Ken Henry says raising GST inevitable, criticises PM over replacement of Treasury boss Martin Parkinson

Updated

Former Treasury secretary Ken Henry says the GST will have to be raised in the future and warns budget cuts will not be enough to fund spending on new social programs.

Dr Henry also criticised the actions of Prime Minister Tony Abbott and Treasurer Joe Hockey, in a wide-ranging interview on the ABC's 7.30 program.

In the interview, he expressed dismay at the decision to replace current Treasury boss Martin Parkinson, defended the mining tax, and warned against replacing the carbon pricing scheme.

Dr Henry says tax cuts during the Howard-Costello years were, in retrospect, a mistake because of the pressure it has put on the budget.

Pointing to the structural budget deficit, Dr Henry says lifting the GST rate is now inevitable.

"At some stage, the GST rate will be raised," he said.

Dr Henry says it is necessary to shore up not only future Commonwealth budgets, but also state budgets.

"Raising the GST rate one day will be seen as necessary to underpin fiscal sustainability in the Australian federation," he said.

He says he is not convinced the Government can fund new, large social programs from budget cuts alone, warning money will need to be raised to pay for the National Disability Insurance Scheme, the new school funding arrangements and its paid parental leave scheme.

"If the present revenue system isn't capable of funding those programs, are there alternative government spending programs that can be cut to make way for the new programs?" he said.

"That's a very big question and I have serious doubts about that, by the way.

"And if that's not the case, then are there alternative revenue sources that one can turn to in order to finance those programs?"

Assistant Infrastructure Minister Jamie Briggs says Dr Henry’s views are for him to explain.

"That’s a matter that Ken Henry commented on and I guess he can explain that," he said.

Mr Briggs says the GST is a "state tax" and encouraged the states to argue for change if that was what they wanted.

As an Opposition backbencher, Mr Briggs praised the GST as "the most effective and efficient tax in the system" and pointed out that it was only exempt on food because of Labor’s opposition when it was introduced.

"The GST... was meant to be applied to food and services, but part of the deal, because the Labor Party's complete opposition to the GST... meant that a deal had to be done with the Democrats and excluded food and services," Mr Briggs said in 2011.

He said he could not comment on how the Government would respond to Dr Henry's recommendations.

"That is a matter for people well above my pay grade and I’ll let those people make those decisions," Mr Briggs told reporters in Canberra

Henry critical of decision to replace Treasury boss

In the interview with 7.30, Dr Henry did not shy away from criticising the Prime Minister and his Treasurer.

He says Mr Hockey should not have questioned the Treasury Department's economic forecasts in the lead-up to last year's election.

"I was disappointed to see the attacks. I know how difficult it is to produce economic forecasts," he said.

"A department is unable to defend itself in public if it is attacked by a politician.

"Joe should not have made those comments."

Dr Henry also said he was unimpressed by Mr Abbott's announcement shortly after being sworn in as prime minister that Mr Parkinson would be leaving the post.

Dr Henry says such a move is unprecedented in the department's 113-year history.

"No government has ever thought it appropriate to remove the head of the Treasury and put in someone who is ... of a more comfortable political character," he said.

"Now, I'm not saying that is what has motivated the Prime Minister on this occasion, it may be, but I really don't know.

"But if that is what's intended, that would be a very disappointing move and quite a historic one."

Mr Hockey's office declined to comment.

Defending carbon pricing and the mining tax

When it comes to carbon abatement, Dr Henry warned the Coalition against replacing Labor's carbon pricing scheme with its own direct action program.

"If we are indeed going to commit to reducing Australia's carbon emissions below some business-as-usual baseline level ... then tackling that issue through any mechanism other than an emissions trading scheme will necessarily be more damaging on the Australian economy," he said.

But a spokesman for Environment Minister Greg Hunt says the Government's approach will provide real incentives for businesses to cut emissions.

To suggest that mining investment has been crippled by taxation arrangements is to be ignorant of the facts. Ken Henry

"This is in contrast with Labor's carbon tax which punishes every Australian household and business and inflicts massive pain on the entire economy," the spokesman said.

"Rather than a damaging and ineffective carbon tax, the Government will reach its emissions reduction target through its direct action plan to efficiently source low-cost emissions reductions."

Dr Henry was also direct in his criticism of the mining industry and its campaign against the mineral resources rent tax.

"To suggest that mining investment has been crippled by taxation arrangements is to be ignorant of the facts," he said.

In his comprehensive review of the tax and transfer system in 2008, Dr Henry advised the then Labor government to introduce a profit-based tax for the sector.

The idea was adopted, but the Resources Super Profits Tax was eventually watered down after a high-profile campaign by the mining industry.

Mr Abbott has vowed to repeal the subsequent scheme, the Mineral Resources Rent Tax.

Dr Henry says there is no evidence the mining tax is causing major problems for the sector.

"Mining investment is now larger than all other business investment in Australia combined for the first time in our history," he said.

"There's a huge pipeline of mining investment still to be rolled out."

Topics: federal-government, budget, tax, australia

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