The third man

Hidden agenda … Whitlam looks on as David Smith reads the proclamation dissolving parliament. Sir Anthony Mason.
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As he will be in the shades of history when this is read, his role should be known.

-John Kerr

Sir John Kerr had been governor-general for just eight months when, in March 1975, he approached the vice-chancellor of the Australian National University with a confidential request.

Kerr put forward an unusual proposition – the formation of a group within the university to meet with him, in confidence and without the knowledge of the prime minister, and to advise him on the nature and extent of his powers as governor-general.

Kerr did not inform Prime Minister Gough Whitlam that he had sought advice from this hand-picked advisory group and Kerr never revealed the role played in the formation of this group by its most senior judicial figure, Sir Anthony Mason.

Mason was a sitting justice of the High Court, and a pro-chancellor of the ANU. He and Kerr had been ”close personal friends” since Mason first appeared as a junior counsel to Kerr in the 1950s, and it was Mason who drove the discussions with Kerr on the establishment of this advisory group, conferring directly and confidentially with the Governor-General about ”constitutional problems”.

Kerr’s request for confidential advice posed ”some difficulty” for Justice Anthony Mason, since the matters this group was likely to consider were those same controversial political and legal points currently the subject of intense political debate and that were also likely to come before the High Court.

Mason acknowledged his dilemma to Kerr:

“I have felt some difficulty as to my own participation in the discussions, for it may appear to some that we are engaged in the consideration of important questions which may sooner or later come before the High Court for decision,” he wrote.

“No doubt the questions which you have in mind are presently hypothetical. Unfortunately the hypothetical questions of today have a distressing habit of becoming the actual questions of tomorrow. I therefore doubt whether it would be proper for me to become a member of the group on a continuing basis.”

While expressing some doubt over his own involvement, Mason told Kerr that he would attend the initial meeting and ”refrain from expressing my opinion on questions which might become controversial”.

The group, variously described as a ”seminar” or a ”tutorial” for the Governor-General, met twice at the ANU during September 1975; Sir John Kerr attended with his official secretary, David Smith.

By October, with the opposition senators refusing to vote on the government’s Appropriation Bills in a bid to force a general election, it was clear the ANU was involving itself in matters of partisan political controversy with the Governor-General. Kerr was told their ”tutorials” would have to cease.

The end of his private tutorials did not signal the end of Sir John Kerr’s solicitations to Justice Mason. Before the opposition had taken action in the Senate against the government’s budget, Kerr had initiated, according to his records, a ”running conversation” with Mason to discuss ”probable future events and discretionary alternatives open to me”.

These records describe a series of strategic and undisclosed exchanges that continued through the mounting political crisis, marked by the extraordinarily close involvement of both Justice Mason and the Chief Justice, Sir Garfield Barwick, in Kerr’s final actions, and which ended only with the end of the Whitlam government itself.

Kerr later set out a detailed archival record of what had transpired between himself and Justice Mason and without which ”his part in my thinking in October-November 1975 will not … be known to history”:

“In the light of the enormous and vicious criticism of myself, I should have dearly liked to have had the public evidence during my lifetime of what Mason had said and done during October-November 1975 … [but] he would be happier … if history never came to know of his role,” he wrote.

“I shall keep the whole matter alive in my mind till the end, and if this document is found among my archives, it will mean that my final decision is that truth must prevail, and, as he played a most significant part in my thinking at that critical time, and as he will be in the shades of history when this is read, his role should be known.”

The scenario depicted in Kerr’s record dramatically recasts our understanding of these events and of the role of key individuals within them. This remarkable document presents a hidden history, now left for archival posterity as much for personal vindication as public illumination.

Kerr records that, at every stage in the fraught and apparently confidential discussions between the Governor-General and the Prime Minister during the month from October 12 to November 11, 1975, he was confiding every meeting and recounting every detail to Justice Mason, ”to fortify myself for the action I was to take”.

Sir Anthony Mason has refused to speak on these matters, despite repeated requests to do so. Whitlam was oblivious to it all.

