Australia's goods and services tax of 10 per cent is too low by global standards according to the Organisation for Economic Co-operation and Development.
The Paris based organisation believes Australia should consider raising the tax and broadening its base to make up for the shortfall in government revenues.
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."
The cost of GST exemptions on fresh food, healthcare, education and financial products was estimated to be $20 billion in 2013/14.
Senior Economist at the OECD, Phillip Hemmings said the problem with this exemption is that it's a very inefficient form of welfare support for low income earners.
"Because they not only mean that low income households don't pay the good and services tax on food items but neither do high income households. Our argument would be well, if you want to help the low income households you target benefits towards them so you use the welfare system to help the welfare of the low income households rather than the GST system. We would say, for instance, were one to raise revenues from the goods and services tax, you could use some of that additional revenue to increase payments to low income households to compensate them for this," he told the ABC.
The President of the Public Health Association of Australia, Heather Yeatman is opposed to the GST being applied to fresh food.
"We already know that very few Australians, like less than 10 per cent consume the recommended amounts of vegetables every day and less than 50 per cent consume sufficient fruit every day. So if you actually make fruits and vegetables more expensive, you're likely to push that down even further."
The head of World Vision Australia, Tim Costello said the GST needs to be broadened because of Australia's declining tax revenue.
He said putting the GST on fresh food could be worth considering partly because many lower income Australians are not eating enough of it anyway.
“Look I’m not dogmatic at all on the question of whether it should or shouldn’t apply to fresh food, I would say if we can actually raise revenue without putting GST on fresh food absolutely but I am concerned that the poor are eating processed foods anyway, that they are being impacted anyway because we haven’t addressed the revenue side,” he told SBS.
But Ms Yeatman from the PHAA has questioned the logic of that argument.
"You've got higher rates of chronic disease with low income people. Part of that is because they're consuming highly processed foods. So, if you make the fresher foods more expensive again it means that they're likely to consume even fewer of those than their problems in relation to chronic disease are likely to increase. So, on the one hand there's a little bit of logic there but I think it's actually going to produce a worse public health outcome than Mr Costello indicates," she told SBS.
Cut stamp duty and crackdown on corporate tax cheats
The OECD also wants Australia to give priority to cutting corporate tax rates, reducing regulatory burdens and get tough on corporate welfare and tax avoidance.
Mr Hemmings said Australia should also abolish stamp duty on real estate transactions.
"At the OECD we generally think that these types of taxes on transactions, real estate transactions and so on and so forth are not hugely efficient taxes and we'd rather see taxation on other areas than on these and not only the goods and services tax but we also welcome the proposal to bring indexing back on excise duty on vehicle fuels," he told the ABC.
Reforms needed for the environment
The OECD believes from an environmental perspective there should be an expansion of user-based vehicle charges and a greater extension of public transport.
The report 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.
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