Australian Treasurer Says No to GST Increase

Treasurer Jim Chalmers at a press conference at Parliament House in Canberra, Australia, on July 20, 2022. AAP Image/Mick Tsikas

Australian Treasurer Jim Chalmers has turned down the idea of hiking GST (goods and services tax) across the country, despite recommendations from the International Monetary Fund (IMF) to do so.

Chalmers, who is visiting the United States to meet with global financial leaders, said making changes to the GST was not a priority for the federal Labor government.

In its most recent annual review of Australia, the IMF recommended the GST’s coverage be expanded to include currently exempt items such as healthcare products.

The health portfolio, it estimated, would likely erode the current revenue generated by GST in the country.

Australians pay a 10 percent GST on most goods and services in the country, the measure was introduced in the 1990s under the Howard government as a means to expand the tax base while removing less efficient taxes in other areas.

In response to the IMF’s proposal, Chalmers acknowledged that the budget was under pressure, but said the government was pursuing “modest but meaningful” changes to superannuation tax breaks and a crackdown on multinational taxes.

On Feb. 28, the federal government announced that from the 2025-2026 financial year, it would cut back on tax breaks for individual pension accounts (superannuation) holding more than $3 million (US$2.04 million).

The current tax rate of 15 percent on funds placed into superannuation accounts will be increased to 30 percent, in a move to generate an additional $2 billion in tax revenue per year.

Around 80,000 people, or 0.5 percent of Australians with super accounts, will be affected by the new policy.

Further, in October 2022, the Labor government outlined the strategies to crack down on global corporations engaging in tax avoidance, which it said would raise another $1 billion in revenue.

Addressing the press in Washington D.C., the treasurer said a GST reform was unlikely to improve the budget bottom line as revenue from the tax would be distributed to states and territories.

“From my point of view, there are distributional issues with the GST in particular. Every cent goes to the state and territory governments, so it wouldn’t be an opportunity necessarily, at least not directly, to repair the Commonwealth budget,” he said, as reported by the Australian Financial Review.

“We take seriously the input suggestions from the IMF and all the global institutions. But it’s our job to make our own priorities clear.”

Grattan Institute Calls for GST to be Increased

Chalmers’ remarks come after the Grattan Institute released a new report saying Australia was on track for over 25 years of budget deficits.

The report also offered a number of suggestions for cutting spending and raising additional revenue.

Australian dollars in Sydney, on Jan. 15, 2016. AAP Image/Joel Carrett

The institute recommended the GST rate be increased from 10 to 15 percent and for half of that amount not to be distributed to the states, a move it says will raise more revenue because GST was “a hard tax to avoid.”

In addition, the think tank proposed an increase in welfare payments for low-income people to reduce the impact of a GST hike amid rising inflation.

While the report noted the federal government would “bear the political and compensation costs without the revenue benefit,” it argued that state governments would not need so much support from the Commonwealth if they had more GST revenue.

Political Expert Says GST Reform Is Difficult

While an expansion to the GST could help buffer the federal treasury’s coffers, Graham Young, executive director of the Australian Institute for Progress, said there were several major hurdles to such a reform.

One crucial challenge is GST reform will need approval from all jurisdictions, which is unlikely given the near-yearly disputes over how the tax revenue is distributed.

Another hurdle lies in the Australian Senate as major political parties may not agree to such a contentious change.

“Meg Lees, as Australian Democrats’ leader, did the deal with John Howard that introduced the tax, which obliterated her party’s electoral support in the process,” Young wrote in an opinion piece for The Epoch Times.

“If Dutton opposed this measure, as he probably would, are the Greens, Teals, et al. going to want to ‘do a Lees’ and wave it through the Senate?”