Raising the Goods and Services Tax (GST) to fund a reduction in income tax is one of those policy levers that governments sometimes consider to rebalance how revenue is collected. It’s a shift from taxing income to taxing consumption.
Pros
- Incentivizes Work and Investment: Lower income tax can encourage people to work more and invest, potentially boosting productivity and economic growth.
- Simplicity and Efficiency: GST is relatively straightforward to collect and hard to avoid. Broadening its base could enhance revenue stability.
- Broadens the Tax Base: Consumption taxes capture revenue from all consumers, including tourists and people working in the informal economy.
- Supports Long-Term Sustainability: With ageing populations and rising health costs, shifting to consumption tax may provide a more reliable revenue stream.
Cons
- Regressive Impact: GST tends to hit lower-income households harder, as they spend a higher proportion of their income on goods and services.
- Cost of Living Concerns: Increasing GST may spike prices, affecting day-to-day expenses for families, especially essentials like food, healthcare, and education.
- Compensation Complexity: To offset the burden on low-income groups, governments must introduce targeted transfers or increased welfare—which adds layers of complexity.
- Sectoral Impact: Certain sectors, like retail or hospitality, might see reduced consumer demand, especially in times of economic stress.
In Australia’s context, where GST is currently 10%, any proposed increase would likely require negotiations with the states and could become a flashpoint for debates around equity, federalism, and economic reform.
Would you support higher GST for lower income tax? (Assuming the cost benefit is net positive for the overall economy and workers)
My 2 cents - assuming it was a meaningful reduction on income tax that would boost worker productivity i would support rising the GST i do not support Bordening the tax as the items that are exempt are exempt for a reason