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GST debate just won't go away

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CANBERRA, Nov 16 AAP

November 16 2012, 12:55AM

Who would have thought a three-letter acronym could cause so much angst?

It's hardly as if making changes to the make-up of the goods and services tax (GST) would be a walk in the park.

In fact, without widespread support for either lifting the rate of the impost or broadening its base, or both, it would seem an almost impossible task.

Yet it's a discussion that keeps popping up with increasing frequency.

Shadow treasurer Joe Hockey bravely strayed from the GST script of both major federal parties - that being "no" to any change - in an interview last Sunday, but clearly made it an issue for the states and territories.

"The states have to carry this argument because it is the growth revenue for the states," Mr Hockey said.

"They've got to campaign for it and they've got to win the Australian people over."

While the government was quick to jump on the remarks as Hockey urging premiers to start campaigning to jack up the GST, he was only really stating the obvious.

The framework of the GST means that all state and territories have to agree to any changes, a mean feat in itself.

And having crossed that major hurdle, it then has to be agreed by both chambers of federal parliament - the House of Representatives and the Senate.

Former Liberal treasurer Peter Costello set out this seemingly impossible obstacle course when introducing the GST in mid-2000 to prevent future governments lifting the tax rate from 10 per cent at a mere whim.

He said at any one time there is an election going on in at least one jurisdiction that would prevent a consensus among the states being met.

In countries like the UK, its government only has to negotiate with the electorate every five years, which may be why its version of the consumption tax - value added tax or VAT - keeps being tinkered with and now stands at 20 per cent.

As for getting the public on board for a change to the GST, it would seem an equally uphill challenge.

The latest weekly Essential Research online poll found only 10 per cent of respondents backed an increase in the GST to 11 or 12 per cent to pay for Labor's big-ticket proposals, such as the national disability insurance scheme (NDIS) and the Gonski schools funding reforms.

And just five per cent support the idea of broadening the tax base to take in current exempt items such as health, education and fresh food.

As unlikely as a GST change would seem at this stage, Hockey's thoughts at least stirred some new debate on the issue, drawing out federal independents Tony Windsor and Rob Oakeshott, who want at least an inquiry into how the GST can help to pay for future social programs.

They are not alone.

Indeed, the queue suggesting change just gets longer, including global institutions like the Organisation for Economic Co-operation and Development and the International Monetary Fund.

In a study this year, the Grattan Institute estimated that broadening the base of the GST would lift the economy by $20 billion a year.

Former Treasury secretary Tony Cole said this week he believes broadening the base and lifting the rate is "inevitable".

But Mr Cole, who was secretary from 1991 to 1993 under a Labor government, says the catalyst for this as part of genuine tax reform would have to come from a large cross-section of the community, including business and welfare groups.

That was the case when the Howard government introduced the tax in 2000, and it was used as a foil to remove less efficient taxes.

Still, the Henry tax review that was released in 2010 found there were still too many taxes clogging up the system.

Of the 125 taxes at the time, just 10 raise 90 per cent of all revenues across the Commonwealth.

Former NSW Liberal premier Nick Greiner said earlier this month that to rule out any discussion on changing the GST was just "stupid".

Many tax experts wonder why the Labor government did not include the GST in the Henry tax review in the first place.

Mr Greiner, along with former Victorian premier John Brumby and Ferrier Hodgson partner Bruce Carter, have just finished a review of the way GST revenue is carved up between the states following complaints by Western Australia about the fairness of the system.

And there lies the rub.

Subdued consumer demand since the 2008-09 global financial crisis has meant the GST revenue pot isn't growing as fast.

In fact, all revenues have slowed since the GFC, a point Treasury repeatedly makes.

It says there has to be public debate on the role of government in the services it should provide and how they should be funded.

Aside from the long-term impact of an ageing population, there are growing pressures for new services, such as the NDIS, and substantial reforms to existing services that might involve more spending, such as school funding.

Curiously, data this week showed that despite all the political blood-letting over the carbon tax, consumers are less concerned about the lingering impact on inflation from the impost than they were when the GST was introduced.

Which suggests the path to any GST change would be even more excruciating.

By Colin Brinsden, AAP Economics Correspondent