The precise nature of Mason’s role in Kerr’s deliberations has never been revealed, either by Kerr or by Mason himself. In his memoirs Kerr referred cryptically to ”conversation with one person only other than the Chief Justice”.

Although speculation soon emerged that Mason was this unidentified ”third man” in conversation with Kerr, it would be another 20 years before he was identified as the ”third man” and as having spoken to Kerr during that time.

But Kerr’s records suggest that Mason was not merely the third man: he was, in many ways, the man. From their earliest discussions, months before there was even any Supply crisis in the Senate, Kerr records that it was Mason who met, talked with, planned for and counselled him, guiding him through his deliberations and advising him on the action he should take.

Of equal significance from Kerr’s detailed record is his depiction of Mason as providing a necessary bridge between Kerr and the Chief Justice, Sir Garfield Barwick.

In the years to follow, the more his own actions were questioned, the more eager Kerr became that Mason’s opinions and advice to him should be revealed: ”From my point of view it is unfortunate that they are unknown,” Kerr wrote.

Five years after these events, Kerr noted in his journal that he had renewed his plea to Mason to make his involvement public, and that Mason had again refused. Mason’s view, as he still maintained when pressed nearly 40 years later was, ”I owe history nothing”.

What is clear from Kerr’s detailed archival record of these discussions is that, even before Supply had been blocked, he had reached a decision on the critical element fundamental to the resolution of the political crisis that would engulf the Parliament and occupy much of his negotiations with both the Leader of the Opposition and the Prime Minister in the coming weeks.

Kerr accepted without question the existence of ”the reserve powers” – powers that would, if presumed to exist, enable the Governor-General to act independently, even against the advice of his elected ministers.

But the question of the existence of the reserve powers was not only the subject of intense legal debate, it lay at the heart of the political differences over the role of the governor-general. The advice proffered by the shadow attorney-general, Robert Ellicott, was that the reserve powers not only existed but that Kerr should act on them immediately and remove Whitlam from office from the moment Supply was blocked.

The government’s chief law officers and formal legal advisers to the Governor-General – the solicitor general, Maurice Byers, and the Attorney-General, Kep Enderby – firmly rejected Ellicott’s approach.

But from his own record of their conversations over this time, Kerr had not even received the advice of his legal advisers when he declared to Mason he would ignore it anyway, in favour of the advice of the shadow attorney-general.

Kerr had already decided he could act against Whitlam and his government as early as October 12, 1975, at the time of the first of his discussions with Mason when, Kerr’s archival record states, they considered ”probabilities, options and timing”.

On that day, when there was no crisis, no block in the Senate and, as Kerr himself noted, ”no conceivable ground for action on my part, supply not having been blocked”, Kerr resolved that he should not act yet, but that he should ”await further developments”.

By October 17, with Supply blocked for barely two days, Kerr was even more certain in his decision to act against the government. It was just a question of when: ”the real question at this time is whether I should act before the money runs out and whilst the Senate is still only deferring”, he noted.

The next week, as Kerr’s archival record presents it, he again met with Mason and on October 20 resolved to ”still follow the same line” and do nothing for the moment. According to Kerr’s records, it was at this meeting and again by phone the following day that he and Mason discussed for the first time ”the desirability … of seeking Barwick’s formal advice”.

The notion of the Governor-General seeking ”formal advice” from the chief justice, against the advice of the Prime Minister, was an exercise of unilateral vice-regal power, since the Governor-General’s formal adviser is the Prime Minister and his formal legal advisers are the solicitor-general and the Attorney-General.

At this point, as Kerr recorded it, Mason advised he should only approach Barwick once he knew ”what he would be likely to advise”. Barwick believed, as Ellicott did also, that Kerr should move immediately against Whitlam; ”Barwick … would advise immediate radical action – dismissal,” Kerr noted. Barwick therefore should be approached only once Kerr was ready to act.

The timing of this exercise was crucial and, according to Kerr’s record of their conversation, Mason cautioned that ”such advice [immediate dismissal] would be disastrous at this time”.

