Nobody likes a tax increase. Just the mention of a tax increase is likely to illicit a negative response from just about everybody, but not absolutely everybody. Politicians don’t seem to mind an increase when it gives them more funds to play with and though taxes always seem to go up, they actually don’t. Sometimes an increase in one tax can mean replacing another, leading to some tax and economic experts wanting to see it happen. Currently there are some advocating that Australia’s 10% GST should be increased. Is there a case for increasing the GST?
When GST was introduced in Australia on 1 July 2000 it replaced a number of taxes. Before that date we used to pay many different state duties, levies and taxes on consumption. Income tax rates also changed at that date in order to give earners more money in their pockets. Whether they saved that extra money or spent and paid more tax in the form of GST was up to each person. Since 2001 the Federal Government’s GST revenue has more than doubled from $23b to $51b in 2014.
Now there are suggestions that the GST should be increased, perhaps as high as 15%, and widened to include currently exempt goods & services, such as fresh food, health and education. The revenue increase could then be used to remove inefficient taxes such as stamp duties on insurance, motor vehicle registrations, conveyancing duties and even payroll tax.
There is a benefit in having one tax replace all of those, as each different tax needs to be accounted for, collected and regulated. Besides in the direct costs included in those items, these add costs to businesses and individuals (as they have to employ and engage accountants) and government (state or federal, who also must employ people to manage these taxes and revenues).
CPA Australia has recently studied and discussed the consequence of increasing the GST, and they estimate that Australia’s GDP would be increased by $27.5b in 15 years, even with the removal of other taxes1.
Part of the agreement the Federal Government had with the States when implementing the GST was that all GST revenue would be returned to the states. However, unlike the taxes that it replaced, the GST is not returned to the States in the amounts earned from each State. Now, some, if not all, State Premiers and Treasurers would also be keen to see an increase in GST, if they gave an honest answer. It’s a system that has seen more and more ire generated every year in Western Australia particularly, where the amount of GST being returned to us here in the West is going to fall below 30%2.
In the past the WA government has taken the fight to the Federal Government by increasing mining royalties charged to the big miners, who would then claim a tax deduction resulting in less income tax revenue for the Federal Government. This is what they, along with NSW & QLD, did when they fought against the introduction of the Mining Resources Rent Tax3. The end of the mining boom probably eliminates that option.
Other states aren’t happy with the current situation either. The Premier of South Australia has even begun talking about bringing back taxes that were eliminated when the GST was implemented2, but says he doesn’t want to see an increase in the GST because it is a regressive tax, meaning that people with lower incomes will end up paying a greater proportion than those with larger incomes, who could afford it more.
It seems to me that the Federal and State Governments would all like to increase the GST. Obviously there would be a need to offset that increase by eliminating other taxes and reducing personal income taxes. It just seems that no-one wants to be the first to say it out loud because of course it’s going to be unpopular, just as the initial implementation was back in the late 1990s.
In the end, it’s the politics of the situation that determines the outcome: the Federal Government is trying to make it as uncomfortable as they can for the States to force them to ask for an increase, while the States get cranky and try to think of other ways to get revenue.
If Australia increased the GST it wouldn’t be the first country to do such a thing. Even New Zealand has done it twice since they implemented a GST in 1986. To me it seems like it’s a fairly obvious idea. What is less obvious is whether our elected politicians, the media, the taxpaying public and electorate are capable of having a sophisticated discussion about it.
DANIEL CAUSERANO -ACCOUNTANT
OPTIMA PARTNERS
1 http://www.cpaaustralia.com.au/professional-resources/taxation/tax-reform-in-australia/gst-reform-its-time-for-a-rational-debate
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