Treasurers asked to consider GST reform

Paul Osborne and Katina Curtis
(Australian Associated Press)

A major review has called for a lift in the GST rate or a broader base, 20 years on from the introduction of the consumption tax.

But the architects of the tax warn the mammoth political task to change it shouldn't be done just to give governments more money to spend.

A six-person panel led by businessman David Thodey released a draft report of its review into federal financial relations on Wednesday.

The review was commissioned by NSW Treasurer Dominic Perrottet in 2019 but is expected to be influential as all governments consider tax reform and other ways to improve the federation amid the coronavirus pandemic.

The GST rate has stayed at 10 per cent, but the share of household spending subject to it has fallen from 60.8 per cent in 2001/02 to 55.4 per cent in 2018/19.

The review recommends state treasuries, in consultation with the Commonwealth, "assess and agree options for lifting the GST rate and/or expanding the base over the medium to longer-term".

Some of the revenue gained from changes should go to lower-income households.

The review also calls for the replacement of stamp duty with broad-based land tax, as has occurred in the ACT, as well as a national approach to payroll tax reform.

Former federal treasurer Peter Costello says the nation's taxes needs constant care and maintenance but the GST shouldn't be broadened or lifted for its own sake.

"People are saying let's increase the rate to do what?" he told ABC's Radio National.

"If all you bought, for example, was a slight reduction in the deficit, I don't think it would be worth it.

"But if by changing a rate or introducing a new tax you could abolish, I don't know, five other taxes, if you could radically reduce income taxes, if you could improve the company tax system now you're talking about something worth doing."

He said it was easy for states to call for changes to the GST because they didn't wear any of the political heat.

John Howard says it would be desirable to broaden the GST base and perhaps also increase the rate.

"But when and where, how and when that occurs, I'll leave to Scott Morrison and Josh Frydenberg," he told 2GB.

Australians could be persuaded to back reform if they could be convinced it was good for the country and poorer people would be supported, the former prime minister said.