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The GST: economic saviour and political minefield

Crowe Horwath has labelled the GST a “potential saviour” in the face of Australia’s current budgetary problems, but warned that any change to the tax will be a hard sell politically.

News Michael Masterman 29 May 2014
— 1 minute read

Speaking at the Institute of Chartered Accountants' 2014 Business Forum, Wai Choong Chan CA, associate partner - tax advisory, Crowe Horwath, said an increase in either the rate or the base of the GST could provide the necessary government revenues to address many of the economy’s current problems.

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However, whilst a change in the GST may be economically warranted, it would be unpopular with consumers, Mr Chan said, adding that he believes the next election will be fought on changes to the GST.

Accordingly, Mr Chan said the recent Budget “very cleverly” cut health and education funding to the states in order to pressure them to ask for a GST increase.

“What happened in the Budget, of course, was the federal government, very cleverly, decided to reduce health and education funding to the states,” he said.

“That has put pressure on [the states] to deliver their health and education programs and so maybe they have cornered them into asking for a GST rate increase or a GST base increase for health and education to get equal funding back into health and education.”

If change is to occur, however, Mr Chan said that economically, base changes are preferable to rate changes.

“The argument is that you have a tax on a wider base and when consumption and expenditure increases in any part of the economy your tax take increases,” he said.

“If it’s a rate change then we are more likely to go to 12.5 or 15 per cent because mathematically it’s easier to calculate,” Mr Chan said.

The GST: economic saviour and political minefield
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