The methodology combines annual household consumption and GST data, then breaks it down into quarterly estimates of GST revenue raised from household consumption. This enables the monitoring of household consumption patterns and their impact on GST revenue. The methodology is achieved by estimating the per cent of household consumption subject to GST (‘percentage GST-able’) by individual categories (i.e. health or transport). This can provide insights into which types of household consumption are mostly subject to GST and which ones are mostly exempt.
This methodology has been developed to analyse the potential GST revenue impact resulting from changes in household consumption. It is of high importance due to its significant contribution to the State’s financial position and its ability to deliver positive outcomes to Victorians. In 2022‑23, GST revenue was Victoria’s largest revenue source, accounting for around a quarter of total state revenue.
Limited research has investigated the impact of household consumption patterns on GST revenue. The Commonwealth Parliamentary Budget Office (2020)1 examined the impact of household consumption on GST revenue over the period before the onset of the pandemic; however, the report did not disclose the specific methodology utilised.
This paper addresses this knowledge gap by introducing a methodology that more effectively uses price and volume information by GST status to identify drivers of observed trends. The paper also investigates household consumption trends both before and after the onset of the COVID-19 pandemic, and the resulting impact on GST revenue.
Over the first period it was found that the share of household consumption subject to GST has steadily declined. This has been driven by stronger growth in GST-free goods and services relative to those subject to GST; headlined by rent, education, and health.
The onset of the COVID-19 pandemic disrupted the consumption patterns of Australian households, and in turn affected GST revenue. Most notably household consumption subject to GST fell sharply, caused by significant declines in spending related to tourism, hospitality, and in-person recreational activities.
As border restrictions and public health measures began to ease, household consumption subject to GST bounced back. This was driven by a wave of discretionary spending on hotels and restaurants, clothing and footwear, recreation and culture. This caused the share of household consumption subject to GST to increase by the most significant amount since the introduction of the GST.
Recent trends show that Australian households have started to pull back on consumption subject to GST, largely driven by a cutback on discretionary spending amidst cost-of-living pressures. It is likely that this trend will continue while cost-of-living pressures persist. The longer-term trajectory of the share of household consumption subject to GST will depend on whether any structural changes in household consumption emerge from the COVID-19 pandemic.
Footnotes
[1] Commonwealth Parliamentary Budget Office (PBO) report into ‘Structural Trends in GST, 2020.
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