Goods and Services taxes (GST)
Introduction to the GST
Paul Keating the federal treasurer of Australia at that time was the first to introduce the idea of a broad-based consumption tax at 1985 Tax Summit but it faced opposition due to its connection with proposals for capital gains and fringe benefits taxes. So, the Labor Prime Minister Bob Hawke dropped this idea due to the pressure from SCTU, welfare groups, and businesses.
When Keating was Prime Minister he introduced this idea again in 1991 by the opposition Liberal-National Coalition and became a key part of their platform for 1993 election. The opposition struggled to convey the policy, as demonstrated by leader John Hewson in the “Birthday Cake Interview,” and Prime Minister Keating’s campaign capitalized on the public distrust towards the GST. It was believed that GST was a major contributing factor to the opposition’s unexpected defeat in the 1993 election, which was considered to be a sure win.
In 1995, John Howard was elected again as leader of Liberal party and promised that he will never introduce GST. The Liberal-National Coalition won in the 1996 elections under his leadership.
Howard suggested a GST that would replace all existing sales taxes and be applied to all goods and services ahead of the 1998 election. The Howard Government suffered a 4.61% decrease in support for the coalition in the two-party preferred vote but retained parliamentary majority seats in the lower house and considered it a “mandate for the GST”. However, due to a lack of a Senate majority and opposition from the Labor party, the government pursued support from minor parties to introduce the GST.
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The main point to sell for the GST legislation was that they will distribute all revenue raised to the states. Australia state and territory governments made an agreement in 1999 to gradually remove their many levies, duties, and taxes on consumption with GST income from the Commonwealth Grants Commission to compensate for the loss in revenue.
The reintroduction of federal personal income tax and company tax offset the GST. In 1995, John Howard was elected again as leader of the Liberal party and promised that he will never introduce GST. The Liberal-National Coalition won in the 1996 elections significantly under his leadership.
During the election campaign of 1998, the Democrats leader Meg Lees said they opposed GST until food, tourism and books packages sold offshore were exempt, and the other tax measures were introduced. Initially, the government said these exemptions were not possible and seem to win a compromise with independent Senator Brian Harradine.
At last Lees reached a compromise including the exemption of most basic food items from the GST, refunding the GST for the library purchases of books, providing a temporary 8% refund on school textbooks, increasing welfare payments, and giving more power to the ACCC. The Prime Minister dismissed a proposal to exempt tampons from the GST. The legislation, titled A New Tax System (Goods and Services Tax) Act 1999, was passed on 28 June 1999, got assent on 8 July 1999 and started to operate on 1st July 2000.
John Howard said the GST will never become a part of Liberal Party policy but later he changed his mind and implemented it as the policy to 1998 election. Senate passed it in June 1998. The leader of Democrats of that time Meg Lees considered the dilution of GST legislation a success, the issue caused the split of party, causing Senators Stoot Despoja and Bartlett to vote against it which cause the internal conflict. Party performed well under the leadership of Stoot Despoja in 2001 federal election but the infighting got worse and she got removed from the leadership and party lost its Senate power in 2004 election. Democrats lost all the remaining seats in 2007 election.
The leader of Labor Party Kim Beazley continued to resist it during the second term of Howard government. Labor party made a GST rollback a key part of the platform of its election. Labor tried to reprise the effects of Birthday Cake Interview by deriding the implementation of GST to cooked and uncooked chicken, but it failed to generate public response to limited scope of rollbacks implementing it only to electricity and gas bills. Labor lost election and all the serious opposition to GST ended.
New South Wales (NSW) State Government and Federal Treasurer Peter Costello launched the opposing advertising campaigns related to distribution of GST to the states in early 2006. The treasurer of NSW Michael Costa said on full page newspaper that the consumers of NSW paid AUD$13 billion but received only AUD$10 billion in return from Commonwealth Grants Commision, as NSW was subsidizing the resource rich states such as Queensland and Western Australia. The federal government counteracted with an advertisement campaign of their own.
Federal government claimed that NSW obligated the 1999 GST agreement by maintaining unfair stamp duties and land taxes which were supposed to be removed. NSW government reduced the stamp duties and land taxes, but critics after the public pressure said that the State government did not go that far with more broader tax reform in NSW needed to help encourage business and investment that had been forced elsewhere because of an unfavorable NSW business environment. The Commonwealth eventually increased grants to NSW by $72 million.
Economic and social effects of the GST
Critics said that GST is a regressive tax. It has more effect on lower income consumers as compared to higher income consumers which means a higher portion of their income goes into tax. Peter Castello says that people were effectively paying no extra tax because of the corresponding reductions in state bank taxes, income taxes, federal wholesale taxes and some fuel taxes that were applied when GST was introduced.
The preceding months before GST became active there was a spike in consumption because consumers rushed to buy goods that they thought would become more expensive with GST. Australian economy faced negative growth in economy for the first time in 10 years by the first fiscal quarter of 2001 as consumer consumption and growth of economy declined after the tax came into effect. However, consumption returned to normal soon. Small business owners criticized the government on increased burden of administration of submitting quarterly Business Activity Statements to Australian Taxation Office.
Curtin University of Technology commissioned a study Perth in 2000 and that study argued that it was the negative impact of the introduction of GST on real estate market as the cost of new homes increased by 8% and demand reduced by 12%. Real estate market flourished again between 2002 and 2004 as the demand and prices of property increased exponentially.
Tourist refund scheme
Consumers could buy goods from suppliers who offer duty free pricing by showing their current passport and airline tickets before GST. These items remained sealed until consumer cleared customs at the airport.
But after the introduction of GST, a receipt with combined total of over AUD$300 is eligible for refund of any GST paid when exiting the country with refunds claimed at Tourist Refund Scheme counter at the airport. It allows the consumers to use the things they buy a month before departure as long as they are carried in hand luggage and presented when they claim refund. But it does not apply to things which are consumable such as food, beverages or any other services like plane tickets or hotel charges.