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Economists are urging Australia to lift the goods and services tax (GST) from 10% to 15% and apply it to all food, including currently exempt grocery staples. The Grattan Institute says the package could raise about $76 billion a year, with much of the money returned through income-tax cuts and larger welfare payments. Its modelling says a low-income single-parent family could be $150 a week better off, while a higher-income working family could pay $162 a week more. This is a policy proposal, not law: the federal Labor government says a GST increase is not on its agenda. The debate reflects concerns about rising debt, ageing-related spending and the difficulty of making the budget sustainable without unpopular trade-offs.
Why are economists calling for a GST hike?
Supporters argue that Australia needs a broader, more reliable tax base to finance an ageing population and rising public debt. Commonwealth debt has passed $1 trillion in recent months, although Australia’s debt-to-GDP ratio remains lower than that of most developed economies, according to an Australian Associated Press report published by AAP/inkl.
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1Scan for outdated or missing drivers - takes under a minute2Clear out junk files and repair common Windows errors3Fix the driver behind crashes, sound loss and screen glitchesAruna Sathanapally, chief executive of the Grattan Institute and lead author of the proposal, said: “Outside of the COVID pandemic, the last time Australia’s national public debt owed this much, the country was still paying off debt from a world war.” She added: “There are no easy paths back to budget sustainability.” Her argument is that a consumption tax can raise steadier revenue than relying on a narrower set of income and company taxes, provided lower-income households receive effective compensation.
The case is therefore for a package rather than a GST rate in isolation. Advocates want higher consumption-tax receipts combined with income-tax reductions and increased benefits, so the distributional result depends on how the entire package is designed.
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What exactly is being proposed?
| Element | Current position | Grattan proposal |
|---|---|---|
| GST rate | 10% | 15% |
| Food treatment | Basic grocery staples are generally exempt | GST would apply to all food |
| Estimated additional revenue | Not applicable | About $76 billion per year, Grattan Institute estimate for 2026 |
| Use of revenue | Existing budget mix | Income-tax cuts and expanded welfare payments |
| Support payments in the model | Current settings | JobSeeker and Youth Allowance up 20%; rent assistance up 50% |
| Western Australia arrangement | 2018 deal guarantees a minimum share of the GST pool | Scrap the arrangement; estimated saving of $6 billion a year |
The revenue and household figures are estimates from Grattan’s 2026 modelling, not guaranteed outcomes. The proposal would also end Western Australia’s bespoke GST deal, which the institute estimates would save $6 billion annually. Prime Minister Anthony Albanese has pledged to maintain that agreement.
What would a 15% GST mean for food prices?
Food prices would rise where no GST is currently charged, because the proposal extends the tax to all food. The exact increase at the checkout would depend on the item’s current treatment, retailer pricing and whether businesses pass the full tax through. Packaged and prepared foods that already attract GST would face a higher rate, while basic fresh-food items would move from exemption to taxation.
Advocates say the price effect should be judged alongside the proposed compensation. A household that receives higher benefits or pays less income tax could have more disposable income even while its grocery bill increases. Households that spend a large share of their income on consumption, or do not receive the offsets, would feel the increase more sharply.
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Would a GST increase make low-income families worse off?
Not necessarily under the full model. Grattan’s examples show how strongly results vary by household circumstances:
- A low-income, single-parent family is modelled as $150 a week better off after the GST, tax and payment changes.
- A higher-income working family is modelled as paying $162 a week more in net tax.
These are scenarios, not promises. The result for any household would depend on income, family composition, benefit eligibility, rent, childcare, spending patterns and whether the legislated compensation matched the assumptions. A family that spends nearly all of its income on newly taxed food could experience a different result from one that saves more or receives a larger income-tax cut.
How would the extra GST revenue be spent?
The proposal directs much of the estimated $76 billion in annual receipts to two channels:
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- Income-tax cuts: reducing personal tax rates or liabilities so workers retain more of their earnings.
- Higher welfare payments: increasing JobSeeker and Youth Allowance by 20% and rent assistance by 50% in the model.
This recycling is central to the claim that the reform can raise revenue while protecting households with less capacity to absorb higher prices. It also creates implementation risks: the final tax brackets, payment rates, eligibility rules and timing would determine who gains and who loses.
Is Australia actually going to raise the GST?
There is no enacted increase. The federal Labor government has said a GST rise is not on its agenda. Former Liberal treasurer Josh Frydenberg has suggested considering a higher GST to fund lower income taxes, but Liberal leader Angus Taylor rejected that proposal. Any change would require federal legislation and agreement from the states and territories, which receive GST distributions.
Political resistance is likely because the tax is visible in every purchase and because states would need to negotiate how additional receipts are shared. The government’s current position means the Grattan plan is an argument for future policy debate, not an announced budget measure.
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Why does the proposal include Western Australia’s GST deal?
Under the 2018 arrangement, Western Australia is guaranteed a minimum share of the national GST pool. Grattan proposes scrapping that guarantee and estimates the Commonwealth could save $6 billion a year. Supporters view the change as part of a wider effort to remove special arrangements and improve the amount available for national priorities.
Western Australia’s deal has political backing, however. Albanese has pledged to maintain it, so changing the arrangement would require a separate negotiation even if the broader GST proposal gained support.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What should households watch if the debate advances?
- The compensation formula: whether tax cuts and benefit increases are indexed and targeted well enough to match higher living costs.
- The food definition: whether every food product is taxed uniformly or special rules remain for particular items.
- State distribution: how additional GST is divided and whether Western Australia’s guarantee changes.
- Transition timing: when prices, tax withholding and welfare rates would change, and whether there is temporary assistance.
- Independent modelling: estimates should identify household type, income, region and spending assumptions rather than present one average result.
Sathanapally summarised the institute’s position by saying that “with smarter spending decisions and a tax system that raises sufficient revenue to care for our ageing population, both current and future generations can be better off.” Whether that outcome is credible will depend on the final legislative details, not the headline GST rate alone.
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Frequently Asked Questions
Could a GST hike reduce income-tax rates for everyone?
The proposal calls for income-tax cuts funded by the additional GST, but it does not establish that every taxpayer would receive the same reduction. The size and distribution of any cuts would be set in legislation.
Would takeaway meals and restaurant food be treated differently?
The proposal’s stated principle is to tax all food, but the available reports do not specify detailed rules for every takeaway, restaurant or catering transaction. Those classifications would need to be settled during policy design.
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Do states have to approve an Australian GST change?
GST revenue is distributed to the states and territories, so intergovernmental agreement would be politically important. The reports describe negotiations and existing distribution arrangements but do not set out a formal approval timetable.
When would households notice a higher GST?
No start date has been announced because no bill has been introduced. In practice, notice would depend on the legislation’s commencement date, retailer system changes and the timing of tax and welfare adjustments.
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