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