PRIME MINISTER
STATEMENT BY THE PRIME MINISTER THlE HON P J KEATING MP
CANADA ANDl THE GST: A WARNING TO AUSTRALIA
Mr Mulroney has now resigned as Prime Minister leaving
Canada deep in the grip of rece-ssi-on with unemployment
around 12 per cent, non-existent growth and a current
account def icit of 4 1/ 4 per cent of GDP. Mr Mulroney
and his Party's standing with the electorate have
plummeted since they introduced a 7 per cent GST in
January 1991 to replace a federal manufacturing sales tax
of 13 1/ 2 per cent.
The parallels with Australia if Dr Hewson were to be
elected are very worrying.
In Canada, Mr Mulroney was forced to omit food from his
OST and he was also forced to reduce the rate from 10 per
cent to 7 per cent because of fears about the equity of
the GST and the negative impact that such a tax Fwould
have on the Canadian economy.
Mr Mulroney claimed that because his GST would replace a
sales tax and because his GST exempted food, the CPI
effect would be small at only 1.2 per cent. The CPI
effect turned out to be close to 3 per cent.
Mr Mulroney refused to recognise that his GST was having
such a big impact on inflation in Canada and the Bank of
Canada tried to squeeze inflation out of the system by
holding up interest rates af ter the GST was introduced.
The result was worsening recession, higher unemployment,
declining living standards, economic dislocation and a
terrible compliance burden on small business.
In an attempt to escape the burdens of the GST, small
business have started to barter their products. People
are bartering plumbing services for dental services just
to escape the dreadful impact of the tax. The cash
economy is booming.
Consumers are forced to shop in the USA to escape.
This is what Australia faces if Dr Howson is elected,
except for Australian consumers there is-no escape and
the tax is twice as large.
2
Dr Howson says his GST will put the CPI up by 2.1 per
cent. It will not.
All the experience around the world says it will be much
higher and around 4 to 5 per cent.
Just like in Canada, Dr Howson in Government would refuse
to recognise the awful consequences of his GST and the
Reserve Bank would be instructed to squeeze the surge in
inflation from the system.
Already Dr Howson has told the Reserve Bank that it will
have only one objective.
Keep inflation at 0 to 2 per cent.
If Dr Hewson is elected, Australia would live out the
Pointless tragedy that has just engulfed Canada.
The recovery would be aborted, unemployment would rise
further, living standards would fall, the exchange rate
would rise, our exports would suffer and our current
account would worsen.
MELBOURNE February 1993
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