There's a big hurdle for Mike Baird's proposal to increase the GST

NSW Premier Mike Baird won’t commit to dropping state taxes such as stamp duty on property sales in exchange for his proposed increase in the GST rate – a condition senior federal ministers have said would be central to support for the reform.

The proposal for increasing the GST to 15%, put forward by Baird in July, is designed to address future shortfalls in healthcare funding, estimated at a combined $35 billion for state and federal governments in 15 years’ time.

Baird told Business Insider that while he was open to reductions in state taxes as “something you’d consider in the longer term”, it would depend on ensuring revenue growth was sufficient to fund the healthcare gap.

“The concept of this is over the next 15 years,” Baird said. “I think you can deal with the health funding challenge, you’re going to deal with the competitiveness of the country, so you’re going to start to reduce income taxes which is part of the compensation…. But over time, it depends on growth rates. If there is additional revenue, you can consider it in terms of reducing some of the more inefficient taxes.”

An increase in the GST rate would involve a giant compensation package, most likely through federal income tax cuts, to help people on lower incomes absorb the higher cost of living from the increased taxes on daily items.

Baird’s proposal would see people earning $100,000 and below compensated in full. But senior Coalition figures have argued states should forgo some of their taxes too. Federal social services minister Scott Morrison said in July the debate on increasing the GST “seems… always about spending more money”.

One influential Liberal said today that without a commitment to dropping some state taxes, Baird’s proposal was “dead in the water”.

Baird said he would be discussing the reform as well as a proposal from the Victoria and Queensland premiers for an increase in the Medicare levy to fund health spending with state and territory leaders in the coming months and that he was optimistic about reaching agreement.

“The experience I’ve had – I think it was back in 2012 where I raised the concept of the threshold in online GST. And that initially was resisted by a number of people. But we’re now in a position where it’s agreed at the leaders’ retreat, agreed by the treasurers, and it’s going to happen. So people can hold out some hope that reform can happen out of these processes,” Baird said.