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Winter 1999 cover

National Observer Home > No. 41 - Winter 1999 > Editorial Comment

Mr. Peter Costello and the Income Tax and G.S.T. Debacle

Nowhere recently has the abuse of the term "reform" been so blatant as in arguments of the government of Mr. Howard in favour of "tax reform".

For the last twelve years the nominal income tax rates have been largely unchanged, but the real rates have been distorted through the process of bracket-creep. An effective 48.5 per cent has applied to an increasingly high proportion of taxpayers. The Australian Taxation Office probably the most ideologically extreme governmental department, with a strong left-of-centre position and a history of hostility towards wealth-production has been happy to receive this inflation-based windfall.

In May 1999 the Commonwealth government agreed, at the behest of the Australian Democrats, merely to raise from $50,000 to $60,000 the level at which the maximum rate applies. In the context of inflation over many years this change may be regarded as derisory.

The failure to up-date properly the income tax rates is all the more extraordinary in view of the decision to proceed with the introduction of a general G.S.T. at a rate of ten per cent, with an exception of basic foodstuffs.

The introduction of a G.S.T. has been marked by a government campaign of singular dishonesty. The real purpose of this introduction is to gain a large new revenue base. Despite (again, dishonest) assurances, almost certainly the rate will not remain ten per cent. For example, the rates of such taxes have been increased in England to 17.5 per cent, in France to 20.6 per cent, in Germany to 15 per cent, in Italy to 19 per cent and in both Denmark and Sweden to 25 per cent.

Claims by the Treasurer, Mr. Costello, that a G.S.T. was necessary to eliminate "anomalies" in sales tax have been meretricious. If there are such anomalies, they can be eliminated very simply by adjusting the relevant sales tax rates. A new tax is not needed for this purpose.

Mr. Costello glossed over the enormous compliance burden that a G.S.T. will impose upon the community. The filling in of forms, collection of moneys and compliance with other administrative burdens will detract significantly from the profitability of business.

Mr. Costello likewise glossed over the intrusiveness of the new tax. In fact, it will apply not only to the supply of goods, but also to the supply of services. The range of services to be included is remarkable, and the consequent increases will extend to electricity, gas and telephone charges, fees of professionals and so on.

The introduction of a G.S.T. with so few offsetting benefits has been properly opposed by the Australian Labor Party. It has however been announced that it will be supported by the Australian Democrats. The Australian Democrats are one of the least-fitted groups to have influence in important financial matters. They are a populist and opportunistic party, and cannot be expected to react on any different basis to the issues that come before them.

With the Liberal Party, expectations should be higher. The Liberal Party has access to a wide range of expert advisers, both among individuals and among organisations with substantial resources. Hence it is a matter of concern that the Treasurer, Mr. Costello, appears to have decided to follow generally the advice that he receives from time to time from the Australian Taxation Office, despite its radical-left bias. (Indeed, employees of that Office who are not prepared to display an anti-private enterprise approach are generally sidelined and marginalised, and denied advancement.) Why has Mr. Costello adopted this position? At one time he was properly regarded as a person with convictions and courage. He was one of those who worked resolutely, at personal cost, to overcome the Marxist hegemony amongst university students in the 1970s. At that time he acted for good causes, and above all, out of principle.

But where are these principles now? We have become all too accustomed to hearing Mr. Costello promote material provided to him by the Australian Taxation Office, without apparently having made any proper attempt to verify its correctness or to overcome the evident biases that it contains. In this regard he has taken one stage further the characteristic of Mr. Paul Keating of confounding fact with opinion. Instead of a careful separation of fact and policy, facts are presented partially or even mis-represented.

Indeed, one of the most egregious recent examples of obfuscation and misrepresentation was the 208 page long propaganda document "Tax Reform, not a new tax, a new tax system", circulated by Mr. Costello in August 1998. This selective and highly misleading document was prepared by sources from the Commonwealth Treasury and the Australian Taxation Office in order to promote the introduction of a G.S.T. and a variety of other alleged "reforms" (being measures or groups of measures intended to increase taxation revenue) and was authorised by Mr. Costello. It is a glaring example of the dangers that arise when governments, especially in technical areas, colour facts and disseminate material that is calculated to advance government policy by misstating facts or suppressing or eliding balancing facts or opinions.

It is a truism that the Australian taxation system has become unwieldy, oppressive and a threat to investment.

What is unexpected is that the rate of deterioration (and of disinformation) has been greater under Mr. Costello than under Mr. Keating.

National Observer No. 41 - Winter 1999