Reform retreat a tax-fest

Paul Keating once warned, “Never stand between a state premier and a bucket of money”. Rarely has the hazard been more on display as state premiers lined up this week to nominate their favourite Commonwealth tax increase to take the heat off their own budgets. What their behaviour boils down to is that they want a great big tax increase legislated by the federal government to save their budgets from the relentless growth in public hospital costs.

On Wednesday the premiers and the prime minister went into a ‘retreat’ that was supposed to discuss reform of the federation. The premiers wanted the retreat to be a tax-fest and the outcome kept their hopes of higher taxes alive. The premiers’ tax ideas do not constitute reform of anything; they are just straight out tax increases, and very large ones at that.

On the one hand we had NSW premier Baird’s daring call for a 50% increase in the GST —   not to rebalance the tax system away from income tax and stamp duty (which might have some merit) but to raise many billions more in revenue for the states. In the competing camp, his counterpart in Victoria favoured a 50% increase in the Medicare levy, only to be out-bid by the Queensland premier’s suggestion that it be doubled. Neither appears to understand or care that the levy is not a separate tax but part of personal income tax. Its disincentive effects are no less just because it has a ‘Medicare’ label attached to it.  Tax reform needs to lower the burden of personal income tax, not increase it.

Instead of demanding more Commonwealth grants funded by Commonwealth tax hikes, the premiers should be looking for ways to get the Commonwealth out of their sphere of constitutional responsibility, reduce costs, and take on responsibility for raising more of their own revenue. That’s fair dinkum reform.