You'd better get prepared for it as major changes are coming to Australia's taxation and superannuation systems.
That includes a proposed hike in the GST rate beyond its current 10% level, as well as targeting loopholes in our superannuation system, according to the Australian Financial Review (AFR).
The good news is that Australians are likely to see lower state taxes as a result of the rise in GST. According to the AFR, Prime Minster Malcolm Turnbull has said that states need to get rid of their inefficient taxes as well as become more efficient at the services they deliver, such as health.
Replacement of other taxes with higher GST rate
When the GST was initially introduced, it came with a proviso that states needed to remove a number of state taxes, including stamp duty charged on housing and a number of other products and services. While more than 30 state and territory taxes were abolished – many states have still not removed stamp duty on housing or motor vehicles, as well as other taxes – and they have become an important part of their revenues. According to The Australian, stamp duty revenues have soared by 800% over the past 20 years. I firmly expect the federal government to again push the states to abolish taxes such as stamp duty.
The push for a rise in the GST, and or a broader version also appears to be gathering support. New Zealand introduced a GST rate of 10% in 1986 and was eventually raised to 15% in 2010. It covers a multitude of goods and services, rather than the limited version we have in Australia, but also allowed New Zealand to reduce personal and company tax rates.
While it may seem like the federal government is taking with both hands, it is adamant that any GST hike is offset by tax cuts elsewhere.
What could the GST rise to?
In a 2011 study by accounting firm KPMG, a rate of 12.5% was rejected because it was unlikely to result in much reform to other taxes. Doubling the GST rate to 20% is unlikely either given the political fallout that is likely to occur. That suggests a 15% GST rate is most likely. The additional question is whether the GST is expanded to cover health, education and fresh food, which are currently exempt. Raising the GST to 15% and applying a broader base could raise an additional $43 billion in GST revenues, according to CPA Australia – and would likely mean the end of insurance tax, stamp duty on motor vehicles and all conveyancing stamp duty.
Superannuation
When it comes to super, the government appears likely to make changes to the accumulation side, rather than the retirement phase. Treasurer Scott Morrison has told the AFR that the government would look at the retirement phase, "very carefully, but also very sensitively".
Various studies have also shown that higher income earners benefit the most from the current structure of our superannuation system, and there appears to be widespread community support for the system to be made 'fairer'.
That could mean higher taxes on contributions to super while leaving retirement income free of any tax.
A recent media article suggested that contributions should be taxed at our personal marginal tax rates – on a sliding scale – resulting in higher income earners paying more tax on their super contributions than low-income earners. That seems to be a sensible suggestion, although the trouble's always in the detail.
Foolish takeaway
These changes will take time, so don't expect to see the GST rise anytime soon, or changes to super become effective overnight. It's likely any changes will need to be approved by both houses of parliament too, which could see the target implementation date of July 1, 2016, or 2017.
