Thus Spake Mungo: Let’s talk about tax, maybe

By Mungo MacCallum

It was inevitable, and entirely justifiable, that Tony Abbott’s plea for a mature debate about tax reform would be treated with derision. After all, about five years of three-word slogans, scaremongering hyperbole, broken promises and constant abuse hardly make our prime minister the finest exemplar of rational discourse.

And his attempt at a Damascene conversion is at best selective; only last week his manoeuvring on the petrol excise was branded by the motorist organisations as sneaky and gutless, and his deal with Clive Palmer on direct action dismissed as at best a temporary fig leaf and more likely, as Palmer earlier claimed, a complete waste of taxpayers’ money.

Worse still, throughout the week he continued to rant on about Labor’s debt and deficit disaster, sturdily ignoring international comparisons. At least he has shelved the budget emergency, which is just as well as it appears that both debt and deficit have significantly increased on his own watch. So, not a lot of mature debate.

But the case for tax reform is, and has been for years, undeniable. The real problem is that Abbott’s foreshadowed solution is to, yet again, go back to the future – to go beyond maturity and into his second childhood, the world of the 1950s when the Liberal Party was still clinging on to its shibboleth of states rights.

Abbott prefers to call it the need for each level of government to be sovereign in its own sphere – an end to the problems of vertical fiscal imbalance, the system by which the commonwealth raises the vast majority of the revenue but the states spend it. Abbott, it appears, wants to unscramble the omelet – to give the states more autonomy on policy and make them pay more of their own way.

But to do so would defy almost every aspect of Australian history. Since federation, the tendency is to give more power to the commonwealth at the expense of the states. That, of course, was the whole idea: the post-colonial parliaments held onto everything they could, but successive national governments, armed by decisions of the High Court, have whittled away their functions to make them increasingly dependent.

And it was not just a naked power grab, nor was it purely the power of the purse; much of it has happened simply because it works better: the central system is both more uniform and more efficient.

The colonies were, after all, artificial concepts: unlike the ancient nation states of Europe, their boundaries were not settled by conflicts impelled by language, culture, religion and geography. In Australia’s case the bureaucrats of Whitehall invented them more or less arbitrarily. If they found a convenient river, that would do: hence the absurd divisions between the conurbations of Albury-Wodonga and Tweed-Coolangatta. More usually, they just drew straight lines on their not always accurate maps. Their only rationale was, in hindsight, state-of-origin football.

The result was expense and inconvenience: standards of health, education and transport changed at every border. Until the 1950s overnight passengers to Sydney and Melbourne had to change trains at Albury because the lines had different gauges. Something had to be done, so governments did it, conservatives as well as Labor. From the days of Edmund Barton and Alfred Deakin until the days of John Howard (the author of the great centralist policy of WorkChoices) the national government moved to untangle the mess.

The trend admitted few exceptions. Gough Whitlam, of course, was quite explicit about it: he wanted the states replaced by regions based on common interest. When he could not manage that, he tried to turn the idea of vertical fiscal imbalance on its head: if the commonwealth collected 70 per cent of the money, it would take control of 70 per cent of the functions through the use of section 96 of the constitution, using tied grants to the states instead of simply doling out the cash.

And even Tony Abbott was, for a time, attracted to the idea, as his previous manifesto Battlelines attests. As Howard’s health minister, he adopted the idea of a full takeover of state hospitals – a step too radical for Howard. But in later years the fire has gone out of his belly. Taking on the states is, he tacitly admitted, just too hard. So if you can’t beat them, join them. But the states don’t want to play; they are quite happy to let Canberra cop the odium of collecting the taxes while they spend them.

And this, at last, brings us to the GST. The GST was supposed to be the states’ pot of gold; an endless growth tax provided, yet again, by the commonwealth, and delivered for their expenditure and delectation. It was, even its boosters agreed, regressive: as a flat tax, it hurt the poor more than the rich. But who cared? there could be compensation, and anyway, Treasury loved it: trying to administer progressive tax – multilevel income tax – was a terrible chore, and the GST would be unavoidable and efficient.

But of course it wasn’t and isn’t. At the insistence of the long-gone Australian Democrats, the so-called necessities of life: food, health, education and for some reason certain financial transactions were excluded, so, with lesser examples, the many exemptions gave the lawyers and accountants a picnic. And the black economy flourished: both buyers and sellers evaded the new taxes and pocketed the difference. Both the revenue and the moral authority of the Tax Office suffered.

Now, of course, the preferred solution is to abolish some or all of the exemptions and/or to raise the rates: the carrot would be to offer more compensation to the poor and income tax cuts to the rich. But the politics are diabolical: hence Abbott’s cop out.

What he really means by a mature debate is to make everyone share the blame. The states, the business community, the unions, the opposition – everyone has to join Team Australia. And if and only if they can come to an agreement, their glorious leader will sound the charge. Until then, he’ll be right behind them – about 50 years behind them.