Lower income tax cuts trade-off to lift GST

LOWER income tax could be the trade-off for raising the GST, which remains one of the lowest consumption taxes in the world.

Figures reveal 124 countries out of 200 have GST rates higher than Australia’s 10 per cent levy, including the UK at 20 per cent, Germany 19 per cent, China 17 per cent and New Zealand 15 per cent, with Hungary the highest rate at 27 per cent.

Only four OECD nations — Canada, Japan, the US and Switzerland — have lower consumption tax rates than Australia, but some have additional local sales taxes.

Most OECD nations have increased the consumption tax rate at least once in the past decade.

Australia’s GST has stayed the same since it was launched by the Howard government in 2000.

There is now momentum for change, with fresh calls for all sides of politics to consider raising the rate and/or broadening it to include more goods and services.

A Certified Practicing Accountants Australia (CPA) report last week highlighted the broad economic benefits of raising the GST to 15 per cent while cutting dozens of other taxes, including income tax, vehicle stamp duty, insurance taxes and convincing duty.

The report by KPMG estimated that increasing the GST to 15 per cent and applying it to all goods and services would raise $42.9 billion in the first year. Raising the GST to 15 per cent and cutting other taxes, households would be $750 a year better off, the report claimed.

Raising the GST to 15 per cent but maintaining exemptions on foods, education and health services would raise $26 billion and leave households $100 better off per year.

CPA chief Alex Malley urged political leaders to be strong enough to tackle the GST.