MY MONEY

Should Australia follow New Zealand in increasing the GST?

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During all the recent controversy about how best to fund the national disability insurance scheme (NDIS), one avenue that hasn't received as much air time is lifting the amount of revenue collected by the GST.

Since its introduction in 2000, the GST has been an ever-increasing source of revenue for government, which is exactly what it is intended to be.

It is also an efficient tax that is relatively easy and cost-effective to collect, and has the effect of taxing the cash economy because, while people may not pay tax on their cash earnings, GST is still collected when they spend the money.

Increasing the GST rate would be difficult to achieve, requiring the unanimous agreement of every state and territory government.

increasing the gst

If such a deal could be struck, however, something like the NDIS could be funded (at least partly) from an increase in the GST as an alternative to a higher Medicare levy or higher income tax rates. At 10% Australia's GST rate is very low by world standards.

Our Kiwi cousins started at 10% and their GST rate is now 15% and VAT (value-added tax) rates in most European countries are over 20%.

The other key part of the GST equation is the tax base. Every GST or VAT has some exemptions, such as health services, education and residential rent.

I'm not suggesting they should tax everything, but a broader GST base with fewer exemptions, bringing us closer to the New Zealand model, would allow more revenue to be collected for a smaller increase in the rate.

The impact of a higher GST on the lower-income groups would have to be addressed by appropriately targeted increases in government assistance, so that any compensation goes to those who really need it.

Although the Coalition has floated the possibility of increasing the GST, it is hard to see a change in the near future.

By failing to at least give serious consideration to GST reform, however, governments are missing a golden opportunity to shore up the tax revenue base, making it harder to fund major initiatives such as the NDIS.

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