Self funded retirees and increasing GST

With the Liberal Government making noises about the possibility of increasing GST, it is natural for self funded retirees to wonder how an increase in GST will affect them. Without adequate compensation, an increase in GST will most definitely not be good for self funded retirees. This is because in the event that the GST increases the amount of goods and services you can buy with your Super and savings will decline. In these circumstances a GST increase will act like a once-off wealth tax.

While the Government will probably be compensating the loss of spending power of new income earned via a commensurate reduction in personal income tax, there is a very real possibility that there will be little compensation for previous income earned and saved. When GST was first introduced in Australia savers were not compensated, although self funded retirees were, to a maximum value of $3000. For people starting their self funded retirement, the loss of spending power associated with a GST increase could be significant, and a lot more than $3000. Let’s say that GST goes up by 10% and you have saved $1M for your retirement in Super and savings. Last time GST went up by this amount, there was a once off increase in inflation by about 3% (not 10% as GST is not applied to all goods and services, e.g. Food is excluded). Overnight you will lose $27,000 worth of spending power. You might need to work another year to make this up! An increase of 10% might be on the cards as the rate in Australia is quite low by international standards: There doesn’t seem to be much consideration of this in the press. In my opinion an increase in GST without adequate compensation to all savers (including self funded retirees) is undoubtedly an unfair increase. Some might argue that those with savings can afford it, but such an increase is really a disincentive to saving. The superannuation industry should be representing their members by lobbying the government on this point.