Australian Labor shows economic stripes of rather different colour

Friday 31st August 2001

Australia, the "lucky country," is gearing up for a general election and its voters will have the good fortune to exercise another effective referendum on GST. Australians have had two previous elections dominated by the tax.

The first enabled Labor's Paul Keating to hang on to power by opposing the Liberal Party's GST platform. The second kept the Liberal prime minister and GST proponent John Howard in office.

Widespread disgruntlement at the GST introduced under Mr Howard will probably be a leading factor in tipping him out and installing Labor's Kim Beazley in his stead.

The present Australian government's poor showing in byelections and state polls suggests it is doomed.

GST's complexity and added cost has stirred deep resentment in Australia.

In Melbourne at Easter I came across many people who condemned the tax. One businessman said, with considerable passion, "The GST has ruined this country." Popular belief is that GST has impaired economic growth.

INSTO magazine, the Australian managed funds industry specialist publication, interviewed Labor's prospective treasurer Simon Crean in its July 2001 edition.

Mr Crean agrees GST has been bad for the Australian economy. He certainly comes from a different school of thought than our version of Labour.

Labour in New Zealand is less of a broad church party than it used to be, having spun off its right wing into Act New Zealand and its far-left wing into the Alliance camp. What remains is decidedly leftish, social democratic and politically correct.

Labour does not so much represent broader New Zealand as a group of special interest factions that do not always share common interest with each other outside of seeking the fruits of redistribution.

Mr Crean would be more right than left to judge by his quoted remarks and sounds like anything but a soft touch. The right wing of Labor has the ascendency, it would seem.

The ALP is a different political animal from our own Labour Party, which does not bode well for improvement in our sagging political relationship with our next-door neighbour after the election.

Questioned on the GST, Mr Crean stated that his party would retain the tax, but simplify it and roll it back. He claimed this was affordable if wasteful spending were cut.

Perhaps surprisingly for a Labor politician, given what we are used to hearing from their near-namesakes over here, he attacked the Howard government for being the highest taxing and spending ever in Australia and pledged that Labor would cut both. Labor, he was saying in effect, is fiscally drier than the Liberals.

He estimated the Australian economy should be good for a long-term average growth rate of 4%. That present growth is struggling to hit even 2% he blamed on the GST.

Reform of the tax, plus government focus on building productivity through "the skills, the education, the R&D" was a core part of his plan to restore 4% growth as Australia's norm.

In light of his comments, it is interesting to speculate whether relatively poor average economic performance by this country over the years can be blamed at least in part on consumption tax.

Has GST ruined New Zealand? Is it too high and too costly for business to administer as the Australians complain of their own equivalent?

GST introduction was bungled in New Zealand as it has been in Australia. In our case that was because the proposed quid pro quo of introducing GST in bringing in with it a complementary flat-tax structure was not implemented, and because the tax was increased from 10% to 12.5% in the last period of the fourth Labour government.

When New Zealand consumers sum their PAYE with GST, they are heavily taxed, and that is before they even count local authority rates and charges.

Australia's focus on fixing GST should perhaps inspire renewed interest over here to determine whether we have an optimal consumption tax structure.

If it is valid to argue the Australian economy has been punished by a misimplemented consumption tax, then perhaps the same applies over here.

Another case of botched consumption tax would be Japan, where economic activity was noticeably impaired after the tax was hiked from 3% to 5%.

Mr Crean is also a strong proponent of Australia's compulsory superannuation saving scheme.

He insists superannuation funds should not be confined to investing in Australia, but argues the investment they did make in his country had an important role in bolstering economic growth.

And he points out that Australian superannuation reform, along with other reforms such as bank deregulation, floating the exchange rate and internationalising the economy, was done under a Labor government.

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