Opinion
Well, what a surprise! For years media commentators, tax experts, business and welfare organisations have been clamouring for successive governments – or more specifically their treasurers – to embrace “bold” tax reform. Yet without exception, every genuine proposal has been met with howls of impending economic disaster if implemented. Is it any wonder that governments have shied away from much-needed reform?
There have been two – now hopefully three – treasurers with sufficient courage and determination to undertake serious economic reform that has focused on the public interest, and resisted the vigorous attacks of private vested interest groups.
No one can deny that the economic reforms led by Paul Keating in the 1980s were probably the most significant in setting Australia on the path to a market-led economy that has served us so well in the ensuing decades. Keating floated the Australian dollar despite forecasts of impending doom.
The Hawke-Keating-Kelty labour Accord provided us with much-needed industrial peace – albeit that it did not satisfy those seeking less regulatory intervention in our labour markets.
National Competition Policy, introduced by Keating in 1995, freed up markets from the anticompetitive and productivity-constraining regulations and structures that had enshrouded them over decades.
Peter Costello then took up the challenge of serious tax reform, ably assisted by a collaboration between the Australian Chamber of Commerce and Industry and the Australian Council of Social Service, to implement the goods and services tax. In October 1996, more than 100 representative groups gathered at the National Press Club in Canberra for a national tax reform summit hosted by these two organisations, and unanimously resolved that tax needed significant reform to be able to satisfy fundamental principles of a fair system.
The two organisations identified a joint interest in constructively addressing the problems of the current tax structure, and in canvassing options for comprehensive tax reform to improve economic and employment performance, the equity, neutrality and efficiency of the tax system, and to ensure an adequate revenue base.
Above all, it was recognised that the income tax system was complex, distortive, inequitable, easily capable of being avoided and thus patently unfair.
Underpinning this conclusion was a shared political principle: both ACOSS and ACCI explicitly recognised that decision makers must be convinced that taking up the challenge of reform is a genuine long-term community demand, and that any strategy for change must be developed in a framework of national rather than purely sectoral interest.
So the GST was proposed and ultimately implemented by the Howard-Costello government. It was a courageous move that took us a long way down the road of serious tax reform. But many of us will recall the cataclysmic forecasts from so-called esteemed economists of the inflationary impacts of this new tax and its inevitable destructive impact on small business.
Now here we go again. After 30 years of inertia on tax reform, Treasurer Jim Chalmers, with the support of Prime Minister Anthony Albanese, is demonstrating the courage shown by Keating and Costello in proposing sensible economic reform. And as sure as night follows day, within a few months, as the predictions of doomsday currently dominating sections of our media will have proved to be illusory, vested interests will find a new battleground.
It is a sad observation of human behaviour that people or organisations with something significant to gain or lose – money, power, status, influence – will, with few exceptions, resist anything that threatens those interests, regardless of the reform’s broader merits. And hyperbole is a useful weapon of resistance.
The capital gains tax concession of 50 per cent has never had a compelling supporting case. The previous and now proposed method of only taxing real gains after taking account of inflation, overcomes the distortive impact of concessionary tax rates being imposed on all capital gains.
Negative gearing has long been a distortive mechanism, again to leverage capital investment with concessionary tax treatment. What possible rational reason justifies leveraging capital investment with generous concessionary tax treatment? Surely, capital investment should stand on its return on investment outcomes.
And the modest reform of the rules relating to discretionary trusts simply goes some way to neuter the artificiality of income splitting and the more recent notorious use of the bucket company. These distortions simply result in people earning income through wages bearing a greater burden of funding government services – schools, hospitals, police – than those earning income from trusts or capital gains.
The howls of protest being hurled at Chalmers are not surprising. As I discovered through the tax debate of 1996 and then through my years leading the National Competition Policy program, every move to reform that attacks existing structures, originally designed to benefit private vested interests, inevitably galvanises the few beneficiaries of the status quo to protest with megaphones to preserve their privileged positions.
Rarely do we witness the vast cohort of the public gather to mount a counterprotest in the wider interest.
So congratulations to Chalmers and Albanese. After 30 years, we have two leaders, supported by their cabinet colleagues, with the courage, determination and commitment to serve the public interest by resisting the self-serving calls of private vested interests to preserve past benefits which came at great cost to the majority of Australians.
They are following in the footsteps of Bob Hawke, Keating, John Howard and Costello. And hopefully the implementation of the 2026 budget measures will give them the courage and determination to pursue in the years ahead further equitable and productivity-enhancing reform directed to serving the public interest.
Professor Graeme Samuel, AC, is a professor in the Monash Business School, former president of the Australian Chamber of Commerce and Industry, and former chair of the National Competition Council and the Australian Competition and Consumer Commission.
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Professor Graeme Samuel AC is a professor in the Monash Business School, former president of the Australian Chamber of Commerce and Industry, and former chair of the National Competition Council and the Australian Competition and Consumer Commission.