Former Victorian premier John Brumby backs GST increase to cover states* funding shortfalls (ABC)

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Former Victorian premier John Brumby has backed changes to the Goods and Services Tax (GST) to help fix funding shortfalls for the states.

State and territory leaders say the federal budget has stripped $80 billion worth of Commonwealth funding slated for health and education.

In a speech at the University of Melbourne, Mr Brumby said a broader base or increased rate appears to be the least worst option to fix the funding shortfall.

"The current GST is certainly not going to fill the hole in state finances," he said.

"Much of the reason for this is that there are large and growing structural weaknesses in the GST revenue base.

"Fresh food, health and education expenses are exempt, and banking services are comparatively lightly taxed.

"Our existing taxes and charges are simply not adequate to provide the responsible and reasonable services in health and education the community expects us to provide.

"But when we look at the possible other outcomes of either crushing deficits, or failing to care for our most vulnerable people, GST reform looks more and more like the best option we've got."

Mr Brumby led Victoria from 2007 to 2010 and chairs the soon-to-be-defunct COAG Reform Council.

Since the budget was released former Victorian Liberal premier Jeff Kennett has also called for the GST base to be broadened.

Brumby says GST increase is 'inevitable'

Mr Brumby said in his speech the federation has become increasingly out of balance.

"To remedy its faults, and get it back into balance, we need to better align roles, responsibilities, and revenues," he said.

"If [the states] don't have the revenue raising capacity – then we need to examine ways to fund their service responsibilities.

"In essence, this can be done in one of four ways: give the states a share of income tax, increase the GST and give the proceeds to the states, increase transfers from the Commonwealth to the states, or leave the states to increase their own taxes."

The former Victorian premier says a GST increase is "inevitable", but discussion is needed about how best to implement that.

"The real debate is about the nature of the increase (base versus rate, or both), the compensation provided to low-income earners and pensioners, and the distribution of the proceeds (the states versus the rest)," he said.

He also commented that collection of GST from international online purchases should be assessed.

"We should immediately move to reduce the erosion of GST collections from overseas internet purchases," he said.

"Not only does the current situation place Australian suppliers at a competitive disadvantage, it is costing the states hundreds of millions of dollars in lost revenue."

Mr Brumby spoke of his support for a federation convention to be held later this year or early 2015.

"Throughout this process, it's vital that the public and opinion leaders are able to participate in this debate," he added.

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