With the Albanese government having flagged intentions to engage in broad-based tax reform, economists are pushing for changes to the GST to be on the table.

Ahead of the government’s productivity roundtable in August, which will consider the prospect of substantive tax reform, economists have begun brainstorming ideas to boost the efficiency and fairness of Australia’s tax system.

Economist Saul Eslake has called on the government to increase the GST rate and broaden its base, pointing out that Australia’s GST contributes a relatively small share of tax revenue compared to other OECD countries.

“Australia’s GST contributes only 12.5 per cent of total taxation revenue, less than every other OECD country except the US (which doesn’t have a GST) and well below the OECD average of 20.75 per cent,” Eslake said.

Australia’s current GST rate, which is 10 per cent, is well below the OECD average of 19.2 per cent. Eslake argued that GST reform would be one of the fairest and least economically damaging ways to ensure long-term budget sustainability.

He also advocated for the scrapping of the WA GST deal, which has been estimated to cost the federal budget $60 billion over the 11 years to 2029–30.

Eslake said that Australia’s public spending was only likely to increase as global tensions necessitate higher defence spending, structural spending pressures across the care economy grow, and government debt fuels higher interest repayments.

In the absence of tax reform, professional bodies have warned that the burden of servicing these rising public costs would fall squarely on the shoulders of workers.

“Tax reform is an important part of boosting productivity – and it’s the right step forward to have it on the table,” Ainslie van Onselen, chief executive of CA ANZ, said.

“Our system is over-reliant on personal income tax, and that is unfairly punishing Australians also facing cost of living and housing pressures.”

In his National Press Club address last Wednesday, Treasurer Jim Chalmers said the government was open to considering substantive tax reform to boost productivity and curb public debt.

“No sensible progress can be made on productivity, resilience or budget sustainability without proper consideration of more tax reform,” he said.

“This evolution in our revenue base is one of the reasons tax reform is so crucial to budget sustainability – on top of restraining spending, finding savings and working on longer‑term spending pressures.”

He noted that GST reform was not an option he had been drawn to previously, but added that he would not rule out any ideas ahead of the government’s upcoming productivity roundtable.

“I suspect the states will have a view about the GST. It’s not a view that I’ve been attracted to historically. But I’m going to try not to get in the process of shooting ideas between now and the roundtable,” Chalmers said.

Liberal Party leader Sussan Ley has broadly indicated that she would not be in support of any tax hikes, including in relation to the GST.

“As soon as you say there’s a case for raising tax, my instinctive answer is no. In terms of the details, we want to examine the proposals the government brings forward,” she told the National Press Club on Wednesday.

Productivity Commission chair Danielle Wood said GST reform was an option worth examining and there were ways of reforming the tax that wouldn’t push the government further into deficit.

“We think the commission would be very open to broader tax reform,” Wood told The Australian last Friday.

“Whether that’s the GST or income tax, we would look at it.”

A 2020 PwC report found that GST reform could deliver Australia a revenue boost between $14 billion and $40 billion whilst boosting productivity and economic growth.

It suggested boosting the GST rate from 10 per cent to 12.5 per cent and broadening the base to cover previously exempt items.

Eslake noted that some items currently exempt from GST, such as private health insurance premiums and private school fees, largely flowed to higher-income households, so broadening the GST base did not necessarily have to be “regressive”.

However, the economist said that the federal government was unlikely to consider raising GST while the nexus between GST revenues and federal grants to states and territories remained intact.

“No Federal Government is ever going to wear the political odium of raising the rate or broadening the base of the GST … whilst state and territory governments get to spend the resulting additional revenue.”