If the full GST model is implemented, expect fresh food, fruit and vegetables in particular, to increase in price by 15% and expect your ‘cost of living’ to go up by around 10%.
Today, Friday 11 December 2015, the Australian Federal Government will be meeting with the state governments at the Council of Australian Governments (COAG) to discuss tax reform, with GST changes a major topic.
One of the proposals that may be being discussed by our politicians – from both major sides of politics, Coalition and ALP – is to have a 15% GST on practically everything defined as a ‘good or service’. This ‘full model’ means broadening the base of the GST and putting 15% on goods and services items not currently taxed as well as increasing the GST from 10% to 15% on items that are currently taxed.
Currently only about 50% of items in Australia are subject to GST and under the full model the tax would go from 10% to 15%. The other 50% of items, which includes fresh foods, are currently GST free but under the full model the tax will go from 0% to 15%.
It is easy to estimate that if this ‘full’ models goes ahead prices in general will rise by around 10%. Thus, expect your cost of living (to pay for the goods and services you consume) to go up by around 10% or your living standard to fall by around 10%.
- If your current monthly expenditure is around $5,000 on goods and services, expect the need to find an extra $500 a month, or $6,000 a year, or to reduce the ‘volume’ of goods and services you consume by around 10%.
- If your current monthly expenditure is around $8,000, expect the need to find an extra $800 a month, or almost $10,000 for a year, or to reduce your consumption or switch to cheaper products.
- And that is for every year of your life! Or until the GST goes up again!
It seems a major argument for an increase in the GST is to fund state government health budgets. But it does not make sense to have a 15% increase in the cost of fresh food, fruit and vegetables in particular, for a country with a growing obesity and diabetes problem! Non-fresh foods will go up by only 5%. Even despite financial compensation, we would expect many, if not most, consumers to turn from fresh produce to consume even more processed foods than they do now!
There are better ways of achieving the Federal and State governments goal of raising revenue.
If you would like to read my full analysis of the impact of a ‘full’ GST model – 15% on practically every good and service – click here: GST Impact