Secret plans drawn up to lift GST to 15 per cent with tax cuts on the table
THE GST will rise to 15 per cent, middle-income earners will secure tax cuts and fresh food will remain GST-free under tax options being closely examined by the federal government.
Setting the scene for a tax battle at the next election, Prime Minister Malcolm Turnbull is prepared to ask voters for a clear mandate on GST reform and tax cuts if his party room agrees, according to senior Liberals.
Despite describing the tax reform agenda as being in the “discovery phase’’, Treasury officials have worked for months on different options to increase the GST to 15 per cent. The Sunday Telegraph has confirmed that four main GST reform options were canvassed by Treasury in proposals provided to senior ministers, including former prime minister Tony Abbott, earlier this year.
Treasury’s work on the reforms has operated continuously and is now being re-examined by the Turnbull government as it prepares for next year’s election.
Mr Turnbull and Treasurer Scott Morrison have argued all options are on the table during this “discovery’’ phase, including extending the GST to fresh food.
Lifting the GST to 15 per cent, while compensating households with incomes of up to $100,000, would raise $24.5 billion in extra taxes, but some argue it is not generous enough to also offer company tax cuts.
The increase to the GST would be designed to help fund a shortfall in health and education spending.
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The National Centre for Social and Economic Modelling estimates the average household would face extra costs of $2915 a year under a 15 per cent GST.
One option discussed by officials would carve up the revenue from the GST hike between the states and the Commonwealth, providing a revenue stream to help fund GST compensation for pensioners and income tax cuts for low- and middle-income workers.
Some state premiers, including NSW’s Mike Baird and South Australia’s Jay Weatherill, have called for debate on a 15 per cent GST, while Victoria’s premier Dan Andrews remains opposed.
Mr Andrews has proposed increasing the Medicare levy.
Treasurer Scott Morrison said all options were on the table when discussing the GST.
Mr Baird and Mr Weatherill have previously signalled they would consider increasing the GST to 15 per cent in return for more money for the states and other trade-offs.
Mr Weatherill is opposed to putting the GST on fresh food but is open to extending it to some areas of health and pharmaceuticals.
Cabinet ministers stressed the discussions were in the “embryonic’’ stages and would require the support of cabinet, the party room and voters at the next election.
The Prime Minister would seek a clear mandate from voters for GST reform if the party and cabinet agrees to the election strategy, and any changes would need to be negotiated with the states.
Mr Morrison has highlighted the prospect of funding income tax cuts as one reason for GST reform.
“When you have the average wage earner in this country about to move into the second-highest tax bracket at $80,000 next year, you’ve got a problem with the incentives in your tax system,” he said.
Parents Alan and Jane Mawer, from Coogee, said there was little doubt a GST rise would make life more expensive.
“It depends on how it is packaged up,” Mr Mawer, 40, said. “Frankly, life would be a bit more expensive.
“We won’t be the most affected family, but it is concerning for our parents. What would the government do with the extra money?”.
THE GST CHOICES ON THE TABLE
Option A:
Increase GST from 10 per cent to 15 per cent with no exemptions which would broaden the base to include fresh food, health and education including private school fees
Option B:
Regarded by officials as a more likely option, was a 15 per cent GST that still exempts fresh food. This would increase the price of existing goods that already attract the GST, for example takeaway food, and other goods and services
Option C:
A 15 per cent GST that exempts food, health and education. This would deliver the status quo in terms of exemptions but increase the rate on existing goods that already attract the GST
Option D:
A 12.5 per cent GST. The smaller increase to the GST was regarded as an unlikely prospect by officials because it would fail to deliver enough revenue to provide for income tax cuts and cover the state’s funding shortfalls in health and education
