Overhaul of GST overdue and 'inevitable', say business groups
Paul Drum, CPA's head of business and investment policy, said it was "inevitable" 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 revenues, 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 the 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," Mr Hawke is reported as saying.
Others to have called for a review of the GST include the independent MP Tony Windsor, the International Monetary Fund and the Business Council of Australia.
A CPA-commissioned report conducted by KPMG Econtech found that either broadening the tax or increasing the rate to 20 per cent would "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," the report says.
Burchell Wilson, a senior economist at business group ACCI, said the case for revisiting the GST was compelling. "Australia benchmarks poorly with respect to other advanced economies in relation to the amount of revenue it raises from the GST, its base is narrower, and the rate is almost half that applied [on] average by our OECD counterparts," he wrote in a 2011 report.
Frequently Asked Questions about this Article…
Business groups such as the CPA and ACCI argue that reforming the goods and services tax (GST) is inevitable because Australia raises relatively little revenue from the GST, its base is narrower than in other advanced economies, and the current 10% rate was set in 2000. They say a rethink is needed to create a more sustainable tax mix and to reduce reliance on other taxes during downturns.
The article outlines two main options: broadening the GST base to include currently exempt items such as health, education and fresh food, or increasing the GST rate (the CPA-commissioned KPMG Econtech work even modelled a rise to 20%). Both approaches aim to raise more revenue and allow other taxes to be reformed or removed.
Advocates say a broader or higher GST would provide steadier consumption-based revenue, reducing the budget’s reliance on company tax receipts during economic downturns. That steadier revenue could also fund the removal of what business groups call "inefficient" taxes without worsening overall public finances.
According to the article, calls for a fresh look have come from a range of voices including CPA Australia (represented by Paul Drum), former prime minister Bob Hawke, independent MP Tony Windsor, the International Monetary Fund (IMF), and the Business Council of Australia.
The KPMG Econtech report commissioned by the CPA found that either broadening the GST base or raising the rate (it modelled a 20% rate scenario) would lead to a higher overall standard of living—because the costs of imposing a larger GST were judged to be smaller than the benefits of abolishing inefficient taxes.
The article cites examples business groups labelled inefficient, including taxes on insurance, commercial conveyancing duty and payroll tax. Proponents say revenue from a broader or higher GST could help pay for abolishing some of these levies.
ACCI’s senior economist Burchell Wilson noted Australia benchmarks poorly: the country raises less revenue from the GST, has a narrower base, and its 10% rate is almost half the average applied by OECD counterparts, suggesting room for reform.
The article suggests that a broader or higher GST could reduce governments’ dependence on company tax during downturns and make it possible to remove some state or sector taxes (for example payroll tax). For investors, that could change the tax and cost environment companies face—potentially affecting profitability—but the article does not make specific stock or market predictions.
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