25 years on, now is the time for generational reform of the GST

• CPA Australia proposes five-step plan to improve the GST
• GST must be broadened to reduce overreliance on income taxes

Twenty-five years on from the introduction of the Goods and Services Tax (GST), Australia’s largest accounting body, CPA Australia, says Treasurer Jim Chalmers’ Economic Reform Roundtable should deliver a plan to broaden the tax base through fundamental reform of the GST.

Introduced by the Howard government, the GST commenced on July 1, 2000. It was a visionary policy but came with many compromises. 

CPA Australia proposes a five-step plan over the next two years to implement GST reform:

1. Achieve consensus from state and territory governments that GST reform is critical to future federal and state budgets and must be part of economic and productivity reforms. 
2. Identify what a broadened tax base should look like and model the revenue effects of changes to the rate.
3. Assess the impact of changes on business and society.
4. Develop tax settings that best rebalance the tax base to increase GST’s contribution and reduce the income tax burden on individuals and businesses while adjusting the transfer system to support the most vulnerable.
5. Design a thorough implementation program to ensure that individuals and businesses are prepared for the changes.

CPA Australia Chief Executive Officer Chris Freeland AM, who sits on an industry Productivity Working Group convened by the Business Council of Australia, said substantive GST reform can’t happen overnight, but is a necessary step to ultimately alleviate the government’s overreliance on personal income tax.

“It’s time for a grown-up conversation about Australia’s tax system and the GST’s structural weaknesses,” he said. “For the past quarter of a century the GST has remained virtually unchanged, and its inconsistencies and design flaws – such as taxing some foodstuffs and not others – have been ignored.

“GST belongs at the heart of any discussion of tax reform. Most tax specialists believe that increasing the GST is the key to broadening the overall tax base. Reducing the reliance on personal income tax would put more money in people’s pockets and ultimately generate more revenue to drive economic growth.

“OECD statistics show that Australia has an unsustainably high burden on income tax, which means workers and businesses contribute a lot more of the base compared to other countries.

“Of course, you also have to look at who would be impacted, such as lower-income households and pensioners, to make sure they’re adequately compensated during the transition.

“Milestone dates aside, this is now the time to develop a step-by-step approach to deliver once-in-a-generation reform of the tax system while educating and informing the public of its necessity along the way. Broad public and political support will be essential to ensure our tax system is fit for purpose for at least another 25 years.”

CPA Australia’s five-step plan to reform GST will be further explored in a submission to Treasury in preparation for the Economic Reform Roundtable.

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