The next day Whitlam reminded Kerr that he was not entitled to seek outside advice, that ”I could get advice only through him”. Kerr ignored this directive and, according to his records, told Mason of it and continued to seek outside guidance.

Kerr’s actions represented a dramatic subversion of the role of the Governor-General in a parliamentary democracy as an appointed official who acted on the advice of his ministers.

Through this circular, self-referential process, Kerr was constructing an entirely new notion of an independent, unelected governor-general with literal and extensive powers, a view that was at odds with the democratic understanding of the role and certainly at odds with Whitlam’s unstinting trust and belief in him – personally and as Governor-General.

The interaction between Kerr and Barwick on this political struggle stretched back several weeks, to September 20 when Kerr was guest of honour at the annual dinner of the Order of St Michael and St George (a British order conferred for distinguished service overseas or in foreign affairs) in Sydney.

Kerr was seated next to Barwick and the two discussed the possible role of the Governor-General should the opposition senators refuse to vote on the government’s Appropriation Bills. Kerr asked Barwick whether he would be prepared to advise him on his own position and actions. The chief justice agreed.

Kerr’s consistent and repeated concern was for his own security, that the Prime Minister might advise the Queen to dismiss him as Governor-General if he knew that his own dismissal was being contemplated.

Kerr was presented with an unexpected opportunity to canvass his concerns directly with ”the Palace” in the unlikely setting of Port Moresby in September.

During Prince Charles’s 1974 visit to Australia, Kerr had discussed with him the possibility of Charles’s own future appointment as Governor-General, a proposal seriously considered in light of the lengthy time the prince was likely to wait before becoming king.

Kerr took this previous interaction to suggest a personal connection to the Prince of Wales and now, as the two met again in Port Moresby, the Governor-General took the extreme step of raising with the prince the possible dismissal of the Whitlam government and his grave fears that he would himself be dismissed by Whitlam should he do so.

Apparently oblivious to constitutional expectations, Charles replied, according to Kerr’s notes of their exchange, ”But surely Sir John, the Queen should not have to accept advice that you should be recalled at the very time, should this happen when you were considering having to dismiss the government”.

On his return to England, Charles took up Kerr’s concern with the Queen’s private secretary, Sir Martin Charteris. Unknown to Whitlam, who considered Charteris a friend, Charteris then wrote to the Governor-General just one week before the Supply crisis began, with equally remarkable advice.

Charteris told Kerr that, should what he euphemistically termed ”the contingency to which you refer” arise, the Queen would ”try to delay things” although, Charteris acknowledged, in the end the Queen would have to take the advice of the Prime Minister.

Neither Kerr nor the Palace ever revealed that, weeks before any action in the Senate had been taken, the Governor-General had already conferred with the Palace on the possibility of the future dismissal of the Prime Minister, securing in advance the response of the Palace to it.

Kerr’s letter dismissing Whitlam would be accompanied by a statement ostensibly from the Governor-General, setting out the reasons for his decision. According to Kerr’s archival record, Justice Anthony Mason’s role in the dismissal of the Whitlam government was complete with his authorship of this statement.

Kerr states that at their final meeting in Sydney on 10 November, Mason gave him ”a document … in his own handwriting”, to which Kerr added some material but otherwise used as his own words: ”that sheet as added to by me became incorporated in my final public statement”.

Thirty-five years later, when asked specifically about his authorship of one of these key dismissal documents, Mason refused to comment.

Kerr’s archival notes record that after forewarning his wife, Anne, of his intentions on November 9, he then called Anthony Mason and arranged to have another ”private talk” with him later that day.

“I began the conversation by saying that I had decided to dismiss the government, commission Fraser as a caretaker prime minister and get Parliament dissolved on Tuesday the 11th if the crisis was not resolved by then,” Kerr wrote.

Kerr says Mason replied spontaneously and with genuine relief, saying: “I am glad of that. I thought that I might this afternoon have to urge that course upon you.”

