Whatâ€™s all the fuss about the GST?

Former Victorian Premier John Brumby is urging state leaders to make a push for a hike in the GST.

Treasurer Joe Hockey include $80 billion worth of cuts health and education over the next decade in the Budget. Pic: Liam Kidston. Source: News Corp Australia

NO MATTER what you do today it seems you can't escape three little letters dominating the national concisouness.

GST.

The innocuous tax has been thrust into the national spotlight after a harsh Federal Budget which slashed health and education funding from states.

Now a growing chorus is calling for reform of the simple tax you pay everyday but probably don't even notice.

Here's everything you need to know about the GST but were too embarrassed to ask.

WHAT ON EARTH IS IT?

Goods and Services Tax (GST) is a broadbased tax of 10 per cent which covers most goods and services sold or consumed in Australia.

It was introduced by the Howard Government in 2000 and applies to 60 per cent of the Australian economy. Everything you buy — from restaurant meals to fizzy drinks — has an extra 10 per cent slapped on the bill. Businesses also pay it when they buy goods, although they can claim credits for the GST in the price of their purchases.

Fresh fruit and vegetables are exempt from GST ... for now. Source: Supplied

However, there are some major exemptions. Basic food such as fruit and vegetables, some education, medical and healthcare services, childcare, salaries, financial services and utilities are all exempt. As are existing home sales, exports and anything bought overseas that costs less than $1000 (including you, online shopping).

The government collects GST revenue and distributes it to the states, meaning the amount the states earn is directly linked to the health of the economy. When consumer spending is up so are GST receipts. When spending is down the reverse is true.

WHY IS EVERYONE TALKING ABOUT IT NOW?

GST reform has been floating in the ether for years but is often deemed too hot to handle politically.

However the recent Federal Budget, which cut $80 billion worth of government funding from education and healthcare over the next decade, has thrust it into the spotlight as a way to make up the shortfall.

MORE: What the Federal Budget means for you

The Budget estimates the government will provide GST payments of $53.7 billion to states, which accounts for more than 13 per cent of Commonwealth expenditure.

The Grattan Institute reports another $15 billion a year could be raised by extending GST to cover private spending on fresh food, health, education, childcare, water and sewerage, while increasing welfare benefits to reduce the effects on those worst off.

John Brumby, Chair of the COAG Reform Council and former Victorian Premier has thrust GST back into the spotlight. Source: News Limited

This week, Queensland Liberal senator Ian McDonald and Victoria's former Labor premier John Brumby both pointed to increasing the GST as an obvious way of raising money for states.

Mr Brumby wants state and territory leaders to push for "courageous" reform and described future increases as inevitable.

The Grattan Institute has also recommended GST reform as a "relatively efficient tax" that doesn't discourage earnings or investment, and distorts behaviour less than other potential government revenue sources.

WHAT WILL A CHANGE LOOK LIKE?

There are two main ways GST could be reformed. Mr Brumby said the real debate was over not when, but how it's increased.

"The real debate is about the nature of the increase," he said. "Is it base? Is it rate? Is it both?"

With 40 per cent of the goods and services in Australia still exempt from GST, one option is to expand the number of services it applies to by broadening the base.

This is backed by World Vision CEO Tim Costello who wants to see childcare, health, and fresh food subject to GST while former Democrats leader Meg Lees said the government should look at areas such as online shopping, according to The Australian.

Protesters march in Melbourne in reaction to the Federal Budget. Picture: Eugene Hyland. Source: Supplied

It's also favoured by Queensland senator Ian Macdonald who said he supports broadening GST but would never back any increase in the tax.

"I was around when that was introduced and I was one of those who signed my name in blood that we wouldn't increase the rate beyond 10 per cent," he said.

The second option is to increase the rate, which could see a 15 or 17 per cent tax on goods rather than the current 10 per cent.

MORE: What $7 means to one Aussie mum

WHAT DOES TONY SAY?

The Prime Minister has distanced himself from GST reform and said it's an issue for states to decide.

"I'm not going to speculate on a tax which belongs to the states. It's perfectly within the bounds of states to discuss the GST, as far as I'm concerned taxes should be lower, simpler, fairer," he said this morning.

Man on a mission. Prime Minister Abbott said GST is a state issue. Source: News Corp Australia

However he's also pushing states to become "more sovereign in their own spheres" and take responsibility for raising their own revenue which has angered some Premiers.

Victorian Premier Denis Napthine maintains there will be no change to the GST, saying he does not support an increase to the rate or breadth of the tax.

WHAT DOES IT MEAN FOR ME?

At present, it's all just talk but a change to the GST would directly impact on consumer prices.

If it's decided to broaden the range of services GST applies to, this could mean a 10 per cent jump in the price of fruit and vegetables as well as some education, medical and healthcare services plus other items that are currently exempt.

MORE: Now they want to tax our apples

PricewaterhouseCoopers tax partner Paul Abbey said, in theory, expanding GST across the wider economy would hit those in the upper and middle income brackets hardest as they are the people who tend to consume the services that are currently excluded.

"Increasing GST in those areas as a theory is not as punitive for people on lower incomes [because] they're probably not consumers of those particular items."

However, he also said compensation is an important part of GST reform to avoid slugging people who do not have the capacity to bear additional costs.

Broadening the GST could mean a 10 per cent price hike to around 40 per cent of services. Source: News Limited

Australian School of Business associate professor of tax law Dale Boccabella said the increase in online shopping costs could be up to one third once postal and transport fees are taken into account.

While businesses will be able to pass on costs to consumers, those feeling the pinch might simply stop spending which could impact on consumer confidence.

The Public Health Association has also warned raising the cost of healthy food would increase rates of disease while Australian Association of Social Workers president Karen Healy told The Australian increases will hit those with least income the hardest.

How would an increase to the GST impact you? Continue the conversation on Twitter @newscomauHQ