Economist Matt Grudnoff from the Australia Institute says new analysis shows the ACT Government is being massively shortchanged by a broken GST. Photo: Supplied
If the GST were working like it should, there would be no concerns over the cost of building the light rail link to Woden, says new research from progressive think tank the Australia Institute.
The institute’s analysis claims the ACT Government will be shortchanged by almost $2.5 billion in GST revenue over the next four years because the tax regime isn’t delivering on its promise.
When it was introduced 25 years ago, the GST was hailed as the tax that would fund state services, such as health, education, roads, and policing, for generations to come.
However, the think tank’s research indicates a shrinking share of goods and services subject to GST, which it attributes to a phenomenon accelerated by the cost-of-living crisis.
Its analysis suggests that if GST revenue continues to fall short of expectations, the ACT will be $2.44 billion worse off over the forward estimates.
Australia Institute senior economist Matt Grudnoff said state and territory budgets are being starved.
“If the GST worked properly, it would pay for the light rail to Woden in three years,” he said.
“Australians are being squeezed so heavily for things like mortgages and rents, which are not subject to GST, they have very little left over to spend on things that are subject to GST.
“The end result is that GST revenue is falling further and further behind expectations.
“This is money that would and should go to hospitals, schools, roads, police and other essential state services.”
The report says the cost of slow GST growth to state and territory governments has been $231 billion over the 23 years from the introduction of the GST in 2000-01 to 2023-24.
This includes $22 billion in lost revenue in 2023-24 alone.
The discussion paper suggests that there is no reason to believe that GST revenue will begin to grow faster in the coming years.
“There is nothing to suggest that the factors driving inequality, and the related shift in household spending, are going to change in the short to medium term,” it states.
The report outlines the institute’s assessment of the factors contributing to the decline in GST revenue as a proportion of GDP.
These factors include the steady reduction in the share of national income flowing to workers; a rapid rise in spending on housing, including payments on rents and mortgages; the decision to exclude private school fees and private health insurance from the GST; and high-income earners having a greater ability to travel overseas and buy items GST-free.
“The entire tax system needs reform, including the GST,” Mr Grudnoff said.
“Applying GST to things like private health insurance and private school fees would be a good start.
“There are plenty of things we can do to fix this. We just need brave governments and meaningful reform.
“In the meantime, states and territories are being forced to cut spending and borrow more, while schools, hospitals and public transport infrastructure crumble.”
Recent analysis from the Australian National University has also shown the GST to be “highly regressive” and inequitable.
But Federal Treasurer Jim Chalmers isn’t in a rush to tamper with the GST.
“It’s not something that we’ve been attracted to,” he said in a recent interview.
“I think in addition to the concerns that we have repeated on a number of occasions now about the distributional impact on different people, we’ve also got to remember that every cent of the GST goes to the states.
“Often when people propose to us changes to the base or the rate of the GST, they spend that additional revenue many times over.
“Whether it’s compensation, whether it’s money for the states buying state tax reform, and that’s not irrelevant to us either … The Prime Minister and I have had a view about this, and that view hasn’t changed.”