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Astor saga nears happy ending

Opening credits: Eighty-year-old cinema saviour and St Kilda businessman Ralph Taranto shows off his new acquisition.ST MICHAEL’S Grammar School has sold the Astor cinema, bringing to an end its much-maligned plan to redevelop the heritage-listed art deco building as a multi-purpose performing arts complex.
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St Kilda businessman Ralph Taranto has bought the Astor for an undisclosed sum believed to be less than the $3.8 million St Michael’s paid for it at auction in 2007.

”You’d have to spend about $20 million to build it today, but the return on it means it’s not worth much more than $2 million,” the 80-year-old Mr Taranto told The Saturday Age. ”I’m not buying it for the return, I’m buying it for the passion, the love.”

St Michael’s put a brave face on the sale, chairman of the board Paul Orton telling The Saturday Age that it was ”a terrific outcome for the school, for the community and for this wonderful historic cinema”.

But in a prepared statement the school blamed what it called ”misinformation” for a protest campaign that had drawn more than 13,000 signatures on change南京夜网 and torrents of abuse in social media, finally leading it to conclude that ”a shared community arts facility was no longer a viable proposition”.

Now, it seems, it’s as-you-were for the Astor, with Mr Taranto intending to leave the running of the cinema in the hands of George Florence, the man who has run the business since 1982. Asked if his intention was to keep it as a single-screen cinema, Mr Taranto’s response was simple: ”Oh God yes. I wouldn’t buy it otherwise.”

Settlement isn’t until October 31, but he is already lining up builders, plumbers and electricians to attend to urgent repairs. He also wants to consolidate the small shops at the front of the building, probably to create a cafe. ”I think there’ll be a big difference by next Easter,” he said.

This isn’t the first foray into the cinema industry for Mr Taranto. He worked for MGM in the 1940s and for Hoyts in the 1950s. He was in the fruit and vegetable business (he also owned a shoe store) but made his real money in property.

”I used to have about 60 flats in St Kilda and Elwood,” he said. ”Never had an agent, always used to collect the rent myself.”

He bought the Brighton Bay cinema, which he still owns (it is leased to Palace), in 1992.

In 1999, he put a deposit on the Walter Burley Griffin-designed Capitol Theatre in the city before buying the George Cinema in St Kilda instead.

Palace leased the George from Mr Taranto until 2010. In March 2011, he took it over himself and relaunched it as the Aurora, saying: ”It’s always been my dream to run my own cinema.” Eight days later, he closed it.

”I realised pretty quickly that for it to work I’d have to be there to run it myself. I thought, ‘This is madness’. I could do it, no problem – I’ve run businesses since I was 19 – but I’m 81 on New Year’s Eve. If I was younger I’d not have done that, but I want to be a bit free. While you’re still well every day’s a plus, that’s the way I look at it.”

(The George went to auction this month, but was passed in.)

With Mr Florence at the helm, Mr Taranto feels the Astor is in safe hands. So, too, do the Friends of the Astor. ”We’re delighted the sale has finally gone through,” said FOTA president Vanda Hamilton.

”We believe Mr Taranto will act in the best interests of the Astor and we look forward to speaking to him very soon in regard to setting up a trust to ensure that the Astor runs far into the future.”

Mr Taranto has not yet committed himself to setting up a trust to own and manage the cinema in perpetuity, a central plank of the FOTA campaign.

”That’ll come later. First I’ll own it, then I’ll fix it up, and then we’ll see what happens,” he said.

Mr Florence is confident it’s no more than a formality. ”It’s Ralph’s and my intention to form a not-for-profit trust, and he will bequeath the Astor to that trust and I will roll my business into it,” he said yesterday. ”I believe he has honourable intentions.”

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The paper trail

All the news that fits the screen … Bill Nighy in State of Play. Dustin Hoffman and Robert Redford in All the President’s Men.
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Gene Evans and Mary Welch in Park Row.

I arrived in the newsroom of this newspaper fresh from school in January, 1976. I was 18 and impressed with everything I saw. This was a newspaper, even if 235 Jones Street, Broadway, looked like Stalin’s other headquarters.

