GST vs Accord: Which way will big business jump?

Wednesday, December 4, 1991

By Steve Painter

The Hewson tax package has been seen as the opening of the next federal election campaign. It is the program with which the Liberals hope to win government by offering big business more than the ALP-ACTU Accord does.

The Liberal policy is not mainly about the proposed 15% goods and services tax (GST), nor does it reflect a fundamental change of direction from that of the Hawke government over the past decade. It does no more than extend the main assumption on which the Accord is based: that boosting corporate profits is the key to economic well-being.

Despite the publicity surrounding the package's launch and the claims made for the strength of its research, the Fightback document contains little that is new. Sections of it are lifted directly from overseas material, including documents of New Zealand's former Labour government. It is a digest of policies developed by right-wing politicians and economists, both in Australia and internationally, over the past decade.

Public sector

The GST is an important part of the package, but it is only part. Equally important in terms of appeal to big business is the proposed Thatcher-style sell-off of public resources, starting with the Commonwealth Bank, Qantas and Telecom.

Even here, Hewson's difference with Hawke is only a matter of degree. The Liberals promise quick, complete sell-offs where Labor is proceeding more slowly and proposing (for the time being) to retain some public ownership.

Similarly with the proposed cuts to the public service: the Liberals are merely proposing to do more quickly and completely what Labor was already doing. However, their proposal to slash another $4 billion from public spending might go farther than big business considers wise.

Such cuts would leave Australia with a public sector much smaller than most advanced countries, and certainly most European Community countries. Most big companies prefer some level of government support, even if circumspect, and some guarantees concerning essential infrastructure.

The Liberal package will certainly consolidate the party's already existing small business support, but it is by no means clear that it will win over the vital sectors of big business that have supported Labor since 1983 and have done very well out of the accord. These sectors may still calculate that a politically stormy onslaught under the Liberals may have less to offer than Labor's combination of similar but more moderate policies and relative peace with the union movement.

Consumption tax

The GST has been selected as the Liberals' standard-bearer because it is safe in terms of international economic "rationalist" orthodoxy. Consumption taxes have the endorsement of the International Monetary Fund and have been adopted under various names and guises in most of the advanced capitalist economies, overwhelmingly because they shift more of the burden of taxation from business to consumers.

While Australia does not have a general consumption tax, it does already have consumption taxes of various kinds, including wholesale tax, petrol, tobacco and alcohol excises. Rather than introducing anything new, the Liberals' GST would replace these hidden and partial consumption taxes with a more open tax applied to almost everything. The target of the GST is made clear by the fact that business would be spared much of the impact of it through a system of rebates on most input costs.

Paradoxically, the Liberals' package would not greatly increase overall taxation revenue, and the proposed massive cuts to the public service would be necessary to fund the sweeteners necessary to get the GST accepted, particularly the big cuts to income tax and excise. Such sweeteners are necessary because the enthusiasm of right-wing economists for consumption taxes is not widely shared by consumers, most of whom are also voters.

The Liberals' sweeteners would probably prove short lived if not illusory. The petrol price cut is particularly shaky. With Australian petrol prices already lower than those in most advanced economies (the main exception being the USA), it is unlikely the proposed cut will last very long, if it ever materialises. As for the rest, the extra $3 billion for education over 10 years would merely correct some of the more wasteful and destructive effects of excessive cuts under Labor, and the increase in family support could quickly be eaten up by inflation caused by the GST.

Moreover, if international experience is any guide, John Hewson was very unwise to promise that he would resign if the GST rose above 15%. Britain's equivalent of the GST, the Value Added Tax, has just been raised from 15% to 17.5%.

Risks

While the GST is completely in line with international financial orthodoxy, the big end of town might still be wary of the risks in the Liberal approach, beginning with the likely inflationary effects of the GST.

Hewson claims that the new tax would add only a temporary 4% to inflation, but with so many prices rising by 15% or more, inflation could in fact rocket over 20%. Once inflation reaches such levels it is difficult to bring down again, not least because of expectations that it will remain high.

Moreover, while Hewson claims a government led by him would be able to draw on international experience with similar policies, the fact is that much of this experience is negative, particularly in New Zealand.

On top of this, the Liberals propose to replace Labor's Accord with a confrontationist attitude towards the unions, leading with measures deductions of union dues in the public service, promotion of company unions, removing tax exemption for unions (so GST would be payable on dues) and privatisation of the Trade Union Training Authority.

The drawbacks of such an approach are already evident in NSW, where the Greiner government's assault on the structures of the union movement have caused economically costly strike action. Union officials, content for a decade to preside over cuts to their members' wages, conditions and jobs, were jolted into action when the very existence of the unions was called into question. The actions over the Industrial Relations Bill may also have helped to re-legitimise the strike tactic over other issues.

No matter which way big business jumps in the next few months of competition between Labor's Accord and the Liberals' GST package, most Australians are being offered no fundamental alternative. Both parties are proposing further cutbacks to living standards, though the Liberals would go much farther in the direction of the New Zealand model.

Issue