GST overhaul inevitable and desirable, business groups stress

AN OVERHAUL of the goods and services tax is inevitable and might help raise living standards, business groups say.

By InvestSMART · 2 Jan 2013

By InvestSMART ·
2 Jan 2013

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AN OVERHAUL of the goods and services tax is inevitable and might help raise living standards, business groups say.

Paul Drum, CPA Australia's head of business and investment policy, said it was "inevitable" that the GST would either be broadened - to include key items such as health, education and fresh food - or increased from the 10 per cent level set in 2000. He said this would help smooth out government revenue by reducing reliance during downturns on company taxes, and help pay for the removal of "inefficient" taxes, such as those on insurance, commercial conveyancing duty and payroll tax.

"It's been a taboo topic for the last decade, but we don't need more government obfuscation - we need to get back to the table to find the right model," Mr Drum said.

This week former prime minister Bob Hawke joined the chorus calling for a fresh look at the rate and breadth of the GST.

Decades after rejecting his treasurer Paul Keating's plan for a 12.5 per cent consumption tax on services, Mr Hawke said the GST was a "legitimate area for discussion. Whether they should do it or not, that's a matter for the current leadership at a federal and a state level."

Others to have called for a review of the GST include independent MP Tony Windsor, the International Monetary Fund and the Business Council of Australia.

A CPA-commissioned report conducted by KPMG Econtech found that broadening the tax or increasing the rate to 20 per cent would "lead to an overall higher standard of living. This is because the costs of imposing the GST are smaller than the benefits of abolishing the inefficient taxes."

Burchell Wilson, senior economist at business group ACCI, said the case for revisiting the GST was "compelling". Australia's GST rated poorly because its base was narrower, and the rate was "almost half that applied on average by our OECD counterparts", he wrote in 2011.

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Frequently Asked Questions about this Article…

What does a proposed GST overhaul mean for Australia?

A GST overhaul means either broadening what goods and services are taxed (potentially including areas like health, education and fresh food) or increasing the GST rate above the current 10%. Business groups say this could help smooth government revenue and fund the removal of so‑called inefficient taxes.

Who is calling for a review of the GST and tax reform?

Calls for a GST review have come from a range of voices mentioned in the article, including CPA Australia (Paul Drum), former prime minister Bob Hawke, independent MP Tony Windsor, the International Monetary Fund, the Business Council of Australia and business group ACCI, with analysis from KPMG Econtech commissioned by CPA.

Could raising or broadening the GST improve living standards?

According to a CPA‑commissioned KPMG Econtech report cited in the article, broadening the GST or increasing the rate (the report models a 20% rate) could lead to an overall higher standard of living because the costs of imposing a broader GST may be smaller than the benefits gained from abolishing inefficient taxes.

Which ‘inefficient’ taxes might be removed if the GST is widened or increased?

The article cites examples of inefficient taxes that could be replaced or removed, including taxes on insurance, commercial conveyancing duty and payroll tax — changes proponents say could be paid for by a broader or higher GST.

How would a broader or higher GST affect government revenue stability?

Proponents argue a broader or higher GST would smooth government revenue by reducing reliance on company taxes during economic downturns, providing a more stable, consumption‑based revenue source.

Why do business groups say the current GST needs revisiting?

Business groups such as ACCI argue the GST’s base is relatively narrow and the 10% rate is low compared with OECD counterparts (the article notes it is ‘almost half’ the average applied by many OECD countries), making a review of rate and breadth a compelling policy conversation.

What specific rate changes have been discussed in the debate over GST reform?

The article mentions historical discussion of a 12.5% consumption tax on services (an earlier proposal) and cites a KPMG Econtech scenario that models increasing the GST to 20% as an option for achieving broader tax reform.

How might a GST overhaul be relevant to everyday investors?

For everyday investors, a GST overhaul could matter because it may influence overall economic policy, government revenue stability and the structure of other taxes (like payroll tax or taxes on insurance). Changes that affect living standards or consumer spending can also indirectly influence markets and investment environments.