Lowest earners forecast to spend 14.2% of income on goods and services tax, and higher earners just 4% if the rate was increased and more items included

This article is more than 4 years old

This article is more than 4 years old

Lowest income earners would spend 3.5 times more of their disposable income on the goods and services tax (GST) than higher income earners if the base was expanded and the rate was increased to 15%, new modelling has found.

The Parliamentary Budget Office found that the lowest income earners spend 12% of their disposable income on the 10% GST – three times the percentage the highest income earners pay.

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Expanding the base of the tax to include fresh food, education and childcare services, healthcare and water and sewerage rates, while concurrently increasing the rate to 15%, would raise just under $50bn.

But the impacts of that scenario would leave the lowest income earners worst off.

The modelling found that the poorest households would pay an additional 14.2% of their incomes to the GST under that scenario, compared with 4% for the highest income bracket.

“Around 25% of the additional revenue under the GST reform scenarios is paid by the lowest 40% of households,” the modelling found.



The modelling does not take into account any compensation packages that could be put in place to help low income earners.

Low income households fare worst in all the possible scenarios modelled by the Parliamentary Budget Office. The other scenarios include broadening the base overall, broadening the base to only take in fresh food, increasing the rate to 15%, and increasing the rate to 15% while also broadening the base to take in fresh food.

The existing GST exclusions are worth more to the poorest, representing 4% of the disposable income of households in the lowest income bracket and less than 1% of the disposable income of the highest bracket.

Despite that, only a quarter of the GST concessions go to the poorest 40% of households, the Parliamentary Budget Office said.

“If the principal policy objective of GST concessions is to protect lower income households from disproportionate impact, they are not well targeted compared with Australia’s tightly means tested welfare system,” the modelling found.

it is clear that, in the absence of compensation arrangements targeting lower income households, each of the scenarios analysed would have a greater relative impact on lower income earners.

Changing the GST is one tax measure that the government is keeping “on the table” in the lead up to next year’s election, despite Labor staunchly opposing any changes.

State and territory leaders will discuss changes to the GST, including broadening the base and increasing the rate to 15%, when they meet for the Council of Australian Governments meeting (Coag) on Friday.

Treasury modelling leaked on Wednesday, that will form the basis of discussions at Coag, found that increasing the GST to 15% and including fresh food, non-alcoholic beverages and water and sewerage could raise $45bn in the 2017-18 financial year.

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Labor said that much of that money would go towards compensating lower income earners, leaving little money for other services.

“This modelling confirms everything I and the Labor Party said, that it would take 50-60% of the revenue raised by increasing the GST to properly compensate low and middle income earners,” the shadow treasurer, Chris Bowen, said. “That the money is simply not there to fund hospitals, to provide personal income tax cuts and corporate tax cuts like [treasurer] Scott Morrison has claimed.”

The prime minister, Malcolm Turnbull, said that no Australian will be “disadvantaged” as a result of changes that his government makes to the taxation system. He has urged people to look at the overall mix rather than at individual measures, such as potentially increasing the GST, indicating that low income earners will get extra compensation.

“Any changes to the tax system have got to be ones that ensure that there is no disadvantage to the most vulnerable Australians, to less well-off Australians,” he said last month.