Cabinet archives: GST was biggest tax reform in our history
Peter Costello believes the Howard Cabinet would not have introduced the GST in its third or fourth terms because it lacked courage for bold reforms.
Former treasurer Peter Costello believes the Howard government would not have introduced the Goods and Services Tax (GST) in its third or fourth terms because the quality of ministers had deteriorated and the cabinet lacked courage to pursue bold reforms.
“We announced the GST in that first term and we implemented it in the second term, which was unbelievably difficult,” Mr Costello told The Australian in an exclusive interview. “By the third term we were doing less adventurous things, and by the fourth term we weren’t doing that much at all.
“My view is that the cabinet was at its best in the first and the second term, and began to run down after that. The ministers that started coming in tended to be more ‘Yes Men’ than serious reformers. If we had left the GST until later in the period we would never have got around to it.”
Mr Costello’s comments coincide with the release of cabinet papers from two decades ago by the National Archives of Australia, which show the implementation of the GST being the major focus of the government’s work.
The reform package, known as A New Taxation System, had been taken to the October 1998 election by the Coalition and was subject to extensive negotiations with state governments and the Australian Democrats in the Senate. Wholesale sales tax and several state indirect taxes were abolished in return for a 10 per cent GST collected by the commonwealth and distributed to the states.
In February 2000, ministers were frustrated that “sections of the business community” wrongly believed prices would rise 10 per cent as they had not factored in the abolition of wholesale sales tax, so $20m was allocated for further education campaigns. The Australian Competition & Consumer Commission was encouraged to monitor price changes and punish price exploitation.
The then deputy prime minister, John Anderson, told a media briefing last month there had been a “fudge” over the promise that petrol prices would not rise because wholesale sales tax would be abolished. In February 2000, the treasurer agreed to bring a paper to cabinet with options looking at “how the government could ensure petrol prices would not rise”.
Although fuel excise was cut and indexation removed in 2001, Mr Costello insists petrol prices did not rise as a result of the GST.
“The formulation was that petrol need not rise but a lot of politicians had said petrol will not rise,” Mr Costello said. “Prices did rise but they didn’t rise because of the GST. They rose because of world petrol prices.”
Another challenge was requiring two million businesses to register for an ABN. In March, the Australian Taxation Office was instructed to work quicker to sign up businesses and leave “quality and accuracy” issues for later that had arisen over registration conflicts with ASIC databases.
The Business Activity Statement was also problematic. The ATO was inundated with requests for assistance because the forms were complex. John Howard conceded to The Australian that the BAS form was overly complicated when it was first introduced.
Mr Costello recalled that when the new tax system took effect it was a success, with businesses and consumers adjusting well. He said three billion individual prices were changed overnight. “This was a mammoth undertaking. I don’t believe there has been anything that has rivalled it before and I don’t think there is anything that will rival it again,” he said.
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