The government is under renewed pressure to increase the Goods and Services Tax (GST) while safeguarding low-income earners through significant rebates. Independent MP Kate Chaney, alongside economist Richard Holden, has proposed raising the GST from 10% to 15%, while eliminating current exemptions for fresh food, private education, and health services. To counterbalance the impact on those with lower incomes, they suggest a universal “basics rebate” of $3,300 for every Australian adult, creating an effective GST-free threshold of $22,000.
This proposal aims to ensure that the lowest 60% of income earners would fare better under the new system than they currently do, generating an anticipated $23.8 billion in additional revenue for the federal budget by the 2026-2027 financial year. Chaney highlights the pressing issue of intergenerational inequity entrenched in the tax system, asserting that younger generations face an undue burden in supporting an ageing population and future debt repayments.
Holden supports the idea, noting that the plan could enable the government to reduce and index income tax rates, tackling bracket creep and enhancing the budget’s fiscal health. Concerns regarding Australia’s heavy reliance on personal income tax—twice the average of other advanced economies—have prompted calls for reforms to foster a more efficient tax structure.
Despite Treasurer Jim Chalmers expressing scepticism about increasing the GST, and Prime Minister Anthony Albanese leaning towards keeping it off the table, economists argue that reforming the consumption tax is a logical step due to its efficiency. Holden acknowledges that politicians are generally reluctant to raise the GST, but he hopes this is a pivotal moment for the government to enact courageous reforms.
As the government prepares for an upcoming economic productivity roundtable, discussions about tax reform, particularly in regard to productivity stagnation, continue to gain urgency. Senior Nationals senator Bridget McKenzie has urged the government to seize this opportunity to address the tax system comprehensively and boldly, pointing out that such chances are rare and come with significant political mandates.
Overall, the proposed reforms stress the necessity for a re-evaluation of Australia’s tax structure to ensure fairness and financial stability, particularly for future generations.