Making The Case For GST On Fresh Food

With the federal government’s review of taxation about to get underway, many are expecting Australia’s Goods and Services Tax to be up for change. In this GST series we take a closer look at the evidence: the revenue on offer from broadening or increasing, what’s required for the government to change the tax, and the case for compensating those on lower incomes.

It is popular to argue Australia’s goods and services tax is a “regressive” tax, and on that basis, extending the tax to fresh food would be objectionable. Indeed, since people on lower incomes spend more as a proportion of their income on food – it is a tax that hits the poorest hardest. As a consequence, widening the base of the GST would disproportionately impact lower income earners.

But is this a knockout blow for the argument against assessing the GST on fresh food? That it is regressive and unfair and impacts lower income earners disproportionately?

Only if you look at that one aspect of the GST in isolation. Tax academics are fond of saying that there are no such thing as bad taxes, only bad tax systems. Considered as a whole, there are ways of making the tax system fairer while still levying the GST on food.

While it is true that the source of the regressive nature of the GST – the difference between the percent of income spent on food by the lowest and highest income groups – remains, that gap has narrowed significantly since 1984 and is trending downwards, according to my analysis. Where the spending differential on fresh food between top and bottom income quintiles, as a proportion of household expenditure, was more than 5% in the 1980s, it narrowed to a low of 2.5% in 2003-04 and despite a slight rise in the 2009-10 data appears to be maintaining an overall downward trend.

This news story is reprinted from theconversation.com

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