Jay’s 5pc hike to create $10b GST bonanza: Grattan report
Premier Jay Weatherill’s proposal to increase GST by 5 per cent would collect $10 billion more than applying the tax to exempt items, a leading economics report has found.
Jay Weatherill says there is cause for quiet optimism about Arrium. AAP image
The Grattan Institute found that by increasing the GST to 15 per cent, as suggested by Weatherill last month, some $27 billion would be raised compared to $17 billion collected by applying the tax to exempted items.
Weatherill unveiled his radical plan to overhaul the federal and state tax arrangements during a luncheon at the American Chamber of Commerce in Australia on November 27.
The Grattan Institute argues that raising more GST revenue, either through a higher rate or applying it to more goods and services, is preferable to most other means of raising revenue, including higher income taxes.
It stated governments faced many challenges, such as funding growing healthcare costs, reducing deficits, and cutting inefficient taxes, and a broader or higher GST could fund any of these initiatives, but not all of them.
“Broadening the GST base to include fresh food, health and education would be more efficient, and would reduce compliance costs,” Grattan Institute chief executive officer John Daley said.
“But if the politics of taxing those categories proves too fraught, then raising the rate of the GST would be a satisfactory second best.”
The report analysed the implications of a reform package that increased the tax rate to 15 per cent.
The report also showed that spending about 30 per cent of the additional revenue on welfare, such as increasing the base rate of pensions and allowances by about 5 per cent, would leave two-thirds of low-income households better off overall.
It stated if a further 30 per cent of additional revenue was committed to income tax cuts the government could shave 2 to 2.5 per cent off the bottom two tax rates.
With the welfare increases, these cuts would fully offset the GST increase for households earning up to $100,000 a year, it reported.
These measures would leave $11 billion of additional revenue that could help the states address the looming hospital funding gap, fund tax cuts that promote economic growth or reduce Commonwealth budget deficits.
But, Daley said, not everyone could be fully compensated.
“Government budgets are in deficit, and promising ‘no losers’ will be a sure-fire way to erode the revenue benefits from the package.”
