From: miw@cc.uq.oz.au (Mark I. Williams)
Subject: Re: implication of GST
Organization: Prentice Centre, University of Queensland
Date: Mon, 12 Oct 1992 01:51:52 GMT

zrepachol@cc.curtin.edu.au (Paul Repacholi) writes:

>Here is a hidden trap for the younger players...

>Let us, for argument say that our $100 is $75 of 0% ST, and $25 of 30% ST items.
>A resonable markup is ~100%, so we have at wholesale, $35 plus $11 plus $4 ST.

This is a *very* unreasonable markup. Grocery stores have very low
markups, because the competition is very high and overheads are quite
low. Last time I read estimates, places like Coles and Woolworths were
marking up at about 22.5% (i.e. an item with a shelf price of $1.00 cost
coles 77.5c), Jack the slasher was marking up at around 8-10%, and
places like Franklins were in between.

Second, your assumption of $75/$25 is probably wrong for most
households. It doesn't matter how hard I try, I always seem to have a
significant proportion of my food bill made up of things like cleaning
products and dunny paper. In fact, I would say that about 50% of my
grocery bill is food, and the rest is made up of things that attract
sales tax.

Thus, wholesale it looks like:

$38 + $26.50 + $11.50 sales tax.

>The larger chains quickly saw that they could put the $4 in their pocket by
>reducing the internal price from $11 to $1 ( plus 30c ST ) and increasing
>the price of the tax free goods from $35 to $45. When the Tax Office tryed to
>stop it, they quickly showed that it was 'standard' pricing for the industry,
>because, of course ALL of them where doing the same sort of thing.

This, I find *very* difficult to believe. The taxation office has the
power to decide what the wholesale price is if it doesn't believe what
the chains are saying. It has always been very willing to use its
discretion here, anyway. Some fiddling is quite likely, and is a very
good reason for scrapping the wholesale tax and introducing a turnover
tax, but gross rorts of the type you are describing are the stuff of
fairyland.

>Now lets do it the GST way. The 'retail' end get $45 plus $11 of goods. Yes,
>I know these are not the figures quoted above, and this is just the point.
>They will not reduce the price of the currently tax free items, I'll bet, but
>WILL increase the price of the taxed items to show a profit at wholesale.
>If we apply the same margin, we will be paying $112 plus 15%, ~$130!!

You are making a wholly unwarranted assumption here. In a business as
competitive as Groceries, any savings at the input end will be passed on
to the consumer. In addition, you can bet your life that the government
will have the prices surveillance authority breathing down the necks of
the chains. I don't think you have any concept of what even a small drop
in turnover does to the likes of Woolworths, and how willing people are
to go across the road to Franklins in these hard times.

Second, you instead of factoring the input price of food to be cheaper
because of the abolition in fuel excise, you are actually making it
dearer. The price of fresh food is somewhere between 40% and 50%
transport, of which a bit less than half is fuel prices. Of that, about
10% (I think) will be cut out, so you will see a reduction in input
prices to Woolworths of about 3%-6% (depending on whether it is
something transport intensive or not) for food items.

So we are looking at $36 + $26.50 = $62.50 before GST and Markup. Markup
is now effectively 22.5+15 % = 37.5% (i.e. something that costs $100 
retail cost $62.50 wholesale).

In Other words, your $100 worth of groceries now still costs only $100!

Now, I don't believe this analysis any more than I believe yours, but I
am willing to bet that it is a lot closer, since I used real-world
figures for markup, and I didn't have to resort to conspiracy theories
to get the result.

What it does show is tht the issue is more complicated than it looks,
and that if you make up your figures you can prove anything because
small changes make big differences to the outcome.

The only thing we *can* be sure of is that if the coalition introduce a
GST, having forecast that it will affect the CPI by 4-6%, they will be
under very high pressure to produce the goods on that particular score.
Do you think any opposition worth its salt wouldn't be just waiting for
a 10% hike? There will be PSA officers crawling all over every shop in
Australia.

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