The NSW government’s year-long review into federal-state financial relations released this morning has proposed major amendments to the tax system, including dumping stamp duty and increasing the GST rate beyond 10 per cent.
The Federal Financial Relations Review draft report proposes that state governments should work with the Commonwealth to lift the GST rate or expand the base over the medium-long term and explore scrapping inefficient state taxes.
The GST raises roughly $70 billion a year and constitutes around 13 per cent of the nation’s tax revenue – but state and territory governments face a “significant decline” in tax revenues in the coming years.
“We need to identify practical ways to maximise the value we get per dollar of tax raised. We need to make taxes as simple as possible,” the report said.
"(Tax reform) will create better conditions for households and businesses to recover and simultaneously deliver more secure and reliable funding for the states to rebuild their balance sheets for future generations.”
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The Review also proposed stamp duty, which is the NSW government’s second-largest revenue stream, should be scrapped in favour of a broad-based land tax.
Raising the GST rate will offset these losses to state government coffers, and during the transition phase between the two schemes, home buyers should be allowed to ‘opt in’ to pay land tax or stamp duty when they purchase their next property.
Raise GST ‘to do what?’: Costello
However, Australia’s longest-serving treasurer and the architect of the 10 per cent consumption tax, the GST, has cautioned against making changes to the GST without a clear purpose in mind.
Peter Costello, who was treasurer for 11 years between 1996 and 2007 and oversaw the introduction of the controversial GST, said attempts to increase the GST rate beyond 10 per cent would carry “a lot of heat” and indicated the difficulty in raising the GST came from the fact that it impacted individuals’ hip-pocket.
“There’s no point in just increasing a rate for its own sake. The critical question is: what do you buy for that?” he said on ABC Radio National this morning.
“If all you bought was more revenue … there’d be no improvement. You’d just be increasing taxes and increasing spending.” Buying a slight reduction in the budget deficit wouldn’t be worth it, either, he added.
“But if by changing the rate or introducing a new tax you could abolish five other taxes, if you could radically reduce income taxes, if you could improve the company tax system; now you’re starting to talk about a reform … something that’s worth doing,” he said.
This is where the discourse around increasing the GST base was “going wrong”, Costello added.
“People are saying, ‘well, let’s increase the rate’. Okay – to do what? To do what and bring what benefit? That’s the critical question.
“It’s the benefits, the economic benefits, that you use any rate to bring with it.”