Goods and Services Tax (Australia)
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The GST (Goods and Services Tax) is a value added tax of 10% on most goods and services sold in Australia.
It was introduced by the Howard Government on July 1, 2000, replacing the previous federal wholesale sales tax system and designed to phase out the various state and territory taxes such as stamp duty and land tax.
Introduction of the GST
The idea for a broad-based value-added tax was first proposed by Paul Keating in the mid-80s but was rejected by the then Labor Prime Minister Bob Hawke who believed it to be unpopular with the Australian public.
The idea was refloated in 1991 by the opposition Liberal-National Coalition, and was the centerpiece of the opposition's platform at the 1993 election, ironically when Keating was Prime Minister. However the opposition had difficulty explaining the policy, as illustrated in leader John Hewson's infamous Birthday Cake Interview, and Keating's campaign exploited public distrust of the GST. The GST was seen as the main reason for the opposition's surprise election loss of the 'unloseable election' in 1993.
When John Howard was re-elected leader of the Liberal party in 1995, he entered the following year's election campaign indicating that he would "never, ever" introduce the GST. Howard subsequently led the Liberal-National Coalition to a large victory in the 1996 elections.
In the lead-up to the 1998 election, Howard campaigned on the GST and narrowly won, describing the victory as a "mandate for my GST". Lacking a Senate majority, and with Labor adamantly opposed to the introduction of the GST, the government turned to the minor parties for support.
A prominent selling point of the legislation was that every dollar collected from the GST would be redistributed to the states. As such, an agreement was enacted with the state and territory governments of Australia in 1999 that their various inefficient duties, levies and taxes on consumption would be removed gradually over time, with the budget shortfall being replaced by GST income from the Commonwealth Grants Commission. Furthermore, personal income tax and company tax was reduced to offset the GST.
While the Democrats had opposed the GST during the 1998 election campaign, their leader, Meg Lees, was sympathetic to the notion of amending the government's GST legislation to make the tax fairer. The government had campaigned for wholesale tax reform, with the GST replacing all former sales taxes, as well as applying to all goods and services. Lees wanted exemptions to be made for food, education and other goods and services. After months of negotiations, the government relented, and the legislation was passed on June 28, 1999.
Political fallout
Meg Lees viewed the dilution of the GST legislation as a success, but the issue split the Democrats, with Senators Natasha Stott Despoja and Andrew Bartlett crossing the floor to vote against the GST. The move triggered infighting amongst the Democrats, and after the 2004 federal election, they relinquished the balance of power they once held in the Senate.Australian Labor Party leader Kim Beazley still believed the tax was unpopular with the Australian public, and continued to oppose it during the government's second term. During the 2001 election campaign, Labor made the touted 'GST rollback' a centrepiece of its election platform. Labor attempted to reprise the effects of the birthday cake interview by deriding the application of GST to cooked and uncooked chickens, but failed to ignite public passion because the true extent of the proposed [rollbacks were revealed to be relatively modest]; applying only to gas and electricity bills. Labor lost the election, effectively ending all serious opposition to the GST.
However, in early 2006, the GST returned to frontpage headlines when the New South Wales (NSW) State Government and the Federal Treasurer Peter Costello [launched adversarial advertising campaigns] concerning distribution of the GST to the states. NSW Treasurer, Michael Costa argued in full-page newspaper advertisements and on televised commercials that NSW consumers paid AUD$13 billion in GST, but only received AUD$10 billion back from the Commonwealth Grants Commission, and as such he said that NSW was subsidising resource rich states like Queensland and Western Australia. The Federal Government counteracted with its own advertising campaign which claimed that NSW had breached its contractual obligations under the 1999 GST Agreement by continuing to charge unfair stamp duties and land taxes, which were supposed to have been abolished. After weeks of intense media and public pressure, the NSW State Government announced in its Budget that it would reduce stamp duty and land tax; however critics argued that the Government didn't go far enough with much broader tax reform in NSW required to help encourage investment and business that had been forced elsewhere due to an unfavourable NSW business environment. This was in response to the Commonwealth allowing another AUD$72 million in grants to NSW, in addition to existing annual increases.
Economic and Social Effects of the GST
Many critics have argued that the GST is similar to 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. However, these claims are somewhat mitigated due to the corresponding reductions in personal income taxes, state stamp duties, federal wholesales tax and some fuel taxes that were implemented when the GST was introduced. Thus, according to the Federal Treasurer, Peter Costello, 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 however, there was plummeting consumer consumption and economic growth, that by the first fiscal quarter of 2001, the Australian economy plunged into negative growth for the first time in more than 10 years. The Government was further criticised by small business owners on the grounds that administrative costs and red-tape had soared as businesses had to submit Business Activity Statements regularly to the Australian Taxation Office, in addition to having to pay one-eleventh of revenue for GST purposes.
A study commissioned by the Curtin University of Technology, Sydney 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. These claims may have been accurate during the early GST period, however the real estate market returned to unprecedented boom between 2002 and 2004 where property prices and demand increased dramatically, particularly in Sydney and Melbourne.
Tourist Refund Scheme
The removal of import duties has led to a change in discounts available when duty free shopping and the process for claiming tax savings. Previously goods could be purchased from suppliers offering duty free pricing upon presentation of a current passport and airline tickets. The goods would then remain sealed until the passenger had passed through the customs area at an airport.Following the introduction of the GST, a receipt for goods with a combined total over AUD$300 is eligible for a refund of any GST paid upon exiting the country with refunds claimed at a [TRS] (Tourist Refund Scheme) counter at the airport. The advantage of this arrangement is that goods purchased up to a month prior to departure may be freely used within Australia prior departure as long as they are carried in hand luggage and presented when making a refund claim. This obviously does not extend to consumable goods such as food and beverages.
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