GST: PM not convinced proposed rise has passed first economic test

Malcolm Turnbull said a GST increase has not passed “first test” of delivering the required economic boost to the nation.

Malcolm Turnbull is warning a GST increase has not passed the “first test” of delivering the required economic boost to the nation with government modelling showing the change would boost GDP growth by about half a per cent.

Speaking on the ABC’s Insiders program today, the Prime Minister confirmed he remained unpersuaded by the economic case and questioned whether a GST driven overhaul of the tax mix would provide the required boost to jobs and growth.

“You’ve got to first decide, ‘is this policy going to give you the economic outcome you want?’ And then you’ve got to assess the practical politics,” he said.

“With the GST income tax swap proposal, it has not yet passed that first test. We have not yet made a decision on that yet and it does pose a lot of complexity particularly in the area of compensation.”

Mr Turnbull confirmed reports he was not persuaded by the case for change, warning that much of the extra revenue would go towards compensation to counter the impact of a higher GST.

“So you’ve got the negative of the GST increase versus the positive of cutting personal income tax. And weighing that up, and all of its complexity, and determining whether, out of that, you get any substantial net growth, that is the matter of careful analysis,” he said.

“It’s not a question of politics here. At this stage I remain to be convinced or be persuaded that a tax mix switch of that kind would actually give us the economic benefit that you’d want to do such a big thing.”

Cabinet Secretary Arthur Sinodinos told Sky News’ Australian Agenda program this morning the economic dividend of a tax mix shake-up involving a GST hike could add more than half a per cent to GDP.

“You can model this,” he said. “A lot of the models say you can get half a per cent of GDP from a tax mix switch and associated changes, particularly if it’s around things like company tax which can have a bigger impact.”

“The limitation with the modelling is this — it’s static. It’s a before and after effect. It doesn’t look at dynamic effects. In other words, it doesn’t look at the fact that, over time, if the tax system is consistently lower, fair and simpler and … encouraging people to work to invest and to save, you’re getting a much more entrepreneurial risk bearing culture.”

Senator Sinodinos suggested Mr Turnbull was uniquely placed to push through an ambitious tax reform agenda given his strong position in the polls, but said he needed to be “excited” by any proposal and able to persuade the party room.

“As a popular Prime Minister and as a great communicator, Malcolm Turnbull probably has the best opportunity of any leader we’ve seen in a long time to do this,” he said. “But that’s not to take away from the difficulty of doing this.”

He also warned the open running tax debate — in which all options remain on the table — was not sustainable and suggested a final decision would need to be made before it became a politically damaging exercise.

“My personal view is it can’t run too much longer because, clearly, there’s already been a lot of discussion out there and I think the next stage is people need to see the colour of our money,” he said. “I don’t believe it can run on for too long.”

Senator Sinodinos warned that a decision not to proceed with a GST change would entrench the “myth” the tax was untouchable and make it more difficult for future governments to change the 10 per cent rate.

“The GST has become this mythical beast. I remember calling it the 800 pound gorilla,” he said. “The reality is that the myth will become entrenched -- that you can’t touch this thing; that this is tar baby of Australian politics and therefore it will make it very difficult for it to come back.”

However, he suggested it was possible to deliver meaningful tax cuts without pursuing a higher GST and confirmed that both Mr Turnbull and Treasurer Scott Morrison had been provided with a range of options by their departments that assumed both an increase as well as no change.

“They’ve sought to identify a big enough pot on both sides, with the GST and without. So the PM and the Treasurer have something to look at,” he said.