Spare a thought for Ken Henry and his Treasury staff (official tabloid term: “boffins”). Every time there’s a new problem for the Government it gets whacked onto the tax review. The week before last it was whingeing pensioners. Now it’s an investigation of the interaction of the GST and fuel excise. Cos that’s “a tax on a tax”.

Hard to believe, isn’t it? A tax on a tax! Where do they get off having a tax on a tax? They don’t need a review to know that taxes on taxes are obviously, innately evil.

Indeed, they’re un-Austrayan.

The Government’s talking about removing it. Only days after attacking the Opposition for proposing to reduce fuel excise.

Which is odd, because I can’t see what difference there is between removing the apparently demonic “tax on a tax” and reducing the fuel excise by some arbitrary amount, which is allegedly the height of economic irresponsibility. Sure, the split between the Commonwealth and the States might be different, and the distortionary effects might play out slightly differently at the margins, but it’s still just revenue.

So when someone complains about how unfair “taxes on taxes” are, ask exactly what the problem is. Bet they can’t tell you.

And unfortunately, just because it’s a “tax on a tax” doesn’t mean you don’t have to make up the revenue from somewhere else if you remove it. Unless you’re Brendan Nelson.

But it’s a convenient out for a Government that might start to worry that the punters are dumb enough to fall for Nelson’s 5c a litre routine. The states can see which way the debate is shifting. Anna Bligh is already moaning about the effect on Queensland’s revenue if the tax on a tax is removed.

(Not that we’ll get very far if state governments are permitted to have a say on tax. Or anything else. The 2020 summiteers pretty much had it right: let’s abolish them. Take the states out behind New Zealand and shoot them. Surely the conservative side of politics wouldn’t object — it’s not like they’re going to ever run a State Government again.)

But maybe — yikes! — the states will have to have a new source of revenue to replace the tax on a tax. It could be called the no-tax-on-a-tax tax. Let’s hope there’s no GST liable on it, because that would be a tax on the no-tax-on-a-tax tax, and that would just start the whole vicious cycle off again. Especially if you own a cab or manufacture drawing pins.

The entire country seems to be drifting into petrol madness, pushed by motorists’ sense of entitlement to cheap fuel. And the tendency to magic pudding-itis has never been greater. Motoring groups have always been expert at pushing the view that fuel excise is somehow particularly iniquitous and should be cut, but never bother to say how the reduction should be funded, or why vehicle owners should get a tax cut ahead of other groups in the community. And when there’s a $20b-plus surplus, there’s even less pressure to explain how it’ll be paid for. “It’s anti-inflationary,” proponents say. Like the couple of billion dollars moved from governments to consumers will just vanish from the economy.

How did we get here? In the 1980s, if you peddled this rubbish, Paul Keating and Peter Walsh would publicly dine on your entrails. You’d be demonised as a rent-seeker, a fiscal vandal, an economic illiterate. Now their Labor heirs are too busy proclaiming how much they feel everyone’s pain to argue the case. That’s why they’re sneaking around trying to find a backdoor way into the populist position adopted by the Coalition.

Peter Fray

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Peter Fray
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