Former treasurer Peter Costello has rebuffed calls to raise the GST and pleaded with Labor to cut back its spending during a time of high inflation.

The architect of the 10 per cent goods and services tax, that debuted in July 2000, has spoken out after the Grattan Institute think tank called for the GST to be raised to 15 per cent to fund low-income tax cuts, boost welfare payments and help the states with their finances.

“Increasing the GST to spend more is not a reform which will improve Australia,” Mr Costello told an Institute of Public Affairs podcast recorded on Wednesday.

“It is not a reform that will make Australia more competitive. It is a bad idea.

“Now, you get some other people say, ‘Oh, well let’s increase it and then decide what do to with it.’

“I would say that is very misguided.”

The GST contributed $96.3 billion to Commonwealth revenue during the year to June 30 and financed grants to the States and Territories, which is the Federal Government’s biggest expense item.

It’s the equivalent to 13.7 per cent of all tax revenue.

A 50 per cent increase in the existing GST, emulating New Zealand’s 15 per cent level, could therefore raise $48b, which would almost fund the equivalent of the bloated NDIS or Defence.

Mr Costello, who delivered 10 surplus Budgets between 1997 and 2007, said Australia needed be handing down back-to-back surplus Budgets given the terms of trade boom, where a faster rise in export commodity prices compared with import prices, was increasing Commonwealth company tax revenue.

“We should be running surpluses on these terms of trade. We should be running surpluses one, 2 per cent of GDP,” he said.

The former treasurer’s call would require a $60b cut to Federal Government spending given Labor’s May Budget forecast a $31.5b deficit for 2026-27 making up one per cent of gross domestic product.

Treasury last month revealed a $22.3b deficit for 2025-26 making up 0.8 per cent of gross domestic product, which was $6b smaller than previously forecast based on higher tax revenue.

Mr Costello also suggested the NDIS, projected to cost $56.1 billion this financial year, needed to be cut back, with Federal Government debt interest payments projected to cost $31.9b.

“We can identify several areas, the NDIS obviously the biggest, most expensive program and the fastest growing,” Mr Costello said.

“The second fastest growing area of government expenditure is, of course, interest on debt and that will grow even faster but I think if you look right across all of the social programs, we’ve lost the ability to target, we’ve lost the ability to make sure.”

With inflation in September soaring to a six-month high annual pace of 4.3 per cent, Mr Costello said it was misleading for Labor to blame the Iran war for Australia’s cost-of-living crisis.

“You hear the Government say, ‘Oh, it’s all the fault of Iran, you know, and the price of oil,” he said.

“Every country in the world is dealing with this, this is not unique to Australia.

“This doesn’t explain why Australia’s inflation is worse than comparable countries, it doesn’t explain why our cash rates are therefore higher than practically anybody’s.”

Economists at Australia’s big four banks are now all expecting the Reserve Bank to next week raise interest rates for the fifth time this year to an 18-year high of 4.85 per cent.

After Iceland, Australia has among the highest cash rate among the OECD club of rich countries, along with higher inflation, even in the face of the Middle East oil crisis.

Australian Government spending is forecast to comprise 26.8 per cent of GDP, which would be the highest level in four decades outside COVID.