Australia’s goods and services tax (GST) system, currently set at 10%, is under scrutiny as experts argue that it needs an overhaul to better meet the nation’s fiscal needs. Introduced by the Howard government 25 years ago, the GST remains a politically sensitive topic, with many politicians reluctant to discuss potential increases.
Current federal revenue is heavily reliant on personal income tax, which constitutes over half of the total tax intake. Treasurer Jim Chalmers has indicated a desire to alleviate the tax burden on individuals, but options for replacing lost revenue if income tax rates are lowered are limited. Measures such as reducing negative gearing or imposing a carbon tax have been largely dismissed due to their unpopularity.
Consumption taxes like the GST are considered less harmful to the economy compared to other tax forms. Experts suggest that such taxes are efficient in generating revenue and inflict lesser distortions on productivity. With an upcoming productivity roundtable, there are renewed calls for a comprehensive tax system review, spurred by Chalmers’ remarks signalling potential GST reform.
In a global context, Australia’s 10% GST is modest. While countries like Canada and the USA operate with lower or differing tax structures, Australia’s rate is lower than New Zealand’s and the VATs in countries like Germany and the UK, which hover around 19-23%. Consequently, Australia’s consumption tax revenue as a percentage of total revenue lags behind international averages.
Proposals for reform range, with economists suggesting a gradual increase to 15% while simultaneously reducing personal income tax. To protect low-income earners from the impact of a GST hike, discussions have highlighted the need for protective measures, including a GST-free threshold for lower earners. This proposal is borne from the understanding that consumption taxes disproportionately affect those on lower incomes, who spend a larger share of their earnings on taxable goods and services.
The Australia Institute has suggested that broadening the GST’s reach could mitigate revenue shortfalls by eliminating certain exemptions, like those for private education and healthcare, thereby ensuring wealthier households contribute more significantly.
While the government’s stance on a GST increase remains tentative, Chalmers emphasised the importance of discussing Canada’s regressive nature, suggesting such taxes could undermine broader economic fairness objectives. Prime Minister Anthony Albanese echoed concerns that consumption taxes may conflict with the government’s commitment to equity, characterising them as fundamentally regressive.
In conclusion, reforming the GST encompasses balancing the need for revenue generation with the imperative to maintain fairness across different socioeconomic strata. The dialogue continues as the government heads towards crucial discussions on tax reform.