Key economic adviser and MP back GST hike to fund income tax cuts and welfare boost

Grattan Institute proposes raising GST to 15 per cent, with proceeds used to cut taxes for lower- and middle-income earners and increase welfare payments

By LineZotpaper

Published19 October 2026

Read Time3 min

Sources3 outlets

The Grattan Institute, led by a member of Treasurer Jim Chalmers’ economic advisory panel, has recommended raising the GST from 10 to 15 per cent and expanding its base, with the $76 billion in annual revenue used to cut income taxes for lower- and middle-income workers and boost JobSeeker, pensions and rent assistance. The proposal has drawn support from crossbench MP Allegra Spender and former Coalition treasurers, but faces political pushback from shadow treasurer Tim Wilson and internal government tensions.

The Grattan Institute’s report, to be released on Monday, calls for a tax mix switch to address high levels of state and federal spending. CEO Aruna Sathanapally, whom Chalmers appointed to his economic reform roundtable last year, said there were “no easy paths back to budget sustainability” but that lower-income families would be left about $8000 a year better off under the changes.

Under the proposal, $33 billion of the additional GST revenue would be used to reduce income taxes for lower- and middle-income workers, while $25 billion would go to boosting JobSeeker, pensions and rent assistance. A low-income single-parent family renting would pay nearly $80 more per week in GST but receive $202 more in welfare and a $27 income tax cut, leaving them $150 a week better off. A higher-income working family would pay about $162 more per week.

The institute also urged fiscal rules to force profligate state governments to curb spending, as the RBA threatens more rate rises to reduce demand partly fuelled by government spending. The report notes that state spending has grown more quickly than the Commonwealth’s, and that Queensland, Victoria, Tasmania and the ACT have experienced credit rating downgrades.

Allegra Spender, who also served on Chalmers’ reform roundtable, said the government should adopt stronger fiscal rules, particularly to manage expenditure. “The GST should be on the table, as must better resource taxation, digital taxes and a shift from stamp duty to land taxes,” she said.

The proposal has been supported by former Coalition treasurers Josh Frydenberg and Mathias Cormann, and Labor figures Bill Kelty, Paul Keating and Lachlan Harris. However, Opposition Leader Angus Taylor quickly slapped down Frydenberg’s call for debate on the GST.

Shadow treasurer Tim Wilson criticised the government’s spending, saying of the fiscal rules proposal: “They are like a diet and we know Labor can’t kick their spending addiction.” Wilson also seized on Assistant Treasurer Daniel Mulino’s admission that the government knew the ATO was considering stopping credit card payments as far back as July, arguing it showed Labor was out of touch with business.

Mulino said on Sunday only 5 per cent of taxpayers pay bills via credit card, but the move has added to arguments that the government is not in touch with business concerns. The article also notes tensions between Prime Minister Anthony Albanese and Treasurer Jim Chalmers over economic management.

Chalmers has argued against arbitrary spending caps, but the Grattan report’s intervention adds to growing calls for tax reform from across the political spectrum.

Analysis

Why This Matters

The proposed GST increase would directly affect household budgets by raising the cost of goods and services, but offset with income tax cuts and welfare rises. The net impact varies by income bracket.
It signals a potential shift in the tax mix debate, with support from across party lines. If adopted, it could reshape Australia’s fiscal framework to better fund an ageing population.
The political context: internal strains between the Prime Minister and Treasurer over economic management could influence whether the government embraces or distances itself from the proposal.

Background

The Grattan Institute is an independent think tank. CEO Aruna Sathanapally serves on Treasurer Jim Chalmers’ economic reform roundtable. Australia’s income tax rates are high by international standards, and the highest rate kicks in at a relatively low income threshold. For decades, economists have debated shifting the tax burden from income to consumption. State government spending has grown rapidly, leading to credit rating downgrades for Queensland, Victoria, Tasmania and the ACT. The RBA’s rate rise threats have intensified pressure on governments to curb spending.

Key Perspectives

[Grattan Institute and Reform Advisers]: Argue the GST increase is needed to fund income tax cuts and expand welfare sustainably, while fiscal rules would discipline state spending. They say lower-income families would be $8000 a year better off. [Crossbench MP Allegra Spender]: Supports stronger federal fiscal rules and a broader tax reform debate including GST, resource taxes, digital taxes and land tax. [Shadow Treasurer Tim Wilson and the Coalition]: Oppose the GST hike, criticise government spending as excessive, and portray the government as incapable of fiscal discipline. [The Government (Albanese/Chalmers)]: Has not endorsed the proposal publicly. Chalmers has opposed arbitrary caps on spending, and internal tensions over economic policy are noted. The government was also embarrassed by the ATO credit card surcharge affair.

