As the demands for economic reform grow ever shriller, identifying the reform killers becomes ever easier – they’re everywhere. Without an attitudinal change in Australia’s democratic institutions, reform is dead.
Academics prepare pretty papers detailing essential reforms and lazily blame parliamentarians for refusing to commit political suicide by implementing their prescriptions. Some argue for cutting the company tax rate funded by an increase in the GST rate on the basis that Australia must be internationally competitive in attracting overseas productivity-raising capital and that the GST is an efficient tax.
“So, what’s the problem?” they ask. The problem is that the people will revolt, condemning the proponent political party to electoral oblivion. The opposing political party, having worked this out in one nanosecond, would campaign against this academically inspired reform and promise to repeal it if elected.
Also out of the academic tax policy handbook is the reintroduction of death duties. A highly efficient tax, the academics point out, since the only way of avoiding it is to avoid death, which medical science has not yet conquered. Any conservative political party would campaign against it to great effect, claiming that the high proposed threshold would be lowered by the proponent progressive party in the twinkling of an eye, ensnaring every aspiring Australian in their tax-grabbing net.
A less radical tax reform could be to widen the GST base to include private school fees above a specified amount and use the proceeds to reduce the higher personal tax rates. But see how that goes with the Liberal Party and the Teals.
Back in 2005, in my policy book, Vital Signs, Vibrant Society, I proposed various reforms aimed at widening the income tax base to reduce the top marginal rate below 40 per cent. Freshly elected Member for Wentworth, Malcolm Turnbull, entered a constructive tax debate with his own proposals to achieve the same result. Two decades later, neither policy has been implemented.
In the last 40 years only three tax reform exercises have been successful: the Hawke-Keating reforms of 1985, the Howard-Costello GST of 1998 and their business tax reforms of 1999 based on a report prepared by John Ralph.
The 1985 reforms, which introduced the Fringe Benefits Tax, the Capital Gains Tax and several other base-broadening measures, enabled a lowering of the top personal rates and the company tax rate. They were opposed by the Howard-led Coalition. The GST was opposed by the Labor opposition. The Ralph reforms received bipartisan support.
During the 1984 election campaign, Hawke and Keating announced that if Labor were re-elected, they would convene a tax reform summit, instead of setting out pre-election a detailed reform program.
In today’s politics that would be inconceivable. Recall the 2019 election campaign, where television journalists ran alongside Labor leader, Bill Shorten, hysterically demanding he provide minute detail on every policy. And recall the virulent Coalition opposition to any change to negative gearing and capital gains taxation.
Recall, too, the Abbott-led Coalition’s collaboration with the Greens in 2009, voting down the Rudd government’s proposed market-based carbon price.
The Rudd government commissioned former treasury secretary Ken Henry to undertake a comprehensive review of the tax system. Reform of minerals taxation was a central feature of the Henry recommendations, but a well-funded campaign sank that too, along with the other Henry tax reform proposals.
What has changed since the landmark economic reforms of the Hawke-Keating era?
Most of the economic reforms of that era were not popular. Everyday Australians did not like the tariff reductions, opening up the economy to competition and the move away from centralised wage fixing. But Hawke, Keating and their key Cabinet ministers argued unrelentingly for them. The voting public gave them the benefit of the doubt.
But fundamentally, the media was different back then. As the likes of Keating spent an enormous amount of time advocating reform proposals with senior journalists, the serious mastheads and journalists were at least acquiescent to the reform program. Some, including the Financial Review, were energetic supporters.
In the modern era that is not the case. Most of today’s media, again apart from this masthead, demand that political leaders rule out every conceivable reform. They lend support to every opponent, to every defender of the unreformed status quo. And they are backed by campaigns lavishly funded by vested interests who like the system just the way it is. And then they complain that reform is dead.
As for the Abbott-inspired political formula of “Just Say No” that seems to have been adopted by Coalition leader Peter Dutton, it’s worth remembering that Abbott lasted just two years as prime minister with nothing to show beyond repealing sensible reforms.
Craig Emerson is managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University, visiting fellow at the ANU and adjunct professor at Victoria University’s Centre of Policy Studies. He was an economic adviser to prime minister Bob Hawke.