Goods and Services Tax (Australia) - Economic and Social Effects

Economic and Social Effects

Critics have argued that the GST is a regressive tax, which has a more pronounced effect on lower income earners, meaning that the tax consumes a higher proportion of their income, compared to those earning large incomes. Due to the corresponding reductions in personal income taxes, state banking taxes, federal wholesales tax and some fuel taxes that were implemented when the GST was introduced, Treasurer Peter Costello claimed that people were effectively paying no extra tax.

The preceding months before the GST became active saw a spike in consumption as consumers rushed to purchase goods that they perceived would be substantially more expensive with the GST. Once the tax came into effect, consumer consumption and economic growth declined such that by the first fiscal quarter of 2001, the Australian economy recorded negative economic growth for the first time in more than 10 years. Consumption soon returned to normal however. The Government was criticised by small business owners over the increased administrative responsibilities of submitting Business Activity Statements (BAS) on a quarterly basis to the Australian Taxation Office.

A study commissioned by the Curtin University of Technology, Perth in 2000 argued that the introduction of the GST would negatively impact the real estate market as it would add up to 8 percent to the cost of new homes and reduce demand by about 12 percent. The real estate market returned to boom between 2002 and 2004 where property prices and demand increased dramatically, particularly in Sydney and Melbourne. During the 2004-2006 period Perth also witnessed a sharp climb in real estate prices and demand.