Why Labor won't abolish Howard's GST
BY SUE BOLAND
Politicians, backed by mainstream journalists, like to create the impression that certain aspects of the economy work in an almost supernatural way such that governments are powerless to affect the outcome.
Before the 1998 federal election, Prime Minister John Howard and Treasurer Peter Costello, as well as numerous corporate figures, told us that a goods and services tax was "inevitable". They told us that most other OECD countries had a GST, so Australia had to have it too.
The ALP opposition has also appealed to the forces of "inevitability", claiming that once the GST is implemented, it would be too complex to abolish.
Now that the GST is in place, the federal Coalition politicians are desperately hoping that the public grumbling about the GST won't develop into electoral rebelliousness. They also hope to convince people that now the GST is in, it is as natural as birth and death, and therefore can't be abolished.
In the hope of quietening public disgruntlement, Costello and Howard repeat the same tired old lies: that prices won't increase by more than 10%, that people will be adequately compensated by pension increases and income tax cuts, and that the Australian Competition and Consumer Commission can and will prevent companies from profiteering from the GST.
So far, according to opinion polls, neither this sales pitch nor the "Unchain my heart" advertisements have persuaded the majority of people to support the GST. The most recent Newspoll, published in the June 21 Australian, showed 55% opposition to the GST and only 34% in favour.
'Opposition'
Opposition to the GST and hostility to the Howard government would be far higher if it wasn't for the lack of an alternative from the official "opposition". The ALP has been trying to ride the tide of disenchantment against the federal government by opposing the GST, but has refused to agree to abolish it when it is next in government.
Often this year, Costello has put the spotlight on the ALP, challenging it to promise to abolish the GST. Each time, ALP leader Kim Beazley and shadow treasurer Simon Crean have responded by saying that the ALP will "roll back" the GST, but won't abolish it. And each time, public support for Labor, as measured in opinion polls, softens a little.
On numerous occasions, Beazley has stated that the GST will increase the gap between rich and poor. He's given numerous examples of how the GST will unjustly impact on people on low incomes. The logical conclusion ought to be that a Labor government would abolish the GST, but that conclusion is logical only if you believe the ALP's rhetoric that it is a party of and for the working class.
Beazley and Crean have generally avoided explaining why it is "impossible" for Labor to abolish the GST. Crean resorts to egg analogies: "The egg will be so scrambled, it will be impossible to unscramble it. It's not that we wouldn't repeal it [the GST], we wouldn't be able to repeal it ... Once a GST is introduced, it's effectively there forever."
The GST, Labor politicians imply, is like a law of nature which can't be changed — at which point most journalists stop asking hard questions.
There are two main arguments as to why the ALP supposedly can't abolish the GST. One is that it would be an impost on small businesspeople who had struggled to prepare their businesses for the GST. The other is that an ALP government wouldn't be able to get enough revenue to replace the GST.
Alternatives
Both issues could be easily solved by a government which had the interests of working people at heart.
On the first issue, the GST could be abolished without replacing it with another form of indirect tax (such as wholesale sales tax). Indirect taxes are fundamentally iniquitous because they impact most on those who can least afford to pay. The only indirect taxes which are acceptable are those on luxury items for the very wealthy.
On the second issue, both Labor and the Coalition like to create the impression that the only alternative sources of income to the GST are higher income taxes, wholesale sales tax and spending cuts. But there are other sources, most notably higher taxes on company profits, capital gains and personal incomes over $100,000 a year. Of course, none of the big business parties — Labor, Liberal or National — will consider such alternatives.
In fact, the ALP backed the Coalition's cuts to company tax and capital gains tax rates last November. The capital gains tax rate was halved and the company tax rate will be slashed to 30% by 2001-2002. Australia will end up with the seventh lowest company tax rate in the OECD.
The Coalition's introduction of business tax cuts simultaneously with the GST should have alerted people to the fact that the GST was needed precisely to pay for those business tax cuts, but the ALP's early support for the Coalition's full package of business tax cuts ensured that there was no public debate about this point.
Trade unions response
The silence from trade unions on the question of abolishing the GST has been deafening. They all seem to have accepted the ALP's argument that it can only roll back the GST (that is, increase the number of GST-exempt items).
This indicates that many trade union leaderships have accepted the basis of the Howard government's argument that the GST won't impact too badly on workers because of the income tax cuts. Therefore, all that's needed is a few more items to be made GST-exempt.
This is a false position. The income tax cuts (which are paltry for the majority of workers) will quickly evaporate in interest rate increases and because it is years since income tax brackets have been adjusted to match wage rises.
Some unions have responded to the GST by ensuring that their enterprise bargaining agreements include GST clauses which allow them to pursue wage rises to compensate members if prices increase by more than anticipated. While such wage campaigns by individual unions or groups of unions are necessary, and should be supported, they will not neutralise the negative impact of the GST on most working people.
The GST is a tax on the whole of the working class. A union's wage campaign helps only those members of that union in work at the time. It does not help workers who have been retrenched, are on workers' compensation or have retired. Nor does it help those who work in unorganised sections of the work force.
While unions should campaign for wage rises, they also need to campaign to lift the GST off the necks of all working people. To do this, they will need to see through the ALP and Coalition's false argument that the GST can't be abolished. If they do not, the scene will be set for an increase in the GST rate and further cuts to company tax and government services.