The GST — past, present, future — and always tense
August 4, 2025
There’s little elegance in the way Australia approaches tax reform. It’s never a highway cruise.
Rather, like an old farm ute, it bumps along a winding, corrugated bush track. There are plenty of scratches on the duco as it pushes through the scrub and plenty of barking from the back.
The idea of a broad-based consumption tax was first mooted by Les Bury, federal Treasurer in the government of John Gorton between 1969 and 1971. However, political courage wilted then as it so often does.
Nonetheless, Bury’s 1970 budget included measures that inched towards a consumption tax: company tax was raised and as were several indirect taxes including those on petrol, cigarettes, stamps, television and clothing.
In 1985, Paul Keating, courageously reformative and never one to shy away from a political dogfight, strongly supported a broad-based consumption tax known as “Option C”.
In his book, “Keating – The Inside Story”, John Edwards quoted Keating as saying “… taxation reform is not optional, it’s mandatory. If we were to squib it… we will have been seen to have lacked the courage — the follow-through — with our own policy, or we’d be seen as being run by the unions”. As it happens Hawke, the unions and some of Keating’s less courageous colleagues did “squib it”.
So it was left to the Howard Government which proposed a GST in August 1998 and took it to the election in October of that year. As a Democrat staffer at the time, I remember the party room meeting where economic adviser, John Cherry, presented an instructive graph. It was, essentially, an X. The upward axis reflected the revenue demands on the taxation system into the future. The downward axis showed the capacity of the taxation system to raise that revenue. Like Keating back in 1985, it was abundantly clear to most of us tax reform was mandatory – but it had to be fair.
The Howard Government scraped home narrowly. Negotiations started and the barking from the back of the ute started up in earnest.
Howard’s GST proposed a 10% tax on goods and services to replace the old, patchwork system of wholesale sales taxes and a dog’s breakfast of state imposts. Howard promised to direct the GST to the states in exchange for them giving up a raft of inefficient taxes.
It is instructive that the state premiers at the time, most of whom were Labor, couldn’t wait to sign the deal. At the same time, federal Labor and its luvvies represented the GST as a sugar bag full of king browns and taipans about to be shaken out on the kitchen floor of every Australian household.
Labor leader Kim Beazley thundered in his prolix fashion that the GST was a regressive, unfair attack on the battler. The argument was that the GST would hit the poor hardest, make bread and milk more expensive and let the rich off the hook. The campaign was fierce, passionate, and — at least for a while — effective.
Federal Labor absented itself from the negotiations, leaving the field — and the public opprobrium which it ably whipped up — to the Australian Democrats.
Holding the balance of power in the Senate after the 1998 election and as they promised during the campaign, the Democrats entered negotiations with Howard and Peter Costello, securing significant amendments to the GST package. Most notably, and to the immense frustration of Treasurer Costello, the Democrats negotiated for basic food items to be exempted, along with a range of other concessions related to education and community services. The Democrats’ eventual support for a modified GST legislation saw it pass both Houses of Parliament.
Shortly after the passage of the legislation, Senator Lees dropped a letter from Keating on my desk with a grin, asking me to draft her reply. It was your typical Keating epistle, written with a thumbnail dipped in death adder venom. A fan of the former treasurer, I’d read Edwards’ book and was able quote in my reply the bit about “squibbing it”. We never heard any more.
The GST took effect on 1 July 2000. Despite the dire warnings of Labor and the luvvies, the sky didn’t fall in, children didn’t die and people didn’t have limbs amputated. The state premiers were in receipt of more money than they had any right to dream of. Sadly, most of them wasted it by bloating their bureaucracies and a number of them retained the state-based taxes that they promised to abolish. The tax that was once an outrage became, in time, just another feature on the Australian landscape. The ute still clattered noisily along the bush track.
Labor was confident of its re-election in 2001 and promised to roll back as much of the GST as it could. However, Australians became used to the GST pretty quickly and didn’t feel the need to dispense with the Howard Government until 2007.
Now, 25 years later, the GST is showing its age. Consumption patterns have shifted and revenue isn’t keeping up with the burgeoning demands of the NDIS, education and ageing infrastructure. And then there’s the baby boomer cohort digging energetically into the health and welfare budgets….
Australia’s GST rate — still stuck at 10% — is among the lowest in the developed world. Raising the rate to 12.5% or 15% would bring Australia into line with plenty of other developed nations and give the federal and state governments the revenue they need into the future.
At the same time, the political class is terrified that any talk of an increase in the GST might cast them back into the labour market.
But it matters not. Prime Minister Anthony Albanese has ruled out any change. “Not on the agenda,” he says, preferring to talk about progressive taxation and cost-of-living relief.
However, in playing it safe Albanese, with a thumping majority which won’t dissipate in one election, is missing a rare chance to lead. He is in the perfect position to explain to the rest of us why reform is needed. He has the time and the majority to build a fair and equitable GST.
He also has the time to build consensus and to leave Australia with a taxation system fit for the future.
The tabloids would howl – as would the economic illiterate. The Opposition would pounce hypocritically. But it would demonstrate real leadership and the kind of courage that Australians respect, even if they grumble about it over their beer in the pub.
Courage in politics isn’t just about yelling at the other side. It’s about having the courage to tell hard truths to your own supporters. If we, the people, demand courage and truth on the part of our leaders then we must have the courage to accept and act on the truths they tell us.
Albanese has a choice. He can continue to bang the old farm ute along the track.
Or lead.
John Schumann was the Chief of Staff to Senator Meg Lees at the time that the GST was negotiated.
The views expressed in this article may or may not reflect those of Pearls and Irritations.