GST ‘most efficient’ way to ditch federal deficit: study

NEW research suggests the GST is the most efficient way for the government to raise revenue without implementing spending cuts.

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NEW research suggests the GST is the most efficient way for the government to raise revenue without implementing spending cuts, but would unfairly burden the poor unless strict compensation plans were in place.

The New South Wales Parliamentary Research Centre has assessed the current options to fix the federal budget deficit, from reducing the capital gains tax discount and raising the Medicare levy to changing laws for negative gearing and superannuation tax concessions.

"However... the other major reform options proposed in the debate thus far are, collectively and at least in the short term, unlikely to raise as much revenue as the GST would and may be associated with higher administrative costs than a single GST change," researcher Andrew Haylen said.

Mr Haylen acknowledged there were issues around equality.

"The major concern from such changes is that because of its regressive nature, lower income earners will be relatively worse off under proposed changes," he said.

"However, there is a body of evidence to suggest that the revenue will be sufficient enough to adequately compensate low and middle income earners; although other stakeholders have raised concerns that compensation packages may be retracted or eroded over time.

"Even guarantees against a retraction through political cycles and with possible compensation to lower income households, the GST has been described in segments as a 'political grenade' or 'the Lord Voldemort of any conversation about tax reform'."

Public opinion has not gone unnoticed in Canberra, with Prime Minister Malcolm Turnbull distancing himself from the debate without taking the reforms off the table entirely.

NSW and South Australian premiers Mike Baird and Jay Wetherill have been some of the strongest political proponents for an increase.

Mr Baird has said a 15% GST would raise about $32.5 billion a year.

Under his proposal, the Commonwealth Government would keep all of the revenue in the three years from 2017-18 to 2019-20, except for $7 billion which would be shared among the states to make up for funding cuts to hospitals and schools in the 2014 federal budget.

The states and the Commonwealth Government would renegotiate terms in 2020.

"Without an unlikely and substantial improvement in the terms of trade and other external growth factors, realistically the government is unlikely to address the substantial structural budget deficit from the revenue end, should the GST be formally removed from the tax reform agenda," Mr Haylen said.

"As such, spending measures are most likely going to present the only other option available to government." -APN NEWSDESK