Labor and Greens oppose government adding GST to health services

Labor and the Greens have rounded on the Abbott government for keeping the door open to adding the goods and services tax to health services, saying people should not be “punished for being sick”.

The treasurer, Joe Hockey, has signalled the government is looking at options to cut personal income tax to tackle the phenomenon of “bracket creep” but has not provided any detail about how the Coalition would fund such measures.

Hockey said the government was “working on the tax mix” and hinted at the option of broadening the GST to include health.

“There’s no doubt that with the exemptions in place in relation to the GST, the GST’s base is narrowed, particularly with the growth in the healthcare sector, which is essentially GST-free, and because health is growing with the ageing population, it means that the tax base for the GST is narrow,” he said on Monday.

The federal Treasury estimates the states and territories – which receive all GST revenue – went without $3.55bn last financial year as a result of the GST exemption on medical and health services including private health insurance fees.

Medical services are GST-free if a Medicare benefit is payable and the service is accepted in the medical profession as being necessary for the treatment of the patient, according to the Treasury’s latest tax expenditures statement.

“Health services rendered by a recognised professional, as well as hospital treatment are also GST-free,” the document said.

“Goods supplied in the course of making GST-free healthcare services are generally GST-free.”

The leader of the Greens, Richard Di Natale, said the government was talking about personal income tax cuts to soften people up for increasing the GST. “The major issue that we have with the GST is that it’s a regressive tax and effectively cutting taxes for people on high incomes and broadening the base of the GST means we’re going to contribute to the widening gap between rich and poor,” he told Guardian Australia.

“That’s particularly true in healthcare because the highest burden of disease falls on those with lower incomes … it makes what is a regressive tax even worse.”

Di Natale called on the government to have a “more mature and honest debate about tax reform” and tackle superannuation concessions, multinational tax avoidance, negative gearing and capital gains tax before it contemplated GST increases.

Labor’s health spokeswoman, Catherine King, said she hoped the states and territories did not agree to broadening the GST to include health.

“I think that it would be terribly regressive health policy to see the sickest and the poorest basically having to pay more and being punished for being sick,” she told the ABC on Tuesday.

The Labor leader, Bill Shorten, said no one was ever against income tax cuts “but you’ve got to explain how you pay for them”.

In an indication of the type of campaign that Labor would run against a GST on health, Shorten said: “So the economic formula which Mr Hockey and Mr Abbott’s Liberals have for Australia is if you’re sick and need to go to the doctor, you pay extra tax. If you need to go to hospital for your kids, you pay extra tax. If you need bandages, you pay extra tax.”

Abbott ruled out changing the GST before the 2013 election but is keeping his options for a second-term overhaul. The federal government is working on federation and taxation reform white papers which could provide a platform for the Coalition to present to voters at the next election due in 2016.

The prime minister said the Coalition was working to the overarching goal of lower, simpler and fairer taxes. “You’ll see detailed plans from us in the runup to the election,” Abbott said on Tuesday.

“This government believes in tax reform. We’ve delivered the first instalment of tax reform with the abolition of the carbon tax, the abolition of the mining tax, the biggest tax cuts ever for small business and it’s in our DNA to want to deliver further tax cuts and we will in the run-up to the election.”

The Coalition ran into significant political problems with its ill-fated decision in the 2014 budget to introduce a co-payment on visits to general practitioners, a policy that was reworked several times and ultimately scrapped. A freeze on the indexation of the Medicare rebate remains in place.

Income tax and GST are collected by the federal government but GST revenue is distributed to the states and territories, so it could be difficult to develop a tax package that satisfies all leaders and attracts public support.

A federation reform discussion paper suggested numerous options for the health system, including making the states and territories fully responsible for public hospitals – a proposal that would involve further cuts to federal payments on top of the long-term savings announced in the 2014 budget.

State and territory leaders from all sides of politics complained that the already announced cuts left them in an unsustainable fiscal position, which prompted the New South Wales Coalition government to suggest increasing the rate of the GST while the Victorian and Queensland Labor governments proposed a lift in the Medicare levy to fund growing health costs.