Mike Baird proposes GST compromise plan to fund health and education

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<!–[if IE 9]><![endif]–>Mike Baird
Under Mike Baird’s plan, the federal and state governments would enter into an initial four-year deal about what should happen to the extra $30bn an increase in GST from 10% to 15% would raise.
Photograph: David Moir/AAP

The New South Wales premier, Mike Baird, has proposed a GST compromise plan which would see the commonwealth keep the proceeds of a higher goods and services tax for four years, provided it handed over $7bn to the states to make up for the Abbott-era cuts to hospital and school funding.

Related: GST debate: majority of voters reject increasing the tax, Newspoll shows

As the Turnbull government finalised its tax reform plans it had been sidelining the states’ demands for a reinstatement of the cuts to proposed hospital and school funding in Tony Abbott’s first budget, proposing that they be considered separately as part of reforms to competition policy and federal/state powers.

But Baird – who last year said he would support an increase in the GST rate – is demanding hospitals and schools be funded from the extra $30bn a year that the increase from 10% to 15% would raise.

He has bluntly rejected suggestions by the federal treasurer, Scott Morrison, that the “looming funding crisis” in hospitals could be met by the states becoming more efficient.

And his suggestion runs counter to the federal Coalition’s claim that spending more money on the final two years of the Gonski plan – as the Labor leader, Bill Shorten, has promised – is fiscally reckless and won’t necessarily deliver better school results.

Under Baird’s refined plan, the federal and state governments would enter into an initial four-year deal about what should happen with the money.

Baird says that at least for this first period the commonwealth should keep the proceeds of the tax, which traditionally goes straight to the states, and use it to cover compensation to households earning less than $100,000 and income and corporate tax cuts – so long as it gives the states $7bn to cover the looming hospital funding crisis and the final two years of the Gonski plan for needs-based schools funding.

“Last year we commenced a national discussion about the looming crisis in health and education funding,” Baird writes in Monday’s Australian Financial Review.

“While some had suggested that the gap in health spending can be fixed by being smarter in health, OECD numbers show that we already run a highly efficient health system. Yes, there’s more we can do – and we will – but efficiencies alone cannot be the answer …

“The fiscal reality remains that, without action, all the resources of the commonwealth and the states, pooled together, will no longer fund health services to our current standard, notwithstanding careful budget management across all jurisdictions.”

He adds: “Until 2020, when the compact I am proposing can be renegotiated, the states would receive an extra $7bn in total, to meet our health funding responsibilities, and to complete the Gonski education reforms that address the needs of our most vulnerable school students.”

Baird says that after four years the tax deal could be renegotiated, taking into account “progress being achieved on finding more efficient ways to fund hospitals; the measured success of the Gonski reforms in improving the educational opportunities for our kids; and the extent to which the economic uplift delivered through income and corporate tax cuts will fill the long-term gap in health funding.”

Related: GST debate: Scott Morrison backs need for option to raise tax as part of reforms

The former Labor government had promised the states $57bn in long-term hospital funding after protracted negotiations to address the fact that the cost of hospitals – as the population ages and medical technologies become more expensive – was projected to exceed some states’ entire budgets over time. The Abbott government cut this agreement in its 2014 budget, meaning that promised 9% a year funding increases after July 2017 would fall to 4.5%.

All states say they cannot operate existing hospitals with this funding, with Baird calculating the shortfall would reach $35bn nationally by 2030.

Last December’s Council of Australian Governments meeting considered various options for meeting the shortfall, including raising the GST, increasing the Medicare levy and the Labor South Australian Premier Jay Weatherill’s suggestion that the states be given a fixed share of federal income tax.

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