Impacts of GST Rise on Australian Economy

Posted on October 28, 2015 by ATB Chartered Accountants

With recent debates surrounding the announcement of a possible GST rise from 10% to 15%, Australian consumers are worried. In Sydney, property prices are the third most over-valued in the world, after London and Hong Kong. Understandably, this GST increase is particularly concerning for the housing sector as it will add an estimated $15,000 to all new housing construction costs.

With the rise in property prices in Sydney gradually slowing, implementing a GST increase in our present economy could have detrimental impacts on the construction sector. When the GST was first introduced in 2000, dwelling commencements fell to a record low before slightly picking up again in 2002. It was found that the number of new homes built during the two years did not change, however the time taken to build these homes was heavily impacted. Reasoning behind this delay in construction during this time period were mainly attributed to a lack of price growth in the market. Our current economy makes it difficult as it is for individuals to receive bank loans to finance building or investment in properties, and adding a GST increase on top of this will further limit the ability of Australians to own a property.

On the other hand, there have been a number of debates sparked across the nation on whether or not GST should be applied widely across all products and services. Economists argue that when the GST was introduced, the government was too lenient in what was to be taxed and remain untaxed. They argue that since the GST has benefited the Australian economy, there should be no limits on what is taxed by the GST. In Australia, GST covered costs only make up 53% of the economy, whereas in New Zealand, this figure jumps to 96%. The ABC reported in August that Australians are paying approximately half that of other countries, and this is significantly impacting on our overall GDP. So, if it is possible to be moving this level of funds through out economy and into sectors such as healthcare and education, why aren’t we doing so?

While GST will meet the fiscal needs of the states and national economy as a whole, this may be deemed as unfair due to the impact this would have on low income earners. Low income earners spend a higher proportion of their income on household goods. In order to counteract this, the GST should be structured so that there is compensation to protect these low income earners.

The argument then becomes, should the debate be about an overall increase of the GST to 15%, or should the range which the GST reaches be extended to be inclusive of all goods and services available to Australians.