Australia GST rise backed by OECD

OECD re-enters the GST reform debate

The OECD has reinserted itself into Australia’s long-running discussion on GST reform, recommending that the government broaden the tax base and consider increasing the rate above its current 10%. The proposal forms part of the organisation’s latest annual economic survey of Australia, published ahead of Treasurer Jim Chalmers’ fifth federal budget in May. Last year, there was heavy debate on an Australian GST rise.

The OECD assesses that Australia’s economy is emerging from its post-pandemic malaise and is returning to more stable growth conditions. With expected interest rate cuts and improving real household incomes, economic growth is projected to average slightly above 2% over the coming years. Despite this improvement, the organisation cautions that Australia’s public finances remain under pressure.

The mid-year budget update released in December confirmed that deficits are forecast to persist across much of the next decade. Against this backdrop, the OECD has called for a combination of tighter expenditure control and structural tax reform to place the budget on a more sustainable footing.

See more in our Australian GST guide.

Why the GST is back in focus

A central theme of the OECD’s recommendations is Australia’s heavy reliance on personal income tax. The organisation argues that shifting a greater share of the revenue burden toward consumption taxes could improve the efficiency of the tax system while supporting long-term growth.

Economists broadly support this view, noting that consumption taxes such as the GST tend to generate fewer economic distortions than alternatives like stamp duties or narrowly targeted excise taxes. By taxing spending rather than work or investment, these taxes are seen as less harmful to productivity and labour market incentives.

The OECD estimates that broadening the GST base and increasing the rate could raise Australia’s economic output by approximately 1.6% over a ten-year horizon. Much of this benefit would depend on using the additional revenue to reduce personal income taxes, thereby improving incentives to work and invest.

How far could a GST rise?

There is, however, no single consensus on the optimal design of GST reform:

• Some economists support increasing the rate to around 15%, provided the change is accompanied by significant income tax reductions.
• The introduction of GST-free thresholds or enhanced transfers to ensure that low- and middle-income earners are not worse off.
• Others advocate a phased approach, suggesting gradual increases over several years rather than a one-off jump. This strategy is seen as a way to soften the impact on households, allow time for compensatory measures to take effect, and reduce political resistance.

Across these differing proposals, there is broad agreement on one point: GST reform must address distributional concerns. While consumption taxes are efficient, they can place a proportionally higher burden on lower-income households unless offset through income tax changes or targeted support.

A politically difficult, economically persistent issue

The OECD’s intervention underscores the limited options available to policymakers seeking to reduce income tax reliance while restoring the budget to surplus. Few alternative taxes are capable of generating equivalent revenue without imposing greater economic costs.

By renewing its call for GST reform, the OECD has once again elevated the issue within Australia’s fiscal policy debate. Whether the current political environment is conducive to reform remains uncertain, but the economic rationale for revisiting the GST continues to attract support from international institutions and domestic economists alike.