The success of GST reform depends on the shape it takes

Research commissioned by CPA Australia shows that contrary to popular belief, lifting the GST rate and/or broadening the base could leave everyone better off.

With four major GST reform scenarios, Australians should be prepared for some give and take regardless of what happens.

This article is from the April 2015 issue of INTHEBLACK

Reforming Australia’s goods and services tax (GST) can be a win-win reform as long as those most affected by price rises are adequately compensated.

A new report from CPA Australia [PDF] highlights that the gains from GST reform can fund a compensation package that leaves the whole economy better off.

Australia rolled out a 10 per cent GST in 2000 – a relatively meagre rate by global standards, with exemptions on fresh food and health costs, among others. It’s something politicians have been loath to change. (See our feature on page 66 for more on the global GST debate.)

Research commissioned by CPA Australia shows that contrary to popular belief, lifting the GST rate and/or broadening the base could leave everyone better off.

“What our report shows is that additional GST revenue can be used to abolish a number of inefficient state taxes and also provide for personal income tax cuts and compensation for low income households, while also boosting economic growth,” says former CPA Australia chief executive Alex Malley.

KPMG modelled four scenarios at a GST rate of 10 and 15 per cent, some of which apply the GST to fresh food, education and health. Each scenario would generate additional revenue ranging from A$12.1 billion to A$42.9 billion in the first year of introduction. Benefits would then flow through to the economy over the long term, with annual GDP expected to be between 0.1 per cent and 1.3 per cent (or between A$3.1 billion and A$27.5 billion) higher by 2029-30 than it would be without the changes.

“The additional revenue raised … can be used to retire or reduce inefficient and unpopular taxes, including stamp duties on insurance, motor vehicles and conveyancing on residential and commercial properties,” Malley says.

The modelling indicates all scenarios are likely to boost real incomes, with each household income segment found to gain proportionally under a 15 per cent GST, particularly one covering a broader base or which only excludes food.

However, while some of the extra GST raised is returned to households in personal tax cuts, some redistribution would need to be provided outside the tax system, by way of welfare payments to the lowest income earners. Those payments would be between A$89 million and A$939 million in 2015/16.

Four GST scenarios

Scenarios Additional GST revenue generated from the first year of reform This revenue can be used to remove inefficient taxes Australian households overall would be better off By 2029/30 Australia's GDP will be increased
10% GST on a broader base including fresh food, education
and health

$12.1 billion

Insurance taxes
Motor vehicle stamp duty
Conveyancing duty (80%)

$33.20 per year

$16.1 billion

15% GST with current exemptions $26.0 billion Insurance taxes
Motor vehicle stamp duty
Conveyancing duty (9%)
$98.20 per year $3.1 billion
15% GST applied to health and education but exempting fresh food $36.8 billion Insurance taxes
Motor vehicle stamp duty
Conveyancing duty

$499.40 per year

$23.6 billion
15% GST and applied to health, education and all food $42.9 billion

Insurance taxes
Motor vehicle stamp duty
Conveyancing duty

$749.40 per year $27.5 billion

This article is from the April 2015 issue of INTHEBLACK


April 2015
April 2015

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