As the WST was levied only on goods and not on services, it grew increasingly inefficient as the services sector grew to over two-thirds of the economy.1
The GST is a consumption tax applied to goods and services. A key feature of the new GST system was that it levied a uniform rate of 10 per cent. This decreased the tax system’s complexity and administrative burden. It also minimised the tax distortions that characterised the WST’s multi-tax rate structure, which was a contributing reason for its abolition.2
The GST is administered by the Australian Taxation Office on behalf of the Australian states and territories, and receipts are distributed based on the advice of the Commonwealth Grants Commission (CGC). It is distributed based on the principle of horizontal fiscal equalisation, which seeks to ensure jurisdictions can provide similar levels of infrastructure and services to their residents.2
Around 75 per cent of total revenue raised from the GST is collected from household consumption expenditure, while the remainder is raised mostly from private investment. Some household consumption items are exempt from the GST - broadly speaking, these include rent, health, education, fresh food and some financial services.3
A 2020 report published by the Commonwealth Parliamentary Budget Office (PBO) showed that the share of total household consumption subject to GST has been steadily declining since the introduction of the GST.
The report also showed that the following mostly GST-free categories in rent, food, education, and health spending all experienced strong growth and were key contributors to the declining relative share.
Footnotes
[1] Treasurer of the Commonwealth of Australia, Tax Reform not a new tax a new tax system, The Howard Government's plan for a new tax system, August 1998.
[2] Australian Treasury, Tax discussion paper, March 2015.
[3] Department of Treasury and Finance (VIC) analysis of ABS data.
Updated