I had a good chat this morning with Terri Begley on 612 ABC Brisbane regarding proposals to raise more revenue from the GST:
I noted that raising the GST and cutting more inefficient taxes (e.g. income tax, payroll tax or stamp duty) would be good from an economic perspective, but may have adverse equity implications, because the GST is regressive in its impact (see Townsville ABC radio interview on GST). Hence the total tax reform and compensation package would need to be carefully designed so poorer households are not adversely affected to a large extent. Abolishing the unpopular fuel excise and motor vehicle registration fees, options apparently being considered by the Government, may go someway toward lessening the pain of a GST increase.
Terri and I also discussed whether it would be desirable to raise more revenue by broadening the coverage of the GST to currently excluded items such as fresh food, health and education (rather than increasing the GST rate on the current base). I noted that, while it would be preferable to have as broad a base as possible, it may not be politically feasible, and that there may be some significant adverse impacts which would partly offset the benefits of having a broader base. For example, applying the GST to fresh food may lead to some switching in consumption to less healthy food choices. Also, applying the GST to school fees may lead to some parents taking their children out of private schools and sending them to State schools, costing State Governments more in education spending. This is a point that was previously made on this blog in a guest post from Michael Willis: