Govt eyes income tax, GST reform

Scott Morrison will move within weeks to discuss a deal with the states that could carve up income taxes worth $200 billion a year while giving the commonwealth its own share of the GST, amid a growing fight over expanding the consumption tax.

Treasury officials are stepping up work on the radical plan as part of a broader effort to offer voters an income-tax cut, putting the changes at the heart of the ­Coalition’s bid for a convincing mandate at the coming election. With cabinet ministers cooling on the idea of a GST hike, the government is working on new ways to divide income-tax revenue with the states, in a reform that is winning favour with the Treasurer.

“What the states are saying to me, among many other things, is that they are looking for greater stability and predictability of their revenues going forward, and I think that is an entirely legitimate and reasonable thing to put on the table,” Mr Morrison told The Australian. “That’s why I was happy to look at it in a positive light.”

A tussle looms over how to divide the tax proceeds, with South Australia pushing for a 17.5 per cent share of the commonwealth’s income-tax revenue to be shared among all the states and territories.

 

Mr Morrison told The Australian of an alternative approach that would give the states 10 per cent of the income-tax proceeds while giving the commonwealth a slice of the GST revenue. The Treasurer’s idea breaks with the past on the allocation of GST proceeds and abandons the idea that an impost on goods and services is a “state tax” that should go entirely to the states and territories. For the first time, the commonwealth would keep some of the receipts for itself.

Next year’s income-tax revenues are estimated to be about $200bn and next year’s GST revenues will be about $60bn — with all of the GST proceeds going to the states.

“The sort of change you’d be talking about could enable the states to get $40bn out of the consumption tax and $20bn from income tax, which would be 10 per cent of the income-tax revenues,” Mr Morrison said. “So they would have a diversified revenue base out of the commonwealth, and as things changed over time they would have their risks spread.”

That would leave the commonwealth with $20bn from the GST proceeds, about one third of the total.

The talks on the tax swap are separate from the long-running dispute over how to divide the GST pie between the states, as West Australian Premier Colin Barnett seeks a bigger share of the receipts despite fierce objections from Tasmanian Premier Will Hodgman and others. If the commonwealth suggestion gains ground, it would be a departure from Tony Abbott’s longstanding argument that the GST was a “matter for the states” and the position adopted by the Howard government, which regarded the GST as a “state tax” and did not include it in its tally of federal revenue.

The change would also make it easier for Malcolm Turnbull and the Treasurer to explore lifting the GST rate from 10 to 15 per cent or expanding the GST base to health and education, making this a unilateral reform and keeping the additional proceeds for the commonwealth.

Given the Prime Minister’s pledge that the poor would be shielded from the impact of any GST increase, the federal government would have to use some of the revenue to offer welfare payments to low-income households, with the rest being used to fund tax cuts for workers.

Mr Turnbull met the premiers and chief ministers and Mr Morrison met state and territory treasurers in Sydney earlier this month, setting deadlines of February and March to make more progress on a deal. Treasury secretary John Fraser discussed options with his state counterparts in a confidential heads of Treasury meeting last week with the division of income taxes a high priority, those aware of the meeting told The Australian yesterday.

A Treasury analysis will be prepared over summer to deliver on a request from South Australian Premier Jay Weatherill and Treasurer Tom Koutsantonis, backed by other state leaders, to examine the benefits of giving states a permanent share of the income tax revenue.

NSW Premier Mike Baird has voiced some support for the South Australian proposal, although he also wants an increase in the GST to be considered.

Victorian Premier Daniel Andrews and Queensland Premier Annastacia Palaszczuk have pushed for an increase in the Medicare levy — in effect, lifting the personal income tax rate for people on high incomes — but last week’s meeting made it clear this did not have enough support to proceed.

The South Australian proposal to share income tax would give the states and territories 17.5 per cent of the revenue, reducing federal intervention in how it was spent. While the original proposal left room for the federal government to increase the GST and use the proceeds for its own ends, it did not canvass giving the federal government a share of the existing GST.

Source::: The Business Spectator, dated 23/12/2015.