Australia's Goods And Services Tax (GST) came into force on Saturday, replacing a complex structure of purchase taxes with a uniform 10% tax across the board, with fresh food being one of the only exceptions.
The Government has estimated that the effect on inflation will be very minor, and has compensated consumers with increased social security payments worth A$6.6bn and A$12bn of income tax cuts, which more than offset the GST and give a net stimulus to the economy of A$5.5bn, about 0.75% of GDP.
Prime Minister John Howard on Saturday expressed confidence that the public would accept the new goods and services tax (GST), but said it would take some time.
"I believe that it will be accepted fairly calmly," he said in comments broadcast by Radio Australia. "It will take probably four to six months," he said. The opposition has fiercely critcised the new tax, but Federal Treasurer Peter Costello rejected the criticisms: "We think that the people who spent the last 24 hours or 48 hours saying that Australia should stick with the wholesale sales tax are a bit like the Flat Earth Society of 1966, who said Australia should stay with pounds, shillings and pence," he said.
Radio Australia said on Saturday there had been a smooth start to the country's new tax system, although sales were very slow over the weekend at many retail outlets, perhaps reflecting advance buying of items such as clothing which were being subjected to tax for the first time.
The uneventful introduction of the GST has belied alarmist predictions of an accounting nightmare or a violent reaction from consumers. The Government has spent more than A$400m on a public information campaign, although surveys have shown that many consumers remained concerned or ignorant about the changes.
But Australia's economy is growing at a solid pace just above four percent and with big tax cuts and other compensation to sweeten the deal, the GST is not expected to dampen overall growth. The package was put together at the height of the Asian crisis, and business economists agree with the Government's predictions that it will have a stimulatory effect.
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