Treasurers asked to consider GST reform

A panel led by David Thodey has released a draft report of a review of federal financial relations.
A panel led by David Thodey has released a draft report of a review of federal financial relations.

The proponents for reforming the GST say now is the time for Australia to modernise its tax system, as the country charts its way out of the coronavirus pandemic.

But they don't underestimate the challenge.

A six-person panel led by businessman David Thodey released a draft report of its review into federal financial relations on Wednesday.

The review was commissioned by NSW Treasurer Dominic Perrottet in 2019 but is expected to be influential as all governments consider tax reform and other ways to improve the federation amid the coronavirus pandemic.

Mr Thodey said the momentum for change was strong.

Fellow review panel member Jane Halton, a former federal finance department head, said the review began with a recognition states would find it increasingly hard to fund essential services with a shrinking GST base, but the coronavirus pandemic had accelerated this.

"This point at which you are at a cliff, a precipice, where things are very difficult, it's incumbent on us to say, 'How could we make not only this a survival exercise, but how can we make it an improvement exercise?'" she told the National Press Club in Canberra.

The GST rate has stayed at 10 per cent for the 20 years since it started, but the share of household spending subject to it has fallen from 60.8 per cent in 2001/02 to 55.4 per cent in 2018/19.

The review recommends state treasuries, in consultation with the Commonwealth, "assess and agree options for lifting the GST rate and/or expanding the base over the medium to longer-term".

Former deputy prime minister John Anderson, also on the review, said it was vital for any change that the states seek a mandate for reform, not just leave the heavy lifting to the Commonwealth.

"It's become a state tax, although it is there because of commonwealth legislation," he said.

Mr Perrottet conceded this point but said the focus should be on everyone working together.

The nation's treasurers had become "the best of frenemies" amid discussions about dealing with coronavirus.

"We do live in a political environment where it's easy to say no and run scare campaigns," he said.

"But, as I said, if you're doing what's right, it's going to be in the best interests of the states ... and we have, I think, a once in a 100-year opportunity now."

Former federal treasurer Peter Costello says the nation's taxes need constant care and maintenance but the GST shouldn't be increased for its own sake.

"If all you bought, for example, was a slight reduction in the deficit, I don't think it would be worth it," he told ABC's Radio National.

The review also calls for the replacement of stamp duty with broad-based land tax, as has occurred in the ACT, a national approach to payroll tax reform, the streamlining of commonwealth-state funding agreements and a national road user charge.

Australian Associated Press