GST Could Increase

When the GST was introduced in Australia in 2000, people saw a risk that the 10% would be ratcheted up like in other countries. (See new List added in Resources). The government's response was to write the Act to say the rate could not be changed unless all State and Territory premiers requested it and that the legislation would have to pass both houses of Federal Parliament. This however can be overridden. The government would have had to change the Constitution to really lock in the GST at 10% (see Williams opinion at http://www.aph.gov.au/library/pubs/rn/1998-99/99Rn12.htm).

So why is FinDem revisiting this issue now?

* The federal government will control both Houses of Parliament from 1 July 2005.

* All States are Labor-controlled and need more money for infrastructure and health budgets.

* The States do not appear likely to hand over health responsibilities to the Commonwealth.

* The federal government has stated that all GST revenue goes to the States.

* The New Zealand GST rate, which was introduced at 10%, is now 12.5% and out of line with Australia.

* Population projections show Australia can expect a declining workforce and therefore declining income tax base and increased health care and pension outgo.

* There is $144 billion accrued unfunded superannuation liability for public servant payouts (mainly federal) with no provision to pay for this; most of this will need to paid over the next 15 years.

All other countries where GST was introduced (with exception of Switzerland, Canada and France), have increased the GST rate from when it was introduced (by 5% on average). See the chart we had added to Miscellaneous Charts in Research Centre. Whether or not it happens under the current government, people planning for retirement would be prudent in building in a 5% margin in their budget for retirement income to allow for GST increase.

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