A 'political no-go zone'? ACT Greens, Libs baulk at GST hike proposal

Australia needs to brave a "political no-go zone" and increase the tax paid on the sale of goods and services to fund income tax cuts and more support for states and territories to deliver essential services, a major think tank says.

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ACT Treasurer Chris Steel, right, and the Canberra Liberals' Ed Cocks and Greens leader Jo Clay. Pictures by James Croucher, Gary Ramage, Keegan Carroll, Karleen Minney

But the Grattan Institute's proposed overhaul of the country's tax system was met with a response that varied from lukewarm to hostile in the ACT on Monday, with Treasurer Chris Steel welcoming the new report and the Liberals and Greens opposing increases to the GST.

The Grattan Institute said the GST should be broadened and raised from 10 to 15 per cent, with the extra revenue funding cuts to personal income taxes for low- and middle-income earners, higher welfare payments and more support for state and territory budgets.

The Commonwealth should also reverse a 2018 decision to change the way the GST revenue is distributed that disproportionately benefits Western Australia, the institute said.

Mr Steel said any changes needed to boost public confidence in the tax system and not add to cost pressure on households.

"We also need to recognise the pressures many households are currently facing. After a period of high global inflation, many Canberrans and Australians have seen their real wages go backwards. Any changes to the revenue mix in the short term would need to carefully consider the impact on household budgets and cost-of-living pressures," Mr Steel said.

"Over the medium to long term, our focus should be on ensuring real wages grow and living standards improve."

The Grattan Institute's proposed tax changes would leave low-income earners better off, with income tax cuts and higher welfare payments offsetting GST increases. Higher-income earners would pay more.

The institute's report said states and territories should commit to tighter targets to reduce debt and constrain spending while the federal government should raise the GST to 15 per cent to raise an extra $76 billion a year.

"Of these funds, $58 billion should be spent on income tax cuts, and a boost to welfare payments for low-income households. The remainder should go to the states, enabling them to shore up their budgets and better fund their own much-needed economic reforms," the institute said.

ACT shadow treasurer Ed Cocks said tax reform was important but could not be an excuse for ACT Labor's tax maximisation agenda.

Mr Cocks said tax revenue was growing at the territory and federal level, meaning there was no shortage of taxes being collected, but the ACT's budget was built on cuts to the public service, schools and services.

The ACT's tax revenue would grow more than 44 per cent between 2024-25 and 2029-30 and the federal government's tax take was at a 20-year high as a share of the economy already, he said.

"During a cost of living crisis driven by inflation, introducing more taxes on the things people need every day, like fresh food, would just drive prices even higher. The purpose of tax reform should be to take the pressure off everyone in our community, especially the people and small businesses who are already struggling to get by," Mr Cocks said.

ACT Greens leader Jo Clay said her party strongly opposed increasing regressive taxes, like the GST, and changes to the system should focus on increasing taxes charged on wealth, windfall profits and polluters.

"We agree the Commonwealth shifts too much cost onto states and territories, and that GST distribution needs reform. But a bigger, flatter tax on everyday essentials isn't the way to fix it," Ms Clay said.

Ms Clay said collecting more taxes would not fix the ACT's budget alone and the government needed to prioritise investments that improved Canberrans' cost of living and the territory's bottom line.

"Public investment in housing, clean, renewable energy, and prevention pays dividends for decades."

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