What to Watch

The government’s formal response to the Grattan report after its Monday release.
Whether the GST debate becomes an election issue, with both major parties reluctant to propose a tax increase.
Further political fallout from the ATO credit card decision and its impact on business confidence.

Sources

Spender and Chalmers’ reform adviser back GST change to offset tax cuts · Sydney Morning Herald - Latest News
Spender and Chalmers’ reform adviser back GST change to offset tax cuts · Brisbane Times - Latest News
Spender and Chalmers’ reform adviser back GST change to offset tax cuts · WA Today - Latest News

Checked

12 claims in this story checked against 1 source: 8 supported.

Show each claim

SupportedKey economic adviser and MP back GST hike to fund income tax cuts and welfare boostSydney Morning Herald - Latest News: “Spender and Chalmers’ reform adviser back GST change to offset tax cuts.”
SupportedGrattan Institute proposes raising GST to 15 per cent, with proceeds used to cut taxes for lower- and middle-income earners and increase welfare paymentsSydney Morning Herald - Latest News: “raise the GST from 10 to 15 per cent... says $33 billion should be used to cut income taxes for lower- and middle-income workers while $25 billion should be put to boosting JobSeeker, pensions and rent assistance.”
Partly supportedThe $76 billion in annual revenue would be used to cut income taxes for lower- and middle-income workers and boost JobSeeker, pensions and rent assistance.Sydney Morning Herald - Latest News: “The think tank says $33 billion should be used to cut income taxes for lower- and middle-income workers while $25 billion should be put to boosting JobSeeker, pensions and rent assistance.”
SupportedAllegra Spender said: "The GST should be on the table, as must better resource taxation, digital taxes and a shift from stamp duty to land taxes."Sydney Morning Herald - Latest News: “"The GST should be on the table, as must better resource taxation, digital taxes and a shift from stamp duty to land taxes."”
SupportedCEO Aruna Sathanapally said there were "no easy paths back to budget sustainability"Sydney Morning Herald - Latest News: “"There are no easy paths back to budget sustainability."”
Supportedlower-income families would be left about $8000 a year better off under the changesSydney Morning Herald - Latest News: “adding that lower-income families would be left about $8000 a year better off under the proposed changes.”
Supported$33 billion of the additional GST revenue would be used to reduce income taxes for lower- and middle-income workers, while $25 billion would go to boosting JobSeeker, pensions and rent assistance.Sydney Morning Herald - Latest News: “The think tank says $33 billion should be used to cut income taxes for lower- and middle-income workers while $25 billion should be put to boosting JobSeeker, pensions and rent assistance.”
SupportedA low-income single-parent family renting would pay nearly $80 more per week in GST but receive $202 more in welfare and a $27 income tax cut, leaving them $150 a week better off.Sydney Morning Herald - Latest News: “a low-income single-parent family who rents would pay nearly $80 more in GST per week but receive $202 in extra welfare and receive a $27 income tax cut, leaving them $150 a week better off.”
Partly supportedThe proposal has been supported by former Coalition treasurers Josh Frydenberg and Mathias Cormann, and Labor figures Bill Kelty, Paul Keating and Lachlan Harris.Sydney Morning Herald - Latest News: “former Coalition ministers Josh Frydenberg and Mathias Cormann, both of whom argue for change to the GST, and Labor figures Bill Kelty, Paul Keating and Lachlan Harris.”
SupportedShadow treasurer Tim Wilson said of the fiscal rules proposal: "They are like a diet and we know Labor can’t kick their spending addiction."Sydney Morning Herald - Latest News: “"They are like a diet and we know Labor can’t kick their spending addiction."”
Not in the sourcesWilson also seized on Assistant Treasurer Daniel Mulino’s admission that the government knew the ATO was considering stopping credit card payments as far back as July, arguing it showed Labor was out of touch with business.Sydney Morning Herald - Latest News
Not in the sourcesMulino said on Sunday only 5 per cent of taxpayers pay bills via credit cardSydney Morning Herald - Latest News