- A draft report of the NSW Review of Federal Financial Relations was released yesterday
- The review proposes raising the base — or rate — of the GST and scrapping stamp duty for a broad-based land tax
- Historically, the Morrison Government has been quick to quell the idea of raising the GST
- However, given the billions of dollars spent on COVID-19 related economic stimuli, the NSW review suggests tax reform is now more important than ever
- Former longstanding treasurer, Peter Costello, told ABC Radio National that raising the GST for its own sake would simply not be worth it
- The Federal Government has not released a statement in response to the NSW draft review
On the 20th anniversary of the Goods and Services Tax, the NSW Government has released a draft report of its Review of Federal Financial Relations, in which it suggests it’s time the tax got a little bump.
The report was commissioned by New South Wales Treasurer Dominic Perrottet in 2019, with suggestions of tax reforms and GST increases already bubbling. Of course, since then, the world has been hit with the COVID-19 crisis. Combine this with the devastating Black Summer bushfires, and the need for tax reform is more important than ever, according to yesterday’s review.
“With economic recovery now a priority, the question facing the Review is how state governments can provide taxpayers with reliable, quality government services, while keeping the taxes they pay as low as possible,” the report said.
“To do this, we need to identify practical ways to maximise the value we get per dollar of tax raised. We need to make taxes as simple as possible, and limit the impact they have upon citizens’ lives, such as the decision about when to move house and whether to insure.”
The question, then, becomes: will the Morrison Government bite?
In October 2019, Prime Minister Scott Morrison came down hard on the idea of raising the GST, stating: “We’re not doing it.” The PM’s curt answer was a response to Liberal senator Dean Smith, suggesting a broadening of the base — or rate — of the GST.
Now that the government has forked out over $200 billion to curb the impact of the coronavirus, however, it seems the NSW Government is hoping the new review will generate some support among other states to raise taxes to offset the COVID-19 related costs.
What exactly is being proposed?
As it stands, the GST is a flat 10 per cent tax on most goods, services and items in Australia. A key area of concern outlined in the NSW review is that the GST has not been the “growth tax” that was intended when it was introduced by the Howard Government 20 years ago.
While the tax brought in $66.4 billion to Australian states in between in 2018-2019, changes in spending habits across the country mean it is not as effective as it was in the mid-2000s. As services exempt to GST — like health and education — increase in costs, the share of household spending subject to GST has fallen from 60.8 per cent in 2001-2002 to 55.4 per cent in 2018-2019.
The NSW review suggests that raising the base or rate of the GST could address the erosion of revenues, support the medium-to-long term economic and fiscal recovery after the crises faced in 2020 so far, and provide a hedge against future crises.
Interestingly, the draft review recommended a portion of the extra revenue gained from raising taxes should be transferred to lower-income households to maintain equity.
The review also suggested scrapping stamp duty — transfer fees for certain transactions, such as motor vehicle transfers, insurance policies, leases and mortgages — for a broad-based land tax.
“[Tax reform] will create better conditions for households and businesses to recover and simultaneously deliver more secure and reliable funding for the states to rebuild their balance sheets for future generations.”
NSW Review of Federal Financial Relations
Peter Costello asks why
Australia’s longest-serving treasurer, Peter Costello, told ABC’s Radio National that raising the GST for the sake of a slight reduction in Australia’s deficit would not be worth it.
“There’s no point in just increasing a rate for its own sake. The critical question is: what do you buy for that?” he said.
“If by changing the rate or introducing a new tax you could abolish five other taxes, if you could radically reduce income taxes, if you could improve the company tax system… now you’re starting to talk about a reform; something that’s worth doing,” he said
The Morrison Government has not released a statement in response to the NSW review. Given the Prime Minister’s historical stance on raising the GST, however, it’s likely any new decisions won’t be made lightly.