GST charges applicable to healthcare, food and education to deal with estimated shortfall

As pressure builds for Joe Hockey to explain how to fund the proposed cuts in personal income tax, a Parliamentary Library analysis acquired by Fairfax Media has revealed that the only way to do so is by extending the GST to healthcare, education and fresh food.

According to the Sydney Morning Herald report , the analysis notes that taxing healthcare products alone would ensure an extra revenue of around AU$16.25 billion in the coming four years. However, this is not enough to make up for the estimated shortfall of $25 billion in revenue over the next four years, arising from the personal income tax cut proposal by Hockey.

And this $25 billion is only expected to increase in the next ten years due to the “cumulative impact” of the tax cuts. As a result, even if GST charges were extended to both healthcare and food, the revenue increase from these taxes of approximately $145 billion will still be less than the actual minimum requirement of $165 billion in the coming decade.

Instead, the Parliamentary Library report indicates that also including the education sector to the mix - or extending the tax to education, healthcare and fresh food - will lead to a hiked revenue of $198 billion in ten years, which will make it easier to cover the estimated shortfall in revenue from personal income tax cuts.

In a speech on Monday, the treasurer had said personal income tax cuts were necessary as the “bracket creep is holding people back,” referring to the lack of recent adjustments to income tax brackets, which if left unchanged, could see around 300,000 Australians move into the second-highest tax bracket.

Reports also suggested that Hockey had indicated that the GST would be applied to healthcare, when he said on Monday that the healthcare sector is “essentially GST free." “And because health is growing with the ageing population, it means that the tax base for the GST is narrow,” Hockey added.

However, he has since rejected those reports, telling journalists explicitly, “I never said the GST should be applied to health.”

The federal government collects GST and income tax, while the GST revenue is distributed among the states and territories across the country. Hence, it is difficult to formulate GST policies on which leaders from all the states and territories agree and the public is confident about.

Greens Treasury Spokesperson Adam Bandt has criticised Hockey’s personal income tax proposal, saying it would burden low-income groups. “The Treasurer would need to extend the GST to health, education and food to cover the cost of his income tax cuts,” Bandt said, adding that the plans would effectively be a tax shift, rather than a tax cut.

Bill Shorten, the leader of the opposition, also said , “So the economic formula which Mr Hockey and Mr Abbott’s Liberals have for Australia is if you’re sick and need to go to the doctor, you pay extra tax. If you need to go to hospital for your kids, you pay extra tax. If you need bandages, you pay extra tax.”

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