Deloitte suggests increasing GST to stop living standards from dropping as Australia tipped to recover from anaemic growth
Fresh forecasts have revealed the one tax reform Australia desperately needs, as the country continues to recover from its anaemic growth.
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Major reforms to the tax system are needed to stop living standards from falling, one leading economic firm has argued, amid forecasts Australia is tipped to recover from its anaemic growth over the past 12 months.
While Australia’s economic growth will pick up from 1.3 to 2.1 per cent, fresh forecasts from Deloitte Access Economics suggest increasing and broadening the GST in a bid to compensate lower income household and flatten personal income taxes.
The current GST system is complex, with a number of exemptions already in place for things like basic foods, education courses, some medical health and care products and precious metals, among others.
Deloitte Access Economics partner and co-author Cathryn Lee said these changes would importantly help the federal budget while growing the economy.
“That is, modelling demonstrates that tax reform can be positive for the economy, positive for the budget, and positive for Australian people,” she said.
“That is why the Treasurer’s promise to approach reform ideas from a ‘practical, pragmatic and problem‑solving middle ground’ has the potential to be so significant.”
Ms Lee said it has been encouraging that the government has used various speeches so far to discuss the importance of boosting productivity and changing tax reforms.
CPA Australia chief of policy Elinor Kasapidis agrees as she previously told NewsWire Australia needs to modernise its tax system through lifting the rate on consumption.
Otherwise, the country would a severe problem down the track.
“We have a lot of GST-free goods and exemptions which makes things tricky and complicated and then you need to look at raising the rate,” she said.
“Of course you also have to look at who would be impacted, such as lower income households and pensioners, to make sure they are compensated during the transition.”
Deloitte Access Economics partner and report co-author Stephen Smith said Australia’s last major tax reform was over a quarter of a century ago.
“Since then, the Australian economy has lost its dynamism and competitive edge,” Mr Smith said.
“Major sectors in the economy – such as banking, insurance, supermarkets, airlines, and communication services – are dominated by a very small number of very large firms, supported by an economic system that keeps barriers to entry high.”
Mr Smith argues the results of this have seen slow productivity growth and real wages falling.
“In this context, it is no surprise that the proverbial pet shop galah is talking about the need for reform,” he said.
Despite the pessimistic backdrop, Deloitte says the government’s recent drubbing at the election, where the Labor Party won a record equalling 94 of the 150 House of Representatives seats, is paving way for significant reform.
“The Treasurer’s speech at the National Press Club made clear that ‘consensus support’ for a policy change will be required,” Ms Lee said.
“Given almost every meaningful reform would inevitably create both winners and losers, achieving a consensus may prove an impossibly high bar.
“That would be a deep disappointment after the government has stoked anticipation for change.”
Despite calling for tax reforms, Deloitte forecasts the economy will pick up, albeit from a relatively low base.
GDP is tipped to come in at 1.3 per cent this financial year, before jumping to 2.1 per cent over the next 12-months.
“An important combination of lower inflation, declining interest rates, rising real wages, solid government spending growth and a robust labour market is expected to provide the basis for a gradual improvement in domestic economic fortunes in the near term,” Ms Lee said.
Originally published as Deloitte suggests increasing GST to stop living standards from dropping as Australia tipped to recover from anaemic growth
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