GST to increase only with compensation: Joe Hockey

The GST will increase only if there is a “very significant” compensation package for ordinary Australians, Joe Hockey has declared as state treasurers launch a dispute about how to raise more tax revenue.

Mr Hockey said any change would have to go to the electorate for the Australian people to decide, as well as getting the unanimous agreement of the states.

“There’s no doubt in my mind that the only way you can ever have an increase in the GST is if you had a very significant compensation package that covered the cost for low and middle income Australians,” the Treasurer told Sky News.

Mr Hockey declared the position as he went into a meeting with state treasurers on Friday to negotiate changes to the consumption tax against the backdrop of a furious argument over bigger tax reform.

The likely outcome from the meeting will be an agreement to apply the GST to more goods and services purchased from overseas internet sites, reducing the $1,000 “low value threshold” that currently waives GST on items bought below that amount.

Mr Hockey and others have raised the idea of cutting the threshold to as little as $20 or abolishing it altogether, pushing up prices for online shoppers but delivering billions of dollars in new revenue for the states.

NSW treasurer Gladys Berejiklian has commissioned modelling by her department and PricewaterhouseCoopers showing that increasing the GST to 15 per cent would raise about $32 billion, with about $16bn left over after compensating households earning less than $100,000.

But Victorian treasurer Tim Pallas rejected the option of a GST increase, labelling it an “aggressive” change when it would be better to lift the Medicare levy to generate more revenue. Queensland treasurer Curtis Pitt also backs this move.

“We’ve put up an alternative — a progressive tax scale increase on the Medicare levy,” Mr Pallas said.

“Around about a 2 per cent on the Medicare levy would get about the same result in terms of revenue because you wouldn’t have to put in place a compensation regime.”

Mr Hockey described the changes to online GST threshold as an “integrity measure” that would make the system fairer for Australian retailers.

While the offshore websites do not have to collect GST when they sell products to an Australian customer, an Australian store or website would have to add the 10 per cent tax to the same product.

Those who bring in products worth more than $1,000 purchased online overseas are often required to pay the GST on the item in order to get it through Australian Customs.

“I think the states will agree to the change unanimously, and it needs to be unanimous,” he said.