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Turnbull urged to be brave on GST reform

GSTColin Brinsden, AAP

A respected think tank doubts that the Turnbull government is politically brave enough to raise the rate of the GST as well as broaden its base.

But the Grattan Institute hopes it has the gumption to do one as part of its tax system reform plans.

In a new analysis, the institute says a well-designed GST reform package could support economic growth, make the tax system more progressive and give state and commonwealth governments more budgetary options.

Extending the GST to cover many of the categories that are now exempt – including fresh food, health and education – could raise $17 billion per year.

Alternatively, an increase in the GST rate to 15 per cent from 10 per cent would generate around $27 billion annually.

‘I would be very surprised they would be brave enough to do both. They would have to be pretty brave to do either,’ the institute’s head John Daley told AAP.

‘Doing either would be a substantial advance on where we are at the moment.’

OECD figures released last week showed that Australia has one of the lowest GST or VAT rates in the world but among the highest individual tax burdens.

Under the Grattan Institute’s proposal, 30 per cent of the additional GST revenue from a broader or higher GST rate would go on higher welfare payments.

This would leave most of the bottom 20 per cent of income earners better off but structured so there is no change in the incentive to work.

A further 30 per cent of additional revenue would go to making income tax cuts.

It says it would allow the government to shave one to 2.5 percentage points off the bottom two tax rates, helping to offset the increase in the GST for most low and middle income households, while also providing some benefit for those further up the scale.

These cuts will increase work incentives for low and middle income taxpayers, who are most responsive to changes in effective tax rates, it says.

The final 40 per cent of additional revenue – $7 to $11 billion – would help state governments address their looming hospital funding gap while leaving a little to help reduce the commonwealth budget deficit.

Download the report here: http://grattan.edu.au/wp-content/uploads/2015/12/834-GST-Reform-Package.pdf


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