The Intelligent Investor Growth Fund is listing on the ASX. Initial Offer now open

Increase in GST inevitable, tax forum told

'No law can constrain a future government.' Professor GREG SMITH

THE goods and services tax will have to climb above 10 per cent and there will be no way of avoiding the topic at the October tax summit, according to one of the architects of the Henry tax review.

Professor Greg Smith told a Tax Institute forum the review had sidestepped a ban in its terms of reference on recommending changes to the GST by recommending instead "an alternative to the GST which was the GST without invoices".

"Now that was a little bit naughty," he said. "The same thing is going to happen at the forum isn't it? People are not going to worry too much about the constraints."

The idea that the GST rate could not be lifted beyond 10 per cent without the agreement of all Australian governments was "rubbish".

"No law can constrain a future government," he said. "It's a basic principle of Western democracy, well established. You just pass a law saying notwithstanding the law that says all states must agree to a change, the rate is now 15 per cent. I am not saying you should ignore the states, but the idea that you need their consent is nonsense."

Current budget projections have income tax takings climbing almost $55 billion by 2014-15, an increase that dwarfs almost every other tax people talk about. "That's the thing that amazes me it completely dwarfs the $6 billion per annum mineral tax and the $8 billion carbon tax," he said.

"A person on $60,000, their average tax rate will go from 20 to 22 per cent squeezing household disposable income. And then in another two years we will start ratcheting up the superannuation guarantee taking some more from household income.

"The income tax will grow $55 billion while the GST grows only $12 billion. We will see the tax system swing from consumption to income before our very eyes."

Although a higher GST would be needed to take pressure off income tax and fund state responsibilities such as schools and hospitals it would require a selling job of which governments no longer seemed capable.

Professor Smith said when he worked for then treasurer Paul Keating during the 1980s tax summit and for John Howard during the introduction of the goods and services tax the government spoke to the entire community.

"This isn't being done now," he said. "We are just announcing things and saying that's what leadership is.

"We are crashing through," he said.

When the report of the Henry review was delivered to Treasurer Wayne Swan in December 2009 Professor Smith expected it to be released within a few weeks. "We did expect certain things would be ruled out, that's natural, but we were expecting a public debate before things were overtaken by political decision making processes," he said.

Join the Conversation...

There are comments posted so far.

If you'd like to join this conversation, please login or sign up here

Related Articles