Reflections on the Howard “reforms”
2009 September 12
Interesting debate going on as Rudd has called economic changes under Howard as “indolent”. Terms that would be more appropriate I think are “microscopic” and “retrograde”.
Luckily Peter van Onselen gives a nice list of the major Howard “reforms”:
- Introduction of the goods and services tax. This was quite a mammoth change to the tax system. Unfortunately, it was a recommendation from the 1970s Campbell Inquiry and removed the good features of the old wholesale sales tax system such as progressive rates. If you ignore the rorting of the wholesale sales tax system, then the two achieve basically the same outcome. So it wasn’t really their change and it wasn’t a change the brought about prosperity to all due to structural change.
- Reforms to the inefficient waterfront. This was more of an example of how NOT to change things. The people who’s lives most depended on that employment were bypassed entirely in the process.
- Workplace reforms at multiple stages during the life of the Howard government. The only change of any note was “workchoices” and that was completely un-necessary as EBAs provide the necessary wage flexibility to individual firms.
- Abolition of the cumbersome Commonwealth Employment Service. Under which employment services were entirely privatised and those people who lived in poorer communities had little access to employment services. Whilst the people in the cities (where it is most profitable) were left with a service almost identical. Another small step which is mostly backwards.
- Introduction of Work For the Dole. So instead of getting long term unemployed people into jobs, they gave up.
- Granting formal independence to the Reserve Bank. Another hardly revolutionary reform. While the reserve bank was “not” independent, the government never used the override powers, even though there might have been a case for them to do that.
- The controversial privatisation of Telstra. And controversial is the word. The entire thing was privatised even though the monopoly ownership issues weren’t sorted out. Regulations were going to save us, but as we found out, large firms can play the political game as well.
- Strengthening of the banking system. How? APRA? APRA’s role was part of the RBA. Splitting something off a public institution isn’t reform. It is a restructure.
- Intergenerational planning with superannuation concessions. For goodness sake. These are the people who took the 15% tax off lump sum redemptions. So now why would people purchase pensions? This is the whole point of superannuation; funding household pensions from private savings not the commonwealth budget. Yet another backwards step.
- Setting up of taxpayer funds to plan for an ageing population. These are exactly the type of “sinking funds” Keynes talked about in the 1930s. And it wasn’t in a positive light. Keynes’ arguments under times of shrinking final demand are still relevant. Sure it is a mechanism that should be there, but they will not save you if private investment doesn’t occur and nobody seems to understand that.
These changes pale in comparison to things like the accords, enterprise bargaining, introducing superannuation, floating the dollar and moving the whole of monetary policy to the RBA to name but a few. These changes affected the whole of how we interact with one another and were based on the best available economics at the time. The Howard reforms were either just tinkering (“microscopic”) or implementing failed ideology (“retrograde”).
I might take this opportunity to point to the one thing that John Howard did that I agreed with: gun restrictions in the wake of the Port Arthur massacre. Yes, some people have a genuine need for the use of a gun in their work and there are recreational shooting clubs as well as Olympic gold medallists and these people are exemplary in the use of their weapon.
The Martin Bryants, Dylan Klebolds and Eric Harrises of the world do not need access to guns. The regular person in the street does not need a gun. The suburbanite does not need a gun.
It may be people with guns rather than guns that do the killing but if we can stop the guns getting into the hands of people who kill using a gun, then we’re doing a good job.
Many of the small business owners that I know have a special hatred for John Howard introducing Business Activity Statements.
One comment – services are taxed by the GST which isn’t mentioned in the post. My layman’s understanding of the GST is that it covers a much wider range of goods than the old sales tax.
I also understand that the GST is mildly progressive.
Indeed that is true. And I agree that including services which exclude a wholesale factor is important in the sense that excluding those services is a regressive taxation measure. The GST as Howard & Co. wanted it would not have been progressive at all. I believe it really needed to follow more naturally from the WST rather than just flattening it. The way in which it was implemented is similar to abolishing all income tax and replacing it with payroll tax (ok, this is just a hypothetical) but with the tax being at a flat 30% on all wages paid. I hear the arguments that that choosing what rates apply to what can be complex (but as Sam points out) is a BAS really that simple?
Also of higher importance, to what I was hoping to be my point, is that the GST was not an original idea of the Liberal party which dealt with the specifics of Australian politics in a way that changed the structure of economic interaction for the long term benefit of all.
Austin, I don’t understand your point. Peter van Onselen and other commentators have included the GST as a Liberal reform as Keating failed to introduce one in 1985 despite trying and Hewson lost the ‘93 election because of clever labor campaigning against a 15% GST (which also included exemptions for food – the GST mark 2 package).
Whether it could have been implemented better or whether the disliked BAS statements could be improved is not the point – the point is that a much broader-based consumption tax was introduced to replace a much more narrowly-based WST. In principle, a GST with a single rate gives politicians much less opportunity to play favourites with particular goods or even companies providing goods by changing the sales tax rate or reclassifying goods as subject to different sales tax rates, giving more regulatory certainty.
During the 80s and 90s, a broad-based consumption tax providing a guaranteed income stream to the states and territories was proposed by many people as a way to provide them with a more reliable income stream (as the revenues would be from a wider range of sources). Whether or not you think the GST is a better policy than the previous collection of taxes, it is a fact the Coalition brought it in. To me, it is better that a consumption tax be broad-based and so I support the GST in principle. I recall that a compensation package (including tax cuts) was introduced when the GST was brought in.