A recent report by the Parliamentary Budget Office (PBO) has reignited discussion around reforming the Goods and Services Tax (GST), arguing that broadening the GST base or increasing its rate would be more economically efficient than raising personal or company tax rates.

The analysis, which modelled eight possible tax policy changes, found that lifting the GST rate to 15%, or removing the existing exemptions (such as those for fresh food, education, and health), would raise significant revenue with less drag on the economy. In fact, GST changes were shown to have a smaller negative impact on labour supply and productivity than increasing the top marginal tax rate or the corporate tax rate.

By comparison:

• Increasing the top personal income tax rate or company tax would significantly reduce work incentives and investment
• Raising the Medicare Levy was found to be the least damaging of the income tax measures tested
• Reforming GST could raise over $30 billion annually – with potential to offset any regressive impact via the existing tax and welfare system

With an ageing population, growing health and aged care costs, and pressure on public finances, tax reform is again gaining political traction. Although GST has traditionally been a politically sensitive issue, the report reinforces that Australia’s narrow GST base – on of the most limited among Organisation for Economic Co-operation Development countries – may no longer be sustainable.

What Does This Mean For You?

While no legislative changes have been proposed at this stage, the direction of the debate suggests businesses and investors should start thinking about the potential implications. Broader GST coverage could impact pricing structures, cash flow, and compliance systems, especially for businesses operating in currently exempt sectors such as food, health, or education. Households may also see cost-of-living shifts, depending on the structure of any compensation measures.

Our View

As always, we’ll keep you informed of any formal proposals that may arise from this renewed policy focus. In the meantime, this report serves as a timely reminder of the importance of tax planning and being prepared for change in Australia’s evolving tax landscape.