Tony Abbott accepts efficiency argument for higher GST

Prime Minister Tony Abbott has given another signal the government is considering rises to the GST saying he accepts the efficiency argument for the tax, as long as other taxes come down.

The comments come after Finance Minister Mathias Cormann said there was a "conversation to be had" with the community on changes to the GST and income tax cuts would be part of a broader reform package to be taken to the election.

On Thursday Mr Abbott said there was a powerful argument for changes to the GST.

"There is an efficiency argument for taxing earnings less and taxing spending more, I accept there is a strong argument, but it's got to be in the context of overall lower taxes," he told 2GB's Alan Jones.

Mr Abbott's comments about efficiency are a nod to arguments that a GST increase would have less drag on the economy than raising other types of taxes.

STATES SPLIT ON GST REVENUE

So far state and territory treasurers have failed to agree on broader GST reform.

But NSW Liberal premier Mike Baird and South Australia Premier Jay Weatherill have called for the GST rate to be increased from 10 per cent to 15 per cent and for the extra revenue to be spent on the growing cost to state governments of public health.

While Mr Baird has said a GST increase could be accompanied by targeted tax cuts, Mr Weatherill said the NSW premier's own modelling showed all the extra GST revenue would be needed for health and the Commonwealth should fund the compensation.

NSW Treasurer Gladys Berejiklian said NSW's proposal to increase the GST to pay for state health and education spending is "not inconsistent" with the Federal proposal for income tax cuts.

"The NSW government recommends increasing the GST to 15 percent but also ensuring there is a compensation package for households earning up to $100,00. In addition to that there is still room for income tax cuts.," Ms Berejikilian told a budget estimates hearing on Thursday.

She said NSW proposal "is not inconsistent with comments by the Federal government." Ms Berejiklian defended the plan NSW put to the Council of Australian Governments which involves giving households earning up to $100,000 compensation for the rise in prices as a result of the proposed 5 percent rise in the GST.

"I appreciate that in many states $100,000 is an extreme amount of money. It is in NSW as well but our living conditions and cost of living are much higher, which is why we believe a compensation package up to $100,000 is a fair amount."

Ms Berejiklian said NSW had opposed proposals to exempt tampons or anything else from the GST base or to extend the GST to health and education. "It has been around for some time. People are used to it. People accept the existing GST base."

GST ADVOCATES WANT 'HIGHER TAX'

Mr Abbott slammed some advocates of a GST hike saying they were calling for a rise in government spending and higher taxes.

"The problem with a lot of the people who are saying just whack up the GST is that they want the overall burden of tax to go up, they want government spending to go up," he said.

In late August, Treasurer Joe Hockey flagged using spending cuts to combat bracket creep in preparation for the release in the coming months of the initial response to the tax white paper process.

Business, union, welfare and community groups at the National Reform Summit agreed that all options for tax reform should be left on the table and none ruled out. A Coalition backbencher has raised concerns about the government taking a GST rise to the election, however.

"I'm just observing it's an incredibly complicated front to take on as a government," Queensland MP, Andrew Laming, said. He said he was "more optimistic" about leading a campaign with job creation policies rather than tax reform.

ELECTION AN 'EXTRAORDINARY FIGHT'

Ahead of September's key byelection in Canning in Western Australia, Mr Abbott has also acknowledged his party's continued lag in the polls saying the next election will be tough.

"The next election is going to be an extraordinary fight," he said.