THE top-level push to increase the GST could be undone by a row over who would pay extra, and who would benefit from the additional revenue.
The dispute boosts the prospects of a counter proposal — a two percentage point increase in the Medicare levy on wages backed by Victoria, Queensland and the ACT.
Other options include an increase in property taxes or even payroll tax, usually considered to be an employment killer.
The tax matter will be debated today and tomorrow as Prime Minister Tony Abbott and the premiers address problems as broad as greater efficiency in service delivery and as narrow as halting the spread of the killer drug ice.
And even if tax were changes agreed to it is unlikely Prime Minister Abbott would implement them before the election scheduled late next year.
No substantial progress will be made on changes this week but the Council of Australian Governments talks will mark a critical move towards reshaping the tax system.
Influential state leaders are suggesting a rise in the GST from 10 per cent to 15 per cent with the bigger tax take being used to fund public hospitals which are adding crippling costs to their budgets each year.
Senior business figures want the same increase, but they want the extra revenue used to scrap state taxes they have to pay. They want to be the indirect beneficiaries of a change in the indirect tax.
“Australia’s states and territories are responsible for some of the most harmful taxes levied by Australia’s governments,” head of the Australian Industry Group Innes Willox said today.
“What we’ve got is a tax system that’s designed in the 20th century and we’re operating in a 21st century economy.”
Another claimant to extra money is Western Australia which insists its declining minerals industry means it needs a bigger share of the GST pot — and other states deserve less.
Then there is the question of who should pay in the first place, a matter which is ensuring the federal Opposition and Labor premiers are opposing a GST strategy.
The opponents argue low income earners and those on welfare would pay more proportionally than the well off if the tax went up. Even with the GST exemptions, the additional costs would be significant for them.
The 20 per cent of households with the lowest income spend about nine per cent of their disposable income on GST- affected goods and services, according to Alan Duncan on Curtin University. The richest households spend just 3.5 per cent of disposable income on these purchases.
And opponents warn it would be difficult to compensate them, particularly if the disadvantaged don’t pay income tax and so could not gain from reductions there.
One proposal is for the GST to be extended to financial services which Labor’s South Australian Premier Jay Weatherill calculates could raise an additional $3.6 billion a year and not affect the poor. It is a proposal Mr Weatherill wants discussed.