We’ve been here before. This time it’s serious

With the current Treasurer jumping on the tax reform bandwagon, assuring the public that reform of the taxation system is the key to an efficient economy and thus prosperity, I thought to myself “Here we go again…”

Whether by design or just the way things turn out, calls like this usually end up in some reform but more for governments to spend and it’s not as if they are particularly good at doing this prudently.

Australians have seen all this before. Many times. The pro-revenue lobby never gives up.

The late great Australian economist, Geoffrey Brennan, made the case “that an old tax is a good tax”.  In the Foreword to Brennan’s 1987 publication The Case Against Tax Reform, John Hyde points out that:

“Change itself is harmful: it disrupts established patterns of economic activity and adjustments that have previously taken place. As people have adjusted to existing rules, unanticipated change is inequitable. Like continually changing rules of the road, continually changing tax rules are chaos.”

The proposed attempt to tax unrealised superannuation capital gains, which may ultimately expand beyond superannuation, is a case in point. It defies all rules of good taxation, if indeed there are such things.

But I want to revisit the whole ‘reform’ issue from a bit earlier.

Reform, however defined, is only one side of the coin. Reaching for my copy of Roy Jenkins’ excellent biography of William Ewart Gladstone, the great British statesman of the 19th century, I refreshed my mind on what drove policy back then that led to an unprecedented level of prosperity and quite likely efficiency in government. We would do well to heed some of the lessons of that era.

Gladstone was an extraordinary and sometimes quirky individual. He believed that financial discipline was essential to the strength and prosperity of both individuals and nations. As many have commented, he saw money not as a means of indulgence but as a resource that, when managed wisely, could serve the public good and promote national stability.

As Chancellor of the Exchequer, Gladstone championed balanced budgets, reduced taxation, and aimed to make public spending more efficient. He famously introduced the practice of presenting the annual Budget in a detailed and accessible manner, helping the public understand where their money was going. One of his budget speeches exceeded five hours in length. Not a time for social media sound bites.

By cutting unnecessary expenditures and reforming the tax system, Gladstone helped foster economic growth and public trust in government. He also was opposed, as far as possible, to governments borrowing to fund current expenditure believing that such practices hid the real cost of government from the public.

Gladstone also saw saving as a moral virtue.

Influenced by his Christian faith and Victorian values, he believed that wastefulness was a sign of moral decay. In both public office and private life, he promoted the idea that wealth should be managed with care, used wisely, and always with the consideration of its broader impact on society. We may today be having a cost-of-living ‘crisis’ but that in the end means adjusting spending to current income, for individuals and especially government. Times are now different of course to that of Gladstone and exerting some sense of morality in tax collection may seem a quaint notion, but I don’t think so at all.

Gladstone believed that the money extracted was not the government’s but the citizen’s. He strove for efficiency in government spending and controlling waste. Any official unwilling to save something even on “candle-ends and cheese-parings” was, he famously once said, “not worth his salt”. Such an idea would unlikely take hold in Canberra today I imagine. He opposed the introduction of the income tax when it was first proposed in the 1840s and later tried to eliminate it when he was Prime Minister. He was unsuccessful, but he prevented the tax from becoming ‘progressive’ and got the rate down from a high of 10 per cent to well under 2 per cent. Another idea that would have Canberra looking for the doona to escape under.

Gladstone favoured indirect taxes, but I suspect he would have recoiled at the idea of a GST as we know it now as it painlessly picks the pockets of the citizen to fund one government boondoggle or another. Some today suggest raising our GST to 20 per cent would be a fine reform. Without a serious consideration of what all this additional revenue would finance and whether it should be doing so in fact, such an idea should be totally rejected.

Australia has three levels of government, something Gladstone didn’t have to deal with. This is unlikely to change, and nor should it, but a serious re-examination of where responsibilities lie is long overdue, and a task that should be undertaken before any reform of taxation. It needs to be done now. Tony Abbott started on this path in his short term as Prime Minister and the Issue Paper of September 2014 is what remains with ideas unimplemented. The blueprint is there.

So, yes, we have been here before and in our thinking about the challenges about government and its costs, we might do well to reflect on the ethical and practical dilemmas faced by Gladstone in his time. This time it’s serious. Maybe it was then too.

Greg Lindsay is a Senior Fellow at the Centre for Independent Studies which he founded in 1976.