Weatherill today supported a rise in the GST from 10 to 15 per cent, with the Commonwealth to take the extra 5 per cent to compensate low income earners and use any remaining funds at its discretion.

In return, the states would receive a fixed share of personal income tax receipts to replace non-GST Commonwealth grants, excluding infrastructure and on-passed grants.

“The Commonwealth would retain the ability to set income tax rates,” Weatherill said.

“This tax was once levied by the states, but was transferred to the Commonwealth during World War II.”

Addressing an American Chamber of Commerce in Australia luncheon in Adelaide today, Weatherill said the Federal Government could use the additional GST funds at its discretion, once it had compensated low-income earners.

He argued the new model would give the states access to a growing revenue base to meet their spending needs and increase their fisctal autonomy.

Weatherill said unless “urgent” reform was applied, states would be unable to deliver basic public services.

“I’ve put this tax measure forward today because, as I’ve been on all aspects of Federation reform, I want to be constructive and I want to end the logjam.

“The need for tax reform is urgent and staring us in the face.

“If current arrangements continue, governments across the country simply will not draw in sufficient revenue to fund the services they’re expected to provide, which will paralyse productivity reform.”

Weatherill said more details of the plan that would prompt “a fundamental change in Federal-State relations” would be outlined during the COAG meeting on December 11 in Sydney.

He said that under his plan, the sharing arrangements of the GST and personal income tax would be legislated.

“This is a superior solution to the states’ long-term health care needs than the proposed increase in the GST to 15 per cent.

“This is because the GST is not a growth tax, and even with a 15 per cent rate it will eventually be inadequate to meet our health care needs.

“In simple terms, a 15 per cent GST collects too much in the short term and not enough in the long term.”

Despite backlash from the traditionally wealthier states such as Western Australia, Weatherill has established himself as one of the leading national voices for GST reform.

Weatherill said his tax reform outlined proposed advantages such as a more reliable source of income for states to meet health system demands, allowed the Commonwealth to provide near-term tax relief

“It means an end to debate about expanding the GST base to health and education – a topic that would otherwise make national agreement difficult to reach.

“It gives the Commonwealth more ‘skin in the game’ when it comes to the management of the GST.

“It improves efficiency by removing the layers of bureaucracy involved in current funding agreements and reporting requirements and most important of all, it amounts to genuine Federation reform – giving the States more fiscal autonomy to pursue productivity growth through policy innovation.”

He said the state and federal tax systems needed to be aligned to create more and better jobs and services.

The Weatherill plan in brief

• Increase the GST rate to 15% with Commonwealth retaining all revenue proceeds and taking responsibility for compensating low income earners.
• GST revenue effectively split between states and Commonwealth – two thirds to one third.
• In return for sharing the GST base, states would be given a fixed share of personal income tax in place of non-GST Commonwealth grants.
• All other non-GST Commonwealth payments to the state, excluding infrastructure payments and on-passed grants, would be abolished.

Weatherill’s willingness to countenance an increase in the GST has put him at odds with Labor colleagues interstate and federally.

Earlier today, Opposition Leader Bill Shorten repeated his criticism of those who wanted to see the GST rate increased.

“You must live on another planet if you think people want to pay another 15 per cent in GST,” Shorten told reporters in Canberra on Thursday.

He also declined to comment on Weatherill’s support for the GST to be broadened to financial services, saying the bushfire-hit state was going through a “difficult day”.

The Turnbull government won’t rule in or out any idea – including changes to the GST – for its review of the tax system.

Shorten denied Labor’s anti-GST campaign was a political ploy, telling reporters in Canberra on Thursday the government was “gagging” to increase the impost to 15 per cent.

Labor had every right to focus on the harm any “dumb” GST increase would create for the less wealthy.

“The fact that this conversation, the fact the Liberal plans for the GST have not been ruled out means Australians have a legitimate question for Malcolm Turnbull,” Shorten said.

“You can’t turn on the TV without seeing some conservative commentator saying the GST is going to be the solution for all of the world’s ills.”

Weatherill, while long decrying the GST as a “regressive tax”, has softened his rhetoric this year, saying he was open to a national debate as long as axed health spending was reinstated and low to middle-income earners were protected.

“Nobody wants to say it out loud because it’s unpopular to say it … but we’re not raising enough money to actually meet the needs that the community are putting on us,” the Premier said early this month..

“It’s a simple truth.

“If we’re not talking about increasing the overall tax take, then you’re not going to be able to essentially fill the hole that was created by the $80 billion cuts to health and education that occurred in Joe Hockey and Tony Abbott’s first budget.”

In July, Weatherill revealed other ideas to reform Commonwealth-State relations in a speech to the National Press Club in Canberra.

These included a national road user charge scheme, and states taking over responsibility for education from birth to the end of secondary school.

– with AAP