Australia, N. Zealand tackle tax reform
Who made the right decision -- Australian Prime Minister Robert Hawke or Prime Minister David Lange of neighboring New Zealand? Both nations, until recently, were committed to a radical overhaul of their tax systems.Skip to next paragraph
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In each case the objective was to spur economic recovery by increasing individual incentives. That meant reducing personal income taxes, the two Labor Party governments figured. The reduction in income-tax revenues was to be offset by the imposition of relatively high point-of-sale consumption taxes.
Australia announced a national ``tax summit'' at which businessmen, politicians, labor unionists, and other interested parties could toss around the question of tax reform. But there were no illusions about the real purpose of the gathering: to rubber stamp reform proposals that were engineered by Mr. Hawke and his treasurer, Paul Keating.
An unforeseen upset was the high degree of opposition to the proposals. Income-tax cuts were welcomed, but powerful groups -- including unions -- worried that, with higher sales taxes, the average salary earner would be worse off than before.
The Hawke administration backed off. The subsequent budget contained no significant policy changes. There is no switch to higher sales tax and lower income tax. Instead, cost-cutting measures are expected to provide for some deficit reduction as well as a hike in some welfare benefits -- specifically those affecting young people. Analysts suggest that Hawke was worried by a drop in his popularity indicated in recent public-opinion polls. The analysts said Hawke thought tax changes in the face of public discontent could exacerbate this trend.
Suddenly there was an awareness in Labor Party circles of possible electoral defeat. Even now, the success of government policies depends on continued union restraint -- which critics suggest won't survive to the end of the year.
But in New Zealand, Prime Minister Lange opted not to follow the Australian decision to shy away from the issue. Mr. Lange, too, faces union opposition to tax reform. The country's powerful unions support his party, but they fear the combination of an income-tax cut and a new sales tax will, in the end, mean the payment of more tax.
But Lange stuck to his guns. His government announced a 10 percent, across-the-board sales tax to be imposed next year, coupled with cuts of up to a third in personal income taxes. Unions objected. Even now there's the possibility of strikes later in the year.
But Lange, say aides, is betting that unionists will want his government to survive, rather than have party less sympathetic to them win power. Lange has criticized opposition to his policies by saying: ``I do not feel uncomfortable if I am attacked by wild statements from ill-researched sources.''
What's more, he added, ``you're never going to win a popularity poll imposing a tax -- let's face it.''