skip to content

What are the odds of a GST rise in this years budget?

Category Tax Tips

Is GST set to rise

Ever since the Libs returned to power, the Abbott government has been looking at how to reduce spending to meet a tight budget. What isn’t as clear, however, is where those cost-cutting measures are going to come from, or what that’s going to mean for you.

Here’s what you need to know:

The government is still planning to introduce new policies and tax cuts

Earlier this year, Educational Minister Christopher Pyne all but guaranteed that the government would be able to deliver on all their election commitments without going over budget. Referring specifically to spending in the health and education sectors, Pyne commented, “There will obviously be a different mix of spending… but that doesn’t mean there will be overall cuts to either portfolio.”

More recently, Abbott came out in strong defence of his platform policy, the Paid Parental Leave scheme. Although concerned about his ability to push it through a resistant parliament, he appears to have no doubts that he will be able to fund it. This was in response to Ken Henry’s (leader of the 2010 tax review) comments on our lack of ability to afford some of the new government’s proposed policies.

Abbott also talked about tax reform as a focus in the upcoming budget, reassuring us that “we have a tax reform program” and that tax reform begins with repeal of the carbon tax, repeal of the mining tax and reduction of the company tax. What he neglected to mention was any part of the proposed tax reform that would actually improve the budget envelope.

What he neglected to mention was any part of the proposed tax reform that would actually improve the budget envelope

So where is the government going to find the extra money?

As you may know by now, Treasurer Hockey is all about attacking the ‘entitlement mentality’. And the current government looks like they are on board after replacing Treasury secretary Martin Parkinson. Reading between the lines, it looks like one of the first entitlements they are vying to attack is our goods and services. Yes, the GST looks like it’s going to rise.

The Abbott government has already admitted that tax reform is the way to go, and since they are only talking about cutting some, it seems quite clear they are planning to raise others. But how do we know which ones? Well, Henry, in reference to the structural budget deficit, puts it simply, “Raising the GST rate one day will be seen as necessary to underpin fiscal sustainability in the Australian federation.” He calls it necessary to shore up the budget, not only at the Commonwealth level, but also at the state level.

Now although Shadow Treasurer Chris Bowen disagrees that the GST will have to rise, he certainly agrees with both Abbott and Henry that a tax shakeup is the way forward. He told ABC Radio that we have “too many taxes in Australia, particularly smaller taxes which don’t raise much money and many of them are inefficient”. And which tax is the most efficient? The GST, according to Assistant Infrastructure Minister Jamie Briggs, who in 2011 told us that “the GST in the first place was meant to be applied to food and services”, but that was excluded.

So there it is. With the Abbott government’s reluctance to cut spending programs and its eagerness to push through the new ones, combined with a focus on tax reform as a way to close the budget gap, it seems very likely that GST will inevitably see a rise despite small noises being made to the contrary.