John Howard reflects on the implementation of GST in Australia
As Australia's 25th prime minister, John Howard led government from 1996 to 2007. In 1999, he legislated for the introduction of a goods and services tax (GST). At a UNSW Business School event to mark the 20th anniversary of the GST, Howard spoke to Julian Lorkin for BusinessThink.
An edited transcript of the conversation follows.
BusinessThink: Introducing the GST in Australia 20 years ago was very controversial. Why did you want to replace a lot of state and other taxes with a GST?
John Howard: Well, the belief that our tax system had become more antiquated; the inefficient, lopsided wholesale sales tax; and a belief that, provided it was done by taxing more of what people spent rather than what they earned, it provided more incentive and was a much better system.
BusinessThink: But the Australian version is watered down from its original plan. The original version included food, and it seemed to be a much more pure form of GST, just as a GST was implemented by New Zealand with very few exclusions. But the form we have now has many exclusions. Why? And is this a result of the difficulties you had getting it through the parliament, so you had to include this compromise?
Howard: Tax reform, like any major reform, is always difficult in Australia because we are a federation; we have two houses of parliament. A system of voting for the upper house – the Senate – produces a wider spread of parties and therefore it complicates major change. But that’s our system and I never complain about democracy.
BusinessThink: The main problem with a GST is that it's a regressive tax – it impacts on the poor more, compared with higher earners. However, you also had the support of business, so long as it was a simple uniform tax. They didn’t like the tax being at 12.5% – they preferred an easy to calculate 10%. You achieved that, but how important was it to have business behind you?
Howard: Well, business was very helpful. People like John Ralph in the business community was very helpful. But one of the important things was to remove the regressive impact of the new tax, and we did that, and we did it very generously. However, 20 years ago our proposal was opposed by the Labor Party, and they fought it every inch of the way, and they made it even harder.
I think [the GST] has greatly improved our tax system; it has got rid of some taxation [such as] the wholesale sales tax; it’s helped our exporters; it’s helped small business. Overall, it has made a major contribution to the tax system.
Anything that involves a major change is a big task and a big challenge, but I believed in it and I am very proud of the fact that we introduced it.