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The National and Regional Consequences of Australia's Goods and Services Tax

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  • J.A. Giesecke
  • N.H. Tran

Abstract

Previous modelling of the Australian goods and services tax (GST) has: (a) used models of the national economy; and (b) modeled the GST as an indirect tax on various tax bases (like consumption and investment) without taking formal account of the complex underlying details of the operations of the GST system as they relate to its legislated features and its interactions with the structure of economic activity. In this paper we improve on previous modelling by: (a) modelling the GST within a multi-regional framework that allows for the identification of the commodity-, source-, user-, and region-specific details of economic transactions; (b) modelling the legislated details of the GST as it relates to the commodity-, source-, user-, and region-specific details of legislated GST rates, legislated GST exemptions, agent- and region-specific details of entities registered for GST, multiproduct detail as it relates to the capacity of agents to reclaim GST paid on inputs, informal economic activity, the low value import threshold, transaction-specific compliance rates, and taxation of on-shore purchases by non-residents. In a model like this, when we change any individual element of the GST (for example, by raising existing rates, taxing currently GST-free goods like basic foods, removing exemptions such as on finance, removing the low value import threshold) the economic effects are informed by regional differences in economic structure and their interactions with the commodity- user- and source-specific details of our GST theory. In this paper, we report on the effects of a rise in the standard GST rate from 10% to 11%. We decompose regional and national effects into six components: (i) The effects of the GST rate rise with endogenous state and federal public sector borrowing requirements (PSBRs) and endogenous balance of trade to GDP ratio; (ii) The effects of the federal government granting to each state the amount of GST collected within each state; (iii) The effects of a correction to the state grant allocations under (ii) to reflect the effects of Commonwealth Grants Commission (CGC) allocation on a per-capita basis; (iv) The effects of state governments returning their PSBR's to baseline via endogenous adjustment of lump sum payments to households; (v) The effects of the federal government returning its PSBR to baseline via adjustment of lump-sum household taxes and transfers; (vi) The effects of adjustments to the average propensity to save required to leave the national balance of trade to GDP ratio unaffected by the shocks described by (i)-(v).

Suggested Citation

  • J.A. Giesecke & N.H. Tran, 2017. "The National and Regional Consequences of Australia's Goods and Services Tax," Centre of Policy Studies/IMPACT Centre Working Papers g-278, Victoria University, Centre of Policy Studies/IMPACT Centre.
    • Handle: RePEc:cop:wpaper:g-278
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    Cited by:

    1. Jason Nassios & James Giesecke & Xianglong Locky Liu, 2024. "An impossible triangle? The impact of housing policy on affordability, accessibility, and efficiency," Centre of Policy Studies/IMPACT Centre Working Papers g-344, Victoria University, Centre of Policy Studies/IMPACT Centre.
    2. Jason Nassios & John Madden & James Giesecke & Janine Dixon & Nhi Tran & Peter Dixon & Maureen Rimmer & Philip Adams & John Freebairn, 2019. "The economic impact and efficiency of state and federal taxes in Australia," Centre of Policy Studies/IMPACT Centre Working Papers g-289, Victoria University, Centre of Policy Studies/IMPACT Centre.
    3. Xianglong Liu & Jason Nassios & James Giesecke, 2022. "Oil Supply Shocks and Tax Policy Responses in Australia: Insights from a Dynamic CGE Framework," Centre of Policy Studies/IMPACT Centre Working Papers g-336, Victoria University, Centre of Policy Studies/IMPACT Centre.
    4. Nassios, J. & Giesecke, J.A. & Dixon, P.B. & Rimmer, M.T., 2019. "Modelling the allocative efficiency of landowner taxation," Economic Modelling, Elsevier, vol. 81(C), pages 111-123.
    5. Jason Nassios & James Giesecke, 2022. "Inefficient at Any Level: A Comparative Efficiency Argument for Complete Elimination of Property Transfer Duties and Insurance Taxes," Centre of Policy Studies/IMPACT Centre Working Papers g-337, Victoria University, Centre of Policy Studies/IMPACT Centre.
    6. Xianglong Locky Liu & James Giesecke & Jason Nassios, 2023. "The Economic Effects of an International Student Levy," Centre of Policy Studies/IMPACT Centre Working Papers g-341, Victoria University, Centre of Policy Studies/IMPACT Centre.

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    More about this item

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis

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