Health, school fees eyed for GST

SCHOOL fees and health ­insurance would be subject to a 10 per cent consumption tax under a new call for reform that counters growing pressure within the federal Coalition to extend the GST to fresh food.

Reshaping the battlelines on tax reform, a key progressive group has backed the idea of widening the GST to some health and education services in a departure from longstanding objections to any change to the consumption tax.

The change would raise $2.3 billion a year at a time when state and federal budgets are under pressure, but it would ­require a Senate deal to modify the exemptions for private health insurance and private school fees included in the original GST agreement.

The Australia Institute proposal, to be released today, rejects changes to the GST that would hurt the poor but backs the idea of widening the base of the consumption tax in areas where it thinks wealthier Australians can afford to pay more.

While political debate has ­focused this week on extending the tax to fresh food, the new proposal shows there are other ways to broaden the base of a tax that is regarded by economists as one of the nation’s most efficient.
 

The institute’s proposal, to be submitted to the federal government’s tax review, draws on work by the National Centre for Social and Economic Modelling to estimate that only 9 per cent of the revenue from the GST change would come from the poorest 20 per cent of households.

Most of the revenue would come from wealthier households. Those in the top quintile by ­income would pay 34.4 per cent of the tax increase, while those in the next quintile would pay 24.9 per cent and those in the middle quintile would pay 19.4 per cent.

Labor and the Greens have lashed out at a call from federal Liberal MP Dan Tehan this week to broaden the base of the GST, with the dispute focused on whether to cover fresh food — which was exempted in the Senate negotiations to legislate the original tax.

Australia Institute executive director Richard Denniss said that extending the tax to fresh food would put an unfair burden on low-income households but that other options should be on the table.

“We think this government and the previous government have had a revenue problem, not a spending problem, and we think there is a range of equitable ways to collect more revenue in ways that do not include increasing the GST,” he said.

“But if we are going to have a debate about the GST, we should consider the broadest range of ­options.

“By expanding the GST to ­private health insurance and private school fees, you get the efficiency benefits of broadening the base without the inequity of hurting people on low incomes.”

Dr Denniss said the primary targets for tax reform should be the tax exemptions offered on capital gains and superannuation investments, where the commonwealth is sacrificing billions of dollars in tax revenue at a time of deep deficits.

The Grattan Institute estimates that extending the GST to basic food would raise about $6bn a year, applying it to health would raise $4.8bn and that broadening it to education would raise $2.8bn.

The Australia Institute estimates that extending the tax only to private school fees would raise $790 million a year and that ­applying it to private health ­insurance would raise $1.53bn.


Source: The Australian , Australia, dated 08/01/2015