If we want a better Australia, we need to raise the GST – and cut income taxes

When the Goods and Services Tax (GST) was introduced in 2000, it was a more than just tax reform.

It was a renegotiation of how the Australian federation works.

The federal government agreed to pass all GST revenue to the states.

In return, the states agreed to abolish a range of narrower and less efficient taxes, providing them with a better tax base to fund the many essential services they provide.

For a time, it worked.

But a quarter of a century later, the GST is falling short of what it was designed to achieve.

It’s time to revisit the GST and the federal compact with the states.

Our new Grattan Institute report , released today, shows how.

State budgets are in trouble Across the country, state budgets are in poor shape.

State government debt has more than doubled between 2019 and 2025, and is still increasing.

Meanwhile, the states’ share of national debt is forecast to almost double within a decade, from 20% before the pandemic to about 38% by 2030.

And as interest rates continue to rise , the cost of servicing that debt is growing.

States now spend more in interest payments than they do on housing, community amenities, and environmental protection combined.

Rapid spending growth – particularly in areas like health care and infrastructure investment – is clearly a large part of this story.