“Ask Switz” is a new segment that my colleague Ben Fordham has on his Friday morning 2GB radio program. I’m thrown into a Russian roulette, answering a listener’s question. Luckily on day one I didn’t need to do any last-minute research because it was on a subject where I’ve written two business best-sellers!

The question came from Matt Summerill at SUMM Media and the subject was raising the GST from 10% to 12.5% to help pay down the Federal Government’s huge debt, thanks to the rescue programs when the pandemic meant businesses and economies were shut down.

Ben made the following points:

1. As the 10% GST goes to the states, an extra 2.5% GST could be used for to pay down our huge $80 billion worth of government debt.

2. He calculates it will raise about $13 billion a year.

3. Over three years it could raise $39 billion.

4. After three years, the $13 billion could go to the states for health, education, teachers, infrastructure, etc.

5. He says you could make some Aussie goods exempt from the increase to help local manufacturing!

It sounds like common sense but the problem is that good sense is not very common!

Let’s go through each one to see if Ben’s ideas have legs.

First, a GST of 12.5% is low compared to the rest of the world. UK’s VAT is 20%, the EU charges 21% and the Kiwis have a 15% GST. It’s an efficient tax and gives scope for big income tax cuts but it’s a political voodoo doll for Aussie politicians.

Second, a 2.5% hike could raise more than $13 billion (possibly $18 billion!) and could be used well to pull down the debt.

Third, the use of the money in the future for states for health, education, etc is a really good idea, but someone must sell that to the voters of Australia. We’d need cross-party support for such an idea linked to a higher GST and you’d probably have to offer tax cuts after three years as well.

Fourth, exempting local manufacturing goods looks like a common-sense idea but it would be seen overseas as a sneaky kind of trade protection and we could receive retaliatory reactions. We are big exporters and don’t like to be seen to be supporting trade restrictions. On the other hand, China has used tariffs to punish us for being too pro-USA but China does not play by the rules.

Economically, it’s a sound idea and shows why we should have a 15% GST, which Malcolm Turnbull supported until the realities of wanting to be a Prime Minister changed all that.

The final question is this: why would you want to raise the GST to reduce the debt?

Well, as interest rates rise, the public purse will be slugged harder in coming years unless we get that debt down. A big debt stops spending on important areas such as health, education, welfare, research and development grants, infrastructure and so on. Also, a lot of Aussies would like a tax cut as well to help them cope with a higher GST.