Premiers take lead in overhauling tax system as hospital expenses balloon

IT COULD be the GST, it could be something else. Whatever the means, our states are crying out for more money — and you’re going to have to pay.

22/12/2008 NEWS: 03/03/2000. Generic photo of man removing money from his wallet.

IT’S now certain: We are heading for increased taxes to prevent a collapse of the public hospital system.

What’s to be decided are the how and when, and this will be discussed Wednesday and Thursday when federal and state leaders meet in Canberra.

Nothing of substance is likely to happen to the tax system until after the next election, scheduled for late 2016, and the Commonwealth-state talks this week will only be preliminary.

During the 2013 election campaign Prime Minister Tony Abbott pledged: “Taxes will always be lower under a Coalition government.”

However, the premiers are pleading they are running out of cash and the federal government is replying that it can’t help them out. Further, it has its own vague plans to cut income tax and a specific measure to lower company tax for small business.

So it has flick-passed the revenue problem to the premiers.

The most likely source of extra revenue for the states at the moment is from a bigger goods and services tax (GST), which by one calculation would hurt most the 20 per cent of households with the lowest income.

The public leadership in reshaping the tax system is coming from NSW Premier Mike Baird and South Australia’s Jay Weatherill — Liberal and Labor — who have warned states would not be able to fund hospitals unless they or the federal government get more money.

Mr Baird this week proposed pushing the GST from 10 to 15 per cent and has had conditional support from Mr Weatherill and the ACT Labor Chief Minister Andrew Barr.

“I think it’s the first time in recent history, anyway, we’ve seen a conservative leader in this country recognise the need to raise more revenue,” Mr Barr said of Mr Baird on ABC radio today.

The recent NSW Budget allocated $19.6 billion to health and reported that since 2011 the costs of the state hospital network have risen by $4.1 billion and hospital admissions have risen by 500,000.

But the winner in terms of hardcore political strategy is Prime Minister Tony Abbott, who in the May 2014 Budget cut $80 billion of federal funding for states projected by the previous Labor government.

Tony Abbott has promised no tax rises, but two state premiers are angling for an increase in the GST. Picture: AAP Image/David Moir

And the clear message to the states was they would have to make up the difference themselves. There were lots of hints the states might sponsor changes to the GST.

The Abbott Government has long claimed the Commonwealth had a spending problem not a revenue problem, but the Prime Minister effectively has admitted his biggest obstacle is in getting enough tax to cover essential funding.

To be accepted, an increased GST would have to come with compensation to protect the disadvantaged, but there is little consensus on how that would be done.

“Income tax is, of course, one option but that can’t do the work alone simply because it would not offer any offset to those many people who currently pay little or no income tax,” Curtin Economics Centre director Alan Duncan said.

“So one would then have to also consider other forms of compensation through perhaps the welfare system for those at the fringes of the current income tax system.”

It also would need the backing of all premiers and the Labor federal Opposition. Opposition Leader Bill Shorten is rejecting a GST rise but might back an increase in the face of majority approval.

“We’re happy to engage in a conversation, but it’s really important that we do that based on the evidence we have on the equity and efficiency of the GST,” shadow assistant treasurer Andrew Leigh said.

“Normally when you’re looking at tax reform, you look at things like simplicity, equity and efficiency. If you look at the efficiency of the GST — in other words, the amount of economic activity that is destroyed for every dollar you raise — the government’s latest tax discussion paper says it is just as inefficient a tax as the income tax.”