GST reform discussion requires facts and analysis, not ideology

Why? Because the rich spend many more dollars on the exempted products than the poor.

Opposition to a higher GST rate to finance lower income taxes, if anything, is even sillier. Relative to a higher GST rate, a lower GST rate confers a dollar concession on the top income quintile nearly three times as large as for the bottom quintile.

The top 60% of households account for about 74% of total expenditure on goods and services. Just over one-quarter is accounted for by the bottom 40%.

Exemptions from taxes on products cannot be quarantined to the poor if everybody buys those products. Worse, the poor get proportionately less of the Budget cost of the concessions than the rich.

By opening up large holes in the GST tax base in areas such as health that are growing faster than the economy, these exemptions also undermine the efficiency and revenue-raising capacity of the GST itself. This means we are forced into more reliance on less efficient taxes, such as income tax in all its variants.

Labor opposition to GST reform implies it supports very inefficient and wasteful ways of trying to help the poor. It also delivers a very inefficient and leaky tax system overall.

What GST reforms are worth investigating?

Eliminate most exemptions and have a broader GST tax base. A New Zealand model would be a good start. For online imports, lower the exemption threshold from $1,000 to something like the current UK and Canadian thresholds (about $20 - $30 or so). Consider raising the GST rate (again, the New Zealand model is worth a close look).

This is not an argument to raise the tax/GDP share in Australia. That depends on progress in rationalizing and reducing public spending. But it is an argument about how to collect current tax levels less inefficiently.

For the states, extra GST revenue should be used in the first instance to replace their remaining inefficient state transactions taxes (notably stamp duties on property and insurance).

If the Commonwealth Budget allows, extra GST revenue (and consequent scope for lower grants to the states) should be used to pay for lower income tax rates.

Labor's GST position is unsustainable. GST reform should be considered, along with reducing income tax.

That combination would improve the efficiency of our tax system. Let's at least talk about it.