Australia needs to look to New Zealand’s tax system and raise the GST

AUSTRALIA needs to follow New Zealand’s example by reducing reliance on income tax and instead raising more money via the GST, a leading economist says.

KOCH COLUMN - COST OF LIVING .. Customers standing at a checkout counter in a supermarket Picture: Thinkstock

AUSTRALIA needs to follow New Zealand’s example by reducing reliance on income tax and instead raising more money via the GST, a leading economist says.

Lifting the rate of the Goods and Services Tax — from a very low level by international standards — would bring in enough cash to stop the average worker from creeping into the second-highest tax bracket, said HSBC Australia and New Zealand chief economist Paul Bloxham.

Raise GST ... Paul Bloxham, chief economist Australia and New Zealand with HSBC Bank Australia Limited, says Australia needs to look to raising the GST instead of relying on income and corporate tax. Picture: News Corp Australia

“We can learn a lot from the Kiwis,” Mr Bloxham, a former Reserve Bank economist, said. “They have done exactly what we need to strive to achieve. We need to shift the tax base away from being focused on household and corporate income toward more efficient taxes like the GST.”

Over-reliance on income taxes discouraged workforce participation, Mr Bloxham said.

The income levels at which our higher personal tax rates kicked in were too low.

The top rate in New Zealand is 33 per cent, payable on earnings above $NZ70,000 ($69,300). Earn over $37,000 here and you will pay 32.5 per cent, up to $80,000, 37 per cent between $80,000 and $180,000, then 45 per cent above that.

Pushing up the income level at which the 37 per cent rate applied needed to be the top priority, Mr Bloxham said, because average pay was about to hit $80,000.

The base of Australia’s GST also needed to be broader, he said. At the moment it covers less than half of all consumption. New Zealand’s applies to 96 per cent of spending.

The Kiwi way ... Australia can learn a lot from the New Zealand tax system, experts say. Picture: Supplied

Mr Bloxham’s comments echo the advice of the OECD — Organisation for Economic Co-operation and Development — which in December said Australia “under-utilised” indirect taxes. The rate of the GST was too low, the OECD said.

And too much spending was exempt. This was a “very poor tool for targeting support to low-income households”.

A tax discussion paper published by the Federal Government last month said the richest 20 per cent of households got GST exemptions 3.5 times greater than those received by the poorest 20 per cent.

Labor and the Greens support exemptions.

According to the OECD, the best models for Australia to follow were “New Zealand and Israel (which) have wide bases and rates of 15 per cent and 18 per cent respectively”.

Many countries’ consumption taxes were set at over 20 per cent, the OECD said.