Canberra should take lead on raising GST

Canberra should take lead on raising GST

Joe Hockey's budget has kicked an $80 billion hole in state budgets over the next decade and one of the simplest ways to fill it is to raise the rate of the GST, or to broaden its base.

But the Treasurer and Prime Minster Tony Abbott have been in no rush to make that clear, at least not in public.

Since handing down a horror budget on Tuesday - and uniting the states in outrage - the pair have crab-walked around the point, insisting the consumption tax is a state tax, that they have no plans to change it, that white papers will review the federation and tax system and that it's up to the states to make the case for change.

In 2014-15 Canberra will distribute $53.7 billion in untied GST revenue to the states, about half the $101.1 billion the Commonwealth pays to the states. Without revenue streams such as a state-based income tax, the states are heavily dependent on that revenue.


The Grattan Institute estimated last year that an extra $15 billion would be available for the states if the GST covered fresh food, health, education, child care, water and sewerage. That's a lot of extra money for hospitals and schools.

So why do Mr Hockey and Mr Abbott want the states to take the lead in arguing for reform?

First, any change to the base or rate must be agreed unanimously by Canberra and the states. Getting all the states to agree on anything is no easy matter. Mr Hockey and Mr Abbott calculate it is pointless to expend political capital on the issue.

But it is the politics of raising an unpopular tax that is the primary impediment.

The GST hits people on lower incomes, who spend a higher proportion of their money on life's necessities, harder.

Raising a regressive tax increases inequality. And, as Monday's Fairfax Nielsen poll demonstrates, it is unpopular, with just 30 per cent of people supporting a rise and 66 per cent opposing it.

Mr Hockey and Mr Abbott ran a mile (and Labor had a field day) when, during the last election campaign, The Australian Financial Review reported the shadow treasurer confirming a review of the GST was on the table.

So the politics are not easy, either.

But more than a decade after the GST was introduced, there is actually a case to be made for altering the tax.


And it's time for the Prime Minister and Treasurer to lead the debate, rather than goading the states by ripping away funding.

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James Massola

James Massola is south-east Asia correspondent, based in Jakarta. He was previously chief political correspondent for The Sydney Morning Herald and The Age, based in Canberra. He has been a Walkley and Quills finalist on three occasions.

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