Australians may soon be asked to pay more at the shops, with a renewed call to lift the Goods and Services Tax to pay down the national debt.
Independent think tank the Grattan Institute has renewed calls to lift the GST by 5 per cent and expand it across more items.
Currently, a flat 10 per cent rate is applied across goods and services in the Australian economy, although basic needs such as food, education, healthcare, and some childcare services are GST free.
Under the Grattan Institute’s plan, the GST rate would rise to 15 per cent, and the tax would be applied to all food items.
This would raise an estimated $76bn a year in additional tax revenue, the Institute said.
Of these funds, it said $58bn should be spent on cutting income taxes for low- and middle-income earners and boosting welfare payments for the poor.
Grattan Institute chief executive Aruna Sathanapally said there was no easy path back to budget sustainability.
“Outside of the Covid pandemic, the last time Australian governments owed this much, the country was still paying off debt from a world war,” she said.
“But with smarter spending decisions and a tax system that raises sufficient revenue to care for our ageing population, both current and future generations can be better off.”
The Institute’s call comes as Australian government debt sits at nearly $1 trillion at the same time as there is rising pressures on the budget.
Over the next finical year, it is estimated the GST will raise $103.2bn for state and territory governments.
The Institute warns without reform, taxes on wages and salaries will be left to do the heavy lifting for the federal budget, and state governments will increasingly be reliant on tied grants from the federal government to make ends meet.
Servicing debt would crowd out other spending, leaving budgets ill-prepared for the next recession or global crisis, the Institute said.
Who would be better and worse off under the plan
Low- and middle-income earners would be better off under the plan, while high-income earners would be asked to pay more.
According to the Institute’s modelling, a low-income single-parent family who rents would pay about $79 in extra GST each week but get $202 in higher welfare payments and a $27 income-tax cut.
Overall, this person would be about $150 a week better off.
On the other hand, a high-income working family would pay about $262 a week in extra GST and get a $100 income tax cut, leaving them paying $162 a week more in tax.
Australians on benefits would be the big winners, with the changes to the GST allowing Jobseeker and Youth Allowance to be increased by 20 per cent, Rent Assistance by 50 per cent, the Parenting Payment by 20 per cent, and the Age Pension by about 8 per cent.
The state governments and homeowners looking to sell are also major winners under the proposal.
Grattan Institute argues the additional near $20bn in tax revenue should go to the states to shore up their budgets and cut unnecessary taxes such as stamp duty.
“Reform on this game-changing scale is challenging, but the prize is worth it: a more secure future for Australia’s finances and for all Australians,” Ms Sathanapally said.
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Politicians rule out changes
Both sides of politics were quick to use their morning interviews with breakfast television to rule out any GST changes.
Social Services Minister Tanya Plibersek told Seven News there’s no point lifting the GST to 15 per cent just to give money back through lowering taxes
“Well no, we’re not considering putting up the cost of everything and our tax cuts for the ordinary person will save about $2500 across five tax cut cuts,” she said.
“We’re focused on bringing down taxes but we don’t want to push up the price of everything through increasing the GST.”
Opposition treasury spokesman Tim Wilson used his time on ABC News Breakfast to rubbish claims the government should move on the GST.
“Australians are struggling to keep their heads above financial water, the way is not to push them under,” he said.
“We have our tax-back guarantee, it makes sure that income tax thresholds move to make sure that inflation can’t continue to increase income tax without passing new laws.
“It’s very clear to us that Australian households are doing it tough right now, and having bold tax reform as we’re putting forward is an important part of helping Australians and backing them to get ahead.”