Soon after becoming Prime Minister, Mr Turnbull said everything – including a consumption tax rise – was on the table as his government pursued tax reform. Prime Minister Malcolm Turnbull and Treasurer Scott Morrison. Credit:Andrew Meares The document confirms that a rise in the goods and services tax remains a live option and raises the prospect of a federal election in 2016 fought over the issue if the federal government adopts a plan to hike the GST and can strike a deal with the states, whose support will be needed for any increase. The leak also comes as former Liberal treasurer Peter Costello warned "hot heads" in his party not to raise the GST to 15 per cent, and as Opposition Leader Bill Shorten promised to oppose a GST rise. The first four options include lifting the GST to 15 per cent, raising $32.5 billion; lifting the GST to 12.5 per cent and expanding the base to include all food and non-alcoholic drinks, raising $25 billion; and raising the Medicare Levy from 2 per cent to 4 per cent in one hit, which would raise $15 billion. The fourth, and most radical option would be to raise the GST to 15 per cent, expanding it to include food and non-alcoholic drinks, water and sewerage. This would raise $45 billion annually.

The second set of four other options being considered are expanding the GST base to include health services; including education services; introducing a GST-equivalent financial sector tax; and raising the Medicare Levy to 4 per cent over eight years. In 2014, it was estimated that extending the GST to health, education services and introducing a financial sector tax would each raise about $4 billion annually if implemented. The Turnbull government has already indicated, however, that health and education are likely to be exempt from any GST changes, whereas fresh food and financial services are considered fair game. The paper also hints at the difficult public debate that will accompany any rise to the consumption tax, warning "public commitments about which households will be fully compensated should be avoided" because "making commitments now risks over-compensation for households". Offsetting GST price rises for households earning less than $100,000, and half of the price rises for households earning less than $155,000, would use "at least" half the extra GST revenue, it states.

The $15 billion that would be raised by increasing the Medicare Levy, without assistance for households, is about the same amount left over if the GST is increased to 15 per cent and households are compensated. That means, in effect, some people would be worse off under a Medicare Levy rise than a straight increase in the GST. The increases in pensions, family payments, concessions for seniors and a rise in the low income tax offset were used to compensate households after the introduction of the carbon tax in 2010-11 and served as a "useful example of the form that compensation could take for a change in the GST". Treasurer Scott Morrison and his state counterparts will meet on Thursday in Sydney, the day before the leaders meeting, with reforms to state taxes to dominate discussions. Last week, Mr Morrison played down the significance of the Treasury modelling, which has not been released, arguing it had been "done based on the request from the states".

Mr Morrison said on Monday the "idea that we should be raising taxes to pay for higher levels of expenditure" by the states did not appeal to him, or the Prime Minister. Mr Shorten said on Tuesday: "I don't believe that the case has been made that Australia, in order to make sure that we are a successful, fair country needs to have a GST where you put everything up to 15 per cent". Mr Costello wrote for News Corp that "if the Coalition goes ahead with that proposal [a rise to 15 per cent], you can put down the glasses and stop worrying about other policies ... it will swamp everything". Mr Shorten said he didn't always agree with Mr Costello "but he is stating the obvious, isn't he? Putting up a GST to 15 per cent, it's lazy". NSW and South Australia have led the case, among the states, in pushing for a GST rise.