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A Case for a Higher GST Rate

LISTEN TO THIS EPISODE OF BTALK


Australia’s consumption tax (GST) has been set at 10 percent since it was introduced by the Howard government on 1 July 2000. Time for a change?

It was out of scope for Ken Henry’s recent review of Australia’s Future Tax System, perhaps because Treasurer Wayne Swan saw it as politically untenable to increase it.

Yet the tax is relatively low compared to other countries — GST has just increased to 15 percent in New Zealand and in the UK VAT is now up to 20 percent. We don’t have to slavishly follow other nations says Frank Drenth, executive director of the Corporate Tax Association, but we should at least be discussing the merits of using consumption tax to raise a higher proportion of our tax revenue.

Why? Well it’s a far more efficient tax than many state taxes, such as stamp duty, which could be abolished if GST did more of the “heavy lifting”.

But wouldn’t a higher GST mean lower income earners are paying more? Not necessarily, according to Frank Drenth. In this edition of BTalk he suggests lower income earners can be compensated for through changes in income tax levels — in the same way that the government plans to compensate us for the impacts of the carbon tax.

It’s a political difficult move, of course, but it’s worth a discussion, at the very least.

First published on CBS News

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