GST and everyday taxes

You have been paying GST since your first ever purchase, probably without noticing, because Australia hides it in plain sight: the tax is baked into the price tag. This lesson makes it visible.

How GST works

GST, the goods and services tax, is 10% added to most goods and services sold in Australia. When a hoodie is priced at $66, the shop is really charging $60 for the hoodie and collecting $6 of GST for the government. The shop does not keep that $6: businesses collect GST on the government's behalf and pass it on. Consumers pay it, businesses just handle it.

There is a handy trick hiding in the maths. Because GST adds a tenth on top, the GST inside any price is that price divided by 11. A $22 pizza contains $2 of GST. A $1,100 laptop contains $100. Receipts usually show the GST amount near the bottom, and now you know how it was calculated.

What is GST free

• Most basic fresh food: fruit, vegetables, bread, milk, plain meat. Prepared and takeaway food is taxed, which is why a raw chicken is GST free and a cooked one is not.
• Most health services: doctor visits, and many medicines.
• Most education: school fees and university course fees.

The exemptions are deliberate. GST takes the same 10% from everyone, which weighs heavier on low incomes, so the essentials of living are carved out to soften that.

The taxes hiding inside specific products

Some products carry excise on top of GST. A meaningful share of every dollar spent on petrol is tax, and for tobacco the majority of the price is tax, set high on purpose to push people away from smoking. Alcohol carries excise too. These are the quiet taxes: you never see a line item, but they are in the price of every litre and every can.

Why GST is called a regressive tax

Income tax is progressive, taking a bigger share from bigger incomes. GST works the other way, and this is worth seeing clearly. Because it is a flat 10% on spending, GST takes the same slice from every buyer regardless of what they earn, and lower earners spend a larger portion of their income rather than saving it. Picture two people, both buying the same $22 of taxed goods and paying the same $2 of GST. For someone with $200 to spend that week, the GST is a full 1% of their money. For someone with $2,000 to spend, the identical $2 is only a tenth of that share. The tax is flat on the purchase but heavier as a fraction of a small income, which is what regressive means, and it is exactly why the essentials of living are carved out to soften the effect.