Australian Treasurer Pledges No More Tax Hikes But GST Remains

by Mary Swire, Tax-news.com, Hong Kong

30 May 2001

In an attempt to woo the Australian electorate, Federal Treasurer Peter Costello has pledged that he will not increase taxes if his coalition government is re-elected to office in the elections later this year.

According to reports from the Australian media, he also claims that the promise to cap taxes for families by opposition Labour leader, Kim Beazley, will be paid for by a hike in company taxes instead. During a speech given to business leaders in Brisbane last week, Mr Costello said: 'When you listen very carefully to Mr Beazley, he hasn't given a guarantee on company tax.'

He argued that Mr Beazley's party would reintroduce his policy of indexation on petrol excise and abolish the private health insurance rebate - currently set at 30 per cent. 'They've never given a commitment unequivocably under all circumstances to retain that. It would be consistent with their view on private health insurance to reverse that and I think that's another area they're obviously looking at,' he said.

However, the opposition has plans to roll back the Goods and Services Tax (GST) which could be a very persuasive tactic for many voters. Introduced by Mr Costello over two years ago, the tax has proved to be one of the most controversial taxation systems delivered by an Australian government to date - particularly for small businesses which have shouldered the additional bureaucratic and red tape burdens brought about by the new tax. It is early days yet but it is clear that a significant proportion of the federal election will be fought over this controversial tax.

Although Mr Costello and his government have shown signs of wavering over the GST, they are sticking by the tax and they have no plans to make any alterations - not yet anyway. Once every hundred years, he claimed in Brisbane, was enough to reform a country's taxation system and the GST policy was a part of his strategy of reform. 'I thought we had to make sure we set a tax system that was going to last for another hundred years,' he said.

He added: 'You would not want to change a tax system too many times. I think once every hundred years or so is enough.' And, according to Mr Costello, come the year 2101 politicians will say 'it's time to change Australia's tax system ... and they'll be glad Muggins Costello did it back in 2001.'

Earlier this year, we reported on the details of a survey conducted by the Australian Financial Review (AFR) which revealed that the introduction of the GST has significantly contributed to the sharp economic decline that Australia experienced in the latter quarter of last year. The (AFR) survey questioned twenty of Australia's top market economists, seventeen of whom considered the GST to be either the single most important factor or the equal most important factor slowing down the economy along with rising oil prices, interest rates and a go-slow in the global economy. The newspaper stated: 'The survey's findings will embarrass the federal government, which has been fending off opposition claims that the GST "mugged" the economy.'

In his response Mr Costello claimed that many Australian states were arguing over how the GST revenue is divided among them which he says shows they support the system. He said: 'The states today are fighting for their shares of GST, far from being opposed to it, they are now scrambling over each other to get a bigger share of the tax.'

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