Hewson's GST: something for everyone?

Wednesday, November 27, 1991

By Peter Boyle

Question: How do you sell a tax reform that shifts more of the tax burden from the wealthy minority to the poorer majority? Answer: By making sure that everyone appears to get something more.

This is the secret recipe for Dr John Hewson's grand reform:

Step 1. Introduce a 15% goods and services tax to replace wholesale tax, payroll tax, petrol excise and most customs duties, saving business $20 billion in tax. Who pays for this? The majority of us who have to spend most of what we earn on goods and services. We get slugged an extra 15% for just about everything.

Step 2. To make the GST palatable, deliver income tax cuts and special compensatory measures, particularly for families and pensioners. Theoretically, this results in every household getting more disposable income, even if it is a token amount that may not turn up anywhere except on Hewson's carefully crafted charts.

Step 3. To pay for this apparent "everybody wins" result, slash $41 billion from government spending over three years (hitting welfare, health, foreign aid, Aborigines and the environment, in particular) and privatise $13.1 billion of public assets. Sauce these moves with lots of ideological carry-on about bludgers, cheats etc, and cut immigration to enhance the scapegoating effect. The idea is to convince most people that someone else is getting slugged.

= Public spending

It's a shonky shuffle on a grand scale. Around 84% of taxpayers are told they will be better off because, according to computer projections done by the Liberals, they will have between $6 and $38 more in weekly disposable income. The 16% of taxpayers who earn more than $36,000 per year are supposed to gain between $40 and $160 a week extra. And as a bonus for the nobs, the price of a Porsche or a Mercedes-Benz drops by $5000-$10,000. But as everyone gets something, Hewson hopes we won't notice the difference. After all, we do want to reward the hard workers (read rich), don't we?

But the difference in who gains, and by how much, does not end there. Cuts in public spending (already slashed to the bone by Labor) will affect the poorer majority much more than the top 15% who don't depend on social services. More public service jobs will go.

The majority will lose an uncalculated amount in the social wage. Interestingly, Hewson's "comprehensive" calculations did not stretch this far. But it does not take much imagination to see how this loss would be felt very directly by any wage earner. If you lose your job (and there is a good chance you could, as even Hewson predicts high unemployment for most of the 1990s), you will only have nine months on the dole; then you'll be forced to work for the dole or accept below-award wages.

Your short time on the dole will be unpleasant. You'll be offered less than $10 a week more than the pittance you get today to compensate for goods and services (except rent or mortgage repayments — which you probably won't have to worry about because the bank will foreclose).

Even if you manage to keep your job through the lean, mean times ahead, life could get tough. State schools and public hospitals will continue to be run down while private schools will blossom (fees for private schools will be exempt from the GST).

= Environment

The environment will degenerate as spending on public transport and slowing the urban sprawl will be cut, while the removal of the petrol excise will encourage a dramatic increase in greenhouse emissions. While Labor has merely ignored the environment, Hewson is out to actively increase the greenhouse problem. The Liberals' line is that there is no great problem with the environment despite recent reports that the ozone layer is depleting faster than previously believed and previous estimates for global warming were 20% too low.

Hewson's package does nothing more than pursue with greater vigour the economic "rationalist" course set by the Hawke Labor government (remember, we could have had a 12.5% consumption tax/GST if treasurer Paul Keating had his way at the 1985 tax summit). The secret to economic prosperity, says Hewson, is to give more to big business. Haven't we heard that one before, and didn't Labor's pursuit of this panacea lead directly to the foreign-debt-financed speculative boom in the late 1980s?

Hewson's solution to unemployment is to cut real wages by at least 1.8% (pathetic compared to what Labor has achieved in this department). Then there are all those extra jobs that will be saved by axing payroll tax. Strangely, Hewson doesn't expect these "revolutionary" moves to bring the unemployment figures down quickly. Could it be that no matter how many "savings" he sends the way of big business, the problem of not being able to flog off the goods might have something to do with it?

Big business will take any little extras sent its way, even if it doesn't solve all its problems; hence the applause for Hewson's package from that quarter. But Hewson's play for "middle Australia" is simply sucker bait. He is gambling that the bait will be taken because many people are frightened by spiralling unemployment and sick of being kicked around by Labor.