Keating Cool On Luxury Tax
Sydney Morning Herald
Tuesday June 20, 1989
CANBERRA: The Prime Minister's call for the Government to consider higher tax rates on luxury goods is expected to face strong opposition from Mr Keating and the Treasury.
Mr Hawke's luxury tax suggestion was strongly attacked yesterday by a number of industry experts and the shadow Treasurer, Dr Hewson.
It is the second time in as many weeks that an economic proposal by Mr Hawke has run into trouble. Last week his suggestion that the Government consider interest tax deductions on home loan repayments was promptly scotched.
The Treasurer has consistently scoffed at suggestions of a luxury tax in recent months, saying that the current account problems were due to imports of capital goods (manufacturing equipment and the like). Luxury goods were an insignificant part of the problem, he said.
A spokesman for Mr Keating said yesterday that he was quite willing to consider all options, but noted that the Government had never relied on"gimmicks or quick fixes", and was not about to begin doing so.
Despite Mr Hawke's willingness to consider a luxury tax, the officials in the Treasury have grave reservations about increasing tax rates on goods and services. A number of senior Treasury officials have privately indicated their opposition to higher indirect taxes as a means of curtailing the high level of imports.
Officials say they would prefer a more comprehensive package of tax increases and spending cuts to be included in the August Budget.
But their rivals in the Department of Prime Minister and Cabinet are understood to be considering higher rates of sales tax on some goods.
Dr Hewson said that Mr Keating had admitted on a number of occasions that luxury goods were an insignificant part of Australia's import bill. He also doubted whether they had have any impact on the deficit.
"There's a basic inconsistency here," Dr Hewson said. "The Treasurer has been arguing for months that it isn't consumer imports that are the problem; it's the heavy importation of investment goods.
"I think it's one of those classic, half-baked, left-wing-of-the-ALP-style arguments that they resort to in difficult circumstances as a Band-Aid solution rather than dealing with the problem."
The NSW ALP Conference has voted in favour of a 25 per cent surcharge on selected luxury goods, and the Left wing of the Federal party has also backed a similar tax.
The secretary of the Federal parliamentary economics committee, Mr John Langmore, released a statement yesterday backing a luxury tax, and supported the Prime Minister's call to consider one. He said there was "very strong support within Caucus for an increased tax on luxuries". He believed that public servants were preparing proposals for the August Budget.
Mr Hawke spoke again on a luxury tax in Paris yesterday and, while attempting to diffuse the issue, said it was a "legitimate issue" and"appropriate" for the Government to consider.
"I simply want to reiterate that I believe that is a legitimate issue to be on the table and I merely say that's one of the things that's being looked at," he said.
"I repeat that doesn't mean there is some decision which is imminent."
The head of Coopers and Lybrand's indirect tax unit, Mr David Vos, said that he could not see the economic logic in introducing a luxury tax. It would have very little impact, if any, on imports of luxury goods.
Mr Vos explained how a luxury tax could be implemented, and said it would be an easy task, despite some problems with arbitrary definitions of what constitutes a luxury good.
He said that the Government could amend the Sales Tax (Exemptions and Classifications) Act and nine other schedule, putting luxury goods into higher tax brackets. It could also create a new schedule with a much higher rate.
The highest sales tax rate is 30 per cent, but since 1985 the Government had reduced the number of goods in this category. It includes perfumes, shampoos, records, face powders, photes, VCRs, cosmetics.
The Government could simply copy the schedules used when a 66.6 per cent sales tax was introduced in 1952.
© 1989 Sydney Morning Herald