Prime Minister Malcolm Turnbull says he is not yet convinced that increasing the goods and services tax (GST) is a good idea.
Several state premiers have thrown their weight behind the proposal, arguing the revenue from the increase could help them meet budget shortfalls.
But Mr Turnbull told the ABC’s Insiders program if the Government pushed ahead with the GST hike it would also cut personal income tax instead of handing the revenue to the states to plough into education and health.
He said at this stage he was not persuaded a GST increase would encourage economic growth.
“It’s not a question of politics here. At this stage I remain to be convinced to be persuaded that a tax mix switch of that kind would actually give us the economic benefit that you’d want in order to do such a big thing,” he said.
“The objectives of this or any other tax change have got to be fairness, no increase in net taxes.
“We don’t want to increase the total tax take and, of course, it’s got to deliver a strong growth and jobs outcome otherwise it isn’t worth the trouble and expense of making the change.”
The Prime Minister said the proposal had not yet passed the “first test” applied to all policies.
“You have to first decide: is this policy going to give you the economic outcome you want? Then you have to assess the practical politics,” he said.
“With the GST income tax swap proposal, it has not yet passed that first test and that’s what the analysis is being undertaken.
“So, we have not made a decision on that yet, and it does pose a lot of complexity. Particularly in the area of compensation.”
Mr Turnbull’s assessment will be welcomed by many on the Coalition backbench which remains sceptical of the proposal.
Some MPs are concerned a GST increase will do nothing to boost economic growth, while others argue it could damage the Government in marginal seats.
Queensland Coalition senator Ian Macdonald added his voice to the backbench campaign on Sunday morning, telling ABC News 24 he has informed Treasurer Scott Morrison he could not support an increase.
Senator Macdonald said he felt compelled to honour the promise made by the Howard government when it introduced the GST in 1998.
“I won’t be supporting it, and the main reason is that those of us who are there at the time gave a rolled gold commitment that we would not be part of any increase beyond 10 per cent,” he said.
Opposition Leader Bill Shorten has been campaigning hard against any increase, arguing that the Coalition is indifferent to the way it would drive up the cost of living.
Coalition MPs say if the Government abandons the proposal it will deprive Mr Shorten of one of the few arguments which resonates with the electorate, leaving him heavily exposed.
Shadow Treasurer Chris Bowen said the Prime Minister was only backing away from the proposal because it was so unpopular.
“The question is whether the Prime Minister has the political courage to take on his own backbench who are worried about their seats,” Mr Bowen said.
“If he doesn’t proceed with increasing the GST, which we all know he wants to do, it will be humiliating for Malcolm Turnbull.”
No increase will ‘challenge future governments’
But Cabinet Secretary Arthur Sinodinos warned if the Government decided not to increase the GST then it may be very difficult for future governments to tackle the issue.
“The GST has become this mythical beast … the reality is that the myth will become entrenched – that you can’t touch this thing. That this is the tar baby of Australian politics, and therefore you will make it very difficult to come back,” he told Sky News.
He also said the Prime Minister should not allow the tax debate to run for much longer.
“Part of the reason our backbenchers have been a bit skittish this last week has been because they’ve been seeing what’s in the ether, what’s in the press,” he said.
“There’s been a lot of focus on one thing – a 15 per cent GST, and not on a comprehensive package with off-setting benefits.
“I think the PM and the Treasurer have to be satisfied with what they’ve got and then talk to the Cabinet and party room.
“But my personal view is that this can’t run much longer because clearly already there’s been a lot of discussion out there and I think the next stage is clearly people need to see the colour of our money – or, the colour of their money – and the way we want to play with it.”