Expert says GST increase is on the cards

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The possibility of a higher GST has been slammed by one lobby group who believes it would worsen housing affordability.

There has been speculation recently that the Federal Government is considering lifting the GST to 15%, but the Urban Development Institute of Australia claims that would add tens of thousands of dollars to the cost of new homes in Australia.

“At the current 10% GST rate, a new house sold at Australia’s median house price of $658,608 already includes a GST component of $59,873,” UDIA national president Cameron Shepherd said.

“Were the rate increased to 15%, that amount would rise to $89,810, an increase of almost $30,000. The impact would be even greater for cities like Sydney and Melbourne which have higher house prices,” Shepherd said.

Shepherd said the UDIA supports the government’s push to overhaul the country’s taxation arrangements and would like to see taxes such as stamp duty abolished, but he said there are more effective changes that could be made rather than a GST increase.

“Broadening the GST base would improve its efficiency, and raise additional revenue that could be used to both provide relief to low income earners, as well as assist in the phase out of economically damaging taxes such as stamp duty,” he said. 

“Land taxes are another efficient revenue source, and lower rate, broader based land taxes could help provide a stable source of revenue to replace stamp duty, and reduce the reliance of state governments on up front housing charges.”

While the UDIA may be against the idea of raising the GST, Catherine Simons, a director of accounting firm WSC Group, believes it is a possibility.

“I think an increase in the GST is definitely on the cards,” Simons said.

“If it was to be increased I do think stamp duty should be looked at. When the GST was introduced to begin with the motivation was that it would replace a lot of the state taxes, so an increase would give the states scope to look at getting rid of things like stamp duty.”

Simons said a trade-off for a higher GST at the expense of stamp duty may not result in a price rise like the one predicted by the UDIA.

“If you look at a state like NSW and its average prices if you increased the GST and scrapped stamp duty, the price of a new house would end up being around the same,” she said.

“There’s no GST on second-hand housing, so an increase could impact construction of new homes, but if it meant stamp duty was scrapped it would benefit those buying and selling second-hand homes."

While she believes the GST will rise, Simons said what that will ultimately mean for other tax arrangements will depend on how the increased revenue is distributed.

“I do think there will be an increase in the GST sooner or later, but what will come with that will depend on the details of where the money will go and how much everybody gets.”

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