GST inquiry: a cover for dirty deals?

Issue 

By Sue Boland

The Howard government is talking tough in a bid to exert maximum pressure on the senators with the softest positions on the GST — independents Mal Colston and Brian Harradine and the Australian Democrats — to try to get its tax package passed by the Senate.

In comments aimed at these senators, Prime Minister John Howard and treasurer Peter Costello have asserted that if food is exempted from the GST, the tax will have to be implemented at a rate higher than 10%, income tax cuts will have to be abandoned, or spending on welfare services will have to be reduced.

While publicly stating that they will accept no amendments and will oppose a Senate inquiry into the GST, members of the government have been negotiating with Colston and Harradine behind closed doors.

Colston has already indicated that he is "inclined" to support the government's tax unamended, especially now that it has promised to be nice to him again. He was quoted in the Financial Review on October 30 as saying, "I believe that it [the government] has a mandate to [introduce a GST]".

However, Harradine is arguing a similar position to the Australian Democrats. He's not opposed to a GST in principle, but claims to be concerned about the impact it will have on people on low incomes. He has said that he won't vote in favour of a GST without a Senate inquiry to investigate the impact on them.

Deadline

With the Democrats, the ALP, the Greens and Harradine all now supporting a Senate inquiry, the government will have to concede one. However, the government is negotiating with Harradine to ensure it will be limited in scope, enabling the Senate to vote on its tax package before June 30 next year.

June 30 is the government's deadline for the tax legislation because the newly elected senators will take their seats on July 1 and the balance of forces in the Senate will change, Harradine no longer having a deciding vote.

The Democrats, ALP and Greens want a Senate inquiry that is more wide ranging, delaying voting on the legislation until the new senators take their seats.

Whichever form of inquiry is finally adopted, it is not likely to produce much in the way of serious information. The inquiry is mainly intended to occupy the front of stage and public attention, while the serious business of doing deals goes on in the wings.

Harradine is likely to go along with the government's offer of a limited inquiry. In order to win concessions from the government for his religious "keep women in the home" policies, Harradine needs the vote on the legislation to be taken before June 30.

In the past, Harradine claimed that he opposed the privatisation of Telstra, then voted for the sell-off after the government promised extra benefits for Tasmania. He claimed to support native title, then voted for Howard's 10-point plan.

The planned inquiry is all the more of a sham because it will not involve the senators who have just been elected after a campaign that focused on the GST.

If the government has its way and has the tax passed by Senate before June 30, even half of the Coalition senators who vote will have been elected on a platform opposed to a GST, in 1996.

Privileged input

In its desperate rush to get its legislation ready, the government has given its newly appointed tax consultative committee only 17 days to make recommendations about the scope of the four GST-free areas of education, health, religious services and non-commercial activities of charities.

The 17-day time limit for the committee to receive submissions and report back to the government means that only the most well-resourced lobby groups, primarily ones representing big business, will have the opportunity to present submissions.

Big business also has privileged access to the government in order to advocate its viewpoint on tax "reform". There has been a steady procession of captains of industry through the doors of the prime minister's office for private meetings with members of the government.

Opinion polls before the federal election showed that opposition to the GST increased the longer people had to consider its implications.

Howard and Costello are now focused on preventing public opinion swinging further against the GST. There is always the danger that public opposition could force the Democrats or Harradine to reject it altogether.

Secret documents

The government is refusing to release 12 secret Treasury documents which indicate that the GST has up to five times the impact on people on low incomes that the tax package admitted. After lodging a freedom of information request, the Sydney Morning Herald managed to get hold of one of the documents after the elections, but has been denied access to the rest.

The SMH reported on October 1 that the Treasury confirmed in writing that it had analysed the impact of the tax package on the basis of different spending and savings patterns, but had not included the results in the tax package. Ignoring this data, the tax package argued that the rich and poor have identical spending patterns and therefore the GST would have the same impact on all groups.

When the Melbourne Institute carried out a similar analysis based on the Household Expenditure Survey, it revealed that the cost of the GST for people on the bottom 20% of incomes is more than double the government estimates. For families with three or four children, the cost is three to five times the government estimates.

This means that the compensation package being offered to people on low incomes goes nowhere near fully compensating them for the impact of a GST.

Worried that the tax package may not pass through the Senate in its preferred form, big business, represented by the Business Coalition for Tax Reform (BCTR) and its mouthpieces in the mass media, has been advising the government on tactics in its negotiations with the Senate.

The BCTR, Access Economics, the Australian Society of Certified Practising Accountants and a number of economists and political commentators have argued in the daily newspapers that the government could get its GST through the Senate, without exempting food, if it is prepared to increase compensation to people on low incomes.

"It is better to keep the tax base uniform [that is, no exemption for food] and protect the interests of low-income earners and pensioners through adjustments to social security or other means", said David Voss, the tax partner from Price Waterhouse Coopers who has been appointed to head the government's taxation consultative committee.

This is a trick.

It's a trick because big business knows that compensation in the form of increased pensions and benefits is likely to be removed or reduced at a later date (these are the same people who always argue for cuts in the welfare budget). They are simply trying persuade the Democrats and Harradine to vote for a GST without exemptions.

Will Harradine and the Democrats fall for this bait?

It is quite likely that Harradine will, given his past record.

However, the Democrats went to the elections on a platform of supporting a GST, only if raw food was exempted and the level of compensation for people on low incomes was reconsidered.

But if the government can get a Senate vote before June 30, with Harradine and Colston on side, the Democrats' position doesn't matter.

Business tax cuts

While public attention is focused on whether the GST will get through the Senate, little attention is being paid to the fact that the government has established a committee to review business taxes. The committee is chaired by company director John Ralph.

The aim, as foreshadowed in the Coalition's tax package, is to reduce company tax. The government and the Business Council of Australia (BCA)have both indicated that company tax is likely to be reduced from 36% to 30%.

To make this proposition palatable to the public, the government and the BCA have said that cuts to company tax will need to be accompanied by cuts in other generous tax reduction schemes, such as depreciation allowances. However, a number of companies want to keep the tax minimisation schemes and have company tax reduced. Some have even argued that company tax should be eliminated altogether.

Articles in newspapers about cuts to company tax appear only in the back pages or business pages because the government doesn't want the issue to become the focus for public debate.

If it became well known that businesses were going to get a cut in company taxes, as well as having $10 billion of taxes transferred from their shoulders to workers and pensioners through the introduction of the GST, the GST would never get through the Senate.

Yet none of the parties in the Senate are campaigning against the proposed cuts to company tax.

The ALP's own tax package called for cuts to company tax, although it didn't specify a figure.

There hasn't even been a response to the government's assertion, repeated in the big business media, that the way to force people like Kerry Packer to pay tax is to introduce a GST.

There have been no press releases from the ALP or the Democrats explaining that businesses won't have to pay the GST: any GST that they pay on business inputs will be refunded to them in full. Packer will be able to pay even less tax if a GST is introduced.

It is not too late to stop the GST. The majority voted against the GST, the Coalition receiving only 39.9% of the primary vote. If a major campaign was launched now to reject the GST and reject cuts to company tax, we could stop them from being implemented.

Without such a campaign, the government is sure to be able to stitch up a deal with Colston, Harradine or the Democrats.

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