The Australia Institute has argued adding private school fees and private health insurance to GST earnings would generate more than just chump change. Photo: Damien Larkins.
An independent think tank has argued GST needs to be applied to private school fees and private health insurance to stop states and territories from getting shortchanged.
The Australia Institute calculated states have lost out on $231 billion since GST was introduced in 2001 because revenue had failed to keep up with national income.
It estimated $22 billion in lost revenue for 2023-24 alone.
Australia Institute executive director Richard Denniss said the GST wasn’t doing its job.
“The GST was meant to be a secure source of funding for the jurisdictions to pay for things like schools and hospitals, but it has failed to live up to this goal,” he said.
“If GST had kept up with economic growth, as it was meant to do, the Northern Territory, Queensland and South Australia could have had budget surpluses.
“Other jurisdictions would be in a much healthier position.”
According to Australian Bureau of Statistics government finance data from 2025, quoted in the report, the ACT had an actual budget cash balance of negative $1,226,000,000 for the 2023-24 budget.
If it had received the same GST/GDP [gross domestic product] share provided in 2001, the ACT could have picked up an extra $460,000,000 in revenue, resulting in a potential cash balance of negative $766,000,000.
State and Territory budget outcomes in 2023-24 if they received the same GST GDP share provided in 2001. Photo: The Australia Institute.
Mr Denniss pointed to inequality as a reason why Australia was collecting less GST.
“This is because higher-income households are spending more on rent and mortgages, which means they have less money to spend on the things that would generate GST revenue,” he said.
Mr Denniss suggested an option for the Commonwealth to fill the “tax-blackhole” without unfairly impacting on low-income households.
“It could broaden the GST so that it applies to private school fees and private health insurance,” he said.
“Alternatively, it could close tax giveaways like the Fuel Tax Credits Scheme, or raise new taxes on wealth, or the gas industry.”
GST is a broad-based tax of 10 per cent on most goods, services and other items sold or consumed in Australia, such as most staples and basic foods, healthcare, education, childcare, financial supplies and exports.
The Australia Institute estimated broadening GST to include private school fees and health insurance would generate an additional $1.8 billion per year.
It’s expected almost half of the revenue (43 per cent) would come from the top 20 per cent of income earners and seven per cent would come from the bottom 20 per cent of households.
The institute also argued adding additional taxes to the revenue pool could bridge the final funding gap to give jurisdictions a more sustainable revenue stream into the future.
“This could come in the form of new taxes, or by expanding existing taxes by closing tax concessions,” the report noted.
“The GST funding shortfall is an opportunity for broader tax reform that could include the introduction of more efficient and equitable taxes.”
ACT Treasurer Chris Steel pointed to the Commonwealth Grants Commission’s updated GST relativities (which determines how revenue is distributed) had resulted in a cumulative $184 million loss for the Territory over four years to 2028-29.
“This is largely due to Victoria’s pandemic circumstances, leading to a short-term GST sharing relativity change between jurisdictions,” he said.
But Mr Steel went on to state the debate about GST-sharing relativities between jurisdictions was “effectively a zero sum game” and missed the point.
“Vertical Fiscal Imbalance is becoming more of a problem in Australia,” he said.
“It is the states and territories who deliver frontline services and who are now managing an extraordinary growth in demand and costs in our hospitals, without significant means to raise additional own source revenue to support it.”
He said the greater problem for the ACT specifically was the “systemic undercount” of the Territory’s population by the ABS between census surveys.
“[This] has had an ongoing impact on the ACT Budget and resulted in less GST revenue to fund the cost of delivering services and infrastructure to the actual size of our community,” Mr Steel said.
Discussions with the Commonwealth on improving net interstate migration methodology and data have been ongoing for years.
Region reached out to the Federal Government for comment.
