The overwhelming majority of product and service transactions in Australia are subjected to a 10% value-added tax called Goods and Services Tax (GST). Introduced by the Australian Howard Government in July 2000, the tax has effectively replaced the former Federal Wholesale Tax System and has phased out a number of state and territory levies including stamp duty and highly unpopular banking taxes.
Despite the success of the Goods and Services Tax, observers still believe that the 10% charge applied on business and customer transactions has a series of economic and social implications. In particular, these concerns are levelled towards the end consumer who ultimately picks up the cost of Australian GST payments.
While business that are Goods and Services Tax registered can claim credits that see them reimbursed for any payments made, it is the everyday citizen who is already paying income tax on their earnings who continues to be penalised. Indeed, it could be easily argued that GST is simply a regressive tax that potentially targets low income earners and that the Australian Government is now consuming more of their earnings than ever.
Peter Costello, the former Treasurer of the Australian Government, certainly seems to believe that Goods and Services Tax is anything but regressive. During his tenure, which ran from 1996 to 2007, Costello argued that the abolition of state and territory taxes and their subsequent replacement had left consumers no better off or worse off than they originally were.
Consumer behaviour spiked dramatically in the months preceding the introduction of Goods and Service Tax, with many end users rushing out to purchase high-end consumer products that would become much more expensive as soon as the new tax system began. It is significant to note that Australian consumer spending and economic performance spiralled into negative growth during the first GST fiscal year.
Small businesses have also felt the impact of the new taxation system. Unlike consumers, a business that is registered for Goods and Services Tax can claim refunds from the Government in the shape of GST credits for any payments made under the new regime. Even so, small business owners claim that the increased cost of administration and continuous interaction with the Australian Tax Office is little more than the result of bureaucratic red tape.
Goods and Services Tax also had a negative impact on the Australian property market. The tax itself led to an increase of 8% in the price of new homes while demand fell by over 12%. Although the market recovered by 2004, arguments continue to rage over economic and social implications of the new tax and to a certain extent, this is largely justified by the fact that it is the consumer who has to shoulder the bill.