In which case, Australia would find itself with a permanent 15 per cent tax on consumption in the immediate future and then, in all likelihood, a 20 per cent tax into the indefinite future. Illustration Kerrie Leishman. And with the average personal rate of income tax currently at 24 per cent, this would mean Australia would have two large blocks of tax on people's backs – a 20 per cent tax on consumption and a 24 per cent tax on income. An absolute dead weight – the country jammed at just on 45 per cent of tax on income and consumption; and stuck with it forever. When a country gets locked into such permanently high taxation, there is no way out of it. Were the public to agree to give the political system such a load of money, the political system would simply go and spend it. At that fork in the road of national income, that between the public and the private sector, tax funding a bigger public sector will simply make Australia's private sector relatively smaller.

The aim of policy should be to make the private sector larger; not to restrain it with a burgeoning public sector. People should remember that a GST or a value-added tax was the invention of the socialist parties of Europe; a flat tax levied to pay for larger systemic social programs – a policy of ambitious income transfers. It has always been a wonder to me why so many conservatives in Australia have found themselves wedded to such a socialist tax. And it is no surprise that the thinking left in Australia has always supported a higher revenue to GDP ratio to fund the social programs it believes the country should have. Indeed, it was Robert Fitzgerald, the then president of the Australian Council of Social Service, who in 1997, was the first significant person to urge John Howard to introduce a GST. And Fitzgerald did not just urge Howard. He was the principal driver, along with some members of the business community. If say, an extra one or even two percentage points of GST were levied, purely and simply to fund public hospitals and was hypothecated to that sole purpose, one could at least defend such an increase. But to simply give the Commonwealth cabinet; any cabinet, another $30 billion to spend at its discretion, is fiscal folly in the extreme. And worse, to spend it reducing the company tax rate and the top marginal rate. We would be taxing the people at the bottom heavily – really heavily – to cut the company tax rate from 30 per cent to 25 per cent. A terrible proposition.

Australia's dividend imputation system works such that the company tax is, in effect, a withholding tax – a tax temporarily held by the Commonwealth which is returned to shareholders when their dividends are paid. So, whether the company tax is withheld by the Commonwealth at a rate of 30 per cent or 25 per cent is immaterial – the Commonwealth is going to return the money to shareholders anyway, regardless of the rate. But the shareholders who will receive a benefit are foreign shareholders – and they should not be given a gratuitous tax cut anyway. Especially one paid for by an impost on ordinary income earners, including the poorest people in the country. The fact is, an increase in the GST is not tax reform, it is tax penury. There is nothing reformist about it. A GST does not change behaviour like the capital gains tax changed behaviour or dividend imputation changed behaviour. The GST is just a flat, bang you over the head, tax. It changes nothing; no behaviour, other than to put the tax weight onto the wrong people. Premiers such as Mike Baird and Jay Weatherill have argued that the cuts to health funding in the 2014 Hockey budget and still afoot, will pull down health provision in the public hospital system – and they are right. The quality of our public hospitals is an important part of the social contract. But the remedy might be to hypothecate a modest increase in the GST to hospitals – and only to hospitals, with back up agreements between the Commonwealth and the States to guarantee the expenditure. At least people would know where the money was going and why.

Giving the political system $33 billion to spend at its sole discretion does nobody a service.The big falls in commodity prices mean that Australia's income has been cut. We cannot pretend we can go on spending as though nothing has happened. The world has trimmed us down – we now have to trim ourselves down. Trim our spending and not accommodate more of it by ever more taxation. A big increase in the rate of the GST will only lead the political system into continuing bad habits. And for the obvious reason: an increase in the GST on this scale is fundamentally a bad idea. Paul Keating is a former prime minister.