John Howard says change needed to GST

Former prime minister John Howard has made the case for tax reform. AAP/Dan Himbrechts

Former prime minister John Howard has said the GST should be broadened and its rate should perhaps be increased.

As the government seeks - without admitting it - to put pressure on the states to ask for changes to the GST, Howard, who introduced the tax, bought into the argument saying, “we will return to the debate before long and we need to”.

It was “overwhelmingly sensible” to have a broader-based GST, he said. The GST had been introduced in an “imperfect form” because Labor and the Democrats had insisted on taking food and some other items out.

(Howard had to do a deal with the Democrats to get his tax package through the Senate.)

The states were paying quite heavily for the exclusions, Howard told a function in Perth.

“If the GST had applied to food - as it should have and it would have but for the actions of the Senate - we would have been seeing I think $10-$11 billion a year more flowing to the states.”

It was harder for the states to raise money in an efficient fashion other than via the GST, Howard said. He was “supremely sceptical” about the willingness of the states to raise income tax even if they had the power to do so. “I think the days of moving away from uniform income tax are gone.”

Whether the GST rate should be raised was a matter “for the number crunchers at the time”.

The states are set to be under great financial pressure because the federal government has given notice in Tuesday’s budget that it will cut school funding from 2018 and hospital funding from 2017-18. Its measures would achieve cumulative savings for the Commonwealth of over $80 billion by 2024-25. First ministers will meet on Sunday to discuss the cuts.

Howard praised the budget but said there were some decisions that he would criticise despite the accurate identification of him and Prime Minister Tony Abbott as good friends and political allies.

He pointed to the crackdown on family tax benefits – which he fathered in government – “because of my view about the status of family tax benefits. I think in reality the constraining of tax benefits is in effect a tax rise for people in certain income brackets.”

Asked in parliament about the comments, Abbott said Howard had made the decisions that were right for his time, when there was a $20 billion surplus, and “we will make the decisions right for our time” when there was a $50 billion deficit.

Howard also said he would not argue that there was an immediate budget crisis but the government had had to take precautions against a deteriorating budget in the future.

He praised the rise in the pension age, strongly supported the Medicare co-payment and warmly endorsed the arrest of the decline in defence spending.

But he said it was a pity the Coalition in opposition had committed itself before the election to fund the Gonski schools policy for four years.