Joe Hockey’s income tax cut: GST on health and food would not cover shortfall

Treasurer Joe Hockey outlines his plans for tax reform. Photo: Steven SiewertHockey can’t say how he will fund income tax cuts

The only way Treasurer Joe Hockey could raise enough GST revenue to pay for his election tax-cut pledge would be to extend the tax to fresh food, education and healthcare.

A Parliamentary Library analysis obtained by Fairfax Media shows that if Mr Hockey extended the GST to healthcare products – as hinted by the Treasurer this week – it would raise an extra $16.25 billion in revenue over four years.

But that would not be enough to cover the $25 billion revenue shortfall estimated to arise from his personal income tax cut proposal.

The analysis shows the Treasurer would be able to cover the $25 billion shortfall if he extended the GST to cover healthcare and fresh food, raising $43 billion over four years.

But that would still only be a short-term fix, because the cumulative impact of his tax cuts would become much larger in 10 years’ time, overtaking the GST on healthcare and fresh food.

The analysis shows if the GST was extended to healthcare and fresh food it would raise an extra $145 billion over 10 years. But the estimated revenue shortfall from the tax cuts would be $165 billion in 10 years.

Mr Hockey on Wednesday rejected reports that he had suggested applying the GST to healthcare, telling journalists “I never said that.”

“What that does is it illustrates how hard it is to get a proper discussion about taxation reform underway,” he said.

“I never said the GST should be applied to health.”

But on Monday Mr Hockey said the GST was only applied in a “narrow” way to Australia’s goods, particularly to 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.

His comments were interpreted as a sign the government may be preparing the ground for GST changes – extending the GST to healthcare – that it could take to the next election.

Parliamentary Library figures show the only way the Abbott government could fund its tax cuts with the GST would be to extend it to healthcare, fresh food and education, raising $198 billion in 10 years.

Extending the GST to those three areas would be politically risky, further increasing the likelihood Mr Hockey will instead seek to cut government spending to help pay for the tax cuts.

Greens Treasury spokesman Adam Bandt has criticised the tax cut proposal, saying Mr Hockey is proposing a shift of the taxation burden onto low-income households.

“The Treasurer would need to extend the GST to health, education and food to cover the cost of his income tax cuts,” Mr Bandt said.

“The Treasurer is planning a tax shift, not a tax cut. He’s ruled out balancing the books by reforming unfair tax breaks for the wealthy, but he’s kept alive a broader GST.”

Mr Hockey says the Abbott government has “[no] other choice” but to cut taxes for middle and low-income households, because without personal income tax cuts about 300,000 Australians will move into the second highest tax bracket in the next two years because of inflation and rising wages – referred to as “bracket creep”.

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