GST around the world is generally held to be a less than perfect model for raising taxes due to the complexities of exemptions, multiple rates, the politics involved and last but by no means least the onerous task of administration. Whilst reading an article recently about Dr Kathryn James’ new book, The Rise of the Value Added Tax this fact was aptly highlighted.
As our second biggest tax after personal income tax, our GST raises substantial revenue for funding government. When it was first enacted, GST was intended to provide an opportunity for growth of that revenue base through Australia’s growing economy but as providence would have it, our economy has plateaued resulting in the stagnation of revenue. Patterns of spending by Australians also indicate that we have increased our spending on goods and services that are exempt from GST, whilst those that can afford it are saving more. Both these factors erode the collection of taxes from GST.
So what options are available for the increase of revenue generated by GST? Some of the most obvious recommendations have been to:-
- Levy GST on all online purchases of goods below $1000.00, digital downloads, car share rides and AirBnB services. With the agreement of the ATO, federal government and the states it has been deemed to level the playing field and make for a fairer more resilient system.
- The removal of exemptions from healthcare and education. This could ultimately push more people into the public system but its potential for broadening the base will not be lost on politicians.
- Food exemptions, meant to assist low income earners. The wealthy consume and purchase many if not all of these exempt foods in quantity so the overall system is flawed and creates complexities that are difficult to unravel.
- Sin taxes. Substantially higher taxes on tobacco, alcohol and luxury goods?
- The elephant in the room would be the subject of raising GST to conform to the higher amounts levied in other countries.
Should we raise the GST rate?
