Dr Parkinson right that the GST should be broadened

I was pleased to see the Treasury Secretary, Dr Martin Parkinson, suggest today that the GST should be broadened to cover currently excluded items – i.e. health, education and fresh food (see Fiscal sustainability and living standards – the decade ahead). Broadening the GST could boost GST revenue by up to 20% or around $10 billion. This would mean an extra $2 billion to Queensland, assuming it flows to the States as per current practice and the Commonwealth doesn’t cut other payments to the States (so that it would effectively secure the increase in GST revenue). I’ve previously commented on the need to broaden the GST:

Government has to rely on inefficient taxes to fix budget – GST reform needed

GST changes should be considered as part of wide-ranging tax and expenditure review

I’ve also previously spoken about what I learned from Dr Parkinson when he was my Executive Director in Treasury’s Macroeconomic Group in the mid-2000s:

Speech to UQ Economics School Scholarships and Awards night

Dr Parkinson has been a big influence on many people who have walked the halls of the Treasury building, and I’m sure many of my former Treasury colleagues will be pleased that the PM has asked him to stay a bit longer (see Treasury chief Martin Parkinson earns temporary reprieve from axing).

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8 Responses to Dr Parkinson right that the GST should be broadened

  1. Katrina Drake says:

    No No No. The money I spend on Health, Education and fresh food is far better off being allocated and spent wisely by me. If I give another 10% of these investments to the government it will be wasted and mis-spent.

    Tax-payers are spending after-tax dollars on Health, Education and Fresh food, there being no tax deductions available for these life essentials. Therefore, we have already contributing to the tax system upto 45% of every dollar we have available to spend on health, education and fresh food.

    Governments need to tackle corporate tax – and stop the big business rorts of profits disappearing off-shore, and giving away Australia’s resources for no national gain.

    PS – They are taking about you on the radio again this morning.

    • Gene Tunny says:

      Thanks Katrina. I agree with your concern that the money might be mis-spent, but GST is a much more efficient way of raising revenue than income tax so my preference would be for lowering income tax or cutting other inefficient taxes and funding the cuts via a broadened GST. Ideally we’d also cut a lot of the fat out of the Commonwealth Govt budget which would enable larger tax cuts in other areas.

      Re. the radio, I hope they said nice things.

  2. Gary Hillman says:

    I would prefer a quarter per cent rise every two years to 12%, without its scope being broadened.

  3. Katrina drake says:

    Sorry – but no one has mentioned a tax cut!

    Steve was quoting your expert blog – he must read it every morning.

    • Gene Tunny says:

      True. We could only afford a tax cut if we cut back expenditure. Unfortunately we have structural budget deficits for Commonwealth and State Govts at the moment. They are simply not raising enough revenue to pay for what they want to spend. Ideally, they’d cut back on the spending but politics gets in the way.

  4. Jim says:

    On the face of it, I think Gary’s suggestion (increasing GST rate, but maintaining the scope) is less likely to be regressive as low income workers probably (hopefully) spend a higher proportion of their after-tax income on health, education and fresh food. There are lots of sound public policy reasons for incentivising consumption of fresh food, education and health, rather than consumption on McDonalds or a big TV. The scope of the GST sends some pricing signals at least.

    But much more comprehensive reform is needed to ensure inefficient taxes and distortions in the tax system are removed. Do we need another “Ken Henry-style” review with a broader scope (nothing off limits)? I think we do. The Henry review was great, but was constrained by scope. That provided the ALP with too many opportunities to “cherry pick” the recommendations. The Coalition have a fair bit of political capital to spend. I think a comprehensive and material restructure of the tax system would be a pretty good way to spend that political capital (much better than offshore refugee processing anyway).

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