I suspect the Australian people are mature enough to say: 'We'll cop that'.'' WA Premier Colin Barnett The GST will change: not in this three-year term, but change it will. We're a long way from the end of the story. The pressures for reform are mounting, and will keep mounting. And we need to understand why. The GST story is essentially about three issues. The first, and most important, is the one Barnett raised: the states do not have the revenue they need to meet our expectations for schools, hospitals, transport infrastructure and the myriad other services state governments provide. That gap will only widen as rapid population growth and an ageing society increase the demand for services.

The second issue is one Tony Abbott does not want to buy into, for good reason. The four biggest states, all now under Coalition governments, are demanding an end to the long-running system by which the better-resourced states are forced to subsidise services in states with fewer resources and/or higher costs. But it's a zero sum game, in which one state's win is another state's loss. Don't expect action here. The third is a smaller issue: the campaign by retailers, backed by the states, to slash the $1000 threshold for exempting online purchases from the GST. With online purchases now making up 6 per cent of retail sales, former treasurer Wayne Swan asked Treasury to produce options for change, and his successor, Joe Hockey, says that work will continue. But the first issue is the big one, and the one we must face up to. Unlike Labor, the Coalition plans to allow its tax inquiry to weigh up the future of the GST, and judge it on its merits. It is likely that the report will propose either a higher GST rate, maybe 12.5 or 15 per cent, or an expansion of the GST base, to cover goods and services now exempt - food, healthcare, gambling, education - or both. The GST is a constitutional mess - a tax the Commonwealth collects, but the states spend. It raises equity issues that will require an increase to be partly offset by tax cuts and increases in welfare benefits. Yet, with that caveat, it is a fair, efficient and non-discriminatory tax, which most Western countries charge at a much higher level than we do.

But that is not how we see it. Colin Barnett is an optimist if he thinks Australians will agree to a higher GST to keep up the standard of state services. The polls suggest they would not cop it, because many do not see that the services they get depend on the taxes they pay. Yet that is the key issue. And if Barnett and other premiers want to win the argument, they will have to take risks, go out and lead the public debate, and explain to us why the services we want from them have to be paid for, and that the GST is the best option for the purpose. It is always safer for the premiers to dodge that debate, and take refuge, as Victorian Premier Dennis Napthine did last Friday, in saying the problem was not the size of the GST, but the share their state gets. No one is criticised for saying that, but it gets us nowhere. Take Melbourne. By the end of next year, it will have 30 per cent more people than it had 15 years earlier. You cannot pile 30 per cent more people into the same infrastructure without enormous strains. Your roads, your hospitals, your train and tram services become congested unless you build new ones. And if you want to build, you have to pay for it, either with higher taxes now, or with higher taxes down the track, or both. If population growth continues at this rate, by 2050 Melbourne and Sydney will be approaching the size that London is now. To function efficiently, they will have to have metros. To build the metros, we will have to pay more tax.

Our population is ageing rapidly, as the baby boomers move out of work and into retirement - to be followed within 15 years by GenX. This will slow revenue growth and increase demands on hospitals and aged-care services. How will we pay for it? That's what taxes do. They are the way we pay for the services that government provides for us. There are other ways, such as higher user-pays charges (hands up if you too think it's a scandal that taxpayers pay 70 per cent of the bill for Melbourne's public transport, and passengers just 30 per cent.) But asking people to pay for the services they use seems to be no more popular than getting them to pay taxes. It's an old Australian tradition to be hostile to governments. Every tax is a ''slug'', every service inadequate. Yet we believe the government should always be in surplus. It seems we don't understand how this body we call government works. Taxes go in, and services come out. Starve one, and you starve the other. International Monetary Fund figures show that Australia has the second lowest level of government spending in the Western world. In the long run, that means we have the second lowest tax levels too. Yet we think we are highly taxed. If Barnett and his fellow premiers want to win this argument, they need to have the courage to get out and argue their case, again and again.

But that is risky. The only Labor voice supporting Barnett was ACT Chief Minister Katy Gallagher. Realistically, no opposition can resist the opportunity to kick at tax increases, however strong the reasons for them, unless the government has made it part of the decision-making. If tax reform were handled on a bipartisan basis, it would give business certainty for long-term investments, and enable both sides to introduce best-practice reforms, rather than having to look over their shoulder at the short-term political consequences. In Europe, that is how they handle big decisions. It's not our style, but it should be. Tim Colebatch is economics editor of The Age.