Could an increase to the GST benefit your business?

The topical debate of the pending tax reform has once again found its way into headlines with Assistant Treasurer, Josh Frydenberg saying the Turnbull government will be taking the GST increase into the next election.

Taxes, commonly referred to as a ‘necessary evil,’ are the price we must pay for public services. News of an increase to any tax is seldom met with enthusiasm however it’s important to understand that tax reform can provide benefits for both working Australians and the economy if correctly implemented.  A Fairfax Ipsos Poll in April 2015 revealed that 37% of Australians support an increase to the GST– a steady increase from the 12 per cent in 2012.

Interestingly, Australia’s existing GST rate of 10 per cent is below that of other Organisation for Economic Cooperation and Development (OECD) countries, which on average sits around the 19 per cent mark.

If there was to be an increase to the GST there would be a compensation scheme implemented elsewhere in the tax reform, most likely in the form of a reduction in personal and corporate tax.

Taxing expenditure instead of income is perceived as a favourable option by some – lowering income tax essentially means more money in the pockets of workers which will likely stimulate the economy.

A reduction in personal income tax would also work to benefit Australians who want to work more and are being held back by the current tax system.

According to the Parliamentary Budget Office a five per cent GST tax hike could raise $130 billion in the 2017-18 financial year. This rise would not only increase the budget’s bottom line but actually allow for the government to compensate low-income households and small businesses through tax cuts elsewhere.

Prime Minister Turnbull has stated that the government has not settled on a GST increase and if it did, he notes that low to middle earners would be compensated in some way.

 

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