The GST debate has always been about politics as well as economics, and Malcolm Turnbull’s pivot away from a rise might just feed a growing line of attack about what it is he actually stands for.
The first stanza of this election year will be characterised by political parties trialling election strategies to see which have traction with voters and which are a waste of precious campaign funds.
The Political Weekly: If the past week in politics is any indication, politicians have no idea whether voters pay attention to politics. Are we the political equivalent of goldfish, needing to be constantly reminded about what is good and bad about politicians and their policies? Or are we more like elephants, never forgetting the vices and virtues of the passing political parade?
The Canberra lobbying world has a dirty little secret: business just doesn’t get politics, and the industry is built on that ignorance.
More often than not, the disconnect between business and political reality isn’t much of an issue. Lobbyists wheel their naïve clients through politicians’ offices and are paid handsomely for what is little more than glorified door-opening. In return, the business figures feel influential even though they’ve done little more than whinge to a marginally relevant MP.
Meanwhile the real lobbying work goes on elsewhere in Canberra, not in the shiny marble halls of Parliament House but in far less glamorous surrounds, where myriad departmental officials actually develop and implement policy for their political masters. Lobbyists who want to deliver real policy outcomes, rather than simply act as political matchmakers, focus their efforts at this level.
But because door-opening is a relatively easy and considerably lucrative business, lobbyists often do very little to dissuade their business clients from the delusion that a few words in a politician’s ear is all that’s needed to get a favourable policy.
This can lead to the business sector – particularly the big end of town – believing it can muscle in on a government’s agenda regardless of the political issues at stake.
A good example is the recent call by senior businessman Roger Corbett for a double dissolution electionto overcome the “obstructionist” Senate. One would think that as a member of the Reserve Bank board and chairman of Fairfax Media Corbett would have a workable grasp of our political system.
However, if he did, Corbett would know that a DD election would likely increase the fractured nature of the Senate. The reduced quota for election to the upper house could result in even more independent, micro and minor party candidates being elected. Not to mention, of course, that on current opinion poll ratings, an election at this time would also see the defeat of the Abbott Government altogether.
Even if we set aside Corbett’s politically impractical call as the wishful thinking of an overly enthusiastic Liberal Party member, there are significant other examples of the business community simply not coming to grips with political imperatives.
Take the blink-and-you-might-miss-it declaration from the “group of nine” business groups earlier this month, which essentially accused current political leaders of cowardice for backing off on economic reform, saying: “Past giants of economic reform did what was right for the long-term benefit of Australia and not because it was politically expedient – it rarely ever was.”
Like Corbett, the business leaders that put their names to the statement have either deliberately ignored or simply missed the point. It was at least partly at the business community’s behest that the Abbott Government’s first budget went in so hard on economic reform. But only the Government has had to shoulder the community’s opprobrium since for doing so.
Even now, as the Government continues to struggle in the opinion polls after delivering the most unpopular budget in recent history, business continues to push it for policy changes that would amount to nothing short of electoral suicide if adopted in the current political environment.
Top of their wish list is workplace relations reform, yet only a government comprised of madmen or fools would propose this at a time when the unions’ successful WorkChoices campaign is still relatively fresh in the minds of Australian voters.
The other key reform being sought by business is tax reform, namely a cut in the corporate tax rate. This is behind the business push for an increase or broadening of the GST, which would improve the Government’s budget bottom line and consequently make a corporate tax cut more palatable to the broader community.
One of the principal business lobby groups, the Business Council of Australia, has even gone so far as to commission market research from Liberal Party pollster Crosby Textor, suggesting that the 94 per cent of respondents who agree the nation needs a “better plan” for its long-term future means voters “accept the need for change”.
Even if that were true, the same research found 62 per cent “do not trust government to manage tax reform well enough to create a better system overall”.
This is the political reality that business must face: there is no point pressuring the Government to prosecute difficult reforms when the community either fears, distrusts or holds the Government in contempt.
As Crosby Textor co-founder Mark Textor explained in an interview over the weekend, political leaders like NSW Premier Mike Baird and NZ prime minister John Key are successful because they pass three threshold tests of trust with voters: Do I trust this person at his word? Can he do what he says in this political system? And, if this thing he wants to do goes wrong, is this person of a character that would care if someone slips through the cracks?
And in the absence of that trust? Textor says it needs to be co-opted from an unexpected but credible third party, such as when the Australian Council of Social Services backed the Howard Government’s campaign for the GST.
Reform-minded business leaders need to accept that it is pointless – if not counterproductive – to pressure a government to implement change that will result in electoral defeat. Even if such a government chose unpopular policy purity over political expediency, it’s likely a new incoming government would simply overturn the change to garner public support.
