Will the states introduce their own income taxes?

Many of you will have woken to the news that the Federal Government has raised with the States the idea of them charging their own income tax to cover Health costs in their state (i.e. run the hospitals).  America does something similar.

Call me cynical….. but this is all part of a well thought out political strategy.  It is no fluke that we have discussed just about every possible solution to the budget in the last few months…. we started with super, then negative gearing and capital gains tax changes, then to GST, back to negative gearing, then back to super and now an outside the box idea of a new State based Income Tax system.  

In my view, this is all part of a strategy to keep the conversation of “tax reform” alive and show that there is no easy and palatable solution.  I believe this recent suggestion is about making the States fight for a GST change (which they all must approve) or the reallocation of responsibilities (assigning Health to the States).  The States will realise it is impossible for them to “sell” a new tax to their electorates, or take over the Health budget, so will be forced to go back to Federal Government with their tail between their legs, ready to discuss GST and other wholesale changes….. whatever they might be.  This is all about opening up the minds of those the Government will need to help sell the final idea.  Like I said…. maybe I am cynical.

Do we need changes – Yes, we need tax changes to remain competitive on the world stage, promote innovation and productivity and fix the deficit.    So something has to give….. people need to pay more taxes and they will get more….. or pay less taxes and accept that not everything that currently is provided will remain the same.  We all have the challenge of wanting to do heaps, but not having the funds to do it. Governments are no different.  Granted, there is a lot of waste within Government and we need them to be more efficient and flexible, but that overall the challenge is the same….. a small pool of money, a large pool of possible expenditure.

Is GST or new State Taxes the answer…. I don’t know.  However, very few would argue the current system is excellent and doesn’t need a tweak.  As I said, something needs to change and those with much more information than I are the ones in a position to assess the best options.  I think both sides of politics now recognise change is needed.  Now hopefully, the press can get on the bandwagon, instead of rubbishing anything they come up with by demonstrating a small but loud few are disadvantaged.  Unfortunately, there will be no gain in this area, without some pain.

My last little tip…… Don’t expect anything too serious this budget (except superannuation changes) and the platform of “change is required” to be set.