The Goods and Services Tax (GST), which celebrated its 10 year anniversary on 1 July, has recorded the strongest growth of all federal taxes over the past decade, growing by 86 percent, compared to 58 percent for income tax and 56 percent for company tax.
Despite this strong growth the tax has failed to reduce the distorted and inefficient state based taxes it was meant to replace, says NIA chief executive officer Andrew Conway.
“History tells us that the introduction of GST was necessary to address the bias of tax away from company and personal taxes. The GST was supposed to eliminate a number of state based taxes. Whilst some taxes were eliminated the states have been allowed to renege on their promises to cut taxes further,” Mr Conway said.
This view is supported by the recent Henry review on taxation that identified a number of state based taxes as among the most inefficient and distorted of all taxes.
The recently completed review of Australia’s tax-transfer system excluded GST, limiting the tax reform options available to be put forward as part of the review.
The exclusion of the GST constrained the effectiveness of the tax review process, according to Mr Conway.
“The review was an opportunity to increase our reliance on indirect taxes to support the aging population and other spending demands,” Mr Conway said.
The rate of GST that applies in Australia is low by international comparisons. New Zealand for example, has just increased its rate to 15 percent, cut company tax to 28 percent and lowered its top marginal tax rate to 33 percent.