Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 619

Raising the GST to 15%

For the umpteenth time, tax reform is back on the agenda—this time as the centrepiece of Treasurer Jim Chalmers’ latest economic summit aimed at lifting productivity. He’s now positioning himself as a champion of efficiency and a warrior against red tape. But it’s hard to take that seriously when, according to recent reports, the Albanese government has added more than 5,000 new regulations in its first term alone. It’s a familiar pattern: a flurry of committees, consultations and reviews, with little real appetite for structural change.

We’ve been here before. The Henry Tax Review, delivered in 2009 and chaired by Treasury Secretary Ken Henry, was promoted as a once-in-a-generation opportunity to overhaul Australia’s tax system. The goal was to build a fairer, simpler, more sustainable framework for an ageing population and a globally competitive economy. But from the outset, its hands were tied. The GST was off-limits, as were tax-free super withdrawals after 60, and the politically sensitive excise duties on alcohol and tobacco – three of the most significant and contentious levers in the tax mix. That exclusion crippled its ability to deliver truly comprehensive reform.

Of its 138 recommendations, only a handful survived. The super guarantee was locked in to hit 12%. A mining tax limped through, so diluted it sparked industry fury and helped topple a PM. Small and medium businesses got a company tax cut, but the rest – think income tax tweaks, stamp duty reform, and family payment overhauls – were swept under the rug.

The problem is that any real tax changes are politically toxic. Just look at the current system. Once a person earns $135,000, they lose 39% of every extra dollar. That jumps to 47% after $190,000. These are hardly extravagant incomes by today’s standards, yet we’ve created a structure where effort is punished at the margin. It discourages productivity and encourages people to find ways to minimise tax – hardly a recipe for economic growth.

There’s been talk for years about eliminating the capital gains tax exemption on the family home, but that’s a practical impossibility. No government would dare touch it – and even if they tried, the wide disparity in house prices across Australia would make it unworkable.

Reducing the 50% capital gains tax discount is another idea that’s often floated, but implementing it is far from simple. Any change would have to start from a set date – but even before then, markets would be distorted. A rush of purchases would likely be followed by a slump, throwing long-term planning into chaos. And unless inflation is factored in, removing the discount would breach a fundamental tax principle: you shouldn’t tax inflationary gains.

Super is always in the firing line. There’s talk the government might impose a 15% tax on pension-phase accounts that are currently tax-free. But that would defeat the entire purpose of super: to provide a low- or zero-tax environment in retirement. A couple with $800,000 invested in their own names would pay no tax anyway, thanks to offsets and franking credits. If you tax their super, they’ll just pull the money out and invest it outside the system.

Then there are the perennial rumours about family trusts. Many small business owners—who are also among the country’s main wealth creators—rely on trusts for asset protection. If you’re a sole trader or in a partnership, your personal assets are on the line if things go bad. That’s why most use trusts or companies. A trust doesn’t pay tax—it distributes income to beneficiaries, who then pay at their marginal rates. Yes, trusts can offer tax advantages, but they’re modest. Distributions to minors are taxed at the top marginal rate above $416 a year. And with the 30% bracket now stretching to $135,000, there’s little point targeting trusts with new taxes—owners will simply shift distributions to wages.


Source: Firstlinks, Australian Bureau of Statistics [www.abs.gov.au/statistics/economy/government/taxation-revenue-australia/2023-24]

If we’re serious about reform, the only practical solution is to lift the GST to 15% with no exemptions. That would hit the black economy hard and ensure retirees – who currently contribute very little – help cover the rising cost of services.

Of course, any GST increase will be slammed as regressive. But so are petrol taxes, liquor excise and cigarette duties – and no one seems to object to them. The strength of the GST is its efficiency. It’s almost impossible to avoid. It captures a broad slice of the cash economy, and while it does affect low-income earners, it hits big spenders hardest – those with the most disposable income.

 

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noel@noelwhittaker.com.au.

 


 

Leave a Comment:

RELATED ARTICLES

Labor should focus on cutting Government spending

A capital gains tax discount is legitimate but how much?

Taxing the ‘rich’: the potential tax consequences of inequality

banner

Most viewed in recent weeks

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Latest Updates

Investment strategies

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Planning

Super, death and taxes – time to rethink your estate plans?

The $3 million super tax has many rethinking their super strategies, especially issues of wealth transfer on death. This reviews the taxes on super benefits and offers investment alternatives.

Taxation

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Shares

The megatrend you simply cannot ignore

Markets are reassessing the impact of AI, with initial euphoria giving way to growing scepticism. This shift is evident in the performance of ASX-listed AI beneficiaries, creating potential opportunities.

Gold

Is this the real reason for gold's surge past $3,000?

Concerns over the US fiscal position seem to have overtaken geopolitics and interest rates as the biggest tailwind for gold prices. Even if a debt crisis doesn't seem likely, there could be more support on the way.

Exchange traded products

Is now the time to invest in small caps?

With further RBA rate cuts forecast this year, small caps may be key beneficiaries. There are quality small cap LICs and LITs trading at discounts to net assets, offering opportunities for astute investors.

Strategy

Welcome to the grey war

Forget speculation about a future US-China conflict - it's already happening. Through cyberwarfare and propaganda, China is waging a grey war designed to weaken democracies without firing a single shot.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.