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Chalmers rejects IMF call for GST increase

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Chalmers rejects IMF call for GST increase

Dr Chalmers brushed off the IMF director’s recommendation, despite his comments this week that the federal budget had structural issues partly because of the growing debt bill.

Dr Chalmers said raising the GST would not fix the problem since the tax was collected by the federal government and distributed back to the states.

“From my point of view, there are distributional issues with the GST in particular. Every cent goes to the state and territory governments, so it wouldn’t necessarily be an opportunity, at least not directly, to repair the Commonwealth budget,” he said.

Jim Chalmers said the government had already made tax reforms in the areas of superannuation and multinational taxes. Paul Morigi

Dr Chalmers is in Washington this week attending IMF-World Bank meetings with Treasury Secretary Steven Kennedy. The treasurer is expected to meet his international counterparts to discuss the deteriorating state of the global economy.

“Our priorities lie elsewhere; a modest but meaningful change to superannuation tax breaks and changes to multinational taxes consistent with the global agenda that we’ll be advancing here at these meetings,” he said.

“We take seriously the input suggestions from the IMF and all the global institutions. But it’s our job to make our own priorities clear.”

Last month, former Treasury boss Ken Henry said the switch from personal income taxes to less economically damaging, broad-based indirect taxes, chiefly the GST, had been “completely undone” since 2000 by an erosion of the GST base.

The erosion is partly because consumption patterns have changed dramatically since the GST was introduced in 2000.

Movement around the world

Of the 170 countries that have introduced a consumption tax or VAT, many have taken necessary steps to adjust their rates to suit revenue requirements and consumption patterns.

The United Kingdom lifted its GST equivalent VAT to 20 per cent from 15 per cent in the global financial crisis and from a temporary 12.5 per cent on hospitality during COVID. Saudi Arabia increased its VAT from 5 percent to 15 percent in July 2020.

Even smaller countries such as Vanuatu have taken the plunge, increasing its VAT from 12.5 per cent to 15 per cent. New Zealand has raised its rate twice since it was introduced 37 years ago.

Ms Gulde-Wolf’s comments follow the IMF’s warning this week that federal and state government budgets would be in deficit until at least the end of the decade, putting pressure on those governments to either cut spending or raise taxes.

The IMF’s forecast also came a day after a report from the Grattan Institute that warned the federal government’s structural budget deficit would increase from $50 billion to $70 billion by the end of the decade.

The Grattan Institute recommended policy options to tackle the deficit, including cutting superannuation tax concessions, reining in the National Disability Insurance Scheme and lifting the GST to 15 per cent.

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