THE WELFARE EFFECTS OF THE AUSTRALIAN GOODS AND SERVICES TAX

Abstract

This paper analyses the effect of the Australian goods and services tax. First, we compute the social marginal cost per dollar revenue raised for nine broad commodity groups to determine whether a uniform flat rate is efficient. Second, we evaluate the welfare effects of the tax on the consumption of different income groups. The results indicate that a uniform tax may not be efficient and that the goods and services tax has adversely affected the distribution of purchasing power and thus, there is little scope for using the indirect tax system as a means to redistribute consumption towards the poor.