Costello tells government to spell out tax reform principles

Former treasurer Peter Costello has waded into the tax reform debate. AAP/Dean Lewins

Former treasurer Peter Costello has said the government should lay down its principles for tax reform ahead of setting up its tax review – and declared what they should be.

With details of the planned white paper yet to be announced, Costello today said the first task needed to be the principles.

These should specify that the tax take would not rise as a proportion of GDP; reform should increase the efficiency of the system, and simplify it; and changes should promote economic growth and heighten incentives to work.

The GST should only be raised if income tax was lowered and some other taxes were abolished, he said, advocating a top income tax rate of 40%. The present top rate is 47% including the Medicare levy. The budget brought in an additional temporary levy for high income earners.

If the GST were just increased without the other changes the system would be worse rather than better, Costello told Sky News.

Costello said the states had previously signed on to abolish a number of taxes but then pushed out the abolition.

He said the temporary levy was a political tactic designed to get budget measures through, and the jury was still out on it.

The government will announces details for its tax white paper late this year or early next. It is due to be finished by the end of next year and the government has said it will take to the election any plans it has for tax changes. It is not known yet what form the review will take, in terms of the mix of officials and outsiders involved.