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The government’s GST fix may placate some but genuine reform, including increases to the rate and base, continues to be a political hard-sell, says the Tax Institute.
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GST reform alternatives floated as new changes announced
09 July 2018
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Treasurer Scott Morrison’s announcement to top up over $7 billion over eight years to ensure all states and territories will not get less than 75 per cent of the GST has been met with little opposition but his staunch reluctance to discuss any rate change highlights the political roadblock facing reform calls.
Fronting the media after his announcement, Mr Morrison shot down any suggestions to relook at the current GST rate of 10 per cent, saying that the government had no plans to touch it.
Speaking to Accountants Daily, the Tax Institute’s senior tax counsel, Professor Robert Deutsch, said the government’s proposal was “quite sensible” but only formed one-half of much needed reforms.
“I'm not saying the distribution isn't important but it's not really reform. It is reform of federal state relations but it is not a reform of the tax system in the sense that I would like to see,” said Professor Deutsch.
“What I call genuine reform about the GST makeup is the rate and the base upon which it is imposed.”
Previous industry calls to reform GST and raise the GST rate up to 15 per cent continue to hold merit, said Professor Deutsch but would face considerable backlash in the current political climate.
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Instead, he believes addressing the base, in particular taxing the currently GST-free products and services such as food, health, and education, would be an easier political sell and help recoup a sizeable revenue base.
“The lost revenue from granting those three GST-free categories is roughly $18 billion so it is a very sizeable chunk out of the potential revenue base of raising of GST,” said Professor Deutsch.
“The reason those three are treated as GST free is to accommodate concerns people have about the lower paid sectors of the communities where they would spend a large part of their income on basic food and health and the way to deal with that is to provide them with an adequate compensation package which could be done through a social security system.
“On the figures that I have seen, that compensation package which would be quite generous, would involve around $6 billion being paid out. There would be a net gain to the bottom line by taxing basic food, health and education by some $12 billion even after you've taken into account compensation to lowly-paid people,” he added.
“$12 billion is nothing to be scoffed at, and in the context of the Australian economy it is a large amount that we could recoup by extending the GST base and that's what I would see as being genuine reform rather than just a discussion about the distribution amongst the states.”
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