New South Wales Premier Mike Baird wants an increase to Australia's goods and services tax (GST) to help state and territory governments meet the increasing costs of healthcare.

The claim: New South Wales Premier Mike Baird says the average rate of GST across OECD nations is around 20 per cent, and Australia's GST is "right down the bottom".

New South Wales Premier Mike Baird says the average rate of GST across OECD nations is around 20 per cent, and Australia's GST is "right down the bottom". The verdict: According to 2015 OECD data, the average rate of GST in OECD countries is 19.2 per cent. Only three OECD countries having lower GST tax rates than Australia. Overall Australia collects approximately 7.5 per cent of GDP from taxes on goods and services. The OECD average is 11 per cent. Mr Baird is correct.

Mr Baird made the call for the increase ahead of a "leaders retreat" with the Prime Minister, premiers and chief ministers in Sydney in July, 2015.

In an interview with the ABC's 7.30 program, Mr Baird said he believed the tax should increase from 10 to 15 per cent.

"If you look around the world, where we sit in terms of income tax, we're not really that competitive, whereas in terms of the GST, we're right down the bottom. So the average rate across countries is about 20 per cent. We're at 10 per cent. Whereas we're above the OECD average in terms of income tax," Mr Baird said.

A spokesman for the Premier confirmed to ABC Fact Check that Mr Baird was comparing Australia's GST rate with other OECD nations.

Fact Check investigates whether the average GST rate in other OECD countries is about 20 per cent, and if Australia's rate is lower.

Australia's goods and services tax

GST is a tax on the consumption of goods and services in Australia.

The Australian Tax Office (ATO) defines GST as a "broad-based tax... on most goods, services, and other items sold or consumed in Australia".

GST is collected by the federal government and redistributed amongst the states and territories to be used as each state or territory deems appropriate.

In the 2013-14 financial year the federal government collected $57 billion in GST revenue, representing approximately 15 per cent of total federal government tax revenue.

John Freebairn, of the University of Melbourne, described GST as a "destination tax" in a 2013 article.

Professor Freebairn explained that GST is a "destination tax" as it excludes exports, but taxes all goods produced in, or imported into, Australia unless expressly exempted.

According to the ATO, GST free goods and services include "most basic foods, some education courses and some medical, health and care products and services".

Why increase the GST?

A 2013 Grattan Institute report into the sustainability of state and federal budgets explains that when the Howard government first introduced the GST in 2000 it was "intended to create a sustainable revenue base for state governments" into the future.

However, the report explains that in recent years state governments have faced rising expenditure pressures, especially in health and education, while GST revenue growth has slowed as households purchased less and saved more during the global financial crisis.

State governments are therefore potentially facing increasing deficits unless greater revenue can be secured.

Comparing consumption taxes around the world

Calling these kinds of taxes a "goods and services tax" is relatively uncommon around the world.

Instead, most countries impose what is called a "value-added tax" (VAT) on goods and services.

A 2006 report by the Australian Treasury, which compared Australian taxes to other OECD nations, defined VAT as a "broad-based consumption tax, which is levied on the consumption of both goods and services".

This definition is remarkably similar to that of Australia's GST system provided by the ATO.

The report continued: "VAT systems differ around the world for a variety of reasons, but follow the basic principle of taxing a broad base of goods and services."

While differences can arise in what goods are covered by a country's GST or VAT, the report found that GST and VAT are broadly comparable across countries.

The Treasury report explained that the key difference between Australia's GST and many OECD nation tax systems is that Australia has only one rate of GST, 10 per cent.

Many OECD nations apply a full tax rate to the majority of goods and services, and a reduced rate for selected goods and services chosen for social policy reasons.

Is Australia's GST lower than other OECD nations?

The OECD regularly collects data on the tax systems of member countries.

According to the OECD, 29 of the 30 member countries apply some form of GST.

The only exception is the United States where there is no federal GST or VAT. Instead, each state of the United States may apply its own sales taxes on goods and services.

According to the most recent data from the OECD, collected in January 2015, the average rate of GST across OECD countries is 19.2 per cent.

Only three OECD countries have a GST rate lower than Australia, meaning that Australia is in the lowest 15 per cent of OECD nations in terms of GST tax rates.

In contrast, 21 of the 30 member countries have a GST rate of 20 per cent or more.

VAT/GST Rates in the OECD

The following graph shows the current rates of VAT/GST in OECD countries.

The average rate of these taxes is 19.2 per cent.

This graph shows the GST or equivalent tax rates for OECD nations. ( ABC Fact Check )

Does Australia collect more GST revenue than other countries?

While the data illustrates that Australia undoubtedly applies a low tax rate to goods and services relative to other OECD countries, comparing tax rates does not identify the revenue raised by each country.

An effective way to compare taxes collected across countries is to compare the revenue each country collects relative to the size of their economy. The size of a country's economy is often termed its gross domestic product (GDP).

This graph shows the amount of revenue OECD countries collect from GST type taxes as a proportion of GDP. ( ABC Fact Check )

The OECD also collects data on the revenue collected by each state from taxing goods and services as a proportion of GDP.

For Australia, this data does not only include revenue from GST, but also from other taxes on goods and services, such as the fuel excise.

The most recent OECD data, collected in 2012, illustrates that Australia's revenue from taxation of goods and services is in fact lower than most OECD countries.

Australia collects approximately 7.5 per cent of GDP in revenue from taxes on goods and services. This is considerably below the OECD average of almost 11 per cent of GDP.

Only four countries have a lower proportion of tax revenue from goods and services relative to the size of their economy.

The verdict

According to 2015 OECD data, the average rate of GST in OECD countries is 19.2 per cent, very close to 20 per cent.

In comparison, Australia is a relatively low GST country, having a GST tax rate of 10 per cent. Only three OECD countries have lower GST rates than Australia.

Australia also has a lower ratio of tax revenue from taxes on goods and services to GDP than most OECD nations, collecting approximately 7.5 per cent of GDP from taxes on goods and services. The OECD average is 11 per cent.

The data shows that Australia is a relatively low GST country when compared to its OECD counterparts.

Mr Baird is correct.

Sources