Coronavirus: Reserve Bank board member urges broadening scope of GST

Reserve Bank board member Ian Harper has said the Morrison government would be better served broadening the GST before lifting the rate.

Professor Ian Harper $688m HomeBuilder program and ­argued that the economy would need ongoing fiscal support. Picture: Stuart McEvoy

Reserve Bank board member Ian Harper has said the Morrison government would be better served broadening the GST before lifting the rate, saying it “is not a broadbased consumption tax anymore”.

Finance Minister Mathias Cormann on Sunday again ruled out revisiting the goods and services tax as part of a post-COVID tax ­reform package that could include states doing away with inefficient stamp duties on home purchases.

When asked why the Treasurer had not raised GST reform in ­recent talks with state treasurers, Senator Cormann told Sky News: “We are not focused on increasing taxes. We are focusing on lowering taxes. When it comes to the GST we did have a very thorough look at this not that long ago and the outcome of that work at the time was that it was not in our interest to move in that direction.

“At this stage, I have not seen anything that would change our mind.”

Professor Harper, dean of the Melbourne Business School, will be honoured with an Order of Australia Medal on Monday for “service to education in the field of economics, and to public and monetary policy development and reform”. He said the changing structure of the economy, in particular the rapidly growing share of the health sector, has led to a progressive shrinking of the GST base. This evolution is “bound to” accelerate in the wake of the pandemic, he said. “If the minister (Senator Cormann) is saying lifting the rate is not a good idea, then we should extend the base. We can’t avoid the fact this is not a broad-based consumption tax anymore.”

Australia’s GST rate of 10 per cent is only half the average consumption tax among OECD countries. But with the GST covering only about half of total consumption in the economy — down from 60 per cent when it was introduced in 2000 — Robert Breunig, the ­director of the ANU Crawford School of Public Policy’s tax institute, agreed that broadening the base was more important than raising the rate.

“If you raised the GST to 20 per cent now you’ve just increased the incentive to spend money on non-GST stuff,” Professor Breunig said.

Extending the tax to food would raise an extra $6.4bn in federal tax revenue, say Treasury estimates from 2016. Broadening the tax to include education and ­financial services would generate around $4bn each, and health $3.6bn. He said that states could potentially replace the lost tax revenue from scrapping stamp duties with a land tax, but said he believed extending the GST to cover the likes of food, education and healthcare would be politically more palatable and ultimately required for meaningful overall tax reform. “COVID-19 is really highlighting some of the limitations on the way we collect tax,” including an over reliance on income and corporate profits, he said.

Professor Harper said he supported the government’s $688m HomeBuilder program and ­argued that the economy would need ongoing fiscal support.

“I would like to see the government give consideration to some extension or tapering of the JobKeeper program,” he said.

That said, Professor Harper ­argued that reform and improving productivity — for example by cutting red tape around development approvals and harmonising training and trading laws between states and territories — was the key to lifting living standards.