GST hike would pay for health and education, economists argue

RAISING the GST and applying it to fresh food, health and education would more than offset budget cuts to schools and hospitals.

Fancy your oranges costing 13 per cent more ... Ashleigh Dang, 22, shops in the Fruitezy store in Chatswood, Sydney.

RAISING the GST to 12.5 per cent and applying it to fresh food, health and education would raise $25 billion a year.

This would more than compensate state governments for federal budget cuts to hospitals and schools funding while also funding tax cuts for low and middle income families.

According to Deloitte Access Economics modelling, lifting the GST rate from 10 per cent to 12.5 per cent would raise $13 billion a year.

Broadening the GST to apply to fresh food would raise another $6.5 billion. Applying the tax on health and education would raise another $3 billion each.

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A director at DAE, Chris Richardson, said state premiers would be wise to lead a national debate about lifting the GST to fund critical services.

“It’s a sensible idea and right now this particularly elephant in the room needs talking about,” Mr Richardson said.

“The feds, by starving the beast, are hoping that the premiers will demand action that the feds quietly would be happy to have. The catch 22 at the moment is you're standing between the premiers and a huge bucket of money and their successful strategy of the past has been to simply whinge until they get what they want.”

State governments will lose $80 billion in schools and hospitals funding over ten years thanks to an Abbott government decision in Tuesday’s budget not to proceed with the Rudd government’s more generous health and education funding policies.

By 2023-24, states will receive $5 billion less for schools than otherwise and $15 billion less for hospitals.

According to Mr Richardson, this could be offset to the tune of $30 billion a year by a GST at 12.5 per cent and including fresh food.

“My fear is the states won’t have the guts to push for it,” he said.

JESSICA IRVINE: Broadening GST raises more in a year than a debt levy in four

Fresh fruit and vegetables would cost more ... Leanne Field and five-month-old daughter Niamh shop at Leichardt Fresh, Leichardt, Sydney.

Reform of the GST was recommended recently by the National Commission of Audit headed by businessman Tony Shepherd. While tasked with finding spending cuts, “the Commission sees merit in re-examining the base and rate of the GST as part of broader tax reform,” it found.

Any GST increase should be offset by eliminating inefficient state taxes like stamp duty and insurance taxes: “Such reform would ... lead to a more efficient tax system and improve Australia’s overall growth prospects.”

The New Zealand government, which raised its GST to 15 per cent in 2010, yesterday handed down a budget funding free GP trips for children and a budget surplus next year.

An economist at TD Securities, Annette Beacher, said there was a lesson for Australia.

“The GST hike was initially revenue neutral due to commensurate income tax cuts, but I suspect with the surge in consumption in the past year it is adding to the budget bottom line,” she said.

Ms Beacher said the GST was an efficient tax because it was hard to avoid.

The GST was the only tax source to be revised up in Tuesday’s budget, raising an extra $4.5 billion over four years thanks to stronger household spending.

Households have been spending more on health, education and childcare services which are excluded from the GST.

OPTIONS FOR GST REFORM

OPTION 1: Increase the GST to 12.5% to raise:

$12.75 billion in 2014-15

$14.25 billion in 2015-16

$15.25 billion in 2017-18

$16.00 billion in 2017-18

Total raised over four years: $58 billion

OPTION 2: Broaden the GST to include fresh food to raise:

$6.5 billion in 2014-15

$6.8 billion in 2015-16

$7.1 billion in 2016-17

$7.4 billion in 2017-18

Total raised over four years: $28 billion

OPTION 3: Broaden the GST to include health and education

$6 billion in 2014-15

$6.4 billion in 2015-16

$6.7 billion in 2016-17

$7 billion in 2017-18

Total raised over four years: $26 billion

ALL THREE will raise:

$25 billion in 2014-15

$112 billion over four years

Originally published as GST hike would pay for health and education, economists argue