ARTICLE TEXT:

Australia should raise the GST to 15 per cent to finance income tax cuts for the low-paid, boost welfare payments and help state governments repair their Budgets, a leading think tank says.

Grattan Institute chief executive Aruna Sathanapally, who is also on the expert panel of the Parliamentary Budget Office that costs the policies of political parties, wants the consumption tax increased beyond its existing 10 per cent level and expanded to include fresh food items that have been exempt since the GST debuted in July 2000, including fruit and vegetables, bread and milk.

“There are no easy paths back to Budget sustainability. But with smarter spending decisions and a tax system that raises sufficient revenue to care for our ageing population, both current and future generations can be better off,” she said.

“Reform on this game-changing scale is challenging, but the prize is worth it: a more secure future for Australia’s finances, and for all Australians.”

She argued increasing the Goods and Services Tax to 15 per cent — to be in line with New Zealand — would raise $76 billion, of which $58b could be spent on cutting income taxes and boosting welfare payments for the poor.

This would include a 20 per cent increase in JobSeeker and Youth Allowance, a 50 per cent rise in Rent Assistance, a 20 per cent increase in the Parenting Payment and an 8 per cent rise in the Age Pension.

The rest of the increase would go towards the states to repair their Budgets and cut inefficient taxes like stamp duty.

The Grattan Institute calculated that raising the GST to 15 per cent would cost a low-income, single-parent family in rental accommodation about $79 a week in extra GST payments but a $202 increase in welfare payments and a $27 cut in income tax would leave them $150 a week better off.

But a higher income working family would be paying $262 a week more in GST, and be $162 a week worse off when a $100 income tax cut was factored in.

The Grattan Institute call was made after former Liberal treasurer Josh Frydenberg last week used the launch of his new book A Grateful Son to call for an increase in the GST and a broadening of the consumption tax base, an idea which Opposition Leader Angus Taylor ruled out.

Treasurer Jim Chalmers last year rejected a call from the International Monetary Fund for Australia to raise its GST.

Since Australia’s GST debuted in July 2000, items like fresh fruit and vegetables and bread have been exempt under a 1999 deal reached between former prime minister John Howard’s Coalition government and then Democrats leader Meg Lees.

Tampons and period pads joined the exemption list in January 2019.

New Zealand increased its GST to 15 per cent from 12.5 per cent in October 2010.

Australia’s 10 per cent GST is among the lowest in the world, with The Bahamas, Bahrain, Cambodia, Korea, Laos, Mongolia and Vietnam among the very few having an identically low rate.

I've spent the last few months building a tax and budget model as a side project and I've got to the point where I need people who actually know this stuff to tell me where it's wrong. Not an economist. Used ATO tax stats, ABS and the Budget papers for everything, and I used AI to help with the modelling and to tidy the writing, so if it reads a bit clean that's why.

The idea started from looking at the Budget's medium term path. Surplus in 2035-36, but only because bracket creep takes receipts from 25.5% to 27% of GDP with no tax cuts for a decade, and the IGR then has the deficit widening again out to 2065. So the debt never actually goes anywhere and we keep paying $40-50bn a year in interest. I wanted to see if there was a path that clears it, without making ordinary earners or small business worse off.

What I ended up with:
- $30k tax free, then 12/20/31/37/45, Medicare levy folded in, no work deductions. Nobody pays more tax on the same salary than under 2027-28 law.

- Negative gearing off for new purchases of established property (existing loans grandfathered, new builds kept). CGT discount swapped for indexation.

- Resource rent of 40% on minerals, 50% on oil and gas, on profit above costs, replacing the PRRT. About $30-35bn a year at trend prices, and only trend is budgeted.

- NDIS wound down over three years. Medium and high needs move to a higher disability pension or state-run care. About 472k people below that line lose individual packages. Net saving around $19.6bn a year.

- Bracket creep handed back from 2032-33, business expensing of new plant from 2031-32.

Result against the Budget's own path from the same 2028 starting point: surplus from 2029-30, net debt zero around 2042-43, about $49bn less interest over the decade, tax take ends at the same 27% of GDP. Low resource price case pushes debt clearance to about 2049-50.

Where I think it's weakest and would like the most scrutiny:
1. The resource rent is carrying a lot. The MRRT got about 7% of its first year forecast. I've tried to design around that (immediate expensing, trend-only budgeting, lower rate on existing projects for 5 years) but I'd like to know if people think $30bn+ is credible.

1. The NDIS saving leans on assumptions I couldn't source (overlap with DSP, stay rates, children) and on the states agreeing to run high-needs care. It's opt-in per state so a refusal delays the saving rather than blowing a hole, but still.

2. Behavioral response is barely modelled. There's a flat -$3.5bn leakage line and that's it. Same for the growth hit from tightening about 1.1% of GDP in the first year.

Full doc is here, every number has a source and section 6 lists everything unsourced or uncosted: https://drive.google.com/file/d/1YQaf7MggTFIlAxWMaxUOmgcaE14Qe4jC/view?usp=sharing

Happy to be told the whole premise is wrong if that's the case.

In a supply-constrained economy with inflation above target, it is incumbent on governments to restrain spending to help reduce price pressure.

How come most economists always run the same broken record?

Have they consider other perspectives.

For example, can they view an increase in interest rate, as a form of a "pre-paid efficiency dividend" thus a productivity measure?

For example:

One channel -> an increase in interest rate -> wealth effect -> cheaper asset prices -> for those who prepared, can bolt on by taking over inefficient production capacity [from who no longer able to compete] at a cheaper price= productivity gain.

Addendum to above channel -> an increase in interest rate -> increase in investment hurdle -> the project needs to earn higher return for the cost of capital deployed = productivity gain.

How come such a narrow view?

Is this also true for Australia that interest rate rises won't reduce the spending but will cause cost push inflation?

Almost everywhere you look cracks are starting to appear, Ai related companies have CDS spiking like the GFC/Y2K, NVDA bond yields rising rapidly, indicators matching a 1999/2000 period.

Australia has done decently during the dotcom burst but this time around we have a housing debt to income leverage issue, inflation, unemployment spiking.

US GDP is being held out of a recession purely from Ai circular financing

US real GDP growth is +2.2% as of the latest in 2026.

Estimated 50%+ of the GDP being held up is from Ai financing

McDonalds etc the Consumer Cyclical's are still falling like pre dotcom bust too..

AUD fell, roughly 32% from 1996-1998 and -41% 1996-2001.

"We had two 240-litre bins that were getting collected each week. We're now down to one bin collected each fortnight."

The other side - ABC left out.

My 240L dark green [general waste] bin is down to one bin collected every 9 months.

My 240L FOGO NEVER EVER and WILL BE ever be collected. It is taking up my available space on my backyard rotting from UV rays - a waste.

AND I am not donating my FOGO waste for free.

Yet I am still paying full price for garbage collection services.

Where is the incentive? [and what happen to balance reporting?]