Do we need to overhaul our income tax system?

Ross Greenwood speaks to Former Liberal MP and economist Peter Hendy about why Australia’s failure to raise the GST could see Malcolm Turnbull lose the next election.

Introduction: Do we need to overhaul our income tax system?

Ross Greenwood:  I want to take you to something else, and that is in our Parliament, one of the great regrets I think of our Parliament over the past 10 years has been that there has not been a significant amount of legislation go through that is really groundbreaking. As you may be aware, though Australia’s economic growth rate is right now picking up and that’s good news, there’s no doubt about that. One of the reasons why Australia has been stuck even though it’s been better than many other countries because we didn’t suffer as deeply in the global financial crisis is that we can’t get productivity moving. Our tax system doesn’t work, our infrastructure has been relatively slowly rolled out. It’s a situation where things that could improve for why Australia operates industrial relations you can argue is another one because since you’ve had the whole work choices scare in 2007, effectively the coalition doesn’t want to go anywhere near that. It’s fearful of trying to make big changes because it will be pointed straight at them as a political issue.

One person who is very much across all of these issues because he sat as the Executive Director of the Australian Chamber of Commerce and Industry which is one of the peak employer bodies. He’s sort as a liberal politician himself. He’s an economist. That man is Peter Hendy. Peter Hendy has written a new book called Why Australia Slept but interestingly enough, Peter Hendy also literally gives himself a bit of a hiding because he says even as a politician, he became politically frightened. As a result, things that should have been done such as maybe raising the GST in Australia and allowing lower taxes for businesses and ordinary Australians was not done. That fight might now have been lost to Australia’s long-term detriment. He joins me on the program right now, former Turnbull minister and economist, Peter Hendy. Many thanks for your time.

Interview with: Peter Hendy, Former, Liberal MP

Peter Hendy:  Good day, Ross.

Ross Greenwood:  You were the member for Eden-Monaro which has always seemed to be the bellwether seat. You win Eden-Monaro, you win the election type of thing so therefore, as a result, your role as a politician would have been always on tenterhooks watching your own political results.

Peter Hendy:  [laughs] Yes, it was. It was, Ross. This book I’ve got coming out, you’ve summarized that well. There are a lot of economic reforms that we still need to come to. The book looks at history from 1901 but it also looks at the current economic challenges. You said it, we have a productivity issue. Growth is good at the moment partly because there’s bit of a rebound on mining and on terms of trade, they’re looking good and of course, we’ve got strong population growth that’s fuelling the growth in the economy, but really what we need is stronger productivity. We’re just not getting that even.

Ross Greenwood:  One thing that might not be known about you is you were the principal author of John Houston’s fightback package. Now, there a GST of 15% was proposed. It was defeated politically. It took ultimately John Howard and Peter Costello to come to power and to have enough numbers to be able to get a 10% GST through. A fact of the matter is now the whole notion of trying to raise the GST is completely for both political parties it seems off the agenda because they believe in their own minds, they think it’s a vote loser, not a vote winner. What’s your own feeling? Do you think Australians are more mature than that now?

Peter Hendy:  I think they are. Now I did do a mea culpa for this book and I was actually concerned back in 2016. It was really more about the fact that we had won the contract. We had a brand new Prime Minister and a brand new Treasurer in Malcolm Turnbull and Scott Morrison. I don’t think and had neither a budget in those jobs as of that date, I just didn’t think that they could do it. I think the fact that we raised the issue about a major big bang reform to the tax system in term– This is all about reducing income tax. It is raising the GST but the focus should be on the factors reducing income tax in big dollar terms way beyond what the government announced in the last budget a few weeks ago, way beyond that to boost productivity in this country.

There’s other things. You mentioned industrial relations and all that and I refer to those in the book. Our top rate income tax is like 47%. People will be surprised because they think of Europe as like old man Europe sort of thing but European average top rate is less than 35%, it’s vastly different. Now, they have higher what they call VAT or GST and that helps them get that down. The point is this, in Australia with the top rate of 47% when you put in the Medicare levy, it’s basically just about 50% so if you earn more money, you get into the higher tax bracket, you lose basically 50% of everything- every extra dollar you earn. That is a penalty to people to work harder.

Ross Greenwood:  The interesting thing for you as not only a politician but then also in regards to what took place in terms of replacing Tony Abbott with Malcolm Turnbull as Prime Minister because you’re a part of that also. You worked for Malcolm Turnbull as Chief Economist in 2016-17, your philosophy, you’re an economic dry. I would have thought that your politics from an economist’s point of view will be more aligned with those of Tony Abbott than they might necessarily be of Malcolm Turnbull. The question is whether ultimately the coup was worth it or not given the fact that subsequently, we have had this lack of real reform movement coming through the economy would it not have been better under Tony Abbott had he stayed in place because it would have been closer to the philosophy that you’ve had over your life?

Peter Hendy:  I don’t want to get into that and rake over all those old coals but the fact is that Malcolm Turnbull is pro-market, pro-business. I know he’s described by some people as  and all that stuff but as a lifelong businessman, before he got into politics, he has a very good understanding of economics more so, if I might say it than I think Tony did. My backing is whoever was in contrary to my views about good policy. I think that we still nonetheless have a big agenda to implement, whoever’s in. If there’s a change of government in the next election, I would hope that what I wrote in my book is implemented by that government. [chuckles] A lot of it unfortunately, not enough is bipartisan in terms of policy in this country. What the goal should be is the national interest as opposed to petty points scoring.

Ross Greenwood:  Do you believe the petty point scoring occurs to the detriment of Australia’s economy, of its people, of the businesses?

Peter Hendy:  An answer to that question, I think there are problems with our democracy so one of the chapters of my book is actually, and it’s one of the earlier chapters before I get into what needs to be done in reforming the economy is what you need to do in reforming the parliamentary system. I know it’s very hard but I think we should actually work out some way to fix the blockage in the Senate. You can still have the same electoral system, the producers, crossbenchers but I think we need to do something about when a government, Labor or Liberal, puts forward an agenda, wins an election, and just can’t get its agenda through, I think that is the problem with our parliamentary democracy and I think we should look at it as well as that sort of reform as well as economic reform.

Ross Greenwood:  Hence the title of your book, Why Australia Slept. I think most people who are observers of this program would say that I broadly agree with that. One of the fundamental problems in Australia is trying to have pragmatic government, government that can get its agenda through, and ultimately you vote for the agenda, you vote for the government, and they go and get it done. If you want to change that agenda, you change the government, and you get a new agenda coming through. I think that’s the absolute key.

Peter Hendy:  I think you did write that. The way I would expect it is that the two role, is it the case that decade after decade, the Australian population put in a new government with an agenda and that agenda does not get implemented. No wonder the general public is jaundiced about that democracy because [chuckles] it’s not working.

Ross Greenwood:  That’s exactly, it’s not working. Peter Hendy, I say that book, Why Australia Slept, the former head of the Australian Chamber of Commerce and Industry, the former MP for Eden-Monaro for the coalition government, and a former minister in his own right. Peter Hendy, I appreciate your time here on the program this evening.

Peter Hendy:  Thanks for your time, Ross. Thanks.

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Image source: 2GB

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