the tax helped or hindered Howard’s re-election chances, but in Coalition ranks Howard’s GST campaign is considered to be the gold standard for “visionary” politics.
Also being rather fond of the vision thing, new Prime Minister Malcolm Turnbull is likely keen to try his hand at something similar. Considering an increased or broadened GST could help fix the Government’s current “revenue problem”, it shouldn’t come as a shock if Turnbull is found to be testing the waters of public opinion with his own tentative plan to take an increased GST to the next federal election.
Some of the groundwork has already been done, with former treasurer Joe Hockey having done some early spadework on the state and territory governments, who’ll be the major beneficiaries of any increased GST revenue.
Admittedly, Hockey was not particularly subtle, essentially trying to extort state and territory governments into acquiescence by flagging in the 2014 federal budget that there would be a $80 billion cut to future funding for schools and hospitals by 2024-25.
Yet this manoeuvre had the planned effect, with NSW Liberal Premier Mike Baird holding a “crisis” meeting to discuss the cuts straight after the budget, and then 12 months later leading the charge to increase the GST.
In a video posted on social media in July this year, Baird argued:
We need revenue. I know that’s not popular, I know that’s not something people want to talk about, but unfortunately, we must. And as I look at it, it’s quite clear. The best way of dealing with this is to increase the GST.
Baird’s move was vital, given he was the most popular politician in the country at the time. PM Abbott needed the support of a leader with the stellar levels of political capital and voter trust that Baird possesses (and Abbott lacked) to calm voters feeling anxious about such proposals.
It would be fair to say that now Baird has been joined by an even more popular politician advocating tax reform, there is an even greater chance that an increased GST will be taken to the next election.
Former Howard chief of staff and now Turnbull Minister, Arthur Sinodinos, admitted as much over the weekend when he responded to the Murdoch tabloids’ non-expose.
“If you’re someone like Malcolm” and “want to do something substantial,” Sinodinos said, “you’ve got to do it quickly and upfront and you’ve got to do it when you’re in a capacity to maximise the use of your political capital to sell a story to the Australian people.”
“But,” the Minister warned, “you need their consent, so you have to do it soon in the context of putting stuff to an election rather than seeking to foist something on people before an election.”
This was also important in regaining the trust of the Australian people as a government, Sinodinos said, “because you can’t get on with reform or anything else unless you have their trust.”
Trust will be a factor for Labor too as it reiterates the party’s broad but not unanimous anti-GST stance. It will be considerably tempting for Opposition Leader Bill Shorten to try to emulate former PM Paul Keating’s attack on John Hewson’s GST, former Labor leader Kim Beazley’s denunciation of Howard’s tax, or even Tony Abbott’s “big new tax” campaign against the Gillard Government’s carbon tax.
But Shorten should keep in mind that opinion polls suggest voters are starting to come around to the idea that a GST increase is needed to fix the budget, while only 23 per cent of voters trust Labor the most when it comes to economic management.
The other complicating factor for Shorten is that the Labor state and territory governments need the money.
South Australian ALP Premier Jay Weatherill has expressed frustration with the extended stalemate on the GST, giving conditional support for an increase and saying “somebody has to step up and be honest about the size of the problem and actually be prepared to advance some positive ideas for solving it”.
Weatherill also warned his Labor colleagues not to play politics with the issue, dismissing Bill Shorten’s strident rejection of any GST increase by noting federal Labor was in opposition, “and I don’t have the luxury of just opposing for the sake of it.”
And while the Queensland and Victorian Labor state governments are still sounding hairy-chested in their opposition to any GST increase, a media report today suggests the Queensland Government could be “open to a broader reform package that included a change to the base or rate, provided it did not leave Queenslander’s worse off” and that the Victorian Government would respect the Turnbull Government’s mandate if it won an election with the GST.
This leaves the federal Opposition Leader with an invidious choice.
If PM Turnbull has his way, Australia is about to embark on a grand adventure involving a national conversation and a mutually-agreed way to fix the budget.
However, if Shorten continues his blanket campaign against the GST, he risks further damaging Labor’s already poor economic record. And if he joins the conversation on tax reform and secures wins for lower-income voters who can’t afford the GST increase, he’ll face accusations of enabling the Government as the Democrats did in 1999.