If we had a properly functioning Goods and Services Tax (GST), operating as its creators intended, South Australia would have more than $2 billion in additional revenue each year.

That is enough to build a new, state-of-the-art hospital, or refurbish an ageing one, every single year.

With ambulance ramping and hospital congestion at record levels, there is no question that our healthcare system needs more investment. Yet, with the GST in structural decline, we urgently need new solutions to secure the extra revenue required.

Recently released research from the Australia Institute has shown that, if GST revenue had grown in line with Australia’s Gross Domestic Product, as it was intended to do, South Australia would have received $2.15 billion more in federal funds than it did in 2023-24.

The shortfall exists for two main reasons, each amplified by rising economic inequality.

First, low- and middle-income households are spending a growing share of their income on rent and mortgages, leaving less to spend on goods and services that generate GST revenue.

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Meanwhile, higher-income households are increasingly choosing to spend their money on private school fees and private health insurance premiums, which are both exempt from the GST. Many can also use salary sacrifice arrangements, which disproportionately advantage high income earners and allow them to avoid more GST.

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The result is less GST revenue for all states, and billions less for essential services in South Australia, including hospitals, schools, housing, and public transport.

So, what can we do about it? Some suggest simply raising the GST rate from its current 10 per cent. But this approach is regressive as it would hit low-income households, who can least afford it, the hardest. That is because low-income households spend a larger proportion of their income on essential goods and services.

A fairer approach would be to broaden the GST to include private school fees and private health insurance premiums, though this would only raise some of the revenue missing due to the GST’s structural decline.

Fortunately, there is nothing saying that the GST is the only tax that can be used to raise revenue for the states. Additional taxes, such as a tax on wealth or sugary drinks or gas exports, could be introduced alongside the GST, with the express purpose of increasing funding to the states.

Another problem that needs to be addressed is the looming revenue cliff that was baked into the GST, thanks to a deal struck between the former Federal Treasurer Scott Morrison and Western Australia.

In essence, this deal changed the system so WA could never get less than a set minimum. And the current plan is that, from the year 2030 onwards, this will be paid for by cutting what is made available to South Australia and other states. Many experts say this deal is unfair, unsustainable, and against the spirit of sharing national prosperity.

SA Treasurer Stephen Mullighan has been strident in his opposition to the WA deal, labelling it as the “number one concern that state and territory treasuries have.”

Independent economist Saul Eslake has called the WA GST deal both “obscene” and “the worst public policy decision of the 21st Century thus far.”

When put together, the structural decline of the GST and the WA deal paint a worrying picture for South Australia’s finances.

But with bold and creative thinking, we can raise the revenue required to deliver the roads, schools, public housing, and hospitals our state desperately needs.

So, what will South Australia do? Will we accept our shrinking share of the GST and risk even deeper service cuts by 2030? Or will we fight for tax reform, ending the WA deal, broadening the GST base to include private school fees and private health insurance, and exploring new taxes to properly fund our future?

It is a big question, and the choice belongs to all of us.

But for the sake of our state and the dozens of people currently stuck in ambulances and emergency departments, waiting for a hospital bed to open up, I hope we have the bravery to act.

Noah Schultz-Byard is a director at independent think tank The Australia Institute.