On Sunday June 28, New South Wales Premier Mike Baird and South Australian Premier Jay Weatherill breakfasted at an Adelaide cafe. Baird had flown to SA for the meeting. Their discussion was about Tony Abbott’s “retreat” to discuss reform of the federation, which inevitably comes down to the need for tax changes.
Baird and Weatherill are on opposite sides of politics. But they are two of the more reasonable and well-performing politicians among a generally unimpressive line up across the nation. They also know each other well, from their days as treasurers of their respective states.
They have now each floated proposals relating to the GST ahead of Wednesday’s retreat, to be held in Sydney. Their ideas are different, and Weatherill hasn’t embraced the more ambitious Baird plan but he is helping give it oxygen. They are united in trying to make something of Wednesday’s meeting.
ARTICLE CONTINUES AFTER THIS ADVERTISEMENT
Baird’s plan is based in a frank admission of fiscal realities. Australia’s federal-state financial system, he wrote in Monday’s Australian, “is in imminent danger of tumbling over a fiscal cliff”, compromising the future ability to deliver quality health care. According to modelling done by NSW, on current projections “by 2030 the annual budget deficits across the commonwealth and states will be about $45 billion, of which about $35 billion will be generated by health”.
The problem cannot be solved by spending cuts, Baird argues, because our health system is already efficient on international standards. (This is a more honest assessment than we get from the federal government, which sees room for cuts everywhere.)
Baird says a revenue stream of $20 billion is needed before 2020 “to close the fiscal gap for the states and put our vital heath services back on a secure footing”. This has become particularly the states’ problem because the Abbott government announced in the 2014 budget that it would strip about $50 billion from what had been its projected spending for state health over a decade, as well as about $30 billion from education.
Under the Baird plan the GST would be lifted from 10% to 15% (but it would not be broadened), with all the extra money going to healthcare and to compensate those most hit by the rise. Under his model, households with incomes under $100,000 would not be left worse off. The compensation would be paid through welfare and tax cuts.
When he unveiled his own plans earlier this month, Weatherill opposed increasing the GST or expanding it to cover fresh food. “Unless effects could be ameliorated, such changes would be regressive and hit low income earners hard,” he said in a speech to the National Press Club.
Baird argues the compensation he proposes would address the problem of regressiveness.
Despite his stand against radical GST reform Weatherill has suggested there could be scope for more limited change – notably applying the GST to financial services, yielding $3.6 billion a year.
There is also the long standing measure, repeatedly considered by treasurers but never quite signed off, to lower threshold for the GST on imports.
Baird said on Monday that he had spoken to Tony Abbott about his plan in recent weeks. The premier did an intensive round of contacts with other leaders just before releasing his proposal. He released a video which started by tapping into people’s disgust with the way politics is currently approached – “if you’re anything like me, you are sick of politics in this country”, with its point scoring and attention to the daily new cycle rather than the big problems.
Abbott has welcomed the contributions by Baird and Weatherill. The Prime Minister has not so far put forward proposals of his own.
Federal Treasurer Joe Hockey also wants the GST changed. But there is a significant difference in what’s driving Hockey and what’s motivating Baird. The Abbott government wants to reform federal-state tax and spending arrangements to help it pursue lower income and company taxes. Baird is focused on how to fund the looming health spending increase.
At the weekend Hockey promised to take a plan for income tax cuts to the election, although it is not clear, in current circumstances, where he thinks this money would be coming from. After all, last week he did declare “game over” for changing the GST, after Victorian premier Daniel Andrews refused to countenance it. The federal government says there would need to be agreement by all states and territories and federal bipartisanship for it to pursue – but not this term – an increase in the GST rate or base.
The initiatives by Baird and Weatherill have prised the GST debate open a little way. The forces ranged against an increase in the rate or fundamental broadening of the base (as distinct from something strictly limited) are however, still overwhelming, including the Labor states of Victoria and Queensland and the federal opposition.
Probably the most likely option out of Wednesday is for the meeting to ask for more work to be done.
[signoff icon=”icon-link”]ORIGINAL ARTICLE: The Conversation
*This link to the original article is not under the control of myGC.com.au and may on occasions contain content of a graphic nature.[/signoff]