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A review of GST must form part of any major tax reform approach by the government despite the potential political fallout, says the Member for Wentworth.
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GST a critical lever in tax reform approach: Allegra Spender
05 December 2024
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Member for Wentworth Allegra Spender has stressed the importance of GST forming part of any future review of the tax system despite some of the challenges in discussing GST at the moment.
Speaking at a CPA Australia lunch yesterday, Spender said one of the options for substantially lowering income taxes in Australia would be to increase GST, either in rate or in scope.
“It’s not an easy reform, least of all in a cost-of-living crisis but I fundamentally believe it needs to be on the table,” said Spender.
“I think it was a mistake to exclude GST from the Henry Tax Review because it left one of the biggest levers completely off the table,” said Spender.
Spender noted that Australia currently has the third lowest consumption rate in the OECD and that other countries have already broadened their consumption taxes.
“It would need to be part of a well-designed package that reduces income taxes and increases welfare payments for those who are most vulnerable in the community,” she said.
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“The advantages of consumption tax are that it’s hard to avoid. It taxes consumption rather than work and it covers everybody so its not just paid by working people.”
Spender acknowledged that with inflation still too high, this would first need to be addressed before a GST package could be contemplated.
“The vulnerable also spend more of their income and so a compensation package would have to be significant,” she added.
She also noted that any reforms to GST would need to engage both the state and federal governments and consider the distribution of GST.
“The distribution of GST and how workable it is for the states in terms of predicting state finances and incentivizing the right sort of state innovation is also important to consider for GST,” she said.
Spender said while there may be political fallout in this area, GST could potentially be used in a way that addresses some of the challenges in tax system for the states such as with payroll tax and land tax.
With the Productivity Commission due to undertake a review of GST and equalization in 2026, this may provide an opportunity to review GST more broadly, she said.
Spender previously outlined the need for a review into GST as part of her recently released Tax Green Paper which called for sweeping tax reforms to address big issues including Australia’s economic prosperity.
“It is one area where a significant change would be of the scale that could deliver a substantial reduction in income taxes. However, again there are significant political difficulties of doing so,” she said.
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