Tuesday 1 January 2013

How I sold reform to Labor: Paul Keating


How I sold reform to Labor: Paul Keating

Paul Keating
"The tax system we have today is broadly the tax package I succeeded in having built in September 1985," the Hawke government treasurer told The Australian. Picture: Paul Johns Source: The Australian
PAUL Keating says the key to successful economic reform is "execution", pushing ideas past the hurdles of opposition and making them happen.
The cabinet documents for 1984 and 1985 reveal a government in reform overdrive, deregulating financial markets, building trade with China, reforming tax and preparing the ground for national superannuation.
"The tax system we have today is broadly the tax package I succeeded in having built in September 1985," the Hawke government treasurer told The Australian.
The top rate of personal income tax came down from 60c in the dollar to 49c and then 47c, while capital gains tax, fringe benefits tax and dividend imputation were all introduced.
"Part of my skill was to learn through the cabinet and the Left and Right factions how to argue a case and pull the Labor threads together; how to play to their hearts and get a case built," he said.
"Unless you have those skills, you don't get the changes."
In the case of tax reform, ministers from the Left, like Tom Uren and Arthur Geitzelt, were strongly opposed to dividend imputation, while the centre-left's Peter Walsh was opposed to lowering the top rate of income tax and ministers on the Right were opposed to capital gains tax.
"To the guys on the Left, I'd say no one but me will sell the taxation of capital profits, but you can't go around penalising the dynamic production of income by taxing company income twice," he said.
"My job was to explain to an otherwise reasonably unsophisticated group on these matters why a package of this dimension and sophistication was needed."
At the release of the cabinet documents, minister Susan Ryan said the meetings on tax reform would last long into the night.
"Keating led the charge and instructed us all. He was at his best. He would explain the complex things. He'd be dramatic, he'd draw graphs and diagrams about what would happen. I found it totally persuasive," she said.
"Not every member of cabinet did, but he educated us about tax, how it worked and why it had to be reformed."
Mr Keating says it was not hard to see the case for reform at the beginning of the 1980s.
"The place was hugely uncompetitive, ring-fenced by tariffs and asphyxiated by an over-valued exchange rate that was supposed to put downward pressure on prices to contain wages, but didn't and only slowed growth. There was wage inflation and the inflexibility of national wage cases.
"Government outlays had risen from 23 per cent to 30 per cent of GDP and crowded out private borrowing. It was clear you couldn't stand back.
"But it was so mammoth that no one knew what lay underneath the carpet. Once you lifted a corner with a whole lot of worms underneath, you had to keep on lifting."
He says the government first deregulated financial markets, and then the product markets which were protected by quotas, tariffs and industry assistance.
The reforms continued under his government from 1991 with the abolition of centralised wage fixing. "The key was the co-operative structure of the Accord."
Mr Keating says this gave a coherence to the reform package.
"At any point in the 1970s, you could find bits of talk about deregulating finance, or find someone talking about labour market reform or someone saying you can't have only three in 10 students completing Year 12.
"What you never had was the coherence of policy that we had."

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