Raising the GST from 10% to 15% is better for the budget than it is for the people who most need a better budget

Australia's tax system has a problem that most politicians would rather not discuss plainly: it raises too little revenue from too narrow a base, and the structural pressure to fix that is building. The GST, unchanged at 10 per cent since 2000, has become the obvious lever. A Parliamentary Budget Office costing released in August 2025, requested by independent MP Kate Chaney, has now put numbers on three variants of a GST increase to 15 per cent, and the results illuminate something important. Not just about the revenue, but about why designing a "progressive" consumption tax is harder than it sounds, and what you inevitably give up when you try.

Three options that reveal what "progressive" actually costs

The PBO costed three options. Option 1 is the blunt instrument: lift the rate from 10 to 15 per cent, keep all existing exemptions intact. Option 2 goes the other direction on exemptions, raising the rate and simultaneously broadening the base by removing GST-free status from food, education, health and childcare, and water and sewerage. Option 3 is the one that carries the "progressive GST" label most earnestly: raise the rate to 15 per cent, but give every adult Australian citizen and permanent resident a $20,000 annual GST-free spending threshold.

The revenue picture separates these options sharply. Option 2, the broader base, raises the most. Option 1, more rate on the existing base, raises a substantial amount but less. Option 3, the threshold model, raises considerably less than either of the others. That ordering matters because the fiscal pressure driving the conversation does not go away when you make the design more elegant. You are not choosing between a regressive tax and a progressive one. You are choosing how much revenue you want and how much regressivity you are willing to accept at each revenue level.

A consumption tax's regressivity is not a product of rate design; it is a product of the fact that lower-income households spend a higher proportion of their income than higher-income ones do.

The threshold model does not solve the problem it was designed to solve

Here is why the threshold model does not solve the problem it was designed to solve. A $20,000 annual GST-free threshold sounds like a straightforward shield for low-income households: the first $20,000 of spending attracts no GST. But high-income households also spend $20,000 before the tax kicks in, so they receive the same nominal benefit. And because wealthy households spend more in total, they pay more GST in absolute terms on spending above the threshold, but they also have more capacity to absorb it. As a share of income, the burden still falls more heavily on households at the bottom. A consumption tax's regressivity is not a product of rate design; it is a product of the fact that lower-income households spend a higher proportion of their income than higher-income ones do.

The exemptions model has the same structural flaw in a different direction. Removing GST from food and health sounds protective of household budgets, and it is, partially. But households that spend more on food, health and education in dollar terms, which tends to be wealthier households, receive a larger absolute benefit from those exemptions. The protection is real, but it does not scale the way a properly progressive instrument would.

A GST increase can fund redistribution — but cannot deliver it directly

None of this means a GST increase is necessarily the wrong move. The question of whether Australia should raise more revenue, and from where, is separate from whether this particular instrument does so progressively. A well-designed package could use GST revenue to fund genuinely redistributive measures: income tax cuts at the lower end, increases to welfare payments, or direct transfers. What the PBO costing makes clear is that the GST itself cannot do both jobs at once. It is a revenue machine, not a redistribution machine.

The structural lesson here applies beyond tax policy. When a design is described as progressive, the question is always: progressive compared to what, and measured how? A progressive GST compared to a flat GST is still a regressive instrument compared to an income tax. The framing shapes the political conversation in ways that can obscure rather than clarify the actual trade.

What Kate Chaney's costing request has done, regardless of where you sit on the policy, is force the numbers into the open. The PBO analysis shows the revenue cost of each progressive design feature with the kind of specificity that political debate about tax reform rarely achieves. That is the value of the exercise. The design trade-offs were always there. Now they have dollar figures attached.

Sources

Parliamentary Budget Office — The Progressive GST

Frequently Asked Questions

Why is the GST considered a regressive tax?
The GST is regressive because lower-income households spend a higher proportion of their income than wealthier ones, meaning GST takes a larger share of a poor household's income even at the same flat rate. This is structural — it cannot be fully corrected through exemptions or thresholds, only partially offset.

What is a progressive GST and does it actually work?
A progressive GST typically means building in design features — like exempting food and healthcare, or creating a tax-free spending threshold — intended to reduce the burden on lower-income households. These features do reduce the regressivity at the margins, but they also deliver larger absolute benefits to wealthier households who spend more, and they significantly reduce the revenue the tax raises.

How does a GST-free spending threshold work in practice?
Under the threshold model costed by the PBO, every adult Australian would pay no GST on their first $20,000 of annual spending. The problem is that wealthier households receive the same nominal benefit from the threshold while their total spending — and thus their total GST liability above the threshold — remains much higher, and their capacity to absorb it is greater.

Can a GST increase be made fair through income tax cuts or welfare increases?
Yes — the regressive character of a GST increase can be counteracted if the revenue raised is recycled through lower income taxes at the bottom end, higher welfare payments, or direct transfers to low-income households. The GST itself cannot deliver redistribution, but it can fund it if the broader package is designed with that goal explicitly.

Which GST reform option raises the most revenue?
Broadening the GST base by removing exemptions on food, health, education and childcare while also lifting the rate to 15 per cent raises the most revenue of the three options the PBO examined. The trade-off is that this option is also the most regressive, directly taxing goods that make up a larger share of low-income budgets.