Expert backing for GST on food

EXCLUDING fresh food from the Goods and Services Tax is a “poor way” to protect low- income earners, an OECD expert says, undermining Labor and the Greens’ justification for opposing a broader GST.

The consumption tax guru also said the big gap between Australia’s heftiest personal income tax rate and the business rate is an “issue”, noting New Zealand used extra money from a GST hike to markedly cut its already- lower top rate in a bid to discourage tax- dodging via the corporate system.

In an interview with News Corp Australia, OECD tax policy division economist Alastair Thomas – lead author of the recent book The Distributional Effects of Consumption Taxes in OECD Countries – torpedoed Chris Bowen and Christine Milne’s justification for standing in the way of widening the base of the GST – and made a convincing case for increasing the rate.

The Labor treasury spokesman and Greens leader argue putting GST on currently exempt items such as fresh food is “regressive”, meaning it hits lower- income households harder than higher- income earners.

But Mr Thomas said exemptions are a “poor way” of helping battlers because the better- off don’t have to pay either.

“Excluding fresh food from the GST is not the most costeffective way to support poor households,” Mr Thomas said.

“What matters is the progressivity of the entire tax system. The income- tax and benefits system is the best place to do that. The GST is not the best place.”

Recent research for the accounting group CPA Australia found removing GST exemptions could bring in an extra $ 12 billion in 2015- 16, rising to nearly $ 22 billion in 2029- 30. CPA Australia suggested using some of the money raised to reduce low- income earners’ personal tax burdens while leaving higher- earners’ untouched.

Presented with the OECD’s analysis, a Greens spokeswoman said the party “is not in favour of increasing the GST or broadening the base in ways that would make life harder for those who can least afford it”. Mr Bowen did not respond.

The OECD has previously recommended Australia adopt a GST more like New Zealand’s – levied at 15 per cent with next to no exemptions.