OECD Urges Australia to Raise GST Rate to Boost Growth

In its latest report, Economic Surveys: Australia 2026, the OECD noted that, while Australia maintains a high standard of living, recent years have been marked by weak economic growth and a notable decline in real disposable incomes. The main reason was that post-pandemic inflation outpaced wage growth, increasing the burden of tax bracket creep and mortgage repayments. 

Even though the economy is now gradually returning to more normal conditions, structural challenges remain, including persistently low productivity growth, severe housing affordability pressures, and high carbon emissions. To overcome these issues, among other measures, the OECD seeks to have Australia increase its GST rate.

The Impact on the Economy 

As the OECD report underlines, Australia's GST rate is low, and it has a high degree of exemptions. More specifically, the average consumption tax standard rate, including VAT and GST, among OECD countries is 19.3%; the Australian GST rate is 10%, almost half this average. Other countries with similar or the same rates are Japan, with 10% consumption tax, Switzerland, with a VAT rate of 8.1%, and Canada, with 5% GST rate at the federal level. 

If observed from the perspective of the VAT Revenue Ratio (VRR), which measures how effectively a VAT system captures tax on its natural base, namely final consumption expenditure, the OECD average is 58%. In comparison, in Australia, it is 50%. For example, in New Zealand, the VRR is above 90%.

The OECD urges Australia to broaden the GST and increase the rate above 10%. As presented in the report, an increase in the GST rate by 5% to 15%, together with reducing the labour tax wedge by 5 percentage points over 5 years, which are stated as revenue-neutral measures, would add 1.6% to the size of the economy over 10 years. In the next 20 years, this measure would add around 2%. 

Conclusion

Overall, the OECD’s analysis suggests that meaningful tax reform could play a pivotal role in addressing Australia’s longer-term economic challenges. Broadening the GST base and increasing the rate, if carefully designed and paired with reductions in labour taxation, could support growth, improve efficiency, and strengthen public finances without increasing the overall tax burden. Whether Australia will raise its GST rate or not remains to be seen. Nonetheless, it should be noted that, in recent years, Australia has been reluctant to consider this option. 

Source: OECD - Economic Surveys: Australia 2026