Does Colin Barnett know something about Tony Abbott’s plans for tax reform that the rest of us don’t?
The WA premier’s current push for GST reform looks, at first glance, like a self-centred bid for popularity at home, at the expense of the federal government — any federal government. Because although such change would be a heavy burden for the Gillard government, it would be an even greater burden for an incoming Abbott government.
Abbott already faces the prospect of slashing the relatively tight federal budget to cope with the absence of the carbon and mining taxes, leaving precious little to assist losers under the proposed Barnett reforms — Tasmania, South Australia and the Northern Territory. An Abbott government simply could not afford to let hospitals, infrastructure and services fall apart in the mendicant states — their premiers/chief minister would be in front of TV cameras daily rattling the collection jars.
This, no doubt, is why Barnett’s push has been greeted as cooly by the Coalition as the government. Treasury spokesman Joe Hockey called it a “reasonable” request, but followed Labor’s lead by pointing to the current review of the GST distribution process by former Victorian and NSW premiers John Brumby and Nick Greiner. That, he said, was how reform would occur, regardless of the calls from WA’s “phenomenal advocate” Barnett.
To recap, Barnett is calling for 60% of GST revenue to be distributed automatically to states on a per-capita basis.
WA currently gets 55 cents back on every dollar of GST collected, and Barnett thinks that could fall as low as 30 cents within two years. If the 60% automatic distribution was brought in, and with extra flows on a “needs” basis, Barnett reckons he’d get 75 cents in the dollar. That would do a lot to help WA pay for burgeoning infrastructure bills to cope with the mining boom.
And it would ravage the minor states. It would also be a major pain in the backside for an incoming Abbott government trying to maintain Labor’s carbon-tax related tax cuts and pension and family tax benefit increases.
Unless, that is, Abbott is planning something much larger. In recent weeks, economists of the calibre of former Treasury secretary Ken Henry and Melbourne University professor John Freebairn, have pointed out just how much time and money we’re wasting on the nation’s tangled web of inefficient and productivity-sapping taxes.
Abbott has repeatedly said he will honour all the carbon-tax related goodies, albeit with tax cuts that will be potentially smaller than Labor’s.
The trouble with Labor’s income tax cuts — including a revision of marginal tax rates and a “trebling” of the tax-free threshold — is that a lot of the apparent “cuts” are achieved via smoke and mirrors.
The low-income tax offset made the previous tax-free threshold closer to $16,000 than the headline rate of $6000. So “trebling” the tax-free threshold to $18,000 is really only a 12.5% increase.
There is massive scope for income tax reform, even if reform to the rate of GST (from its current 10%) or widening the tax to include major consumption items such as food and healthcare, has been ruled out by Gillard and Abbott.
Which is why one has to wonder if Barnett has caught wind of a major Abbott tax-reform package. Simplifying the income tax/family tax benefits system could, if done carefully, maintain or improve government revenues and increase national productivity. That means more pie for everyone, and enough left over to solve Abbott’s fiscal problems.
If such reforms were on the drawing board, it would make sense for a coalition premier to keep up the shouting for GST distribution reform. Conversely, in the absence of such reform, Barnett would simply be creating a major headache for Abbott.
Which will it be? As Abbott keeps saying, we’ll find out closer to the election.
But again, do coalition premiers know something we don’t? The Queensland, NSW and Victorian conservative governments have also done their sums and backed Barnett’s call for GST reforms at the COAG meeting last week.
Which is why it strikes this commentator that without major income tax (and possibly corporate tax) reforms on the way, Abbott’s ability to deliver a balanced budget, let alone cushion the impact of GST revenue shortfalls in the minor states, will just not be there.