Wednesday, December 09, 2015

Off the table: why the GST won't be lifted to 15 per cent

So out of favour is the idea of increasing the GST that by the time the government releases its tax options paper in the new year, a 15 per cent GST might not even be on it.

The thinking in Canberra is that there's no point listing it as an option if the Turnbull government has no intention of doing it.

Prime ministers Abbott and Turnbull undertook to examine the GST at the request of the states, and the Treasury is still doing so. It's continuing to carry out an analysis of winners and losers which won't be complete until the new year, but the end result is already apparent.

There's a load of trouble in it for the Commonwealth. It is far more difficult to compensate the losers than it was back in 2000 when the GST was introduced. Back then the tax-free threshold was only a third as big as it is today, meaning there were few Australians who couldn't be compensated with tax cuts. These days most self-funded retirees pay no income tax, meaning they can't be compensated with tax cuts either.

About half of what was raised would have had to be given back, and probably more when those who missed out started complaining.

Extending the GST to fresh food was never going to happen. Extending it to private schools and private healthcare would have penalised Australians who looked after themselves, or that's the way it would have been portrayed. Schools, hospitals, parents and patients would have their hands out. All to enrich the states, who wouldn't have thanked the Commonwealth; or to cut the income tax rates of consumers, who wouldn't have thanked it either.

Fifteen years on, few Australians remember the tax cuts that accompanied the introduction of the GST, but they remember the GST.

Scott Morrison has formed the view that the states are perfectly capable of fixing their own financial problems without him shouldering the political burden of pushing up the GST. If they wanted, they could impose and increase land taxes, the most efficient of them all. Land can't escape.

Without an increase in the goods and services tax, there's a good chance the states will look at land taxes, especially as neither Morrison nor Turnbull is keen to give them back the money Joe Hockey ripped out of their budgets in his first.

With an increase in the GST effectively off the table, the real talk about tax can begin.

In The Age and Sydney Morning Herald