Authors: Richard Holden and Rosalind Dixon

Executive Summary

This report proposes a “Progressive GST” for Australia. It is responsive to the standard criticism of value-added taxes that they are “regressive” in the sense of affecting lower-income earners more as a proportion of their income. Our Progressive GST does not have this feature.

The proposal involves:

  • Raising the rate of the GST to 15%;
  • Removing the exemptions on food, education, health and childcare services, and water & sewerage; and
  • Providing each Australia 18 years or older with a $22,000 per annum “GST-free threshold” by providing them either with an annual, upfront, tax-exempt payment of $3,300; or exempting GST at point-of-sale through the EFTPOS network. Ideally some younger Centrelink recipients who are independent of their parents would also receive the payment.

According to a costing provided by the Parliamentary Budget Office our proposal would:

  • Raise $23.8 billion in net revenue (i.e. after the cost of the GST-free threshold) for fiscal year 2026-27; and
  • Make the bottom 60 percent of income earners better off even before considering income tax cuts.

This would provide significant scope for income tax cuts and structural deficit repair. These reforms could include lower the top two marginal income tax rates (from 45% to 40% and 37% to 32.5%, respectively) and indexing all personal income tax thresholds to inflation. This would still leave $9.6 billion available for fiscal consolidation or other spending priorites.

Our proposal would make our taxation system more efficient, make our economy more dynamic, and provide the impetus for productivity growth.

It would be necessary for the additional GST revenue to go to the Commonwealth, rather than the states, since the Commonwealth would be responsible for the GST-free threshold payments, and the use of net revenues for income tax cuts or other purposes.

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Editor’s note: The authors clarified that the PBO provided a costing for a $20,000 GST-free threshold, and the cost estimated in the report was based on their extrapolation.

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