Federal Cabinet documents from 1998-99 reveal the behind-the-scenes dramas that almost sank the GST - and how a milk bar was part of the problem.
Federal Cabinet documents from 1998-99 reveal the behind-the-scenes dramas that almost sank the GST - and how a milk bar was part of the problem.

Behind-the-scenes dramas that almost sank the GST

QUEENSLAND and an unassuming "little old lady" in a Boonah milk bar almost derailed the GST, revelations about the biggest tax reform in Australia's history show.

The Howard Government had survived a turbulent first few years in office, including Ministerial sackings, but as it pushed ahead with bold reform to tax and pulled a $9 billion budget deficit back to balance.

But top secret cabinet documents from 1998/99, released today for the first time after 20 years, reveal behind the scenes dramas that almost sunk the revolutionary tax reform.

Treasurer Peter Costello and Prime Minister John Howard at the GST tax package launch on August 13, 1998. Picture: David Crosling
Treasurer Peter Costello and Prime Minister John Howard at the GST tax package launch on August 13, 1998. Picture: David Crosling

It was a time when the Coalition was spooked by the rise of One Nation, with the fledgling party securing 11 seats in a shock Queensland election, while the world feared a new Gulf War as UN weapons inspectors were barred from Iraq.

But it was from a much more humble place where one of the government's biggest challenges would come.

Treasurer Peter Costello had invited Australia to come on a "great tax adventure", but was facing a mammoth task to convince the public - as well as the Senate.

Despite this, Mr Costello recalled at the release of the documents that there were two events that almost caused him to reconsider.

One of those took place at Boonah, southwest of Brisbane with a population of little more than 2500.

"We went into this little, you know those places with a shop in the front room. It was a milk bar. We went in there and I said to the lady, can I have a ham sandwich," Mr Costello said.

"She looked at me and she said, 'with GST or without?'.

"She said, 'I will make the sandwich if you go and fill in those GST forms'.

"I thought to myself, ooh, this is a little old lady in Boonah, this is beginning to affect a lot of people. She was great at making sandwiches, but GST forms were not her forte."

He said at the time thousands of businesses across the nation were keeping tax receipts across the country and it would require enormous effort for them to reform.

The other moment came at a meeting with the heads of Coles and Woolworths, with one of them inquiring how they were expected to change three billion prices overnight on June 30, 2000.

"The item on the shelf has one price at a minute to midnight and it's got a different price at a minute after midnight. How do you change three billion prices at the stroke of midnight?

"Oh dear, I don't think this is a good idea," Mr Costello joked.

Pauline Hanson’s One Nation caused concern for the Coalition after winning 11 seats at the state election, but the party’s founder lost her own seat at the Federal election.
Pauline Hanson’s One Nation caused concern for the Coalition after winning 11 seats at the state election, but the party’s founder lost her own seat at the Federal election.

The Queensland Government also threw a curveball to the Commonwealth.

While Cabinet was desperate to receive unanimous support from the states, to help convince a fractious Senate, Queensland was refusing to sign on without special treatment.

It was demanding extra transitional cash "to compensate Queensland taxpayers who bear a lower tax burden than those in other states".

Cabinet documents from March 29, 1999, show that the Howard Government feared giving into the Sunshine State's demands lead to the other states making their own requests and destroy any chance of consensus.

But the Cabinet was desperate for all states to get on board, so were willing to make considerations.

"Nevertheless, we will need to explore the scope for settling this matter at the Premier's conference or subsequently in a way that will allow Queensland to sign the (agreement)," Mr Costello wrote.

In the end, all states signed on when the year that the method for distributing the GST to their coffers, known as horizontal fiscal equalisation, was brought forward 12 months.

Mr Costello was also in charge of budget repair, having inherited a $9 billion deficit when the Coalition took government in March 1996.

He had managed a modest surplus by 1998, but the Cabinet documents revealed ministers were chafing against the spending constraints, with complaints recorded about "difficulties faced finding further savings" out of health and "heavy reductions in previous budgets" leaving "no capacity" for spending offsets in Transport.

Meanwhile, Australia contributed two Boeing 707 refuelling jets and specialist staff for a three-month deployment to Kuwait and Iraq at the request of the US, as tensions rose in the gulf after United Nations weapons inspectors were barred from the country.

February 22, 1998. Iraq's President Saddam Hussein during a meeting with UN Secretary General Kofi Annan, in Baghdad. Picture: AP Photo
February 22, 1998. Iraq's President Saddam Hussein during a meeting with UN Secretary General Kofi Annan, in Baghdad. Picture: AP Photo

It was agreed in February 1998 to send the support, but by March no evidence of "weapons of mass destruction" had been found and Cabinet that Iraq was likely to use this to discredit the UN and push for sanctions against it to be eased.

At the end of the deployment, Cabinet heard that it would be "difficult to reassemble the coalition once disbanded" if further action was required.

By May the forces were withdrawn, but kept on hand for redeployment if required.