Federal Budget 2014 cuts to health and education spending sparks talk of GST increases

IF you think last night was bad, be warned, it’s about to get the worse. Our state premiers are not happy and we’re going to pay for it.

THE Budget pain looks like it is not over with the states left scrambling to cover huge cuts to school and public hospital spending and looking to GST increases to fund the shortfall.

The federal government plans to save $80 billion over 10 years by simply withdrawing the funding from the states that it provided for health and education costs.

The move has shocked state premiers with Queensland Premier Campbell Newman calling for an emergency meeting of the Council of Australian Governments and Victoria Premier Denis Napthine saying his state had been “robbed”.

Mr Newman accused Prime Minister Tony Abbott of manipulating national debate and said the changes appeared to be part of a plot to force the states to campaign for a rise in the GST.

“The GST is like a political wedge the government is playing, and frankly I think most of the first ministers that I’ve spoken to - well the first ministers I’ve spoken to are pretty annoyed about that,” Mr Newman said.

He said the state had also been kept in the dark about the changes until Budget night.

“We had a COAG meeting only the other day in Canberra. Frankly, I’m disappointed these sorts of moves were not discussed,” he said.

Annoyed ... Premier Campbell Newman. Picture: Tim Marsden

However, Treasurer Joe Hockey denied there was a plan to push the states into a GST reform.

“We went to the last election promising we won’t change the GST. We are honouring that commitment,’’ Mr Hockey told a National Press Club lunch today.

“We also said we would have a review of the entire tax system. We are honouring that commitment.

“Any changes we would make of great substance to the tax system we would obviously take to the next election.’’

The Federal Government collects the GST but proceeds go to the states.

All states and the federal government would have to agree to a change in the GST, and the federal parliament would have to pass legislation. And a federal government would be likely to want an election mandate for increases before proceeding.

However, the state governments will have to find a way to cover the $80 billion hole in their budgets.

There will now be debates over whether the 10 per cent rate of the indirect tax should rise to 12.5 per cent or even 15 per cent, and whether it should be applied to a wider range of goods.

Any movement would add to household expenses.

NSW Premier Mike Baird said all Mr Hockey had done in his Budget was pass his spending problem on to the states.

“It’s almost a game of ‘tip and you’re it — we now want the states to solve these challenges’,” Mr Baird told ABC radio on Wednesday morning.

“Well, it doesn’t work like that.”

Not happy ... NSW Premier Mike Baird says Budget measures are a ‘kick in the gut’.

Mr Newman said today that he has spoken with Mr Baird, Mr Napthine as well as South Australia’s Jay Weatherill and Northern Territory Chief Minister Adam Giles and that they all intend to meet to discuss the loss of funding.

But in a press conference today Opposition Leader Bill Shorten said the funding shortfall was just a “secret plan” to put pressure on the states to increase the GST.

The 10 per cent goods and services tax is charged on most products and services provided in Australia, and all revenue goes to the states.

When asked about whether he thought Mr Hockey was trying to “wedge” the states on a GST increase, Mr Baird told ABC radio that a mature debate should take place and conceded that the Budget “has brought that forward”.

However, he said that the states and commonwealth should have come together to talk about the challenges prior to the Budget changes taking place.

This included other measures such as whether the states should be allowed to raise money through charging their own income tax, which was recommended by the Commission of Audit.

More Budget pain seems to be on the way with states now talking about GST rises to plug funding shortfalls.

The audit report noted that the commonwealth actually raised a lot of money, almost $380 billion, but had low expenses, less than $320 billion.

It was the opposite for the states, which raised less than $150 billion in revenue, not enough to cover its responsibilities for things such as education and health and which has driven up its spending to more than $200 billion.

In order to fix this imbalance it was recommended that the commonwealth reduce personal tax rates so that states could levy their own income tax surcharge.

But the report suggested that this would represent a substantial reform and would take some time to implement.

Mr Hockey’s surprise Budget measure to take $80 billion worth of funding away from the states, now seems to have skipped this debate over whether state and federal revenue measures should be reformed and simply ripped money out of the state system.

The government’s decision to introduce a $7 co-payment to visit a GP may also push more people to visit public hospital emergency rooms, with states footing the bill.

Joe Hockey is standing firm on cuts to health and education funding to the states. AFP Photo/Madeleine Coorey

NSW Treasurer Andrew Constance, who will unveil NSW’s budget on June 17, said the state would have to find an estimated additional $1.2 billion over four years.

Mr Baird said it was a “kick in the gut” for people in the state.

“What services would (they) like us to cut here in NSW on the back of the funding cuts that we’ve seen overnight?” he asked.

Queensland Treasurer Tim Nicholls also weighed in and said “the revisions are nothing more than an unjustified attack on the state’s delivery of health and education services,” he said.

Meanwhile Mr Hockey said the commonwealth was willing to talk about changes to the GST with the states, but would not increase it without taking the change to an election.

“It’s up to them to argue the case to change the GST”, Mr Hockey told ABC radio.

“If they want to maintain that level of funding for their schools and their hospitals ... then they have to get it from the taxpayer as we would have to get it from the same taxpayer.”

Originally published as Federal Budget 2014 cuts to health and education spending sparks talk of GST increases