The Guardian 30 March, 2005

Editorial

Howard’s grab for power

There is an old saying that “figures don’t lie but liars can figure”. But this hardly explains the stoush between the states and the Commonwealth government over the allocation of GST monies to the states and the removal by the states of various taxes which the federal government says should be removed.

On this and other issues — industrial relations for example — the federal government is out to centralise powers in its own hands to the exclusion of the states. It is a mighty grab for power by the Howard government. That is the real agenda.

If the federal government succeeds in forcing the state governments to heel on the question of taxation, a major step will have been taken by the federal government to achieve its objective. There is, therefore, much more at stake than whether or not the states should have removed some of the taxes they continued to collect.

If successful, the federal government will immediately claim the credit for having cut taxes without having made any contribution itself. It will also put the Howard government in a strong position to further cut revenue allocations going to education, health services, housing, welfare and other necessary community services at present provide by the states.

Unfortunately, neither the federal Liberal government nor the state Labor governments question the GST which has become a main source of revenue. It remains the most unfair tax ever devised. Using the false cry of putting everyone on the same level, it imposes considerable taxes on pensioners and low income earners at the same rate as those on high incomes. Howard once described the GST as a “never ever” tax and the Labor Party (after a brief flirtation by former Treasurer Paul Keating) opposed it. It was adopted on the vote of Senator Meg Lees, who was leader of the Australian Democrats at the time. Since its adoption, however, the major parties have had nothing to say about their earlier opposition and it is clear that both parties will maintain it irrespective of which Party is in office.

Another reason for the issue of state taxes being raised at this time is to divert attention from the rise in interest rates — the first lick of which has already taken place. It may be followed by more rises in the not-too-distant future, imposing a considerable burden on those with home mortgages. Interest rates are continuing to rise in the US and the reasons for this are similar to those in Australia.

The rise in interest rates has little to do with whether or not it imposes increased payments to the banks by borrowers. It also has little to do with whether the economy is booming or that inflation is taking off again. It is about being able to attract foreign capital into Australia to offset the huge balance of trade deficit that is running at over $2 billion each quarter. This deficit and the accumulated debt have to be financed either by overseas borrowings or by attracting an inflow of investment capital from foreign banks and corporations. The money will flow in if interest rates are high enough. This is also a main reason for the rise in interest rates in the US which has a huge budget deficit and an equally huge trade deficit.

The chronic difficulties for the US economy are set to increase, perhaps dramatically, if more countries continue to move their trade out of dollars and into euros. Towards the end of this year Iran is set to establish its own oil exchange (in euros) and, if this happens, it could have catastrophic effects on the US economy which has relied for many years on the dominance of the dollar in the oil trade.

These are all reasons why John Howard says that the federal government is “not playing games” when it makes its demands on the states. However, it is not telling the Australian people as to what the real reasons are. We are all, once again, in for a lot of lies and half-truths. While the state governments are not at all virtuous either, it is better that the Howard government is not allowed to get away with this grab for power.

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