GST increase could impact housing prices

The leaders’ retreat has been organised by the Prime Minister Tony Abbott, but his Government’s $80 billion dollar cut to the states has meant that this meeting is focused on health funding, with the PM along with all state and territory leaders acknowledging that there’s simply not enough money to go around.

Prime Minister Tony Abbott has described Mr Baird’s proposal as “very sensible”.

Mike Baird’s bold intervention to overcome a political deadlock over the GST may not get past this week’s leaders retreat. We can’t assume that if there is a revenue problem, it’s wholly and exclusively the Commonwealth’s job to fix.

I’m pleased that Premier Mike Baird, along with Premier Jay Wetherill, are prepared to have a constructive, responsible discussion.

“There’s a lack of leadership from our Premier on this issue”. Premier Baird has shown he has listened to these arguments in announcing his willingness to support an increase in the rate of the GST.

Meanwhile Victorian Premier Daniel Andrews has proposed a hike to the Medicare Levy to fund health reforms.

“I think that is necessary for a whole range of reasons”, he said after the Australian Council of Government meeting on Thursday.

And there’s nothing to indicate WA Premier Colin Barnett will move on from his attitude to the GST, which is to oppose any reform that does not include change to the way the revenues are distributed. Australia’s federal-state financial system, he wrote in Monday’s Australian, “is in imminent danger of tumbling over a fiscal cliff”, compromising the future ability to deliver quality health care.

“The real issue is no longer who funds what health services or who carries the greatest share”, he says.

A revenue stream of $20 billion is needed before 2020, he says, “to put our vital health services back on a secure footing”. “We want to be absolutely sure that we are not the generation of leadership which lets our people down”.

Mr Baird acknowledges the regressive nature of the GST and is proposing households earning under $100,000 be compensated for any increase in the rate. Compensation in welfare payments and tax breaks to lower income earners would cost $171 billion. At the federal level, Labor leader Bill Shorten says a higher GST will increase living costs and he suggests there are other “options and levers”, such as pursuing multinationals that pay a low rate of tax in Australia.

Abbott said he wanted to see “the overall tax burden go down” while at the same time having “a more rational arrangement of finances and responsibilities between the commonwealth and the states”.

Without the assumption that a tax cut boosts pre-tax incomes, the equity argument for a 15% GST falls in a heap.

Increasing the GST from 10 to 15 per cent, he argues, will help overcome this.

“What I’ve indicated is that there should be a discussion about new revenue measures”, he told reporters.

At the weekend, Hockey promised to take a plan for income tax cuts to the election.

But the shadow treasurer, Chris Bowen, said he would believe it when he saw it. He knows that the main thing he’s using to allow him to project slowly declining budget deficits in coming years is ever-rising collections of income tax, caused mainly by “bracket creep” – inflation pushing people into higher tax brackets.