LIFTING the goods and services tax to 15 per cent would boost Australian state budgets by an extraordinary $25 billion per year – almost $6 billion of which would be kept by the Baillieu government in Victoria, but experts warn it would soon evaporate.
Razor-gang budgets have reignited the debate on the rate of the GST, which was originally set at 15 per cent when first mooted in opposition by then Liberal leader John Hewson before the 1993 election. That is also the rate to which New Zealand has now lifted its GST after two decades at 12.5 per cent. It is dwarfed by GST rates of 20 per cent or more in most of Europe.
At 10 per cent, Australia’s GST earns the states $50 billion per year, double the $24 billion it earned when introduced in July 2000.
But as a proportion of gross domestic product it has been slipping for years, something Treasury budget papers blame on increased household saving, and also a ”steady decline in expenditure on items attracting GST as a share of total consumption”.
”We knew this was going to happen,” says Greg Smith, a former head of Treasury’s revenue group and a member of the Henry Tax Review.
”It was clear people were moving their spending from goods to services … but it was also clear they were moving spending to services outside the scope of the GST such as health and education.”
Treasury calculations show the prices of health, education and rent – all excluded from the GST – have been increasing far faster than the prices of items covered by the GST, meaning a growing proportion of spending is GST-exempt.
It is why NSW Premier Barry O’Farrell has called for a debate about lifting the GST, receiving backing from South Australia’s Treasurer Jack Snelling.
But experts warn that lifting the rate to 12.5 or 15 per cent would only buy time, perhaps even accelerating the shift in spending away from items covered by the GST.
”The greater the GST rate the greater the incentive for fraud and for moving spending elsewhere,” says Neil Warren, professor of taxation at the University of UNSW. ”To stop it you would need to tighten up on GST-free imports and consider extending the GST to food, education and health.”
The Age calculations show extending the GST to presently exempt fresh food would raise an extra $6 billion per year (some of which would need to be spent compensating low-income earners), extending it to education would raise a further $3 billion, and health another $3 billion.
But Professor Smith says the health and education savings are illusory.
”The states themselves are the biggest providers of health and education. Taxing their services in order to help fund their services would mean money in one door and out the other. It isn’t a net revenue gain.”
And much of the extra income would be earmarked as soon as it came in.
”The Commonwealth would want the states to cut insurance taxes and stamp duties,” said Professor Warren.
”Those two alone would eat up the extra income.”
This story Administrator ready to work first appeared on Nanjing Night Net.