Does Australia need a six-month GST holiday?

Treasurer Josh Frydenberg has spent billions trying to save us from recession.

The winding down of JobKeeper scheduled for September means he’ll have to spend billions more. Gst

Many of the stimulus measures talked about are focused on the traditional targets of infrastructure and residential construction.

But this recession is different to previous ones.

It has wrought most of its damage to restaurants, retail, entertainment and the holiday industry.

These service sector industries employ the lions share of the Australians at risk.

No matter how much traditional stimulus we offer, very few baristas or chefs are going to be able to find work building high-speed rail lines.

The COVID recession requires a different response.

A GST holiday would fight the recession we’ve got

One that would work would be a GST holiday.

Instantly, and for the next six months, all goods and services covered by the 10% tax would become more affordable.

The concession would be timely, targeted and would generate the maximum economic bang for the government’s buck.

It would be targeted because the GST doesn’t cover many of the goods people are already buying such as fresh food and medicines.

What it does cover is extra, less essential, spending on things such as clothes, tourism and restaurants – the exact kind of spending we need to stimulate.

Cutting income tax or cash splashes wouldn’t deliver as big a bang for the buck – much of the bonus would be saved, or spent in sectors that don’t require stimulus.

However the only way to get the GST discount would be to buy goods and services, many of them produced by workers who will need support.

It’d be direct money where it is needed

The benefit would also be progressive.

Calculations by Peter Varela, an economist at the Australian National University, suggest that the poorest households pay the highest share of their income in GST.

Removing it would eliminate this burden, if temporarily, helping the poorest households the most.

Making it temporary would encourage Australians to spend right now.

A GST holiday that only lasted only six months would force households to consider bringing forward planned future purchases to the present, when they are needed, in the same way as the government’s six month extension of the instant asset write-off is meant to for businesses.

It’s been done elsewhere

The idea was considered by Australia’s treasury during the global financial crisis. Britain’s treasury did it, cutting its GST (called value added tax) from 17.5% to 15% for a year in a measure judged a success.

Britain is reported to be planning to do it again.

Germany has already done it.  globe-economy-growth-health-world-heart-decline-map

It has cut its value added tax from m 19% to 16% until the end of the year.

Australia baulked at the idea during the global financial crisis because it was considered too difficult to get the premiers to agree to it.

But it mightn’t be as difficult now.

The COVID-19 response has generated a new surge in cooperation between state and federal leaders for the good of the nation.

A fly in the ointment would be who paid for it.

The six month holiday might cost A$35 billion.

While the states traditionally receive the GST revenue, in this instance the bill for the cut should be paid by the federal government.

It’s the federal government that is responsible for managing the national economy. Australia Economy Concept

State budgets, already hard hit, shouldn’t be further damaged.

Over to you Treasurer Frydenberg.

Your economic statement is due on July 23.

The budget is due on October 6.

You could do worse than emulate Germany and the United Kingdom.The Conversation

Guest Author: Isaac Gross, Lecturer in Economics, Monash University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

icon-podcast-large

Subscribe & don’t miss a single episode of Michael Yardney’s podcast

Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.

Need help listening to Michael Yardney’s podcast from your phone or tablet?

We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.

icon-email-large

Prefer to subscribe via email?

Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.


Guest Expert

About

Apart from our regular team of experts, we frequently publish commentary from guest contributors who are authorities in their field.


'Does Australia need a six-month GST holiday?' have no comments

Be the first to comment this post!

Would you like to share your thoughts?

Your email address will not be published.
CAPTCHA Image

*


Copyright © Michael Yardney’s Property Investment Update Important Information
Content Marketing by GridConcepts