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January 6

Government Considers Increasing Your Costs by 8% Overnight with GST Rise

Posted by on January 6, 2015 at 8:05 AM

The GST was introduced to our country in the year 2000, but disagreement is brewing over whether is should stay at 10%. The OECD in its recent report have discussed that the government doesn’t receive enough money and needs more. They believe falling government revenue should be compensated by higher consumption tax.

Government Considers Increasing Your Costs by 8% Overnight with GST Rise

In light of a potentially big hike in GST tax, I wanted to firstly find out what products / services might move out of the GST-Free zone. Secondly, I was also interested in looking at what types of products it would make most sense to buy now before they’re moved into the GST zone at the new rate, in order to save money.

 

GST is the tax you pay on goods that you consume such as customs duty, gambling, alcohol and fuel. In comparison to other countries, especially in the European union, our GST is considerably lower at 10%. The UK for example in the recent past has raised their VAT from 17.5% to 20%, while Denmark and Sweden have an even higher tax percentage of 25%.

Countries that have lower tax rates are Hong Kong (15%) or Israel (18%), but none as low as Australia. So is the government right to increase their tax to potentially 18%? Well, the OECD report explained that the Australian government should broaden its GST base to include products such as fresh food, education expenses and medical costs. They argue that this could increase government income by $20 billion based on 2013/14 figures. However, based on international standards, products and services in Australia are already high and that’s only with a 10% GST rate applied.

Dr. Remy Davison, the Jean Monnet chair in Politics and Economics at the department of Politics and International Relations at Monash University made the following statement: “Consumption taxes are seen as more efficient (compared to Income Tax) but it tends to penalise less well-off people. It will eat up more of low-income peoples budgets.”

 

What Products / Services are ‘GST-Free’?

Government Considers Increasing Your Costs by 8% Overnight with GST RiseThe products and services that are GST exempt are included in the list below. For a more extensive list please visit the ato.gov.au website.

  • Most basic food
  • Some medicines
  • Some childcare services
  • Some religious services and charitable activities
  • Cars for disabled people
  • Water, sewerage and drainage
  • Precious metals
  • Farmland
  • Exports

This list may alter if the government decide to broaden their GST inclusions, so at the time of this post the above are correct.

The Effects

The rise will likely affect the nations spending power, regardless of your wealth, but the severity will totally depend on what purchases you make. Until the government confirms which products will move from the ‘GST-free’ zone into the taxable zone, we can only extrapolate the increase of costs on products that currently have GST applied. Obviously, you will not notice the price increase on cheaper products as much when compared to more expensive products.

For arguments sake, lets take a random product on the market, like this Clock Radio from Officeworks that costs $24.98. If you minus the 10% GST off the top, this equates to $22.48. This base price plus the proposed 18% GST would push up the cost to $26.52, an increase of $1.54 which is hardly going to break the bank.

However, if you were looking at an Apple Macbook Pro 13″, for example, costing $1,300 then the increase would be noticeably more. The new GST rate would raise the price of that laptop by $80 over-night.

If you are thinking about changing in the old “bucket on wheels” for a new car, then things are worse again. A new Ford Kuga AWD wagon costing $34,990 currently, would under the new 18% GST tax cost an additional $2,169, totalling $37,159.

 

Government Considers Increasing Your Costs by 8% Overnight with GST Rise

 

So in the imminent circumstance that GST is raised, many everyday food items will not be affected as mentioned above. However, it may be a good idea to stock up on current foodstuffs that do have GST, in order to save before the potential 8% price increase. Food products that will be affected are:

  • Biscuits, crackers and pretzels
  • Savoury snacks: chips and hot chips
  • Confectionary items like chocolate and sweets
  • Food advertised as ready-meals e.g. frozen meals that only require heating
  • Soft drinks and flavoured milk

 

If however, the government announce prior to the GST hike what new products will move out of the GST free zone, then by buying those items in bulk, you will be able to save 18% on costs before the change comes into affect.

Surrounded by this and the other rising costs of living, don’t forget that you can continue to count on Buckscoop to provide great deals and other ways for you to save money. A good starting point as always, is to either head to the daily Deals board or to check out some of the latest voucher codes to help you get the best value for money online.

 


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