Mike Baird's new GST plan cuts company tax to 25% and income taxes by 7%

NSW Premier Mike Baird. Photo: Lachlan French

There’s yet another new GST plan on the table, and this time it answers the concerns of federal Treasurer Scott Morrison.

NSW Premier Mike Baird, who last year proposed increasing the GST to 15% in order to pay for looming health and education cost shortfalls in state budgets, has announced a refreshed plan that includes significant cuts to the company tax rate and personal income taxes.

Morrison has flagged his desire to cut both taxes, especially income tax, in any scenario involving an increase to the GST rate.

Baird’s updated proposal, which would raise $32.5 billion in extra revenue in its first year, would involve giving $8 billion in compensation to lower-income households to make up for increased prices. After that, Baird says Canberra could spend $8 billion cutting the corporate tax rate to 25%, and then $16 billion to reduce all income tax brackets by 7 percentage points.

So it involves not just compensation to lower-income households but also income tax cuts.

The total take from the increase would be in the order of $100 billion over three years, with Canberra keeping all of it except for around $7 billion which the states would use to pay for health budget increases and delivering on commitments to the Gonski education reforms.

In an article in the AFR today, Baird says “these reforms could adjust both our income tax and corporate tax burdens so they more closely match those of our international competitors. And at 15 per cent, our GST will still remain low by OECD standards.”

Baird also proposes a review in 2020.

Although some commentators last year declared a rise in the GST as “dead in the water”, over the summer it has become clear that a GST rise is still in play and under active consideration by the Turnbull government.

A poll in The Australian today shows the proposal still has limited public support, however, with 54% opposed to an increase in the GST even if it involves income tax cuts and compensation for lower-income earners and welfare recipients.

The poll found 37% supported an increase in the GST, however, and 9% were uncommitted. A majority of Coalition voters – 51% – supported the plan.

Cuts in income taxes and the corporate tax rate have been identified as a priority by Scott Morrison in his new role as federal treasurer. Last month he said: “[the] thing we have to do is get the income tax monkey off peoples’ backs… We don’t want them to be held back because we are in a more globally volatile environment; there are further pressures in the global economy – which are not things we can do anything about. But what we can do about things back here in Australia is ensure our tax system is up the task of the 21st century.”

He also said the government’s review of its options on taxation was “all about trying to reduce the burden of personal income taxes and to the extent it is possible company taxes to make us more competitive again”.

Proposals on tax reform are expected over the coming months from the Turnbull government, likely before or as part of the federal budget in May, with the changes to be taken to an election currently expected in September or October this year.

We’ve sought further details on the updated GST proposal from Baird’s office and will update when we hear back.

There’s more at the AFR and The Australian.

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