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PM sticks to GST promise
Sydney Morning Herald, 22 April 2008

Prime Minister Kevin Rudd today stuck to his election promise not to raise the GST in a "root and branch" review of the tax system, but some economists said the GST was low by world standards.

While the prime minister has not committed to a time frame for the review, he said it was time for a "top-down" look at the system, suggesting there had not been a serious look at taxation for more than 20 years.

Plans for a major review have been welcomed by business groups, although the prime minister was today forced to rule out any rises in the GST.

With many Australians already struggling with high interest rates and rising food prices, any change in policy that would add to their cost of living would likely cause outrage.

A spokesman for the prime minister today said the GST remained off limits.

"The prime minister made it crystal clear before the election that there would be absolutely no increase in the GST under a Rudd Labor government," he said.

"The prime minister said before the election that over his dead body would there be an increase in the level of the GST. That commitment still stands and will not be changing in the future."

Opposition Leader Brendan Nelson labelled Mr Rudd a fraud over his plans for tax reform.

"What kind of fraud is Mr Rudd pretending to be, when he suddenly turns around, the day after his 2020 talkfest, and says he is now a convert of root-and-branch reform of the Australian tax system?" Dr Nelson said today.

He also hit out at claims by Mr Rudd that the former Howard government did nothing to reform the tax system.

"John Howard almost lost government giving Australia's future the tax systems that it needs to fund our schools, our hospital, our roads and our defence forces," Dr Nelson said today.

While Mr Rudd ruled out tinkering with the GST, taxation experts maintain it should be looked at, saying it is low by world standards.

Professor Neil Warren from the School of Taxation said any review of the tax system must consider raising the rate of the GST from the current 10 per cent.

"I think we need to make sure we are always able to attract skills and labour...so we have to look at what we do at the top end of the tax system just as much as we need to look at what we do for low-income individuals," Prof Warren said.

"But if you're going to talk about the breadth of the issue, sooner or later you're going to have to talk about the goods and services tax."

Stephen Walters, the chief economist at JPMorgan, said there were good economic arguments for having a higher GST.

"The GST, although (the prime minister) is pledging not to increase it, it is very low by international standards - the UK for example is 17.5 per cent."

He said the GST was something that needed to be addressed.

"It discourages consumption and boosts savings," Mr Walters said.

"When you're running a big current account deficit, like Australia is, it means we haven't got enough savings, so if you can tax consumption, that should boost savings."

The Australian Industry Group (AiGroup) said a major review of the tax system was long overdue.

"The review should be genuinely wide-ranging and cross jurisdictional, and include federal, state and even local taxes," AiGroup chief executive Heather Ridout said.

"We should have fewer taxes and get rid of or improve the worst ones, including insurance taxes, taxes on property transactions, other stamp duties and payroll tax."