A GST hike: What’s the worst that could happen?

One of the reasons the subject raises its fearsome head is that when tax cuts are not forthcoming (and Tony Abbott’s government wants to suspend tax cuts in order to bring the federal budget under control) “bracket creep” can occur – wages creeping up and up with inflation and eventually moving into higher tax brackets, so that more and more of everyone’s hard-earned cash goes on tax. Bracket creep could be said to address the budget deficit, but it’s hardly a welcome solution, particularly for lower- and middle-income earners, who tend to get hit where it hurts.

In a recent speech at the Sydney Institute, Treasury secretary Martin Parkinson called for a “national conversation on the GST and tax system” and hinted that a rise of 5% to the GST (thus taking it up to 15%) could help manoeuvre the national budget back into the black. He also spoke of the possibility of broadening the scope of the tax, extending it to include currently-exempted areas of the economy, particularly private healthcare and private education. Important (and growing) sectors of society, adding GST to these is unlikely to hit the low-income earners too hard, as they don’t tend to indulge in such luxuries as private healthcare or private education to any great extent, and would ensure a substantial extra income stream for the government.

Another suggested way to attack the budget deficit was the indexing of fuel excise – something John Howard froze indefinitely in 2001 – which would see fuel prices rise in line with inflation. A potentially “good earner” but one that is bound to be very unpopular with voters.

Addressing one of several issues that are coming together to create such a negative outlook for the economy, Dr Parkinson explained that “real income per head has grown 2.3% but looks unlikely to grow at all for a decade”. A bleak forecast indeed, and one that probably should be addressed. So is a broadening or raising of the GST the way to do it?

According to Tony Abbott’s government – and most of the other parties for that matter, Labour included – it’s not going to happen. Abbott promised in 2013 that there would be no GST increase under a Coalition government, and a spokeswoman for Treasurer Joe Hockey said last week: “We are not changing the GST – full stop, end of story.”  Deputy Liberal leader Julie Bishop pointed out that GST revenue is handed out to the various states, and therefore it’s not appropriate to fall back on it in order to sort out federal economic situations. Sincere-sounding stuff, but then politicians have been known to go back on their word before (Ju‘liar’ Gillard’s carbon tax anyone?) so we probably shouldn’t be resting on our laurels.

But what could the changes mean for you or I? Is taxing private healthcare and education a fair way to go about raising more funds for a government “in need”? With the National Disability Insurance Scheme (NDIS) costing $3.1 billion – and set to cost $11.3 billion a year by 2023-24 – as well as pension schemes (the aged pension, the disability support pension and the carers’ payment scheme) growing at an annual rate of 6%, and school reform funding predicted to cost $2.8 billion, it’s easy to see that some extra cash needs to come from somewhere. And many experts believe a raise to the GST is the fairest way to do it, such a move affecting the entire country, rather than certain economic groups.

New Zealand raised its GST to 15% in 2010, and there are mixed reports as to how that change has been felt, with many low-income earners complaining of increased hardship since the hike.

So, would it really be all that noticeable if goods were to have an extra 5% added to the cost? Should the hike only affect luxury goods, or is including private education and healthcare a better way to increase revenue? Have your say and let us know your fears and thoughts about the possibility of a future GST rise and whether or not it is exactly what this country needs.