Almost everything Australians buy includes a 10% tax most people barely notice. Here’s how the GST works, what’s exempt, and why carving it up between the states causes so many fights.
The goods and services tax, or GST, is a broad tax of 10% on most goods and services sold or consumed in Australia. It was introduced on 1 July 2000 by the Howard government, replacing a range of older taxes, including wholesale sales tax.
In shops, prices displayed to customers must include GST, so many people barely notice they’re paying it.
How it’s collected
The GST is paid at every stage of the supply chain, but businesses claim back the GST they pay on their own purchases, known as input tax credits. In practice, the tax ends up being paid by the final consumer.
Businesses with annual turnover of $75,000 or more must register for GST, charge it on their sales and send it to the Australian Taxation Office, usually through a business activity statement. The threshold is $150,000 for non-profit organisations.
Since 2018, GST has also applied to low-value goods bought from overseas, such as online purchases under $1,000, and to digital services such as streaming subscriptions and apps sold by overseas companies.
What’s exempt
Some things are GST-free. They include most basic food, such as fresh fruit, vegetables, meat and bread, along with most medical and health services, some medicines, education courses, childcare and exports.
Other items are “input taxed”, which means no GST is charged on the sale, but the seller can’t claim credits for the GST on their costs. Residential rent and most financial services, such as bank loans, fall into this category.
The line between taxed and GST-free food can be confusing. Plain bread is exempt, for example, but many prepared foods, snacks and restaurant meals are not.
How it’s shared between the states
All GST revenue goes to the states and territories, making it one of their biggest sources of money.
It isn’t shared based on where it’s collected. The Commonwealth Grants Commission recommends how it should be divided so that every state can provide a similar standard of services. States with lower revenue-raising ability or higher costs, such as Tasmania and the Northern Territory, receive more per person.
That process, called horizontal fiscal equalisation, has long caused disputes. Western Australia complained for years that its mining royalties meant it received far less than it collected. Changes in 2018 guaranteed it a larger share, funded by the Commonwealth.
Raising or broadening it
Economists often suggest raising the GST rate or applying it to more items, in exchange for cutting income or company taxes. But changing the GST requires the agreement of every state and territory and the Federal Parliament, and it remains politically sensitive because it takes a bigger share of the income of lower-income households.
