02 November 2015
by Laura Tingle

Government leaves open 15 per cent GST, base broadening possibility

The federal government has left open the possibility that it will increase the GST to 15 per cent, and broaden its base to include fresh food, education and health, as it insists any change in the tax will be the result of collaboration with the states and will not involve any overall increase in the tax burden.

Responding to weekend reports of four GST options under consideration by the Abbott government, senior ministers did not dismiss the options out of hand. Prime Minister Malcolm Turnbull officially confirmed last week that a higher GST was an option on the table.

Treasurer Scott Morrison described the reports as "speculative", saying the federal government was involved "in good-faith discussions with the states and territories on how we can work together to improve our tax system.

"Fixing the tax system is about giving Australians greater incentive to work, save and invest so we can support growth and jobs in our economy.

"Next year, the average wage earner will be in the second-highest tax bracket – that is not a sustainable position for us to be in if we want to encourage Australians to work, save and invest.

"Fixing the tax system is not about trying to increase the tax burden on Australians to chase ever-higher levels of spending."

Tax reform plans need outlining soon
However, the government remains aware that it needs to outline its tax reform plans as soon as it can.

Cabinet secretary Arthur Sinodinos said the government would move quickly to announce a tax package to take to the next election, conceding it needed to "regain the trust of the Australian people".

It appears the tax debate may be broken up into several tranches, rather than all being left to the release of a tax white paper next year. For example, the government is keen to get tax changes that will support its innovation agenda into the public domain as quickly as possible.

But the more difficult area of changes to the GST will depend on negotiations with the states, and a collaborative approach, rather than the federal government announcing an overall strategy then fighting it out with the states.

The government is still planning to release a tax green paper, and white paper, outlining its full tax agenda next year.

Mr Morrison has asked the state treasurers to bring options for tax reform back to their next meeting with him.

The four options that have been canvassed include three with a 15 per cent GST rate and one with a 12.5 per cent rate. The first option is for a 15 per cent GST with no exemptions; the second for a 15 per cent GST with food exempted; and the third 15 per cent GST option would maintain the current base, which exempts food, education and health.

Lots left for hospitals, education
Deloitte Access Economics' Chris Richardson estimates these three options would raise $50 billion, $40 billion or $30 billion respectively, all funding a $15 billion compensation package of pension and benefits changes, and of tax cuts for those earning up to $100,000.

That would leave a substantial amount of money to help the states fund hospitals and education, and to fund other changes to taxes such as the company tax.

This would all be before any revenue was raised from other tax changes in areas such as superannuation, capital gains and negative gearing.

But Mr Morrison insists that the overall package would not result in a rise in the overall tax take.

Senator Sinodinos said on Sunday that "if you're someone like Malcolm, I think if you want to do something substantial, you've got to do it quickly and upfront and you've got to do it when you're in a [position] to maximise the use of your political capital to sell a story to the Australian people.

"But you need their consent, so you have to do it soon in the context of putting stuff to an election rather than seeking to foist something on people before an election," he told Sky News.

"We have to make sure, in the run-up to the election, states are at least neutral on the issue, as opposed to actively hostile."

But Senator Sinodinos said the revenue raised from the GST increase was unlikely to be reserved for the states as a "blank cheque" for health and education spending.