Weatherill pushing to reshape GST
If there is one tax that pops up again and again in Joe Hockey's broad discussion of the taxation system it's the GST.
Not that the treasurer or any other politician from the main parties wants to be seen associated with making any changes that would lift the rate or broaden the base of one of the system's most efficient taxes.
But numerous business groups believe it must be considered to help eliminate the drag on the economy from numerous ineffective taxes, like stamp duties.
Hockey's tax discussion paper released in March highlights that Australia relies heavily on company and incomes taxes compared to other countries, suggesting that the burden could be better spread by making changes to the GST.
Yet, the ink was barely dry on the report when Prime Minister Tony Abbott dismissed making any changes, saying it was an issue for the states to pursue.
The states and territories aren't keen to take up the challenge.
Even Western Australia, with its continual "whinge" over the amount it gets from the GST revenue pie, isn't arguing for change, just the way it's distributed.
But finally there has been a chink of light in the debate this week. And from an unlikely source.
South Australian Labor Premier Jay Weatherill says expanding the GST to include financial services should be considered when the nation's leaders meet with the prime minister at a retreat in July.
Labor has been against the GST since its introduction at the turn of the century and didn't even include it in the 2010 Henry tax review, the previous in-depth scrutiny of taxation.
But Weatherill argues his proposal will help towards covering the $80 billion in cuts to state health and education funding imposed by the federal government's first budget.
Abbott frequently denies making such cuts, saying Labor hadn't provided the money in the first place.
Yet the 2014/15 budget overview states that "sensible" indexation arrangements for schools and hospitals will achieve cumulative savings of over $80 billion by 2024/25.
Abbott may be right that the money wasn't there, but that hasn't stopped him from claiming it as a saving.
Whatever, Weatherill believes Abbott expected the states to come back and ask for an increase in the GST.
He says a recent assessment of the effect of lifting the GST or expanding its base found the only measure that doesn't punish low-income earners is a tax on financial services.
"So that's one we want to advance further in discussions with the commonwealth government, to try and fill this hole that they created for us," he says.
Weatherill hasn't as yet looked at what products this would impact, but it could be mortgage payments, interest earned and bank fees.
Treasury's annual tax expenditures report shows $3.55 billion is forgone each year by exempting financial services from GST, the same as health but a little less than education at $3.95 billion.
The biggest exemption is on food at a chunky $6.4 billion.
Both the Organisation for Economic Cooperation and Development and the International Monetary Fund have both long urged Australia to make changes to the 10 per cent GST, which is low by international standards.
The OECD disagrees with the argument that any changes would impact more on low-income families with its own study indicating that high-income households benefit vastly more than poor ones if the status quo remains.
That's because their consumption of the tax-favoured goods and services is greater than that of low-income households.
In its annual appraisal of Australia released this week, the IMF says even allowing for a full compensation to those on low incomes, broadening the GST and possibly raising the rate would help pay for reducing the corporate tax rate to a more competitive level internationally.
It would also assist in eliminating stamp duties, while providing the funds to deal with the issue of bracket creep to prevent a large share of individuals facing higher tax rates.
Last week Hockey extended the tax paper consultation period to July 24 to allow for further discussion in relation to interactions between the age pension, superannuation, taxation and employment.
Like the GST, it's not clear where that will go given Abbott and Hockey already have ruled out making adverse changes to super concessions in either this term of government or next.
