GST on fresh food, childcare would boost federal finances and close budget black hole

Jessica Irvine
November 25, 2013
News Corp Australia Network

BROADENING the GST to apply to fresh food, health, education, childcare, water and sewerage would raise $13 billion a year and help plug a yawning gap in federal finances, new analysis reveals.

Despite the weakening economy, Treasurer Joe Hockey is being urged make “tough choices” in his first budget or Australia will face a budget crisis as the population ages.

Spending cuts will not be enough to fill a potential $60 billion hole in government finances in a decade, the Grattan Institute report warns.

Tax hikes will be needed and the GST is the most efficient tax to target.

“Nobody likes paying higher taxes or receiving fewer services. But we need governments to make these difficult choices rather than putting them off for future governments,” the report says.

Applying the GST to currently exempt things like fresh food, health and education would net $13 billion even if 10 per cent of revenue raised was used to compensate low income earners.

Raising the GST rate from 10 per cent to 13 per cent would also raise about the same, but is less preferable than expanding the base of the tax.

“There are a number of reasons to favour broadening the base over increasing the rate,” the report says.

“A broader GST is simpler and more efficient than a limited one …[and] may have lower administration costs as businesses who deal in both exempt and non-exempt categories simplify their accounting.”

Agreement would have to be struck with the states on how to share the extra revenue.

The report also recommends;

*RAISING the eligibility age for tax-free super and the age pension to 70, raising $12 billion a year.
*INCLUDING the family home in the assets test for the age pension, saving $7 billion a year.
*REDUCING the cap for tax preferred additional contributions to super from $35,000 to just $10,000 a year, saving $6 billion a year.

“It’s all really unpopular, but on the other hand, we don’t have any easy choices left,” the head of the Grattan Institute, John Daley, said.

The Abbott government has already ruled out increasing the age of the age pension, along with promising no tax reform until after the next election, no unexpected adverse changes to super and no cuts to health or education spending for the next four years.

This is not good enough, Mr Daley said.

“They have a very substantial budget problem. Their responsibility is to deal with that problem. You have to start early.”
“If you don’t have a real go in your first budget, you will never have a real go. The way we get to the Greece-like situation is by it never being the right time.”