Goods and Services Tax (GST)

What’s the problem we’re trying to fix?

GST is a tax of 15% on most products and services. It makes up one quarter of our government’s income, so it’s pretty vital! 

But people with the least ability to pay contribute the biggest portion of each dollar they earn through GST.  For example, if you earned $500 per week after paying income tax and spend $230 on food, power, and other essential goods and services, you’ll be paying $30 in GST.

Contrast this with someone earning $1000 per week. They’ll likely spend a similar amount on essentials. They can save or invest that extra money, and they don’t pay GST on these investments. So the proportion of their income paid in GST would be about half that of the person earning $500!

How could we make GST better?

Options to address the impact of GST on the least well off (the “regressive” effect of GST) include:

• Lower the GST rate
• GST refunds to the least well-off at point of purchase of goods and services, or through a periodic tax refund

We also recommend that the government investigate applying GST to financial services - this is a major hole in our GST system, that likely benefits those who are already well-off the most.

Why would these changes to GST make things better?

Lowering the rate would reduce the impact of GST on the least well-off. However, those with the least ability to pay will still give the highest proportion of their income under GST. So the least well-off could be refunded the GST they have paid, and this change could be paired with other tax changes to fill the revenue gap and ensure that those that have more to contribute, pay their fair share . 

GST refunds for those on lower incomes would maintain GST as a significant source of revenue to fund our schools and hospitals, while making sure contributions come from those who can afford to contribute the most.  To ensure the refunds reduce the impact of GST on the least well-off, we need to create good protections to maintain the refund rates over time and alongside inflation. 

Removing GST from essentials is another option that is often proposed. While this could make some important things more affordable, it would not address the unfair, disproportionate impact of GST on the least well-off. It can also be difficult to draw a clear line between essential and non-essential items - although there are examples of this being done in other countries, like the UK and Australia.