The Money Men Chris Bowen (the red fox clan .txt) 📖

was a previously thwarted treasurer who saw the introduction of the GST as the culmination of years of policy work on his part. Costello had responsibility for the detailed design of the GST, and he did this very competently. But anyone seeking the main champion of the introduction of a GST should look to Howard before Costello.

The Treasury and economic commentators had long favoured the introduction of a GST as a more coherent way of taxing consumption than the Wholesale Sales Tax that had been introduced in 1930, and which applied to different goods at different rates in a less-than-coherent fashion. As early as 1972, the Asprey review of Australia’s taxation system had recommended a greater reliance on broad-based, value-added tax. Services were an increasingly important part of the economy and yet were not taxed. Taxing these services, as well as previously untaxed goods, would enable cuts to personal income tax, which along with corporate tax was making up a growing proportion of the Commonwealth tax take. By 1997 Australia and the United States were the only two OECD countries not to have a national, broad-based consumption tax.

The proposal to introduce a GST had, of course, played an important part in the defeat of the Liberal and National parties in the 1993 federal election. So on reassuming the Liberal leadership in 1995, Howard disavowed any plans to reinstitute the proposal. Asked during a press conference whether that commitment meant that a GST would ‘never, ever’ be introduced, he agreed. ‘Never, ever’, he said.

Howard and Costello first discussed revisiting a GST after the announcement of the 1997 Budget, which was poorly received. Costello had designed a savings tax rebate as the centrepiece of his Budget. But under questioning in the House, Howard had said he wouldn’t be claiming the rebate. Costello was furious at the undermining of a key Budget message by the prime minister, and he was keen to find a circuit-breaker in the government’s woes. As Costello explains:

We were disappointed by the budget’s reception. We both [Costello and Howard] knew that while we had fixed the outlays side of the budget, the tax side was in need of reform. We had promised not to introduce a GST. Howard had gone on to say ‘never, ever’. We couldn’t do anything about tax reform that term. But if we repeated the pledge not to introduce a GST, we would close off hope for tax reform in the next term as well. Both of us knew something would have to be done sooner rather than later. We made a pact. Neither of us would rule out a GST again.31

After his discussion with Howard, while attending an Essendon Football Club function, Costello declined the opportunity to rule out introducing a GST. He did say, however, that if the government decided to do this, it would first seek a mandate at an election. ‘Costello’s Push for a GST’ was the inevitable headline the next day.

Fortuitously for the advocates of a GST, Howard took ill with pneumonia in July 1997 and was hospitalised for a week, followed by two weeks’ convalescence at Kirribilli House. Removed from the demands of day-to-day administration and campaigning, Howard had the chance to reflect on what he wanted to achieve in the second term of his government, should he win it. It was over this period that he confirmed his view that he would place a GST on the national agenda.

Howard convened a Cabinet meeting on his return from sick leave and sought endorsement for developing a tax-reform package that would not increase the overall tax burden, but that would likely include a GST. His argument was bolstered by the High Court having ruled various state taxes, amounting to 17 per cent of the states’ revenue base, to be unconstitutional. Having received the desired endorsement, Howard announced on 13 August that the government would be developing a plan for tax reform, including a GST, and he invited the Australian people to come with him on a ‘great adventure’.

A tax-reform taskforce was established, led by Ken Henry of the Treasury and consisting of representatives of the treasurer’s office, the Tax Office, the Cabinet Policy Unit and the Department of Prime Minister and Cabinet. Howard says of Costello’s role: ‘As Treasurer, Peter Costello assumed the daily burden of putting together a detailed proposal for taxation reform. He did an outstanding job.’32 When he was ready and satisfied, having settled it with Howard in advance, Costello briefed the Cabinet on the proposal. The briefing took seven hours, during which time Costello answered a myriad of questions. His final proposal involved a GST of 10 per cent, the abolition of the Wholesale Sales Tax, the abolition of state-based taxes like the Financial Institutions Duty, the introduction of conveyancing duties on commercial properties and stamp duty on credit, and a reduction in personal income taxes—an Australian on average earnings would have their top income tax rate reduced from 43 per cent to 30 per cent, which represented the biggest personal income tax cut in history.

The idea of making the GST a tax that would fund the states, and legislating that any increase would need to be unanimously agreed by the states, was Costello’s mechanism for dealing with the states’ need for a growing source of revenue, as well as the political problem that every nation that had ever introduced a GST had ended up increasing it down the track.

A last-minute issue arose, on which Howard and Costello had very different perspectives. Treasury had developed a computer model that enabled various GST rates to be input and the resulting reduction in personal income tax rates to be generated. Howard and Costello had agreed that a 15 per cent GST would be too high, given the political risks and the experience of the 1993 election campaign in which Hewson had proposed such a percentage. A GST rate below 10 per cent, however, would not allow for personal income tax cuts. Hence, a 10 per cent rate was