This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: Goods and services tax (GST) is priced into many everyday purchases, from groceries and clothing to restaurant meals and household bills. That means any change to the tax can affect how much households have left to spend.
GST is often described as regressive, meaning it takes up a larger share of lower-income households' income than higher-income households' income. This is because higher-income households tend to save more of their income, while lower-income households generally spend more of what they earn. New research from the e61-UNSW Policy Research Partnership suggests the picture is more complicated.
It found that households pay a broadly similar share of their spending in GST, regardless of how much they spend. The research examined how conclusions about the GST change when household resources are measured through current income, longer-term income and spending. The findings are relevant to the ongoing debate about whether Australia should increase the GST rate or broaden the range of goods and services to which it applies.
Scientia professor Richard Holden, vice-chancellor's professor and chief societal economist at UNSW Sydney and senior academic fellow at the e61 Institute, said the research showed why the impact of tax changes needed to be assessed carefully. "People often think about the GST as taking a larger share of the income of lower-income households, and that is what we see when we look at income in a single year," he said. "Household income can fluctuate, and people make decisions about when to spend, save or draw on their resources.
Looking at spending and longer-term income provides a more complete picture of how the GST affects households." The research used 2015–16 data from the Household, Income and Labor Dynamics in Australia (HILDA) Survey to compare GST payments with household income and spending. It also used data from multiple HILDA survey years to examine households' income and spending over a longer period. It examined disposable income, household spending and broader measures of wealth, as well as how these resources changed over a single year and over a longer period.
This helped account for temporary changes in income, such as unemployment, study or parental leave, and the different ways people save and spend throughout their lives. Holden said looking at income in a single year could provide an incomplete picture of a household's financial position. "Someone may have a temporarily low income but continue to meet their expenses by drawing on savings or borrowing.
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