Higher GST proposed to shift tax focus from incomes

The panel says increasing GST could impact on lower-income or vulnerable households, especially in the short run. Photo / Martin Sykes

Raising the rate of GST could increase the economy's efficiency if it was used to shift the mix of taxes away from income tax, a working group reviewing the tax system says.

The panel comprises private-sector tax specialists, academics and Government officials.

An officials' briefing paper issued yesterday said lifting GST to 15 per cent would raise an extra $2.1 billion a year. That would rise to $6.2 billion if the tax was set at 20 per cent.

The working group believes it should not be increased to fund additional spending but only as part of a revenue-neutral package of tax reform. It accepts there may be fairness issues, although it says GST is less regressive than generally believed, especially if measured over a lifetime.

"Increasing the rate could impact on lower-income or vulnerable households, especially in the short run," the panel said.

Compensation for those on lower incomes should be considered as part of any tax reform package.

The group, chaired by Victoria University professor Bob Buckle, considered the risk of increased avoidance, through the likes of under-the-counter cash jobs, was greater than officials expected.

And it generally agreed with them that the efficiency of the tax should not be compromised by introducing exemptions.