If we want a better Australia, we need to raise the GST – and cut income taxes
If we make better use of the GST, and offset it with tax cuts, we’ll have a fairer tax system that can adapt to an ageing population.
The Goods and Services Tax (GST) introduced in 2000 was more than just tax reform; it was a renegotiation of how Australia's federation functions. Initially, the federal government agreed to pass all GST revenue to the states, while the states agreed to abolish narrow and less efficient taxes, providing a better tax base for essential services.
However, a quarter of a century later, the GST has fallen short of its intended goals. State budgets are in poor shape, with debt more than doubling between 2019 and 2025, and federal grants for services like health and education now covering over 40% of total state revenues. The GST, which currently raises only about 11% of total tax revenue, is not as reliable a source of revenue as hoped.
Increasing the GST rate and expanding its application could generate significant additional revenue. By raising the GST rate from 10% to 15% and applying it to all food, Australia could raise approximately A$76 billion annually. This extra revenue would be used to fund tax cuts for the poorest households and improvements to the welfare system.
The remaining GST revenue should be returned to states to help pay down debt and transition away from inefficient taxes. This reform could also provide a pathway for the federal government to revise the state-guaranteed GST revenue arrangement, currently costing the federal budget about $6 billion per year.
Written by urgent.news from The Conversation AU's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