Calling Government MPs cowards for backing away from reform is not telling them anything they didn’t already know, but it’s still as useless as shouting into the wind. Business must accept that reform needs a level of trust in government that is currently missing, and that new coalitions of interest, involving sections of the community outside of business, must be formed to re-establish that trust.
It may make business leaders feel important and influential to berate the Government and grandstand for the media. But like lobbyists opening politicians’ doors for a living, doing so is nothing more than a pointless and hollow charade.
While it’s true that a week is a long time in politics, and politicians’ careers can be made or unmade in the course of a day, there are still some things in the political domain that tend to follow the same pattern over the years.
One such thing is the cyclical approach taken by governments, particularly those that are new, to what should be done over the course of an electoral term.
Traditionally the first year is when exclamations are made about budget black holes, the other side’s profligacy and the need for “tough decisions” to be made. This is the best window for implementing such decisions, thereby giving time for voters’ memories to fade before the next election.
The mid-term period is for developing and implementing the government’s new policy initiatives. Any contentious matters should be dealt with well before the final 12 months of the electoral term, leaving that year for the government to hand out goodies at the pre-election budget and focus on the re-election campaign.
The Abbott Government has adopted this approach, as did the Howard and Rudd-Gillard governments before it. In fact, the first Howard government budget is considered to have been tougher than the one handed down by Treasurer Joe Hockey last year, although certainly not as unfair.
This strategy becomes difficult when governments have only three-year terms, leaving only 12 months or so to undertake policy reform. That’s not a lot of time to research, consult, negotiate and formulate draft legislation, let alone get it through the parliament.
We saw this with key policies implemented by the Rudd-Gillard Labor governments, such as the National Disability Insurance Scheme and the Gonski education reforms. Both were initiated during Labor’s first term under Rudd but not implemented until the second term under Gillard.
Perhaps the need to have more than one term to put policies in place is why voters have traditionally been disinclined to toss out first-term governments. That of course assumes voters support an incumbent government’s policy agenda.
The Abbott Government is now well into its mid-term, and is receiving considerable pressure from corporate and other business sectors to reform taxation and workplace relations laws. However, these are not reforms the broader Australian community necessarily supports, and it doesn’t seem likely the Government will be able to convincingly explain them to a public already made cautious and sceptical by last year’s budget.
Until now, Abbott’s reform plans have assumed his government would be given at least two electoral terms. The PM has consistently stated that following inquiries into taxation and workplace relations laws, and public discussion of the issues, he would take any proposals about changing the GST or labour laws to the 2016 election.
In fact, Abbott may even be depending on this plan to revive his flagging leadership. It has become folklore in Liberal circles that PM Howard revitalised his electoral standing in 1997 with his “bold” tax reform strategy, which delivered victory at the 1998 election. Others argue the GST almost lost Howard the election.
Granted, business and welfare groups were both calling for taxation to be reformed then, as they are now, but it was a huge risk for Howard to take a new tax (albeit one that replaced 10 others) to an election. Abbott may think he can emulate this feat but he should keep in mind that taxation reform (and a possibly expanded GST) is not the only policy minefield he is trying to navigate during this mid-term period.
Abbott is also trying to meet demands for workplace relations reform from a business community grown impatient and frustrated by the previous Labor government’s dismantling of Howard’s WorkChoices: a policy reform, it should be remembered, that Rudd and the union movement used to bring Howard down in 2007.
Taxation, workplace relations, and also the nature of our federation – these are the complex and fraught policy reform agendas PM Abbott is attempting to wrangle – within the confines of this mid-term period, which for all intents concludes at the end of 2015. Meantime, Abbott is also trying to draw a line under the previous, tainted budget while positioning the upcoming budget as being about jobs and families.
Aside from its evident lack of humanity, the biggest flaw in last year’s budget was that it tried to do too much, too fast. Abbott’s policy reform agenda is similarly defective. The PM has only this year to get his policy reforms under way, but he mustn’t lose sight of the need to get re-elected in order to implement them.
In pursuing what are likely to be major reforms on both the taxation and workplace relations fronts, Abbott is inviting his opponents to run a double-barrelled scare campaign against him. The 2007 federal election as well as recent state elections in Victoria and Queensland show how formidable Labor can be when it campaigns closely in association with the labour movement. The next federal election will be no different.
Howard almost lost, or only just managed to win, his second term of government by taking a new tax to the election. He lost his final election thanks to a masterful campaign by Labor against his workplace relations reforms.
If Abbott takes proposals to expand the GST and change workplace relations laws to the next election, he will be combining the electoral risks that Howard chose to face individually at two separate elections. Abbott would be crazy-brave, bordering on foolish, to think he could win an election proposing both.
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.
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.