This paper provides the distributional household impact of the existing Goods and Services Tax (GST) and a range of alternatives for expanding the rate and breadth of the GST.
The GST is expected to have collected around $59 billion in the 2015-16 financial year. The proceeds of the GST are passed on to the State and Territory governments and are a major source of revenue for them. This paper details the distribution and revenue collected from both the existing GST and a range of scenarios for expanding the base of the GST.
The GST, while proportional to expenditure, does not impact all families equally. The existing GST only covers around 56 per cent of all expenditure by the household sector – where the tax ultimately falls.
Households have different patterns of expenditure. High-income households not only spend more but tend to spend a greater share of expenditure on certain goods and services, such as private school education and overseas holidays. Low-income households tend to spend proportionately more on necessities such as food and petrol. Of particular importance is the reality that higher income households, on average save some of their income while low-income households spend more than their income. This has important implications for the regressivity of the GST with respect to income.