SHIFTING THE TAX BURDEN FROM EARNERS TO SPENDERS - August 2025
In my column last month I discussed the need to reform our tax system so that younger Australians aren’t left bearing the tax burden for increasing national health and aged care costs. In the lead-up to the Economic Reform Roundtable in Canberra this week, I proposed an idea that would help address this intergenerational inequity – shifting more of the tax burden from income earners to big spenders, through a progressive GST.
Why GST?
GST is an efficient way to raise tax revenue. It’s transparent, stable and unlike personal income tax, it doesn’t discourage additional work, so it has less negative impact on productivity. Australia’s GST is relatively low – about half the OECD average - and relatively narrow. The usual problem with GST is that it is regressive – it causes more pain to low income earners than high income earners, because they have to spend a higher proportion of their income.
But what if we change the GST to be better for low and middle-income earners?
We could shift the burden away from personal income tax by increasing the rate of GST to 15% and removing current exemptions. This could raise $93bn/year. If we used $69bn of this to pay every Australian adult a tax-free annual payment of $3,300, at least the lowest 60% of income earners would actually be better off, because they would pay less than $3,300 per year in additional GST.
What could we do with the savings?
We could also use the additional $24bn for personal income tax cuts or budget repair. For example, we could cut the top two personal income tax rates by 5 percentage points each AND freeze income tax brackets to stop bracket creep AND still have $10bn left to balance the budget, so we are not borrowing from future generations.
Why won’t the major parties talk about this?
The major parties don't want to talk about tax reform, because they're afraid of scare campaigns. And if neither raises it, both sides think they can keep hiding. But ignoring the intergenerational unfairness in our tax system won't make it go away. It just kicks the can down the road. We have nearly three years until the next election. Any party that wants to be taken seriously as a contender for government in 2028 must start building a mandate for a tax plan that is fair, future-focused, and fit for the demographic changes ahead.
Australians are ready for courageous action to secure a prosperous future for our children.
