Australians need to pay higher indirect taxes to fund welfare, KPMG says

Australia’s tax base is out of step with other countries and consumers can expect to pay more indirect taxes such as GST if the government is to keep pace with welfare costs, an international consultancy says.

Global tax experts at KPMG say taxpayers throughout the world will need to pay more tax in future as governments repay debt and fund increases in social welfare.

But the company’s annual global tax rates survey released on Tuesday said Australia’s tax mix is out of step with global averages.

Australia has heavier direct taxes, such as corporate and personal income, and lower indirect taxes, such as GST, than the global norm.

The average corporate tax rate is 23.68% compared with Australia at 30%, while the average sales tax rate is now 15.79% compared with Australia’s GST equivalent of 10%.

David Linke, national managing tax partner at KPMG Australia, said the study covering 145 countries showed that indirect tax rates have a natural optimum range between 15 per cent and 20 per cent.

“In the medium term, most countries will settle on a rate in this range,” he said.

“Australia’s current GST rate and relatively thin base will also come under increasing scrutiny.”

The Turnbull government is in the middle of producing a tax review white paper, which it has repeatedly said has all tax options on the table.

Some politicians, including the NSW premier, Mike Baird, favour increasing the GST to 15% in order to cover a projected increase in welfare costs. Others such as the Victorian premier, Daniel Andrews, argue that GST affects poorer people disproportionately and that increasing the Medicare levy is a fairer option.

Linke said that while tax rates in general are not changing quickly across the world, governments are moving to widen their tax bases, increasing the range of goods, services and activities that can be taxed to bring in more revenue.

However, raising income taxes is increasingly difficult in an inter-connected international economy, Linke said, and corporate taxes will fall as tax competition increases.