Australian Bureau of Statistics
5216.0 - Australian National Accounts: Concepts, Sources and Methods, 2000
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 15/11/2000
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A5.1 There were major changes to the Australian tax system from 1 July 2000 with the introduction of The New Tax System (TNTS). A major feature of the new arrangements was the introduction of a goods and services tax (GST), which affected the prices of a broad range of goods and services in the economy. The GST replaced wholesale sales taxes (WST) and a number of other taxes on production and imports, although not all of these taxes were abolished from 1 July 2000. The introduction of the GST was accompanied by reductions in personal income tax rates and increases in social security payments. There were also changes to company tax arrangements. TNTS has important implications for the national accounts, most of which affect the accounts from the September quarter 2000. For example, current price estimates of GDP increased, but there were no direct effects of TNTS on the chain volume measure of GDP. This appendix explains how the GST is treated in the national accounts and discusses the direct impacts that the changes in the tax system had on the major national accounts aggregates.
A5.2 The GST is a tax of 10 per cent on the price of most goods and services in Australia, including those that are imported. It does not apply to sales of goods or services that are either exempt (GST-free) or input-taxed. Businesses charge GST on goods and services sold to other businesses and to consumers. In most cases, businesses are able to offset the GST they pay on acquisitions, such as purchases of intermediate inputs and capital expenditure, against the GST they collect on their sales. This offset is referred to as an input-tax credit. Businesses remit the net amount of GST collected to the Australian Taxation Office. If the input-tax credit of a business exceeds the amount of GST that it has collected on its sales then it receives a refund for the difference. As such, the GST is ultimately paid by the final consumer. Under most circumstances, sales between businesses are effectively GST-free.
Businesses producing GST-free goods and services are able to claim an input-tax credit on GST paid on their purchases.
A5.4 Services that are input-taxed include:
Businesses producing input-taxed services are unable to claim an input-tax credit on GST paid on the inputs to the production of these services. For example, as the purchase of dwellings is considered an input into the supply of residential rents, there is no input-tax credit allowed on such purchases.
A5.5 As a transitional arrangement, input-tax credits on most business purchases of new motor vehicles are as follows: no input-tax credit is allowed in 2000-01, a 50 per cent credit is allowed in 2001-02, and full credits are allowed from 1 July 2002. One exception is that a full input-tax credit is allowed from 1 July 2000 on purchases of motor vehicles that were not previously subject to WST.
A5.6 In another transitional arrangement, a special credit was allowed for WST paid on trading stock held by businesses at 1 July 2000. This ensured that, with the introduction of the GST, there was no double taxation on trading stock.
Treatment of GST in the national accounts
A5.7 SNA93 describes the appropriate conceptual treatment of value added taxes (VAT), of which the GST is a type. Two basic approaches are described: the gross and net methods of recording. To quote the SNA:
Under the net system, VAT is recorded as being payable by purchasers, not sellers, and then only by those purchasers who are not able to deduct it. Almost all VAT is therefore recorded in the System as being paid on final uses - mainly on household consumption. Small amounts of VAT may, however, be paid by the businesses in respect of certain kinds of purchases on which VAT may not be deductible.’’ (SNA93, paragraph 6.212).
A5.8 SNA93 explains that, within the system of national accounts, the gross method suffers from significant practical and conceptual drawbacks. Because of this, it states that:
A5.9 The ABS uses the net system to record the GST in the national accounts, in line with SNA93 recommendations. The ABS also considers that this is the most appropriate treatment from both a practical and conceptual perspective.
A5.10 According to SNA93, VAT are taxes on products, which are part of the aggregate taxes less subsidies on production and imports. The ABS treats the GST in the same fashion.
Impact of the new tax system on national accounts aggregates - current prices
A5.11 Because the GST collects more revenue than the taxes (e.g. WST) on production that it replaced, the current price value of GDP is at a higher level after its introduction.
A5.14 In terms of the production measure of GDP (for which current price estimates are only provided annually), TNTS has the biggest impact on the item 'taxes less subsidies on products', which is added to estimates of industry value added at basic prices to obtain estimates of GDP at purchasers' (i.e. market) prices.
Impact of the new tax system on national accounts aggregates - volume and price measures
A5.15 The introduction of the GST and other tax changes had no direct impact on chain volume measures of GDP and other aggregates. This is because the impact of tax reform on the current price estimates is a price effect, and as such it is removed in the derivation of the chain volume measures.
A5.17 Because most of the impacts of tax reform on estimates of movement were transitory, users need to exercise caution in interpreting seasonally adjusted and trend estimates of movements in current price aggregates for periods affected by TNTS. As movements in seasonally adjusted estimates include both changes in trend and irregular elements, the direct impacts of the tax changes, which are trend breaks, flowed straight into the seasonally adjusted estimates. Ideally, the impact of TNTS on trend estimates should have been reflected as a break in series. However, as it was not generally possible to quantify the impact of the tax changes, it is generally not possible to reflect TNTS as a break in trend series. Therefore, TNTS had an impact on movements in trend estimates, although these impacts are smoothed and spread over a number of periods due to the nature of the calculation of trend estimates.
A5.19 Much of the source data for the national accounts comes from ABS surveys of businesses. The Urgent Issues Group of the Australian Accounting Research Foundation (AARF) addressed the issue of accounting for the GST and signalled a clear preference for a net system of recording by businesses. However, where it has not been practicable for businesses to report in strict accordance with the AARF's preference and the SNA’s net system of reporting, the ABS collects the data in accordance with businesses’ accounting practices, and adjusts these where necessary.
This page first published 15 November 2000, last updated 29 June 2012
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