Damon Mcknight
In 2017, the Australian government debated exempting electricity from the Goods and Services Tax (GST), which would have reduced power bills by about 9%. The Senate discussed a private bill proposed by Liberal Democrat David Leyonhjelm, arguing that electricity should be GST-free as it is an essential service, just like water. However, the government rejected the proposal, citing a potential $2 billion annual loss for the states.
| Characteristics | Values |
|---|---|
| Bill | A New Tax System (Goods and Services Tax) Amendment (Make Electricity GST Free) Bill 2017 |
| Sponsor | Liberal Democrat David Leyonhjelm |
| Savings for households | $150-200 per year |
| Reduction in electricity prices | 9.1% |
| Reduction in GST revenue | $2 billion per year |
| Impact on state budgets | Net positive |
| Impact on commonwealth budget | $600 million boost over 4 years |
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What You'll Learn
The A New Tax System (Goods and Services Tax) Amendment (Make Electricity GST Free) Bill 2017
The bill recognizes electricity as an essential service, similar to water, and thus exempts it from GST. This amendment overrides the previous commitment to vary the base of the GST only with the unanimous support of the State and Territory Governments. However, it does not impact the commitment to grant GST revenue to these governments, which will experience a revenue decrease of approximately $2 billion annually.
The bill also outlines that the supply of equipment for electricity generation or storage, such as diesel generators, solar panels, or batteries, will not be GST-free. It assumes that any changes in consumer behavior in response to the price change will have no material fiscal implications. Additionally, the bill clarifies that the commencement of electricity being GST-free will take effect from the first day of the quarter following Royal Assent.
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Electricity prices could fall by 9.1%
The Australian government has been considering ways to reduce electricity prices for its citizens. One proposal is to make electricity GST-free. This idea was introduced in the A New Tax System (Goods and Services Tax) Amendment (Make Electricity GST Free) Bill 2017.
The Bill highlights that electricity prices in Australia had been rising by an average of 8% each year over the last decade before the recent surge. Making electricity GST-free would provide immediate relief from these rising prices, especially for low-income households. A typical household could save around $200 each year. However, it is acknowledged that this is just one part of addressing the issue of long-term electricity price growth. Other suggestions in the Bill include the construction of new low-cost electricity generation and the abolition of policies that favour certain forms of electricity generation.
The impact of this Bill, if enacted, would be significant. Analysis from the Parliamentary Budget Office estimates that electricity prices to households would fall by 9.1%. This reflects that GST is 10% of pre-GST prices and 9.1% of GST-inclusive prices. While this would result in a decrease in GST revenues granted to the State and Territory Governments of around $2 billion annually, their budgets would still be in a healthier position than the Commonwealth's.
It is important to note that even with potential price reductions from this Bill, electricity prices are expected to continue rising in the long term due to market forces. Additionally, wholesale electricity prices have recently shown a 9% drop, indicating that producer inflation may be levelling off. However, this has not translated into significant relief for consumers, as standing charges for electricity have increased, and overall energy prices remain above pre-'energy crisis' levels.
In conclusion, while the proposed Bill to remove GST on electricity could lead to a welcome 9.1% price reduction for Australian households, it is just one piece of the puzzle in addressing the complex issue of rising electricity costs.
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Average household savings of $150-$200 per year
The Australian government has announced that households will save an average of $150-$200 per year on their electricity bills. This is a significant amount for families, especially those with a tight budget. The savings could mean more money for other essentials, such as groceries, transport, and education. It could also be put towards leisure activities, holidays, or savings goals. This initiative is, therefore, a welcome relief for many Australians.
The savings could be used to invest in energy-efficient appliances, such as LED light bulbs, smart power strips, or energy-efficient washing machines and refrigerators. These appliances consume less electricity, further reducing utility bills and carbon footprints. Additionally, this could be an opportunity to explore renewable energy options, such as solar panels, which could provide long-term savings and contribute to a more sustainable future.
For those who are renting or have limited control over their energy usage, this extra money could be used to negotiate better rates with providers or shop around for better deals. It empowers consumers to make informed choices and take advantage of competitive offers in the energy market. Moreover, it encourages energy retailers to be more innovative and efficient in their pricing and services.
