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Background information
Most of the information found below has been abbreviated from the Wikipedia entry titled 'Goods and Services Tax (Australia)'. The full text of this entry can be accessed at http://en.wikipedia.org/wiki/Goods_and_Services_Tax_(Australia)
The Goods and Services Tax (GST) in Australia is a value added tax of 10 percent on most goods and services sales. GST is levied on most transactions in the production process, but is refunded to all parties in the chain of production other than the final consumer.
The tax was introduced by the Howard Government and commenced on 1 July 2000, replacing the previous federal wholesale sales tax system and was designed to phase out a number of various State and Territory Government taxes, duties and levies such as banking taxes and stamp duty.
Some goods and services (notably salaries, wages, fresh food, and real estate) are exempt from GST. Other goods and services (rental income and financial services) are "input-taxed", which means that GST is not charged on the sale, but GST paid by that part of the business is not eligible to be claimed as an input tax credit.
Critics have argued that the GST is a regressive tax, which has a more pronounced effect on lower income earners, meaning that the tax consumes a higher proportion of their income, compared to those earning large incomes. However, due to the corresponding reductions in personal income taxes, state banking taxes, federal wholesale taxes and some fuel taxes that were implemented when the GST was introduced, former Treasurer Peter Costello claimed that people were effectively paying no extra tax.
The preceding months before the GST became active saw a spike in consumption as consumers rushed to purchase goods that they perceived would be substantially more expensive with the GST. Once the tax came into effect, consumer consumption and economic growth declined such that by the first fiscal quarter of 2001, the Australian economy recorded negative economic growth for the first time in more than 10 years. Among the items that were to rise in price were feminine hygiene products, such as pads and tampons, which had previously been tax free items.