Government mulls GST increase to 15% and cutting company tax

The federal government may increase the goods and services tax to 15% after a report by the Parliamentary Budget Office found the government could improve the budget bottom line by billions of dollars if it went down this path.

A 5% tax hike could raise $130 billion in the 2017-18 financial year, according to the Parliamentary Budget Office.

An increase to the GST would not only improve the budget’s bottom line but also allow for the government to compensate households and small businesses through potential tax cuts.

Nationals MP David Gillespie told the Parliamentary Budget Office to analyse how much revenue the government would raise if the GST was lifted by 5%.

Gillespie told ABC radio this morning tax issues should be “front and centre” when politicians communicate with their electorates.

“I’m not advocating just a tax grab,” Gillespie said.

“We’ve got to put our income taxes down, our small business taxes down, we have to fund roads and infrastructure in the regions more. And in my part of the world, I have an awful lot of pensioners and people on low fixed incomes and there will be a CPI increase with this, so we need to compensate them.”

Australia’s GST rate of 10% is below that of other OECD countries.

New Zealand’s GST rate is 15%, for example, while the average consumption tax among OECD countries sits at around 19%.

Chief executive of CPA Australia, Alex Malley, told SmartCompany he welcomes the “pragmatic policy analysis” coming from government.

“Everybody knows we need to look at the GST,” Malley says.

“Our economy relies far too much on income taxes and introducing more consumption into the overall mix will deliver a better, more resilient balance.

“The issue has never been a lack of understanding of what we need to do, it’s just that politics has always made it impossible to discuss.”

Malley says CPA Australia has done modelling into how much revenue the government could raise if it raised the GST to 15%.

“We showed how that additional GST revenue can be used to abolish a number of inefficient state taxes and also provide for personal income tax cuts and compensation for low income households, while also boosting economic growth,” Malley says.

“It is the packaging of changes to the GST with the removal of other taxes that is critical, and is so often missing when it comes to the GST debate.”

However, Treasurer Scott Morrison attempted to hose down reports of a potential GST hike over the weekend.

Morrison says the government is just in the “discovery phase” for its tax reform agenda and all contributions are welcome, according to SBS.

“If you are going to change the tax system then you need to go and engage I think in some pretty significant change because that is the only way you can get the outcomes that people would want,” Morrison said.