Rudd, Abbott in wacky race to the bottom of the tax barrel
Wednesday March 17, 2010
It doesn't matter whose policy's bigger than whose when both are bad. IT'S hard to decide whose idea was worse. First was Kevin Rudd, who announced he wants 30 per cent of the states' GST so he can "fix" the hospital system. Then there was Tony Abbott, who announced he wants to increase company tax to "fix" parental leave.First to Abbott. He proposes a government payment to new mothers who leave the workforce of six months' salary on full pay up to $75,000. It is billed as the most generous state scheme in the world after Sweden €” which in itself should have set the alarm bells ringing. For Liberals, that alarm should have sounded like an air-raid siren once Bob Brown and the Greens lauded the scheme.Companies that already operate maternity schemes will close them and encourage employees to go on the government entitlement. And why shouldn't they? Otherwise they would pay twice €” directly to their own employees and indirectly through increased taxes. So private benefits will be socialised, spending will rise and taxes will increase.I have been to a lot of Liberal Party meetings in my life and I can honestly say I have never heard a speech in favour of higher tax. Sure, I have heard speeches in favour of replacing inefficient taxes with simpler ones (and indeed given a few of those myself) and I have heard people argue for better tax compliance as a way of reducing taxes for honest and enterprising folk. But the idea of increasing tax would be as foreign to the Liberal Party as voluntary unionism at the local ALP branch.The Liberal Party is quite proud of the fact that in government it cut company tax from 36 per cent to 30 per cent and introduced full dividend imputation. At the time, it made Australia one of the most competitive tax jurisdictions in the developed world. Others are now catching and overtaking us. We cannot afford to go backwards.Abbott undoubtedly thought he had to say something on International Women's Day €” he keeps being told he needs more appeal to women voters €” and so he adopted the Crocodile Dundee approach. In the movie, a New York mugger pulls a switchblade on Mick Dundee. Our hero laughs at the blade, saying, "That's not a knife, this is a knife", as he pulls out his 30-centimetre hunting blade. The terrified mugger disappears into the night.And the point of Abbott's proposal is to tell the public that Rudd does not have a maternity leave scheme. "This is a maternity leave scheme," he declares.In this kind of politics, if your opponent has a bad idea you try to outflank it. Your opponent has a mildly bad idea, so you come up with a more extreme one and have a race to the bottom.Which brings me to Rudd. During the election campaign, Rudd promised he would fix the hospital system or, if he couldn't, he would take it over. It turns out he will do neither. Anyone familiar with politics knew from the moment he made his pledge that that would be the outcome. He might have won some votes, but only by creating false expectations €” expectations that are now back to haunt him.So Rudd has come up with the idea to take 30 per cent of the states' GST and allocate it to hospital boards. It does not put more money into the system, it just strips the states of responsibility for their finances.When I introduced the GST, revenue was allocated to the states to be spent as they determined. The idea was that competent states that delivered good services €” such as good hospitals €” would be voted back and incompetent ones voted out.Under Rudd's plan, they will lose control over 30 per cent of their revenue, which will be administered by a new tier of bureaucracy. If the states agree, they may as well give up the lot. Why trust them with the balance? The next step will be to put 20 per cent of GST into school boards to run schools, 10 per cent to police boards to run police, and the remainder to road boards to construct roads.I am surprised that this has not yet occurred to Abbott. Why not demand that the states' GST fund other worthy causes €” such as maternity leave?Rudd has come up with a bad principle that will lend itself to no end of outflanking. And while all these bad tax ideas are running wild there is a report that has been sitting in someone's desk drawer that, we are told, lays out a blueprint for a very much better tax system €” the Henry report. We are not yet allowed to know what is in it, but I'll bet it has neither the Abbott nor the Rudd proposal. It couldn't be that silly!Peter Costello was federal treasurer from 1996 to 2007.