Invest
What’s wrong with GST?
Australia’s tax system was ill-equipped to support a growing economy even before the COVID-19 crisis hit, which is why Australia’s GST system is in need of a complete overhaul, a consultancy firm has said.
What’s wrong with GST?
Australia’s tax system was ill-equipped to support a growing economy even before the COVID-19 crisis hit, which is why Australia’s GST system is in need of a complete overhaul, a consultancy firm has said.
The analysis is contained in a new report from consultancy giant PwC, How GST reform can help reboot prosperity for Australia, which flagged a number of structural factors, including an over-reliance on personal and corporate taxes, as contributing to Australia’s economic woes.
It argued that a more efficient tax system will be necessary for long-term economic recovery and budget repair “once the impacts on the economy of the pandemic have eased and reform of consumption tax is a clear option for investigation”.
According to the firm’s chief economist, Jeremy Thorpe, GST is “underperforming” in Australia.
He flagged that GST collections in 2018-19 as a proportion of all Commonwealth taxation revenue were at their lowest level since the levy was first introduced in 2001.
“Australia’s GST collections have also not kept pace with the overall rate of growth in the economy, in part because people are spending a higher proportion of their income on areas that are currently exempt, including housing, healthcare and education,” he added.
He then noted that “our GST rate of 10 per cent is one of the lowest among developed economies, and even at 12.5 per cent, would still be well below the OECD average of 19.3 per cent”.
In a properly structured reform package, Mr Thorpe said, “GST expansion should lead to higher economic growth.”
A revenue-neutral switch from less efficient taxes (principally income taxes) to consumption taxes can increase GDP, while a 1 per cent tax switch can generate somewhere in the order of 0.25 per cent to 1 per cent in extra GDP in the long run, the economist explained.
Also weighing in was PwC tax partner Paul Abbey, who considered that “the reality is that meaningful tax reform, including state and territory taxes, can only be achieved by tackling either the GST rate or its exemptions”.
He argued that GST reform could help reduce Australia’s reliance on personal income tax, “which is currently more than twice the OECD average”.
Acknowledging that discussions around GST changes have been “contentious to date”, PwC argued that reform can be possible without adversely impacting the overall equity of Australian communities.
The PwC report considered a number of scenarios as to how the GST system could be overhauled:
- A broadening of the GST base to cover five currently GST-exempt main categories – water and sewerage, childcare, health, education and food;
- An increase of the rate to 12.5 per cent without broadening the base;
- A broadening of the GST base and an increase of the GST rate to 12.5 per cent; and
- A tiered system to base current exemption items at 5 per cent, and increasing the rate on the current base to 12.5 per cent.
After modelling each scenario, PwC showed how revenue gains of $14 billion could be made by increasing the rate to 12.5 per cent but retaining the five main exemptions.
A revenue improvement of $40 billion could occur where the GST rate rises to 12.5 per cent and is coupled with a broadening of the base of goods and services covered.
RELATED ARTICLES
About the author
About the author
Economy
Economist calls for July RBA rate cut following inflation data
An economist from State Street Global Advisors has called for the Reserve Bank of Australia to cut interest rates in July following today's Consumer Price Index data for June. Read more
Economy
GDP data prompts economist to predict faster RBA rate cuts
Australia's latest GDP growth data has come in significantly below expectations, prompting an economist to suggest the Reserve Bank may need to ease monetary policy more aggressively. Read more
Economy
Global markets face turbulent start amid tariff concerns, but outlook remains cautious
Global equity and bond markets have experienced a turbulent start to 2025, primarily due to concerns that a potential tariff-driven trade war could heighten inflation and recession risks. Read more
Economy
RBA may cut rates faster if GDP data disappoints, economists say
The Reserve Bank of Australia may cut interest rates more quickly if next week's GDP data disappoints, economists said following today's consumer price index data for May. Read more
Economy
RBA delivers widely expected rate cut as inflation optimism balances global uncertainty
The Reserve Bank of Australia has cut the cash rate by 25 basis points, delivering on widespread market expectations while signalling a clearer directional shift towards less restrictive monetary ...Read more
Economy
Economist warns strong jobs data may delay further RBA rate cuts
Strong employment growth in April has put expectations for multiple interest rate cuts at risk, though upcoming economic data may clarify the need for lower rates, according to State Street Global ...Read more
Economy
Australian inflation continues downward trend, nearing RBA target
The Australian Bureau of Statistics (ABS) has reported that the Consumer Price Index (CPI) rose 2.7 per cent in the year to August, down from 3.5 per cent in July and 3.8 per cent in June. Read more
Economy
UK markets poised for gains after election, global geopolitical risks remain
Chris Iggo, Chief Investment Officer at AXA Investment Managers, has provided an optimistic outlook for UK markets following the recent general election, while cautioning about ongoing global ...Read more
Economy
Economist calls for July RBA rate cut following inflation data
An economist from State Street Global Advisors has called for the Reserve Bank of Australia to cut interest rates in July following today's Consumer Price Index data for June. Read more
Economy
GDP data prompts economist to predict faster RBA rate cuts
Australia's latest GDP growth data has come in significantly below expectations, prompting an economist to suggest the Reserve Bank may need to ease monetary policy more aggressively. Read more
Economy
Global markets face turbulent start amid tariff concerns, but outlook remains cautious
Global equity and bond markets have experienced a turbulent start to 2025, primarily due to concerns that a potential tariff-driven trade war could heighten inflation and recession risks. Read more
Economy
RBA may cut rates faster if GDP data disappoints, economists say
The Reserve Bank of Australia may cut interest rates more quickly if next week's GDP data disappoints, economists said following today's consumer price index data for May. Read more
Economy
RBA delivers widely expected rate cut as inflation optimism balances global uncertainty
The Reserve Bank of Australia has cut the cash rate by 25 basis points, delivering on widespread market expectations while signalling a clearer directional shift towards less restrictive monetary ...Read more
Economy
Economist warns strong jobs data may delay further RBA rate cuts
Strong employment growth in April has put expectations for multiple interest rate cuts at risk, though upcoming economic data may clarify the need for lower rates, according to State Street Global ...Read more
Economy
Australian inflation continues downward trend, nearing RBA target
The Australian Bureau of Statistics (ABS) has reported that the Consumer Price Index (CPI) rose 2.7 per cent in the year to August, down from 3.5 per cent in July and 3.8 per cent in June. Read more
Economy
UK markets poised for gains after election, global geopolitical risks remain
Chris Iggo, Chief Investment Officer at AXA Investment Managers, has provided an optimistic outlook for UK markets following the recent general election, while cautioning about ongoing global ...Read more
