A Look at the Affects of Rising GST on Disposable Incomes in Australian Households
As during the late 90's, once again GST is a big discussion point within Australia. Prior to 2000 GST was non-existent, but ‘thanks’ to the then Prime Minister, John Howard, we saw the introduction of this tax to our country. He addressed the nation on ABC television saying that GST will “Cut our income tax”, “strengthen us in the world” and that “every last cent will go to the states.”
The government is now considering a further rise in GST from the current rate of 10% up to 18%. Apparently, not all the issues have been solved which the extra income generated by the introduction of GST was originally supposed to help with. As a result, I had a look into the affects that GST has had on disposable incomes for households across Australia - before and after its introduction - to get a perspective on the possible outcome of an increase once again. I also wanted to see what authoritative figures out there are saying about the impact of a potential rise to 18%.
Before GST – Pre 2000
In June 1998 to 1999 Australian households on average spent $699 per week on goods and services, an increase of 16% since 1993. The increase determined by inflation and the price of goods, which increased on average by 10%. As stated by the Australian Bureau of Statistics (ABS) the three highest areas of expenditure were on:
- Food and Non-Alcoholic beverages - $127 p/week or 18% of total expenditure
- Transport - $118 p/week or 17% of total expenditure
- Housing costs - $97 p/week or 14% of total expenditure
The above statistics show that the three most common expenses consumed 49% of a households disposable income, or on average $342 p/week.
After 10% GST – Post 2000
A new set of statistical regulations meant that in 2004, the ABS had to include more detailed statistics within their reports.
Despite the increased costs of living, after the introduction of the GST families were actually better off. The Government Archive Treasury stated, “each family type were found to have a greater real disposable income about 12 months after the introduction of the tax reform.”
However, in 2013 the Deutsche Bank reported that average costs for things such as public transport, ordering a beer or buying medicine in Australia were some of the highest on the planet. For example, the report found that Melburnians and Sydneysiders pay almost 40% more for movie tickets compared to Manhattanites and Parisians, with Wellington and London only paying slightly more.
In the same survey, ordering roses on mother’s day in Melbourne or Sydney cost roughly $134 more than in 16 other countries surveyed. The Deutsche bank report summarises that Melbourne and Sydney are the third and fourth equal most expensive cities to live in in the world. Comparatively, ten years ago not a single Australian city was in the worlds top 10 list.
Whilst GST might increase the costs of products immediately, the overall trend of rising costs may well be as a result of companies taking advantage of Australian customers. An iPhone, for example, costs 15% more in Australia compared to the USA. It would appear that GST could have potentially given the government more capital to invest into our own country, which in return increased job opportunities and salaries for example, rather than make us worse off.
Projections after GST 18% - 2015 onwards
Although the Australian government has spoken about a rise in GST, the door has been left open with nothing to date having been confirmed. So, what does the average Australian believe will be the affect if we see GST rise in 2015? Different groups share different opinions on the matter, although I found this article by The Guardian rather informative concerning the various discussions currently going on around GST. It offers some useful insight into how the government actually plans to implement the increased tax rate as well as tackle any negative impacts on poorer household incomes.
Cassandra Goldie, chief executive of the Australian council of Social Service stated very recently “We know that low and modest-income families spend more on food as a proportion of income… and there’s no question that regardless of compensation this will make fresh food less affordable and accessible for people.”
As a result of this scepticism in the new GST rise, Federal Liberal MP Dan Tehan said, “This [impact] can be dealt with through compensation payments… a compensation package which would be applied directly to those that it would impact on… you address welfare through direct welfare payments; you don’t address welfare through exemptions to everyone in your tax system.”
Our finance minister Mathias Cormann said, the government had “no plans to change either the base or the rate of GST.” But, he mentioned “any suggestions to improve our tax system will be considered through the tax white paper review process this year.”
Plenty more to come on this story, I'm sure.