Income tax cut raises threat of GST hike

Finance Minister Mathias Cormann has revealed the Coalition’s promised personal income tax cuts will hinge on reducing spending as well as finding alternative revenue sources, raising the spectre of increasing the GST.

Senator Cormann confirmed the government planned to take a tax reform package to the next election, saying it had been candid with Australians that “our tax system relies too heavily on income taxes’’ that were too high by international standards. Asked how tax cuts would be funded, he said the government was focused on getting spending growth under control, which “gives us some room’’.

“Beyond that … if we want to raise less revenue in order to ­improve our competitiveness from one tax source then obviously that’s got to be made up in other areas, and that is the conversation that we’re having,’’ he told Sky News’s Australian Agenda.

Labor Treasury spokesman Chris Bowen labelled Senator Cormann’s comments an admission that “any income tax cuts needed to be paid by increases in other taxes, like the GST’’.

Mr Bowen’s attack was part of Labor’s multi-pronged assault on the government, with families spokes­woman Jenny Macklin also hitting out at Joe Hockey after he appealed for women to return to the workforce “for the sake of the future of the Australian economy’’. Ms Macklin said his comments ignored the government’s plans to cut family tax benefits, including removing families from Family Tax Benefit Part B when their youngest child turns six, changes to childcare and ending the practice of double-dipping of paid parental leave. “Mr Hockey is treating women like fools,’’ Ms Macklin said.

The government wants to tackle the challenge of bracket creep, where increased wages lift workers into higher tax brackets, which acts as a disincentive to ­increasing working hours.

The government is using its tax white paper process to look at both the top end of the income scale — where high tax rates are choking entrepreneurialism and work incentives — and at the ­interaction of taxes and welfare benefits lower down the income scale, which can impact on women’s workforce participation.

Senator Cormann said the ­government wanted to improve the tax system to facilitate growth and job creation, and that meant improving the tax mix. “The overall objective is to raise the necessary revenue for government in the most efficient way possible, in the least distorting way in the economy possible, and in a way that doesn’t undermine our capacity to grow the economy,’’ he said.

Asked whether the government was looking at changes to the GST, Senator Cormann said: “There is a conversation to be had, and we’ve always said in relation to the GST that we would want to see a broad community consensus and a broad political consensus in the context of any such reform. But certainly the conversation so far has been ­encouraging.’’

NSW Premier Mike Baird welcomed Senator Cormann’s comments. “They reflect the NSW position that an increase in GST, with targeted tax cuts to quarantine the majority of families from the effect, is the best way to secure the future of our health services. This solution addresses the cumulative deficits looming for the Commonwealth and the states, while improving the overall competitiveness of the economy.”