From: miw@cc.uq.oz.au (Mark I. Williams)
Subject: Re: implication of GST for savings
Organization: Prentice Centre, University of Queensland
Date: Fri, 9 Oct 1992 00:58:13 GMT

ggr@koonda.acci.com.au (Greg Rose) writes:

>In article <1992Oct8.051648.18447@cs.uow.edu.au> ph@cs.uow.edu.au (Phillip Herring) writes:
>>([*] "Is the Introduction of a Value-Added Tax Inflationary?", Finance and
>>Development (June 1981) pp. 38-42.)

>This discussion was originally started by someone saying that GST
>would erode people's savings by increasing inflation. I think the
>original poster misused the word inflation in this context, and we are
>now talking about the wrong thing. 

No, we aren't. See below.

>Suppose, on Jan 1 1993, a GST of 10% on basically everything is
>introduced. Well, on Dec 31 1992, a load of groceries at the
>supermarket might cost me $100. Twenty-four hours later, I will use up
>$110 to buy the same load of groceries. 

Perhaps, but you don't live on groceries alone. Any serious study on
inflation works using the CPI, not a Coles trolley. One-time increases
in the cost of living are included in inflation. The GST *on its own*
would be inflationary, obviously. However, nobody is proposing to
implement GST *on its own*. As you very well know, it is coupled with
the abolition of wholesale sales tax and fuel excise as well as a number
of other things.

Now, the cost of food is *mostly* transport. If you don't believe this,
just find out what the costs that gointo a can of beans or a kilo of
beef are. Beef is about 70% transport costs. So it is simplistic in the
extreme to say that 'food is going to go up by 15%' because it just
isn't - the cost of producing that food is going to go down. (This,
incidentally, will go some way to improving the competitiveness of Australian
agricultural products which are being forced out of the Market by cheap
imports.)

The whole picture is quite complex, and there will obviously be winners
and losers. The question is: does it work out better for a majority of
people? So far I haven't heard anything but the most superficial
analysis from the anti-GST people.

The opponents of GST are mostly, in my view, taking an overly
doctrinaire view. They are quite happy to accept lower interest rates,
for example. However, lower interest rates are beyond doubt
inflationary, and they are a disaster for people who, like my
grandparents, are trying to live from savings or eke out superannuation
payouts. In fact, lowering interest rates is just as bad or worse for
savings as the GST. Did we hear the Catholic Welfare League complaining
about a lowering of interest rates? Or are we just seeing the Catholic
church doing its bit to influence the next election? There aren't nearly
as many Catholics on the conservative side of the house.

And what about tariffs on clothing? The tariff on clothing makes
Australia one of the most expensive countries in the world to buy
clothing in. This has a direct impact on the poorest people in the
country who all have to have clothing. Do I hear anti-GST people
complaining that the hijacking of the government's plan to reduce
tariffs by sectional interests? Not on your life.

GST is just another indirect tax. Its greatest virtue is its generality
and the difficulty of evading it. This also happens to be its greatest
problem when it comes to selling it. This is what Paul Keating found out
when *he* tried to introduce one in 1985 but got rolled by Hawke and the
ACTU.

cheers,

--
Mark Williams         The University of Queensland       miw@cc.uq.edu.au
+61 7 36 54012   (w)  Prentice Centre
+61 7 36 54477  (fax) Qld 4072  Australia
Nullum magnum ingenium sine mixtura dementiae fuit.  -- Seneca