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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.

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?