Later that year I saw All the President’s Men, Alan J. Pakula’s masterpiece about Watergate, and I was dumbstruck. The Washington Post newsroom was so modern and white, so big, and ours was so brown and grimy. ”What a dump,” I thought, looking around the fifth floor at fort Fairfax. Such is the power of movies, to make you feel as though you’re not living the right life.

I watch that movie maybe once a year. Now that newspapers are under siege, I may have to step it up to twice, to remind myself that the profession of journalism is still big, even if the newspapers got small.

All the President’s Men is my favourite newspaper film, for its seriousness, the way it shows how a story is constructed, the things you hate yourself for doing (like when Dustin Hoffman has to coax the frightened White House staffer into talking), the terrible price of making a mistake and the inspiration that comes from a great editor, like Jason Robards as Ben Bradlee (”Nothing’s riding on this except the, uh, first amendment to the constitution, freedom of the press and maybe the future of the country. Not that any of that matters but if you guys f— up again, I’m going to get mad.”)

Robards also played a tough proprietor in Ron Howard’s underrated 1994 comedy about a New York tabloid, The Paper. He tore a strip off Glenn Close for going over Robert Duvall’s bald head to ask for more money.

Close has a deadly battle with Michael Keaton, as metro editor. They end up in a fist fight over an interesting issue. He wants to stop the presses and remake the lead story because he has confirmed it’s wrong. She says it will cost too much: ”The story was right when we printed it.”

That nails one of the big conundrums of newspapers: they are finite, not continuous. Each issue is a weapon, an artefact, and once it’s on the street, you can’t just bring it back, like on radio or TV or the internet. A quicker mechanism has arrived.

I am confining myself to newspaper films, not the best media films. That excludes Good Night, and Good Luck, Broadcast News and great films about reporters in the field, such as The Killing Fields. I want ink, paper, the sound of typewriters and the rumble of the presses.

That’s another thing I loved about The Paper: they touch the air vents to find out when the presses are running. The very building quakes, as it did at Broadway in the days of hot metal.

If those words are a mystery, go to YouTube and type in Park Row. You will get part of Samuel Fuller’s classic 1952 film about the newspaper business in the 1880s in New York, when newspaper type was set by hand, letter by letter.

One of the characters invents the linotype machine, changing the business forever. Park Row is the story of Phineas Mitchell (Gene Evans), a hard-drinking reporter who sets up his own paper to defeat the ruthless woman for whom he once worked, Charity Hackett (Mary Welch).

Their circulation war is an actual war, with bombs and henchmen. At one point, Mitchell tells another drinker: ”Mr Spiro, escort the wench back to her slaughterhouse before I throw her outta here right on her front page.”

Samuel Fuller was an ex-journo and Hollywood has always been a second home for them. After all, newspapers and movies are in the same business, that of retailing stories, although the pay is better at the fictional end.

Ben Hecht wrote for the Chicago Daily News. Charles MacArthur worked for the Chicago Tribune, then the Daily News. Together, they invented the modern newspaper movie, albeit as a play, The Front Page, in 1928. It is still the most accurate portrayal of the cynicism and scepticism of the profession and a defence of its greatest purpose: holding power to account.

The first of four films based on the play appeared in 1931 but my favourite is the 1940 version, His Girl Friday, in which Hildy Johnson is a woman – and what a woman. Rosalind Russell is a gal any scribe would fall for – smart, funny, gorgeous and as hard-nosed as any of the boys in the press room at City Hall, where most of the action takes place, waiting for a hanging.

Cary Grant plays her editor (and ex-husband), Walter Burns, devastatingly handsome and dapper, as well as devious, cheap and utterly fearless. I’ve known editors and reporters like both of them, just not to the same degree.

”A journalist?” Hildy cries, when Walter says she’ll always be one. ”And what does that mean? Peeking though keyholes, chasing after fire engines, waking people up in the middle of the night to ask them if Hitler’s gonna start another war, stealing pictures off old ladies? I know all about reporters, Walter, a lot of dandy buttinskys running around without a nickel in their pockets.”

