Shakespeare on Tax Reform: 20 years of the GST

There has been some recent commentary noting that 1 July 2020 will be the 20th anniversary of the introduction of the GST. It is also the 90th anniversary of the introduction of the Wholesale Sales Tax which the GST relaced, the 45th anniversary of the Asprey Review report which advocated a broad-based consumption tax, the 35th anniversary of the Hawke Cabinet endorsing Keating’s Option C, with Keating famously rolled on the position in the following month, the 25th anniversary of the then Leader of the Opposition, John Howard, promising that they would never introduce a GST. And whilst on anniversaries, there was a Fightback birthday cake that had an impact as well.

That said, we have a GST which notwithstanding its unfortunate shape based on the Howard-Lees agreement that the Prime Minister was forced to concede, reflects one of two periods of great tax reform in Australian history: Hawke-Keating in 1985-86 and Howard-Costello in 1997-1999.

What are the ingredients of Tax Reform?

I thought it would be worthwhile to seek the guidance of Shakespeare on this subject. He had 9 principles of tax reform

1. The time must be right: “There is a tide in the affairs of men, which, taken at the flood, leads on to fortune”. Brutus in Julius Caesar IV iii.

The desire for tax reform tends to work in 12 year cycles in Australia’s history: Henry (2009), GST & Ralph (1998), Draft White Paper (1985), Asprey (1972) etc. Possibly the reason for this is that the economy changes over this period and tax must keep up with the change.  Also there is a “forgetting” of how difficult reform was last time.

2. The need for reform must be established: “O, reason, not the need” Lear in King Lear II iv fails to present sufficient arguments on why he needs so many knights.

This is difficult to establish where the need is grounded in a gradual decline in standard of living. For instance on company tax reform it takes a considerable period for the benefits to flow through to greater household welfare.

3. The current system must be seen to be broken: “Something is rotten in the state of Denmark” Marcellus in Hamlet I iv.

It is not without accident that the broken-ness associated with the Bottom of the Harbour Schemes of the late 1970s and early 1980s provided for a platform for change in the mid-1980s.

4. There must be reform ideas that can be grasped for the time: “…out of this nettle, danger, we pluck this flower, safety…” Hotspur in Henry IV Part 1 III ii.

Ideas have a vintage and need to be taken and used at a specific time. Sometimes their time is too soon, as a cashflow tax might be at the present time, but they need to be established as sound ideas that can be utilised when the time is right.

5. Leaders must have courage for tax reform:Of thinking too precisely on th’ event – a thought which, quarter’d, hath but one part wisdom, and ever three parts coward.” Hamlet IV iv.

Leaders must be able to build a consensus behind an idea. They need to establish a public interest shield to protect them from those opposing change.  This is not always easy. Laura Tingle once described Malcom Turnbull’s private reaction to a GST-Company Tax trade-off as “the go into the study, get out the service revolver and blow your brains out” option.

6. The flaws in the current system need to be exposed:The fault, dear Brutus, is not in our stars, but in ourselves, that we are underlings.” Cassius in Julius Caesar I ii.

The international discussion on Pillar 1 for the Current OECD-G20-Inclusive Framework consultation is about allocating residual profit of multinational enterprises to market jurisdictions where goods and services are sold. Whilst there are many factors involved, one is a newly perceived flaw in our transfer pricing provisions – that they don’t adequately tax residual profit.  This has only come to the surface in the past decade, although it has always been there.

7. There needs to be light or transparency on the system: “To seek the light of truth, while truth the while doth falsely blind the eyesight of his look.” Berowne in Love’s Labour’s Lost I i.

The past 130 years has seen the gradual movement of the “corporate” into a public domain. This started with Anti-trust rules in the 1890s in North America and moved to public accounting disclosures progressively over the 20th  Corporate Social Responsibility has grown in the last 50 years and the demand for greater information on taxation in the last 20 years.   Transparency is an underlying element of the reform.

8. Tax reform needs sound principles and should not be undone by the need for hyper-precision: “A pound of that same merchant’s flesh is thine: The Court awards it, and the law doth give it.” Portia in Merchant of Venice IV i.

Tax reform needs to be principle-based. There is a great need for simplicity and certainty, but it should not be defeated by the fact that some areas will be uncertain and complex.

9. Tax reform needs to take place in an environment of big players: “Aye, every inch a king!” King Lear IV vi.

Many would argue as we have, that Digital Services Taxes are very poor taxation. But as the US views DSTs as a form of tariff, a country must be cognizant of the risk that the “king players” will assert their authority in the global environment to the detriment of smaller players.

I would love to see a third wave of Tax Reform in my working career and I am hoping that the current COVID-19 environment means that it is ripe for rethinking our long term future. I doubt that GST will be part of that reform agenda in the immediate term. Once the base is settled it is almost politically impossible to change it and an increase in the rate will come with the need for significant compensation.

But there are other areas that are receiving attention and for those of you who believe in reform, the Bard would tell us “once more unto the breach, dear friends”.



One thought on “Shakespeare on Tax Reform: 20 years of the GST

  1. Brilliant Grant – HSC English flash backs! May the third wave (Tax reform, not C-19) define the imperative for a portfolio of efficient taxes, implemented quickly, which are debated by Frydenberg Pallas and Perrottet et al in the HOT Forums, which as King Lear IV states above, will require “Aye, every inch a king!”

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