PM praises NSW premier’s proposal as ‘very sensible’ as state and territory governments look for solutions to their fiscal challenges

This article is more than 5 years old

This article is more than 5 years old

Tony Abbott has praised a “very sensible” proposal to increase the goods and services tax (GST) to help the states cover rising healthcare outlays, sparking a fresh political fight over the cost of living and election promises.

The prime minister signalled his support for the New South Wales premier, Mike Baird, to raise the idea of a 15% GST rate during a meeting of state, territory and federal leaders in Sydney later this week.

Abbott, who ruled out GST changes before the 2013 election, is overseeing tax and federation reform white paper processes that could pave the way for an overhaul to be taken to the next election.

State and territory governments are looking for potential solutions to their fiscal challenges, which were exacerbated by the Coalition’s decision in the 2014 budget to cut $80bn from projected health and education funding by 2024-25.

“I’m just really pleased that Premier Mike Baird, along with [South Australian] premier Jay Weatherill, are prepared to have a constructive, responsible discussion,” Abbott said in a joint press conference with Baird on Monday.



“It is a sign that this generation of leaders at both the state and national level are prepared to do what’s necessary to make our country strong, not just for today but for tomorrow and for next year and the next decade.”

Abbott, who when he was in opposition rejected assertions the country had a revenue problem, said: “We can’t assume that if there is a revenue problem, it’s wholly and solely the commonwealth’s job to fix. That’s why I welcome the readiness of Premiers Baird and Weatherill to be so constructive.”

Baird will take a proposal to increase the GST to 15%, without broadening the base to add currently excluded areas such as fresh food and education costs, to the Council of Australian Governments (Coag) leaders’ retreat on Wednesday.

The GST proposal is set to face resistance from many of the other states and from the federal Labor party. But Weatherill, the SA Labor premier, said on Monday he supported discussing the issue.

Weatherill said he was not prepared to rule in or out any options because he wanted to have a “constructive discussion” about funding health needs, but his preferred option was to broaden the GST to cover financial services.

“It’s one of the few changes you can make to GST which can increase the revenue, but not actually hurt poorer families the hardest,” he said.

The Victorian Labor premier, Daniel Andrews, said Abbott had already broken his promise not to cut health and education funding and would now “like everyone to pay for his lie” by increasing the GST.

“He’d like every Australian to pay for the fact that he can’t keep his word; he can’t keep his promises,” Andrews said on Monday.

“I will not be supporting an increase in the GST because I said I wouldn’t do that at the election last year and I’m true to my word and good for my commitments – something that I know Mr Abbott is struggling with.”

The Tasmanian Liberal treasurer, Peter Gutwein, said while he did not want to pre-empt Wednesday’s meeting, the state government had “consistently said that we don’t want to see any change in the GST”.

The West Australian treasurer, Mike Nahan, said the state Coalition government’s top priority was a “fundamental change to the principles” that determined how GST revenue was distributed to each state and territory.



The federal Labor leader, Bill Shorten, said Abbott had been trying to position the states to argue for GST increases by cutting $80bn from health and education payments.



Shorten said it was already hard enough for Australian families to make ends meet. He said raising the rate from 10% to 15% would represent “a 50% increase” in total GST revenue.

“I don’t understand for the life of me why it is that Mr Abbott is happy to increase the taxes that ordinary people pay, that everyday Australians pay, yet when it comes to multinationals he doesn’t want them to pay their fair share of taxation,” Shorten said in Perth on Monday.



“When it comes to excessively generous superannuation loopholes at the top end he doesn’t seem to want to act against those loopholes. For the life of me I don’t understand why Mr Abbott wants to keep paying polluters to keep putting out carbon pollution at the same time as he wants ordinary Australians to pay more GST tax. This is not on.”



The federal shadow treasurer, Chris Bowen, said Labor would oppose increasing or broadening the GST because it was “a regressive tax that hurts those who can least afford it the most”.



Bowen described Abbott and Baird as a tag team who were delivering “a kick in the guts” to the community by seeking to implement “the Liberal party plan from the beginning”.



“The fact is, Tony Abbott promised 33 separate times not to increase the GST before the last election - just as he promised not to cut funding to schools or hospitals,” Bowen said.

The treasurer, Joe Hockey, sought to revive the GST issue last week but then cited the firm opposition of Andrews as an obstacle to securing such changes.

Andrews has instead proposed an increase in the Medicare levy to alleviate the skyrocketing costs of health.

“I think the Australian community would be up for a conversation if you could be confident that you had eliminated a lot of waste in health, that you had a much stronger foundation to maybe look at a Medicare levy ­increase,” Andrews said.

Baird said his proposal to increase the GST was only “the start of a discussion”. The NSW premier said he believed health funding was the biggest challenge the state and nation faced.



Writing in the Australian newspaper on Monday, Baird said the “federal-state ­financial system is in imminent danger of tumbling over a fiscal cliff” and budgets would be in deficit by $45bn by 2030.



“The real issue is no longer who funds what health services, or who carries the greatest share. The fiscal reality is that all the resources of the commonwealth and the states, pooled together, can no longer fund health services to our current standard,” Baird wrote.

“We have a chance to take this nation forward this week. Let’s set our sights on that, rather than on the usual political point-scoring. This is what the people who ­elected us deserve.”



Baird acknowledged the regressive nature of the GST, saying he would propose compensation for households earning under $100,000 to address that issue.



The social services minister, Scott Morrison, told Macquarie Radio on Monday that lower-income earners would need to be compensated if the GST were to rise.



“It doesn’t come without a cost,” Morrison said. “They [the public] want to see taxes cut first before governments spend more money.”

Abbott said he wanted to see “the overall tax burden go down” while at the same time having “a more rational arrangement of finances and responsibilities between the commonwealth and the states”.

Former Liberal leader John Hewson, who pushed for a 15% GST in the early 1990s, has welcomed the “mature debate” on the range of tax options.



He particularly praised Baird for looking beyond the immediate political backlash likely to follow any proposal to increase GST, currently at 10%.

“We had this silly game about you go first, you blink first, and that is never going to lead to a substantial debate but at least Mike Baird has decided to lead it,” he told ABC TV on Monday.

Hewson wants the federal government to take a clear position on the GST to the next election, due in 2016.

Hockey has indicated that income tax cuts could be on the cards as a way of combating bracket creep.

Asked by Andrew Bolt on Sunday if tax cuts would be part of Coalition policy at the next election, Hockey said: “That’s what we’re aiming for”.

But Bowen said Hockey had “no credibility”.

Chris Richardson from Deloitte Access Economics said a surplus would never be achieved while politicians continued to exploit divisions.

“Short of believing in the tooth fairy, it’s hard to call any path back to surplus ‘credible’ unless and until you can see a similar credible path back to bipartisanship in Australia,” Richardson said. “Unless our politicians start agreeing fast, then our deficits will linger.”

The group released the latest business outlook on Monday. Richardson said Australia’s below-trend growth could be worse, particularly in light of the crisis in Greece and doubts over China’s economy.

“If China were to stumble, the the Australian economy would take a hit and the Australian budget would be hospitalised,” he said.