The Money Men by Chris Bowen (superbooks4u .txt) 📕

settled on. So Costello was incredulous when Howard asked him to consider an 8 per cent GST—with no personal tax cuts—very late in the policy-development process. Howard was merely looking for ways to minimise the political risks in such a massive undertaking, but Costello did not react well to the request:

I could hear my voice rising. I could feel my face starting to flush. I was battling to control my temper. I would not agree. He asked me to go away and look at it. I went back to my office and told my Chief of Staff Phil Gaetjens what had happened. He gave me some breathing exercises to try to calm down. Then he started ranting and raving. His voice began rising as he walked around the office shouting and cursing.33

Howard has a very different view of his request, including the rate he wanted considered:

Late in the preparation of the final tax plan, I asked that a rate of 7.5%, rather than 10%, be examined. When something as complex as this huge reform is under consideration, all manner of options are looked at. After putting the proposition to Peter Costello and getting his advice on it, I did not pursue it any further.34

It wasn’t the first time that a prime minister and their treasurer had had very different recollections of the same meeting, nor would it be the last.

Howard’s idea of an 8 per cent (or as he remembers it, a 7.5 per cent) tax was dropped, and the Cabinet and Liberal and National party rooms endorsed the 10 per cent package. Next, the Howard government needed to win the October 1998 election, in which the GST was the main issue. Early on election night, with the government looking at a 4.6 per cent swing away from it, and Kim Beazley’s Labor opposition winning a majority of the two-party preferred vote, Howard told his family that a Labor victory was likely. But it wasn’t to be. Despite losing the popular vote and suffering a loss of fourteen seats, the Howard government was re-elected with a thirteen-seat majority.

The government, of course, did not have a majority in the Senate. It would need the vote of at least one crossbencher. Howard and Costello focused their attention on the Tasmanian independent senator Brian Harradine. Costello was attentive to Harradine and agreed to a number of his non-GST-related Budget requests (as well as some non-Budget requests, like the withdrawal of a Department of Family and Community Services pamphlet on homosexuality). But Harradine would prove harder to win over than that. In May 1999, while Costello was flying to an Asia-Pacific Economic Cooperation (APEC) finance ministers’ meeting in Malaysia, Harradine told the Senate, ‘The question I have to ask myself is whether I am going to be a party to imposing an impersonal, indiscriminate tax on my children, my grandchildren and their children for generations to come.’ Harradine then answered his own question: ‘I cannot.’35 ‘I felt gutted,’ Costello records.36

There were now three options for Howard and Costello: call another election to win another mandate and attempt to get better numbers in the Senate, while risking their majority in the House; drop the policy on which they had gambled their government; or negotiate with the key block in the Senate: the Australian Democrats. The third option was the only feasible plan.

Costello claims not to have disagreed with the decision to negotiate with the Democrats, arguing that he was the ‘Bad Cop’ in the discussions and that he let Howard play ‘Good Cop’. If this was the case, he forgot to tell Howard his plan. During the negotiations that began on 20 May, Howard was frustrated with Costello’s belligerence regarding concessions to the Democrats. Howard would later write, ‘Perhaps he resented my leading the negotiations, but Peter Costello’s body language, from the beginning, was that of a reluctant participant.’37 Democrats leader Meg Lees also found Costello’s attitude perplexing, although there had been some advance warning. Prior to the negotiations, her party had said it was open to supporting the GST if ‘basic’ food was exempted. But Costello had ridiculed that proposal in April, saying that the administrative complexities created by exempting basic or fresh food would lead to a ‘nightmare on Main Street’.38

Nevertheless, by 27 May, Howard had agreed to an exemption for fresh food. This reduced revenue by $3.6 billion for the first financial year, which was partially made up for by a $1.2 billion reduction in income tax cuts, primarily for high-income earners. Pensions were to be increased by 2 per cent instead of the 1.5 per cent originally planned, and a one-off pensioner supplement was agreed to. In signing off on all this, Lees took a significant risk as the leader of a party that had evolved into a Centre-Left group. The deal she struck with Howard would eventually cost her the leadership of the party and play a role in the demise of the Australian Democrats.

Howard’s concession that the GST would not apply to fresh food was necessary to get the package finalised. Costello, however, clearly felt uncomfortable about this concession. ‘I don’t think that Peter Costello was entirely happy with the outcome,’39 Howard would diplomatically write years later. At a Canberra function just after the successful conclusion of the negotiations, Costello poked fun at the different tax status of the various types of food being offered to guests, including journalists, much to Howard’s obvious annoyance. Howard’s view is that Costello would not have been able to successfully negotiate with the Australian Democrats if he had been prime minister. This is probably an accurate assessment. While Costello had been prepared to offer a range of non-GST concessions to Harradine to get the package through, he was much less enamoured with offering GST-related concessions to the bigger voting block of the Democrats.

With the Australian Democrats negotiations now complete, the GST package was seemingly ready to pass through parliament. There was, however, one more significant political challenge to confront.

The introduction of the GST