Australia Yearbook - 2001

Chapter 28—Prices 955
Price indexes and The New Tax System
As part of The New Tax System (TNTS), a goods
and services tax (GST) was introduced on
1 July 2000 to replace the existing wholesale
sales tax (WST) and some State and Territory
taxes. Unlike the WST, which was only levied
on selected goods, the GST applies to most
services as well as most goods. TNTS had
implications for both the consumer and
producer price indexes.
TNTS had both a direct and indirect impact on
the CPI. The CPI continues to measure the final
transaction prices inclusive of indirect taxes and
hence it reflects the net effect of the tax changes
in TNTS.
As a consequence of the implementation of
TNTS, the CPI recorded an increase in the
September quarter 2000. Most Australians would
like to know “What was the total impact of TNTS
on the CPI?”. Unfortunately, this is not a question
that can be answered precisely. To assist users
and analysts of CPI data, the ABS compiled an
experimental constant tax rate measure, which
it published in the December 2000 issue of
Australian Economic Indicators (1350.0). This
measure, which provided an estimate of the what
the percentage movement between the June and
September quarters 2000 CPI would have been if
tax rates were held constant at those prevailing at
June quarter 2000, had a number of significant
limitations. Specifically:
the measure only abstracted from the direct or
first round effects of tax changes on the prices
of consumer goods and services. It could not,
for example, account for the effects of changes
in petroleum excise on the price of a jar of
jam, but did account for the change in petrol
excise on petrol purchased by households for
use in their motor vehicles;
in compiling the measure it was assumed that
ad-valorem taxes are levied in proportion to
final selling prices. This means that where
ad-valorem taxes levied on wholesale prices
(such as WST) were replaced by ad-valorem
taxes levied on retail prices (such as the GST),
the measure overstated the non-tax component
of price change and therefore understated the
impact of tax change on the CPI; and
the constant tax rate measure was constructed
with reference to the scheduled rates of tax
prevailing in the June quarter 2000. This
meant that no allowance was made for tax
changes implemented before that quarter.
Because of these limitations, the ABS
recommends that care should be taken when
using the experimental constant tax rate
measure to provide an estimate of the impact of
TNTS on the CPI.
However, TNTS had no direct impact on
producer price indexes, except for the Price
Index of Materials Used in House Building and
the Price Index of Materials Used in Building
other than House Building. The removal of the
wholesale sales tax has had a downward
influence on some of the prices of building
materials. The changes to the diesel rebate
scheme, another aspect of TNTS, had some
downward influence on the diesel component of
the Price Index of Materials Used in Coal Mining.
Indirect effects of TNTS should have some
downward influence on all producer price indexes.
For more information on the impact of TNTS on
the ABS’s price indexes, see Information Paper:
Price Indexes and The New Tax System (6425.0)
and the December 2000 issue of Australian
Economic Indicators (1350.0).
Construction prices indexes
Price Index of Materials Used in
House Building
The Price Index of Materials Used in House
Building measures changes in prices of selected
materials used in the construction of houses in
the Statistical Division containing each State
capital city. The current index series were
introduced in December 1995 on a reference
base of 1989–90 = 100.0 and were linked to
previous series. The items and weights for the
current series are based on estimated materials
usage in a sample of representative houses
constructed in the three years ending 1992–93.
The index was first compiled on a reference base
of 1966–67 = 100.0, using a weighting pattern
derived from estimated materials usage in
1968–69. Index numbers on a 1966–67 = 100.0
reference base are available for the period
July 1966 to September 1986.
A rebased series of indexes, linked to the
previous series, were introduced in October 1986
on a reference base of 1985–86 = 100.0. The
items in the rebased series were selected and
allocated weights on the basis of the estimated
values of each material used in a sample of
representative houses constructed in 1985–86.