CPA Australia has released modelling of the efficiency gains from an increase in GST rates and/or broadening of the base as part of the organisation’s contribution to the Tax Forum due in October.
KPMG Econtech was commissioned to undertake an objective economic study of the economic impacts of increasing the GST to fund a reduction in a number of more inefficient taxes. The four alternative scenarios examined in the Report (attached) were:
- 12.5% GST replacing less efficient taxes – increase GST rate to 12.5% to fund the abolition of selected relatively inefficient taxes.
- 15% GST replacing less efficient taxes – increase GST rate to 15% to fund the abolition of selected relatively inefficient taxes.
- 20% GST replacing less efficient taxes – increase GST rate to 20% to fund the
abolition of selected relatively inefficient taxes. - Uniform GST replacing less efficient taxes – extend the 10% GST to all goods and services (except those that are currently input-taxed) to fund the abolition of selected relatively inefficient taxes.
The report is timely given that Federal Treasury’s Rob Heferen has observed that the GST base has become less robust as household consumption now includes more undertaxed items of consumption such as private health insurance, private schooling and existing housing than was the case pre-GFC when the GST base was underpinned by the profligate use of credit card debt for household durables.
It is disappointing, however, that the opportunity was not taken to examine the one suggestion that was raised in AFTSR – being the full taxation of household consumption of financial services. The input taxation of financial services was said (in AFTSR) to over tax business by $760m and under tax households by $3.9bn. Given that many of the compliance and administrative complexities surround the input taxation of both FS and residential property, it might be thought that work would be welcomed on how to broaden the GST base to fully tax household consumption of these items.