A GST lift to 15pc could be just the tonic for Tony Abbott to increase the GST

Is Tony Abbott on some sort of suicide mission, raising the prospect that the GST could be lifted to 15 per cent and the exemptions (fresh food, education, health, ­financial services) could be ­removed?

After all, federal Labor is bitterly opposed and ditto the Queensland and Victorian Labor premiers. South Australian Labor Premier Jay Weatherill wants 15 per cent and financial services exemption removed, but he wants all the money returned to his mendicant state, presumably on the same unjustified terms that state currently receives GST revenue.

Western Australia is not having a bar of raising the GST unless a more equitable distribution of the revenue among the states is sorted out. Why would West Australians want to pay more GST, only to have most of it redirected to the laggard states?

The only one in the Prime Minister’s camp would seem to be Mike Baird, Coalition Premier of NSW — but then he wants all the additional revenue to overfund NSW hospitals

And the tab for any compensation for the higher GST would be picked up the federal government.

We should not forget that federal Labor and all the Labor states were bitterly opposed to the introduction of the GST. The Labor states insisted on their objection to the GST being noted in the agreement with the federal government that ensured all GST revenue flows to the states and territories.

Now some will argue that Abbott has insufficient political capital even to mention the prospect of raising the GST. Again, we should not forget that John Howard used his campaign to introduce tax reform as a means of building political capital, to make it clear to the public what his government stood for: a growing economy underpinned by a more efficient tax ­system.

Abbott would do well to focus on the issue of dynamic efficiency, that the fairest thing you can do for low-paid workers and the unemployed is to provide the basis for a strongly growing economy generating more jobs and higher rates of pay. A more efficient tax system can contribute to this outcome.

If he gets bogged down in the issue of compensation — there will need to be some for low-­income earners and those on government benefits — then the more important argument will be lost. The issue of exemptions is much trickier. There is very heavy private provision in both health and education in Australia. Would GST apply to childcare fees? Would GST apply to visits to the doctor? (After the $7 co-payment debacle, it’s hard to see how the government would deal with this.) Would GST apply to private hospital episodes? Would GST apply to non-government school fees?

It’s all very well to say that these exemptions don’t apply in New Zealand, but health and education are organised differently in that country.

There are plenty of examples of GST arrangements in other countries in which a range of ­exemptions is the norm. Including fresh food in our GST is a no-brainer, particularly as high-income-earning foodies spend large sums of money on fresh food.

Having brought on a review of the tax system, the Abbott government will find it hard to conclude that while the system is not perfect, there will be no proposal to change anything.

There is a problem with bracket creep, our rate of company tax is too high and the combination of income tax and benefit withdrawal dissuades many women with children from working full-time.

Running hard with a higher GST as part of change to the tax mix (rather than an excuse to raise more tax revenue) may be just the tonic for a brave Prime Minister with few alternatives. I just won’t be holding my breath.