GST debate: Scott Morrison backs need for option to raise tax as part of reforms

Treasurer says possibility of an increase needs to be on table if voters want relief from the effects of ‘bracket creep’ in income tax

Scott Morrison has opened the political new year softening Australians up for an increase in the GST, arguing that reform needs to be on the table if voters want personal income tax relief and a cut to corporate tax to boost economic growth.

In an interview on Sky News on Sunday, the treasurer repeated previous formulations that the government had not yet made a decision on concrete tax reform options, including whether or not to pursue a GST increase.

But Morrison made the in-principle argument that the GST needed to be on the table if the government was going to contemplate compensating Australians for the impact of inflation progressively pushing people’s income into higher tax brackets, the phenomenon known as “bracket creep”.

Morrison said it was a “fantasy” that cracking down on multinational tax avoidance, or reducing the generosity of superannuation tax breaks, would deliver sufficient scope to enable the government to counter the impact of bracket creep, or deliver broader personal income tax cuts beyond basic bracket creep compensation, or cut company taxes.

“All of those [alternative measures] do not generate an amount of revenue that would look at the sort of larger-scale tax changes that many Australians would like to see when it comes to reduced personal income tax and a better deal on company tax,” Morrison said Sunday morning.

“There are a lot of fairytales out there at the moment. It is a fantasy to say all we need to do is something on multinational tax and somehow you can cut personal income tax rates.”

Morrison told the program it was the government’s belief that high rates of personal income tax and company tax were currently holding the Australian economy back, and the government’s motivation in pursuing tax reform was to boost efficiency and economic growth.

The treasurer also rolled out a political argument that people in jobs were worthy recipients of compensation, not just welfare recipients.

Given the GST is a regressive tax, low-income earners, including welfare recipients, will need to be compensated to offset the effects of a GST increase – a point many stakeholders, including some state governments, have made during the last several months.

But Morrison argued strivers – workers “going to work every day, backing themselves everyday” – as well as business owners, were worthy recipients of compensation as well.

“No one apart from the government is running around saying who is going to compensate the people who are wage earners,” Morrison said. “They are going to see a higher rate of tax next year if we don’t change the income rates.

“There’s plenty of talk about compensation for people getting transfer payments and this is something that’s important in the context of a tax reform debate, but what about the compensation for people who are running businesses, going to work every day, backing themselves everyday?

“There’s no compensation for them.”

While making the argument that strivers deserved compensation, Morrison also talked up the importance of expenditure restraint.

He accepted a proposition put to him on the Sky News program that a surplus built on increased taxes was a bad surplus while a surplus built on expenditure restraint was a good surplus.

The treasurer later signalled the government may absorb Labor’s plan to hike tobacco excise, delivering more than $40bn to the budget over a decade, noting that all options were on the table.

He also added a caveat to his compensation argument, noting the Coalition had not repealed the compensation the former Labor government gave voters to offset the impact of the carbon price – so there was “a lag compensation” already in the system.

Later in the interview, without locking the government in to any specifics, Morrison signalled the government would likely look at increasing the rate of the GST rather than broadening the base because the problems associated with applying the GST to services like health and education that were evident at the time the GST was introduced by the Howard government had not dissipated.

Morrison declined to say specifically when the government would produce its settled tax reform options, although he noted voters would see the proposals in good time to make a decision about whether to support them at the federal election, which is due this year.

The treasurer noted that “mandates matter” when it comes to the necessity of securing Senate support for major policy changes.

Morrison also signalled the government wasn’t wedded to the Abbott/Hockey process for developing concrete tax reform options, saying a white paper was merely a “statement of government policy” and statements of government policy could be delivered in many different ways.

The treasurer said the decision by himself and Malcolm Turnbull not to rule various proposals in or out had delivered a result where the community and relevant stakeholders were now buying in to the tax reform debate, and that was a good development.

He said the old processes associated with policy reform – delivering a large “tome” that didn’t deliver the desired result – tended to mean the tome became little more than a doorstop.

“We’re not hostage to those sort of processes,” Morrison told Sky News. “What we’ve tried to focus on is listening. We are open to different approaches.”