Acoss modelling reveals a tax hike would only cost richest families 3.6% of their income, undermining the ‘fairness and simplicity’ of reform

A 15% goods and services tax would cost the lowest paid Australian families an extra 7% of their disposable income, while the richest families would only be paying out an additional 3.6% – confirming the unfairness of the tax hike if the government did not offer compensation.

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The figures come from new modelling commissioned by the Australian Council of Social Services (Acoss) to quantify the regressivity of a higher or broader GST as a national debate begins ahead of the government revealing the tax changes it intends to take to the next federal election.

Malcolm Turnbull has said fairness will be “front and centre” of any tax changes to taxation, with any plan to increase the GST likely to be accompanied by compensatory tax cuts to low- and middle-income earners and additional payments to welfare recipients.

Acoss has not ruled out support for a higher GST, but says it should be the “last option” considered by governments as they search for money to pay down the deficit, offer tax cuts and pay for hospitals and schools.

Acoss argues that “if a tax reform requires a major compensation package, this is a sign that its fairness is in doubt. Compensation may not last, and too much reliance on it shifts the risk of reform to people who are least able to bear it.”

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The welfare lobby group commissioned the National Centre for Social and Economic Modelling (Natsem) to quantify the impact of various policy shifts on different possible changes:

A straight increase in the GST from 10% to 15%, which would raise an extra $29bn a year, costing the poorest families 7% of their disposable income and the richest 3.6%

Extending the GST to fresh food, which raise an additional $7.1bn a year, costing the lowest-income families 2% of their disposable income (about $537 a year) and the richest families 0.6% (about $937 a year)

Extending the GST to fresh food, education, health and water and sewerage, raising $18.6bn a year and costing 4.6% of the disposable incomes of the poorest ($1,199 a year) and 6.6% of the richest ($2,904).

Consumption taxes are always regressive in their impact because poorer families spend a higher proportion of their income, and the impact of changes would add to the regressivity of the existing 10% GST, which costs the lowest-paid families 13.4% of their income and the highest paid 5.9%.

Acoss also modelled the impact of increasing the GST rate to 15% and then offering personal tax cuts spread across all income levels, with a reduction of 5% on all personal income tax rates. This left the poorest families with 1.7% less in disposable income, while the richest had 2.1% more. No government has proposed doing this. Acoss said it modelled this option to show the impact of a “pure” shift from taxing income to taxing consumption.

“If the federal government’s main game for tax reform is to shift the responsibility for paying taxes away from personal incomes towards consumption, it would fail on all grounds. Fairness and simplicity would be undermined and it would do little or nothing to improve economic efficiency,” said Acoss chief executive Cassandra Goldie.

Even before the government has unveiled its plans for changes to the tax system, Labor has ruled out supporting any increase or broadening of the GST, arguing that cracking down on tax loopholes including superannuation concessions and negative gearing can deliver extra money to schools and hospitals.

Meanwhile government ministers and backbenchers are suggesting the proceeds of a GST increase should be spent entirely on personal and other tax cuts – saying the exercise has to deliver a reduction in the overall level of taxation.

That idea is unlikely to win support from the state governments, who are demanding extra funding for hospitals, and the head of the Abbott government’s Commission of Audit, Tony Shepherd, who said on Wednesday Australians would need to accept higher levels of taxation if they wanted the same services they had now and should “get over it”.