So the GST is often described as being a tax on consumption – that was the intention of the government when it was introduced. But in fact it is not legislated as a tax on consumption – the legal incidence of the GST is a tax on sales with an input credit. It is a tax on the value add that occurs within firms. The final consumer cannot access input credits and consequently bears the economic burden of the tax.
That’s all very well and good and that is how the GST is meant to work in theory. The legal incidence is on value add at the company level while the economic incidence falls on the final consumer.
Life becomes slightly more complicated when trading with foreigners. If the objective is to levy a 10% tax on consumption then it seems clear that imports should be taxed at 10% too. But … this is where the design of the GST becomes important. It is effectively a tax on consumption, but it is actually a tax on sales (with an input credit).
Historically the Australian government has collected the “GST” on goods (and theoretically services) over $1000 as they entered Australia. Australian consumers are required to pay the GST. But … what Australian consumers are paying is not the GST, the government is not paying the seller their input credit. They are simply paying a 10% tariff with the Australian government quietly pocketing the input credit that it should be reimbursing the seller.
Now the Australian government is planning to reduce that $1000 threshold to zero. The government is suggesting that foreign firms voluntarily collect the 10% GST – yet the government has no legal authority to tax foreigners (I would expect the foreign governments might have something to say about that) so it is relying on good old fashioned bullying. Plan B is to extend that current practice to all imports. But it occurs to me that a uniform tax of 10% on all imports is just another tariff. I can’t think of any good reason why all our trading partners don’t immediately impose countervailing tariffs on our exports.