No GST: Call for 'tax holiday' to revive Australia

·3-min read
Laughing woman sitting on inflatable pool toy in backyard pool on summer evening.
A holiday from taxes? Yes, please. (Image: Getty)

A recession that was forced on Australia by Covid-19 has some experts thinking we could do with a "holiday" from the goods and services tax (GST).

The GST celebrates its 20th anniversary this year and has not changed much from its original implementation of 10 per cent applied on most purchases except fresh food.

But Australia's first recession in a quarter of a century has prompted calls for a break, to encourage people to spend money.

Monash University economics lecturer Isaac Gross has suggested a six-month holiday, giving everyone an instant 10 per cent discount and "maximum economic" impact for each tax dollar foregone.

"It would be targeted because the GST doesn’t cover many of the goods people are already buying such as fresh food and medicines," he told The Conversation.

"What it does cover is extra, less essential, spending on things such as clothes, tourism and restaurants – the exact kind of spending we need to stimulate."

Removing the GST is a far better way to get Australians to spend than income tax cuts, according to Gross.

"Cutting income tax or cash splashes wouldn’t deliver as big a bang for the buck – much of the bonus would be saved, or spent in sectors that don’t require stimulus," he said.

"However, the only way to get the GST discount would be to buy goods and services, many of them produced by workers who will need support."

A GST holiday is not unprecedented.

The UK reduced its consumption tax rate temporarily during the global financial crisis, and Germany has done the same this year to combat the coronavirus downturn.

The big hurdle for Australia would be deciding who would pay for the missing revenue.

“The six-month holiday might cost $35 billion,” said Gross.

“While the states traditionally receive the GST revenue, in this instance the bill for the cut should be paid by the federal government.”

GST increase suggested, but how?

Ironically the calls for a tax-free period come just days after a government review suggested the GST should be widened to include more items and the rate increased.

The idea is that the GST is efficient and simple to apply, and more revenue from it could allow the scrapping of other taxes like stamp duty, payroll tax and even a decrease in income tax.

Critics of GST expansion argue that the levy unfairly places more burden on lower income Australians, as they spend a far higher proportion of their income compared to the wealthy.

To resolve this dilemma, UNSW academics Rosalind Dixon and Richard Holden told Nine this week that a "progressive" GST could be implemented.

Their idea is to give each Australian a GST-free threshold of $7,500. One would pay no tax on all transactions up to that amount.

"Beyond that, all goods and services would be taxed at a rate of 15 per cent – including those that are currently exempt such as fresh food, health, and education."

According to PwC, an expanded GST could raise an extra $60 billion a year for the government.

The Dixon-Holden suggestion would cost $20 billion, still leaving an extra $40 billion a year in the government's coffers.

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