Calculating the Final Incidence of Australian Indirect Taxes
Melbourne Institute Working Paper No. 18/97
Date: August 1997
Author(s):
Abstract
The Australian Bureau of Statistics provide a breakdown by industry of the statutory incidence of the major indirect taxes in Australia. This statutory incidence is the amount of revenue collected from each industry for each indirect tax. In other words it shows who actually writes the cheques to the government. This information does not show who bears the ultimate burden of the tax as each industry may pass on its initial burden to purchasing industries and/or final consumers through higher prices. Thus, the burden of the tax is passed on round by round to indirect business purchases and final demand until the total burden of the tax is passed on to final demand. This paper explains the process involved in evaluating the final incidence of indirect taxes in Australia. The method used to derive final indirect tax incidence is developed from earlier studies. The major innovation is to include the use of margin industries in the initial flows of the input output matrix ensuring that taxes on inputs to margin services are fully passed forward onto the good or service that the consumer purchases. The methodology is differentiated by type of tax so it is possible to investigate the impact of any plausible change in indirect tax on household consumption and hence on household welfare.