GST-free electricity bills ‘affordable’, says PBO
The proposed removal of GST from electricity bills would cost a maximum of $2bn to cash-rich states.
The proposed removal of GST from electricity bills, which would deliver an immediate cut of at least $200 to the average annual power bill, would cost the cash-rich states and territories a maximum of $2 billion, according to analysis by the Parliamentary Budget Office.
The Turnbull government has so far refused to entertain the proposal, despite the argument that, like water, electricity should be GST-exempt as an essential service. But Scott Morrison has stopped short of ruling out the idea.
The PBO costing, commissioned by Liberal Democratic senator David Leyonhjelm, suggests the balance sheets of most states and territories would easily absorb the reduction in GST payments to cover significant reductions in annual household power bills.
The PBO analysis said there would be little in terms of any ongoing cost to the commonwealth by axing the 10 per cent GST on electricity because the states would absorb the cost with a corresponding reduction in GST payments. The PBO also reported that consumers would benefit from an immediate 9.1 per cent reduction in their power bills after CPI adjustments.
The Treasurer is resistant to the move, and Deloitte Access Economics economist Chris Richardson warned yesterday that a “quick tax fix” was not the way to solve the energy crisis gripping the nation.
Mr Morrison told The Australian: “It’s not clear to me how creating a tax merry-go-round, where you shrink the GST, forcing states to increase other taxes on families and businesses, fixes the problem.
“That is why we are focusing on policies that boost the supply of electricity, secure our gas for domestic use, deliver better deals to customers and support new investment in energy production, transmission and storage.”
The PBO estimates the cost of removing GST from electricity bills to NSW and Victoria would be $500m each. NSW boasted a $5.4bn budget surplus in 2017-18 and Victoria has projected $8.3bn in surpluses over the next four years. Western Australia would lose only $80m because its share of GST is so low. South Australia, which has the highest electricity prices in the country, Tasmania and Queensland would lose $1bn between them.
NSW Liberal Treasurer Dominic Perrottet told The Australian he supported lower taxes but would need to see the “detail of any proposal” to ensure NSW taxpayers were not penalised with an even lower GST share. However, he signalled it was worth looking at the prospect of cutting the GST on electricity bills.
“The first priority has to be securing a reliable, cheap energy supply for Australians, but other measures like cutting GST on power bills could also make a difference, and for the families of NSW every bit helps,” he said.
“NSW taxpayers already fork out billions in GST to lazy states like Queensland to compensate for their inefficiency and waste and, as we have made clear in our submission to the current GST review, it’s a system that has to change to give NSW taxpayers a fairer share.”
A spokesman for Queensland Treasurer Curtis Pitt said: “We are not aware of any such proposal being considered by the federal government.”
While the government could act unilaterally to remove the GST from electricity bills, this would risk triggering a row with the states, which argue any changes must be done by agreement.
Legal experts have questioned this argument, pointing out that the Intergovernmental Agreement on Federal Financial Relations is a political document and not legally binding — opening up the prospect of the Turnbull government moving unilaterally.
Senator Leyonhjelm introduced a bill to the Senate on Monday that would remove GST on electricity as an essential service.
“The Turnbull government is putting pressure on the electricity suppliers to reduce their prices but failing to address its own contribution to high electricity prices,” he told The Australian. “These include GST as well as its policy settings, in particular the renewable energy target, which forces up prices by subsidising renewables.
“In my view, the RET should be suspended until the world’s major emitters take equivalent steps, and abandoned if they fail to do so.
“And since the government is asking the power companies to take a haircut, it should show the way by taking a haircut itself.”
Tax Institute senior tax counsel Bob Deutsch told The Australian the government did not have to consult with the states if it wanted to remove the GST from electricity bills, arguing it had the “legislative capacity to do it on their own.”