She got the last bit right. Last year, there were said to be 10,000 journalists out of work in the US. A lot of bad novels are going to be written.

I can’t list all the great newspaper films. Who could exclude Kirk Douglas keeping a man trapped in an old mine for six days to prolong his story in Billy Wilder’s Ace in the Hole, or Humphrey Bogart denouncing the way papers had moved away from news in Deadline – USA.

”It’s not enough to give ’em just news, they want comics, contests, puzzles. They want to know how to bake a cake, win friends and influence the future, ergo, horoscopes, tips on the horses, interpretation of dreams, so they can win on the numbers lotteries. And, if they accidentally stumble on the first page, news,” he says.

That was in 1952. How prescient. And there is Charles Foster Kane (Orson Welles) sending a message to his man in Havana: ”You provide the prose poems. I’ll provide the war.”

What of the profession today, rather than the romance of before? That’s easy. The best drama about a modern newspaper is the English television series State of Play, in which Bill Nighy plays the editor to John Simm’s investigative reporter. There are more dirty tricks in this than any newspaper film I’ve seen.

It’s like a road map of the horrors of modern British journalism: phone-tapping, room-bugging, threatening and kidnapping sources, withholding evidence, more lies than the News of the World had readers. And these are done by the good guys; the people they go after are murderers. Thank heavens it’s just fiction.


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Rinehart may move on Fairfax: analysts

FAIRFAX Media shares hit a record low yesterday as the market waited for the next move by the media group’s largest shareholder, mining magnate Gina Rinehart.
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The shares plunged about 12 per cent at one stage, trading at 44.5¢, after Mrs Rinehart’s unsuccessful attempt to offload a 5 per cent stake in the company.

Following a record loss by Fairfax on Thursday, her broker, Morgan Stanley, tried to offload 117 million shares at 50¢ but was knocked back by a market that failed to bite at the price – a 1¢ discount on the closing price.

Yesterday was the sixth-biggest trading day for Fairfax’s shares in a year, with 56 million of them changing hands for 45¢. Multiple parcels of up to 3.3 million shares traded after market close, according to Bloomberg. Broking firm UBS traded 13 million Fairfax shares while Morgan Stanley traded 5.6 million shares.

Media reports yesterday morning suggested institutional investors showed no interest in paying above 45¢ a share.

The corporate regulator was staying silent on questions over whether the sale was a means of testing the market to see how low Fairfax shares could go.

A spokesman for the Australian Securities and Investments Commission would only say: ”We are unable to comment on operational matters or specific companies.”

Now that the stock has reached a record low, speculation is swirling around Mrs Rinehart’s intentions.

A rumour flew through the investment community that Mrs Rinehart never intended to sell the shares on offer, but knew the cheaper offer would push the price down. This would make it cheaper for her to buy more shares or put additional pressure on the board.

One broker said: ”If it keeps falling then I think we fully expect her to make a bid for the company and probably move in to break it up.”

She said shareholders were holding out to make a profit in the event of a break-up while fund managers who knocked back the offer on Thursday afternoon said they preferred to buy into companies with certainty.

Mrs Rinehart’s office did not return calls.

Following the $2.8 billion write-down by Fairfax on Thursday and a gloomy outlook for the short term by chief executive Greg Hywood, analysts yesterday cut their earnings forecasts for this financial year. Mr Hywood said the company was facing the ”perfect storm of structural change and cyclical downturn”.

Mrs Rinehart has laid out an estimated $285 million on Fairfax shares, building up a 18.7 per cent stake. Early in July she cut her stake to 14.99 per cent to meet rules surrounding a corporate insurance policy held by Fairfax.

Fairfax made no comment.

Fairfax shares closed down 5.5¢, or 10.78 per cent, at 46¢.

