The Opposition must get behind tax reform too: Kohler

The most important thing to come out of the past two weeks of horse-trading has been the plan to hold a tax summit. Or at least it could be. It could also be a complete waste of time.

Unfortunately this latest instalment of tax reform in Australia has begun with another pre-emptive strike, just like the effort that began in 1985 and which took 15 years to complete.

Having commissioned a broad-ranging review of the tax system from an expert panel headed by Treasury Secretary Ken Henry, that then spent 18 months working on it, the Rudd Government plucked out a mining tax to fund election promises, and polarised the community.

After Kevin Rudd was sacked – largely because of that – it was modified by agreement with the miners, but it is still being used to fund election promises and now the deal with the Lower House independents as well, and it is still polarising the community.

As a result, discussion about tax reform now revolves around whether the Mining Resources Rent Tax is on or off the table at the summit.

The government can’t honestly put it on the table unless there is a way of replacing the revenue, but switching Australia’s minerals taxation from ad valorem royalties to a profit-based resources rent tax is one of the two or three fundamental tax issues that need to be debated and resolved.

The fundamental issue in 1985 was consumption tax, and the pre-emptive strike that killed it came from the newly formed Business Council of Australia, headed by Westpac chief Bob White. The GST was contained in a paper called Option C and promoted by Treasurer Paul Keating, but as the 1985 summit got underway, Bob White got up and opposed it, effectively killing tax reform for 15 years.

In 1992 it became even more politicised when John Hewson included a consumption tax in a wide-ranging and radical set of election policies. By then Keating had flipped on the issue and won the 1993 election as a result.

The ALP remained opposed to a GST, and when it came back on the agenda after John Howard’s victory in 1996, it had to be legislated with the help of the Democrats, since the Coalition did not gain control of the Senate. This deal eventually destroyed the Democrats.

So the question for the nation’s political classes in 2010 is whether this time tax reform can be achieved in less than 15 years.

The key issues are: minerals taxation, taxes on capital, including negative gearing, and welfare, including taxes on retirement incomes and savings.

And the question, as it was between 1985 and 2000 on the subject of taxing consumption, is what roles will the Business Council and the opposition take? Will they be constructive or self-serving.

As we learnt with the industry and IR reforms of the 1980s, the best way to get difficult reforms through parliament is with the support of the opposition. That’s why the Hawke government’s great legacy is industrial modernisation rather than tax reform – because the Coalition supported it.

And that’s why the forthcoming tax summit could be important. Although tax reform can be achieved with the support of minor parties and independents, as it was in 1998, far better and more efficient to do it as a joint project of business and labour, represented in parliament by the ALP and the Coalition.

And unfortunately Kevin Rudd and Wayne Swan got this process off to a very bad start on May 2, when they announced the Resource Super Profits Tax. That immediately antogonised the entire business community, and turned it into a political opportunity for the opposition.

It’s why the spotlight should be turned on Tony Abbott, Joe Hockey and Andrew Robb now: they are the ones who need to take a constructive position on both tax reform and climate change.

If good policy is left to the motley group of independents, it will be a mess. The lesson of the 1980s is that it’s best done with the support of the opposition.

This article first appeared on Business Spectator.