The annual savings could also be put towards home improvements that enhance energy efficiency. This could include installing insulation, double-glazed windows, or energy-efficient doors and windows. These improvements not only reduce electricity consumption but also provide comfort and help regulate temperatures inside the home.
While the average savings of $150-$200 is a positive step, it is important for households to continue practicing energy-saving habits. Simple actions such as turning off appliances when not in use, utilizing natural light, and opting for energy-saving settings can collectively make a significant difference in reducing electricity costs and environmental impact.
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No material fiscal implications
The A New Tax System (Goods and Services Tax) Amendment (Make Electricity GST Free) Bill 2017, also known as the Leyonhjelm plan, proposed exempting electricity from the GST in Australia. This would make electricity prices GST-free, similar to water charges.
The Bill's proponents argued that electricity is an essential service and that removing the GST would provide immediate relief from rising electricity prices, benefiting low-income households. It was estimated that a typical household could save around $150 to $200 per year, with electricity prices falling by about 9%.
However, there were concerns about the fiscal implications of the Bill. The Parliamentary Budget Office estimated that making electricity GST-free would result in a $2 billion annual revenue decrease for State and Territory Governments. Treasurer Scott Morrison warned that this loss would need to be compensated for, potentially leading to cuts in other areas like healthcare and education.
Despite these concerns, it was assumed that there would be no material fiscal implications resulting from changes in consumer behaviour in response to electricity price alterations. This assumption considered the recognition of GST revenue on a fiscal balance basis and in arrears by the Australian Taxation Office (ATO).
In conclusion, while the removal of GST on electricity was projected to have a significant impact on government revenues, it was not expected to materially affect overall fiscal balances due to the nature of GST revenue recognition and collection processes.
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A boost to commonwealth coffers of $600 million over four years
The Australian government has been debating a proposal to exempt electricity from the Goods and Services Tax (GST), a move that could save the average household around $150-$200 per year. The Parliamentary Budget Office estimates that removing the GST on electricity would result in a $2 billion annual loss in GST revenues granted to State and Territory governments. However, it is argued that this loss would be partially offset by a boost to Commonwealth coffers of $600 million over four years. This is because, with the removal of the GST, the Commonwealth would not have to pay as much to the states.
The proposal, known as the "A New Tax System (Goods and Services Tax) Amendment (Make Electricity GST Free) Bill 2017", was introduced by Liberal Democrat Senator David Leyonhjelm. Senator Leyonhjelm argued that removing the GST on electricity would provide immediate relief from rising electricity prices, especially for low-income households. He cited independent modelling that predicted power bills could drop by about 9% immediately if electricity were to become GST-free.
The Australian government, led by Treasurer Scott Morrison and Prime Minister Malcolm Turnbull at the time, rejected the proposal. They argued that the $2 billion loss in GST revenue would need to be made up elsewhere, potentially resulting in tax increases or cuts to essential services like hospitals and schools. Turnbull also suggested that the states would likely demand top-up payments to compensate for the lost revenue.
Despite the potential for a boost to Commonwealth coffers, the government maintained that removing the GST on electricity was not a viable solution to the issue of rising power bills. They asserted that it would not address the underlying problem of increasing electricity prices and could have unintended negative consequences.
While the proposal to make electricity GST-free in Australia did not succeed, it sparked a broader discussion about the role of the government in addressing rising energy costs and the potential trade-offs between different policy options. It also highlighted the complex interactions between Commonwealth and State finances in Australia's federal system.
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Frequently asked questions
No, electricity is not GST-free in Australia. However, there have been debates and proposals to exempt electricity from GST.
The Australian government has argued that removing GST from electricity would result in a significant loss of revenue for the states, amounting to $2 billion annually. They suggest that this loss would need to be compensated by increasing taxes elsewhere.
Removing GST from electricity could provide financial relief to households, particularly low-income families, by reducing power bills. It is estimated that a typical household could save around $150 to $200 per year.
Making electricity GST-free could result in a decrease in government revenue and impact the budgets of State and Territory Governments. However, it may also boost commonwealth coffers by reducing the amount the government needs to pay to the states.
