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Treasurer Scott Morrison has conceded that an increase in the GST is extremely unlikely, saying it means the May budget will have room for only small income tax cuts.
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The Federal Government seems to have gone cold on a GST increase with MPs and the PM looking at other tax changes. Courtesy ABC News 24.
"With something as difficult as this, the Red Sea is not going to part every time for you,' he told 2GB radio host Ray Hadley.
The GST had been "the only opportunity there really was for very big income tax cuts".
"If that's not possible through this method, then we are just going to have to go the long road on this".
Income tax cuts could be funded by tightening of the tax concessions surrounding superannuation and capital gains.
On Monday Prime Minister Turnbull all but dismissed the idea of a switch between income tax and the goods and services tax saying all it wouldn't cut the tax take.
"You've got to remember that what all this is doing is just simply moving the tax burden from one part of the system to another," he said. "It isn't actually reducing tax overall."
"We are not interested in a change for change's sake exercise. The first thing we've got to satisfy ourselves is that proposed changes will deliver the policy outcome you want - stronger economic growth, while at the same time being fair and not increasing the overall tax take."
"If they pass that test, then as practical politicians we've got to ask ourselves: will the public go for it? Can we build enough support to get there? But at this stage we have not made a decision."
Mr Morrison said if the proposal to increase the GST was knocked back he would find other ways to cut income tax.
"My objective in this role will be to wherever I can reduce the tax burden on people who are working hard and running businesses. Now, on every occasion circumstances may not allow it. You can't part the Red Sea on everything, but where I can, people should know, that's my focus."
He was unlikely to move against the negative gearing tax concession that allows landlords to write off losses on rental income against other income including wages.
"Negative gearing has been and continues to be a real opportunity for middle income earning Australians," he said. "Nurses and doctors and policeman or others, these are people working every day and trying to get ahead, they're not the problem."
Opposition Leader Bill Shorten said the only reason the government backtracked on the GST was panic among Liberal backbenchers about losing their jobs.
"If the Liberals think they can get away with a 15 per cent GST on everything, they will do it," he said. "I know what a Liberal government will do if they are re-elected at the next election. The 15 per cent GST will be back on the table."
On Sunday Mr Turnbull walked away from talk of a GST-for-income-tax swap, saying it would have to deliver strong benefits to growth and jobs that was "worth the trouble and expense of making the change".
A Treasury analysis has found that lifting the GST to 15 per cent would raise $32.5 billion, but require the spending of $16 billion to $17 billion in compensation.