Tax reform: Morrison pours cold water on adding GST to health and education

Treasurer Scott Morrison made a direct pitch to households and small businesses. Photo: Alex Ellinghausen Mr Morrison said the aim was to achieve higher rates of job growth. Photo: Wolter Peeters

Imposing the GST on health and education would raise an estimated further $8 billion annually. Photo: Virginia Star

Shadow assistant treasurer Andrew Leigh said Labor was concerned about the impact of a GST rise on household budgets. Photo: Elesa Kurtz

Treasurer Scott Morrison has pledged Australians will be “winners” when the Turnbull government finally reveals its election-year tax reform package, while effectively ruling out imposing the GST on health or education.

In a pitch to households and the Liberals’ core small business constituency, Mr Morrison said the government would seek a strong mandate for tax reforms that are likely to include changes which reduce personal and business tax rates to drive economic growth.

And in a sign the federal government will attempt to limit the scope of direct compensation paid to households arising from any tax changes, as recommended in modelling leaked to Fairfax Media last year, Mr Morrison pointed out the carbon tax compensation package put in place by Labor had been kept by the Coalition, despite the repeal of the tax, and therefore a “lag compensation” was already in the system.

“I think people will be winners as a result [of tax reform],” he said on Sunday in an interview with Sky News.

The government, he said, would look to “target compensation to those who most need compensation”.

He said the compensation he was interested in at the moment related to bracket creep.

“No one has talked about compensation for people who will pay higher taxes next year because … of bracket creep.

“There is plenty of talk about compensation for people receiving transfer payments …what about the compensation for people who are running businesses, going to work every day, backing themselves every day?”

Labor shadow assistant treasurer Andrew Leigh immediately called on the government to rule out a 50 per cent increase in the GST, but would not say if the opposition would take a plan to reduce personal income tax rates to the federal election.

Fairfax Media revealed last year that eight options for tax reform – including six GST options and two Medicare levy proposals – which could raise as much as $45 billion a year in extra revenue – had been modelled for the states by the federal Treasury.

Imposing the GST on health and education would raise an estimated further $8 billion annually, but after signalling last year that the government was unlikely to take this step, Mr Morrison hardened his rhetoric on Sunday.

“I should stress that right now the government has made no decision [on changing the GST] on this and we are very much still in that phase, we have said that quite plainly,” he said.

Asked directly if the GST could be broadened to include health and education, Mr Morrison said: “The issues that were present back when the GST was introduced around health and education are still there today.

“They weren’t not put on the GST because of the Senate at the time; it was actually a policy decision of the government. And so if the government were to go down that path you would be looking at the same fundamentals, but right now the issue is not the GST; the issue is, what are you trying to achieve?

“What we are trying to achieve is higher rates of growth, of job growth in particular, and how is the tax system actually stopping people who are actually out there backing themselves, achieving the goals they want to achieve? Personal income tax rates are a blocker to that, company tax rates are also a  blocker to that.”

The Treasurer said policy development, not election timing, was top of the government’s agenda at the start of the 2016 election year, and that cuts to personal income taxes would also benefit the majority of small businesses, which were unincorporated.

Dr Leigh said Labor was concerned a GST rise would hit household budgets and damage household consumption.

However, the movement of taxpayers into the second top tax bracket because of bracket creep would have a similar effect. and Dr Leigh did not say how his party would move to tackle that issue.

“It will certainly be a while before the typical Australian, the median Australian worker, is in the second highest of the four tax brackets we have. But Labor recognises that making sure that the tax system is as efficient and effective as possible is absolutely vital,” he said.

The federal government’s tax discussion paper warned last year that the average annual wage would rise from about $75,000 in 2013-14 to more than $80,000 by 2016-17, pushing people into the second highest tax bracket.​

Mr Morrison said it was a “fairytale” and a “fantasy” for Labor to suggest that by addressing multinational tax avoidance “all of Australia’s tax problems are solved”.

The other “incredibly important” thing for the government to do, Mr Morrison said, was to reduce spending as a proportion of GDP back below 25 per cent.

The government was on track to reduce it from 25.9 per cent to 25.3 per cent over four years, as set out in the mid-year budget update.

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