Treasurers' tax summit: Victoria wants a bigger Medicare levy, NSW wants a bigger GST

NSW and Victoria are at loggerheads going into Friday's tax reform meeting, with NSW wanting an increase in the GST, while Victoria wants a higher Medicare levy.

NSW Treasurer Gladys Berejiklian said ahead of Friday's treasurers' meeting that she would be pushing to increase the GST rate to 15 per cent, with households earning $100,000 or less receiving compensation.

Victoria's Treasurer Tim Pallas said that after compensation an increase in the GST would raise little, leaving the states as much as $80 billion short of the money they would need for schools and hospitals over the next 10 years.

"The Commonwealth plans to rip $17.7 billion out of Victoria's health budget, and $8.9 billion out of Victorian education budget over the next 10 years by exiting their responsibilities," he said. 

"That's about $4500 for every man, woman and child in the state."

Mr Pallas said lifting the GST from 10 to 15 per cent would raise about $31.5 billion per year, but the compensation package would cost around $17 billion, and cutting the corporate tax rate might cost $11 billion.

"If you add in another $5 billion of income tax cuts, a lift in the GST nets itself out, leaving the states and their citizens still short-changed on hospitals and schools.

"He will tell the Canberra meeting a better option would be to lift the Medicare levy, which is at present 2 per cent.

Australians earning $20,896 or less don't pay the levy, meaning the increase would hit high earners harder than low earners.

"We've done some numbers about what the increase would look like: an increase of 0.5 per cent would raise $3.8 billion nationally. An increase of 1 per cent would raise $7.6 billion, all the way up to 3 per cent which would raise $22.8 billion," Mr Pallas said.

"When you look at offsetting mechanisms a hike in the GST would need, a lift in the Medicare levy isn't even in the same ballpark."

Queensland's Treasurer Curtis Pitt is sympathetic to Victoria's idea. South Australia's Treasurer Jack Snelling is prepared to consider both the GST and Medicare levy ideas.

Writing in Friday's Fairfax Media newspapers ahead of the meeting, the Commonwealth Treasurer Joe Hockey backed a cut in the rate of company tax paid for by a shift to "more efficient taxes". He said a cut of 5 percentage points could boost GDP by 1 per cent.

Friday's meeting will also consider exempting tampons and sanitary pads from the GST and all-but eliminating the GST-free threshold on imported parcels.

Victoria and each of the Labor states will argue for an exemption.

"It seems incongruous that comparable products are exempted, but sanitary products are not," Mr Pallas said.

Mr Hockey told the Q&A program in May that he thought sanitary products probably should be exempted.

Ms Berejiklian is less keen. "We can't tinker with the GST with one-offs - we need to address these issues holistically," she said before flying to Canberra for the pre-meeting dinner on Thursday.

Both NSW and Victoria are keen to cut the $1000 GST-free threshold to as low as is possible.

Canada has a tax-free threshold of $20 for imported parcels, the United Kingdom has 15 pounds and the United States has no threshold at all, subjecting all parcels to tax.

Mr Hockey has previously raised the prospect of a zero threshold, with the tax collected from overseas retailers before they post the goods.

The May budget introduced a zero-tax threshold on digital deliveries of books, music, movies and software, to apply from mid-2017.

Mr Pallas said he would support a threshold right down to the point where the cost of collection exceeded the amount collected.

"We will commit to the principle. We believe the threshold should be low, he said.