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Federal Coalition defends the goods and services tax against renewed attacks by the Government following the failure of the GST in Canada and Prime Minister Mulroney's subsequent resignation last night

RICHARD PALFREYMAN: The overnight departure of a faraway Prime Minister has intensified the battle between Australia's political leaders over GST. One of the major reasons for the resignation of Canada's conservative Prime Minister, Brian Mulroney, was the problems his country has had with the goods and services tax.

This morning, the Government renewed its attack on the Coalition's GST, and the Opposition has just as vigorously defended their tax. The battleground for this, as usual, talk-back radio.

PAUL KEATING: Well, I mean, what's happened there is that Canada has shown us Dr Hewson's future. It's shown us life under a goods and services tax and it's all misery. And the interesting thing, John, is that the GST in Canada is 7 per cent. It's half as big as John Hewson's proposing. You know, Canada has gone through what Dr Hewson wants to put Australia through, and they've tried it and it's a disaster, but the thing is they can't turn back. They're stuck with the thing.

JOHN LAWS: You see, Mulroney won in a landslide too, didn't he, because people were seeking change for the sake of change. But as I said this morning, change at what cost?

PAUL KEATING: Oh yes, and the GST was in the election platform, and, you know, they put it in, and Canadians said 'Oh well, okay, it's a new tax; it's probably what we need; it's probably .. you know, we don't like it but it might be okay'. In fact, what they've now found out, it's a disaster; but, of course, with a lot of Canadians, they can drive over the border into the United States.

JOHN LAWS: But that's what they've been doing.

PAUL KEATING: But in Australia, you can't drive anywhere. I mean, if there's a GST here, we're stuck with it. But I mean, thank God it's happened in Canada now, so that people can understand before it's too late for Australia; that is, that we still have a chance to stop this tax being imposed because it's so huge that at 7 per cent, Canada is still in a recession. They've got 12 per cent unemployment. Imagine if it was doubled - doubled.

RICHARD PALFREYMAN: Paul Keating talking to John Laws on Sydney's 2UE. Opposition Leader John Hewson wrote off Brian Mulroney's mistakes in an interview with Rod Henshaw on ABC radio, in Brisbane.

JOHN HEWSON: He did it wrong. We actually sent people over to study the Canadian experience simply as how not to do it, and, you know, he didn't cut income tax at the same time as he introduced it, whereas we will. He didn't cut payroll tax at the same time he introduced it, as we will. He didn't cut petrol tax at the same time as he introduced it, and we will. And that's the sort of lessons we've learnt from that.

ROD HENSHAW: But you've gone in at, what, 15 per cent. He went in at 7 per cent and maintained 7 per cent.

JOHN LAWS: Yes, but, you know, I don't .. we looked at the experience of that, we also looked at the experience of 21 of the other 24 OECD countries that have got a GST, and I think now some 70 countries around the world have got them, and their leaders haven't resigned.

ROD HENSHAW: But does it give you any reason to be nervous, though, when a country like Canada does get into such trouble with a GST? I mean, you can leave Mulroney out of it. Really, I mean, it's a GST which seems to be dictating the degree of its unpopularity.

JOHN LAWS: No, I don't think it was. I mean, the handling of it was certainly a factor, I guess, in his case, because of the way they did it. But we are unique in terms of what we are doing, and that's abolishing all those other taxes with very large personal tax cuts, ending up with more money in people's pockets, and, you know, it's a very significant benefit to the average family: $56 a week after they've paid the GST. Nobody else has tried that anywhere in the world.

RICHARD PALFREYMAN: John Hewson talking to the ABC's Rod Henshaw, in Brisbane.

Well, as he said, the Coalition says that their GST is totally different to Canada's, and that they've learnt from the Canadian mistakes. Former Liberal Senator John Olsen wrote a far-reaching report on the Canadian GST, which the Coalition says was highly critical of the consumption tax introduced by Prime Minister Brian Mulroney, in Ottawa. Mr Olsen, this morning, told me that his examination of the Canadian GST was made at the request of John Hewson, just before it was introduced.

JOHN OLSEN: Well, I led a delegation from Australia of young political leaders. Whilst there, John Hewson asked me specifically to look at the introduction of GST in Canada, which was to become operative on 1 January '91. I was there about six weeks prior to its introduction.

RICHARD PALFREYMAN: So, you haven't actually seen it in operation, in Canada?

JOHN OLSEN: I haven't seen it since its introduction. I saw clearly the problems they were facing at the time of its introduction, and why the Government standing in the polls was very low because of a number of activities. For example, the Senate in Canada is not elected but it's appointed, and appointed for life. The Government didn't have the numbers in the Senate to get the GST legislation through, so the Mulroney Government appointed eight additional Senators for the sole purpose of passing the legislation which, of course, there was a massive reaction within the Canadian community to that. In addition, with the introduction of the GST in Canada, there was no corresponding personal income tax cuts at that time. So, people in Canada saw it as a massive additional tax hike, whereas if you draw a comparison with the Hewson package, the Hewson package has a 25 per cent personal income tax cut and the abolition of some seven business taxes for the purpose of creating job opportunities.

RICHARD PALFREYMAN: So did you come back here with a warning that it could be potentially a very unpopular tax?

JOHN OLSEN: I came back with a warning of - and I think my report to John Hewson was entitled: 'How not to do it'. And as I've seen the development of the GST package in Australia by John Hewson, which incorporates a range of tax reductions with the introduction of the GST, they've avoided those pitfalls that we've seen in Canada.

RICHARD PALFREYMAN: Given your experience with the Canadian GST then, are you surprised that it's being named as one of the problems that has forced the resignation of Prime Minister Brian Mulroney?

JOHN OLSEN: No, I'm not. Clearly, the way in which they went about introducing the GST, the public of Canada felt absolutely conned. There was no income tax cuts, just an additional tax. In Canada, you have the state sales tax and, in addition to that, they introduced a GST on top of the state sales tax. So, people felt, Canadians felt, that they were paying twice at a State level and, in addition to that, they had been conned in that they had this new broad-based tax without any corresponding reduction in personal income tax.

RICHARD PALFREYMAN: So no concern in your mind that it might come back to haunt Dr John Hewson?

JOHN OLSEN: No, absolutely not. There is no comparison between the Hewson package and the Canadian experience.

RICHARD PALFREYMAN: Former South Australian Liberal Senator, John Olsen.