The Opposition has been targeting the Turnbull Government over potential increases to the GST, but new research from the Grattan Institute shows that a 5 per cent hike would still raise $11 billion after increased payments and tax tradeoffs for poorer households.
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From GST tea party to more palatable tax rates, India’s Prime Minister Narendra Modi is clearly keen to pass his most important Goods and Services Tax bill in the winter parliamentary session that ends December 23. Extending the GST to cover numerous categories that are now exempt – including fresh food, health and education – could raise $17 billion per year.
BUT the Grattan Institute hopes it has the gumption to do one as part of its tax system reform plans. “I would be very surprised they would be fearless enough to do both”.
Grattan Institute chief executive John Daly told the ABC, “People in the bottom 20 per cent would actually be in a better position than they are today”, he said. “Doing either would be a substantial advance on where we are at the moment”.
Such higher rate should only be applicable to sin goods, it added.
Those tax cuts would also boost the work incentives for low to middle-income taxpayers, who were most responsive to changes in effective tax rates.
The Goods and services Tax, once implemented, is likely to make the cost of services charged in restaurants, telephony, train or flights tickets, beauty parlours, gyms etc. more expensive.
The 32.5 per cent tax rate would fall to 30 per cent to give a person on $79,000 a year a tax cut of more than $1200.
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“The CEA panel has also suggested highest rate of 40 per cent on sin and luxury goods but not identified which items will be treated as luxury goods, in such situation it is feared that list of such goods may be expanded by including large number of normally used items by large population which is not desirable”, it said. The final 40 per cent of additional revenue – $7 to $11 billion – would help state governments address their looming hospital funding gap while leaving a little to help reduce the commonwealth budget deficit.
