Raising the Goods and Services Tax to 15% and broadening its base to include food, education and health would raise a huge amount of revenue for the federal government but have the biggest impact on small and medium-sized businesses, according to accounting and business advisory firm Pitcher Partners.
Prime Minister Malcolm Turnbull has refused to rule out any potential economic reforms since taking office, including an increase to the GST.
This means a GST hike is effectively back on the table.
Former Prime Minister Tony Abbott hinted at the need for a GST overhaul earlier this year as part of the government’s tax reform agenda, describing arguments for change as “very powerful”.
However, Abbott also said any policies to do with the GST would be taken to a federal election and would need to be agreed upon by all of the states.
Craig Whatman, tax partner at Pitcher Partners, told SmartCompany any increase to the GST would be more palatable to small businesses if there was a corresponding cut in the company tax rate.
“With any change to the GST, both an increase as well as a broadening of the base, there are quite significant issues that would need to be dealt with,” Whatman says.
“While some people will say ‘how hard can that be?’, it’s quite a big change for the computing systems around GST compliance and issuing invoices to customers and contracts with suppliers. There’s actually a fair bit to it.”
“When you add that to those small businesses in the food, education and health sectors where they’re treating all their suppliers from GST-free to taxable, that would be quite a significant impact – at least in the transitional period leading up to the change,” he adds.
Turnbull has previously indicated his willingness to reform Australia’s economy as well as compromise in order to push through necessary changes.
Whatman says his clients, which are largely SMEs, would be happy for the GST rate to go up if there was tax relief in other areas.
However, whether or not SMEs would accept the GST applying to fresh food is another story.
“Probably the most significant two areas [of tax relief SMEs would like] would be a reduction in the corporate tax rate as well as relief in the state taxes area,” Whatman says.
“So the abolition in stamp duty, for example, which is quite a big cost on businesses at a state tax level.”