The statement by the Victorian Premier, Mr Bracks, on Melbourne radio today that he would re-negotiate the whole GST with a future Federal Labor government has raised the spectre of an increase in the GST rate under a Beazley Labor government.
Mr Bracks said that if the GST were rolled back, which is Federal Labor policy, it would be essential to re-negotiate the whole GST.
Rolling back the GST can only mean that the GST is imposed on fewer items. This means that to retain a given amount of revenue, the rate of the GST might need to be increased on the items which remain subject to the GST.
Remember the principle of indirect taxation. The broader the base, the lower the rate. Conversely, the narrower the base, the higher the rate.
Mr Beazley has already guaranteed the States that they would not be worse off under rollback. Therefore, he would either have to increase the GST rate on what is left subject to the GST, fund rollback compensation to the States from other tax increases or cut spending. Yet he has promised to increase spending and not to increase income tax.
Something must give. It simply doesn't add up.
The Victorian Premier obviously has in mind a GST increase. What else can he mean by the expression "re-negotiate the whole GST"?
In fact he has gone further. He has also said that he wants to accelerate the time at which Victoria receives increased revenue under the GST deal.
How can this occur without an increase in GST collections - presumably through a rate rise?
Under present arrangements Victoria is guaranteed the Federal revenue it would have received under the old revenue sharing arrangements until the new GST arrangements deliver Victoria a higher amount. If the time at which that occurs is to be brought forward, then logically the rate of the GST might need to rise.
The rate of the GST is set in concrete at 10 per cent under a Federal Liberal government. By contrast, the large number of Labor government States would happily oblige a future Labor Prime Minister in his desire to increase the GST.
13 March 2001