Australia's PM Wants States To Increase GST And Take Responsibility For Education and Health

Australa is keen on raising the rate of the Goods and Services Tax for broadening the tax base of states so that they can be handed over the responsibility of health and education. The thoughts of Prime Minister Tony Abbott on this issue have already found expression in his call for a "mature debate'' on federal-state relations and GST reforms, in some of his recent speeches.

In a report, the Daily Telegraph reported that Abbott confirmed these ideas to some MPs when he met them formally and informally. According to them, PM sounded out that increasing GST is a valid case, after the next election with the concurrence of states. But it must be accompanied by tax cuts to pensioners, families and low income earners.

Mature Debate

Exhorting for a mature debate on the topic, Mr. Abbott wanted the Labour Party and the states themselves to consider the merit of hiking the GST as part of a reform process to augment federalism. In the parliament, too, the PM sought a "mature debate" for redressing the imbalance between the revenue-raising capacity of states and the commonwealth. "The GST is a matter for the states but is something to be looked at as part of the federation reform and tax reform process," Abbott said. "I am inviting the states and territories, opposition, to consider better ways in running our federation than we have seen in the past," the PM commented.

However, Labour leader Bill Shorten accused the government of "blackmailing" states and territories by cutting the funding for health and education. He said raising the GST would be tantamount to breaking an election promise, reported The Guardian.

Shorten said, "Australians won't be fooled by Abbott's egging on the states to ask for an increase in the GST and other taxes."

"Dog's Breakfast"

In a recent speech, Abbott labelled the system of federalism as "a dog's breakfast" and said THAT the commonwealth is willing to work with states on a range of tax reforms to improve the tax base of states. This can be done by introducing timely changes to the indirect tax base by compensating for reductions in income tax.

The PM's advocacy for GST change has also been backed by the Committee for Economic Development of Australia, which has called for reforms to avoid the danger of vertical fiscal imbalance undermining federalism. The panel said it is possible for states to slug the residents with higher road tolls and land taxes to correct the imbalance between the revenue-raising capacity of states and Federal government.

The report also asked the Federal government to loosen control over its revenue, particularly in health, education, public transport and roads. The report said, it is time to move away from a regime where state governments are held to ransom by the federal government in terms of matching service delivery and funding," noted Ceda's Chief executive Stephen Martin.