Austrailian GST Essay, Research Paper

The GST (Goods and Services Tax) proposed by the Howard government is a

new tax which plans to add ten percent to the cost of every item

purchased whether it be a car or a pen with only a few exceptions. The

tax set to commence on July 1 2000 may still not become a reality if

the senate does not have a majority vote on the issue. The VAT (Value

Added Tax) of the United Kingdom is much the same tax adding seventeen

and a half percent to all goods and services (although there are

exceptions). This tax is currently in operation in the UK. Differences

between the proposed GST and VAT are not great but there are some

significant differences.

If and when the GST becomes a reality a range of taxes including

wholesale sales tax and provisional tax will disappear when the GST

appears. Daily consumables and services will rise as a result of the

GST. The government is promising to balance the tax by creating

household savings through lower marginal tax rates. The question is,

will this be sufficient compensation? It probably will not be. The

^Aussie battler^ will not be favoured with the GST, as the current

compensation being offered is simply not sufficient. This tax proposal

is yet to be passed by the Senate which means that the GST may not even

become a reality. There may have to be some changes to the GST for it

to be passed by the Senate without another federal election. Some of

these may be food to be exempt from the GST, more compensation for

lower income families, pensioners, etc. Although the government will

receive ten percent of every item sold, not many items will actually

rise by the full ten percent; estim! ated rises for goods and services

will often be significantly lower than ten percent. For example, food

is predicted to only rise four percent. Clothing and footwear will rise

six point eight percent but electrical goods will fall by twenty two

percent because of the current thirty two percent tax which will be

replaced by the ten percent GST. Health and education will be

supposedly GST free, but schoolbooks and uniforms will still attract

the regular GST of ten percent. Childcare will not be taxed, financial

services will be. Renting will not attract a GST but prices are

expected to rise, as landlords will have to pay extra for repairs and

maintenance of properties. The sale of existing homes will not have a

GST placed on them but new homes are expected to rise by four point

seven percent. Council and water rates will be GST-exempt. Cars will

have the GST but cars worth more than sixty thousand dollars will have

a twenty five percent luxury tax. Vehicle registration will be f! ree

and public transport will have a part GST on it which will be less than

the standard ten percent. If the GST becomes a reality it will

certainly have a big impact on society, whether it be for the better or

for the worse.

The VAT is an important method of raising revenue for the government in

the UK. It is an indirect tax as it taxes expenditure. It is possible

to see the effect on both macro-economic variables and individual

families. Although it will be different to Australia^s proposed GST it

may give us an idea of the impact of the GST if it is passed by the

Senate or in future elections.

The VAT also has exemptions. There is no VAT on most food, newspapers

and children^s clothes. Fuel (electricity etc.) also used to be exempt

from the VAT but a few years ago the conservative government took this

away. There was an uproar in the House of Commons for these services to

be increased to seventeen and a half percent so it was limited to eight

percent, but every other good or service is charged at seventeen and a

half percent VAT. The tax is not paid directly by the consumers, the

firm pays VAT on all the goods and materials they buy and they also

charge VAT on all the goods they sell so the costs are passed onto the

consumer. In this way the GST is different to the VAT as with the GST

you must pay tax on both goods and services but with the VAT you only

have to pay tax on the goods you buy and not the services directly

although the service suppliers may charge a premium because of the

materials they must purchase.

Here is a table displaying the amount of tax on a variety of different

goods. The table will probably be quite similar to a certain extent if

the GST becomes a reality in Australia:

(all figures in pence)pricedutyVATtotaltax as a % of price

Cigarettes336214.750264.778.8

Wine305108.545.4153.950.5

Whisky1149547.7171.1718.862.6

Beer (pint in pub)16624.724.749.429.8

Petrol (per litre)6945.110.355.480.2

There are two main types of indirect tax in the UK. There is only one

in Australia currently, which is the per-unit tax which is where the

amount charged is always the same on each unit. An example of this

would be duties on alcohol or cigarettes. The other type is and

ad-valorem tax which is where the tax is charged as a percentage of a

good, this is what the VAT is in the UK, as it is always charged at

seventeen and a half percent.

As you can see, the VAT is much more easily analysed as it is already

in action in the UK and GST has not yet been approved in Australia.

Both of these taxes are indirect as well as regressive (a tax that

represents a smaller proportion of a person^s income as their income

rises. In other words the average rate of taxation falls). This does

not support Adam Smith^s theory that taxes should be linked to ^ability

to pay^. It is obvious that these taxes will hit less well-off people

harder than the better-off, which is why compensation is required to

reimburse these people after they have paid a GST or VAT. Overall, the

taxes appear to be quite similar besides the fact that the VAT is seven

and half percent more than the GST, although the GST may rise after a

period of time if it becomes a reality.

SOURCES:

www.bizednet.bris.ac.uk/virtual/economy/policy/tools/vat/

www.softterm.com/gst.htm

www.theage.com.au/daily/98sept/980912/news/news80.htm