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The only way is up for tax reform

‘Although some of these problems with the tax base may go away in time, it’s hard to see that time occurring in the next five to 10 years.’ONE OF Julia Gillard’s proudest claims is that the federal tax burden is much lower under Labor than it was when John Howard and Peter Costello were in charge. It’s true. But it’s not anything to boast about – the tax base has sprung a leak. Several leaks.
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In the mid-noughties, federal tax receipts hit a record 24.2 per cent of gross domestic product. This year they’re expected to equal only 22.1 per cent, despite the introduction of the carbon tax and the mining tax.

The fact is, the global financial crisis hit tax revenue hard and it’s yet to fully recover. The budget’s forward estimates see it returning only to 22.9 per cent by 2015-16.

If you don’t enjoy paying tax you may be tempted to regard all this as good news, but as both the present Treasury secretary, Dr Martin Parkinson, and his predecessor, Dr Ken Henry, have warned in the past week or so, it’s quite worrying.

It means the budget won’t ”whirr back into surplus” the way it did after the recessions of the early 1980s and early ’90s. It will be a continuing struggle to keep the budget in surplus, meaning it will take a long time to pay off the net public debt incurred in the recession everyone says we didn’t have.

It means we’ll be struggling to keep up with the growth in existing spending programs – particularly health – with little scope to pay for the disability insurance scheme, the Gonski Report’s proposals for education, aged-care spending and any other improvements we’d like to see, without dropping some big programs or introducing new taxes.

So what exactly is the problem with the tax base? Why has it never been the same since the GFC?

The biggest problem is with company tax collections. For many years they averaged about 3 per cent of GDP, but in the long boom that preceded the crisis, they grew to an unprecedented 5.3 per cent. Last year they were 4 per cent.

Much of the trouble is the collapse of receipts from capital gains tax. The long boom of rising share and property prices saw many taxpayers building up capital gains, which were realised and taxable when the assets were sold. Capital gains tax receipts got to as much as about 1.5 per cent of GDP, most of which was paid by companies.

The financial crisis saw big falls in the sharemarket, wiping out unrealised gains and creating losses. Share prices on the Australian stock exchange haven’t recovered to their peak before the crisis, and it’s hard to see another boom starting any time soon.

At present, gains tax is raising only about 0.5 per cent of GDP.

The second big change in company tax revenue since the crisis concerns the mining companies. In the first phase of the resources boom before the crisis coal and iron ore prices shot up and miners’ profits with them. Pretty much 30 per cent of that increase would have been taxable.

The second phase following the crisis saw prices go even higher, but by then many of the miners had embarked on major expansion plans, so that the depreciation charges on their capital spending significantly reduced their taxable profits.

So the mining investment boom adds to GDP on one hand, but directly subtracts from company tax collections on the other.

The problem with personal income tax collections arises from the eight tax cuts in a row announced by Costello (with Labor delivering the last three). When you cut taxes that often, you do a lot more than give back the proceeds of bracket creep (known to economists as ”fiscal drag”).

So the real level of income tax was reduced. The width of the tax brackets was widened, with the threshold for the top tax rate raised from $60,000 to $180,000 a year, thereby greatly reducing the tax scale’s capacity to generate bracket creep.

Yet another tax with big problems is the goods and services tax. With households’ decade-long spending spree a thing of the past, consumption spending is now growing no faster than household incomes.

But not all consumer spending is subject to the GST, and some of the categories that aren’t – particularly private spending on education and health – are growing a lot faster than the categories that are, meaning GST collections are growing slower than consumption.

That’s not the states’ only revenue problem. They’re locked in a destructive competition to raise the threshold at which payroll tax becomes payable. And the weakness of the residential property market – including the lower number of sales – has hit another key state tax, conveyancing duty.

Although some of these many problems with the tax base may go away in time, it’s hard to see that time occurring in the next five to 10 years.

And by then the problems for the taxman created by globalisation and the greater mobility of capital and highly skilled labour (which I wrote about last Saturday) may be starting to bite.

To many people – particularly business people – the words

”tax reform” make them think of paying less tax. One day soon it will dawn on them that the reform we must bring about is new and higher taxes.

Twitter: @1RossGittins

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