We were wrong to abandon GST reform: Peter Hendy
Former Liberal MP and economist Peter Hendy says he was wrong to have opposed increasing the GST and believes the government's abandonment of tax reform
Former Liberal MP and economist Peter Hendy says he was wrong to have opposed increasing the GST and believes the government's abandonment of tax reform early in Malcolm Turnbull's leadership "severely affected" the Prime Minister's standing in the polls.
In a new book entitled Why Australia Slept, Mr Hendy says the government must again reconsider increasing the rate and base of the GST and using the proceeds to fund substantive tax reform including "large" personal income tax cuts, social welfare compensation and the abolition of inefficient state taxes such as stamp duties on conveyancing.
Warning Australia risked sleepwalking towards "a very dangerous future", Mr Hendy also urged the Coalition to bite the bullet on industrial relations reform, something it has largely avoided since the political debacle of WorkChoices in 2007.
Mr Hendy held the marginal NSW seat of Eden-Monaro for one term from 2013 to 2016. An economic dry, he was a principal author of John Hewson's Fightback! package which proposed a 15 per cent GST. He has also served as the chief executive officer of the Australian Chamber of Commerce and Industry and, after losing his seat, served as Mr Turnbull's Chief Economist in 2016 and 2017. He was a principal player in the September 2015 leadership coup against Tony Abbott. The plotters, including Mr Turnbull, gathered at his house the night before the coup was executed.
"I strongly suspect the decision by Prime Minister Malcolm Turnbull and the cabinet not to proceed with these type of changes severely affected the new Prime Minister's standing in the polls," Mr Hendy writes. Alex Ellinghausen.
Mr Hendy gave a speech to Parliament in May 2014 in which he argued that increasing the GST would be of insignificant economic benefit and the political consequences could be "horrendous".
In his book, he admits he was wrong and driven by politics.
"In hindsight, one of the biggest regrets of my time in Federal Parliament is not having pursued with gusto this change," he writes.
"I can say without reservation that I was worried about losing my marginal seat of Eden-Monaro. I was concerned we could not sell the policy."
Soon after the leadership coup, Mr Turnbull and new Treasurer Scott Morrison looked at tax reform which included raising the rate and base of the GST and even giving the states income taxing powers. Nothing came of it, partly due to political pressure and because of Treasury advice that the compensation required for increasing the GST made the change uneconomic.
Mr Hendy, who lost his seat anyway, says baulking was a mistake.
"In retrospect, I strongly suspect the decision by Prime Minister Malcolm Turnbull and the cabinet not to proceed with these type of changes severely affected the new Prime Minister's standing in the polls," he writes.
"It s clear people do not like the idea of increased tax rates ... But what is apparent to me is that they nonetheless wanted to see major reforms to deal with Australia's economic challenges and they simply weren't seeing enough of that.
"They collectively saw the failure to proceed with this tax reforms as a massive lost opportunity."
The book was written before the $144 billion income tax cuts were announced in the May budget. They are being funded by a revenue recovery.
Mr Hendy argues large personal tax cuts would be one element of a change to the tax mix that could be funded by a boosted GST.
Such a plan would mean the extra GST revenue would not go to the states.
"If the states want a sustainable and secure growth tax, they need to revisit their opposition to a state income tax," he writes.
He reveals in the book that when serving as Mr Turnbull's chief economist, he tried to no avail to push industrial relations reforms. He lauds Mr Turnbull for reintroducing the Australian Building and Construction Commission and establishing the Registered Organisations Commission, saying they could be the biggest IR reforms in half a century. But he says more should have been done.
"One of my biggest regrets ... was that I was unable to get any internal support for implementing further industrial relations reforms."
Source: AFR 6/6/18