A new report by the e61-UNSW Policy Research Partnership has brought renewed attention to the structural inequities within Australia’s Goods and Services Tax (GST), revealing that the current system disproportionately impacts households with similar incomes and spending habits. Although the GST is presented as a flat 10 per cent tax on goods and services, the numerous exemptions embedded within it result in significant disparities in the actual amounts paid by different households. The tax, which is the federal budget’s third-largest revenue source, collected $81.7 billion in 2022–23 and is projected to approach $100 billion by 2026–27.
The report highlights that only around half of consumer items are subject to GST, and this patchwork approach creates considerable “horizontal inequity” — where people with similar financial capacity pay vastly different amounts of tax. For example, low-spending households, averaging $15,222 in annual expenses, can end up paying between $729 and $1,354 in GST — a difference of 46 per cent. This disparity persists across income brackets: average households experience a 37 per cent difference in GST burden, while the highest-spending households face a 33 per cent variation, translating to more than $2,500 in annual tax differences.
According to co-author Dr Matt Nolan, “These exemptions are causing a significant inequity where households which spend or earn similar amounts overall end up paying hugely different amounts of tax.” Fellow author Josh Clyne added that this uneven taxation also distorts consumer behaviour, as people and businesses adapt their choices to avoid taxed items. For instance, supermarkets may opt to sell cold cooked chickens instead of warm ones, as the latter are subject to GST.
Key exemptions — including fresh food, childcare, private health insurance, sunscreen, education, and charitable donations — are the main contributors to the disparity. Nolan noted that for low-income households, food choices are the leading cause of divergence in GST paid, while for high-income households, exemptions for services like childcare and education have a greater impact.
Calls for reform have intensified in 2025, as the federal government grapples with a structural budget deficit and pressure mounts to reduce income taxes. Economists and commentators argue that Australia’s GST, at 10 per cent, is low by OECD standards — the average being 19.4 per cent — and reform could increase both fairness and efficiency.
Among the proposals is a comprehensive reform plan put forward in August by UNSW economist Richard Holden and independent MP Kate Chaney, who advocate increasing the GST to 15 per cent while scrapping all exemptions. Their plan includes a $3,300 “basics rebate” for every adult, effectively creating a $22,000 GST-free threshold to shield low-income households from adverse effects.
Chaney’s involvement underscores a growing willingness among crossbench MPs to tackle politically sensitive tax reform. Nolan and Clyne offered an alternative proposal: maintain the 10 per cent GST but remove exemptions and offer a $900 rebate to all adults. “People who earn and spend less are made better off, while those who are higher earners and spenders end up contributing additional tax,” Clyne said. Both proposals aim to simplify the system, remove arbitrary inequalities, and ensure the GST no longer depends on consumption patterns.