2001 cabinet papers: Political backlash at GST fuel ‘promise’

Fears of a political backlash over rising fuel prices following the introduction of the GST forced cabinet to act ahead of the November 2001 election.

John Howard and deputy prime minister John Anderson at a cabinet meeting in April 2001. Picture: National Archives of Australia

Fears of a political backlash in rural and regional Australia over rising fuel prices following the introduction of the GST and concerns over the complexity of the Business Activity Statement forced cabinet to act ahead of the November 2001 election.

During 2000, National Party leader and deputy prime minister John Anderson argued to ministers the promise that petrol prices would not rise because wholesale sales tax had been abolished when the GST was introduced had not been kept.

Cabinet weathered the political storm but eventually John Howard, siding with Mr Anderson, forced treasurer Peter Costello to act. In 2001, ahead of an election that year, the government cut fuel excise and removed indexation. (Fuel excise indexation was reintroduced in 2014.)

Mr Costello argued, accurately, that rising petrol prices were primarily due to an increase in the global oil price rather than the GST. This argument had little sway with ministers who were worried about losing seats.

“I didn’t want to get rid of indexation,” Mr Costello told The Weekend Australian. “I didn’t mind cutting the excise by 1½ cents. We had already cut it by seven cents, so the question was how much did you have to cut it to compensate for the GST? You had to cut it to compensate for the GST but I thought, long-term, abolishing indexation would be a bad decision. So, I drew up two options: cut it by 1½ cents or get rid of indexation.

“I recommended cutting by 1½ cents. Howard said we’ll do both.”

Ahead of the introduction of the package of taxation reforms, titled A New Tax System (ANTS), two million businesses had to register for an Australian Business Number and were required to complete a Business Activity Statement.

The BAS had been another headache, with the Australian Taxation Office reporting it was being swamped with calls for help from small businesses and ­farmers.

Mr Howard and Mr Anderson agreed the forms were complex but Mr Costello thought the complaints were exaggerated.

But, again, cabinet was forced to act and agreed on further changes to the BAS on February 12, 2001.

Mr Costello presented a paper on simplifying the pay-as-you-go arrangements and quarterly reporting obligations. The ATO would also adopt clearer and simpler terminology, and lodgement dates would be extended.

“The BAS was never changed in any really substantive way,” Mr Costello said.

“The problem wasn’t the BAS. The problem was the GST required a whole new set of accounting for business, which many found very difficult. The BAS was just the formyou filled in to remit your GST.”