Joe Hockey rules out GST rise to fund states' expenditure

The treasurer, Joe Hockey, has ruled out raising the goods and services tax (GST) to meet increasing expenditure by the states in areas such as health and education. The New South Wales premier, Mike Baird, had taken a proposal to July’s council of Australian governments (Coag) meeting to increase the GST to 15%, without broadening the base to include items such as fresh food, which are currently excluded.

Baird said the increase was needed to plug a hole left by federal budget cuts which had left state budgets at “crisis point”.

When asked on Thursday by Sky News’ David Speers if Hockey was considering increasing the GST to 15% to pay for health services, the treasurer said: “I’m not up for an increase in federal taxes to increase expenditure by the states.”

He hoped the commonwealth and state governments could find a “common-sense approach” to tax reform.

“But I want to emphasise, simply increasing taxes is not tax reform,” he said. “You actually have to have a fairer, simpler and lower tax system. The prime minister is adamant about that, I am adamant about that. The federal government is not going to go down the path of simply increasing taxes to give more money to the states to spend more.”

He indicated any extra money raised would go towards addressing bracket creep.

“I have long argued that bracket creep, where people fall into higher tax thresholds, is actually going to detract from economic growth,” he said. “You can see the lumpiness of people’s income just before they reach a new tax threshold. So what they’re doing is they’re minimising their income so that they don’t have to go into that new tax threshold. That is simply unsustainable.”

Hockey has previously said that bracket creep, which is when inflation pushes incomes into higher tax levels, could see average-income earners thrust into the second-highest tax bracket.

“We must address bracket creep because it is better to leave money in the pocket of the taxpayer and resist the temptation for the government, using taxpayers’ money, to provide financial support to individuals and families,” he said in July.

On Thursday he also insisted that he wanted to ensure GST was charged on all goods bought online. Currently, GST is applied only to goods worth more than $1,000.

“Well we are aiming to get it down to zero so that there is the very same GST system applying to goods purchased overseas as would be purchased in Australia. I think that’s a pretty reasonable threshold test,” he said.

“We will discuss the process with the state treasurers next Friday, but I am confident that we can ensure that businesses operating in Australia are competing on a level playing field with people providing goods from overseas.”