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Govt GST review ‘makes sense’

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At a time of declining government revenues Australia is missing out on billions of dollars each year from exemptions to the GST.

The Organisation for Economic Co-operation and Development again has urged Australia to make better use of the GST to enable a shift away from its dependence on income taxes.

In a series of recommendations in its biennial economic survey of Australia, the OECD says broadening the GST base by reducing the number of exemptions would make “sound economic sense”.

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The cost of GST exemptions on fresh food, healthcare, education and financial products was an estimated $20 billion in 2013/14.

The GST rate of 10 per cent is also low by international standards.

The Paris-based institution disagrees with the argument that changes to the GST would impact more on low-income families.

A recent OECD study indicates that high-income households benefit vastly more than poor ones as their consumption of the tax-favoured goods and services is greater than that of low-income households.

Phil Hemmings, a senior economist at the OECD with the responsibility of Australia, supports the Abbott government’s decision to conduct federation, taxation and financial system reviews and the potential any changes that may bring.

“Obviously these type of reforms are not things that can take place overnight,” he told AAP.

“But … the fact that it is engaging in debate is encouraging.”

The OECD also supports the government’s re-indexation of fuel excise duty, regulation that needs to be approved by the Senate .

Linking this extra revenue into road building enables people to see a clear connection between tax and revenue.

But the OECD believes from an environmental prospective there should be an expansion of user-based vehicle charges and a greater extension of public transport.

The report released on Wednesday also urges robust measurement of the government’s carbon emissions reduction fund to ensure 2020 targets are still met.

This comes after fundamentally changing Australia’s environmental policy away from the OECD’s preferred approach to tackling climate change.

“Typically … we underscore there are tremendous benefits of putting a price on carbon or through an emissions trading scheme and many countries have some sort of a pricing scheme,” Mr Hemmings said.

SOME RECOMMENDATIONS IN THE OECD’S BIENNIAL ECONOMIC SURVEY OF AUSTRALIA

• Make greater use of GST in shifting from dependence on income taxes.
• Reform federal-state financial relations, improve efficiency of shared responsibilities.
• Continue intensive monitoring of housing market, consider macro-prudential tools to bolster credit safeguards.
• Consider reducing the implicit guarantee of major banks.
• Ensure proposed emission reduction fund is efficient.
• Enact re-indexation of fuel excise regulations.
• Expand other user-based vehicle charges and extend public transport.
• Monitor proposed higher education reforms to ensure that choice and quality is enhanced and access is not compromised.